SEC Grants One-Year Extension for SOX Compliance

The Commission has further extended the compliance dates for non-accelerated filers and foreign private issuers regarding amendments to its rules under the Securities Exchange Act of 1934 that were adopted on June 5, 2003, pursuant to Section 404 of the Sarbanes-Oxley Act. The amendments require a company to include in its annual reports a report by management on the company's internal control over financial reporting and an accompanying auditor's report.

The Commission extended the original Section 404 compliance dates for all issuers in February 2004 (see Release No. 33-8392). Under the latest extension, a company that is not required to file its annual and quarterly reports on an accelerated basis (non-accelerated filer) and a foreign private issuer filing its annual reports on Form 20-F or 40-F, must begin to comply with the internal control over financial reporting requirements for its first fiscal year ending on or after July 15, 2006. This is a one-year extension from the previously established July 15, 2005, compliance date for non-accelerated filers and foreign private issuers. The Commission similarly has extended the compliance date for these companies relating to requirements regarding evaluation of internal control over financial reporting and management certification requirements. Please refer to Release No. 33-8545 for more detailed information.

Donald T. Nicolaisen, the Commission's Chief Accountant, said, "The Section 404 requirements are among the most important parts of the Sarbanes-Oxley Act, and I encourage public companies to devote the necessary resources to make sure those requirements are implemented effectively. I don't underestimate the effort this will require for smaller companies and foreign private issuers, but this extension will provide additional time for those issuers to take a good hard look at their internal controls, as the Act contemplates."

Alan L. Beller, Director of the Division of Corporation Finance, added, "Section 404 reporting has the long-term potential to substantially improve the reliability of financial reporting. It is already having that effect for companies with the vast majority of U.S. market capitalization. Given the burdens in designing and implementing Section 404 compliance for smaller and non-U.S. companies, this extension strikes the right balance.

Companies should use the extension not to delay but to improve the quality of their efforts."

The Commission considered the particular challenges facing non-accelerated filers and foreign private issuers in determining to grant this extension. Many foreign companies are facing regulatory and reporting challenges in addition to internal control reporting as companies incorporated in a European Union member country are required to prepare their financial statements for 2005 in accordance with new International Financial Reporting Standards. Two initiatives also are underway that may affect non-accelerated filers. First, the Commission has established an SEC Advisory Committee on Smaller Public Companies to assist the Commission in evaluating the current securities regulatory system relating to smaller public companies, including the internal control requirements. Second, the Committee of Sponsoring Organizations (COSO) has established a task force to develop new guidance for smaller companies that it intends to publish this summer.

Additional materials: Final Rule Release No. 33-8545

You may like these other stories...

Companies are taking their time transitioning to the 2013 Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal Control-Integrated Framework, even though the updated guidance is set to take effect...
By Jason BramwellOfficials from the Public Company Accounting Oversight Board (PCAOB) said on August 19 that deficiencies were found in all sixty of the broker-dealer audits conducted by audit firms that the PCAOB inspected...
By Frank Byrt and Anne RosivachThe Public Company Accounting Oversight Board (PCAOB) issued a cautiously optimistic report on US auditors' performance, saying the Board found a reduced rate of "significant audit...

Upcoming CPE Webinars

Jul 16
Hand off work to others with finesse and success. Kristen Rampe, CPA will share how to ensure delegated work is properly handled from start to finish in this content-rich one hour webinar.
Jul 17
This webcast will cover the preparation of the statement of cash flows and focus on accounting and disclosure policies for other important issues described below.
Jul 23
We can’t deny a great divide exists between the expectations and workplace needs of Baby Boomers and Millennials. To create thriving organizational performance, we need to shift the way in which we groom future leaders.
Jul 24
In this presentation Excel expert David Ringstrom, CPA revisits the Excel feature you should be using, but probably aren't. The Table feature offers the ability to both boost the integrity of your spreadsheets, but reduce maintenance as well.