What is SOX 404(b)? Section 404(b) of the Sarbanes-Oxley Act ("SOX") requires public companies to have an independent external auditor attest to internal controls over financial reporting, also known as an integrated audit.
What companies are exempt?
Currently, issuers (entities reporting before the SEC) with a public float of less than $75 million or annual revenues of less than $50 million if the public float of the issuer is zero are exempt from SOX 404(b). However, economic conditions and businesses have contributed to applying pressure to extend the exemption to companies with public floats of less than $1 billion. It has been also proposed to raise the threshold to $350 million from $75 million.
When might a change in exemption occur?
On February 16, 2012, the House Financial Services Committee opened discussions related to the "Reopening American Capital Markets to Emerging Growth Companies Act." During the markup period for this bill, an amendment to a separate bill was offered to exempt all companies with public floats of less than $1 billion from SOX 404(b). Although the amendment was withdrawn, the committee chair stated the issue would be considered later this year.
The partners and staff of dbbmckennon, support an amendment to SOX 404(b) to lessen the burden on public companies by increasing the public-float levels from $75 million to in the range $350 million and $1 billion.
We encourage our clients and readers to write to their respective congressional leaders in support of raising the 404(b) public float requirements to $1 billion. Our firm wrote our congressional leaders during the fight to exempt public companies from 404(b) in support of the $75 million public float, while our competitors and the AICPA did not support the exemption.