SEC Unveils Section 404 Reliefs For Smaller Firms And Foreign Issuers

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

16 August 2006

The US Securities and Exchange Commission last week issued two releases designed to grant smaller public companies and many foreign private issuers further relief from compliance with Section 404 of the Sarbanes-Oxley Act of 2002.

The releases followed the July 11, 2006, publication of a Concept Release soliciting public comment on guidance for management which the SEC plans to issue to assist companies in assessing their internal controls over financial reporting.

"The actions taken in these releases continue the Commission's efforts to be sensitive and responsive to the particular needs of smaller public companies and foreign private issuers, and to minimize the burdens that Section 404 may impose on them," explained SEC Chairman Christopher Cox, continuing:

"By offering further relief for smaller companies and most foreign issuers, today's actions will allow time for the Commission and the PCAOB to redesign Section 404 implementation in a way that is efficient and cost effective for investors."

The Commission is proposing to grant relief to smaller public companies by extending the date by which non-accelerated filers must start providing a report by management assessing the effectiveness of the company's internal control over financial reporting.

The initial compliance date for these companies would be moved from fiscal years ending on or after July 15, 2007, to fiscal years ending on or after Dec. 15, 2007.

In addition, the Commission is granting relief from Section 404(b) compliance for foreign private issuers that are accelerated filers (but not large accelerated filers), and that file their annual reports on Form 20-F or 40-F.

These companies will have their compliance deadline extended for an additional year, so that they will not begin complying with the Section 404(b) requirement to provide an auditor's attestation report on internal control over financial reporting in their annual reports until fiscal years ending on or after July 15, 2007.

The Commission has also proposed a transition period for newly public companies. This transition relief would apply to any company that has become public through an IPO or a registered exchange offer, or that otherwise becomes subject to the Exchange Act reporting requirements. It would include a foreign private issuer that is listing on a US exchange for the first time.

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