The SEC’s $2 Billion Threshold Would Turn Internal-Control Assurance Into a Much Scarcer Product

The SEC’s proposal to raise the large-accelerated-filer threshold from $700 million to $2 billion would do more than reduce compliance costs. It would change how widely the public markets receive independent assurance over internal control.

That is the more important finance question behind today’s estimate that U.S. accounting firms could lose more than $400 million in annual audit fees if the proposal is adopted.

The rule would change who must buy independent control assurance

Under current SEC rules, a company generally becomes a large accelerated filer when its public float reaches $700 million, subject to the other applicable conditions. The SEC’s May 2026 proposal would raise that threshold to $2 billion and simplify filer status so that companies below the large-accelerated-filer threshold would generally fall into a non-accelerated category.

That matters because the proposal would also extend the existing exemption from the auditor attestation requirement under Section 404(b) of the Sarbanes-Oxley Act to the broader non-accelerated-filer population. Management would still be responsible for assessing internal control over financial reporting. What changes is whether an external auditor must independently attest to management’s assessment.

The SEC has framed the proposal as a way to reduce the costs and complexity of being a public company. In a May 19 statement, Commissioner Mark Uyeda noted that companies above the proposed $2 billion threshold would represent about 19% of reporting companies but approximately 93.5% of total public float.

Company count and market-value coverage tell different stories

Those statistics are useful, but they answer different questions.

If the objective is to preserve assurance coverage over the largest share of market capitalization, the proposed threshold leaves most public float within the large-accelerated-filer population. If the objective is to understand how many individual public companies would operate without mandatory auditor attestation of internal controls, the picture looks quite different.

Some commenters have argued that roughly four-fifths of reporting companies could fall outside the Section 404(b) attestation requirement under the proposal. That estimate is contested in the broader policy debate, but the underlying point is straightforward: a very high percentage of aggregate market value can remain covered even while a much larger number of individual issuers become exempt.

The $400 million is a price tag, not a verdict

Today’s Financial Times estimate that the proposal could put more than $400 million of annual U.S. audit fees at risk is newsworthy because it makes the scale tangible. But finance leaders should be careful not to confuse the cost of the audit with the value—or lack of value—of the assurance.

An ICFR audit is unquestionably a recurring expense. It also creates an external testing process around control design, documentation, remediation, evidence quality and management assertions. The economic value of that process is harder to observe because the benefits often appear as avoided failures rather than visible revenue.

That is why the CFO question is not simply, “How much would we save?” It is, “What discipline or risk reduction would disappear with the spending?”

The audit committee should separate mandatory assurance from useful assurance

If the rule is adopted, companies that become exempt would still need to decide what level of independent assurance makes sense for their own risk profile.

• Control complexity: How many systems, locations, acquisitions and manual processes sit inside the reporting environment?
• Recent control history: Has the company reported material weaknesses or significant deficiencies, or undergone major remediation?
• Growth rate: Are finance systems and staffing keeping pace with revenue, transaction volume and organizational complexity?
• Capital-market dependence: How important are lenders, institutional investors and future equity issuance to the company?
• Governance needs: How much independent evidence does the audit committee want beyond management’s own assessment?

For some companies, the answer may be that the mandatory attestation was imposing costs disproportionate to the incremental assurance obtained. For others, removing the requirement could save audit fees while increasing the amount of judgment the board must exercise about the reliability of the control environment.

Evidence on benefits is part of the debate

Several comment letters filed with the SEC argue that independent attestation has benefits beyond the auditor’s opinion itself. The Audit Committee Council, for example, said that external attestation reinforces the rigor and consistency of management’s own ICFR evaluation and supports board oversight.

Academic researchers have also pointed the SEC to evidence from acquisition settings in which firms temporarily exempt newly acquired businesses from Section 404(b). One July comment letter summarized research finding that investors reacted negatively when acquirers elected the exemption and that exempted acquisitions were associated with weaker subsequent outcomes in several measures. That evidence does not by itself resolve the cost-benefit question for every public company, but it is directly relevant to the claim that attestation is purely a compliance expense.

What finance leaders should measure if the rule changes

The best response to a regulatory cost reduction is not to assume that every removed requirement should be abandoned immediately. It is to reprice the activity.

A CFO and audit committee could treat the change as a capital-allocation decision: compare the direct audit cost with the expected value of stronger controls, earlier remediation, investor confidence and reduced reporting risk. Some companies may choose less assurance. Some may retain targeted procedures. Others may conclude that continuing a level of independent attestation is worth the cost even when regulation no longer requires it.

That is the broader lesson in the SEC proposal. Regulation can determine what assurance is mandatory. It cannot determine what assurance is economically valuable for every company.

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Sources

• U.S. Securities and Exchange Commission, “Enhancement of Emerging Growth Company Accommodations and Simplification of Filer Status for Reporting Companies,” proposed rule, May 19, 2026.
• SEC Release No. 33-11419, proposed rule text.
• Commissioner Mark T. Uyeda, statement on the proposal, May 19, 2026.
• Financial Times, “Trump’s regulatory rollback puts $400mn in US audit fees at risk,” September 20, 2026.
• Audit Committee Council comment letter to the SEC, July 20, 2026.
• Comment letter discussing empirical research on the costs and benefits of internal control audits, July 19, 2026.
• Featured image source and license: Wikimedia Commons, CC BY-SA 3.0.

By Robert Young | Numbers & Judgment. Published September 20, 2026.