Last week, the House Financial Services Committee passed a bill that would extend certain small business exemptions from the Sarbanes-Oxley Act’s requirements for an audit of internal control over financial reporting (ICFR).
The bill, called the Fostering Innovation Act (FIA) of 2017, would further extend exemptions from Sarbox Section 404(b)’s requirements for an external audit of a company’s ICFR. The bill would not impact Sarbox Section 404(a)’s requirements for management to evaluate, and provide its own report on, ICFR.
The bill also does not impact requirements that public companies provide audited financial statements; it only impacts the requirements for an audit of ICFR.
Extends relief for Emerging Growth Companies
Small businesses, specifically Emerging Growth Companies, received relief from Sarbox Section 404(b) in the JOBS Act. The FIA, a bipartisan bill introduced by Rep. Kyrsten Sinema (D – Ariz.) and Rep. Trey Hollingsworth (R-Ind.) would extend this relief as follows:
The Fostering Innovation Act of 2017 amends Section 404(b) of the Sarbanes-Oxley Act (SOX) to extend the exemption to comply with the law for emerging growth companies (EGCs) that would otherwise lose their exempt status at the end of the five-year period that applies under current law. The bill extends the exemption until the earlier of ten years after the EGC went public, the end of the fiscal year in which the EGC’s average gross revenues exceed $50 million, or when the EGC qualifies with the SEC as a large accelerated filer ($700 million public float, which is the number of shares that are able to trade freely between investors that are not controlled by corporate officers or promoters).
The current bill passed the House Financial Services Committee by a vote of 46-14, and moves on to the full House. Earlier versions of the bill passed the House and then stalled.
The bill received the strong support of the Biotechnology Innovation Council (BIO), which noted other organizations supporting the bill included the New York Stock Exchange and the National Venture Capital Association.
Among the dissenters to the FIA was Rep. Maxine Waters (D-Calif.), Ranking Member of the House Financial Services Committee. The Consumer Federation of America also opposes the bill.
Slate of small business bills passed
The FIA was among a group of bills passed by the House Financial Services Committee last week, aimed at improving the regulatory climate for small businesses. The full slate of 22 bills can be found in the House Financial Services Committee’s press release.
Follows Core Principles for Regulation
Improving the regulatory climate for business, is among the objectives within President Donald J. Trump’s Executive Order: Core Principles for Regulating the U.S. Financial System. Specifically, Section 1. Principle (f) states that regulators should, “make regulation efficient, effective, and appropriately tailored.”
Section 2. of the Executive Order directs the U.S. Treasury Department to consult with the other financial regulators and issue reports to the President on:
the extent to which existing laws, treaties, regulations, guidance, reporting and recordkeeping requirements, and other Government policies promote the Core Principles and what actions have been taken, and are currently being taken, to promote and support the Core Principles.
The most recent report issued by the U.S. Treasury Department addressed its recommendations for the capital markets, including simplification of disclosure requirements by the SEC. See: SEC to meet on disclosure rules; Treasury calls for disclosure reform.
The SEC subsequently voted to release a proposed rule, with a 60-day comment period. See: SEC Proposes Rules to Implement FAST Act Mandate to Modernize and Simplify Disclosure.
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