Medium-size public companies should not be
exempt from Section 404(b) of the Sarbanes-Oxley Act (SOX) as
benefits to investors outweigh costs, according to recommendations
by the US Securities Exchange Commission (SEC).

The study, conducted by the SEC’s office of
the chief accountant, found no evidence to suggest changes to the
accounting provision would bolster the US market for initial public

Instead the findings recommend maintaining
existing requirements of Section 404(b) for accelerated filers in

The SEC research did
not find specific evidence that potential savings from exempting
medium size companies – w
ith public float between $75 and
$250million – from the requirements would
justify ‘the loss of investor protections and benefits to

The SEC report also found that costs of Section 404(b) have
declined since first implementation and that investors consider
auditors’ attestation on assessments of internal controls to be
beneficial. It also found financial reporting is more reliable when
an auditor is involved in such assessments and that there is
inconclusive evidence as to whether Section 404(b) requirements are
connected to issuers’ listing decisions.

The Center for Audit Quality (CAQ) said it
welcomes the SEC’s recommendations to retain section 404(b).

“We are happy to see that there is no
conclusive evidence linking the requirements of Section 404(b) to
listing decisions of the studied range of issuers,” the CAQ said in
a statement.

Section 404(b) requires public companies’
auditors to report on and attest to management’s assessment of its
internal controls.