SEC Extends Auditor Compliance Requirement

Under SOX Section 404(b)

On Oct. 2, 2009, the U.S. Securities and Exchange Commission (SEC) announced that it was extending by nine months the deadline for smaller public reporting companies and their independent auditors to comply with the requirements under Section 404(b) of the Sarbanes-Oxley Act (SOX). 

Specifically, 404(b) requires the independent auditor’s assessment over the effectiveness of internal controls, in addition to management’s assessment of the effectiveness of internal controls already required under section 404(a).  The SEC has defined a smaller public reporting company as one with less than $75 million dollars of public float.

The original date for compliance on Section 404(b) of SOX was set to affect all smaller public reporting companies with fiscal years ending after Dec. 15, 2009, but will now take affect for those companies with year ends after June 15, 2010.  The extension was granted because the study performed by the SEC's Office of Economic Analysis provided a report just three months prior the implementation of SOX Section 404.

The report covered whether additional guidance provided to company's managers and their independent auditors provided a reduction in costs of compliance of the internal controls. The study's results suggested that the changes made in the 2007 testing did provide a reduction of costs on compliance for Section 404(b) testing.

Mary Shapiro, SEC Chairman, stated, "Since there will be no further Commission extensions, it is important for all public companies and their auditors to act with deliberate speed to move toward full Section 404 compliance."

The press release of the statement and the cost effectiveness study can be found here: www.sec.gov/news/press/2009/2009-213.htm.