NEW YORK – A United States regulator proposed freeing small companies from a Sarbanes-Oxley Act requirement that an auditor sign-off on their internal controls over financial reporting, following years of criticism from conservative lawmakers and business groups that the rules are overly burdensome.
Securities and Exchange Commission members voted 3-1 on Thursday to seek public comment on the proposal.
Proposal would exempt companies with less than $100 million in annual revenue from the so-called auditor attestation requirement, which was implemented in response to accounting scandals at Enron Corp. and other companies. Small companies would still have to have their financial statements audited by an independent accounting firm, Bill Hinman, head of the SEC’s corporation finance unit, said at a Thursday public meeting. SEC economists estimate that the auditor attestation requirement costs small companies more than $200,000 annually. “Investors in these companies will benefit from tailored requirements that will save costs that companies will be able to redirect into growing,” SEC Chairman Jay Clayton said during the meeting. Robert Jackson, the only SEC commissioner in a Democratic seat, voted against the proposal. He said he was concerned that exempting small companies would strip away a key investor protection. “While paying auditors isn’t free, neither is fraud,” said Jackson. He added that misconduct could be most problematic at small companies that are reporting fast growth.
Ben Bain is a reporter for Bloomberg News.