SEC Extends Section 404 Deadlines for Certain Foreign Private Issuers; Proposes New Section 404 Deadlines for Non-Accelerated Filers and First-Time Registrants

August 10, 2006

On August 9, the SEC announced a one-year extension of the deadline for foreign private issuers that are accelerated filers (but not large accelerated filers) to begin including in their annual reports an auditor’s attestation regarding their internal controls under Section 404 of the Sarbanes-Oxley Act. The existing deadlines for large accelerated filers (i.e., seasoned issuers with a public float of at least $700 million) remain unchanged.

In a companion release, the SEC proposed deadline extensions for non-accelerated filers and first-time registrants that would be available to both domestic and foreign private issuers. Comments on the proposals in the companion release are due 30 days from its publication in the Federal Register.

We summarize the adopted and proposed compliance deadlines below and in the attached chart.

The deadline extensions follow a July 2006 concept release announcing the SEC’s plans to issue guidance on how management should carry out assessments of the effectiveness of internal control over financial reporting. The SEC indicates in the release proposing the deadline extension for non-accelerated filers that it expects to issue that guidance in time to be of assistance to management in connection with annual reports filed for fiscal years ending on or after December 15, 2007. If the guidance has not been issued by that time, the SEC indicates that it will consider further postponing the non-accelerated filer deadline for the management assessment requirement.

Pursuant to the releases:

  • Extension for Foreign Private Issuers that are Accelerated Filers but not Large Accelerated Filers. Foreign private issuers that are accelerated filers (but not large accelerated filers) will continue to be required to include a management report assessing the effectiveness of internal control over financial reporting in their annual reports beginning with the first fiscal year ending on or after July 15, 2006, but the first auditor’s attestation will not be required until the following year’s annual report (fiscal years ending on or after July 15, 2007). This relief is effective immediately.

  • Non-Accelerated Filers. The SEC proposes to extend the Section 404 compliance deadlines for non-accelerated filers as described below.

  • The deadline for providing a management report on internal control over financial reporting would be postponed to fiscal years ending on or after December 15, 2007 (from the current deadline of fiscal years ending on or after July 15, 2007).

  • The deadline for providing an auditor’s attestation report on internal control over financial reporting would be postponed to fiscal years ending on or after December 15, 2008 (from the current deadline of fiscal years ending on or after July 15, 2007).

  • First-time Registrants. The SEC proposes to implement a transition period for first-time registrants so that a company would not be required to provide either a management assessment or an auditor attestation until it has previously filed one annual report with the Commission. First-time registrants would continue to benefit from any later compliance dates for the applicable class of issuer.

The SEC also proposes to deem the management report included in a non-accelerated filer’s annual report during the first year of compliance to be “furnished” rather than “filed” for purposes of Section 18 of the Exchange Act unless the issuer specifically states that the report is to be considered “filed” or incorporates it by reference into another filing. If this relief is adopted, the SEC intends to grant similar relief to foreign private issuers that are accelerated filers (but not large accelerated filers) that rely on the extension described above.

Under the proposed rules, companies would be required to begin including the full internal control language in their Section 302 certifications beginning with their first annual report required to include a management assessment of internal control over financial reporting.

The release adopting the new deadlines for foreign private issuers that are accelerated filers (but not large accelerated filers) may be found at: http://www.sec.gov/rules/final/2006/33-8730.pdf

The release proposing similar relief for non-accelerated filers and first-time registrants may be found at:

http://www.sec.gov/rules/proposed/2006/33-8731.pdf

The SEC’s July 2006 concept release may be found at:

http://www.sec.gov/rules/concept/2006/34-54122.pdf

Please feel free to contact any of your regular contacts at the firm or any of our partners and counsel listed under Capital Markets in the “Our Practice” section of our website if you have any questions.

CLEARY GOTTLIEB STEEN & HAMILTON LLP