[Federal Register: March 8, 2005 (Volume 70, Number 44)]
[Rules and Regulations]
[Page 11527-11529]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08mr05-16]
[[Page 11527]]
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Part V
Securities and Exchange Commission
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17 CFR Parts 210, 228, 229, 240, and 249
Management's Report on Internal Control Over Financial Reporting and
Certification of Disclosure in Exchange Act Periodic Reports of Non-
Accelerated Filers and Foreign Private Issuers; Final Rule
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 210, 228, 229, 240 and 249
[Release Nos. 33-8545; 34-51293; File Nos. S7-40-02; S7-06-03]
RIN 3235-AI66 and 3235-AI79
Management's Report on Internal Control Over Financial Reporting
and Certification of Disclosure in Exchange Act Periodic Reports of
Non-Accelerated Filers and Foreign Private Issuers
AGENCY: Securities and Exchange Commission.
ACTION: Final rule; extension of compliance dates.
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SUMMARY: We are extending the compliance dates for non-accelerated
filers and foreign private issuers that were published on March 1,
2004, in Release No. 33-8392 [69 FR 9722] for certain amendments to
Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934,
Items 308(a) and (b) of Regulations S-K and S-B, and the corresponding
provisions in Forms 20-F and 40-F, that require companies, other than
registered investment companies, to include in their annual reports a
report of management on the company's internal control over financial
reporting, and to evaluate, as of the end of each fiscal period, any
change in the company's internal control over financial reporting that
occurred during the period that has materially affected, or is
reasonably likely to materially affect, the company's internal control
over financial reporting. We are also extending the compliance dates
for non-accelerated filers and foreign private issuers for amendments
to certain representations that must be included in the certifications
required by Exchange Act Rules 13a-14 and 15d-14 regarding a company's
internal control over financial reporting.
DATES: Effective Date: The effective date published on June 18, 2003,
in Release No. 33-8238 [68 FR 36636] remains August 14, 2003.
Compliance Dates: The compliance dates are extended as follows: A
company that is a non-accelerated filer, or foreign private issuer that
files its annual reports on Form 20-F or Form 40-F, must begin to
comply with these requirements for its first fiscal year ending on or
after July 15, 2006.
These filers must begin to comply with the provisions of Exchange
Act Rule 13a-15(d) or 15d-15(d), whichever applies, requiring an
evaluation of changes to internal control over financial reporting
requirements with respect to the company's first periodic report due
after the first annual report that must include management's report on
internal control over financial reporting.
In addition, we are applying the extended compliance period for
these filers to the amended portion of the introductory language in
paragraph 4 of the certification required by Exchange Act Rules 13a-
14(a) and 15d-14(a) that refers to the certifying officers'
responsibility for establishing and maintaining internal control over
financial reporting for the company, as well as paragraph 4(b). The
amended language must be provided in the first annual report required
to contain management's internal control report and in all periodic
reports filed thereafter. The extended compliance dates also apply to
the amendments of Exchange Act Rules 13a-15(a) and 15d-15(a) relating
to the maintenance of internal control over financial reporting. The
remainder of the compliance dates relating to accelerated filers and
registered investment companies published in Release No. 33-8392 [69 FR
9722] are not affected by this release.
The extended compliance period for non-accelerated filers and
foreign private issuers does not in any way alter requirements
regarding internal control that are in effect, including, without
limitation, Section 13(b)(2) of the Exchange Act or the rules
thereunder.
FOR FURTHER INFORMATION CONTACT: Sean Harrison, Special Counsel,
Division of Corporation Finance, at (202) 942-2910, U.S. Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0509.
SUPPLEMENTARY INFORMATION: On June 5, 2003,\1\ the Commission adopted
several amendments to its rules and forms implementing Section 404 of
the Sarbanes-Oxley Act of 2002.\2\ Among other things, these amendments
require companies, other than registered investment companies, to
include in their annual reports a report of management on the company's
internal control over financial reporting and an accompanying auditor's
report, and to evaluate, as of the end of each fiscal quarter, or year
in the case of a foreign private issuer filing its annual report on
Form 20-F or Form 40-F,\3\ any change in the company's internal control
over financial reporting that occurred during the period that has
materially affected, or is reasonably likely to materially affect, the
company's internal control over financial reporting.
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\1\ See Release No. 33-8238 (June 5, 2003) [68 FR 36636].
\2\ 15 U.S.C. 7262.
\3\ 17 CFR 249.20f and 249.40f.
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On February 24, 2004, we approved an extension of the original
compliance dates for the amendments related to internal control
reporting.\4\ Specifically, we extended the compliance dates for
companies that are ``accelerated filers,'' as defined in Exchange Act
Rule 12b-2,\5\ to fiscal years ending on or after November 15, 2004,
and for non-accelerated filers and foreign private issuers, to fiscal
years ending on or after July 15, 2005.\6\ We believed that providing
additional time for compliance was appropriate in light of both the
substantial time and resources needed to properly implement the rules
and to provide additional time for companies and their auditors to
implement Auditing Standard No. 2, which set forth new attestation
standards.\7\
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\4\ See Release No. 33-8392 (February 24, 2004) [69 FR 9722].
\5\ 17 CFR 240.12b-2.
\6\ We also extended the compliance dates for registered
investment companies to comply with certain amendments to fiscal
years ending on or after November 15, 2004. See Release No. 33-8392.
\7\ See Release No. 34-49884, File No. PCAOB 2004-03 (June 17,
2004) [69 FR 35083]. Auditing Standard No. 2 provides the
professional standards and related performance guidance for
independent auditors to attest to, and report on, management's
assessment of the effectiveness of internal control over financial
reporting.
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Recent events have caused us to examine the need for additional
relief for foreign companies and non-accelerated filers. Foreign
companies have faced particular challenges in complying with the
internal control over financial reporting and related requirements,
which include language, culture and organization structures that are
far different from what is typical in the United States. In addition,
on January 1, 2005, companies incorporated under the laws of a European
Union (``EU'') member country, and whose securities are publicly traded
within the EU, began to be required to prepare their consolidated
financial statements under International Financial Reporting Standards
(``IFRS'').\8\ It has been estimated that these requirements will
affect more than 7,000 companies within the EU.\9\ While we fully
support
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conversion to IFRS, we are mindful that this change will require
significant resources, people, and time.\10\ The new standards are
fundamental changes that will change how affected foreign companies use
and report financial information. We understand that the successful
conversion to IFRS is currently the primary focus of these foreign
companies.
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\8\ See Regulation (EC) No. 1606/2002 of the European Parliament
and of the Council of 19 July 2002 on the application of
international accounting standards, Official Journal L. 243, 11/09/
2002 P. 0001-0004.
\9\ See Committee of European Securities Regulators, ``European
Regulation and Application of IFRS in 2005: Recommendation for
Additional Guidance Regarding Transition to IFRS'' (December 2003).
\10\ In March 2004, we proposed amendments to Form 20-F under
the Exchange Act that would provide foreign private issuers a one-
time accommodation relating to financial statements prepared under
IFRS. See Release No. 34-49403 (March 11, 2004) [69 FR 12904].
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In December 2004, we announced that we were establishing the
Securities and Exchange Commission Advisory Committee on Smaller Public
Companies to assist the Commission in evaluating the current securities
regulatory system relating to smaller public companies, including the
rules relating to internal control reporting.\11\ In addition to this
initiative, we announced on February 22, 2005, that we will host a
roundtable discussion on April 13, 2005, and are soliciting written
feedback regarding registrants' and accounting firms' experiences
implementing the new internal control reporting requirements.\12\ We
believe it is important to provide the Advisory Committee with time to
consider the framework for internal control over financial reporting
applicable to smaller public companies, methods for management's
assessment of such internal control, and standards for auditing the
internal controls of these companies.
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\11\ See Release No. 33-8514 (December 16, 2004) [69 FR 76498].
\12\ See SEC Press Release No. 2005-20 (February 22, 2005), see
also SEC Press Release 2005-13 (February 7, 2005).
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In addition, at the request of Commission staff, a task force of
the Committee of Sponsoring Organizations (``COSO'') has been
established to expand the existing COSO Framework \13\ to provide more
guidance on how the framework can be applied to small companies.\14\
Under the Commission's internal control requirements, a reporting
company is required to use a suitable, recognized control framework
that is established by a body or group that has followed due-process
procedures, such as the COSO Framework, to assess the effectiveness of
the company's internal control over financial reporting.\15\ We
understand that COSO intends to publish the additional guidance for
small companies during the summer of 2005.
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\13\ See COSO, Internal Control--Integrated Framework.
\14\ See COSO News Release (January 11, 2005).
\15\ See Exchange Act Rules 13a-15(c) and 15d-15(c) [17 CFR
240.13a-15(c) and 240.15d-15(c)].
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We believe that it is appropriate under these circumstances to
extend for an additional year the compliance dates for the internal
control over financial reporting and related requirements for non-
accelerated filers and foreign private issuers. An extension will avoid
certain foreign companies having to prepare for, and initially comply
with, two different sets of significant new financial reporting
requirements within the same approximate time period. The extension
also will afford smaller issuers that are subject to Exchange Act
reporting time to consider the new guidance in the COSO Framework. The
extension should make implementation of the internal control reporting
requirements more effective for non-accelerated filers and all foreign
private issuers. Consequently, this will benefit investors and improve
confidence in the reliability of the disclosure made by these companies
about their internal control over financial reporting.
However, we wish to emphasize that this extension should not be
viewed as a basis for smaller companies and foreign private issuers to
slow down or delay their Section 404 compliance efforts. Smaller
companies or foreign private issuers may find that they need all the
time available, including the time afforded by this extension, to
comply fully with the internal control reporting requirements.
We for good cause find that, based on the reasons cited above,
notice and solicitation of comment regarding extension of the
compliance dates is impracticable, unnecessary, and contrary to the
public interest.\16\ In addition, for good cause and because the
extension will relieve a restriction, the extension will be effective
on March 8, 2005.
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\16\ See Section 553(b)(3)(B) of the Administrative Procedure
Act [5 U.S.C. 55s(b)(3)(B)] (stating that an agency may dispense
with prior notice and comment when it finds, for good cause, that
notice and comment are ``impracticable, unnecessary, or contrary to
the public interest'').
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By the Commission.
Dated: March 2, 2005.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 05-4450 Filed 3-7-05; 8:45 am]
BILLING CODE 8010-01-P