By Ettore A. Santucci, John R. LeClaire and John O. Newell
Recent developments governing public companies and their officers, directors and investors
The Securities and Exchange Commission issued a press release last week announcing its intention to defer again the date for non-accelerated filers to comply with SEC rules adopted under Section 404 of the Sarbanes-Oxley Act. These rules require management assessments and independent auditor reports on internal control over financial reporting. Although the SEC expects to provide a brief further postponement for Section 404 compliance, the press release states that "ultimately all public companies will be required to comply with the internal control reporting requirements of Section 404." This statement appears to be a rejection of the recent recommendation by an SEC advisory committee that smaller public companies be exempted from the Section 404 rules. An exemption for smaller public companies will therefore probably require action by Congress, which is uncertain at this time.
As described in the memorandum summarizing 2005/2006 SEC developments in the Goodwin Procter Year-End Tool Kit, the SEC previously extended the compliance date for the Section 404 rules to fiscal years ending on or after July 15, 2007 for non-accelerated filers. If the SEC extends the compliance date as described in its press release, non-accelerated filers will first be required to comply with the Section 404 rules for fiscal years ending on or after December 15, 2007. Note that this extension will not affect compliance dates for non-accelerated filers with fiscal years ending on December 31, 2006; calendar year-end companies will be required to comply with the Section 404 rules in annual reports on Form 10-KSB or Form 10-K for fiscal 2006, which will be due in March 2007. Note also that non-accelerated filers that become accelerated or large accelerated filers during the extension will not be eligible for the extended compliance date. The extension will apparently apply to both domestic companies and foreign private issuers that are non-accelerated filers. The SEC did not announce any intention to modify its earlier deferral for foreign private issuers that are accelerated or large accelerated filers, which must currently comply with the Section 404 rules in annual reports filed for fiscal years ending on or after July 15, 2006.
The expected extension for Section 404 compliance is intended to permit nonaccelerated filers and their auditors to have the benefit of additional guidance on internal control requirements that the SEC intends to issue, as well as to implement expected PCAOB revisions to Auditing Standard No. 2. These and related SEC actions are described in the SEC press release, which is available at www.sec.gov/news/press/2006/2006-75.htm. The Year-End Tool Kit summary memorandum describing the earlier extension is available at www.goodwinprocter.com/pdfs/tool_kit/disclosure_developments.pdf.
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The securities and corporate finance attorneys at Goodwin Procter keep current on these matters. We are available to help advise investment banks, public companies and their officers and directors on specific issues as well as to provide educational presentations to help them understand and meet their responsibilities under both current and proposed rules and regulations.
Goodwin Procter LLP is one of the nation's leading law firms, with a team of 700 attorneys and offices in Boston, Los Angeles, New York, San Diego, San Francisco and Washington, D.C. The firm combines in-depth legal knowledge with practical business experience to deliver innovative solutions to complex legal problems. We provide litigation, corporate law and real estate services to clients ranging from start-up companies to Fortune 500 multinationals, with a focus on matters involving private equity, technology companies, real estate capital markets, financial services, intellectual property and products liability.
This article, which may be considered advertising under the ethical rules of certain jurisdictions, is provided with the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin Procter LLP or its attorneys. © 2006 Goodwin Procter LLP. All rights reserved.
