October 12, 2009
Authored by: Bryan Cave
On October 2, 2009, the Securities and Exchange Commission (SEC) announced a nine-month deferral on Sarbanes-Oxley Act (SOX) Section 404(b) compliance for the smallest publicly reporting companies. Under the provisions of SOX 404, public companies and their independent auditors are each required to report on the effectiveness of company internal controls. All publicly reporting companies are currently required to disclose a report on management’s assessment of internal controls; however, only reporting companies with a public float of $75 million or above are required to disclose an attestation report provided by an independent auditor. The extension granted by the SEC will provide non-accelerated filers, those companies with a public float below $75 million, with a reprieve from independent auditor attestations until annual reports for fiscal years ending on or after June 15, 2010 are filed. Although the SEC has not published the final rule providing for the extension, based on prior extensions, we believe the extended deadline only applies to independent auditor attestations. Consequently, disclosure of management attestations on internal control continues to be required.
Prior to the October 2 announcement, the deadline for the independent auditor disclosure in annual reports for the smallest publicly reporting companies was fiscal years ending on or after December 15, 2009. The previous extension, granted in January 2008, was put in place to allow the SEC’s Office of Economic Analysis to complete a study of whether additional guidance provided to company managers and auditors in 2007 was effective in reducing the costs of compliance. This study was published recently, less than three months before the December 15 deadline, and, as a result, the SEC determined that additional time was appropriate and reasonable so the smallest publicly reporting companies and their auditors could better plan for the required attestation.
The SEC appears adamant that there will be no further extensions. In addition to the SEC announcement of the extension, in which SEC Chairman Mary Shapiro announced that no further extensions will be provided, Commissioner Luis Aguilar also released a separate statement announcing that all smaller reporting companies will be required to comply with SOX 404(b) in their first annual report for the fiscal years ending on or after June 15, 2010.