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Regulatory Review to Examine Sarbanes-Oxley 404’s Effect on Small Companies

The SEC said it will consider the effect more than two dozen rules issued in 2003 have had on small companies. The rules include several stemming from key Sarbanes-Oxley Act provisions, and the review is required by the Regulatory Flexibility Act.

The SEC on December 22, 2014, issued Release No. 33-9694, List of Rules to be Reviewed Pursuant to the Regulatory Flexibility Act, to announce that the agency was considering the effect 25 rules issued in 2003 have had on small companies.

Several of the rules were adopted as reforms to carry out provisions of the Sarbanes-Oxley Act of 2002, including the reviews of internal controls and the related auditor attestation requirements from Section 404.

The Regulatory Flexibility Act requires the SEC and other federal agencies to review rules that affect small companies within a decade of the publication of those rules.

Comments in response to Release No. 33-9694 are due 30 days after the release’s publication in the Federal Register, which typically occurs within a few weeks after the SEC posts a rule to its website.

Some of the more significant rules covered by the review include:

  • Release No. 33-8238, Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports. The rule requires company management to include in its annual report a review of internal controls over financial reporting and an auditor’s attestation report on that review.
  • Release No. 33-8176, Conditions for Use of Non-GAAP Financial Measures. Requires companies that present financial data that isn’t addressed in U.S. GAAP to provide a presentation of the most directly comparable GAAP measure, and a reconciliation of the two measures.
  • Release No. 33-8177, Disclosure Required by Sections 406 and 407 of the Sarbanes-Oxley Act of 2002. The rule adds two new disclosures to companies’ annual reports. One requires a company to say whether its audit committee includes at least one “audit committee financial expert,” and whether that expert is independent from management. The other requires companies to state whether they adopted a code of ethics for top management.
  • Release No. 33-8182, Disclosure in Management’s Discussion and Analysis about Off-Balance Sheet Arrangements and Aggregate Contractual Obligations. The rule requires management to explain a company’s off-balance sheet arrangements in a separate subsection within the MD&A, and to give a tabular overview of some contractual obligations.
  • Release No. IA-2106, Proxy Voting by Investment Advisers. The rule requires investment advisers who exercise voting authority over client securities to ensure that an adviser’s votes on proxies are in the best interest of their clients, and to disclose to clients information on those policies and procedures.
  • Release No. IC-25922, Disclosure of Proxy Voting Policies and Proxy Voting Records by Registered Management Investment Companies. The rule requires several disclosures by registered management investment companies on voting proxies relating to their portfolio securities.
  • Release No. 33-8220, Standards Relating to Listed Company Audit Committees. The rule prohibits a company not in compliance with Sarbanes-Oxley audit committee requirements from listing on a national stock exchange.
  • Release No. 34-47890, Improper Influence on Conduct of Audits. The rule bars company officers or directors from taking steps to “coerce, manipulate, mislead, or fraudulently influence” their auditor in a way that could result in misleading financial statements.
  • Release No. 33-8335, Purchases of Certain Equity Securities by the Issuer and Others. The rule updates safe harbor provisions for companies buying back shares.
  • Release No. IC-26262, Disclosure Regarding Nominating Committee Functions and Communications Between Security Holders and Boards of Directors. The rule adds disclosure requirements for board nominating committees and communications between shareholders and directors.

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Meet Paul Raymond

Meet Paul Raymond

Mr. Raymond is a sought after speaker in tax controversy law by many attorney, accountant, and business groups and at the request of the Internal Revenue Service, has presented programs at the IRS Nationwide Tax Forum, attended by tax professionals throughout the United States.

Additionally, he continues to be an active member in the Section of Taxation, American Bar Association, where he was the Past Chair of the Employment Taxes Committee.

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