Small Business Audit Correction Act of 2026
- Sponsor
- Rep. Hill, J. French [R-AR-2]
- Committees
- Financial Services Committee (primary)
- Last action
- Sep 17, 2026
Bottom line
The bill aims to reduce regulatory burdens for a specific subset of smaller, privately held financial firms by shifting their audit oversight from PCAOB standards to generally accepted auditing standards.
What it actually does
This bill amends the Sarbanes-Oxley Act of 2002 (SOX) to exempt certain privately held, non-carrying brokers and dealers from specific audit requirements under Title I of SOX, which are typically overseen by the Public Company Accounting Oversight Board (PCAOB). Instead, these exempted entities would satisfy their annual audit obligations through audits conducted in accordance with generally accepted auditing standards (GAAS). The bill establishes detailed criteria for what constitutes a "privately held," "non-carrying," and "in good standing" broker or dealer to qualify for this exemption.
Proponents argue
Proponents argue that the current SOX Title I audit requirements, designed for large public companies, impose disproportionate and unnecessary compliance costs on small, privately held, non-carrying brokers and dealers. They contend that these firms pose less systemic risk and that GAAS audits provide sufficient oversight, allowing them to reallocate resources towards growth and serving clients more efficiently without compromising investor protection.
Opponents contend
Opponents might argue that any reduction in audit oversight, even for smaller firms, could weaken investor protections and increase the risk of financial misconduct. They may contend that the PCAOB's rigorous standards are crucial for maintaining confidence in financial markets, and that creating exemptions could lead to a two-tiered system where some firms operate under less stringent scrutiny, potentially creating loopholes or competitive disadvantages.
The bill is short and its core purpose is clear, but understanding the full implications requires familiarity with financial regulations like SOX and SEC rules.
Section 2(a)(1) and (2)
Exclusion from SOX Title I Audit Requirements
This provision amends Section 110 of the Sarbanes-Oxley Act of 2002 to specify that the term "registered public accounting firm" does not include a "non-carrying broker or dealer that is privately held and in good standing" for the purposes of certain SOX Title I requirements. This effectively exempts these specific types of firms from the audit oversight of the Public Company Accounting Oversight Board (PCAOB) under SOX.
Supporters argue
Supporters argue this provision tailors regulation to risk, recognizing that smaller, privately held firms that do not hold customer assets pose less systemic risk and should not be subject to the same costly audit standards as large public companies. This allows them to operate more efficiently.
Critics contend
Critics might contend that any exemption from PCAOB oversight could create a regulatory gap, potentially increasing the risk of financial mismanagement or fraud, even if the firms are small and privately held. They may argue that consistent, high-quality audits are essential for market integrity.
Tradeoffs
The provision balances the desire to reduce regulatory burden on small businesses against the need for robust financial oversight and investor protection.
Section 2(a)(4), inserting new paragraph (5)
Criteria for "In Good Standing" Status
This section defines what it means for a broker or dealer to be "in good standing" to qualify for the exemption. It requires registration with the SEC and a national securities association, compliance with net capital and aggregate indebtedness ratios, and a clean record over the past 10 years regarding SEC orders, administrative proceedings, felony convictions for the firm itself, and certain felony convictions or regulatory sanctions for associated persons.
Section 2(a)(4), inserting new paragraph (6)
Criteria for "Non-Carrying" Status
This section defines a "non-carrying broker or dealer" as one that (A) has no more than 150 registered persons and is not affiliated with an investment advisor acting as a customer asset custodian; (B) throughout the fiscal year, does not hold customer funds/securities, carry customer accounts, or engage in certain activities defined in SEC Rule 15c3-1(a)(2), and is a SIPC member if required; and (C) has filed an exemption report under SEC Rule 17a-5(d)(4).
Section 2(a)(4), inserting new paragraph (7)
Criteria for "Privately Held" Status
This section defines a "privately held" broker or dealer (including its ultimate parent or affiliates) as one that does not have a class of securities registered under Section 12 of the Securities Exchange Act of 1934 and is not required to file reports under Section 15(d) of that Act. This ensures the exemption applies only to firms that are not publicly traded or subject to public reporting requirements.
Section 2(b) and (c)
Mandate for Regulatory Adjustments and Safeguards
This provision mandates that the SEC and PCAOB amend their regulations within 180 days of the Act's effective date to implement the new exemptions. Specifically, the SEC must amend Rule 17a-5 to allow exempted firms to satisfy their annual audit obligation through audits conducted under generally accepted auditing standards (GAAS). A rule of construction clarifies that the Act does not permit the SEC to waive requirements for auditor qualification/independence under Regulation S-X or the filing of exemption reports under Rule 17a-5(d)(4).