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What Will Easing of Enron-Era Accounting Rules Mean for Your Business?

Recent proposed changes by a US regulator is considering freeing smaller companies from the requirement that they have an auditor sign off on their financial reporting internal controls. This aspect of the Sarbanes-Oxley Act, put into place following the Enron scandal, has faced many years of strong criticism from business groups and conservative lawmakers who find that the rules are too burdensome for smaller businesses. The SEC members voted 3-1 to seek public comment about the proposed change. Here are some of the details about this proposed change in SEC requirements and how it may impact your company.

Under the proposal for relaxed SEC requirements, companies that have under $100 million in annual revenues would be exempted from the auditor attestation requirement. This requirement was put in place as a response to scandals over the accounting practices at Enron Corp and similar businesses.

However, this doesn't get you away from audits altogether. Companies that would meet the requirement still need to have their regular financial statements audited. This would be handled by an independent accounting firm, according to Bill Hinman, the head of SEC's Corporate Finance Unit.

It's estimated by SEC economists that the requirement for auditor attestation is currently costing small companies more than $200,000 a year, money that could potentially be invested into improving company growth, adding jobs to the local economy and increasing investor profits.

The SEC commissioner holding the only Democratic seat, Robert Jackson, chose to vote against the proposed change. His concern was that by exempting smaller businesses from the requirement, it would open the way to fraud and removing key investor protections. He was very concerned about the possibility of misconduct at small businesses found to be reporting rapid growth. However, SEC Chair Jay Clayton felt that investors in the smaller companies would benefit because the tailored requirement would allow the companies to redirect the costs related to audits into growth, improving investor outcomes.

If you're not sure whether your company falls within the guidelines for relaxed SEC requirements, the experienced business professionals at AccountRely can help. We have a range of business and accounting professionals that can help you through the related accounting rules to determine where you stand. Please feel free to reach out today to get started.

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