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SECTION 1. SHORT TITLE.

This Act may be cited as the ''Compete Act of 2007''.

SEC. 2. INTERNAL CONTROL REPORTING AND EVALUATION.

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 Evaluation.--
''(1) Auditor attestation and report.--With respect to the
internal control assessment required by subsection (a), each
registered public accounting firm that prepares or issues the
audit report 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 assessment shall focus on the process and
system management used to identify and manage risks, identify
and implement key controls, and come to a conclusion 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 separate (pass/fail) opinion on the
effectiveness of management's internal controls over financial
reporting. Any such attestation shall not be the subject of a
separate engagement.
''(2) Intervals for attestation and report.--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
financial restatement, evidence of fraud, or other such events
as determined by the Commission.
''(3) Standards for attestation and report.--
''(A) Risk-based evaluation.--An attestation made
under this subsection shall be made in accordance with
standards for attestation engagements 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
standards shall require that the determination by the
auditor of the controls that create the greatest risk
to the company shall be done in consultation 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 others.--The
standards issued or adopted by the Board for purposes
of implementing the requirements of this subsection
shall eliminate duplication of audits and examinations
by--
''(i) allowing registered public accounting
firms performing attestations and reports under
this subsection to rely on examinations and
inspections conducted by the Federal and state
regulatory agencies to the extent those
examinations and inspections 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--
''(I) the third-party accountant to
work with registered public accounting
firms performing attestations and
reports under this subsection on
determining the controls to be tested
and the scope of work;
''(II) the registered public
accounting firms performing
attestations and reports under this
subsection to rely heavily on the work
of the third-party accountant during
the attestation engagement to avoid
repetitive testing; and
''(III) management of the issuer to
communicate openly with the registered
public accounting firms performing
attestations and reports under this
subsection on all aspects of its
internal controls.
''(C) Definition.--For purposes of subparagraph
(B)(ii), the term 'third-party accountant' 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.
''(4) Materiality standard.--The Commission 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 INTERNAL CONTROL
PROVISION.

Section 404 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7262) is
amended by adding at the end the following new subsection:
''(c) Smaller Public Company Exemption.--
''(1) Voluntary compliance.--A smaller public company shall
not be subject to the requirements of this section with respect
to any annual report unless such company voluntarily elects to
comply with such requirements, in accordance with regulations
prescribed by the Commission. Any smaller 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 issuer for which an annual
report is required by section 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 revenue 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 beneficial
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 performance in only four
large public accounting firms capable of servicing the larger
issuers;
(2) the extent to which the Commission and the Board may,
under existing statutes, take reasonable steps--
(A) to increase the number of qualified accounting
firms; and
(B) to eliminate de minimis conflict of interest
provisions; and
(3) methods that may be undertaken for encouraging--
(A) the largest public accounting firms to partner
with smaller public accounting firms; and
(B) coalitions among smaller public accounting
firms to compete for business for larger more complex
issuers.
(c) Report.--Within 6 months after the date of enactment 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 existing statutes,
regulations, and standards to alleviate 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 Commission 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 securities 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 enactment 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--
(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 relation to
(B) the relative--
(i) reduction in the level of risk to
investors; 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 increase in such confidence.

SEC. 6. DEFINITIONS.

For purposes of this Act, the terms ''audit'', ''Board'',
''Commission'', ''issuer'', and ''public accounting firm'' have the
meanings given such terms in section 2 of the Sarbanes-Oxley Act of
2002 (15 U.S.C. 7201).
Output:
Compete Act of 2007 - Amends the Sarbanes-Oxley Act of 2002 to revise requirements for the internal control assessment component of a securities issuer's annual report.

Requires the attestation and report by a registered public accounting firm on an issuer's management assessment of its internal control structure and procedures to focus upon the process and system used by management to identify and manage risks, identify and implement key controls, and come to a conclusion on the effectiveness of the internal controls over financial reporting.

Prohibits an auditor's attestation and report from including a separate (pass/fail) opinion on the effectiveness of such internal controls.

Requires such attestation and report to be performed at three-year intervals.

Prescribes standards for such attestations and reports, including a risk-based evaluation.

Permits attestations and reports to rely on examinations and inspections by federal and state regulatory agencies.

Instructs the Securities and Exchange Commission to develop a standard of materiality for such assessments and reports based upon whether the internal control has a material effect on the company's financial statements and is significant to the issuer's overall financial status.

Exempts a smaller public company from the requirements for management assessment of internal controls, unless it voluntarily elects to comply with them.