The Honorable Mark Warner                                                   

United States Senate          

459A Russell Senate Office Building                                                 

Washington, D.C. 20510 

Dear Senator Warner:

We are writing to you on behalf of the 9,000 members of the Virginia Society of CPAs (VSCPA) to express strong support for section 404(b) of the Sarbanes-Oxley Act of 2002, and opposition to any attempt to amend that section during the Senate Banking Committee debate of the Restoring American Financial Stability Act of 2010. 

The Securities and Exchange Commission (SEC) has been phasing in compliance with section 404(b). Currently, companies with a market capitalization greater than $75 million are subject to the requirements of section 404(b), and their investors enjoy its protections. A potential amendment to the Restoring American Financial Stability Act of 2010 would create a permanent exemption for non-accelerated filers (those public companies with a market capitalization less than $75 million), and possibly for companies with up to $150 million in market capitalization, from the provisions of section 404(b) of the Sarbanes-Oxley Act. We oppose any amendment that would reduce the investor protections afforded by section 404(b), especially if it would roll back existing compliance and investor protections.

The Sarbanes-Oxley Act was enacted to protect all investors in public companies by increasing the accuracy and transparency of financial reporting. Effective internal controls are the bedrock of reliable financial reporting and are a key element of audit committee involvement in the financial reporting process.

Congress, in enacting Sarbanes-Oxley, clearly viewed management and auditor reports on internal controls as necessary for assuring investors about the reliability of the reports that are used to make investment decisions every day. And they did so based on the experience with similar provisions applicable to insured financial institutions that were required by the Federal Deposit Insurance Corporation Improvement Act of 1991.

We are mindful of the cost of conducting such an audit. The 2007 adoption by the Public Company Accounting Oversight Board (PCAOB) of Auditing Standard No. 5 brought significant improvements to the internal control audit. In addition, the PCAOB created a task force and developed additional guidance in applying the requirements of the auditing standard in audits of smaller companies. This guidance was developed with assistance from the auditors of small companies and helps explain how to tailor audit procedures to a small company’s particular facts and circumstances, thereby lessening the burden of the audit.

We strongly support investor protections, and do not believe that giving lesser protections to investors of small public companies is appropriate. We strongly oppose any amendment that would lessen these protections.

Thank you for your consideration of the views of the VSCPA. If we can be of any service to you, please contact me or VSCPA Government Affairs Director Emily Walker at ewalker@vscpa.com or (804) 612-9428.

Sincerely,

James K. Walker,

Chair, Virginia Society of CPAs

cc: American Institute of CPAs (AICPA)