In a Republican-led move to make some business-friendly repeals to provisions of Dodd Frank and now Sarbanes-Oxley, the House Financial Services Committee is considering a bill to exempt more public companies from the required audit of internal controls over financial reporting.

Rep. Stephen Fincher introduced the Small Company Job Growth and Regulatory Relief Act to excuse public companies with market capitalization of up to $500 million from the current Sarbanes-Oxley Section 404(b) audit requirement. The Dodd-Frank Act earlier exempted public companies with market caps below $75 million.

Fincher also proposes that companies in the $500 million to $1 billion market cap range should be given five years after becoming public before they would be required to comply, and even then only if shareholders agree by majority vote that the company should have its internal controls audited. Fincher's bill is one of five the House Financial Services Committee is considering to make it easier for smaller companies to list and raise money in U.S. capital markets.

Investor and audit advocates are already peppering committee members with objections. The Center for Audit Quality, the Council of Institutional Investors and the CFA Institute sent a joint letter to committee leaders urging them to reject the idea. The groups' leaders remind legislators that the Securities and Exchange Commission has already studied the 404(b) implications for mid-sized public companies and determined that compliance costs have diminished while the quality and reliability of financial reporting has improved since Sarbanes-Oxley became law in 2002.

The groups lobbied hard for Congress to keep the audit requirement in place for the smallest public companies when it considered the exemption under Dodd-Frank. While Sarbanes-Oxley took effect for public companies in 2004, the smallest companies escaped the required management assessment of internal control for several years as the SEC deferred the requirement to give them time to get up to speed. They eventually escaped the audit requirement entirely under Dodd-Frank.

“In the final analysis, we believe that all investors should receive equal protections with respect to the effectiveness of internal control over financial reporting by publicly traded companies,” the group leaders wrote.

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