GAO Issues Report on Auditor Attestation

    Sep 10, 2013

    In July, the Government Accountability Office (GAO) issued a report calling on the Securities and Exchange Commission (SEC) to consider requiring all companies to disclose whether their independent auditors attest to and report on management's internal control over financial reporting as required under Section 404(b) of the Sarbanes-Oxley Act for many companies. 

    Section 404(b) has been one of the more contentious provisions of Sarbanes-Oxley because of the high compliance costs to smaller companies. As a result, the SEC allowed smaller reporting companies to defer their compliance with Section 404(b) until filing an annual report for a fiscal year ending on or after June 15, 2010. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 then permanently exempted companies with less than $75 million in public float from the auditor attestation requirement. It also mandated that GAO examine the impact of the permanent exemption on the quality of financial reporting by small public companies and on investors.

    This GAO report discusses: 1) how the number of financial statement restatements compares between exempt and nonexempt companies (i.e., those with $75 million or more in public float); 2) the costs and benefits of complying with the attestation requirement; and 3) what is known about the extent to which investor confidence is affected by compliance with the auditor attestation requirement. To enhance transparency and investor protection, the GAO recommends that the SEC consider requiring public companies to explicitly disclose whether they obtained an auditor attestation of their internal controls to ensure that investors don't misinterpret a company's status. To read the full report, click here.

    The Dodd-Frank Act also required the SEC to conduct a study and report to Congress by the spring of 2011 on how to reduce the burden of complying with Section 404(b) for companies whose market capitalization is between $75 and $250 million, while maintaining investor protections for such companies. That study was submitted to Congress in April 2011 with recommendations to: 1) maintain existing investor protections of Section 404(b) for accelerated filers, which have been in place since 2004 for domestic issuers and 2007 for foreign private issuers; and 2) encourage activities that have potential to further improve both effectiveness and efficiency of Section 404(b) implementation. To read the SEC study, click here.

    The Washington Policy Brief is an online advisory that contains brief summaries of recent legislative and regulatory issues that may affect the records and information management profession. Further information about the issue is accessed by clicking on the link provided at the end of each summary.


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