The Center for Audit Quality, the Council of Institutional Investors and CFA Institute have written a joint letter to the leaders of the House Financial Services Committee objecting to legislation that would weaken some key provisions of the Sarbanes-Oxley Act and the Dodd-Frank Act.

The three organizations specifically expressed their opposition to a provision in the Financial Choice Act that would revise the definition of an “accelerated filer,” making fewer large companies subject to Sarbanes-Oxley requirements for audits of internal controls over financial reporting.

The Financial Services Committee marked up the legislation during a hearing Tuesday, but Democrats on the committee managed to delay a vote on the bill until at least Wednesday. In addition to changing the definition of accelerated filer, the bill would also weaken and rename the Consumer Financial Protection Bureau, make several financial regulatory agencies subject to annual appropriations by Congress, require congressional approval of major financial regulations, and force agencies to do more extensive analysis before finalizing financial rules.

Center for Audit Quality executive director Cindy Fornelli at the CAQ's 10th anniversary event
Center for Audit Quality executive director Cindy Fornelli at the CAQ's 10th anniversary event Courtesy of the CAQ

In their joint letter, the CAQ, CII and CFA Institute focused on the provision relating to the amount of market capitalization that would be required for companies to be defined as accelerated filers and subject to Section 404(b) of the Sarbanes-Oxley Act of 2002.

“We commend efforts to strengthen the US economy and help companies raise capital; however, we do not believe Section 404(b) of SOX is a regulatory burden or impediment to capital formation,” they said in their letter. “In fact, we refer you to academic research that indicates that any increase in the public float threshold would not spur capital formation, and could have the unintended consequence of eroding investor confidence and the quality of public company financial reporting. Additionally, as discussed below, two recent surveys of financial advisors and chief financial officers (CFOs) demonstrate that Section 404(b) is beneficial to our markets and investors.”

They cited surveys by independent research firms on behalf of the CAQ that found 74 percent of certified financial advisors and 85 percent of public company CFOs support important investor protection provisions in SOX. Eighty-two percent of financial advisors and 79 percent of CFOs said SOX has improved the reliability of financial information.

“These polls provide yet another indicator of the extraordinary and confidence-building success of the Sarbanes-Oxley Act,” said CAQ Executive Director Cindy Fornelli in a statement. “The law helped to enhance the quality of financial information on which financial executives and financial advisors rely.”

Many of the provisions of the Financial Choice Act are aimed more at rolling back the Dodd-Frank Act of 2010. Rep. Maxine Waters, D-Calif., was one of the Democrats on the committee who was most vocal about the damage she saw from the legislation. She called it the Wrong Choice Act.

“The Wrong Choice Act is a vehicle for Donald Trump's agenda to get rid of financial regulation and help out Wall Street,” she said during Tuesday’s hearing. “Just last week, Trump’s Treasury Secretary said he welcomes the reintroduction of this bill. The bill destroys Wall Street reform, guts the Consumer Financial Protection Bureau, and returns us to the financial system that allowed risky and predatory Wall Street practices and products to crash our economy. It’s an invitation for another Great Recession, or worse.”

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Michael Cohn

Michael Cohn

Michael Cohn, editor-in-chief of AccountingToday.com, has been covering business and technology for a variety of publications since 1985.