By Cydney Posner

In the SEC release on this topic (summarized on 1/3/08), the SEC stated that Item 407 of Reg S-K was being amended to provide that "smaller reporting companies are:".… Not required to provide an Audit Committee Report until the first annual report after their initial registration statement is filed with the Commission and becomes effective."  However, the actual amendments to Item 407 provided by the SEC (including the version in the Federal Register) do not refer to the Audit Committee Report, but instead refer to disclosure regarding the Audit Committee financial expert. 

I raised this inconsistency with the SEC staff.  After several days of internal discussion, the staff has now advised that the language in the text of the release is incorrect. The intent of the rules is to provide that the disclosure regarding Audit Committee financial experts required in paragraph (d)(5) of Item 407 will not be required for a smaller reporting company in its first annual report filed following the effective date of its first registration statement filed under the Securities Act or Exchange Act.  Smaller reporting companies will be required to provide Audit Committee Reports.

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