October 26, 2005

Jonathan G. Katz
Secretary
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549-0609

Re: File No. S7-06-03; Management’s Report on Internal Control Over Financial Reporting
       and Certification of Disclosure in Exchange Act Periodic Reports of Companies That Are
       Not Accelerated Filers; 70 FR 56825 (Sept. 29, 2005)

Dear Mr. Katz:

America’s Community Bankers (“ACB”) is pleased to support the final rule issued by the Securities and Exchange Commission (“SEC”) delaying for one year the implementation of section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) for non-accelerated filers. That release also requested comments in response to certain questions about the application of section 404 to smaller public companies.

ACB strongly supports delaying the application of section 404 to non-accelerated filers until July 15, 2007, and appreciates the SEC taking this much-needed step. We recommended and supported this delay in recent testimony before the SEC’s Advisory Committee on Smaller Public Companies (“Advisory Committee”). A copy of that testimony as well as a separate comment letter filed with the Advisory Committee is attached.

The attached testimony and comment letter, as well as an attached comment letter filed in connection with the SEC’s April Roundtable on section 404, provide comments on the burden imposed by section 404 on publicly held community banks. We will not reiterate the comments made previously, but instead we include the attached letters and respectfully urge you to consider them as part of your deliberations. These letters and testimony provide suggestions for reducing the burden of section 404 on smaller public companies. Other ways to reduce the burden may come to light once the Committee on Sponsoring Organizations issues an exposure draft on implementing a control framework in smaller businesses, expected later this year.
The attached materials also explain why we believe that $700 million of public float should be used as the threshold to identify companies eligible for burden relief.

We would like to highlight one of our key observations about section 404. While we have made suggestions to the Advisory Committee on how to make section 404 less burdensome, we believe that there is a limit to what can be achieved by tweaking the requirements for smaller companies. Instead, we believe that the SEC, in conjunction with the Public Company Accounting Oversight Board (the “PCAOB”), should re-assess the requirement for an audit of internal controls. There is nothing in the legislative language that requires an audit opinion. The section 404 language is almost identical to similar requirements for internal control reports and attestations contained in banking law. Bank regulators never interpreted those requirements to mandate an audit opinion and Congress knew this when it adopted Sarbanes-Oxley.

Requiring the auditors to issue an audit opinion on internal controls lays a significant amount of responsibility and liability at the door of the auditing firms. We believe it has helped lead to a check-the-box mentality by management and auditors with regard to section 404 compliance. One has to sympathize with the position of auditors and can understand why the auditing firms have taken quite a conservative approach to this task. We do not believe that the cost and burden of section 404 will be reduced significantly for the smaller companies if you make incremental changes in the requirements without changing the role and responsibility of the auditor. We believe that at least for smaller public companies, an auditor review of management’s internal control assessment should be, at the most, all that is required under section 404.

ACB appreciates the opportunity to comment on these important matters. If you have any questions, please contact Diane Koonjy at (202) 857-3144 or via e-mail at [email protected].

Sincerely,


Charlotte M. Bahin
Senior Vice President, Regulatory Affairs

Attachments:

ACB Letter to the SEC, dated April 1, 2005
ACB Letter to the Advisory Committee, dated August 9, 2005
ACB Testimony Before the Advisory Committee, dated August 9, 2005