"I fear that these proposed changes will harm, not help, small companies," said Levitt in his January 27 commentary for The Wall Street Journal. "Instead of searching for exemptions to the rule, we need to step back and help small businesses improve financial controls, attract capital, and strengthen the very markets critical to their ability to flourish."

The SEC advisory committee on smaller public companies recently recommended that public companies with a market cap of less than $100 million and revenue of no more than $125 million would be exempt completely from 404 requirements. Those with a market cap of less than $700 million and revenues of no more than $250 million would not have to hire an independent, outside auditor to test their internal controls.

Levitt reasons that smaller public companies are the most likely to have internal control problems, yet are least watched by analysts, media and investors. "Creating a different standard would relegate small businesses to a "second-class" in the marketplace, and hinder their growth as much as any onerous regulation," he said.

Instead of exempting these companies, Levitt makes a handful of recommendations, starting with redefining "what constitutes a small business." This should be companies with up to $50 million in revenues and fewer than 250 employees, Levitt writes. He recommends that software companies and trade groups work together to provide small businesses with the appropriate tools to streamline the internal audit process. Also, the SEC should make more resources available to small businesses, many of which don't have accountants.