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 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 2009’’. 
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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 issuer. 
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 shall 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 
Federal and State regulatory agencies to 
the extent those examinations and inspec-
tions focus on the issuer’s risk-based inter-
nal 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 
public company that does not elect to comply with 
such requirements with respect to an annual report 
shall, in accordance with such regulations, disclose 
that noncompliance 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(a) 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 beneficial 
owners.’’. 
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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(2) the extent to which the Commission and the 
Board may, under existing statutes, take reasonable 
steps— 
(A) to increase the number of qualified ac-
counting firms; and 
(B) to eliminate de minimis conflict of in-
terest provisions; and 
(3) methods that may be undertaken for en-
couraging— 
(A) the largest public accounting firms to 
partner with smaller public accounting firms; 
and 
(B) coalitions among smaller public ac-
counting firms to compete for business for larg-
er and more complex issuers. 
(c) REPORT.—Within 6 months after the date of en-
actment of this Act, the Commission and the Board shall 
submit a joint report on the study required by this section 
to the Committee on Financial Services of the House of 
Representatives and the Committee on Banking, Housing, 
and Urban Affairs of the Senate. Such report shall— 
(1) contain the results of the examination of 
each of the subjects identified in subsection (b); 
(2) make recommendations to the accounting 
industry of measures that may be undertaken under 
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existing statutes, regulations, and standards to al-
leviate the concentration described in subsection 
(b)(1); 
(3) identify the measures that the Commission 
and the Board should undertake to alleviate such 
concentration; and 
(4) make any recommendations to the Congress 
for changes in the laws administered by the Com-
mission and the Board that the Commission or the 
Board consider appropriate and necessary on the 
basis of the examination. 
SEC. 5. PRINCIPALS-BASED GUIDANCE STUDY. 
(a) STUDY REQUIRED.—The Commission and the 
Board shall conduct a study comparing and contrasting 
the principles-based Turnbull Guidance under the securi-
ties laws of Great Britain to the implementation of section 
404 of the Sarbanes-Oxley Act of 2002. 
(b) REPORT.—Within one year after the date of en-
actment of this Act, the Commission and the Board shall 
submit a joint report on the study required by this section 
to the Committee on Financial Services of the House of 
Representatives and the Committee on Banking, Housing, 
and Urban Affairs of the Senate. Such report shall— 
(1) compare— 
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(A) the relative accounting and other costs 
of— 
(i) 
the 
principles-based 
Turnbull 
Guidance under the securities laws of 
Great Britain; and 
(ii) the implementation of section 404 
of the Sarbanes-Oxley Act of 2002; in rela-
tion to 
(B) the relative— 
(i) reduction in the level of risk to in-
vestors; and 
(ii) increase in the level of investor 
confidence in the financial statements of 
issuers; and 
(2) recommend to the Congress appropriate 
measures to alleviate accounting and other costs in 
relation to the reduction of such risk and the in-
crease in such confidence. 
SEC. 6. DEFINITIONS. 
For purposes of this Act, the terms ‘‘audit’’, 
‘‘Board’’, ‘‘Commission’’, ‘‘issuer’’, and ‘‘public account-
ing firm’’ have the meanings given such terms in section 
2 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201). 
Æ 
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