SEATTLE, Wa. – Smaller reporting public companies (under $75 million in market cap) are no longer subject to the Sarbanes-Oxley Act (“SOX”) Section 404(b) audit requirement now that the Dodd-Frank Wall Street Reform and Consumer Protection Act (“the Act”), previously known as the Financial Reform Bill, became law.
President Obama signed the bill into law today, July 21, 2010, permanently ending the history of numerous Section 404(b) deferments.
Although the Act is a major financial regulatory reform package that addresses a variety of legislation, the SOX Section 404(b) exemption is notable to small public companies and CPA firms alike. Under the new law, smaller reporting companies are permanently exempt from having an independent auditor test and report on the effectiveness of their internal controls over financial reporting.
“Obviously, our smaller reporting company clients are excited about this exemption, particularly those with June 30, 2010 year ends, who were up first.” says Sharlyn Turner, Partner at Peterson Sullivan LLP. “While this provides relief with respect to the audit burden, we caution our clients and other smaller reporting companies not to lose sight of the 404(a) requirements which still apply in full force. Management needs to continue doing their own assessment, testing, and reporting on the effectiveness of their internal controls over financial reporting, and auditors will continue to review management’s assessment and testing as part of the year-end audit.”
Enacted in July 2002 and heavily reformed in 2007, SOX breaks up Section 404 into two requirements: 404(a) requires company management to assess and report on the effectiveness of internal controls over financial reporting, and 404(b) requires an independent auditor to attest to and report on the effectiveness of those internal controls. The Act only exempts Section 404(b) requirements.
Accelerated filers (public companies with market caps between $75 million and $250 million) may also benefit from the exemption in the future as the Act requires the Securities and Exchange Commission (SEC) to complete a study on how to reduce the Section 404(b) audit compliance burden for mid-market companies. The study will examine whether a reduced burden, or a complete exemption, would encourage companies to list on US stock exchanges.
Section 404(b) is often associated with the anticipation of seemingly high compliance costs. The new permanent exemption comes as welcomed news to public company executives. The Section 404(b) exemption eliminates the anticipated increase in overall audit fees previously slated to be effective in 2010.
Peterson Sullivan LLP, founded in Seattle nearly 60 years ago, is committed to providing public companies the technical resources they expect from a large accounting firm and the highly responsive service they like from a local firm. Serving regional and international clients alike, Peterson Sullivan LLP, a PCAOB-registered firm, is accustomed to working within the highly regulated SEC environment, and is dedicated to technical excellence, uncommonly good communication, and exemplary client service.
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FOR IMMEDIATE RELEASE
Contact: Meguire Heston
Marketing & Recruiting Manager
206-971-8429
mheston@pscpa.com
