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GAO Study Recommends Mandating that Public Companies Disclose Auditor Attestation

Posted in Public Companies

Dodd-Frank Act Section 989G amended the Sarbanes-Oxley Act so that Section 404(b) does not apply with respect to “any audit report prepared for an issuer that is neither a ‘large accelerated filer’ nor an ‘accelerated filer’ as those terms are defined” by the SEC—essentially eliminating the auditor attestation requirement for smaller reporting companies.  The Dodd-Frank Act also mandated that the GAO study the impact of this exemption on the quality of financial reporting by smaller public companies.  The GAO report considers the number of restatements that occur for smaller public companies, and the effect on investor confidence of the integrity of financial reporting.  The study found that smaller public companies had a higher incidence of restatements; however, the study doesn’t necessarily suggest any causality as between the lack of attestation and the higher incidence of restatements.  The study concludes that, in order to promote transparency, the SEC should consider requiring disclosure of the exemption from the auditor attestation requirement, as well as disclosure of any voluntarily conducted auditor attestation.  See the study at:  http://www.gao.gov/assets/660/655710.pdf.