The Centre for Audit Quality (CAQ), the CFA
Institute and the Council of Institutional Investors urged the
Senate Banking Committee not to exempt small listed companies
from compliance with Section 404(b) of the Sarbanes-Oxley (SOX)
In a letter to committee chairman Christopher
Dodd and ranking member Richard Shelby, the lobby groups said they
oppose the current exemption plan as it will weaken SOX protections
Section 404(b) requires listed companies to
report on the effectiveness of their internal controls, which the
group said is important information for investors.
Last year, the US Securities and Exchange
Commission (SEC) delayed the implementation of 404(b) for the
smallest US public listed companies – known as non-accelerated
filers – to allow them added time to prepare. The final deadline
for implementation is 15 June this year.
Before the courts
The House of Representatives passed a bill in
December that would permanently exempt non-accelerated filers from
the requirements of 404(b).
The group had hoped to prevent the amendment
from reaching the Senate prior to the June implementation date,
when it would have been too late to block SOX for non-accelerated
In its letter, the lobby groups refer to a
recent SEC study, which found investors and other financial
statement users “regard internal control over financial reporting
disclosures to be beneficial and indicated that Section 404(a) and
Section 404(b) compliance has had a positive impact on their
confidence” in a company’s financial reports.
“Investor confidence in public companies’
financial reports is imperative to the successful operation of our
capital markets. As such, it only makes sense to apply the benefits
of Section 404(b) to investors to public companies of all sizes,
even those that have not yet had to comply,” the group wrote.