After a spirited debate, Senate conferees in the House-Senate conference committee on financial reform legislation agreed by a 7-5 vote to a House provision exempting small issuers (less than $75 million in market capitalization) from the requirements of Sarbanes-Oxley Section 404(b) (House § 7606).
Section 404(a) of Sarbanes-Oxley requires that annual reports filed with the SEC must be accompanied by a statement that company management is responsible for creating and maintaining adequate internal controls and a further statement assessing the effectiveness of those controls. Section 404(b) requires the company's outside auditor to report on and attest to management's assessment of the company's internal controls.
Senator Dodd spoke against the provision because Section 404(b) protects investors in small and large companies and reduces the opportunity for accounting fraud. The provision could permanently exempt half of the public companies from Section 404(b), noted Sen. Dodd, and these companies are more likely to engage in financial restatements.