SEC says: 'No new exemptions for small business filers releated to Sarbanes-Oxley'.

• Author: Watts, Bill
• Position: FINANCIAL REPORTING - Securities and Exchange Commission

When the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed almost a year ago, it amended the Sarbanes-Oxley Act of 2002 to exempt non-accelerated filers from the auditor attestation requirement imposed by Section 404(b) of Sarbanes-Oxley. That was welcome news for most companies with a public float of less than $75 million.

But what about filers with market capitalization of $75 million to $250 million? Would they receive any relief? It seemed possible. Dodd-Frank directed the U.S. Securities and Exchange Commission to look into the effects of Section 404(b) on those companies. The goals of the SEC study were twofold:

* To determine how the SEC could reduce these companies' burden of complying with the requirement while maintaining investor protections; and

* To consider whether any methods for reducing the compliance burden (including a complete exemption) would encourage companies to list their initial public offerings on exchanges in the United States.

On April 22, the SEC released the results of its study, Study and Recommendations on Section 404(b) of the Sarbanes-Oxley Act of 2002 for Issuers With Public Float Between $75 and $250 Million, in which it suggests that companies with a public float of $75 million to $250 million will continue to shoulder the burden of complying with the requirement for auditor attestation on internal control over financial reporting.

The SEC considered many factors, including publicly available information and other research on Section 404(b). Notably, the SEC reported that it received few suggestions from the public other than a complete exemption. After reviewing these materials, the SEC reached the following conclusions:

* The costs of Section 404(b) have declined since the SEC first implemented the requirements, particularly in response to the 2007 reforms.

* Investors generally view the auditor's attestation on internal control over financial reporting as beneficial.

* Financial reporting is more reliable when the auditor is involved with control over financial reporting assessments.

* No conclusive evidence links the Section 404(b) requirements to the listing decisions of companies with a public float between $75 million and $250 million.

Based on its conclusions, the SEC made two recommendations:

1. Maintain existing investor protections of Section 404(b) for accelerated filers. In other words, no new exemptions. The SEC explained that it found strong evidence that the auditor's...