The House Financial Services Committee has marked up and
approved four pieces of legislation dealing with mandatory audit firm rotation,
exemption of private fund advisers, the Dodd-Frank pay ratio requirement, and
the Department of Labor and SEC adoption of fiduciary standards for brokers and
advisers.
The Committee
approved by a vote of 52-0 legislation that would prohibit the mandatory
rotation of independent outside audit firms and remove the threat of
unnecessary compliance costs for public companies. Introduced by Rep. Robert
Hurt (R-VA) and Rep. Gregory Meeks (D-NY), the Audit Integrity and Job
Protection Act, H.R. 1564, would amend Section 103 of the Sarbanes-Oxley Act to
expressly prohibit the PCAOB from requiring that the outside audits of a
company’s financial statements be conducted by different audit firms on a
rotating basis. The Act would also prohibit the Board from requiring that
audits be conducted by specific auditors. This is bi-partisan legislation and
is expected to be approved by the Committee after mark up and sent to the House
floor.
The Committee’s Ranking Member, Rep. Maxine
Waters (D-CA) has mixed feelings about H.R. 1564. On the one hand, she does not believe that
mandatory audit firm rotation would enhance auditor independence, but on the
other hand she does not believe that Congress should micromanage the PCAOB.
Rep. Waters offered an amendment to H.R. 1564 that would
sunset the prohibition on adopting mandatory audit firm rotation so as not to
indefinitely constrain the PCAOB. The amendment would also require a study on
the issue, updating the 2003 GAO study. Rep. Hurt opposed the amendment,
stating that it would gut the bill and create uncertainty. Rep. Scott Garrett
(R-NJ) proposed an amendment to the Waters Amendment that would eliminate the
sunset provision, but retain the study. Rep. Hurt agreed to the compromise amendment
as long as it specifically required the study to consider the costs of
mandatory audit firm rotation. Rep. Waters agreed to the changes, indicating
that cost considerations should be included in the amendment. The amendment
requiring a study of mandatory audit firm rotation, updating the GAO 2003
study, was unanimously approved by voice vote.
The Committee also approved a bi-partisan bill, the Small
Business Capital Access and Job Preservation Act, H.R. 1105, by a 38-18 vote,
which would exempt advisers to certain private equity funds from the new SEC
registration requirements imposed by Title IV of the Dodd-Frank Act.
Specifically, H.R. 1105 exempts from SEC registration private equity fund
advisers that have not borrowed and do not have outstanding a principal amount
in excess of twice their funded capital commitments. The bill was introduced by
Rep. Robert Hurt (R-VA), Jim Himes (D-CT), Scott Garrett (R-NJ), Chair of the
Capital Markets Subcommittee.
The Committee also approved H.R. 1135, the Burdensome
Data Collection Relief Act by a 36-21 vote. ponsored by Rep. Bill Huizenga
(R-MI) and Chairman Garrett, the bill would repeal Section 953(b) of the
Dodd-Frank Act. Section 953(b) requires public companies to calculate and
disclose, in every filing with the SEC, (i) the median annual total
compensation of all of its employees other than its chief executive officer,
(ii) its chief executive officer’s annual total compensation, and (iii) the
ratio of those two numbers.
The Committee approved H.R. 2374, the Retail Investor Protection Act by a
44-13 vote. Sponsored by Rep. Ann Wagner (R-MO). The legislative prevents the
Secretary of Labor from prescribing any regulation under the Employee
Retirement Income Security Act of 1974 defining the circumstances under which
an individual is considered a fiduciary until the date that is 60 days after
the SEC issues a final rule relating to standards of conduct for brokers and
dealers pursuant Section 913 of the Dodd-Frank Act. Rep. Wagner said that Congress must act
because the SEC and DOL are headed towards two separate and massive rulemakings and the impact of
this on retail investors has not been properly considered. The legislation says
that the DOL must wait until the SEC acts before moving ahead.