Audit Groups Lobby Against Sarbox 404(b) Exemption for SMBs

Lora Bentley

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:

  1. How to regulate derivatives trading.
  2. Whether to include the Volcker Rule, which would limit bank trading that is not related to customer needs.
  3. Whether to waive Sarbanes-Oxley 404(b) compliance for small public companies.


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.

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Add Comment      Leave a comment on this blog post
Jun 17, 2010 2:56 PM Teresa Bockwoldt Teresa Bockwoldt  says:

Excellent article and timely too.  Unfortunately, since the Sarbanes-Oxley non-accelerated filer reprieve was voted to be included in the Wall Street Reform Act yesterday, we have to wait and see the overall fate of SOX in the future.  The focus on requiring companies to prepare their financials in a fair and clear manner apparently is too much to ask....the 404(b) reprieve was voted down and then voted in yesterday so maybe there is still hope that it will hold considering the drastic fluctuations.  Only time will tell.   Best to you Lora. 

As always, love reading your articles.

Teresa Bockwoldt MBA, MST

CIO & Founder

Vibato, LLC

775 Baywood Drive, Suite 304, Petaluma, CA 94954

Office: 415.240.4867 x 2300 | Mobile: 707.477.0008 | Fax: 888.407.7725

SOX Compliance Made Simple | http://www.vibato.com


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