A proposed overhaul of U.S. public-company reporting rules is putting more than $400 million in annual audit fees in the spotlight while reopening a debate that has shaped American financial reporting since the Enron-era scandals.
The Securities and Exchange Commission, under Chairman Paul Atkins, has proposed raising the threshold at which public companies become subject to the most demanding filer requirements from $700 million to $2 billion in public float.
The proposal would also give newly public companies a five-year runway before they could become large accelerated filers, regardless of their public float under the proposed framework.
For accounting firms, that could mean a substantial reduction in audit work and fees. For companies, it could lower compliance costs. For investors, however, the proposal raises a different question: how much independent scrutiny should public companies receive when they report their financial results?
Why $400 Million Is Suddenly at Stake
The financial impact is significant because independent auditors currently perform additional work to evaluate internal controls over financial reporting for companies subject to Section 404(b) of the Sarbanes-Oxley Act.
The Government Accountability Office found that companies transitioning from an exempt to a nonexempt status experienced a median 13% increase in audit fees, or about $219,000, in the transition year in its sample of 98 companies.
The GAO also cautioned that Section 404(b)-specific fees cannot easily be separated from total audit fees because internal-control work is integrated with the broader financial statement audit.
Using company audit-fee data, the Financial Times estimated that the companies that could newly qualify for the exemption paid about $3.8 billion in audit fees in 2025, implying roughly $430 million associated with the additional work.
That figure is an estimate rather than a separately reported industry revenue line, because audit firms generally do not break out Section 404(b) fees from their overall audit bills.
And that is why the proposal has become an important financial issue for the accounting industry.
What the SEC Actually Wants to Change
The SEC unveiled the proposed filer-status changes on May 19, 2026.
Under the current framework, public companies can fall into several filer categories, with large accelerated filers generally facing the most extensive requirements.
The SEC proposal would simplify that system into two primary categories:
- Large accelerated filers
- Non-accelerated filers
The proposed threshold for large accelerated filer status would rise from $700 million to $2 billion in public float.
Companies below the new threshold would generally fall into the non-accelerated category and would receive expanded scaled-reporting accommodations.
Most importantly for auditors, non-accelerated filers would not be required to obtain an independent auditor attestation on the effectiveness of their internal controls under Section 404(b).
The proposal would therefore move a large number of companies out of the auditor-attestation regime.
The SEC has estimated that approximately 1,700 additional public companies could become exempt from the requirement. Industry analysis cited by the Center for Audit Quality estimates that the share of public companies subject to the requirement would fall from roughly 48% to about 19%, although those remaining companies would represent approximately 93.5% of total public float.
The Five-Year IPO On-Ramp Could Be Just as Important
The proposal goes beyond the $2 billion threshold.
A newly public company would receive a 60-month seasoning period before becoming a large accelerated filer, even if its public float is already above the threshold.
That could be particularly consequential for large technology companies entering public markets.
Under the proposal, a company could remain outside the large accelerated filer category for five years while it establishes its reporting systems and internal controls.
The SEC describes the change as an “IPO on-ramp,” arguing that newly public businesses need time to stabilize and grow without immediately taking on the full compliance burden associated with mature public companies.
The change could potentially affect companies that enter public markets with valuations far above the threshold.
But the proposal does not eliminate management’s responsibility for internal controls. The distinction is that independent auditor attestation would not be required for companies remaining in the non-accelerated category.
Why Accounting Firms Are Fighting Back
The accounting industry has a direct financial interest in the debate.
If thousands of additional companies no longer need independent auditor attestation, accounting firms could lose a significant amount of work associated with internal-control testing.
The Big Four firms — EY, Deloitte, PwC and KPMG — have opposed the proposed expansion of the exemption, according to the Financial Times.
The Center for Audit Quality has also argued that the SEC should conduct a broader cost-benefit analysis of the proposal.
Its concern is not simply about accounting-firm revenue.
The CAQ argues that independent auditor attestation can contribute to stronger internal controls, more reliable financial reporting and greater investor confidence.
Some audit firms have also argued that companies will continue to need extensive internal-control testing even without the formal Section 404(b) attestation because auditors still need sufficient evidence to issue an opinion on financial statements.
That means the actual savings for companies could be smaller than the headline figures suggest.
The SEC’s Argument: The Rules Have Become Too Expensive
The SEC’s case is built around reducing regulatory burdens and making U.S. public markets more attractive.
The commission says the existing framework has accumulated layers of requirements over time and that smaller and newer public companies can face significant costs relative to their size.
SEC Commissioner Taylor Moloney, in discussing the proposal, pointed to companies that can become subject to auditor attestation because their public float crosses a regulatory threshold even when their underlying business remains relatively small.
The SEC has also argued that its proposed framework would concentrate the strictest requirements on the companies that represent the overwhelming majority of total public-market value.
Under the proposal, roughly 93.5% of total public float would remain subject to Section 404(b), according to SEC-related analysis cited by the Center for Audit Quality.
That distinction is central to the SEC’s argument.
The proposal would affect a large percentage of companies by count, but a much smaller percentage of the overall market by value.
But Investor Groups See a Different Risk
Investor advocates and some audit professionals have raised concerns about expanding the exemption so broadly.
Their argument is that market value is not necessarily a perfect measure of the complexity or risk of a company’s accounting systems.
A company worth less than $2 billion can still have complicated operations, aggressive growth plans, acquisitions, overseas subsidiaries or other accounting challenges.
The Audit Committee Council, an independent advisory group within the Center for Audit Quality, argued that independent auditor attestation remains an important component of investor protection and board oversight.
Its comment letter said the proposed $2 billion threshold could be too broad because public float does not necessarily correspond to the complexity of a company’s accounting systems.
Other commenters have made a similar argument.
The concern is straightforward: if independent testing of internal controls disappears for a much larger group of public companies, investors could have less external assurance about the systems companies use to produce their financial statements.
The Enron Connection
The debate goes back more than two decades.
The Sarbanes-Oxley Act was enacted in 2002 following major accounting scandals, including the collapse of Enron and WorldCom.
Section 404 established requirements for companies to assess their internal controls over financial reporting, with Section 404(b) requiring independent auditor attestation for companies that fall within the applicable categories.
The law was designed to strengthen corporate accountability and improve confidence in financial reporting.
Over the years, however, lawmakers and regulators have repeatedly modified the rules to reduce the burden on smaller and emerging companies.
Emerging growth companies, for example, can already qualify for an exemption from auditor attestation for up to five years under the existing framework, subject to the applicable statutory requirements.
The SEC’s 2026 proposal would effectively broaden the population receiving similar accommodations.
This Is Not Yet a Final Rule
One of the most important details is easy to miss amid the political and financial headlines:
The SEC has not finalized this proposal.
The agency issued it on May 19, 2026, and the formal comment period closed in July.
The SEC’s rulemaking database continues to list the measure as a proposed rule, rather than a final rule. Public comments continued to appear in the agency’s record as recently as September 2026.
That means the final provisions could change before any adoption.
The SEC could modify the threshold, alter the IPO transition period, revise disclosure accommodations or decide not to adopt some elements of the proposal.
A Broader Deregulation Push
The audit proposal is part of a wider effort by the current SEC leadership to simplify securities regulation and reduce the costs associated with being a public company.
The commission has simultaneously proposed other changes affecting registered offerings and public-company reporting.
The SEC says the objective is to improve capital formation while preserving appropriate investor protections.
The broader debate is therefore not simply about accounting firms losing fees.
It is about how the United States should balance lower compliance costs and easier access to public markets against the amount of independent information and assurance available to investors.
That trade-off has existed since Sarbanes-Oxley was enacted.
The proposed $2 billion threshold would simply redraw where regulators believe that balance should sit.
What Happens Next Could Matter More Than the $400 Million
For accounting firms, the immediate issue is the potential loss of hundreds of millions of dollars in work.
For companies, the proposal could mean lower audit and compliance costs.
For investors, the more consequential question may be whether fewer independent internal-control attestations change the quality, reliability or cost of financial information available in the market.
The GAO’s research offers evidence on both sides: companies can experience meaningful cost increases when they become subject to Section 404(b), but research also points to a relationship between internal-control weaknesses and financial-reporting problems among companies exempt from auditor attestation.
That leaves the SEC with a difficult calculation.
How much regulatory cost can be removed without undermining the protections that the post-Enron system was designed to create?
The answer could reshape the economics of U.S. auditing — and potentially change the compliance landscape for thousands of public companies.
And until the SEC turns its proposal into a final rule, the biggest question remains unanswered: will the promised cost savings outweigh the concerns about what investors could lose in independent oversight?
