I 
110TH CONGRESS 
1ST SESSION H. R. 1508 
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 13, 2007 
Mr. MEEKS of New York (for himself, Mr. FEENEY, Mr. WESTMORELAND, 
Mr. HENSARLING, Mrs. MILLER of Michigan, Mr. DUNCAN, Mr. GAR-
RETT of New Jersey, Mr. GINGREY, Mr. KINGSTON, Mr. CARTER, Mr. 
GOODE, Mr. MANZULLO, Mr. BARRETT of South Carolina, Mrs. MYRICK, 
Mr. 
GOHMERT, 
Mr. 
LAMBORN, 
Mr. 
FLAKE, 
Mr. 
PITTS, 
Mr. 
NEUGEBAUER, Mr. AKIN, Mrs. MCMORRIS RODGERS, Mr. PUTNAM, Mr. 
MACK, Mr. ROYCE, Mr. SESSIONS, Mr. PAUL, and Mr. TOWNS) intro-
duced the following bill; which was referred to the Committee on Finan-
cial Services 
A BILL 
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. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Compete Act of 2007’’. 
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SEC. 2. INTERNAL CONTROL REPORTING AND EVALUA-
TION. 
Subsection (b) of section 404 of the Sarbanes-Oxley 
Act of 2002 (15 U.S.C. 7262(b)) is amended to read as 
follows: 
‘‘(b) INTERNAL CONTROL REPORTING AND EVALUA-
TION.— 
‘‘(1) AUDITOR
ATTESTATION
AND
REPORT.— 
With respect to the internal control assessment re-
quired by subsection (a), each registered public ac-
counting firm that prepares or issues the audit re-
port for the issuer shall, at the interval determined 
under paragraph (2), attest to, and report on, the 
assessment made by the management of the issue. 
The attestation and report on the management as-
sessment shall focus on the process and system man-
agement used to identify and manage risks, identify 
and implement key controls, and come to a conclu-
sion on the effectiveness of the internal controls over 
financial reporting. Such attestation and report shall 
not include a separate opinion on the outcome of the 
assessment, that is, the auditor shall not issue a sep-
arate (pass/fail) opinion on the effectiveness of man-
agement’s internal controls over financial reporting. 
Any such attestation shall not be the subject of a 
separate engagement. 
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‘‘(2) INTERVALS
FOR
ATTESTATION
AND
RE-
PORT.—The Commission’s regulations under this 
section shall require that the attestation and report 
required by paragraph (1) be performed during an 
initial reporting period, and then at 3-year intervals. 
Such regulations shall require a shorter interval in 
the event of a major shift in the company’s structure 
or performance, such as a merger, a significant fi-
nancial restatement, evidence of fraud, or other such 
events as determined by the Commission. 
‘‘(3) STANDARDS FOR ATTESTATION AND RE-
PORT.— 
‘‘(A) RISK-BASED EVALUATION.—An attes-
tation made under this subsection shall be made 
in accordance with standards for attestation en-
gagements issued or adopted by the Board. 
Such standards shall require that the audit of 
the management assessment of the internal 
control of the issuer shall be designed, on the 
basis of the probability of risk and magnitude 
of potential harm, to focus on those controls 
that are critical to the accuracy of the financial 
statements of the issuer, and be consistent with 
the materiality standards prescribed by the 
Commission under paragraph (4). Such stand-
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ards shall require that the determination by the 
auditor of the controls that create the greatest 
risk to the company shall be done in consulta-
tion with management of the issuer and shall 
identify those greatest risks on bases of the 
characteristics of the industry within which the 
issuer operates. 
‘‘(B) RELIANCE ON THE WORK OF OTH-
ERS.—The standards issued or adopted by the 
Board for purposes of implementing the re-
quirements of this subsection shall eliminate 
duplication of audits and examinations by— 
‘‘(i) allowing registered public ac-
counting firms performing attestations and 
reports under this subsection to rely on ex-
aminations and inspections conducted by 
the Federal and state regulatory agencies 
to the extent those examinations and in-
spections focus on the issuer’s risk-based 
internal controls; 
‘‘(ii) where the issuer has engaged a 
third-party accountant to test and provide 
management’s assessment of the internal 
control systems, permitting— 
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‘‘(I) the third-party accountant 
to work with registered public ac-
counting firms performing attesta-
tions and reports under this sub-
section on determining the controls to 
be tested and the scope of work; 
‘‘(II) the registered public ac-
counting firms performing attesta-
tions and reports under this sub-
section to rely heavily on the work of 
the third-party accountant during the 
attestation engagement to avoid repet-
itive testing; and 
‘‘(III) management of the issuer 
to communicate openly with the reg-
istered public accounting firms per-
forming 
attestations 
and 
reports 
under this subsection on all aspects of 
its internal controls. 
‘‘(C) DEFINITION.—For purposes of sub-
paragraph (B)(ii), the term ‘third-party ac-
countant’ means a registered public accounting 
firm other than the registered public accounting 
firm that is engaged to perform the attestation 
and report under this subsection. 
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‘‘(4) MATERIALITY STANDARD.—The Commis-
sion shall develop a standard of materiality for the 
conduct of the assessment and report on an internal 
control under this subsection that shall be based on 
whether the internal control has a material affect on 
the company’s financial statements and is significant 
to the issuer’s overall financial status.’’. 
SEC. 3. SMALLER PUBLIC COMPANY EXEMPTION FROM IN-
TERNAL CONTROL PROVISION. 
Section 404 of the Sarbanes-Oxley Act of 2002 (15 
U.S.C. 7262) is amended by adding at the end the fol-
lowing new subsection: 
‘‘(c) SMALLER PUBLIC COMPANY EXEMPTION.— 
‘‘(1) VOLUNTARY
COMPLIANCE.—A smaller 
public company shall not be subject to the require-
ments of this section with respect to any annual re-
port unless such company voluntarily elects to com-
ply with such requirements, in accordance with regu-
lations prescribed by the Commission. Any smaller 
company that does not elect to comply with such re-
quirements with respect to an annual report shall, in 
accordance with such regulations, disclose that non-
compliance in such report. 
‘‘(2) DEFINITION.—For purposes of paragraph 
(1), the term ‘smaller public company’ means an 
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issuer for which an annual report is required by sec-
tion 13(a) or 15(d) of the Securities Exchange Act 
of 1934 (15 U.S.C. 78m or 78o(d)) that— 
‘‘(A) has a total market capitalization at 
the beginning of the relevant reporting period 
of less than $700,000,000; 
‘‘(B) has total product and services rev-
enue for that reporting period of less than 
$125,000,000; or 
‘‘(C) has, at the beginning of the relevant 
reporting period, fewer than 1500 record bene-
ficial holders.’’. 
SEC. 4. COMPETITION FOR AUDITING SERVICES. 
(a) STUDY REQUIRED.—The Commission and the 
Board shall conduct a study examining the lack of, and 
impediments to, robust competition for the performance 
of audits for issuers. 
(b) SUBJECTS OF STUDY.—The study required by 
this section shall examine— 
(1) the causes for, and the measures that may 
be taken to alleviate, the concentration of audit per-
formance in only four large public accounting firms 
capable of servicing the larger issuers; 
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