I 

109TH CONGRESS 

2D SESSION H. R. 5405 

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

IN THE HOUSE OF REPRESENTATIVES 

MAY 17, 2006 

Mr. FEENEY (for himself, Mr. MEEKS of New York, Mr. SESSIONS, Mrs. MILLER of Michigan, Mr. HENSARLING, Mr. JONES of North Carolina, Ms. 

FOXX, Mr. GARRETT of New Jersey, Mr. STEARNS, Mr. TIAHRT, Mr. 

WICKER, Mr. ROYCE, Mr. PENCE, and Mr. FLAKE) introduced the following bill; which was referred to the Committee on Financial Services 

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 is 

4 amended— 

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

7 and (e), the Commission’’; 

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

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

10 shall’’; and 

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

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

14 Commission’s rules under subsection (a) shall permit an 

15 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) the issuer has fewer than 1500 record ben23 eficial holders; 

24 ‘‘(4) the issuer has been subject to the require25 ments of sections 13(a) or 15(d) of the Securities 


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1 Exchange Act of 1934 for a period of less than 

2 twelve calendar months; or 

3 ‘‘(5) the issuer has not filed, and was not re4 quired to file, an annual report pursuant to section 

5 13(a) or 15(d) of the Securities Exchange Act of 

6 1934. 

7 ‘‘(d) RANDOM AUDITS.—The Commission’s rules 

8 under this section shall provide that, after the first year 

9 for which an attestation and report is made by a registered 

10 public accounting firm under subsection (b), the assess11 ment by the management of the issuer under subsection 

12 (a)(2) shall be subject to examination, attestation, and re13 port on a schedule determined by a system of random se14 lection, as specified in such rules. The Commission shall 

15 specify in such rules that not less than 10 percent of the 

16 issuers listed on each national securities exchange will an17 nually be subjected to such examination, attestation, and 

18 report. Such random selection system shall be adminis19 tered by the national securities exchange on which the se20 curities of the issuer are listed. 

21 ‘‘(e) DE MINIMUS STANDARD; ADDITIONAL GUID22 ANCE; INDEPENDENCE.—In implementing the require23 ments of this section, the Commission and the Board— 

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

25 remote likelihood standard for noting weaknesses 


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1 under this section to a 5 percent de minimus mate2 rial weakness criteria (based on 5 percent of net 

3 profits); 

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

5 ‘reasonable’, ‘significant’, and ‘sufficient’ in the con6 text of internal control over financial reporting for 

7 issuers, including— 

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

9 appropriate application of those terms; and 

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

11 response by the Commission or Board, as appli12 cable, to requests by issuers and registered pub13 lic accounting firms for guidance as to the ap14 propriate application of those terms; and 

15 ‘‘(3) shall modify the rules concerning the inde16 pendence of registered public accounting firms to 

17 perform assessments under subsection (b) to allow 

18 prudent interaction between such firms and internal 

19 consultants.’’. 

20 SEC. 3. BRITISH ACCOUNTING SYSTEM STUDY. 

21 The Securities and Exchange Commission and the 

22 Public Company Accounting Oversight Board shall jointly 

23 conduct a study comparing and contrasting the principles24 based Turnbull Guidance under the securities laws of 

25 Great Britain to the implementation of section 404 of the 


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

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

3 to the Congress not later than one year after the date of 

4 enactment of this Act. 

Æ 


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