Sarbanes-Oxley and Small Companies Update

by Robert N. Charette

The US Securities and Exchange Commission (SEC) voted on 21 September 2005 to extend for small companies -- those with less than US $75 million of stock available for investors -- the deadline to comply with Section 404 of the Sarbanes-Oxley Act. The deadline, which had been extended once already to July 2006, is now set to take effect beginning July 2007. As noted by the SEC, Section 404 requires an annual report that contains a statement of management's responsibility for establishing and maintaining an adequate internal control structure and procedures for financial reporting. It also requires management's assessment, as of the end of the company's most recent fiscal year, of the effectiveness of the company's internal control structure and procedures for financial reporting. Section 404 further requires the company's auditor to attest to and report on management's assessment of the effectiveness of the company's internal controls and procedures for financial reporting in accordance with standards established by the Public Company Accounting Oversight Board [1].