Banks holding less than $1 billion in assets could receive an exemption from the auditor attestation requirements of Section 404(b) under the Sarbanes-Oxley Act of 2002. Under S. 1962, the Community Bank Access to Capital Act of 2017, the proposed Senate bill frees smaller banks from the more complicated and expensive reforms under Sarbanes-Oxley. S. 1962 also requires public companies to hire an external auditor to attest to management’s internal controls over financial reporting. The bill’s co-sponsor, Senator Mike Rounds (R-S.D.), stated the proposed measure would promote growth among community banks and help them support their communities.
Section 404(b) advocates believe the attestation requirements have improved the quality of public company financial controls. Conversely, some argue that the requirements make being publicly traded less appealing and have caused inaction regarding initial public offerings (“IPO”).
Currently, public companies below $75 million in public float (i.e., non-accelerated filers) and emerging growth companies (EGCs) under the JOBS Act are exempt from Section 404(b). EGCs are issuers with under $1 billion in yearly revenue and less than $700 million in public float, that are within five years of their IPO date. The bill would include federally insured banks and bank holding companies with under $1 billion in consolidated assets to the exemptions.
S. 1962 is one of many proposed bills attempting to relax Section 404(b) compliance. The Independent Community Bankers of America backs the bill, saying that the measure aims to alleviate unnecessary regulatory responsibilities on small banks. Industry groups mostly support the legislation, but public accounting firms oppose efforts to loosen the compliance requirements.
