Don't take your eyes off the ball!
SOX Section 404 Extension

Companies that are in compliance with Sarbanes-Oxley are finding that good corporate governance makes good business sense. Companies being able to show quality corporate governance have been able to attract share premiums averaging 15% in Europe whilst those with weak or poor governance can have their market capitalization penalized by more than 20%. Quality of governance also has a direct impact on share returns where the difference between the good and the bad can be more than 20% when compared to average stock returns. Sarbanes Oxley has become an opportunity to review management and governance practices and even companies not being required to certify for Sarbanes Oxley compliance have started to review their business practices and process structures.

On March 2 last year, the SEC extended the deadline to July 15, 2006, for non­-accelerated filers and foreign private issuers to include in their annual reports a report by management on the company's internal control over financial reporting and an accompanying auditor's report. This is a one-year extension from the previously established July 15, 2005 deadline. Generally speaking, "non-­accelerated filers" are US public companies with market capitalization of $75m or less, and "foreign private issuers" are business entities incorporated or organized outside the United States with more than half of their ownership, management, assets, and/or administration outside the United States.

This extension should not be viewed as a sign that the SEC is caving in to pressure groups' claims that the cost of Sarbanes-Oxley is too much for the local economics to bear or that it's generally bad for business. It is simply the recognition that non-accelerated and foreign filers are finding the whole process more of a burden.
Conversely, small and medium-sized companies must not sigh with relief just because of the extension.

They are still to be encouraged to complete the work that they've started so they can begin to reap the benefits of their investment. They must not "relax" for a period of time, knowing that they have this additional time. In our experience, most will need it in order to meet 404 attestation standards.

At Consuit, we suggest to our clients that they keep abreast of announcements and guidance from the SEC and in particular, the upcoming SEC roundtable meeting which is scheduled to be held in the third quarter of 2005. We encourage them then to incorporate any issues arising from these announcements into their Sarbanes-Oxley work.

For European companies, the task of ensuring compliance with Sarbanes-Oxley is made that much more time consuming and frustrating because of the additional challenges they face having to prepare their consolidated financial statements under International Financial Reporting Standards ("IFRS").   It has been estimated that these requirements will affect more than 7,000 companies within the EU alone.

The SEC has stated that, "While we fully support conversion to IFRS, we are mindful that this change will require significant resources, people, and time. 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."