The US Securities and Exchange Commission (SEC) has granted a deadline extension to the Sarbanes-Oxley legislation, giving most public companies another six months to comply with the financial reporting requirements.
The extension means smaller public companies now have until 15 December 2007 to provide a management assessment of internal controls. It was previously required by 15 July. A second requirement that an auditor attest to the management assessment of the effectiveness of those internal controls has been put back to 2008.
Sarbanes-Oxley is intended to prevent corporate scandals like Enron and came into force for large public companies at the end of 2004. Smaller public companies, defined as those with less than $75 million of stock in the hands of public investors, have been granted several deadline extensions because the SEC has not yet interpreted how the rules should apply to them.
SEC reports say there are 7,402 smaller public companies that make up 78.5 percent of the total number of public companies nationwide.
The five-month extension of the management assessment deadline will have little practical impact since most companies set 31 December as the end of the fiscal year, and would not have had to comply until the end of 2007 anyway, says John Hagerty, an industry analyst for AMR Research in Boston, Mass.
"They're giving some relief to the real early ones, such as companies whose fiscal year ends 31 July, but not wholesale relief," Hagerty said.
Already, though, the SEC is talking about granting a further extension of both the new December 2007 and December 2008 deadlines. If the agency does not issue guidance to companies in time to help them meet those deadlines, SEC officials will consider extending them again, the agency said.
Last week, the SEC said it would issue guidelines to ease reporting burdens for small companies, many of who have complained about the cost of implementing Sarbanes-Oxley. Officials will allow management to focus primarily on the areas that pose the greatest risk of leading to errors in financial reporting.
"The proposed guidance provides management significant flexibility in determining the required level of documentation needed to support the assessment," said Zoe-Vonna Palmrose, the SEC's deputy chief accountant for professional practice.
Sarbanes-Oxley is supposed to make sure companies prepare reliable financial statements and bring information about material weaknesses into public view. Section 404 of the act, the most controversial portion, mandates testing for integrity and ethical behavior, IT controls related to financial reporting, whistleblower programs, anti-fraud provisions, audit committee effectiveness, and other requirements.