SEC addresses ICFR attestation for smaller companies

By Ken Tysiac

Fewer public companies would be required to obtain an attestation of their internal control over financial reporting (ICFR) from an independent outside auditor under amendments the SEC voted to propose Thursday.

The amendments as proposed are designed to reduce costs for certain lower-revenue companies by changing the types of companies that are categorized as accelerated and large accelerated filers.

Under the proposal, smaller reporting companies with less than $100 million in revenues would not be required to obtain from an auditor an attestation of their internal control over financial reporting as described in the Sarbanes-Oxley Act of 2002 (SOX), P.L. 107-204.

The proposed amendments would not change other investor protections in SOX, such as independent audit committee requirements; CEO and CFO certifications of financial reports; or the requirement that companies continue to establish, maintain, and assess the effectiveness of their ICFR.

“The proposed rules build on the [Jumpstart Our Business Startups Act, P.L. 112-106] and are aimed at a subset of smaller companies where the additional requirement of an ICFR auditor attestation may not be an efficient way of benefiting and protecting investors,” SEC Chairman Jay Clayton said in a news release.

Clayton said that many smaller companies such as biotech and health care companies will be able to redirect the savings into growing their companies by investing in research and human capital.

The proposed amendments would:

  • Exclude from the accelerated and large accelerated filer definitions an issuer that is eligible to be a smaller reporting company and had no revenues or annual revenues of less than $100 million in the most recent fiscal year for which audited financial statements are available.
  • Increase the transition thresholds for accelerated and large accelerated filers becoming a non-accelerated filer from $50 million to $60 million and for exiting large accelerated filer status from $500 million to $560 million.
  • Add a revenue test to the transition thresholds for exiting both accelerated and large accelerated filer status.

Comments on the proposal will be accepted for 60 days from the time the proposal is published in the Federal Register.

Julie Bell Lindsay, executive director of the Center for Audit Quality (CAQ), said the CAQ looks forward to studying the SEC’s proposal. The CAQ is affiliated with the AICPA.

“U.S. capital markets are the largest and most attractive in the world, and this success is thanks in large part to effective and robust investor protections,” Lindsay said in a news release. “Numerous studies and surveys have shown that the Sarbanes-Oxley Act’s provisions on ICFR bolster investor confidence, support capital formation, and strengthen our financial markets.”

The studies cited by Lindsay are referred to in a new version of the CAQ’s Guide to Internal Control Over Financial Reporting, which was released Thursday.

Ken Tysiac ( is the JofA’s editorial director.

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