As legislators from the U.S. House of Representatives and Senate meet in conference committee to consider the final provisions of the financial regulatory reform bill, the Center for Audit Quality, the CFA Institute and the Council of Institutional Investors are making their case once again that small businesses should not be exempt from the auditor attestation requirements of section 404(b) of the Sarbanes-Oxley Act.
Work on the compromise bill began this month after the Senate passed its version of the bill in May. The House bill passed in December. Rep. Barney Frank, D-Mass., and Sen. Christopher Dodd, D-Conn., are leading negotiations. Points of contention between the two versions include:
Just as the groups did before the Senate bill passed, they argued that waiving the Sarbanes-Oxley 404(b) compliance requirements for non-accelerated filers would send a message to investors in those smaller companies that they didn't deserve the same amount of protection as those who invest in larger companies. In a letter to the conference committee members, the groups said:
Exempting smaller companies from Section 404(b) compliance may also result in a dual class system of investor protection and effectively undermine investor confidence in the effectiveness of exempted companies' financial control mechanisms.
They also pointed out that independent assessment of a company's internal controls financial reporting has been shown to be "an important safeguard against financial fraud."
The conference committee reportedly expects to have a compromise bill ready by the end of this month.