SEC Moves to Ease Audits for Smaller Companies

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.

Under the plan, smaller public companies such as those in the health care, information technology and biotech industries would get a pass from outside audits of their systems for preventing accounting errors and fraud, easing rules put in place nearly two decades ago in response to the Enron Corp. and WorldCom accounting frauds.

SEC Chairman Jay Clayton has made it a priority to make it more attractive for companies to go public and framed Thursday’s proposal as a step toward that goal. It follows a move by the SEC last June to expand the number of companies that can make scaled-back disclosures to regulators that also was aimed at boosting interest in the public markets.

“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.

The SEC under Mr. Clayton has pursued a steady stream of rule changes intended to make capital markets more attractive and boost the number of initial public offerings. The changes or proposed changes include giving companies greater leeway to discuss their IPO plans privately with potential investors before announcing their intentions and allowing companies to file IPO paperwork confidentially with the SEC.

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