II 

109TH CONGRESS 

2D SESSION S. 2824 

To reduce the burdens of the implementation of section 404 of the SarbanesOxley Act of 2002. 

IN THE SENATE OF THE UNITED STATES 

MAY 17, 2006 

Mr. DEMINT (for himself, Mr. ENSIGN, Mr. MARTINEZ, Mr. INHOFE, Mr. 

BURNS, and Mr. ALLEN) introduced the following bill; which was read 

twice and referred to the Committee on Banking, Housing, and Urban 

Affairs 

A BILL 

To reduce the burdens of the implementation of section 404 

of the Sarbanes-Oxley Act of 2002. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Competitive and Open 

5 Markets that Protect and Enhance the Treatment of En6 trepreneurs Act’’ or the ‘‘COMPETE Act’’. 


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1 SEC. 2. IMPLEMENTATION OF INTERNAL CONTROL RE2 PORTING AND ASSESSMENT. 

3 Section 404 of the Sarbanes-Oxley Act of 2002 (15 

4 U.S.C. 7262) is amended— 

5 (1) in subsection (a), by striking ‘‘The Commis6 sion’’ and inserting ‘‘Subject to subsections (c) and 

7 (d), the Commission’’; 

8 (2) in subsection (b), by inserting ‘‘, subject to 

9 subsections (c) and (d),’’ after ‘‘for the issuer shall’’; 

10 and 

11 (3) by adding at the end the following new sub12 sections: 

13 ‘‘(c) SMALLER PUBLIC COMPANY EXEMPTION.—The 

14 rules of the Commission under subsection (a) shall permit 

15 an issuer to elect voluntarily not to provide the assessment 

16 described in subsection (a)(2) and the attestation thereof 

17 described in subsection (b), if the issuer— 

18 ‘‘(1) has a total market capitalization for the 

19 relevant reporting period of less than $700,000,000; 

20 ‘‘(2) has total product revenue for that report21 ing period of less than $125,000,000; 

22 ‘‘(3) has fewer than 1500 record beneficial 

23 holders of securities; 

24 ‘‘(4) has been subject to the requirements of 

25 sections 13(a) or 15(d) of the Securities Exchange 


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1 Act of 1934 for a period of less than 12 calendar 

2 months; or 

3 ‘‘(5) has not filed, and was not required to file, 

4 an annual report pursuant to section 13(a) or 15(d) 

5 of the Securities Exchange Act of 1934. 

6 ‘‘(d) DE MINIMUS STANDARD; ADDITIONAL GUID7 ANCE; INDEPENDENCE.—In implementing the require8 ments of this section, the Commission and the Board— 

9 ‘‘(1) shall alter the standard for review from a 

10 remote likelihood standard for noting weaknesses 

11 under this section to a 5 percent de minimus mate12 rial weakness criteria (based on 5 percent of net 

13 profits); 

14 ‘‘(2) shall establish specific guidelines for meas15 uring the terms ‘reasonable’, ‘significant’, and ‘suffi16 cient’ in the context of internal control over financial 

17 reporting for issuers, including— 

18 ‘‘(A) reference to specific examples of the 

19 appropriate application of those terms; and 

20 ‘‘(B) establishment of a means for timely 

21 response by the Commission or the Board, as 

22 applicable, to requests by issuers and registered 

23 public accounting firms for guidance as to the 

24 appropriate application of those terms; and 


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1 ‘‘(3) shall modify the rules concerning the inde2 pendence of registered public accounting firms to 

3 perform assessments under subsection (b) to allow 

4 prudent interaction between such firms and internal 

5 consultants.’’. 

6 SEC. 3. BRITISH ACCOUNTING SYSTEM STUDY AND RE7 PORT. 

8 The Securities and Exchange Commission and the 

9 Public Company Accounting Oversight Board shall jointly 

10 conduct a study comparing and contrasting the principles11 based Turnbull Guidance under the securities laws of the 

12 United Kingdom to the implementation of section 404 of 

13 the Sarbanes-Oxley Act of 2002. The Commission and the 

14 Board shall submit a report on the results of such study 

15 to Congress not later than 1 year after the date of enact16 ment of this Act. 

Æ 


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