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Submitted by Rick Schweiger, Keating Investments, LLC

Now that President Obama has signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”), publicly reporting companies with a public float below $75 million are permanently exempt from the auditor attestation requirements under Section 404(b) of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”). Under the Section 404(a) of the Sarbanes-Oxley Act, all public companies are required to assess the effectiveness of their internal control over financial reporting, while Section 404(b) required the company’s independent auditors to report on management’s assessment.

Since enactment, the provisions of Section 404(b) have been the source of much controversy, especially the anticipated compliance burdens on smaller reporting companies.  This led the SEC to delay the compliance date for Section 404(b) for smaller reporting companies several times.  While smaller reporting companies are still required to disclose management’s assessment of its internal control over financial reporting, the permanent exemption from the auditor attestation requirement is a significant victory for small public companies and for the future prospects of small business capital formation in the U.S.  And as an interesting aside, the Act also requires the SEC to study ways to reduce the burdens of compliance with Section 404(b) on companies with $75 million to $250 million in market capitalization.  Let’s hope this is only the beginning of much-needed small business regulatory reform.

The opinions set forth in the foregoing article do not necessarily represent the opinions of Keating Capital, Inc. or Keating Investments, LLC.