12.08.2004
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Updates
The SEC has issued an exemptive order granting smaller accelerated filers up to an additional 45 days to include in their annual reports the 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 of which are required under SEC rules implementing Section 404 of the Sarbanes-Oxley Act of 2002. Although this postponement does not, for example, apply to Fortune 100 companies, like General Electric or Procter & Gamble, its practical effect will be to provide some additional time for many small- and mid-cap companies, including Nasdaq-listed technology and biotech companies, to complete management's assessment of internal control over financial reporting and for their auditors to complete their reports on management's assessment.
This Update summarizes the key elements of the exemptive order and offers practical guidance.
Which Accelerated Filers Get Extra Time?
The exemptive order applies to "accelerated filers" that have:
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fiscal years ending between and including November 15, 2004 and February 28, 2005; and
- a public equity float of less than $700 million on the last business day of their second fiscal quarter in 2004 (based on the market value of outstanding shares held by non-affiliates on that date).
"Accelerated filers" are companies that:
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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.
Deadline and Filing Mechanics for Management's Report and the Auditor's Report
Accelerated filers are required to include management's report on internal control over financial reporting and the auditor's report on management's assessment of internal control over financial reporting in annual reports filed for years ending on or after November 15, 2004. Smaller accelerated filers that qualify for postponement under the SEC's exemptive order may file management's report and the related auditor's report within 45 days after the filing deadline for the annual report in an amendment to the annual report (annual reports for accelerated filers must be filed within 75 days after fiscal year end for fiscal years ending on or after December 15, 2003). So, for example, an accelerated filer with a fiscal year ending on December 31, 2004 that qualifies for the exemption must file its annual report on Form 10-K by March 16, 2005, but may file the management's report and related auditor's report as late as May 2, 2005 (the first business day after the 45-day postponement deadline).
Even if a company uses Rule 12b-25 to extend the deadline for filing the annual report beyond 75 days after fiscal year end, the filing deadline for the annual report amendment that includes management's report and the related auditor's report is not extended; the annual report amendment that includes those reports still must be filed within 120 days after fiscal year end.
Foreign private issuers and companies that are not accelerated filers will first be required to provide management's report on internal control over financial reporting and the related auditor's report for fiscal years ending on or after July 15, 2005, and this exemptive order does not affect the timing for these companies.
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Traps for the Unwary Annual Reports Must Include All Required Disclosure, Including Disclosure of Any Material Weakness, Within 75 Days After Fiscal Year End. All other information required in annual reports, including audited financial statements, must be filed within 75 days after the fiscal year end (the original due date for the annual reports). In addition an accelerated filer that has identified (or whose auditor has identified) a material weakness in its internal control over financial reporting before the date the company files its annual report must disclose this information in the annual report filed within the original deadline (this disclosure does not qualify for the 45-day postponement). Form S-3 Not Available Until Management's Report and the Related Auditor's Report Are Filed. To be eligible to use Form S-3 (or Form S-2) to register securities for sale, a company must have filed in a timely manner all reports required to be filed during the preceding twelve months. Accelerated filers relying on the SEC's exemptive order will not be considered to have timely filed their annual reports until they have filed all the information required to be included in the annual report, including management's report and the related auditor's report. |
Additional Information
You can find the full text of the exemptive order at http://www.sec.gov/rules/exorders/34-50754.htm. You can find discussion of other recent laws, regulations and rule proposals of interest to public companies on our website.
