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Tuesday, February 01, 2005

SEC, PCAOB Provide More Answers On Internal Controls

Last week, the Securities and Exchange Commission and the Public Company Accounting Oversight Board provided additional answers to questions about Section 404 of The Sarbanes-Oxley Act.

Both statements, published in the form of "frequently asked questions," addressed the recent extension provided to smaller issuers in meeting internal control requirements. In November 2004, the SEC gave smaller companies an extra 45 days to file management and auditor reports assessing their internal control over financial reporting.

SEC's document focus, in part, on how the delayed filing of internal control reports will impact the securities offering process.

The SEC said in its original order that companies taking the extension would not be considered timely in filing their 10-K, which reduces their standing with the SEC for purposes of selling securities. The Q&As clarify how a company can navigate that 45-day gap between its 10-K filing and its amended 10-K filing to include the internal control reports.

Edwards Paul Edwards, an attorney with McDonald Hopkins in Cleveland and chair of the firm's Securities Law Practice Group, advises companies to pay particular attention to those procedures if they plan an offering during that 45-day delay.

The Q&As also reiterate the purpose of the 45-day extension. "The order allows companies to delay the filing of the internal controls reports, but it does not change the date of the assessment of effectiveness, which still must be as of the end of the company's fiscal year," the SEC says.

That means the SEC is not giving companies extra time to correct any internal control deficiencies that their assessments may reveal. That may be disappointing to companies who must report material weaknesses or deficiencies in their internal controls that they might otherwise have been able to correct in another 45 days.

The Q&As will help companies with the fine details of properly filing reports as a result of SEC's extension, but they do little to relieve the overall compliance burden for smaller companies, according to Edwards. "Nobody has enough people," he said. "It's taking longer than anyone expected, and it's more expensive than anyone expected."

posted by Brian Moran @ 9:06 AM   0 comments


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