[Federal Register Volume 69, Number 40 (Monday, March 1, 2004)]
[Rules and Regulations]
[Pages 9722-9723]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-4425]



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Part III





Securities and Exchange Commission





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17 CFR Parts 210, 228, et al.



Management's Report on Internal Control Over Financial Reporting and 
Certification of Disclosure in Exchange Act Periodic Reports; Final 
Rule

  Federal Register / Vol. 69, No. 40 / Monday, March 1, 2004 / Rules 
and Regulations  

[[Page 9722]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 210, 228, 229, 240, 249, 270, and 274

[Release Nos. 33-8392; 34-49313; IC-26357; 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

AGENCY: Securities and Exchange Commission.

ACTION: Final rule; extension of compliance dates.

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SUMMARY: We are extending the compliance dates that were published on 
June 18, 2003, in Release No. 33-8238 (68 FR 36636) 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 amendments to certain representations that must be 
included in the certifications required by Exchange Act Rules 13a-14 
and 15d-14 and Investment Company Act of 1940 Rule 30a-2, regarding the 
company's internal control over financial reporting. The companies 
subject to these certification provisions include registered investment 
companies. Finally, we are extending the compliance date for an 
amendment to Investment Company Act Rule 30a-3 regarding the 
maintenance of internal control over financial reporting.

DATES: Effective Date: The effective date published on June 18, 2003, 
remains August 14, 2003.
    Compliance Dates: The compliance dates are extended as follows: A 
company that is an ``accelerated filer,'' as defined in Exchange Act 
Rule 12b-2, must begin to comply with the management report on internal 
control over financial reporting requirement and the related registered 
public accounting firm report requirement in items 308(a) and (b) of 
Regulations S-K and S-B for its first fiscal year ending on or after 
November 15, 2004. A non-accelerated filer must begin to comply with 
these requirements for its first fiscal year ending on or after July 
15, 2005. A foreign private issuer that files its annual report on Form 
20-F or Form 40-F must begin to comply with the corresponding 
requirements in these forms for its first fiscal year ending on or 
after July 15, 2005.
    A company 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 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.
    We are also extending the compliance period for registered 
investment companies to comply with the amended portion of the 
introductory language in paragraph 4 of the certification in Form N-CSR 
required by Investment Company Act Rule 30a-2(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) of the certification in Form N-CSR. The amended language 
must be provided beginning with the first annual report filed on Form 
N-CSR for a fiscal year ending on or after November 15, 2004.\1\ 
Registered investment companies must comply with the amendment to 
Investment Company Act Rule 30a-3(a) relating to the maintenance of 
internal control over financial reporting with respect to fiscal years 
ending on or after November 15, 2004.
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    \1\ The amended language must also be provided in reports on 
Form N-Q following this report on Form N-CSR. On February 11, 2004, 
the Commission indicated that it would issue a release adopting 
rules that will require a registered management investment company 
to file its portfolio holdings with the Commission on Form N-Q not 
later than 60 days after the close of the first and third quarters 
of each fiscal year.
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    The extended compliance period does not in any way affect the 
provisions of our other rules and regulations regarding internal 
controls that are in effect, including, without limitation, Exchange 
Act Rule 13b2-2.

FOR FURTHER INFORMATION CONTACT: Sean Harrison, Special Counsel, 
Division of Corporation Finance, at (202) 942-2910, or with respect to 
registered investment companies, Christian Broadbent, Senior Counsel, 
Division of Investment Management, at (202) 942-0721, U.S. Securities 
and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549.

SUPPLEMENTARY INFORMATION: On June 5, 2003,\2\ the Commission adopted 
amendments to Items 307, 401 and 601 of Regulations S-B \3\ and S-K; 
\4\ added new Item 308 to Regulations S-B and S-K; amended Form 10-
K,\5\ Form 10-KSB,\6\ Form 10-Q,\7\ Form 10-QSB,\8\ Form 20-F,\9\ Form 
40-F,\10\ Rule 12b-15,\11\ Rule 13a-14,\12\ Rule 13a-15,\13\ Rule 15d-
14\14\ and Rule 15d-15 \15\ under the Securities Exchange Act of 
1934;\16\ amended Rules 1-02 and 2-02 \17\ of Regulation S-X;\18\ 
amended Rules 8b-15,\19\ 30a-2 \20\ and 30a-3 \21\ under the Investment 
Company Act of 1940;\22\ and amended Forms N-CSR \23\ and N-SAR \24\ 
under the Exchange Act and the Investment Company Act. Among other 
things, these amendments require companies, other than registered 
investment companies, to include in their annual reports a report of

[[Page 9723]]

management on the company's internal control over financial reporting, 
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 40-F, 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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    \2\ See Release No. 33-8238 (June 5, 2003) (68 FR 36636) (the 
``Adopting Release'').
    \3\ 17 CFR 228.10 et seq.
    \4\ 17 CFR 229.10 et seq.
    \5\ 17 CFR 249.310.
    \6\ 17 CFR 249.310b.
    \7\ 17 CFR 249.308a.
    \8\ 17 CFR 249.308b.
    \9\ 17 CFR 249.220f.
    \10\ 17 CFR 249.240f.
    \11\ 17 CFR 240.12b-15.
    \12\ 17 CFR 240.13a-14.
    \13\ 17 CFR 240.13a-15.
    \14\ 17 CFR 140.15d-14.
    \15\ 17 CFR 240.15d-15.
    \16\ 15 U.S.C. 78a et seq.
    \17\ 17 CFR 210.1-02 and 2-02.
    \18\ 17 CFR 210.1-01 et seq.
    \19\ 17 CFR 270.8b-15.
    \20\ 17 CFR 270.30a-2.
    \21\ 17 CFR 270.30a-3.
    \22\ 15 U.S.C. 80a-1 et seq.
    \23\ 17 CFR 249.331; 17 CFR 274.128.
    \24\ 17 CFR 249.330; 17 CFR 274.101.
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    In our June 2003 Adopting Release, we decided to provide a lengthy 
compliance period for the amendments requiring a report by management 
on a company's internal control over financial reporting. Specifically, 
we provided that a company that was an accelerated filer would have to 
begin complying with the new amendments in its annual report for its 
first fiscal year ending on or after June 15, 2004, and that a non-
accelerated filer would have to begin complying in its annual report 
for its first fiscal year ending on or after April 15, 2005. We stated 
that a longer transition period was appropriate in light of both the 
substantial time and resources needed by companies to properly 
implement the rules, and the corresponding benefit to investors that 
would result from companies' proper implementation of the new 
requirements. We further noted that a longer transition period would 
provide additional time for the Public Company Accounting Oversight 
Board (the ``PCAOB'') to consider relevant factors in determining and 
implementing new standards for registered public accounting firms.\25\ 
The PCAOB made a determination to set new standards and has been 
working expeditiously to do so. It held a public roundtable in July 
2003 to discuss significant issues associated with the establishment of 
a new standard and issued a proposed standard on October 7, 2003.\26\ 
The PCAOB received nearly 200 comment letters on the proposals and has 
completed its review and analysis of the public comment.
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    \25\ Under the Sarbanes-Oxley Act, the PCAOB was granted 
authority to set auditing and attestation standards for registered 
public accounting firms to use in the preparation and issuance of 
audit reports on the financial statements of issuers. Under section 
404(b) of the Act, the PCAOB is required to set standards for 
registered public accounting firms' attestations to, and reports on, 
management's assessment regarding its internal control over 
financial reporting.
    \26\ See PCAOB Release No. 2003-017, PCAOB Rulemaking Docket 
Matter No. 008.
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    On January 23, 2004, representatives of five companies requested 
that the Commission extend the June 15, 2004, compliance date for 
accelerated filers.\27\ In their request, these companies argued that 
it would be extremely difficult for companies to properly prepare for 
compliance with the new internal control over financial reporting 
requirements, and for auditors to properly implement a new standard 
that has not yet been finalized, for a fiscal year that is nearly 
complete. They further asserted that companies with June, July and 
August fiscal year ends that are in the process of documenting and 
evaluating controls have based these processes on the PCAOB's proposed 
standard. Several commenters on the PCAOB's proposed standard expressed 
similar concerns and requested that the Commission and the PCAOB 
provide additional time for compliance.\28\
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    \27\ See letter to Mr. William H. Donaldson, Chairman of the 
Securities and Exchange Commission, and Mr. William J. McDonough, 
Chairman of the Public Company Accounting Oversight Board, from John 
G. Connors, Sr., Vice President and Chief Financial Officer, 
Microsoft Corporation, on behalf of Clayton C. Daley Jr., Chief 
Financial Officer, Proctor & Gamble; Richard J. Miller, Executive 
Vice President and Chief Financial Officer, Cardinal Health 
Corporation; Richard A. Galanti, Executive Vice President and Chief 
Financial Officer, Costco Wholesale Corporation and Michael J. 
Irwin, Executive Vice President and Chief Financial Officer, WD-40 
Company, dated January 23, 2004.
    \28\ See letters regarding PCAOB Rulemaking Docket Matter No. 
008 of: the American Institute of Certified Public Accountants, 
Deloitte & Touche LLP, PricewaterhouseCoopers LLP, Walt Disney 
Corporation and H.W. Willoughby. These letters are available at 
www.pcaobus.org.
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    We believe that an extension of compliance dates for the internal 
control reporting over financial reporting requirements is appropriate. 
We believe that the extension will benefit investors because this will 
help ensure that appropriate controls are in place for the first 
reporting process. Moreover, an extension will minimize the cost and 
disruption of implementing a new disclosure requirement under a current 
standard that will soon be superseded, and will provide companies and 
their auditors with a sufficient amount of time to perform additional 
testing or remediation of controls based on the final standard. We 
also, 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.\29\ In addition, for good cause and because the 
extension will relieve a restriction, the extension will be effective 
on March 1, 2004.
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    \29\ See section 553(b)(3)(B) of the Administrative Procedure 
Act (5 U.S.C. 55s(b)(3)(B)) (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: February 24, 2004.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-4425 Filed 2-27-04; 8:45 am]
BILLING CODE 8010-01-P