On June 16, 2010, the conference committee reconciling the House and Senate versions of the federal financial reform bill agreed to include in the final reform legislation the House provision that provides an exemption on compliance with Sarbanes-Oxley Act (SOX) Section 404(b) for companies with less than $75 million in market capitalization.

Under the provisions of SOX 404, publicly reporting companies and their independent auditors are each required to report on the effectiveness of internal control over financial reporting.  Section 404(a) requires all public companies to assess the effectiveness of their internal control over financial reporting, while Section 404(b) requires independent auditors to report on management’s assessment.  On October 2, 2009, the Securities and Exchange Commission (SEC) granted its latest deferral for compliance with SOX 404(b), providing non-accelerated filers, those companies with a public float below $75 million, with a reprieve from the auditor attestation until annual reports for fiscal years ending on or after June 15, 2010 are filed.  At the time of that deferral, the SEC was adamant that it would not be granting any further extensions for compliance with SOX 404(b).

The inclusion of the exemption in the final reform legislation would permanently exempt the auditor attestation requirement and significantly reduce the anticipated compliance burdens of smaller reporting companies.  Disclosure of management attestations on internal control over financial reporting would continue to be required for smaller reporting companies.

The House also offered the following related provisions for inclusion to the final reform legislation:

  • An SEC study of ways to reduce the burdens of compliance with SOX 404(b) on companies with $75 million to $250 million in market capitalization;
  • An SEC study on the use of revenue as a test for defining smaller reporting companies; and
  • A Government Accountability Office (GAO) study on reducing the SOX compliance burdens and whether reducing those burdens would encourage listings on exchanges.
Last night the conference committee reconciling the House and Senate versions of the federal financial reform bill agreed to include in the final reform legislation the House provision that provides an exemption on compliance with Sarbanes-Oxley Act (SOX) Section 404(b) for companies with less than $75 million in market capitalization.  Under the provisions of SOX 404, publicly reporting companies and their independent auditors are each required to report on the effectiveness of company internal controls.  On October 2, 2009, the Securities and Exchange Commission (SEC) granted a deferral to compliance with SOX 404(b), providing non-accelerated filers, those companies with a public float below $75 million, with a reprieve from auditor attestation until annual reports for fiscal years ending on or after June 15, 2010 are filed.  The inclusion of this exemption in the final reform legislation would significantly reduce the compliance burdens of smaller reporting companies.

The House also offered the following related provisions for inclusion to the final reform legislation:
•    An SEC study of ways to reduce the burdens of compliance with SOX 404(b) on companies with $75 million to $250 million in market capitalization;
•    An SEC study on the use of revenue as a test for defining smaller reporting companies; and
•    A Government Accountability Office (GAO) study on reducing the SOX compliance burdens and whether reducing those burdens would encourage listings on exchanges.