Client Alert

SEC Delays Implementation Date of Internal Control Report Requirement for Many Public Companies

On February 24, 2004, the Securities and Exchange Commission ("SEC") extended the compliance dates for amendments to its rules adopted pursuant to Section 404 of the Sarbanes-Oxley Act. Once effective, the rules will require a public company to include in its annual report:
  • a report by management on adequacy of the company's internal control over financial reporting;
  • a related attestation report of its independent auditors as to management's evaluation; and
  • changes to the company's CEO's and CFO's certifications regarding their periodic evaluation of internal control over financial reporting.
Under the new compliance schedule, accelerated filers (generally, U.S. companies with a public float of over $75 million that have filed at least one annual report with the SEC) must begin to comply with these amended rules for their first fiscal year ending on or after November 15, 2004. Previously, accelerated filers were going to have to comply beginning with fiscal years ending on or after June 15, 2004 A non-accelerated filer must begin to comply with these requirements for its first fiscal year ending on or after July 15, 2005 (a change from the prior date of April 15, 2005).

Those companies that will benefit the most from the SEC's extension are public companies that are accelerated filers and have fiscal year ending between June 30th and October 30th. As a result of the extension, they will receive another year before they must comply. For example, an accelerated filer with a June 30th year-end would have had to include the new disclosures in this year's 10-K, due approximately September 15, 2004. Now the June 30th accelerated filer will not have to comply with the new disclosures until its 2005 10-K is due on approximately August 31, 2005. For public companies with December 31st fiscal year-ends, the extension will have no effect on when the new disclosures are required (2004 annual reports for accelerated filers, and 2005 annual reports for all others).




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