Commissioner Elad L. Roisman
May 9, 2019
I am happy to cast my vote in favor of these proposed amendments to the accelerated filer and large accelerated filer definitions.
So many people across several divisions and offices worked on this release. It would be a disservice to just name a few people, so I will just say a collective "thank you" to the staff of the Division of Corporation Finance, the Office of General Counsel, the Division of Economic and Risk Analysis, the Division of Investment Management, and the Office of the Chief Accountant for all of the time you spent with me and my staff discussing the release and addressing the questions I had. It was really terrific to see how efficiently and effectively the staff throughout the agency was able to collaborate on this proposal. I am hopeful that we are asking the right questions to ensure that commenters have the ability to provide us with feedback that will inform the rules we ultimately adopt.
I have heard from many issuers, especially smaller companies and emerging growth companies, that the cost of compliance with Section 404(b) of the Sarbanes-Oxley Act ("404(b)"),[1] which requires issuers to hire an independent accounting firm to attest to, and report on, management’s assessment of the effectiveness of their internal control over financial reporting ("ICFR"), disproportionately affects them and diverts company funds from research and development and other initiatives. I have also heard that compliance with 404(b) has led to more reliable financial disclosures for many companies and helped increase investor confidence in our markets.
I do question, however, whether the benefits of 404(b) outweigh the burdens for smaller companies that, even in the absence of a 404(b) requirement, must still establish and maintain ICFR and have their management assess and report on the effectiveness of their ICFR. I would be remiss in not noting that 404(b) auditor attestation is not the only reason investors’ trust in companies’ financial statements have increased. Reporting companies are required to have the financial statements in their annual reports examined and reported on by an independent auditor, who, even if not engaged to provide an ICFR auditor attestation, is responsible for considering ICFR in the performance of the financial statement audit. Additionally, information presented is more easily understood, markets have changed, and companies have added protections to the process. For example, the role and importance of the audit committee has only increased since the passage of Sarbanes-Oxley, which I believe has led to better financial reporting, greater accountability, and increased investor protections. As the proposing release explains in greater detail, there are many other protections in place to ensure accurate financial statements in the absence of a 404(b) ICFR auditor attestation requirement. Whatever the Commission ultimately adopts should promote capital formation while maintaining investor protections.
The proposal aims to update the current definitions and potentially provide relief to many of our registrants that currently must comply with the ICFR auditor attestation requirement of 404(b). The proposed amendments are supported by the economic analysis provided in the proposing release. I ask issuers and others to submit comments and data to the file and let us know what we got right and what we got wrong. For example, is there more recent data that we did not take into account that would support expanding relief to issuers? I wish that the Commission and the staff had had the benefit of Commissioner Jackson’s data and analysis when drafting and considering the proposing release. I would have appreciated the opportunity to evaluate his analysis before voting. I hope that commenters will address Commissioner Jackson’s additional analysis in the comment file.
I am happy to support this proposal, and I look forward to the comments we receive in response to our questions.
[1] Pub. L. 107-204, Sec. 404(b) 116 Stat. 745 (2002).