The Securities and Exchange Commission is mulling reducing the number of public companies that need to provide auditor attestation reports under the Sarbanes-Oxley Act, and rethinking how the agency approaches exempt offerings for private companies.
During an Aug. 29 speech in Nashville in which he addressed the capital raising measures taken by the SEC as well as Congress, SEC Chairman Jay Clayton stated that he’s directed commission staffers to formulate recommendations for possible amendments that would reduce the number of companies that need to provide the auditor attestation report required by Section 404(b) of the law while maintaining appropriate investor protections.
Over the next several months, he said, the SEC “will be taking a fresh look at the thresholds that trigger Section404(b) of the Sarbanes-Oxley Act of 2002, which requires certain registrants to provide an auditor attestation report on internal control over financial reporting,” or ICFR.
Market participants, as well as the agency’s former Advisory Committee for Small and Emerging Companies, have said “the costs associated with this requirement can divert significant capital from the core business needs of companies without meaningful benefit,” particularly for smaller companies.
As it stands now, “companies with a public float of less than $75 million or no public float have relief from the Section 404(b) auditor attestation requirements,” Clayton said. “Importantly, and I believe that this is often misunderstood, those companies are still required to establish, maintain and assess the effectiveness of ICFR, and, even if not engaged to report on ICFR, independent auditors are still responsible for considering ICFR in the performance of their financial statement only audits.”
SEC staffers, Clayton continued, are also working on a recommendation “to expand the ability of companies who are contemplating raising capital to ‘test the waters.’”