CAQ Reacts to SEC’s SOX Section 404(b) Study

Washington, D.C. – The Center for Audit Quality (CAQ) issued the following statement from Executive Director Cindy Fornelli regarding the U.S. Securities and Exchange Commission’s (SEC) Study and Recommendations on Section 404(b) of the Sarbanes-Oxley Act of 2002 For Issuers With Public Float Between $75 and $250 Million, as required by the Dodd-Frank Act:

“I am pleased that the SEC’s Office of the Chief Accountant’s thoughtful study recommends retention of Section 404(b) of the Sarbanes Oxley Act for companies whose market capitalization is between $75 and $250 million. Section 404(b) requires independent auditors to attest to management’s assessment of the effectiveness of its internal controls over financial reporting (ICFR).

The study concluded that costs of Section 404(b) compliance have declined and financial reporting is more reliable when the auditor is involved with ICFR assessments. Importantly, the study found that investors generally view the auditor‘s attestation on ICFR as beneficial. Finally, 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, joined by the Council of Institutional Investors, filed a comment last September with the SEC fully supporting retention of 404(b). We hope this study will effectively discourage further discussions around ways to dilute the investor protections contained in Sarbanes-Oxley.”

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The Center for Audit Quality (CAQ) is an autonomous public policy organization dedicated to enhancing investor confidence and public trust in the global capital markets. The CAQ fosters high quality performance by public company auditors, convenes and collaborates with other stakeholders to advance the discussion of critical issues requiring action and intervention, and advocates policies and standards that promote public company auditors’ objectivity, effectiveness and responsiveness to dynamic market conditions. Based in Washington, D.C., the CAQ is affiliated with the American Institute of Certified Public Accountants. For more information, visit thecaq.org.