Federal Issues

    Section 404(b) of Sarbanes-Oxley Act of 2002 

    The Sarbanes-Oxley Act requires that the management of public companies assess the effectiveness of the internal control of issuers for financial reporting.  Section 404(b) requires a publicly-held company’s auditor to attest to, and report on, management’s assessment of its internal controls. 

    The AICPA has consistently urged implementation of Section 404(b) for all publicly held companies.  Section 404(b) has led to improved financial reporting and greater transparency.  The AICPA believes that all investors in public companies should have equal benefit of the same protections.  Some small companies have argued that the regulatory cost and burden of having the assessment outweighs the benefit to investors.

    During consideration of the bills that became the Dodd-Frank Wall Street Reform and Consumer Protection Act, there were several amendments offered that would have exempted a large number of public companies from section 404(b).  Ultimately, there was an exemption enacted for non-accelerated filers (companies with less than $75 million in public float).  These smaller issuers were never required by the SEC to comply with section 404(b) since enactment of Sarbanes-Oxley Act.

    There were also 2 studies required by Dodd-Frank.   The first required the SEC to conduct a study on the burden caused by section 404(b) compliance for companies with a market capitalization between $75 million and $250 million.  The SEC study recommended maintaining existing investor protections of Section 404(b) for companies with market capitalization above $75 million and encouraged activities that have potential to further improve both the effectiveness and efficiency of Section 404(b) implementation.

    Dodd-Frank also required the GAO to conduct a study to evaluate whether exempt issuers have fewer or more restatements, and how their cost of capital compares with issuers subject to section 404(b).  The study is due by July 2013.

    Legislative Proposals

    112th Congress

    Since January 2011 when the 112th Congress convened, there have been continuing attempts to increase the exemption level for companies subject to section 404(b).  A number of bills have been introduced that would expand the Dodd-Frank exemption.  The exemption levels in these bills range up to all companies with a market capitalization of up to $1 billion.

    In April 2012, The Jumpstart our Business Startups Act (JOBS Act) was signed into law.  It would generally exempt a new public company from compliance with section 404(b) for the first 5 years it is a public company as long as it does not exceed certain market capitalization or revenue thresholds (called an Emerging Growth Company, or EGC). This Act extends an existing two-year regulatory delay in the implementation of section 404(b) for companies who have had an initial public offering. Importantly, it does not contain an exemption. The Act also contains two provisions urged by the AICPA.  The first allows an EGC to opt-out from being treated as an EGC.  The second makes it clear that existing public companies cannot take advantage of the EGC exemptions even if they otherwise meet the criteria (not exceeding the market capitalization or revenue thresholds and less than 5 years since the IPO). Additional information on these issues is contained in the AICPA’s March 19, 2012, letter to the Senate. The bill was passed by both the House and Senate on large bipartisan votes and was signed by the President on April 5, 2012. It was originally introduced by Congressman Fincher (R-TN), and Congressman John Carney (D-DE)  with the title, “Reopening American Capital Markets to Emerging Growth Companies Act of 2011,” H.R. 3606.

    Other bills with various expanded exemptions have also been introduced in the House and Senate during this Congress.  Congressman Ed Royce, a California Republican, offered an amendment during House Financial Services Committee consideration of the JOBS Act that would have exempted all public companies with a public float of less than $1 billion from the 404(b) requirements.  He withdrew the amendment when promised that his proposal would be considered separately by the Committee later this year. The AICPA continues to fight all such efforts to reduce existing investor protections.


    Copy of Legislation

    A copy of the JOBS Act, and all major Congressional actions leading to passage, is available on the Library of Congress's THOMAS website by searching by its bill number, H.R. 3606.  The Dodd-Frank Act is available by using the advanced search function and searching for H.R. 4173 by bill number under the 111th Congress.

    AICPA Letters

    March 19, 2012 Letter to the United States Senate

    October 4, 2011 Letter to Chairmen Bachus and Garrett and Ranking Members Frank and Waters regarding October 5, 2011 Subcommittee on Capital Markets Mark Up of 404(b) Legislation 

    May 5, 2010 Email to the Senate Opposing the Hutchison Amendment

    May 5, 2010 Email to the Senate Opposing the Vitter Amendment

    March 22, 2010 letter from AICPA President Barry Melancon to Senate Banking Committee Opposing Potential Amendments to Sarbanes-Oxley Section 404(b) (This letter was sent on April 21, 2010 to the entire Senate.)

    December 9, 2009 letter from AICPA President Barry Melancon to the House of Representatives supporting the Kanjorski amendment

    Other Legislative Letters

    March 22, 2012 Center for Audit Quality/Council of Institutional Investors Letter to Senate regarding JOBS Act

    March 13, 2012 Letter from SEC Chairman Mary Schapiro to Senate Banking Chairman Tim Johnson and Ranking Member Richard Shelby regarding JOBS Act

    November 29, 2011Center for Audit Quality/Council of Institutional Investors Letter to Chairman Bachus and Ranking Member Frank regarding Sarbanes-Oxley 404(b) Legislation 

    September 20, 2011 Center for Audit Quality/Council of Institutional Investors/CFA Institute Letter to Chairmen Bachus and Garrett and Ranking Members Frank and Waters regarding Sarbanes-Oxley 404(b) Legislation 

    June 15, 2010 Center for Audit Quality/Council of Institutional Investors/CFA Institute Letter to House and Senate Conferees Opposing a Section 404(b) Exemption

    May 20, 2010 Center for Audit Quality/Council of Institutional Investors Letter Opposing the Hutchison and Vitter Amendments in the Senate to exempt smaller companies from Sarbanes-Oxley Act Section 404(b)

    April 22, 2010 Center for Audit Quality Letter to the Senate Opposing Potential Amendments to exempt smaller companies from Sarbanes-Oxley Act Section 404(b)

    December 8, 2009 Center for Audit Quality Letter to House Members Commending Them for Their Continued Support of SOX Section 404(b)

    December 2, 2009 Center for Audit Quality Urges Senate Banking Committee Leadership Not to Weaken Sarbanes-Oxley

    October 26, 2009 Center for Audit Quality Expresses Support for SOX Section 404(b) in Letter to Lawmakers

    Staff Contact

    Peter M. Kravitz
    Director-Congressional and Political Affairs


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    Accounting Partnership Retirement Practices

    Article In recent years, Equal Employment Opportunity Commission (EEOC) staff have been investigating and considering litigation against accounting firms organized as partnerships with a goal of requiring firm partners to be treated as “employees” for purposes of the Age Discrimination in Employment Act (ADEA). The AICPA has written the EEOC asking
    Published on March 20, 2015

    Federal Legislative and Regulatory Issues

    Federal Law This page highlights the advocacy issues in which the Congressional & Political Affairs Team is advocating on behalf of the profession, and also those issues that the team has recently followed.
    Published on March 20, 2015

    ERISA Fiduciary Definition - Appraisers of Employee Stock Ownership Plans

    Article The AICPA believes that the U.S. DOL should implement rules that would require appraisers of ESOPs to meet minimum qualification requirements, including holding relevant credentials and training, and comply with applicable professional valuation standards.
    Published on March 12, 2015

    Federal Legislative and Regulatory Issues Were Following

    Article Lorem Ipsum is simply dummy text of the printing and typesetting industry. Lorem Ipsum has been the industry's standard dummy text ever since the 1500s, when an unknown printer took a galley of type and scrambled it to make a type specimen book. It has sur
    Published on March 11, 2015

    Congressional and Political Affairs Advocacy

    Overview The AICPA monitors and advocates on legislative and other matters that affect the accounting profession. Working with state CPA societies and other professional organizations, the AICPA provides information to and educates federal, state and local policymakers regarding key issues.
    Published on February 05, 2015


    Overview Extensible Business Reporting Language (XBRL) used in financial and other reporting allows for easier access to more transparent information.  AICPA supports legislative proposals to utilize XBRL by companies, Federal agencies and recipients of Federal funds.
    Published on December 15, 2014

    AICPA Letter to House Oversight and Government Reform Committee re DATA Act Implementation Hearing

    Legislative Letters The AICPA wrote to the House Oversight and Government Reform Committee regarding the Committee's hearing entitled "Transforming Federal Spending: Implementing the Digital Accountability and Transparency Act."
    Published on December 15, 2014

    Preserving the Cash Basis Method of Accounting for CPA Firms

    Article The AICPA is opposed to certain provisions included in tax reform proposals that would limit the availability of the cash basis method of accounting.
    Published on September 29, 2014

    Cash Accounting Bipartisan Letter to the House of Representatives

    Legislative Letters
    Published on September 11, 2014

    Cash Accounting Senate Letter

    Legislative Letters
    Published on August 07, 2014

    Camp Letter On Cash Basis April 25, 2014

    Legislative Letters The American Institute of CPAs (AICPA) voices strong opposition to draft legislation that would limit the use of the cash method of accounting for pass-through entities and personal service corporations.
    Published on May 08, 2014

    Convergence of International and US Accounting Principles and IFRS

    Article International Financial Reporting Standards (IFRS) set by the International Accounting Standards Board (IASB) in London is a response to worldwide demand from regulators, investors, businesses, and auditing firms for a single set of high-quality, globally-accepted accounting standards.
    Published on April 17, 2014

    AICPA Letter to SEC on Proposed Regulation Crowdfunding

    Comment Letter AICPA comments on the SEC's proposed new Regulation Crowdfunding under the Securities Act of 1933 and the Securities Exchange Act of 1934 to implement the requirements of Title III of the JOBS Act as published in SEC File No. S7-09-13.
    Published on February 06, 2014

    Jan 2014 - AICPA Statement for the Record regarding Conferences and Travel

    Article AICPA provided a Statement for the Record to the Senate Homeland Security and Government Affairs Committee in  response  to the hearing held on January 14, 2014 entitled, "Examining Conference and Travel Spending Across the Federal Government."
    Published on January 28, 2014

    Cash Basis Letter to Senate Finance Committee from Associations-Jan7-2014

    Legislative Letters Cash Basis Letter to Senate Finance Committee dated Jaunary 7, 2014 from American Council of Engineering Companies, American Dental Association, American Farm Bureau Federation, American Institute of Architects, American Institute of CPAs and S Corporation Association.
    Published on January 22, 2014

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