Enron-Era Accounting Rules Could Be Eased for Small Companies

(Bloomberg) -- A U.S. regulator proposed freeing small companies from a Sarbanes-Oxley Act requirement that an auditor sign-off on their internal controls over financial reporting, following years of criticism from conservative lawmakers and business groups that the rules are overly burdensome.

Securities and Exchange Commission members voted 3-1 on Thursday to seek public comment on the proposal.

Key Details

  • Proposal would exempt companies with less than $100 million in annual revenue from the so-called auditor attestation requirement, which was implemented in response to accounting scandals at Enron Corp. and other companies.
  • Small companies would still have to have their financial statements audited by an independent accounting firm, Bill Hinman, head of the SEC’s corporation finance unit, said at a Thursday public meeting.
  • SEC economists estimate that the auditor attestation requirement costs small companies more than $200,000 annually.
  • "Investors in these companies will benefit from tailored requirements that will save costs that companies will be able to redirect into growing," SEC Chairman Jay Clayton said during the meeting.
  • Robert Jackson, the only SEC commissioner in a Democratic seat, voted against the proposal. He said he was concerned that exempting small companies would strip away a key investor protection. "While paying auditors isn’t free, neither is fraud," said Jackson. He added that misconduct could be most problematic at small companies that are reporting fast growth.

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