SEC Delays Internal Controls Deadline For Small Companies

Firms with a market capitalization less than $700 million qualify for the delay. The reports are mandated under section 404 of the Sarbanes-Oxley Act, requiring companies to annually explain how they've ensured the health and well-being of their internal financial procedures. Those annual reports, in turn, must be certified by independent auditors. According to the SEC statement filed Wednesday, the delay applies to public companies with fiscal years ending between Nov 15, 2004 and Feb. 28, 2005, and with a market cap between $75 million and $700 million at the end of the second fiscal quarter in 2004.

The internal-controls reporting requirement had gone into effect for such companies Nov. 15.

The online statement quoted SEC Chief Accountant Donald Nicolaisen, saying: "The Commission is sensitive to resource constraints at accounting firms and at smaller public companies, and is taking this step to facilitate the successful and effective implementation of the Section 404 internal control requirements." Alan Beller, director of the Division of Corporation Finance, added that the exemption should "encourage companies to file important information for investors, including audited financial statements, on a timely basis, while providing an appropriate accommodation for internal control reports."

Eligible companies now have 45 days after the expiration of their 75-day reporting window to add the required management reports on internal controls, along with auditors' comments, the SEC said. The PCAOB's ruling allows auditors to sign off of internal reports at a later date than financial reports. The temporary rule is expected to be in effect until July 15, 2005.