SEC Approves Another One-Year Extension for Smaller Companies for SOX 404(b) Auditor Attestation Requirement

27 June 2008 Publication
Author(s): Mark T. Plichta Patrick G. Quick John J. Wolfel

Legal News Alert: Transactional & Securities

The U.S. Securities and Exchange Commission (SEC) has approved another one-year extension of the deadline for smaller public companies to comply with the Section 404(b) auditor attestation requirement of the Sarbanes-Oxley Act (SOX). With the extension, non-accelerated filers — generally companies with less than $75 million in public float — will now be required to provide the auditor attestation reports in their annual reports on Form 10-K for fiscal years ending on or after December 15, 2009.

SOX 404(b) Attestation Requirements
Section 404(a) of SOX requires that management of a public company assess the effectiveness of the company’s internal control over financial reporting, while Section 404(b) and related rules require an attestation report by the company's independent auditors as to whether the company maintains effective internal control over financial reporting. Non-accelerated filers have already been required to include management’s assessment as part of their Form 10-K beginning with fiscal years ended on or after December 15, 2007. Although the SEC staff previously indicated that no further extensions would be implemented, the SEC’s most recent action, announced June 20, 2008, defers compliance with the auditor attestation requirement for the fourth time, until fiscal years ending on or after December 15, 2009.1 Therefore, a non-accelerated calendar-year filer may defer the time and expense of its auditor’s attestation report until it files its Form 10-K for the year ending December 31, 2009.

Pending SEC Cost-Benefit Study
The recently adopted one-year extension for non-accelerated filers will allow time for the SEC to complete its study of the costs and benefits of Section 404(b) implementation. The time, effort, and expense necessary to comply with the design, documentation, and testing of internal control over financial reporting under Section 404 impose significant financial and administrative burdens on public companies, especially smaller companies. Section 404 is widely viewed as one of the most costly and burdensome provisions of SOX. The SEC study, which will involve in-depth interviews as well as a Web-based survey, will assist the SEC staff in evaluating whether SEC guidance issued in June 2007 (SEC Release No. 33-83102) and the Public Company Accounting Oversight Board Auditing Standard No. 5 (PCAOB Release No 2007-0053) are having the intended effect of efficiently focusing Section 404 compliance on the most important matters affecting investors. According to SEC Chairman Christopher Cox, the study will provide the SEC with an opportunity to ensure that the auditor attestation requirement is implemented in a way that does not impose unnecessary or disproportionate burdens on smaller companies.

What Is the Impact on Smaller Companies?
Smaller companies have an additional year to improve processes associated with management’s assessment and to comply with the auditor attestation requirement. Smaller companies also may benefit from cost savings resulting from any new guidance or rule changes issued as a result of the SEC’s cost-benefit study.

1 The full text of the final amendments for the extension of the auditor attestation requirement will be posted to the SEC Web site in the near future.

2 Please see SEC Release No. 33-8310 at

3 Please see PCAOB Release No 2007-005.

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our transactional and securities clients and colleagues.

If you have any questions about this alert or would like to discuss the topic further, please contact your Foley attorney or the following individuals:  

Linda Y. Kelso
Jacksonville, Florida

Patrick G. Quick
Milwaukee, Wisconsin

Mark T. Plichta
Milwaukee, Wisconsin

John J. Wolfel, Jr.
Jacksonville, Florida

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