SEC Alert—One-Year Extension for Small Businesses from the Section 404(b) Auditor Attestation Requirement
© June 2008
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On June 20, 2008, the SEC announced its approval of 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. Smaller companies will now be required to provide the auditor attestation reports with their annual reports for fiscal years ending on or after December 15, 2009. This is the latest in a series of SEC efforts to reduce unnecessary compliance costs for smaller companies.
On June 20, 2008, the SEC announced that it 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. With the extension, smaller companies will now be required to provide the auditor attestation reports in their annual reports for fiscal years ending on or after December 15, 2009.
The SEC also announced that it received Office of Management and Budget (OMB) approval 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 SEC will collect real-word data from a broad array of companies to analyze what drives costs, particularly for smaller companies, and where companies and investors derive the benefits from Section 404. The results of the study are expected to become available during the one-year extension period.
Section 404 has two provisions: 404(a) requires company management to assess the effectiveness of the company's internal controls over financial reporting, while 404(b) requires an auditor attestation on management's assessment. Larger companies, comprising more than 95 percent of the market capitalization of U.S equity securities markets, have been subject to both provisions since 2004.
The extension of the Section 404(b) compliance date for smaller companies is the latest in a series of SEC efforts to help reduce unnecessary compliance costs for smaller companies while preserving important investor protections. In 2007, the SEC issued new guidance for management's Section 404 assessment to help companies focus their reviews on the internal control issues that matter most to investors. This year, companies of all sizes, including smaller companies, are filing their first 404(a) reports, and larger companies are filing their first 404(b) reports under the new audit standard.