There’s certainly lots of fraud going on at companies taking in less than $100 million a year, and their auditors frankly aren’t that good at (or desirous of) detecting it. So why even go one with the charade, the SEC wonders?

The Securities and Exchange Commission voted 3-1 on Thursday to advance a proposal that would exempt public companies with less than $100 million in annual revenue from a component of outside audits, part of a broader effort to entice more companies to go public.

Well, maybe there’s a reason….

A 2017 study by accounting professors at the University of Washington and Georgetown University estimated that 20% of exempted firms had ineffective internal controls from 2007 to 2014. During that same period, just 11% of them actually disclosed such a weakness.

They also found that 41% of exempted firms provided insufficient information to identify the causes of the weaknesses in their internal controls, compared with just 7% for firms that were complying with the Sarbanes-Oxley rules.

No matter.

“Many of these smaller companies—including biotech and health-care companies—will be able to redirect the savings into growing their companies by investing in research and human capital,” Mr. Clayton said.

SEC Moves to Ease Audits for Smaller Companies [WSJ]

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