Small Companies Receive Delay From SEC On Sarbanes-0xley Section 404b Requirement
June 20, 2008
FEI Summary

On June 20, 2008, the U.S. Securities and Exchange Commission (SEC) announced that it adopted a final rule delaying the Sarbanes-Oxley Section 404(b) requirement for small public companies (i.e., "non-accelerated filers," generally defined as  those with less than $75 million market cap) to have an external auditor perform and report on an audit of internal control.

The delay means that small companies, which just this year had to file their first management report on internal control under Sarbox Section 404a, will have an additional year (i.e., effective fiscal years ending on or after Dec. 15, 2009), to comply with Sarbanes-Oxley Section 404b. Without the delay announced June 20, small companies would have become subject to 404b in fiscal years ending on or after Dec. 15, 2008. 

Additionally, the SEC said it received approval from the U.S. Office of Management and Budget (OMB) on June 19 “to proceed with data collection for a study of the costs and benefits of Section 404 implementation.” The cost-benefit study reportedly commenced on February 1, according to an earlier press release, but one step along the way apparently involved obtaining OMB approval, which is now in place.

Besides “focusing” the study on “the consequences for smaller companies and the effects of the Section 404 auditor attestation requirements,” the SEC notes the study will also “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 (AS5), which was 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,” said the SEC, adding that 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.”

Prepared June 20, 2008 by Edith Orenstein, Director, Technical Policy Analysis, Financial Executives International (FEI). This summary does not reflect FEI opinion unless specifically stated above.