SEC plans to scale back Enron-era audit rules

Investing.com -- The Securities and Exchange Commission plans to reduce the number of companies required to have auditors verify their internal financial controls, a move that would scale back protections put in place after Enron's 2001 collapse.

The energy company went from being one of the world's largest firms to bankruptcy in months when its use of questionable accounting practices came to light. The Sarbanes-Oxley law, passed in 2002, required companies to certify they had internal controls to detect financial misconduct. Most companies also needed auditors to sign off on those controls.

The SEC now proposes to exempt most remaining companies from the auditor attestation requirement. Every company with a public float below $2 billion would be exempt, along with all companies for their first five years after going public, regardless of size.

SEC Chair Paul Atkins said the proposal aims at "making IPOs great again," arguing that auditor attestation costs deter companies from going public. Atkins previously criticized the requirement when he was an SEC member, saying auditors were testing tens or hundreds of thousands of largely irrelevant procedures at some companies.

About 1,100 large-cap companies would remain subject to the requirement, representing 94% of market value. All companies would still be legally required to maintain strong financial controls and certify them in shareholder filings.

Data from Ideagen Audit Analytics shows the number of U.S. public companies needing to restate financial results fell steadily after Sarbanes-Oxley was enacted and has stayed low. Exempted companies have accounted for 60% to 80% of annual restatements in recent years and are more likely to report material weaknesses in internal controls.

A Government Accountability Office report last year estimated auditor attestation accounts for 13% to 19% of total audit bills. Across the roughly 1,600 companies that would become newly exempt, savings could reach $400 million to $600 million.

The U.S. Chamber of Commerce said businesses view current auditor attestation rules as "disproportionately expensive and regressive." Nasdaq supported the proposal, while investor groups and audit firms opposed it.

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