The Securities and Exchange Commission has proposed a one-year postponement of the third and final phase of regulations designed to speed up quarterly and annual filings for larger companies.
According to the SEC, the proposal to postpone this final phase would “allow additional time and opportunity for accelerated filers and their auditors to focus their efforts on complying with our new requirements regarding internal control over financial reporting,” better known as Section 404 of the Sarbanes-Oxley Act.
The rule changes, which were adopted by the SEC following the passage of Sarbanes-Oxley in 2002, apply to “accelerated filers” — generally, U.S. companies with a market cap over $75 million that have filed annual reports with the commission. As recently as last year — year one of the phase-in — accelerated filers had 90 days following their fiscal year-end to file their 10-K and 45 days following their quarter-end to file their 10-Q, though in year one these companies became subject to new disclosure requirements concerning web access to their Exchange Act reports.
This year — year two of the phase-in — the deadline for filing 10-Ks for fiscal years ending on or after December 15, 2003, was cut to 75 days, and the deadline for filing the three subsequently 10-Qs was trimmed to 40 days.
In the third and final year of the phase-in, the deadline for filing 10-Ks for fiscal years ending on or after December 15, 2004, is currently scheduled to be cut to 60 days, and the deadline for filing 10-Qs is slated for a further trim, down to 35 days.
According to the new SEC proposal, postponing the final phase would avoid a “compression of filing deadlines” for companies that, as of their first fiscal year ending on or after November 15, must also comply with Sarbox 404.
“We believe very strongly that it is critical that all Exchange Act reporting companies implement the internal control requirements mandated by Section 404 of the Sarbanes-Oxley Act of 2002 completely and carefully,” wrote the SEC. “These requirements are central to the Act’s objectives of improving the accuracy and reliability of financial reporting.”
The SEC added that “in recent months, several companies and auditors have expressed concern over their ability to perform the work necessary to comply with the new internal control requirements at the same time that the periodic report deadlines are being further accelerated.” Those companies and other parties now have 30 days to comment on the proposed postponement following its publication in the Federal Register.
In an interview with CFO.com following the announcement, SEC chief accountant Donald Nicolaisen said the proposal should send a message to companies about the importance of Section 404 to improving the accuracy and reliability of financial reporting. “We are willing to make some concessions so that it is done right and they have adequate time to deal with it,” said Nicolaisen. “We’ve taken a little of the pressure off.”
The November deadline for Section 404 compliance, however, remains fixed; the SEC has pushed back the effective date twice already. “I think these are the appropriate steps to take,” said Nicolaisen. “Ample time has been provided.” Translation: companies shouldn’t expect further postponements from the SEC.