[Federal Register Volume 75, Number 202 (Wednesday, October 20, 2010)]
[Notices]
[Pages 64773-64775]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-26349]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63108; File No. S7-29-10]
Study Required by Section 989G(b) of the Dodd-Frank Act Regarding
Compliance With Section 404(b) of the Sarbanes-Oxley Act
AGENCY: Securities and Exchange Commission.
ACTION: Request for comment.
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SUMMARY: The Securities and Exchange Commission is requesting public
comment related to a study of how the Commission could reduce the
burden of complying with Section 404(b) of the Sarbanes-Oxley Act of
2002 for companies whose public float is between $75 million and $250
million, while maintaining investor protections for such companies, and
whether any methods of reducing the compliance burden or a complete
exemption for such companies from the auditor attestation requirement
in Section 404(b) would encourage companies to list on exchanges in the
United States in their initial public offerings. This study is required
by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
DATES: Comments should be received on or before December 6, 2010.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/other.shtml); or
Send an e-mail to [email protected]. Please include
File Number S7-29-10 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, U.S. Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number S7-29-10. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
Internet Web site (http://www.sec.gov). Comments are also available for
Web site viewing and printing in the Commission's Public Reference
Room, 100 F Street, NE., Washington, DC 20549, on official business
days between the hours of 10 a.m. and 3 p.m. All comments received will
be posted without change; we do not edit personal identifying
[[Page 64774]]
information from submissions. You should submit only information that
you wish to make available publicly.
FOR FURTHER INFORMATION CONTACT: John Offenbacher, Senior Associate
Chief Accountant, or Jason Plourde, Professional Accounting Fellow,
Office of the Chief Accountant, at (202) 551-5300, Securities and
Exchange Commission, 100 F Street, NE., Washington, DC 20549.
Discussion
Under Section 989G(b) of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (the Dodd-Frank Act),\1\ the Commission is
required to conduct a study to determine how the Commission could
reduce the burden of complying with Section 404(b) of the Sarbanes-
Oxley Act of 2002 (Section 404(b)) \2\ for companies whose market
capitalization is between $75 million and $250 million, while
maintaining investor protections for such companies. Section 989G(b) of
the Dodd-Frank Act also provides that the study must consider whether
any methods of reducing the compliance burden or a complete exemption
for such companies from Section 404(b) compliance would encourage
companies to list on exchanges in the United States in their initial
public offerings.
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\1\ Public Law 111-203 (July 21, 2010).
\2\ 15 U.S.C. 7201 et seq.
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The Dodd-Frank Act does not define ``market capitalization'' and it
is not defined in Commission rules. For purposes of the study, we
believe that public float is an appropriate measure of market
capitalization. Public float, which is the aggregate worldwide market
value of an issuer's voting and non-voting common equity held by its
non-affiliates, is the measure used in Commission rules for determining
``accelerated filer'' and ``large accelerated filer'' status.\3\ The
Commission has used public float historically in its actions to phase
issuers into Section 404 compliance,\4\ and Section 404(c) of the
Sarbanes-Oxley Act of 2002, as amended by Section 989G(a) of the Dodd-
Frank Act, provides that Section 404(b) shall not apply with respect to
issuers that are neither an ``accelerated filer'' nor a ``large
accelerated filer'' pursuant to Commission rules, which are generally
issuers with a public float below $75 million. We therefore believe it
would be consistent to use public float between $75 million and $250
million to describe the group of issuers that are the subject of the
study. For the remainder of the release, we generally will refer to
issuers with a public float between $75 million and $250 million as the
``subject issuers.''
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\3\ See Exchange Act Rule 12b-2 [17 CFR 240.12b-2].
\4\ See, e.g., Release No. 33-9072 (Oct. 13, 2009) [74 FR
53628]; and Release 33-8934 (June 26, 2008) [73 FR 38094].
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In addition, Section 404(b) only addresses the auditor attestation
requirement with respect to a company's internal control over financial
reporting. The required study will not evaluate the compliance burden
of Section 404(a) of the Sarbanes-Oxley Act of 2002, which addresses
management's responsibility for reporting on the effectiveness of
internal control over financial reporting.
The Commission is required to submit a report of this study to
Congress no later than nine months after the date of enactment of the
Dodd-Frank Act. All interested parties are invited to submit their
views, in writing, on any of the following topics in which they are
interested:
(1) Quantitative and qualitative information about the trends of
internal and external costs of having an external auditor attest to
management's assessment under Section 404(b) for issuers with a public
float between $75 million and $250 million from the first year of
required compliance to the present;
(2) Current cost of auditor attestation under Section 404(b) in
relation to overall cost of compliance with all of Section 404 (i.e.
including management's assessment required by Section 404(a)) and
changes to this relative cost over time;
(3) Characteristics of internal controls, management's evaluation
process and corporate governance of subject issuers that distinguish
them from other issuers;
(4) Unique audit planning and performance characteristics, if any,
associated with subject issuers;
(5) Incremental effort for preparers and auditors to comply with
the auditor attestation requirement of Section 404(b) for an integrated
audit beyond the efforts that would already be incurred to comply with
the requirements for a financial statement only audit, including the
requirement to evaluate internal controls in connection with such an
audit, for subject issuers;
(6) Whether and how initiatives of the Commission, such as the
Commission Guidance Regarding Management's Report on Internal Control
Over Financial Reporting Under Section 13(a) or 15(d) of the Securities
Exchange Act of 1934,\5\ have reduced the burden of complying with
Section 404(b) for subject issuers;
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\5\ See Release No. 33-8810 (June 20, 2007) [72 FR 35324].
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(7) Whether and how any aspects of Public Company Accounting
Oversight Board (PCAOB) Auditing Standard No. 5,\6\ such as its focus
on risk and materiality, scalability, tailoring of testing to risk, and
extent of permitted use of the work of others, have reduced costs of
compliance with Section 404(b) versus PCAOB Auditing Standard No. 2 for
subject issuers;
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\6\ See Order Approving Proposed Auditing Standard No. 5, An
Audit of Internal Control Over Financial Reporting that is
Integrated with an Audit of Financial Statements, a Related
Independence Rule, and Conforming Amendments, Release No. 34-56152
(July 27, 2007) [72 FR 42141].
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(8) Whether and how other initiatives of the PCAOB, such as its
staff guidance for auditors of smaller public companies,\7\ have
reduced the burden of complying with Section 404(b) for subject
issuers;
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\7\ See ``Staff Views--An Audit of Internal Control that is
Integrated with an Audit of the Financial Statements: Guidance for
Auditors of Smaller Public Companies'' (Jan. 23, 2009), available at
http://www.pcaobus.org.
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(9) Whether and how initiatives of the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), such as the June 2006
guidance for smaller public companies on internal control over
financial reporting,\8\ and the January 2009 Guidance on Monitoring
Internal Control Systems,\9\ have reduced the burden of complying with
Section 404(b) for subject issuers;
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\8\ For further information, see http://www.coso.org/ICFR-GuidanceforSPCs.htm.
\9\ For further information, see http://www.coso.org/GuidanceonMonitoring.htm.
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(10) Whether and how initiatives of any other organization have
reduced the burden of complying with Section 404(b) for subject
issuers;
(11) The possibility that guidance or rules issued by the
Commission, PCAOB or others could further reduce the burden of
complying with the auditor attestation requirement of Section 404(b),
while maintaining investor protection, for subject issuers, and any
specific recommendations concerning any such guidance or rules;
(12) The impact on investor protection, investor confidence, and
the cost of capital arising from the establishment and ongoing
compliance with Section 404(b) by subject issuers, including in the
context of initial public offerings;
(13) The degree to which investor protection, investor confidence,
and the cost of capital would increase or decrease, if any, as a
function of each specific recommendation by which the Commission, the
PCAOB, or others might reduce the burden of complying
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with Section 404(b) for subject issuers, while maintaining investor
protection;
(14) The impact of costs of complying with the auditor attestation
requirement of Section 404(b) on company decisions to list on exchanges
in the United States versus foreign exchanges in initial public
offerings for subject issuers after the offering;
(15) The impact of costs of complying with Section 404(b) on
company and investor decisions to engage in initial public offerings
versus other financing alternatives for issuers whose public float is
expected to be between $75 million and $250 million after the offering;
(16) Potential effect on the number of companies listing initial
public offerings in the United States of a complete exemption from the
internal control audit requirements for subject issuers, and the
potential effect on listings for each specific recommendation for
reducing the compliance burden of such requirements on subject issuers;
(17) Any qualitative differences between subject issuers that might
list securities on a U.S. exchange in connection with their initial
public offerings if the existing internal control audit requirement of
Section 404(b) remains in effect and subject issuers that might list
securities on a U.S. exchange in connection with their initial public
offerings if subject issuers are completely exempt from the internal
control audit requirements of Section 404(b), and any such qualitative
differences that may arise from each specific recommendation for
reducing the compliance burden of such requirements on subject issuers;
(18) The potential effect of a complete exemption from Section
404(b) for subject issuers on matters such as: Raising capital;
engaging in mergers, acquisitions and similar corporate transactions;
and attracting and retaining qualified independent directors;
(19) Whether and how the use of the auditor's attestation report on
internal control over financial reporting for subject issuers differs
from the use of the auditor's attestation report on internal control
over financial reporting for issuers whose public float is greater than
$250 million and the reason(s) for those differences;
(20) Quantitative and qualitative information about whether and how
compliance with Section 404(b) has benefited investors and other users
of financial statements of subject issuers;
(21) Whether and to what extent auditor attestation reports on
internal control over financial reporting enhances confidence in
management's assessment of the effectiveness of its internal control
over financial reporting, improves the reliability of financial
reporting and improves the prevention and detection of fraud and other
misconduct for subject issuers;
(22) Any additional information for the Commission to consider to
describe the study population and how the Commission could reduce the
burden of complying with Section 404(b) on that population; and
(23) Any other information commenters would like the Commission to
consider in regards to the study.
Dated: October 14, 2010.
By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-26349 Filed 10-19-10; 8:45 am]
BILLING CODE 8011-01-P