SEC Extends Compliance Dates Under Sarbanes-Oxley

by Glen Shapiro, LawAndTax-News.com, New York

01 March 2004

Responding perhaps to pleas from stressed-out professionals and CFOs, the US Securities and Exchange Commission has extended by a few months the deadlines for compliance with the filing requirements of the Sarbanes-Oxley Act.

Says the SEC: 'The Commission has extended the compliance dates for amendments to its rules under the Securities Exchange Act of 1934 that were adopted on June 5, 2003, pursuant to Section 404 of the Sarbanes-Oxley Act. The amendments require a company to include in annual reports a report by management on the company's internal control over financial reporting and the accompanying auditor's report.

'Under the new compliance schedule, a company that is an "accelerated filer" as defined in Exchange Act Rule 12b-2 (generally, a US company that has equity market capitalization over $75 million and has filed at least one annual report with the Commission), must begin to comply with these amendments for its first fiscal year ending on or after Nov. 15, 2004 (originally June 15, 2004). A non-accelerated filer must begin to comply with these requirements for its first fiscal year ending on or after July 15, 2005 (originally April 15, 2005). The Commission similarly has extended the compliance date for related requirements regarding evaluation of internal control over financial reporting and management certification requirements, including certification and related requirements applicable to registered investment companies.'

The Sarbanes-Oxley Act, passed in the backlash from the Enron scandal, has achieved its target of forcing senior managers in public companies to take greater 'ownership' of their published results, but companies have been incurring very high compliance costs, and many companies have struggled to meet the deadlines imposed by the Act. This is particularly true of non-US companies with US listings, who initially hoped their governments would be able to get them excluded from the terms of the Act.

A recent report from business software firm, HandySoft has suggested that the additional compliance burden imposed by the Sarbances-Oxley Act on European companies based in the United States or listed on US stock exhanges could be in the region of EUR370 million, and audit fees for US-listed EU companies are expected to increase by 35% as a result of the US corporate governance legislation

The report also suggested that by the European deadline of 2005, only around 75% of affected EU companies are expected to implement systems and procedures that effectively establish internal financial controls and are able to quickly identify and resolve financial anomalies, two of the key areas of Sarbane-Oxley compliance.

HandySoft's director of sales, Wendy Cohen warned that: "Companies that choose not to meet the SOX schedule are likely to find the analysts and the credit rating experts marking their stocks down. Suffering this kind of ignominy during a tentative market recovery, and in a period when institutional shareholders are increasingly exercising their muscle and influence, is a CFO's or CEO's worst nightmare. This is especially the case for European companies whose home economies are only just showing the first faint signs of recovery."

She continued: "Even for the three quarters of these companies that will have effective controls, triggers and reporting in place by 2005, the question remains as to whether those measures will be cost-effective. Our research revealed anecdotes about very high sums being spent on fees for compliance consultancy in 2003."

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