Question

Do you think that the auditors' responsibility in auditing small public firms that are exempt from Section 404(b) of SOX is different from their role in auditing large accelerated filers that are subject to SOX 404(b) reporting requirements? please explain in detail

Answer 1

Allowable Exemptions and Delays for SOX 404(b)

As of this writing there is one exemption from and three implementation delays granted in the application of section 404(b) as follows:

ALLOWABLE EXEMPTION:

1. While required to comply with 404(a), an exemption from Section 404(b) was enacted for non-accelerated filers (companies with less than $75 million in public float). Public Debt filers and Smaller Reporting Companies are also considered non-accelerated filers.

ALLOWABLE DELAYS:

1. Newly public companies can delay the application of both 404(a) and 404(b) until the filing of their second Form 10K (could be up to two years)
2. Companies can delay the application of 404(a) and 404(b) for newly acquired companies up to a year after the acquisition with proper disclosure
3. The JOBS Act (Jumpstart our Business Startups Act) increases the current two year delay (described in 1 above) for compliance with 404(b) to 5 years for new public companies with annual revenues of less than $1 billion as long as they do not exceed the following market capitalization or revenue thresholds:
   • The company’s revenue grows to more than $1 billion
   • The company issues more than $1 billion in nonconvertible debt over a three-year period
   • The company’s worldwide public float exceeds $700 million