Section 404(b) of the Sarbanes-Oxley Act required a public company to have its independent auditor attest to and report on management's internal control over financial reporting; this is known as the auditor attestation requirement. In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act exempted companies with less than $75 million in public float from the auditor attestation requirement. The Dodd-Frank Act mandated that Government Accountability Office (GAO) examine the impact of the permanent exemption on the quality of financial reporting by small public companies and on investors.
This report discusses (1) how the number of financial statement restatements compares between exempt and nonexempt companies (i.e., those with $75 million or more in public float), (2) the costs and benefits of complying with the attestation requirement, and (3) what is known about the extent to which investor confidence is affected by compliance with the auditor attestation requirement.
Although information on auditor attestation status is available to investors, GAO recommended that Securties and Exchange Commission should consider requiring public companies, where applicable, to explicitly disclose whether they obtained an auditor attestation of their internal controls. GAO believes this could increase transparency and investor protection.
Read the report.