In a July 25 letter
to the SEC, CII General Counsel Jeff Mahoney opposed a commission proposal to exempt certain low-revenue public companies from complying with Section 404(b) of the Sarbanes-Oxley Act, which requires an independent auditor to attest to the effectiveness of internal controls over financial reporting. Mahoney wrote that “assurance is an important driver of confidence in the integrity of financial statements,” and the proposed change “could significantly affect the ability of investors to make informed investment decisions” on exempt companies. In the letter, he cited an earlier comment letter
from leading financial reporting experts finding that evidence in the proposal itself suggests that “the elimination of internal control audits is likely to result in significantly weaker internal controls over the financial reporting system and significantly greater levels of accounting restatements.” Further, the accounting experts said, SEC economic analysis behind the proposal was incomplete, quantifying costs of internal control audits to issuers but not benefits to investors, which independent academic evidence suggests dwarfs the costs.