Washington, D.C.- Senator Tom Cotton (R-Arkansas) along with Senators Thom Tillis (R-North Carolina), Doug Jones (D-Alabama), and Kyrsten Sinema (D-Arizona) yesterday introduced the Small Business Audit Correction Act to provide much-needed regulatory relief to small investment brokers by exempting them from certain audit requirements and reinstating previous regulations. The bill was first introduced in the 115th Congress. Last year a similar version passed the House Financial Services Committee in bipartisan fashion.

"Requiring our small non-custodial broker-dealers to get the same audits required of public companies only results in higher costs and fewer small firms, and all because of a provision that wasn't even supposed to be aimed at non-custodial firms. This bill will return audit requirements to the former standard, one appropriate for these kinds of firms and which will allow our small broker-dealers to expand and help create more jobs," said Cotton.

Background:

  • The Dodd-Frank Act requires all investment brokers and dealers, irrespective of size, to hire a Public Company Accounting Oversight Board (PCAOB)-registered audit firm to conduct audits using significantly more complex guidelines designed for larger, public companies.
  • This requirement is devastating for small investment firms, particularly in states like Alabama, North Carolina, Arizona and Arkansas. These firms are closing at an alarming rate, in part due to skyrocketing audit costs required by a rule that is illogical for firms that don't hold customer assets.
  • The Small Business Audit Correction Act would exempt privately-held, small non-custodial brokers and dealers in good standing from the requirement to hire a Public Company Accounting Oversight Board (PCAOB)-registered audit firm to meet their annual SEA Rule 17a-5 reporting obligation and would instead reinstate the previous regulatory audit requirements.