SEC rule change provides potential SOX costs relief for smaller companies

The U.S. Securities and Exchange Commission (SEC) released a final rule that amends the filing status definitions for SEC issuers. The amendments were effective as of April 27, 2020.

The rule change expands the number of issuers that will no longer require an auditor attestation of internal control over financial reporting (ICFR) in accordance with Sarbanes–Oxley Act (SOX) 404(b). It provides much needed relief in compliance costs for those companies that qualify under the amended filer definitions, and allows those companies to focus their budgets and efforts on research and commercialization — especially in the pre-revenue, development, and discovery phases of their company.

For more specific details about the rule change itself, please see SEC amends the accelerated filer and large accelerated filer definitions.

Learn how the rule change could provide certain companies with relief from SOX compliance and audit costs.

Management considerations

If your company has been required to get an attestation as part of 404(b) compliance historically, a change in filing status may no longer requires a 404(b) opinion.

A company can electively choose to obtain a 404(b) attestation beyond the compliance requirements in order to provide greater assurance to the users of the financial statement.

However, the company could also reduce the time and costs associated with pulling auditor documents by taking advantage of compliance cost and effort relief from 404(b) during the current year.

How does a company justify either decision and proceed?

Explore some considerations below.

Interpretive release 33-8810

The SEC’s Interpretive Release 33-8810 provides guidance for management regarding its evaluation and assessment of ICFR that satisfies the evaluation requirements of Rules 13a-15(c) and 15d-15(c) under the Securities Exchange Act of 1934 and the management assessment requirements of 404(a).