The SEC is giving small U.S. companies and all but the largest foreign private issuers more time to comply with the requirement for auditor attestation of internal control over financial reporting. Section 404 of the Sarbanes-Oxley Act of 2002 requires companies to include in their annual reports (a) management’s assessment of their internal controls, and (b) an attestation by the independent auditor. Although Canadian regulators recently announced that they will not require any auditor attestations, cross-border issuers (including Canadian MJDS filers) must comply with the more onerous U.S. requirements.
Foreign Private Issuers That Are "Accelerated Filers"
Foreign private issuers that are "accelerated filers" must provide an auditor attestation for fiscal years ending on or after July 15, 2007—one year after the deadline for their first management report on internal controls. An "accelerated filer" is a company that met the following criteria at fiscal year-end:
(a) it had a public float of at least US$75 million but less than US$700 million as of the end of its second quarter; (b) it had been subject to the SEC’s reporting requirements for 12 months; and (c) it had filed at least one annual report under the Securities Exchange Act of 1934. "Large accelerated filers" are those with a public float of US$700 million or more. They have not been granted any extensions, nor have U.S. domestic accelerated filers. Furthermore, this extension only benefits foreign private issuers that file annual reports on Form 20-F or 40-F.
Non-accelerated Filers (U.S. Domestic Companies and Foreign Private Issuers)
Non-accelerated filers are subject to the internal control rules beginning with fiscal years ending on or after July 15, 2007. The SEC is proposing to extend the deadline for management reports to December 15, 2007 and for auditor attestations to December 15, 2008. Both of these proposed dates could be extended further if the SEC and the Public Company Accounting Oversight Board do not issue their promised regulatory guidance with sufficient lead time to benefit these companies.
Newly Public Companies
The SEC is proposing a one-year grace period for newly public companies. Following an IPO, a company would have until its second annual report to comply with both components of these internal control rules.
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