By: Cydney Posner

As previously reported, Nasdaq had been sending delisting notices to issuers that filed auditor attestation reports (required under SOX 404) that disclaimed any opinion, i.e., where the audit firm reported that it was unable to issue any opinion. (See my email of 5/11/05.) Typically, an auditor will need to disclaim an opinion where, for example, management has not fulfilled its responsibilities to support its evaluation or present its assessment, where the scope of the audit is limited by management or circumstances or where the auditor is unable to determine the effect of a subsequent event on the effectiveness of the company's internal control. Nasdaq has now posted an FAQ moderating its previous stance, but only for 2005. See the FAQ copied below.

Does a Form 10-K satisfy NASDAQ's filing requirements if management has not completed its assessment of internal control over financial reporting or the auditor's attestation report contains an opinion that is disclaimed because the auditor did not have time to complete its internal control work?

A Form 10-K does not satisfy NASDAQ's filing requirements if management has not completed its assessment of internal control over financial reporting or the auditor's attestation report contains an opinion that is disclaimed because the auditor did not have time to complete its internal control work. Thus, any company filing without a completed assessment by management or with such a disclaimed opinion would ordinarily be subject to being delisted. However, NASDAQ acknowledges that during this first year of implementation of Section 404 it has proven difficult for certain companies to complete their assessment of internal control over financial reporting and file their Forms 10-K without disclaimed opinions. As a result, NASDAQ, after consultation with the Staff of the Securities and Exchange Commission ("SEC"), has determined that during 2005, management's failure to complete its assessment of internal control over financial reporting or an auditor's opinion that is disclaimed based on a lack of time to complete internal control work will not result in delisting of the company, provided the company is taking all steps required by the Staff of the SEC to address these issues. A company in this circumstance should promptly contact NASDAQ's Listing Qualifications Department. Please keep in mind, however, that no company will be eligible for this relief unless the Form 10-K contains an unqualified audit opinion on the company's financial statements.

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