SEC Exempts Smaller Filers from SOX 404(b) Audit Rule

The SEC has adopted rule changes to conform with the Dodd-Frank Act, which permanently exempts non-accelerated filers from Section 404(b) of the Sarbanes-Oxley Act (SOX). This relieves smaller public companies of the requirement to include in their annual reports an attestation from their external auditor on the effectiveness of internal controls over financial reporting (ICFR). The relief was enacted in Section 989G of the Dodd-Frank Act, which created a new Section 404(c) of SOX.

This change provides significant, permanent cost savings for smaller issuers that were facing an imminent deadline to comply with the expensive auditor attestation requirement. Counsel for non-accelerated filers should be aware that while the external audit of ICFR is no longer mandated, the underlying requirement for management to conduct its own assessment and issue its own report on ICFR under SOX Section 404(a) remains in full effect. Advisers should ensure clients update their annual reporting procedures to reflect this specific relief while maintaining compliance with management's continuing ICFR reporting duties.