SEC Will Issue Further Guidance on Internal Control Rules, but Small Companies Won’t Be Exempt

The SEC announced on May 17, 2006 that it plans to take several steps to improve the implementation of the internal control rules under section 404 of the Sarbanes-Oxley Act of 2002. The steps will be aimed at helping companies—particularly smaller companies—and their auditors implement a more cost-effective, risk-based approach to compliance. The announcement follows a public roundtable on internal control hosted by the SEC and the Public Company Accounting Oversight Board on May 10, 2006. For a summary of the roundtable discussions, see our client memo no. 2006-9, SEC and PCAOB Host Public Roundtable on Internal Control, which is available on our website, under Publications.

The SEC’s announcement promises "a brief further postponement of the section 404 requirements for the smallest company filers, although ultimately all public companies will be required to comply with the internal control reporting requirements." This settles an outstanding question about whether any exemptions