Corporate & Securities e-Alert
The SEC Proposes to Extend for One Year the Compliance Date for the Auditor Attestation Requirement Applicable to Smaller Reporting Companies
5 February 2008 / Alex Frutos / Jackson Walker L.L.P.
TEXAS - In another move by the Securities and Exchange Commission (the SEC) to help reduce costs of internal controls compliance for smaller reporting companies, on February 1, 2008, the SEC proposed to amend temporary rules that were published in December 21, 2006.1 These temporary rules currently require issuers that are smaller reporting companies2 to include in their annual reports, pursuant to rules implementing Section 404(b) of the Sarbanes-Oxley Act of 2002, an attestation report of their independent auditor on internal control over financial reporting for fiscal years ending on or after December 15, 2008. The SEC’s proposed amendments delay that requirement for one year to fiscal years ending on or after December 15, 2009.
In June and July 2007, the SEC issued new guidance and new rules issued relating to Section 404 compliance. These rules were adopted with the express purpose of increasing audit efficiency and reducing audit costs by facilitating more effective and efficient evaluations of internal control over financial reporting by management and auditors.3 All public companies, including smaller reporting companies, will file their first Section 404(a) management reports using the SEC’s guidance this year. At the same time, the SEC and the Public Company Accounting Oversight Board approved Auditing Standard No. 5, An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of Financial Statements, with the intention of making the Section 404(b) auditor attestation requirement more cost effective.4 Large accelerated filers and accelerated filers are now filing their first Section 404(b) auditor attestation reports under the new audit standard.
The SEC has launched a study regarding the costs and benefits of companies currently complying with Section 404 under newly-issued guidance for companies and auditors. The SEC’s proposed postponement for smaller reporting companies would allow time for completion of the study and to take into account its findings before smaller reporting companies would be required to comply with the auditor attestation requirements.
If you have questions concerning the new rules and the implications to your business, you can contact the following:
Austin
Mike Meskill - 512.236.2253 - mmeskill@jw.com
Dallas
Rick Dahlson - 214.953.5896 - rdahlson@jw.com
Byron Egan - 214.953.5727 - began@jw.com
Alex Frutos - 214.953.6012 - afrutos@jw.com
Jim Ryan - 214.953.5801 - jryan@jw.com
Jeff Sone - 214.953.6107 - jsone@jw.com
Houston
David Deaton - 713.752.4508 - ddeaton@jw.com
Sabrina McTopy - 713.752.4265 - smctopy@jw.com
Richard Roth - 713.752.4209 - rroth@jw.com
San Antonio
Stephanie Chandler - 210.978.7704 - schandler@jw.com
Steve Jacobs - 210.978.7727 - sjacobs@jw.com
1. Securities Act Release No. 33-8889 (February 2008).
2. Smaller reporting companies are issuers that have less than $75 million in public float, or, if an issuer is unable to calculate its public float, less than $50 million in revenue in its last completed fiscal year. Smaller Reporting Company Regulatory Relief and Simplification, Securities Act Release No. 33-8876, (December 2007).
3. SEC Interpretive Release No. 33-8810 (June 2007), Commission Guidance Regarding Management’s Report on Internal Control Over Financial Reporting Under Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and SEC Release No. 33-8809 (June 2007), Amendments to Rules Regarding Management’s Report on Internal
Control Over Financial Reporting.
4. SEC Release No. 34-56152 (July 2007).
