[Federal Register Volume 70, Number 44 (Tuesday, March 8, 2005)]
[Rules and Regulations]
[Pages 11528-11529]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-4450]



[[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

  Federal Register / Vol. 70 , No. 44 / Tuesday, March 8, 2005 / Rules 
and Regulations  

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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