SEC Grants Extension On Internal Controls Reporting

The U.S. Securities and Exchange Commission on Tuesday issued an exemptive order to grant certain accelerated filers up to an additional 45-days to include in their annual reports management’s report on internal control over financial reporting and the related auditor’s report on management’s assessment of internal control over financial reporting.

Both internal control reports are required under Commission rules implementing Section 404 of the Sarbanes-Oxley Act of 2002. All other information required in annual reports, including audited financial statements, would have to be filed on the original due date for the annual reports.

Don Nicolaisen, the Commission’s Chief Accountant, said, “The Commission is sensitive to resource constraints at accounting firms and at smaller public companies, and is taking this step to facilitate the successful and effective implementation of the Section 404 internal control requirements.” Alan Beller, the Director of the Division of Corporation Finance, stated, “This exemption will encourage companies to file important information for investors, including audited financial statements, on a timely basis, while providing an appropriate accommodation for internal control reports.”

The exemptive order applies to an accelerated filer that has a fiscal year ending between and including November 15, 2004 and February 28, 2005, and that had a public equity float of less than $700 million at the end of its second fiscal quarter in 2004. Commission rules define an “accelerated filer” as a company that

  • has a public float of at least $75 million;
  • has been subject to the SEC's periodic reporting requirements for at least 12 months and has filed one annual report; and
  • is not eligible to use the SEC's small business reporting forms.

The Public Company Accounting Oversight Board also met today to adopt a temporary rule, subject to Commission approval, that would permit the delayed filing of auditors’ internal control reports consistent with the Commission’s order.

The full text of the exemptive order has been posted on the SEC Web site.


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