Earlier today, the U.S. Securities and Exchange Commission issued a press release announcing that its Study on SOX Internal Controls (referred to informally as SEC's cost-benefit study) has been published.
The press release also notes that the SEC has decided to extend once again the deadline for small public co's (nonaccelerated filers, defined generally as co's with less than $75 million market cap) to file their first auditor's report on internal controls under Sarbanes-Oxley Section 404b.
Without
the extension announced today, small co's would have been required to
file their first auditors's report on internal control for fiscal years
ending on or after Dec. 15, 2009. Under the extension
announced today, the new deadline for small co's to file their first
auditor's report on internal control will begin with annual reports of
companies with fiscal years ending on or after June 15, 2010.
Small
public co's, like their large co. brethren, already have filed their
first Management report on internal control under Sarbanes-Oxley
Section 404a; only large co's (accelerated filers with over $75 million
market cap) have been required to file both the management report
(Sarbox 404a) and external auditor's report (Sarbox 404b) on internal
control so far.
The rationale for the additional extension of
the Sarbox 404b external auditor's report on internal control announced
today for small public co's, according to the SEC - as stated in its
press release - is as follows [I have added some additional explanatory
language in brackets for context]:
The extension
[granted by the SEC in 2008, providing an extension for small co's to
Dec. 15, 2009] was granted so that the SEC’s Office of Economic
Analysis could complete a study of whether additional guidance provided
to company managers and auditors in 2007 was effective in reducing the
costs of compliance. Because the [SEC's cost-benefit] study was
published less than three months before the December 15 deadline, the
Commission determined that additional time is appropriate and
reasonable so that small public companies and their auditors can better
plan for the required auditor attestation.
Companies
and their auditors (and bloggers!) will need more time to read the full
SEC study to see how its findings can be used to help "better plan for
the required auditor attestation."
I found it interesting that
the Conclusion to the SEC's study alludes to the possibility of further
rulemaking (which, in truth, is always a possibility) in stating:
[T]he
evidence from the survey response data shows that the cost of Section
404 compliance decreased following the Commission’s reforms introduced
in 2007 and is expected to decrease further based on respondents’
estimates for the fiscal year in progress at the time of the survey.
Moreover, the survey participants perceive the reforms to have been a
significant catalyst for these changes. This evidence may
prove useful in understanding the effects of the 2007 reforms as well
as guiding any subsequent regulatory efforts.
I would suspect we will see a final rule, proposed rule, or some kind of exemptive order posted under Regulatory Actions on
the SEC's website either later today or in the next few days, to
formalize the extension of time for small co's to file their first
Sarbox 404b report which was announced in the SEC's press release
earlier today.
As noted in this blog last week, once
the PCAOB issued its 4010 report on first year implementation of
Auditing Standard No. 5, I assumed that issuance of the SEC's
cost-benefit study was probably not far behind.
For additional
reporting on the subject of small co. implementation of Sarbox 404b,
see Sarah Johnson's article published in CFO.com yesterday (prior to
today's SEC's announcement of the extension for small co's) in her Oct.
1 article entitled: Auditor-Small Issuer Controls Spats Seen.