Document ID: SEC-2008-0213-0001
Agency: sec
Document Type: Proposed Rule
Title: Internal Control Over Financial Reporting in Exchange Act Periodic Reports of Non-Accelerated Filers
Posted Date: 2008-02-07T05:00Z

[Federal Register: February 7, 2008 (Volume 73, Number 26)]
[Proposed Rules]               
[Page 7449-7455]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07fe08-21]                         

[[Page 7449]]

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Part III

Securities and Exchange Commission

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17 CFR Parts 210, 228, 229 and 249

Internal Control Over Financial Reporting in Exchange Act Periodic 
Reports of Non-Accelerated Filers; Proposed Rule

[[Page 7450]]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 210, 228, 229 and 249

[Release Nos. 33-8889; 34-57258; File No. S7-06-03]
RIN 3235-AJ64

 
Internal Control Over Financial Reporting in Exchange Act 
Periodic Reports of Non-Accelerated Filers

AGENCY: Securities and Exchange Commission.

ACTION: Proposed amendments of temporary rules.

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SUMMARY: We are proposing to amend temporary rules that were published 
on December 21, 2006, in Release No. 33-8760 [71 FR 76580]. These 
temporary rules require companies that are non-accelerated filers to 
include in their annual reports, pursuant to rules implementing Section 
404(b) of the Sarbanes-Oxley Act of 2002, an attestation report of 
their independent auditor on internal control over financial reporting 
for fiscal years ending on or after December 15, 2008. Under the 
proposed amendments, a non-accelerated filer would be required to 
provide the auditor's attestation report on internal control over 
financial reporting in an annual report filed for fiscal years ending 
on or after December 15, 2009.

DATES: Comments should be received on or before March 10, 2008.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/other.shtml.
);     Send an e-mail to rule-comments@sec.gov. Please include 

File Number S7-06-03 on the subject line; or
     Use the Federal Rulemaking Portal (http://www.regulations.gov
). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number S7-06-03. This file number 
should be included on the subject line if e-mail is used. To help us 
process and review your comments more efficiently, please use only one 
method. The Commission will post all comments on the Commission's 
Internet Web site (http://www.sec.gov/rules/other.shtml). Comments are 

also available for public inspection and copying in the Commission's 
Public Reference Room, 100 F Street, NE., Washington, DC 20549, on 
official business days between the hours of 10 a.m. and 3 p.m. All 
comments received will be posted without change; we do not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly.

FOR FURTHER INFORMATION CONTACT: Sean Harrison, Special Counsel, Office 
of Rulemaking, Division of Corporation Finance, at (202) 551-3430, U.S. 
Securities and Exchange Commission, 100 F Street, NE., Washington, DC 
20549-3628.

SUPPLEMENTARY INFORMATION: We are proposing to amend the following 
forms and temporary rules: Rule 2-02T of Regulation S-X,\1\ Item 308T 
of Regulation S-K,\2\ and S-B,\3\ Item 4T of Form 10-Q,\4\ Item 3A(T) 
of Form 10-QSB,\5\ Item 9A(T) of Form 10-K,\6\ Item 8A(T) of Form 10-
KSB,\7\ Item 15T of Form 20-F,\8\ and Instruction 3T of General 
Instruction B.(6) of Form 40-F.\9\
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    \1\ 17 CFR 210-2.02T.
    \2\ 17 CFR 229.308T.
    \3\ 17 CFR 228.310T.
    \4\ 17 CFR 249.308a.
    \5\ 17 CFR 249.308b.
    \6\ 17 CFR 249.310.
    \7\ 17 CFR 249.310(b).
    \8\ 17 CFR 249.220f.
    \9\ 17 CFR.249.240f.
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I. Background

    On December 15, 2006,\10\ we extended the dates by which non-
accelerated filers \11\ must begin to comply with the internal control 
over financial reporting (``ICFR'') requirements mandated by Section 
404 of the Sarbanes-Oxley Act of 2002.\12\ Specifically, we postponed 
for five months, from fiscal years ending on or after July 15, 2007 to 
fiscal years ending on or after December 15, 2007, the date by which 
non-accelerated filers must begin to comply with the management report 
requirement in Item 308(a) of Regulation S-K.\13\ We also postponed to 
fiscal years ending on or after December 15, 2008 the date by which 
non-accelerated filers must begin to comply with the auditor 
attestation report requirement in Item 308(b) of Regulation S-K.\14\ We 
indicated that we would consider further postponing the auditor 
attestation report compliance date after considering the anticipated 
revisions to the Public Company Accounting Oversight Board's 
(``PCAOB'') Auditing Standard No. 2 (``AS No. 2'').
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    \10\ See Release No. 33-8760 (December 15, 2006) [71 FR 76580] 
(the ``2006 Release'').
    \11\ Although the term ``non-accelerated filer'' is not defined 
in our rules, we use it throughout this release to refer to an 
Exchange Act reporting company that does not meet the Rule 12b-2 
definition of either an ``accelerated filer'' or a ``large 
accelerated filer.''
    \12\ 15 U.S.C. 7262.
    \13\ 17 CFR 229.308(a). We effected the postponement, in part, 
by adding temporary Item 308T to Regulation S-K. We similarly added 
temporary Item 308T to Regulation S-B, but the Commission recently 
adopted amendments that will eliminate Regulation S-B effective 
March 15, 2009. See Release No. 33-8876 (December 19, 2007) [73 FR 
934].
    \14\ 17 CFR 229.308(b).
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    In the 2006 Release, we cited two primary reasons for deferring 
implementation of the auditor attestation report requirement for an 
additional year after implementation of the management report 
requirement. First, we stated that the deferred implementation would 
afford non-accelerated filers and their auditors the benefit of 
anticipated changes by the PCAOB to AS No. 2, subject to Commission 
approval, as well as any implementation guidance that the PCAOB issued 
for auditors of smaller public companies.
    Second, we expected a deferred implementation of the auditor 
attestation requirement to save non-accelerated filers the full 
potential costs associated with the auditor's initial attestation to, 
and report on, management's assessment of ICFR during the period that 
changes to AS No. 2 were being considered and implemented, and the 
PCAOB was formulating guidance specifically for auditors of smaller 
public companies. Public commenters previously have asserted that the 
ICFR compliance costs are likely to be disproportionately higher for 
smaller public companies than larger ones, and that the auditor's fee 
represents a large percentage of those costs.\15\
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    \15\ See, for example, letters of American Electronics 
Association, International Association of Small Broker-Dealers and 
Advisers, Small Business Entrepreneurship Council, and the Silicon 
Valley Leadership Group, Committee on Capital Markets Regulation on 
Release No. 33-8762 (December 20, 2006) [71 FR 77635], File No. S7-
24-06.
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    Furthermore, we have learned from commenters, including those 
participating in our roundtables on implementation of the ICFR 
requirements, that while companies incur increased internal costs in 
the first year of compliance, some of which are due to ``deferred 
maintenance'' items (for example, documentation, remediation, etc.), 
these costs may

[[Page 7451]]

decrease in the second year.\16\ Therefore, we anticipated that 
postponing the costs resulting from the auditor's attestation report 
until the second year would help non-accelerated filers to smooth the 
cost spike that many accelerated filers experienced in their first year 
of compliance with the Section 404 requirements.
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    \16\ Materials related to the Commission's 2005 Roundtable 
Discussion on Implementation of Internal Control Reporting 
Provisions and 2006 Roundtable on Second-Year Experiences with 
Internal Control Reporting and Auditing Provisions, including the 
archived roundtable broadcasts, are available at http://www.sec.gov/spotlight/soxcomp.htm
.

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    The compliance date extensions that we granted in 2006 were part of 
a series of actions that the Commission and PCAOB each announced that 
they intended to take to improve implementation of the internal control 
over financial reporting requirements.\17\ These actions included:
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    \17\ See SEC Press Release 2006-75 (May 17, 2006), ``SEC 
Announces Next Steps for Sarbanes-Oxley Implementation'' and PCAOB 
Press Release (May 17, 2006), ``Board Announces Four-Point Plan to 
Improve Implementation of Internal Control Reporting Requirements.''
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     Issuance by the Commission of interpretive guidance for 
management to assist management in complying with the ICFR evaluation 
and disclosure requirements;
     Consideration of efforts by COSO to provide more guidance 
on how the COSO framework on internal control can be applied to smaller 
public companies;
     The PCAOB's issuance, with Commission approval, of 
Auditing Standard No. 5 (``AS No. 5''), which replaced AS No. 2;
     Reinforcement of auditor efficiency through PCAOB 
inspections and Commission oversight of the PCAOB's audit firm 
inspection program;
     Development, or facilitation of development, of 
implementation guidance for auditors of smaller public companies; and
     Continuation of PCAOB forums on auditing in the small 
business environment.
    On June 20, 2007, we approved the issuance of interpretive 
guidance\18\ and adopted rule amendments\19\ to help public companies 
strengthen their ICFR evaluations while reducing unnecessary costs. The 
interpretive release provided guidance for management on how to conduct 
an evaluation of the effectiveness of a company's ICFR. The guidance 
sets forth an approach by which management can conduct a top-down, 
risk-based evaluation of ICFR.
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    \18\ Release No. 33-8810 (Jun. 20, 2007) [72 FR 35324].
    \19\ Release No. 33-8809 (Jun. 20, 2007) [72 FR 35310]. The rule 
amendments, among other things, provided that an evaluation that 
complies with our interpretive guidance is one way to satisfy the 
annual ICFR evaluation requirement in Exchange Act Rules 13a-15(c) 
and 15d-15(c) [17 CFR 240.13a-15(c) and 240.15d-15(c)].
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    As discussed above, on July 25, 2007, we approved the PCAOB's AS 
No. 5, which replaced AS No. 2. The new standard sets forth the 
professional standards and related performance guidance for independent 
auditors to attest to, and report on, management's assessment of the 
effectiveness of ICFR. Our management guidance, in combination with AS 
No. 5, was intended to make ICFR audits and management evaluations of 
ICFR more cost-effective by being risk-based and scalable to a 
company's size and complexity. Although the PCAOB issued AS No. 5, and 
we approved it, according to our planned timetables, there still are 
some additional actions that the Commission and PCAOB intend to take 
that give us reason to propose a further extension of the auditor 
attestation report compliance date for non-accelerated filers.
    One of these actions is the PCAOB's issuance of final staff 
guidance on auditing ICFR of smaller public companies. On October 17, 
2007, the PCAOB published preliminary staff guidance that demonstrates 
how auditors can apply the principles described in AS No. 5 and 
provides examples of approaches to particular issues that might arise 
in the audits of smaller, less complex public companies.\20\ Topics 
discussed in the PCAOB's guidance include: Entity-level controls, risk 
of management override, segregation of duties and alternative controls, 
information technology controls, financial reporting competencies, and 
testing controls with less formal documentation. The PCAOB sought 
public comment on this guidance, and the comment period ended on 
December 17, 2007.\21\
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    \20\ See ``An Audit of Internal Control that is Integrated with 
an Audit of the Financial Statements: Guidance for Auditors of 
Smaller Companies,'' (October 17, 2007), available at 
http://www.pcaobus.org.

    \21\ The PCAOB has not announced when it plans to finalize this 
guidance.
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    Another action involves a study that we are undertaking to 
determine whether the Section 404(b) auditor attestation requirement of 
the Sarbanes-Oxley Act is being implemented in a manner that will be 
cost-effective for smaller reporting companies. The study will pay 
special attention to those small companies that are complying with the 
ICFR requirements for the first time.
    This study of costs and benefits will include a Web-based survey of 
companies that are subject to the ICFR requirements as well as in-depth 
interviews with a subset of these companies. Our plan is to gather data 
from a large cross-section of companies about the costs and benefits of 
compliance with the ICFR requirements and to evaluate whether the new 
management guidance and AS No. 5 are having the intended effect of 
facilitating more cost-effective ICFR evaluations and audits. Because 
we intend to collect data based on companies' experiences, this study 
will be taking place in the coming months as companies for the first 
time prepare their financial statements and undergo external audits 
under the new AS No. 5 and/or conduct their internal ICFR evaluations 
with the aid of the new management guidance. We anticipate that the 
study and analysis of the results will be completed no earlier than the 
summer of 2008.
    We also note that others have expressed concerns about the orderly 
and efficient implementation of the ICFR requirements.\22\
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    \22\ See, for example, the May 8, 2007, letter to Chairman 
Christopher Cox and Chairman Mark Olson from Senator John Kerry, 
Chairman, Senate Committee on Small Business and Entrepreneurship, 
and Senator Olympia Snowe, Ranking Member, Senate Committee on Small 
Business and Entrepreneurship, available at http://sbc.senate.gov/lettersout/070508-SEC-PCAOB-HearingFollowUp.pdf
; hearing on 

``Sarbanes-Oxley Section 404: New Evidence on the Costs for Small 
Businesses,'' House Committee on Small Business (December 12, 2007); 
and the July 12, 2007, letter from Sharon Haeger, America's 
Community Bankers, on Release No. 34-55876 [72 FR 32340], File No. 
PCAOB 2007-02, available at http://www.sec.gov/comments/pcaob-2007-02/pcaob200702.shtml
.

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    If we do not adopt the proposed amendments, non-accelerated filers 
will have to begin complying with the auditor attestation requirement 
for fiscal years ending on or after December 15, 2008. To accomplish 
this, in 2008, many non-accelerated filers would need to engage their 
independent auditors to perform integrated audits of their financial 
statements and ICFR. Without an extension, these companies may begin to 
incur costs before we have an opportunity to observe whether further 
action to improve the effectiveness and efficiency of Section 404 
implementation is warranted. Therefore, we believe that an additional 
one-year deferral of the auditor attestation requirement would be 
appropriate so that these companies do not incur unnecessary compliance 
costs before we have the benefit of the study. An additional one-year 
deferral will allow the PCAOB additional time during 2008 to promulgate 
its guidance for ICFR audits of smaller public companies, as well as 
additional time for the auditors

[[Page 7452]]

of non-accelerated filers to incorporate such guidance in their 
planning and conduct of their ICFR audits during 2009.

II. Proposed Extension of Auditor Attestation Compliance Date for Non-
Accelerated Filers

    We propose to amend Item 308T of Regulation S-K, Rule 2-02T of 
Regulation S-X, and Forms 10-Q, 10-K, 20-F and 40-F to require non-
accelerated filers to provide their auditor's attestation in their 
annual reports filed for fiscal years ending on or after December 15, 
2009. If we adopt the proposed amendments, a non-accelerated filer 
would continue to be required to state in its management report on ICFR 
that the company's annual report does not include an auditor 
attestation report.\23\
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    \23\ See Item 308T(a)(4) of Regulation S-K, Item 15T(b)(4) of 
Form 20-F and General Instruction B.(6)(3T) of Form 40-F.
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    In the 2006 Release, we also adopted a temporary amendment that 
provided that the management report included in a non-accelerated 
filer's annual report that did not contain the auditor's attestation 
report would be deemed ``furnished'' rather than ``filed'' and not be 
subject to liability under Section 18 of the Exchange Act.\24\ We 
acknowledged in that release non-accelerated filers filing only a 
management report during their first year of compliance with the 
Section 404(a) requirements may become subject to more second-guessing 
as a result of separating the management report from the auditor's 
attestation. As proposed, the amendments would maintain this 
distinction.
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    \24\ Section 18 of the Exchange Act [15 U.S.C. 78r] imposes 
liability on any person who makes or causes to be made in any 
application or report or document filed under the Act, or any rule 
thereunder, any statement that ``was at the time and in the light of 
the circumstances under which it was made false or misleading with 
respect to any material fact.'' As a result of the temporary Item 
308T of Regulation S-K and S-B and the temporary amendments to Forms 
20-F and 40-F, however, during the applicable periods, management's 
report would be subject to liability under this section only in the 
event that a non-accelerated filer specifically states that the 
report is to be considered ``filed'' under the Exchange Act or 
incorporates it by reference into a filing under the Securities Act 
or the Exchange Act.
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Request for Comment

    We request and encourage any interested person to submit comments 
regarding the proposed amendments to extend the auditor attestation 
report compliance date described above. In particular, we solicit 
comment on the following questions:
     Is it appropriate to provide a further extension of the 
auditor attestation requirement for non-accelerated filers as proposed? 
If so, should we postpone this requirement for an additional year as 
proposed, or would a longer or shorter timeframe be more appropriate?
     How would the proposed extension affect investors in non-
accelerated filers?
     Would the proposed additional deferral of the auditor's 
attestation report requirement make the application of the Section 404 
requirements more or less efficient and effective for non-accelerated 
filers?
     Should management's report on ICFR be ``filed'' rather 
than ``furnished'' during the second year of the non-accelerated 
filer's compliance with the ICFR requirements under Section 404(a) if 
we adopt the proposed extension?

III. Paperwork Reduction Act

    In connection with our original proposal and adoption of the rules 
and amendments implementing the Section 404 requirements, we submitted 
cost and burden estimates of the collection of information requirements 
of the amendments to the Office of Management and Budget (``OMB''). We 
published a notice requesting comment on the collection of information 
requirements in the proposing release for the rule amendments. We 
submitted these requirements to the OMB for review in accordance with 
the Paperwork Reduction Act of 1995 (``PRA'') \25\ and received 
approval of these estimates. We do not believe that the proposed 
extension will result in any change in the collection of information 
requirements of the amendments implementing Section 404. Therefore, we 
are not revising our PRA burden and cost estimates submitted to the 
OMB.
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    \25\ 44 U.S.C. 3501 et seq. and 5 CFR 1320.11.
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IV. Cost-Benefit Analysis

A. Benefits

    The proposed amendments would postpone for one year the date by 
which a non-accelerated filer would be required to include in its 
annual report an auditor attestation report on management's assessment 
of internal control over financial reporting. As a result, all non-
accelerated filers would be required to complete only management's 
assessment in their first and second year of their compliance with the 
Section 404 requirements.
    We plan to conduct a study to assess whether the Section 404(b) 
auditor attestation requirement of the Sarbanes-Oxley Act is being 
implemented in a manner that will be cost-effective for smaller 
reporting companies. Our management guidance and the new auditing 
standard were designed to make management evaluations and ICFR audits 
more cost-effective. We believe that an additional one-year deferral of 
the auditor attestation report requirement would benefit non-
accelerated filers by helping smaller companies avoid incurring 
unnecessary compliance costs as we determine whether further action to 
improve the effectiveness and efficiency of Section 404 implementation 
is warranted. In addition, we believe that non-accelerated filers may 
experience the following additional benefits from the proposed 
extension:
     Auditors of non-accelerated filers would have 
significantly more time to conform their ICFR audit approach to meet 
the requirements of AS No. 5, and to consider the PCAOB's guidance for 
auditors of smaller public companies; and
     Non-accelerated filers would have additional time to focus 
on their approach for evaluating and reporting on the effectiveness of 
ICFR. This may facilitate their efforts to develop best practices and 
efficiencies in preparing the management report prior to becoming 
subject to the auditor attestation report requirement.

B. Costs

    If we adopt the proposed amendments, investors in non-accelerated 
filers will have to wait longer than they would in the absence of the 
proposed extension for the assurances provided by the attestation 
report by the companies' auditor on management's report on ICFR and the 
added investor confidence that could result. The proposed amendments 
may increase the risk that, without the auditor's attestation, some 
non-accelerated filers may erroneously conclude that the company's ICFR 
is effective, when an ICFR audit might reveal that it is not. In 
addition, some companies may conduct an assessment that is not as 
thorough, careful and as appropriate to the company's circumstances as 
they would perform if the auditor were also conducting an audit of 
ICFR. The proposed amendments may also increase the risk that 
weaknesses in a company's ICFR will go undetected for a longer period 
of time.
    We request data to quantify the potential costs and benefits 
described above. We seek estimates of these costs and benefits, as well 
as any costs and benefits that we have not identified that may result 
from the adoption of these proposed amendments. We also request

[[Page 7453]]

qualitative feedback on the nature of the potential benefits and costs 
described above and any benefits and costs we may have overlooked.

V. Consideration of Impact on the Economy, Burden on Competition and 
Promotion of Efficiency, Competition and Capital Formation

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996, or ``SBREFA,'' \26\ we solicit data to determine whether 
the proposals constitute a ``major'' rule. Under SBREFA, a rule is 
considered ``major'' where, if adopted, it results or is likely to 
result in:
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    \26\ 5 U.S.C. 603.
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     An annual effect on the economy of $100 million or more 
(either in the form of an increase or a decrease);
     A major increase in costs or prices for consumers or 
individual industries; or
     Significant adverse effects on competition, investment or 
innovation.
    We request comment on the potential impact of the proposals on the 
economy on an annual basis. Commenters are requested to provide 
empirical data and other factual support for their views if possible.
    Section 23(a)(2) of the Exchange Act \27\ also requires us, when 
adopting rules under the Exchange Act, to consider the impact that any 
new rule would have on competition. Section 23(a)(2) prohibits us from 
adopting any rule that would impose a burden on competition not 
necessary or appropriate in furtherance of the purposes of the Exchange 
Act. In addition, Section 2(b) \28\ of the Securities Act and Section 
3(f) \29\ of the Exchange Act require us, when engaging in rulemaking 
where we are required to consider or determine whether an action is 
necessary or appropriate in the public interest, to also consider 
whether the action will promote efficiency, competition, and capital 
formation.
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    \27\ 15 U.S.C. 78w(a).
    \28\ 15 U.S.C. 77b(b).
    \29\ 15 U.S.C. 78c(f).
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    We believe that taking additional time to evaluate how efficiently 
the Section 404(b) process is being implemented reduces the 
possibilities of needless inefficiencies and transition costs for non-
accelerated filers. Further, if the costs incurred by companies are 
unnecessarily high, companies may find it difficult to grow and may 
experience barriers to capital formation. We expect that this 
additional one-year delay of the auditor attestation report requirement 
will make the implementation process more efficient and less costly for 
non-accelerated filers, which should promote efficiency and capital 
formation.
    It is possible that a competitive impact could result from the 
differing treatment of non-accelerated filers and larger companies that 
already have been complying with the Section 404 requirements, but we 
do not expect that the extension will have any measurable effect on 
competition. We solicit public comment that will assist us in assessing 
the impact that the proposed amendments could have on competition, 
efficiency and capital formation.

VI. Initial Regulatory Flexibility Analysis

    This Initial Regulatory Flexibility Analysis (``IRFA'') has been 
prepared in accordance with the Regulatory Flexibility Act.\30\ This 
IRFA involves proposed amendments to temporary rules Item 308T of 
Regulation S-K and S-B, Rule 2-02T of Regulation S-X, Item 4T of Form 
10-Q, Item 3A(T) of Form 10-QSB, Item 9A(T) of Form 10-K, Item 8A(T) of 
Form 10-KSB, Item 15T of Form 20-F, and Instruction 3T of General 
Instruction B.(6) of Form 40-F. A non-accelerated filer is currently 
required to start providing its auditor's attestation report on ICFR in 
its annual report for fiscal years ending on or after December 15, 
2008. We propose to amend these forms and temporary rules to require a 
non-accelerated filer to start providing its auditor's attestation 
report on ICFR in annual reports for fiscal years ending on or after 
December 15, 2009.
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    \30\ 5 U.S.C. 601.
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A. Reasons for the Proposed Amendments

    The Commission plans to complete a study of the costs and benefits 
of companies' Section 404 implementation. We are proposing to defer the 
implementation of the auditor attestation report requirement for non-
accelerated filers for an additional year for the following reasons, 
among others discussed above:
     To enable non-accelerated filers more time to prepare and 
gain efficiencies in the review and evaluation of the effectiveness of 
internal control over financial reporting;
     To provide the Commission with time to review the findings 
of its study and to consider whether further action to improve the 
effectiveness and efficiency of Section 404 implementation is 
warranted;
     To provide the PCAOB additional time to promulgate its 
guidance for ICFR audits of smaller public companies; and
     To provide the auditors of non-accelerated filers 
additional time to consider such guidance.

B. Objectives

    The proposed amendments aim to further the goals of the Sarbanes-
Oxley Act to enhance the quality of public company disclosure 
concerning the company's internal control over financial reporting and 
increase investor confidence in the financial markets.

C. Legal Basis

    We are issuing the proposals under the authority set forth in 
Section 19 of the Securities Act, Sections 3, 12, 13, 15, 23 and 36 of 
the Exchange Act, and Sections 3(a) and 404 of the Sarbanes-Oxley Act.

D. Small Entities Subject to the Proposed Amendments

    The proposed changes would affect some issuers that are small 
entities. Exchange Act Rule 0-10(a) \31\ defines an issuer, other than 
an investment company, to be a ``small business'' or ``small 
organization'' if it had total assets of $5 million or less on the last 
day of its most recent fiscal year. We estimate that there are 
approximately 1,100 issuers, other than registered investment 
companies, that may be considered small entities. The proposed 
amendments would apply to any small entity that is subject to reporting 
under either Section 13(a) or 15(d) of the Exchange Act.
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    \31\ 17 CFR 240.0-10(a).
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E. Reporting, Recordkeeping, and Other Compliance Requirements

    The proposed amendments would alleviate reporting and compliance 
burdens by postponing by an additional year the date by which non-
accelerated filers must begin to comply with the auditor attestation 
report on ICFR in their annual reports.

F. Duplicative, Overlapping, or Conflicting Federal Rules

    The ICFR requirements do not duplicate, overlap, or conflict with 
other federal rules.

G. Significant Alternatives

    The Regulatory Flexibility Act directs us to consider alternatives 
that would accomplish our stated objectives, while minimizing any 
significant adverse impact on small entities. In connection with the 
proposed amendments, we considered the following alternatives:

[[Page 7454]]

     Establishing different compliance or reporting 
requirements or timetables that take into account the resources 
available to small entities;
     Clarifying, consolidating or simplifying compliance and 
reporting requirements under the rules for small entities;
     Using performance rather than design standards; and
     Exempting small entities from all or part of the 
requirements.
    The proposed amendments would establish a different compliance and 
reporting timetable for small entities. We believe that the proposed 
amendments would promote the primary goal of enhancing the quality of 
reporting and increasing investor confidence in the fairness and 
integrity of the securities markets. Therefore we do not believe 
exempting small entities from the proposed amendments would be 
appropriate.

H. Solicitation of Comments

    We encourage the submission of comments with respect to any aspect 
of this Initial Regulatory Flexibility Analysis. In particular, we 
request comments regarding:
     The number of small entity issuers that may be affected by 
the proposed amendments;
     The existence or nature of the potential impact of the 
proposed amendments on small entity issuers discussed in the analysis; 
and
     How to quantify the impact of the proposed amendments.
    Commenters are asked to describe the nature of any impact and 
provide empirical data supporting the extent of the impact. Such 
comments will be considered in the preparation of the Final Regulatory 
Flexibility Analysis, if we adopt the proposed amendments, and will be 
placed in the same public file as comments on the proposed amendments 
themselves.

VII. Statutory Authority and Text of the Proposed Amendments

    The amendments described in this release are being proposed under 
the authority set forth in Section 19 of the Securities Act, Sections 
3, 12, 13, 15, 23 and 36 of the Exchange Act, and Sections 3(a) and 404 
of the Sarbanes-Oxley Act.

List of Subjects

17 CFR Part 210

    Accountants, Accounting, Reporting and recordkeeping requirements, 
Securities.

17 CFR Part 228

    Reporting and recordkeeping requirements, Securities, Small 
businesses.

17 CFR Parts 229 and 249

    Reporting and recordkeeping requirements, Securities.

Text of Proposed Amendments

    For the reasons set out in the preamble, the Commission proposes to 
amend title 17, chapter II, of the Code of Federal Regulations as 
follows:

PART 210--FORM AND CONTENT OF AND REQUIREMENTS FOR FINANCIAL 
STATEMENTS, SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF 
1934, PUBLIC UTILITY HOLDING COMPANY ACT OF 1935, INVESTMENT 
COMPANY ACT OF 1940, INVESTMENT ADVISERS ACT OF 1940, AND ENERGY 
POLICY AND CONSERVATION ACT OF 1975

    1. The authority citation for part 210 continues to read as 
follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3, 
77aa(25), 77aa(26), 78c, 78j-1, 78l, 78m, 78n, 78o(d), 78q, 78u-5, 
78w(a), 78ll, 78mm, 80a-8, 80a-20, 80a-29, 80a-30, 80a-31, 80a-
37(a), 80b-3, 80b-11, 7202, 7218 and 7262, unless otherwise noted.

    2. Section 210.2-02T is amended by:
    a. Removing paragraphs (a) and (b), and redesignating paragraphs 
(c) and (d) as paragraphs (a) and (b);
    b. Revising the date ``December 15, 2008'' in newly redesignated 
paragraph (a) to read ``December 15, 2009''; and
    c. Revising newly redesignated paragraph (b).
    The revision reads as follows:

Sec.  210.2-02T  Accountants' reports and attestation reports on 
internal control over financial reporting.

* * * * *
    (b) This section expires on June 30, 2010.

PART 228--INTEGRATED DISCLOSURE SYSTEM FOR SMALL BUSINESS ISSUERS

    2. The authority citation for part 228 continues to read, in part, 
as follows:

    Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2, 
77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77jjj, 77nnn, 
77sss, 78l, 78m, 78n, 78o, 78u-5, 78w, 78ll, 78mm, 80a-8, 80a-29, 
80a-30, 80a-37, 80b-11, and 7201 et seq., and 18 U.S.C. 1350.
* * * * *

Sec.  228.308T  [Amended]

    3. Section 228.308T is amended by revising the date ``December 15, 
2008'' in the ``Note to Item 308T'' to read ``March 15, 2009''.

PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES 
ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND 
CONSERVATION ACT OF 1975--REGULATION S-K

    4. The authority citation for part 229 continues to read, in part, 
as follows:

    Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2, 
77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 
77nnn, 77sss, 78c, 78i, 78j, 78l, 78m, 78n, 78o, 78u-5, 78w, 78ll, 
78mm, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a-31(c), 80a-37, 80a-
38(a), 80a-39, 80b-11, and 7201 et seq.; and 18 U.S.C. 1350, unless 
otherwise noted.
* * * * *

Sec.  228.309T  [Amended]

    5. Section 229.308T is amended by:
    a. Revising the date ``December 15, 2008'' in the ``Note to Item 
308T'' to read ``December 15, 2009''; and
    b. Revising the date ``June 30, 2009'' in paragraph (c) to read 
``June 30, 2010''.

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

    6. The general authority citation for part 249 is revised to read 
as follows:

    Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; and 18 U.S.C. 
1350, unless otherwise noted.
* * * * *
    7. Form 20-F (referenced in Sec.  249.220f), Part II, Item 15T is 
amended by:
    a. Revising the date ``December 15, 2008'' in paragraph (2) to the 
``Note to Item 15T'' to read ``December 15, 2009''; and
    b. Revising the date ``June 30, 2009'' in paragraph (d) to read 
``June 30, 2010''.

    Note: The text of Form 20-F does not, and this amendment will 
not, appear in the Code of Federal Regulations.

    8. Form 40-F (referenced in Sec.  249.240f) is amended by:
    a. Revising the date ``December 15, 2008'' in ``Instruction 3T(2)'' 
to the ``Instructions to paragraphs (b), (c), (d) and (e) of General 
Instruction B.(6)'' to read ``December 15, 2009''; and
    b. Revising the date ``June 30, 2009'' in the paragraph following 
``Instruction 3T'' to the ``Instructions to paragraphs (b), (c), (d) 
and (e) of General Instruction B.(6)'' to read ``June 30, 2010''.

    Note: The text of Form 40-F does not, and this amendment will 
not, appear in the Code of Federal Regulations.

    9. Form 10-Q (referenced in Sec.  249.308a) is amended by revising 
Item 4T to Part I to read as follows:

[[Page 7455]]

    Note: The text of Form 10-Q does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 10-Q

* * * * *

Part I--Financial Information

* * * * *
Item 4T. Controls and Procedures
    (a) If the registrant is neither a large accelerated filer nor an 
accelerated filer as those terms are defined in Sec.  240.12b-2 of this 
chapter, furnish the information required by Items 307 and 308T(b) of 
Regulation S-K (17 CFR 229.307 and 229.308T(b)) with respect to a 
quarterly report that the registrant is required to file for a fiscal 
year ending on or after December 15, 2007 but before December 15, 2009.
    (b) This temporary Item 4T will expire on June 30, 2010.
* * * * *
    10. Form 10-QSB (referenced in Sec.  249.308b) is amended by 
revising Item 3A(T) to Part I to read as follows:

    Note: The text of Form 10-QSB does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 10-QSB

* * * * *

Part I--Finanacial Information

* * * * *
Item 3A(T). Controls and Procedures
    (a) Furnish the information required by Items 307 and 308T(b) of 
Regulation S-B (17 CFR 228.307 and 228.308T(b)) with respect to a 
quarterly report that the small business issuer is required to file for 
a fiscal year ending on or after December 15, 2007 but before October 
31, 2008.
* * * * *
    11. Form 10-K (referenced in Sec.  249.310) is amended by:
    a. Revising the date ``December 15, 2008'' in paragraph (a) to Item 
9A(T) to Part II to read ``December 15, 2009''; and
    b. Revising the date ``June 30, 2009'' in paragraph (b) to Item 
9A(T) to Part II to read ``June 30, 2010''.

    Note: The text of Form 10-K does not, and this amendment will 
not, appear in the Code of Federal Regulations.

    12. Form 10-KSB (referenced in Sec.  249.310b) is amended by 
revising the date ``December 15, 2008'' in paragraph (a) to Item 8A(T) 
to Part II to read ``March15, 2009''.

    Note: The text of Form 10-KSB does not, and this amendment will 
not, appear in the Code of Federal Regulations.

    By the Commission.

    Dated: February 1, 2008.
Nancy M. Morris,
Secretary.
[FR Doc. E8-2211 Filed 2-6-08; 8:45 am]

BILLING CODE 8011-01-P