• SEC Extends Dates for Implementation of Sarbanes-Oxley Section 404: Compliance for Internal Control Over Financial Reporting
  • March 12, 2004
  • Law Firm: Perkins Coie LLP - Seattle Office
  • The SEC is extending the compliance dates for its regulations relating to "internal control" rules implementing Section 404 of the Sarbanes-Oxley Act as they apply to selected groups of companies. As announced on February 24, 2004:

    • Accelerated filers with fiscal years ending between June 14, 2004 and November 14, 2004 do not need to comply with these requirements for the current fiscal year, as they were previously required to do. The first Form 10-K of these filers subject to the Section 404 requirements will be the Form 10-K filed in late 2005 or early 2006.

    • Issuers other than accelerated filers (generally small business issuers and foreign private issuers) with fiscal years ending between April 15, 2005 and July 14, 2005 do not need to comply with these requirements for those fiscal years. The first Form 10-K of these filers subject to the Section 404 requirements will be the Form 10-K filed in 2006.

    This effectively represents a one-year extension for these two groups of companies. This extension, however, does not result in any change for issuers with a calendar fiscal year-end.

    Background

    This is the SEC's second extension of the compliance deadline for the regulations implementing Section 404. Previously, the SEC had recognized the time and resources that issuers needed to properly implement the rules; in addition, the first extension allowed the Public Company Accounting Oversight Board (PCAOB) to finalize the new attestation standards for registered public accounting firms that it had proposed on October 7, 2003.

    In implementing the current extension, the SEC cited a January 23, 2004 request from representatives of five companies with fiscal years ending between July 31 and November 30, 2004. As these issuers are well into their fiscal years and the PCAOB standards have not been finalized, it would have been extremely difficult for the off-year companies to properly prepare for compliance with the new requirements and for auditors to properly implement a final standard under the then-current compliance dates.

    Practical Impact

    The practical impact of this extension will be a one-year extension for two designated groups of issuers whose fiscal year-ends do not fall at the end of the calendar year.

    For issuers with December 31 fiscal year-ends, the SEC action simply refocuses companies on the need to continue to implement any remedial structures required to issue the management report on (or evaluation of) internal control over financial reporting and the related registered public accounting firm report requirements in Items 308(a) and (b) of Regulation S-K.

    Additional Information

    You can find the full text of the final rules implementing the current extension as adopted at http://www.sec.gov/rules/final/33-8392.htm.