On October 2, 2009, the Securities and Exchange Commission (“SEC”) issued a press release giving nonaccelerated filers (those public companies with a public float, as measured at the end of their second fiscal quarter, of less than $75 million) additional time to comply with the requirements of Section 404(b) of the Sarbanes-Oxley Act. Section 404(b) will now apply to the annual reports of nonaccelerated filers for fiscal years ending on or after June 15, 2010. As a refresher, Section 404(b) established the requirement for a company’s audit firm to issue an audit opinion on the effectiveness of a company’s internal control over financial reporting (“SOX Opinion”). The requirement for a separate SOX Opinion was in addition to management’s report on internal control over financial reporting (“Management’s Report”).
So what does this really mean?
What this means is, if you are a nonaccelerated filer who has yet to start planning for full compliance with the requirements of Section 404(b), you dodged a bullet. The SEC’s deferral effectively gives companies with a calendar year end an additional year to fully comply with the requirements of Section 404(b) and secure a SOX Opinion from their audit firm. Calendar year-end issuers must now comply with the Section 404(b) requirement as of December 31, 2010. The extension does not affect companies with fiscal year-ends between June 15 and December 14. For example, companies with a June 30 year end will still need to be compliant with the annual report to be filed for their fiscal year ending June 30, 2010. However, the requirement for filing management’s assessment for all companies remains unchanged. Therefore, management will still need to scope, test and assess their internal controls over financial reporting in order to issue their report.
The bottom line
While we are all likely breathing a collective sigh of relief, the Section 404(b) respite will be brief. The SEC’s deferral was intended to provided additional time for nonaccelerated filers and their auditors to better plan for the required SOX Opinion. SEC Chairman Mary L. Schapiro stated that “there will be no further Commission extensions” and also urged “all public companies and their auditors to act with deliberate speed to move toward full Section 404 compliance.” Given that sentiment, nonaccelerated filers should not plan on further relief and the planning and scoping exercise and auditor coordination should continue (or start) sooner rather than later.