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The Securities and Exchange Commission (SEC) has given US small companies yet another one-year extension for compliance with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act. The SEC said it wanted further study of the cost burden of compliance.
Last Friday the SEC gave the go-ahead to proceed with data collection for a study on the costs and benefits of Section 404 implementation for smaller companies, defined as those having a market capitalization of $75 million or less. The earliest that smaller companies will now be required to provide the attestation reports in their annual reports is for fiscal years ending on or after December 15, 2009.
Section 404(a) requires company management to assess the effectiveness of the company's internal controls over financial reporting, while 404(b) requires an auditor attestation on the management's assessment. Small companies complain that the costs are unreasonably high and dispute an SEC estimate that compliance should cost them an average of $91,000 for their first year of compliance.
Larger companies, comprising more than 95 percent of the US market capitalization, have been subject to both provisions since 2004. In 2007, the SEC issued new guidance for management's Section 404 assessment to help companies focus their reviews on the internal control issues that matter most to investors.
All companies, including smaller ones, are filing their first 404(a) reports this year with the benefit of the new guidance, and larger companies are filing their first 404(b) reports this year under the new audit standard.
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