By: Jack Savage
On May 19, 2026, the Securities and Exchange Commission (“SEC”) proposed amendments to its rules and forms to reduce public company reporting requirements and encourage businesses to enter or remain in U.S. capital markets.[1] The SEC’s proposal would simplify the classification of reporting companies and expand existing exemptions from certain disclosure and auditing requirements, addressing concerns about the increasing costs of becoming a public company.[2] Although companies that enter the public market can access substantial capital and a broader pool of investors, they must also devote resources to financial reporting, auditing, and regulatory compliance. The SEC’s proposal therefore must balance reducing public companies’ regulatory obligations with encouraging capital formation without compromising investor protection.[3]
Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX”) illustrates this regulatory trade-off.[4] Section 404(a) requires management of covered issuers to report on its responsibility for establishing and maintaining internal controls over financial reporting (“ICFR”) and to assess their effectiveness.[5] While Section 404(a) seeks to promote the reliability of financial reporting, costs associated with Section 404(b) include external auditing fees, expenses related to designing and testing internal controls, and technology costs associated with implementing and documenting ICFR.[6]
Congress subsequently attempted to reduce these burdens through the Jumpstart Our Business Startups (“JOBS”) Act of 2012, which addressed concerns about the costs and barriers associated with businesses entering the public market.[7] The JOBS Act provided temporary relief for Emerging Growth Companies (“EGCs”), exempting them from Section 404(b)’s auditor attestation requirement, allowing qualified businesses to access public markets without immediately incurring additional compliance obligations.[8] The SEC also amended the definitions of “accelerated filer” and “large accelerated filer” in 2020, changing which public companies must obtain an independent auditor’s assessment of their internal controls over financial reporting (“ICFR”).[9] These actions reflect an effort to balance the benefits of additional oversight against costs that regulatory requirements may impose and that may be disproportionately burdensome on smaller companies.[10]
The SEC’s 2026 proposal would expand existing reporting exemptions and simplify the classification of public companies.[11] Among other changes, the proposal would raise the public-float threshold, a measure of a company’s publicly held shares, for large accelerated filers from $700 million to $2 billion.[12] It would also eliminate the separate accelerated-filer category and exempt non-accelerated filers from Section 404(b)’s auditor attestation requirement.[13] The proposal’s exemption would not eliminate all of management’s responsibilities under Section 404(a) or the requirement for an independent audit of a company’s financial statements.[14] The proposal would also extend certain scaled disclosure accommodations currently available to smaller reporting companies and EGCs to all non-accelerated filers.[15] The SEC’s proposed changes are intended to reduce compliance burdens and encourage more companies to enter and remain in public markets.[16]
The SEC’s proposal is not inherently inconsistent with SOX’s purpose of improving the reliability of public company financial reporting, which Congress enacted following accounting scandals.[17] Congress and the SEC have previously exempted certain smaller and emerging growth companies from Section 404(b) to reduce compliance costs and promote capital formation.[18] The SEC’s proposal expands these exemptions while retaining management’s obligations under Section 404(a) and the requirement for independent financial-statement audits.[19] However, the Government Accountability Office (“GAO”) found that ineffective internal controls and material weaknesses were more common among exempt companies in its report, raising concerns that broader exemptions could undermine SOX’s objectives.[20] Although the GAO cautioned that its sample was not generalizable, the findings suggest that regulatory relief must be balanced against the risk of weakening investor protections.[21]
The proposal could benefit businesses by reducing the financial and administrative costs associated with being a public company.[22] The GAO found that companies transitioning from exempt to nonexempt status experienced a median increase of $219,000, or 13 percent, in auditing fees during the transition year.[23] For smaller companies, these costs may divert effort and resources from hiring, product development, and other growth initiatives.[24] By reducing compliance costs, public financing may be more attractive to smaller companies and allow them to direct more resources toward business growth and development.[25]
However, exempting more issuers from auditor attestation could weaken additional safeguards designed to assess the effectiveness of internal controls.[26] Auditor attestation provides an independent assessment of management’s evaluation of ICFR, which can offer investors an additional safeguard when assessing the reliability of a company’s financial reporting.[27] The GAO’s analysis found that 73 percent of sampled exempt companies cited ineffective ICFR and material weaknesses, compared with 59 percent of sampled nonexempt companies.[28] The GAO cautions that the sample was not generalizable to all companies; nevertheless, the report’s findings illustrate the potential risks of reducing independent oversight.[29]
The proposal remains under consideration, leaving the SEC to balance the benefits of reducing compliance costs against the importance of reliable internal controls and financial reporting.[30] While targeted regulatory relief may help classes of businesses access public capital, expanding exemptions too broadly could undermine investor confidence.[31]
[1] See Press Release, U.S. Sec. & Exch. Comm’n, SEC Proposes Transformative Reforms to Help Public Companies Conduct Registered Offerings and Simplify Reporting Requirements (May 19, 2026) [hereinafter SEC Press Release Proposal], https://www.sec.gov/newsroom/press-releases/2026-46-sec-proposes-transformative-reforms-help-public-companies-conduct-registered-offerings-simplify [https://perma.cc/T2J9-GGWV].
[2] See id.; Michael Ewens, Kairong Xiao & Ting Xu, Regulatory Costs of Being Public: Evidence from Bunching Estimation, 153 J. Fin. Econ. 103775,103775–76 (2024) (estimating the economic effects of regulatory costs on companies’ decisions to remain private or become public).
[3] See SEC Press Release Proposal, supra note 1.
[4] See 15 U.S.C. § 7262(a)–(b) (requiring management to assess internal controls over financial reporting and covered issuers must provide an independent auditor attestation of management’s assessment).
[5] Id. § 7262(a).
[6] See 15 U.S.C. § 7262(a)—(b); Ewens, Xiao & Xu, supra note 2, at 103775–77.
[7] See Jumpstart Our Business Startups Act, Pub. L. No. 112–106, 126 Stat. 306, 306, 313 (2012) (stating that the Act was enacted “[t]o increase American job creation and economic growth by improving access to the public capital markets for emerging growth companies.”).
[8] See id. at 310 (amending section 404(b) of the Sarbanes-Oxley Act of 2002 to exempt eligible emerging growth companies from the auditor-attestation requirement for a period of time).
[9] See Press Release, U.S. Sec. & Exch. Comm’n, SEC Adopts Amendments to Reduce Unnecessary Burdens on Smaller Issuers by More Appropriately Tailoring the Accelerated and Large Accelerated Filer Definitions (Mar. 12, 2020), https://www.sec.gov/newsroom/press-releases/2020-58 [https://perma.cc/WP5E-4V4P] (explaining reporting companies with less than $100 million in revenue could remain exempt from SOX § 404(b) auditor attestation requirements, while retaining other ICFR and financial-statement audit obligations); see also Hester M. Peirce, Comm’r, U.S. Sec. & Exch. Comm’n, Statement on Amendments to Reduce Unnecessary Burdens on Smaller Issuers by More Appropriately Tailoring the Accelerated and Large Accelerated Filer Definitions (Mar. 12, 2020) [hereinafter Statement of Commissioner Pierce], https://www.sec.gov/newsroom/speeches-statements/statement-peirce-accelerated-filer-2020-03-12 [https://perma.cc/V6AR-MFVW] (supporting amendments intended to reduce compliance burdens on smaller public companies by exempting certain issuers from the auditor-attestation requirement of Section 404(b)); Allison Herren Lee, Comm’r, U.S. Sec. & Exch. Comm’n, Statement on the Rollback of Auditor Attestation Requirements (Mar. 12, 2020), https://www.sec.gov/newsroom/speeches-statements/statement-lee-accelerated-filer-2020-03-12 [https://perma.cc/CP9B-P6TR] (criticizing amendments that exclude certain issuers from Section 404(b)’s auditor-attestation requirement and expressing concern about investor-protection consequences).
[10] Statement of Commissioner Pierce, supra note 9.
[11] See SEC Press Release Proposal, supra note 1; Registered Offering Reform, 91 Fed. Reg. 31022, 31035 (proposed May 26, 2026) (to be codified at 17 C.F.R. pts. 210, 229, 230, 232, 239, 240, 249).
[12] See Enhancement of Emerging Growth Company Accommodations and Simplification of Filer Status for Reporting Companies, 91 Fed. Reg. 30086, 30097 (proposed May 21, 2026) (to be codified at 17 C.F.R. pts. 210, 229, 230, 232, 239, 240, 249) (proposing to raise the large-accelerated-filer threshold and expand exemptions from § 404(b)).
[13] See Enhancement of Emerging Growth Company Accommodations, 91 Fed. Reg. at 30086, 30097–98.
[14] Id.
[15] See id. at 30096–99; SEC Press Release Proposal, supra note 1.
[16] See SEC Press Release Proposal, supra note 1.
[17] See 15 U.S.C. § 7262; U.S. Gov’t Accountability Off., GAO-25-107500, Sarbanes-Oxley Act: Compliance Costs Are Higher for Larger Companies but More Burdensome for Smaller Ones 1–3, 12–14 (2025) [hereinafter GAO SOX Report] (explaining SOX was enacted to improve the reliability of financial reporting and auditing following high profile accounting scandals).
[18] See Jumpstart Our Business Startups Act, Pub. L. No. 112–106, 126 Stat. 306, 310 (2012) (providing certain emerging growth companies with exemptions from Section 404(b)).
[19] See SEC Press Release Proposal, supra note 1.
[20] See GAO SOX Report, supra note 17, at 27–30 (finding that 73% of sampled exempt companies, compared to 59% of nonexempt sample companies, cited ineffective internal controls and material weaknesses).
[21] See id. at 32–34 (cautioning that finding from the GAO’s review of compliance costs associated with Section 404 are not generalizable due to the small sample size of companies).
[22] See SEC Press Release Proposal, supra note 1.
[23] See GAO SOX Report, supra note 17, at 12–14.
[24] See id. at 22–25
[25] See id. (describing how exemptions from auditor attestation can provide relief by allowing companies to redirect resources toward business growth).
[26] See id. at 23–27 (explaining concerns about the effects of § 404(b) exemptions on the effectiveness of internal control and the reliability of financial reporting).
[27] See id. at 24–25 (referencing the results of several studies conducting annual surveys and audit committee members).
[28] See id. at 27–30 (explaining the findings from a nongeneralizable sample of 100 financial restatements from 2022 and 2023).
[29] See id. at 1–4.
[30] See id. (discussing the purposes of SOX and the costs of compliance); Enhancement of Emerging Growth Company Accommodations and Simplification of Filer Status for Reporting Companies, 91 Fed. Reg. 30086, 30097 (proposed May 21, 2026) (to be codified at 17 C.F.R. pts. 210, 229, 230, 232, 239, 240, 249) (describing the proposed changes to filer classifications and reporting accommodations).
[31] See GAO SOX Report, supra note 17, at 22–30 (discussing the potential benefits of exemptions fostering business growth and the relationship between exemptions, internal control weaknesses, and financial reporting reliability).