The SEC recently approved a one-year extension of the date on which non-accelerated filers must begin to comply with the auditor attestation report on internal control over financial reporting required by Section 404(b) of the Sarbanes-Oxley Act of 2002. This update summarizes key information from the SEC action and provides practical guidance.

Auditor Attestation Report Compliance Deadline Extended

Deadline Extended by One Year for Non-Accelerated Filers. A non-accelerated filer (a company that did not have a public float of $75 million or more on the last business day of its most recently completed second fiscal quarter) must now provide its first auditor attestation report under Section 404(b) in the annual report for the fiscal year ending on or after December 15, 2009. Before this relief, a non-accelerated filer would have been required to include the auditor attestation report in its annual report for the fiscal year ending on or after December 15, 2008.

No Effect on Management’s Assessment. The extended compliance deadline for the auditor attestation report does not affect a non-accelerated filer's obligation under Section 404(a) to include management’s assessment of the effectiveness of internal control over financial reporting in its annual reports for fiscal years ending on or after December 15, 2007. For annual reports for fiscal years ending before December 15, 2009, a non-accelerated filer must state in its management report that the company’s annual report does not include the auditor attestation report.

Reasons for Extension. The SEC deferred the auditor attestation report requirement for an additional year primarily to provide the SEC and the Public Company Accounting Oversight Board time to complete initiatives intended to improve the cost-effectiveness and efficiency of the internal control over financial reporting auditing and management evaluation processes for smaller companies. The SEC hopes the extended deadline will allow non-accelerated filers and their auditors to benefit from these initiatives, including potentially less formal documentation requirements and other cost-savings measures.

Temporary Section 18 Liability Relief Continued

The SEC also retained rule provisions for non-accelerated filers that treat management reports not accompanied by an auditor attestation as "furnished" rather than "filed" for liability purposes under Section 18 of the Securities Exchange Act of 1934. The SEC intends that this treatment will mitigate the risk of liability in situations in which management concludes that the company’s internal control over financial reporting is effective when the management report is filed without an auditor's attestation, but the company's auditor comes to a contrary conclusion in its attestation filed in a subsequent year. The relief from Section 18 liability does not limit or otherwise affect liability under Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 for material misstatements or omissions in management reports.

Revised Section 404 Compliance Dates

The revised compliance dates for non-accelerated filers are set forth below.

Additional Information

This Update provides a general summary of the SEC rules extending the compliance deadline for non-accelerated filers to file the auditor attestation report and related matters. You can read the full text of the final rules at http://www.sec.gov/rules/final/2008/33-8934.pdf. You can find discussions of other recent cases, laws, regulations and rule proposals of interest on our website.