Financial Reporting Alert 09-4: SEC Further Defers Section 404(b) Requirement for Smaller Public CompaniesOctober 2, 2009 |
On October 2, the SEC issued a press release announcing that it will allow nonaccelerated filers (issuers with public floats of less than $75 million) an additional six-month deferral (from years ending on or after December 15, 2009, to years ending on or after June 15, 2010) from complying with SEC rules issued in response to Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Act”). These rules require that issuers’ annual reports include an auditor’s attestation report on management’s assessment of internal control over financial reporting.
The SEC also released the results of the cost-benefit study conducted by its Office of Economic Analysis to determine whether the “2007 reforms” (i.e., management guidance issued by the SEC and PCAOB Auditing Standard No. 5, An Audit of Internal Control Over Financial Reporting That Is Integrated With an Audit of Financial Statements) had the “intended effect of facilitating more cost-effective internal controls evaluations and audits, especially as they may apply to smaller reporting companies.” The results indicated that the 2007 reforms had reduced the cost of Section 404 compliance. The SEC, in granting the additional deferral, determined it to be appropriate and reasonable to allow more time for smaller companies and their auditors to better plan for the required auditor attestation. Calendar-year-end issuers must now comply with the Section 404(b) requirement as of December 31, 2010. All issuers are nevertheless currently required to include management’s report on internal control over financial reporting in all annual reports on Form 10-K, in accordance with Section 404(a) of the Act.
SEC Chairman Mary Schapiro remarked, “Since there will be no further Commission extensions, it is important for all public companies and their auditors to act with deliberate speed to move toward full Section 404 compliance.”
