CAQ, investor groups seek to preserve SOX provision

By Ken Tysiac

The Center for Audit Quality and two investor groups sent a joint letter to the House Financial Services Committee leadership Monday opposing any legislation that would erode Section 404(b) of the Sarbanes-Oxley Act of 2002 (SOX) or would revise the definition of “accelerated filer” in the Securities Exchange Act of 1934.

The House Financial Services Committee was scheduled to mark up the discussion draft of H.R. 10, The Financial CHOICE Act of 2017, on Tuesday. One provision of the bill would grant certain low-revenue securities issuers an exemption from SOX Section 404(b), which requires auditors of public company financial statements to attest to, and report on, management’s assessment of its internal controls.

The bill proposes that issuers with market capitalizations of less than $500 million and depository institutions with assets of less than $1 billion should be exempt from SOX’s internal control evaluation requirement. Currently, public companies with market capitalizations of less than $75 million (known as nonaccelerated filers) are exempt from SOX’s requirements for assessment of internal controls over financial reporting.

The Center for Audit Quality (CAQ), which is affiliated with the AICPA, joined with the Council of Institutional Investors and CFA Institute to advocate for SOX Section 404(b) protections to be maintained.

The letter cited academic research indicating that the cost of capital for companies that voluntarily comply with Section 404(b) is lower than the cost of capital for companies that do not comply with the rule. Instead, the letter says, investor confidence and the quality of public company financial reporting could decrease if the threshold is raised.

Surveys conducted on behalf of the CAQ cited in the letter indicate that 74% of certified financial advisers and 85% of public company CFOs support investor protection provisions in SOX. According to the surveys, 82% of financial advisers and 79% of CFOs said SOX has improved the reliability of financial information.

“These polls provide yet another indicator of the extraordinary and confidence-building success of the Sarbanes-Oxley Act,” CAQ Executive Director Cindy Fornelli said in a news release. “The law helped to enhance the quality of financial information on which financial executives and financial advisers rely.”

A substantial majority (85%) of CFOs surveyed said the ICFR audit has helped their company, and 79% said the benefits of SOX outweigh or are equivalent to the costs for their company.

Ken Tysiac ( is a JofA editorial director.

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