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Citing the recent publication of guidance on auditing the internal controls of smaller reporting companies and concerns about audit planning under compressed timeframes at higher costs, the SEC has granted non-accelerated filers an additional six months before they will be required to provide auditor attestations regarding their internal controls.

A “non-accelerated filer” is a reporting company that is neither an “accelerated filer” nor a “large accelerated filer” as defined in Rule 12b-2 of the Securities Exchange Act of 1934, which generally means that it has less than $75 million in worldwide public float held by non-affiliates (or less than $50 million for a company that previously was an accelerated filer). Please note that this change does not affect requirements regarding management’s assessment of internal controls.

Background

Under Section 404 of the Sarbanes-Oxley Act of 2002 and related regulations (SOX 404), public companies other than registered investment companies must include in their annual reports:

• management’s report on internal control over financial reporting; and
• an attestation regarding internal controls from the company’s outside auditor.

In June 2008, the SEC adopted rules providing that the auditor attestation requirement would not apply to non-accelerated filers until fiscal years ending on or after December 15, 2009.

New Rules

Under the new rules, which will be effective 60 days after publication in the Federal Register:

• A non-accelerated filer must provide an auditor attestation of internal controls in annual reports for fiscal years ending on or after June 15, 2010.
• A non-accelerated filer will still be required to provide management’s report in annual reports, which must affirmatively state that the annual report does not include an auditor attestation. Management reports included during the period before an auditor attestation is required will continue to be deemed “furnished” rather than “filed.”

Accelerated filing status is determined at the end of the fiscal year based on a market-value test as of the last day of the most recently completed second fiscal quarter. Even if your company is a non-accelerated filer today, if it meets the definition of “accelerated filer” for 2009, it would become ineligible for the extension of the auditor attestation requirement. Conversely, if your company is an accelerated filer today but, due to deteriorating market conditions or other factors, determines at the end of its fiscal year that it is a non-accelerated filer for 2010, the auditor attestation should not be required until its annual report for a fiscal year ending on or after June 15, 2010.

Non-accelerated filers should note that the SEC has indicated it does not expect to further defer the auditor attestation requirement.