Client Alert

The Securities and Exchange Commission ("SEC") has approved a one-year extension of the deadline for smaller public companies to meet the auditor attestation requirement of Section 404 of the Sarbanes-Oxley Act of 2002 ("Section 404").¹ As a result of the extension, non-accelerated filers² will be required to provide an auditor attestation report ("Auditor Attestation") from an independent auditor on internal control over financial reporting ("ICFR") in their annual reports filed for fiscal years ending on or after December 15, 2009. The SEC also announced that it has received approval to proceed with data collection for a study of the costs and benefits of Section 404 implementation, focusing on the consequences for smaller public companies and the effects of the Auditor Attestation.

Postponement of Auditor Attestation Compliance Deadline
Section 404 and related SEC rules and regulations require larger public companies to comply with certain ICFR requirements, including the Auditor Attestation requirement.³ In 2006, as part of a series of SEC actions intended to improve implementation of the ICFR requirements, the SEC postponed the Auditor Attestation compliance date for non-accelerated filers to fiscal years ending on or after December 15, 2008. The SEC has now postponed the deadline for one additional year in order to (1) provide companies additional time to consider the Public Company Accounting Oversight Board's forthcoming guidance on ICFR audits of smaller public companies⁴ and (2) allow the SEC time to complete its study of the costs and benefits of compliance with the ICFR requirements. Under the one-year extension:

• Non-accelerated filers will be required to provide an Auditor Attestation in annual reports filed for fiscal years ending on or after December 15, 2009.
• Until that time, non-accelerated filers must state in their ICFR management reports (required pursuant to Item 308T(a) of Regulation S-K) that the company’s annual report does not include an Auditor Attestation.
• ICFR management reports that are not accompanied by an Auditor Attestation will be considered "furnished" to the SEC rather than "filed," unless the company specifically states that the report should be considered filed, or the report is incorporated by reference into another filing. As a result, such ICFR management reports will not be subject to liability under Section 18 of the Exchange Act.⁵

Additional Information
If you have any questions regarding this SEC release, please contact Meredith Burbank, the principal drafter of this client alert, or you may contact the Womble Carlyle attorney with whom you usually work or one of our Corporate and Securities attorneys.

Click here for a printable version. 

¹ Internal Control Over Financial Reporting in Exchange Act Periodic Reports of Non-Accelerated Filers, Securities Act Release No. 33-8934 (June 26, 2008) (available at http://www.sec.gov/rules/final/2008/33-8934.pdf).

² A "non-accelerated filer" is a reporting company that does not meet the definition of either an "accelerated filer" or a "large accelerated filer" under Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). It includes registrants whose aggregate market value of voting and non-voting common equity held by non-affiliates is less than $75 million as of the last day of the registrant’s most recently completed second fiscal quarter.

³ See Section 404(b) of the Sarbanes-Oxley Act of 2002 and Item 308(b) of Regulation S-K.

⁴ The comment period on the PCAOB's guidance ended on December 17, 2007, and the PCAOB is working on the final guidance.

⁵ Material misstatements or omissions in management's report on ICFR, regardless of whether the report is "furnished" or "filed," are subject to liability under Section 10(b) and Rule 10b-5 under the Exchange Act.