The SEC has again extended the compliance dates for its "internal control" regulations implementing Section 404 of the Sarbanes-Oxley Act as they apply to non-accelerated filers (public equity float of less than $75 million) and foreign private issuers. Companies in these groups will now be required to comply with these requirements for the first time for fiscal years ending on or after July 15, 2006.


This is the SEC's third extension of the compliance deadline for the regulations implementing Section 404. In extending the compliance deadline further for these companies, the SEC cited the particular challenges faced by smaller and foreign companies in complying with the internal control over financial reporting and related requirements.

  • Non-Accelerated Filers.

    For smaller public companies, this delay will allow time for the newly formed SEC Advisory Committee on Smaller Public Companies to consider the framework for internal control over financial reporting applicable to smaller public companies, methods for management's assessment of such internal control, and standards for auditing the internal controls of these companies. In addition the delay allows time for the newly formed task force of the Committee of Sponsoring Organizations established to expand the existing COSO Framework to provide more guidance on how the framework can be applied to small companies.
  • Foreign Private Issuers. The unique challenges for foreign companies include language, culture, and organization structures that are far different from what is typical in the United States. In addition, a number of foreign issuers are subject to new European Union requirements that companies incorporated in EU member country, whose securities are publicly traded within the EU, prepare their consolidated financial statements under International Financial Reporting Standards.

Practical Effect: A One-Year Extension for Most Affected Companies

For non-accelerated filers and foreign private issuers whose fiscal years end on or after July 15, 2005 and before July 15, 2006, the practical effect of this extension is a one-year delay for when they must first include in their annual reports filed with the SEC management's evaluation of and report on internal control over financial reporting and the related independent registered public accounting firm report.

  • Calendar Year-End Companies Benefit.
    Calendar year-end companies in these groups that would previously have had to comply with these requirements for the first time in the annual report filed with the SEC for the year ending December 31, 2005, will now not have to do so until the annual report filed with the SEC for the year ending December 31, 2006.

Which Specific Requirements Are Delayed?

The SEC's action delays when companies must first include:

    • Management's Report on Internal Control Over Financial Reporting in an annual report filed with the SEC (required by Regulation S-K Item 308(a));

    • The related auditor's attestation (required by Regulation S-K Item 308(b)); and
    • CEO/CFO certifications regarding internal controls (required by Exchange Act Rule 13a-14 (and Rule 15d-14)).

The SEC's action also delays when companies must first evaluate whether changes in the company's internal control over financial reporting that occurred during the evaluation period have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting (required by Regulation S-K Item 308(c)).

Who Is an Accelerated Filer?

"Accelerated filers" are companies that:

    • have a public equity float of at least $75 million (based on the market value of outstanding shares held by non-affiliates on the last business day of the second fiscal quarter);

    • have been subject to the Exchange Act's reporting requirements for at least 12 calendar months;
    • previously have filed at least one annual report; and
    • are not eligible to file their quarterly and annual reports on Forms 10-QSB and 10-KSB.

Additional Information

You can find the full text of the final rules implementing the current extension as adopted at http://www.sec.gov/rules/final/33-8545.htm. You can find discussion of other recent laws, regulations and rule proposals of interest to public companies on our website.


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