Tweaking governance for small companies after Dodd-Frank

Small public companies scored a number of victories with the enactment of the Dodd-Frank Financial Reform Act of 2010 (Dodd-Frank). The most notable victory is their exemption from the now infamous Section 404 requirement enacted by the Sarbanes-Oxley Act of 2002 (SOX) that management's assessment of the reporting company's internal controls be annually attested to by the firm's independent auditor. Although so-called non-accelerated filers had not been subject to this requirement, the stream of delays in imposing Section 404 appeared unlikely to be continued. Congress stepped in and provided the exemption from the requirement in Section 989(G) of Dodd-Frank. ¹ This exemption, therefore, removed nearly 6000 reporting companies, representing about 6 percent of U.S. equity capital, from the internal control attestation requirement. ² Moreover, the legislation also called on the Securities and Exchange Commission (SEC) to study whether firms with a market capitalization of US$75–200 million should also be exempted. ³