It was big news for nonaccelerated filers when Dodd-Frank finally gave them what they had long sought: A permanent reprieve from the Sarbanes Oxley 404(b) requirement. Prior to the passage of Dodd-Frank, these companies were given a string of temporary reprieves, which quite a few got used to. Many perhaps were woefully behind on the path toward compliance and were bailed out by the new law. Whew.

Recall that 404(b) requires public companies to have an auditor attest to the financial controls management has in place. Historically, it has been one of the most vexing and burdensome requirements of the law. But it's fair to say that over the years, companies have really refined their processes. Most large companies have made their peace with the requirement and even embraced it. That said, in this season of regulatory discontent, we are hardly surprised by the movement to nix the requirement for more companies. A recent bill introduced in Congress would exempt more companies, expanding the threshold for compliance all the way up to $500 million in market cap. Currently companies with a market cap of $75 million are exempt. 

In the run-up to Dodd Frank, this issue was debated, and the SEC was ultimately directed to study the issue of exempting companies with a market cap of up to just $250 million. The SEC recommended that the law not be altered. 

If the exemption is expanded, it will ignite a hugely controversy, as activist shareholders and others support the requirement. The Center for Audit Quality, the Council of Institutional Investors and the CFA Institute have already expressed to the House Financial Services Committee their view that efforts to exempt more public companies from 404 (b) compliance does investors a disservice. 

As the debate rolls on, the main issue will likely be costs. Recall that the legal opposition to Dodd-Frank's proxy access rule was built around the SEC's lack of cost-benefit analysis. In this case, it's fair to say that many medium-sized companies have honed their 404(b) processes to a manageable point; costs aren't a huge issue any more. Of course, 404(b) itself may be up for some criticism, as it did nothing to prevent the collapse of various financial companies. -Jim