Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Saturday, January 17, 2009

SEC Extends Deadline for Survey on 404

The SEC's Office of Economic Analysis (OEA) has extended the deadline to January 31 for public companies’ participation in a Web-based survey about the costs and benefits of Section 404 of the Sarbanes-Oxley Act of 2002.  The survey, which is available at, will help inform the SEC’s ongoing cost-benefit study of Section 404 implementation with a focus on the consequences for smaller companies.  More than 2,000 companies already have completed the voluntary survey, which is open to any company with Section 404 compliance experience in the U.S. and globally.

The SEC says that it wants to assess the effects of measures taken by both the SEC and the Public Company Accounting Oversight Board (PCAOB), including whether the measures have helped companies reduce their costs of compliance and whether the Commission should consider additional measures.

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They extended the survey deadline, but SEC just releasted an alert that they are imposing stiff penalties for non accelerated filers because, “some companies did not believe they were required to conduct an EVALUATION” (documenting tests of controls) and “some companies were silent as to whether they did an EVALUATOIN and assessment” (expressed an opinion without doing a SOX Assessment).

With all that is happening in the regulatory realm, SEC staff says, “It is the Division's view that the failure to provide this management report RENDERS THE ANNUAL REPORT MATERIALLY DEFICIENT.” They further elaborated that, “ if management DID NOT COMPLETE THE EVALUATION and provide the report as required by Item 308T(a), the company would not be timely or current in its Exchange Act reporting. This would result in the company NOT BEING ELIGIBLE TO FILE NEW FORM S-3 or FORM S-8 REGISTRATION STATEMENTS and the loss of the availability of Rule 144.”

And worse… “Because the filing of the Form 10-K constitutes the Section 10(a)(3) update for any effective Forms S-3 or S-8, THE COMPANY ALSO WOULD BE REQUIRED TO SUSPEND SALES UNDER ALREADY EFFECTIVE REGISTRATION STATEMENTS.”

For more information about the specific rules of SOX 404, go to Sarbanes Oxley Section 404 Compliance in the Frequently Asked Questions section.

Posted by: Bob Benoit | Jan 17, 2009 7:14:04 PM

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