Capital Markets Alert: "Non-Accelerated Filers" Expected to Become Permanently Exempt from Internal Control Audit Requirements
7/20/2010
Small public companies that qualify as "non-accelerated filers" will become permanently exempt from the internal control audit requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 ("SOX") this week, when President Barack Obama is expected to sign the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act"). The Act was passed by the Senate on July 14 and the House on June 30, and was subsequently sent to the president for signature.
Non-accelerated filers are generally those with less than $75 million in market cap. The SEC had given them a series of temporary exemptions from the 404(b) audit requirement from 2004 through June 15, 2010, but it then announced that it would not provide any further extensions of the exemption. Non-accelerated filers have been and will continue to be required to self-assess and report on their internal controls in their annual and quarterly reports filed with the SEC.
According to the Journal of Accountancy, “The Act also requires the SEC to complete a study within nine months of the Act’s enactment on how to reduce the burden of 404(b) compliance for companies with market caps between $75 million and $250 million. The study will consider whether any such methods of reducing the burden, or a complete exemption, would encourage companies to list on exchanges.”
Since the Act will not become law until sometime in July 2010, a non-accelerated filer with a fiscal year that ended between June 15, 2010 and the date of enactment, such as a company with a June 30, 2010 year end, technically will not be exempt from the 404(b) internal control audit requirement for that specific year-end. We understand that the SEC will provide those companies with an exemption.
For more information about the Act and how it may impact your company, please contact Kenneth Nielsen Goldmann, CPA, J.H. Cohn partner and the Firm's Capital Markets and SEC Practice Director, at kgoldmann@jhcohn.com or 973-618-6232.