The Center for Audit Quality, the CFA Institute, and the Council of Institutional Investors have written to leaders of the Senate Banking Committee asking them not to exempt smaller public companies from Sarbanes-Oxley internal controls audit requirements in the financial regulatory reform legislation.

Cindy Fornelli

The full Senate is expected to take up the financial reform legislation next week, and meanwhile legislators are preparing various amendments to the bill introduced by Senate Banking Committee Chairman Christopher Dodd, D-Conn.

The House version of the bill, which was passed in December, included an amendment that exempts small and midsized public companies with a float below $75 million from outside audits of their internal controls under Section 404(b) of the Sarbanes-Oxley Act. The audits had been repeatedly delayed by the SEC in response to cost concerns from small companies, but in October, the SEC said the audits would take effect in nine months' time.

A similar amendment may be proposed for the Senate version of the bill, and the groups hope to keep it out of the final legislation. “Specifically, we oppose exempting smaller public companies from compliance with Section 404(b) of the Act,” the groups wrote in a letter to Dodd and ranking Republican member Sen. Richard Shelby, R-Ala. “Further, we are troubled by evidence of a proposal to roll back to an arbitrary market capitalization point strengthened internal controls requirements for larger companies that are already in compliance with the provision.”

“We urge you to maintain the benefits of Section 404 to investors in all public companies,” the letter concluded.

The letter is signed by CAQ executive director Cindy Fornelli, CFA Institute managing director Kurt Schacht and Council of Institutional Investors general counsel Jeff Mahoney.