SEC Adopts Amendments to its Rules and Forms to Implement an Exemption Adopted in Dodd rank Act for Smaller Issuers from the Audit Report Attestation Requirement Related to Management Assessment of Internal Controls Over Financial Reporting

 

October 6, 2010

 

On September 21, 2010, the SEC adopted amendments to its rules and forms to conform them to Section 404(c) of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”) as added by Section 898G of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”).  As a result, registered public accounting firms for most small reporting companies will no longer be required to attest to, and report on, management’s assessment of the company’s internal controls over financial reporting included in the issuer’s annual report.

 

Section 404(b) of the Sarbanes-Oxley Act requires a registered public accounting firm that prepares or issues an audit report for a reporting company under the Securities Exchange Act of 1934, as amended (the “Securities Exchange Act”), to attest to, and report on, company management’s assessment of its internal controls over financial reporting in its annual report.

 

New Section 404(c), added by the Dodd-Frank Act, exempts from such requirement an issuer that is neither a “large accelerated filer” nor an “accelerated filer” as each of those terms is defined in Rule 12b-2 under the Securities Exchange Act.  A large accelerated filer or an accelerated filer will continue to be subject to the auditor attestation requirement in Section 404(b).   Also, all issuers, including non-accelerated filers, will continue to be subject to Section 404(a) and its implementing rules requiring an issuer’s annual report to include a report of management on the issuer’s internal controls over financial reporting.

Under Rule 12b-2, an “accelerated filer” is defined as an issuer that “had an aggregate worldwide market value of the voting and non-voting common equity held by its non-affiliates of $75 million or more, but less than $700 million, as of the last business day of the issuer’s most recently completed second fiscal quarter” and a “large accelerated filer” is defined as an issuer that “had an aggregate worldwide market value of the voting and non-voting common equity held by its non-affiliates of $700 million or more, as of the last business day of the issuer’s most recently completed second fiscal quarter.” In addition, for both definitions, the issuer (i) needs to have been subject to reporting requirements of Section 13 or 15(d) of the Securities Exchange Act for a period of at least twelve calendar months, (ii) needs to have filed at least one annual report, and (ii) shall not be eligible to use the requirements for smaller reporting companies for its annual and quarterly reports.

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For more information, please contact:

 

Neil R.E. Carr
Direct Dial: +1 202 587 2983
neil.carr@somertons.com

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