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Deloitte comments on SEC's amendments to smaller reporting company definition

Published on: Aug 23, 2016

Deloitte & Touche LLP comments on SEC Release 33-10107, "Amendments to Smaller Reporting Company Definition," which was issued in June 2016.

An excerpt from the comment letter is shown below: 

We support the Commission’s decision, as described in the release, to maintain the current public float threshold requirements with respect to the application of Section 404(b) such that it would continue to apply to companies with public floats between $75 million and $250 million. That decision is consistent with the SEC’s study on the applicability of Section 404(b) conducted in 2011, which concluded, in part, that 1) “there is strong evidence that the auditor’s role in auditing the effectiveness of ICFR improves the reliability of internal control disclosures and financial reporting overall and is useful to investors,” and 2) there is no “specific evidence that potential savings [in costs from exempting registrants with public floats between $75 million and $250 million from 404(b)] would justify the loss of investor protections and benefits….” Further, the United States Government Accountability Office (GAO) in a related study concluded that 1) “auditor attestation under 404(b) appears to have a positive impact on investor confidence,” and 2) “companies (both exempt and nonexempt) that obtained an auditor attestation generally had fewer financial statement restatements than those that did not.” Additional studies referenced in the release support the Commission’s decision.

We agree with the SEC and the GAO and believe investors have greatly benefited from management reporting about the effectiveness of ICFR and the related requirement for an auditor’s attestation report on ICFR. We do not believe it would be prudent to roll back existing internal control reporting requirements for a population of issuers that are currently complying with 404(b). We do support ongoing dialogue among the SEC, PCAOB, issuers, and auditors regarding continuous improvement efforts with respect to management’s assessment and the auditor’s attestation of ICFR.

Full text of the comment letter is available below.


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