SEC Extends Sarbanes-Oxley Deadline for Some Foreign Companies
- United States
- 09/14/2006
- Arent Fox PLLC
On Aug. 9, 2006, the SEC issued a Final Release granting temporary relief to many “foreign private issuers” (a term that includes most non-U.S. companies that are public in the U.S.) from requirements under Section 404 of the Sarbanes-Oxley Act. Section 404 requires that companies include in the annual reports that they file with the SEC an assessment by the company’s management as to the effectiveness of the company’s internal controls over financial reporting (the “Management Assessment Requirement”). Section 404 also requires that the accounting firm that audited the company’s financial statements attest as to management’s assessment of the company’s internal control over financial reporting and that this attestation of the accounting firm also be included in the annual report filed with the SEC (the “Accountant Attestation Requirement”).
Section 404 has been the subject of intense debate in the business community regarding the costs companies face in implementing its requirements. Foreign issuers in particular have expressed dismay over the added expense. The Final Release attempts to provide some relief to certain foreign companies.
Current rules require foreign private issuers that are “accelerated filers” to comply with the Management Assessment Requirement for any fiscal year ending on or after July 15, 2006. However, under the Final Release, a foreign private issuer that is an accelerated filer now may postpone compliance with the Accountant Attestation Requirement until their annual report filed with the SEC for a fiscal year ending on or after July 15, 2007. (Such an issuer would remain obligated to comply with the Management Assessment Requirement for any fiscal year ending on or after July 15, 2006.)
An “accelerated filer” is an issuer that, among other things, has equity held by non-affiliates valued at between $75 million and $700 million. (According to SEC data, approximately 23 percent of foreign private issuers are accelerated fliers and thus will qualify for the relief provided under the Final Release.) If an issuer’s equity held by non-affiliates is valued at more than $700 million (and if the issuer meets other criteria), that issuer would be considered a “large accelerated filer” and would not be eligible for the relief provided by the Final Release. The SEC decided not to extend the relief to large accelerated filers because such companies presumably have more extensive resources available to comply with Section 404 and because there is greater market interest in their publicly traded securities.
In addition to the Final Release, the SEC published, also on Aug. 9, 2006, a proposed release that, if made final, would provide Section 404 relief for smaller public companies, including qualified foreign issuers, that are not accelerated filers or large accelerated filers. This proposed release would extend the date on which these smaller companies must comply with the Management Assessment Requirement to fiscal years ending on or after Dec. 15, 2007, and the date on which these companies must comply with the Accountant Attestation Requirement to fiscal years ending on or after Dec. 15, 2008. We will publish a further update if this proposed release becomes effective.
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Lee J. Potter, Jr.
212 492 3281
[email protected]
Eberhard Röhm
212 484 3970
[email protected]
