Friday, June 20, 2008
The SEC announced that it has approved a one-year extension of the compliance date for smaller public companies to meet the Section 404(b) auditor attestation requirement of the Sarbanes-Oxley Act. The SEC also announced that it received Office of Management and Budget (OMB) approval yesterday to proceed with data collection for a study of the costs and benefits of Section 404 implementation, focusing on the consequences for smaller companies and the effects of the Section 404 auditor attestation requirements. The results of the study are expected to become available during the extension period.
With the extension, smaller companies will now be required to provide the attestation reports in their annual reports for fiscal years ending on or after Dec. 15, 2009. SEC Chairman Christopher Cox first proposed this one-year delay for small businesses during December 2007 testimony before the House Small Business Committee, and the Commission formally proposed this extension on Feb. 1, 2008.
The SEC staff's cost-benefit study, which was announced in February, is being led by the SEC's Office of Economic Analysis with assistance from the Office of the Chief Accountant and the Division of Corporation Finance. With OMB approval, and the key financial data for annual reports becoming available to companies this spring, the SEC staff will be moving forward with interviews and a web-based survey as part of its effort to collect real-world data from a broad array of companies and analyzing what drives costs, particularly for smaller companies, and where companies and investors derive the benefits from Section 404. The SEC staff's cost-benefit study will help determine whether the new management guidance on evaluating the internal controls over financial reporting issued by the Commission in June 2007 and the Public Company Accounting Oversight Board's (PCAOB) Auditing Standard No. 5 approved by the Commission in July 2007 are having the intended effect of facilitating more cost-effective internal control evaluations and audits of smaller reporting companies. The study includes gathering new data from a broad array of companies about the costs and benefits of compliance with the Section 404 requirements. The study also pays special attention to those smaller companies that are complying for the first time with the requirements that are currently in effect.
The full text of the final amendments for the extension of the auditor attestation requirement for smaller companies will be posted to the SEC Web site as soon as possible. The amendments will take effect 60 days after the release is published in the Federal Register.