Small Public Companies Given a Final Temporary Reprieve to Begin Providing Audit on Internal Controls
The Securities and Exchange Commission announced on October 2 that smaller public companies will be required to provide an audit of their internal controls beginning with fiscal years ending on or after June 15, 2010. This provides a one-year extension to those companies with year ends after December 15 and before June 15 yet to be audited under Section 404(b) of the Sarbanes-Oxley Act of 2002. SEC Chairman Mary L. Schapiro added: “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 notice of extension was accompanied by a Commission study of the Section 404 requirements, which was used to assess whether 2007 reforms were effective in reducing compliance costs. The study includes data gathered through surveys of publicly traded companies and interviews with financial statement users and auditors. The deferral is intended to allow company management and their auditors more time to consider the results of the study while preparing for the audit.
While the survey shows lower overall costs of compliance after the 2007 changes, the efforts have not trended down significantly in the initial years of compliance. Respondents noted the greatest benefits of compliance were improved financial reporting processes and greater confidence of the audit committees. External users noted compliance had a positive impact on their confidence in the companies’ financial reports, and perceive the audit requirement to provide necessary discipline to the reporting process. In addition, the 2007 reforms are seen to have lead to more auditor reliance on the work of companies, therefore reducing duplicative efforts and costs.
Frank, Rimerman + Co. LLP is providing smaller public companies the resources they need to comply with Section 404(b), including offers for free initial compliance diagnostics and seminars.
For the SEC’s announcement, and accompanying survey, visit http://www.sec.gov/news/press/2009/2009-213.htm