The Securities and Exchange Commission (“SEC”) announced on October 2, 2009 that even the smallest publicly reporting companies will soon be required to comply with the final portion of Section 404, the most costly and onerous provision of the Sarbanes-Oxley Act (“SOX”). SOX is the 2002 corporate governance law that requires companies to report to the public about the effectiveness of their internal control over financial reporting. Small, previously exempt companies with fiscal years ending after June 15, 2010 must start complying then with auditor attestation rules.
Under the provisions of Section 404 of SOX, public companies and their independent auditors are each required to report to the public on the effectiveness of a company’s internal controls. The smallest public companies with a public float below $75 million have been given extra time to design, implement and document these internal controls before their auditors are required to attest to the effectiveness of these controls.
This extension of time will expire beginning with the annual reports of companies with fiscal years ending on or after June 15, 2010. This expiration date previously had been for fiscal years ending on or after December 15, 2009. The extension was granted so that the SEC’s Office of Economic Analysis could complete a study of whether additional guidance provided to company managers and auditors in 2007 was effective in reducing the costs of compliance. Because the study was published less than three months before the December 15 deadline, the SEC determined that additional time is appropriate and reasonable so that small public companies and their auditors can better plan for the required auditor attestation.
While the reporting and auditor-attestation grew out of the 2002 SOX law passed by Congress, all U.S. public companies have been required to maintain internal accounting controls since 1977.
“Since there will be no further Commission extensions, it is important for all public companies and their auditors to act with deliberate speed to move toward full Section 404 compliance.” said SEC Chairman Mary L. Schapiro.
If you have questions about how to prepare for compliance with Section 404 of SOX, contact any member of Clark Wilson’s Corporate Finance & Securities Group.