I 

111TH CONGRESS 

1ST SESSION H. R. 1797 

To reform certain provisions of section 404 of the Sarbanes-Oxley Act of 

2002 to make compliance with that section more efficient, with the 

goal of maintaining United States capital market global competitiveness. 

IN THE HOUSE OF REPRESENTATIVES 

MARCH 30, 2009 

Mr. MEEKS of New York introduced the following bill; which was referred to 

the Committee on Financial Services 

A BILL 

To reform certain provisions of section 404 of the SarbanesOxley Act of 2002 to make compliance with that section 

more efficient, with the goal of maintaining United 

States capital market global competitiveness. 

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 ‘‘Compete Act of 2009’’. 


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1 SEC. 2. INTERNAL CONTROL REPORTING AND EVALUA2 TION. 

3 Subsection (b) of section 404 of the Sarbanes-Oxley 

4 Act of 2002 (15 U.S.C. 7262(b)) is amended to read as 

5 follows: 

6 ‘‘(b) INTERNAL CONTROL REPORTING AND EVALUA7 TION.— 

8 ‘‘(1) AUDITOR ATTESTATION AND REPORT.— 

9 With respect to the internal control assessment re10 quired by subsection (a), each registered public ac11 counting firm that prepares or issues the audit re12 port for the issuer shall, at the interval determined 

13 under paragraph (2), attest to, and report on, the 

14 assessment made by the management of the issuer. 

15 The attestation and report on the management as16 sessment shall focus on the process and system man17 agement used to identify and manage risks, identify 

18 and implement key controls, and come to a conclu19 sion on the effectiveness of the internal controls over 

20 financial reporting. Such attestation and report shall 

21 not include a separate opinion on the outcome of the 

22 assessment, that is, the auditor shall not issue a sep23 arate (pass/fail) opinion on the effectiveness of man24 agement’s internal controls over financial reporting. 

25 Any such attestation shall not be the subject of a 

26 separate engagement. 


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1 ‘‘(2) INTERVALS FOR ATTESTATION AND RE2 PORT.—The Commission’s regulations under this 

3 section shall require that the attestation and report 

4 required by paragraph (1) be performed during an 

5 initial reporting period, and then at 3-year intervals. 

6 Such regulations shall require a shorter interval in 

7 the event of a major shift in the company’s structure 

8 or performance, such as a merger, a significant fi9 nancial restatement, evidence of fraud, or other such 

10 events as determined by the Commission. 

11 ‘‘(3) STANDARDS FOR ATTESTATION AND RE12 PORT.— 

13 ‘‘(A) RISK-BASED EVALUATION.—An attes14 tation made under this subsection shall be made 

15 in accordance with standards for attestation en16 gagements issued or adopted by the Board. 

17 Such standards shall require that the audit of 

18 the management assessment of the internal 

19 control of the issuer shall be designed, on the 

20 basis of the probability of risk and magnitude 

21 of potential harm, to focus on those controls 

22 that are critical to the accuracy of the financial 

23 statements of the issuer, and shall be consistent 

24 with the materiality standards prescribed by the 

25 Commission under paragraph (4). Such standVerDate Nov 24 2008 00:18 Apr 01, 2009 Jkt 079200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H1797.IH H1797

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1 ards shall require that the determination by the 

2 auditor of the controls that create the greatest 

3 risk to the company shall be done in consulta4 tion with management of the issuer and shall 

5 identify those greatest risks on bases of the 

6 characteristics of the industry within which the 

7 issuer operates. 

8 ‘‘(B) RELIANCE ON THE WORK OF OTH9 ERS.—The standards issued or adopted by the 

10 Board for purposes of implementing the re11 quirements of this subsection shall eliminate 

12 duplication of audits and examinations by— 

13 ‘‘(i) allowing registered public ac14 counting firms performing attestations and 

15 reports under this subsection to rely on ex16 aminations and inspections conducted by 

17 Federal and State regulatory agencies to 

18 the extent those examinations and inspec19 tions focus on the issuer’s risk-based inter20 nal controls; 

21 ‘‘(ii) where the issuer has engaged a 

22 third-party accountant to test and provide 

23 management’s assessment of the internal 

24 control systems, permitting— 


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1 ‘‘(I) the third-party accountant 

2 to work with registered public ac3 counting firms performing attesta4 tions and reports under this sub5 section on determining the controls to 

6 be tested and the scope of work; 

7 ‘‘(II) the registered public ac8 counting firms performing attesta9 tions and reports under this sub10 section to rely heavily on the work of 

11 the third-party accountant during the 

12 attestation engagement to avoid repet13 itive testing; and 

14 ‘‘(III) management of the issuer 

15 to communicate openly with the reg16 istered public accounting firms per17 forming attestations and reports 

18 under this subsection on all aspects of 

19 its internal controls. 

20 ‘‘(C) DEFINITION.—For purposes of sub21 paragraph (B)(ii), the term ‘third-party ac22 countant’ means a registered public accounting 

23 firm other than the registered public accounting 

24 firm that is engaged to perform the attestation 

25 and report under this subsection. 


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1 ‘‘(4) MATERIALITY STANDARD.—The Commis2 sion shall develop a standard of materiality for the 

3 conduct of the assessment and report on an internal 

4 control under this subsection that shall be based on 

5 whether the internal control has a material affect on 

6 the company’s financial statements and is significant 

7 to the issuer’s overall financial status.’’. 

8 SEC. 3. SMALLER PUBLIC COMPANY EXEMPTION FROM IN9 TERNAL CONTROL PROVISION. 

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

11 U.S.C. 7262) is amended by adding at the end the fol12 lowing new subsection: 

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

14 ‘‘(1) VOLUNTARY COMPLIANCE.—A smaller 

15 public company shall not be subject to the require16 ments of this section with respect to any annual re17 port unless such company voluntarily elects to com18 ply with such requirements, in accordance with regu19 lations prescribed by the Commission. Any smaller 

20 public company that does not elect to comply with 

21 such requirements with respect to an annual report 

22 shall, in accordance with such regulations, disclose 

23 that noncompliance in such report. 

24 ‘‘(2) DEFINITION.—For purposes of paragraph 

25 (1), the term ‘smaller public company’ means an 


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1 issuer, for which an annual report is required by sec2 tion 13(a) or 15(d) of the Securities Exchange Act 

3 of 1934 (15 U.S.C. 78m(a) or 78o(d)), that— 

4 ‘‘(A) has a total market capitalization at 

5 the beginning of the relevant reporting period 

6 of less than $700,000,000; 

7 ‘‘(B) has total product and services rev8 enue for that reporting period of less than 

9 $125,000,000; or 

10 ‘‘(C) has, at the beginning of the relevant 

11 reporting period, fewer than 1500 beneficial 

12 owners.’’. 

13 SEC. 4. COMPETITION FOR AUDITING SERVICES. 

14 (a) STUDY REQUIRED.—The Commission and the 

15 Board shall conduct a study examining the lack of, and 

16 impediments to, robust competition for the performance 

17 of audits for issuers. 

18 (b) SUBJECTS OF STUDY.—The study required by 

19 this section shall examine— 

20 (1) the causes for, and the measures that may 

21 be taken to alleviate, the concentration of audit per22 formance in only four large public accounting firms 

23 capable of servicing the larger issuers; 


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1 (2) the extent to which the Commission and the 

2 Board may, under existing statutes, take reasonable 

3 steps— 

4 (A) to increase the number of qualified ac5 counting firms; and 

6 (B) to eliminate de minimis conflict of in7 terest provisions; and 

8 (3) methods that may be undertaken for en9 couraging— 

10 (A) the largest public accounting firms to 

11 partner with smaller public accounting firms; 

12 and 

13 (B) coalitions among smaller public ac14 counting firms to compete for business for larg15 er and more complex issuers. 

16 (c) REPORT.—Within 6 months after the date of en17 actment of this Act, the Commission and the Board shall 

18 submit a joint report on the study required by this section 

19 to the Committee on Financial Services of the House of 

20 Representatives and the Committee on Banking, Housing, 

21 and Urban Affairs of the Senate. Such report shall— 

22 (1) contain the results of the examination of 

23 each of the subjects identified in subsection (b); 

24 (2) make recommendations to the accounting 

25 industry of measures that may be undertaken under 


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1 existing statutes, regulations, and standards to al2 leviate the concentration described in subsection 

3 (b)(1); 

4 (3) identify the measures that the Commission 

5 and the Board should undertake to alleviate such 

6 concentration; and 

7 (4) make any recommendations to the Congress 

8 for changes in the laws administered by the Com9 mission and the Board that the Commission or the 

10 Board consider appropriate and necessary on the 

11 basis of the examination. 

12 SEC. 5. PRINCIPALS-BASED GUIDANCE STUDY. 

13 (a) STUDY REQUIRED.—The Commission and the 

14 Board shall conduct a study comparing and contrasting 

15 the principles-based Turnbull Guidance under the securi16 ties laws of Great Britain to the implementation of section 

17 404 of the Sarbanes-Oxley Act of 2002. 

18 (b) REPORT.—Within one year after the date of en19 actment of this Act, the Commission and the Board shall 

20 submit a joint report on the study required by this section 

21 to the Committee on Financial Services of the House of 

22 Representatives and the Committee on Banking, Housing, 

23 and Urban Affairs of the Senate. Such report shall— 

24 (1) compare— 


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1 (A) the relative accounting and other costs 

2 of— 

3 (i) the principles-based Turnbull 

4 Guidance under the securities laws of 

5 Great Britain; and 

6 (ii) the implementation of section 404 

7 of the Sarbanes-Oxley Act of 2002; in rela8 tion to 

9 (B) the relative— 

10 (i) reduction in the level of risk to in11 vestors; and 

12 (ii) increase in the level of investor 

13 confidence in the financial statements of 

14 issuers; and 

15 (2) recommend to the Congress appropriate 

16 measures to alleviate accounting and other costs in 

17 relation to the reduction of such risk and the in18 crease in such confidence. 

19 SEC. 6. DEFINITIONS. 

20 For purposes of this Act, the terms ‘‘audit’’, 

21 ‘‘Board’’, ‘‘Commission’’, ‘‘issuer’’, and ‘‘public account22 ing firm’’ have the meanings given such terms in section 

23 2 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201). 

Æ 


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