I 

110TH CONGRESS 

1ST SESSION H. R. 1780 

To improve the implementation of section 404 of the Sarbanes-Oxley Act 

of 2002. 

IN THE HOUSE OF REPRESENTATIVES 

MARCH 29, 2007 

Mr. KIRK (for himself, Mr. ISRAEL, Mr. SENSENBRENNER, and Mr. REGULA) 

introduced the following bill; which was referred to the Committee on Financial Services 

A BILL 

To improve 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 ‘‘Small Business Securi5 ties Protection Act’’. 

6 SEC. 2. ADDITIONAL IMPLEMENTATION REQUIREMENTS. 

7 Section 404 of Sarbanes-Oxley Act of 2002 (15 

8 U.S.C. 7262) is amended by adding at the end the fol9 lowing new subsections: 

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1 ‘‘(c) IMPLEMENTATION.—Within 90 days after the 

2 date of enactment of the Small Business Securities Protec3 tion Act, the Commission shall prescribe rules, or amend 

4 existing rules, and the Board shall amend standards, in 

5 each case as applicable to issuers under subsections (a) 

6 and (b) of this section, that incorporate the following: 

7 ‘‘(1) risk-based concepts in evaluating and as8 sessing internal control over financial reporting for 

9 issuers, including— 

10 ‘‘(A) the establishment of priority stand11 ards and identification of higher risk internal 

12 control areas that are to be assessed; 

13 ‘‘(B) the frequency of testing of internal 

14 control areas; 

15 ‘‘(C) time periods for implementing con16 trols following operational changes or additions; 

17 and 

18 ‘‘(D) standards for auditors to rely on 

19 management workpapers in internal control as20 sessments; 

21 ‘‘(2) specific guidelines for measuring the terms 

22 ‘material’, ‘reasonable’, ‘significant’, and ‘sufficient’ 

23 in the context of internal control over financial re24 porting for issuers, including— 

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

2 appropriate application of those terms; and 

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

4 response by the Commission or Board, as appli5 cable, to requests by issuers and registered pub6 lic accounting firms for guidance as to the ap7 propriate application of those terms; 

8 ‘‘(3) a requirement that the Board consider the 

9 efficiency of audit practices in its inspections con10 ducted under section 104; 

11 ‘‘(4) specific alternative requirements for small12 er issuers that reflect— 

13 ‘‘(A) the relative size and complexity of 

14 smaller issuers; and 

15 ‘‘(B) the relative financial and manpower 

16 burdens placed on smaller issuers in testing and 

17 documenting internal controls, taking into ac18 count the interests of investors and other stake19 holders in smaller issuers; and 

20 ‘‘(5) revised standards for independence by 

21 auditors to permit the rendering of internal control 

22 advice for resolution of internal control issues and 

23 related liability safe harbors for auditors providing 

24 such advice to smaller issuers. 

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1 ‘‘(d) DEFINITION OF SMALLER ISSUER.—For pur2 poses of subsection (c), the term ‘smaller issuer’ means 

3 an issuer that meets any of the following conditions as 

4 of the end of its fiscal year: 

5 ‘‘(1) the total market capitalization of the 

6 issuer is less than $700,000,000; 

7 ‘‘(2) the issuer has fewer than 300 record and 

8 beneficial holders of voting and non-voting common 

9 equity; 

10 ‘‘(3) the issuer has been subject to the require11 ments of sections 13(a) or 15(d) of the Securities 

12 Exchange Act of 1934 for a period of less than 

13 twelve calendar months; or 

14 ‘‘(4) the issuer has not filed, and was not re15 quired to file, an annual report pursuant to section 

16 13(a) or 15(d) of the Securities Exchange Act of 

17 1934.’’. 

Æ 

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