Analysis

SEC's Relaxed Audit Rules Likely To Get Mixed Reviews

Law360 (May 15, 2019, 8:53 PM EDT) -- A U.S. Securities and Exchange Commission proposal that would relieve certain smaller companies from rules intended to prevent accounting misstatements or fraud is likely to be welcomed by early stage businesses with little revenue while rankling investor advocates.

The SEC is seeking comment on a proposal that would exclude certain smaller companies from being required to obtain an outside auditor's endorsement of their management's "internal controls" — meaning a company's policies and procedures to ensure sound financial reporting.

The requirement, known as the "404(b) rule," was enacted under the Sarbanes-Oxley Act of 2002 following the Enron Corp. and Worldcom Inc. accounting...

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