SEC Approves 404 Delay for Smaller Companies

News Brief

By: Cydney Posner

The SEC today issued an exemptive order to grant certain accelerated filers up to an additional 45 days to comply with SOX 404.  Under the order, certain accelerated filers will be allowed additional time to include in their annual reports management’s report on internal control over financial reporting and the related auditor’s report on management’s assessment of internal control. The SEC was concerned that many smaller accelerated filers could not meet the deadline and wanted to ensure that there would be "a continuing and orderly flow of annual report information to investors and the U.S. capital markets, and to ensure that certain annual report filers and their registered public accounting firms are able to file complete and accurate reports regarding the effectiveness of the filers’ internal control over financial reporting...."

The exemptive order applies under the following are the conditions:

(a) The market value of the accelerated filer’s outstanding common equity held by non-affiliates was less than $700 million at the end of its second fiscal quarter in 2004;

(b) The accelerated filer files all of the information required to be included in the Form 10-K report within the 75--day period specified in the form (or within the extended period permitted by Rule 12b-25 if the accelerated filer has satisfied the conditions of that rule), including all of the information required by Item 9A. Controls and Procedures, except that: Management’s annual report on internal control over financial reporting, required by Item 308(a) of Regulation S-K, and the related Attestation report of the registered public accounting firm, required by Item 308(b) of Regulation S-K, are not required to be filed;

(c) The accelerated filer identifies the information that it has not filed as permitted by paragraph (b) of these conditions;

(d) If the accelerated filer has identified a material weakness in its internal control over financial reporting, or the accelerated filer’s registered public accounting firm has identified such a material weakness and communicated this finding to the accelerated filer, before the Form 10-K is filed as required by paragraph (b) of these conditions, the accelerated filer must disclose this information in the filing required by paragraph (b) of these conditions;

(e) The accelerated filer completes its Form 10-K by filing an amendment to the information required by paragraph (b) of the conditions not later than 45 days after the end of the 75-day filing period specified in Form 10-K (regardless of whether the accelerated filer relied on Rule 12b-25 to extend the 75-day filing period), to include the information that it did not file as permitted by paragraph (b) of these conditions;

(f) The accelerated filer may not rely on Rule 12b-25 to extend the deadline for the Form 10-K amendment described in paragraph (e) of these conditions; and

(g) For purposes of the Form S-2 and S-3 eligibility requirements, an accelerated filer relying on this exemption will not be considered to have timely filed its Form 10-K report until it has filed the Form 10-K amendment referenced in paragraph (e) of these conditions.

The PCAOB also met today to adopt a corresponding temporary rule, subject to SEC approval.

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