Permanent Extension on 404(b) for Non-Accelerated Filers?

Posted by Teresa Bockwoldt on November 3, 2009

The House Panel passed an amendment today that would prevent non-accelerated filers from facing 404(b) requirements permanently.  Non-accelerated filers are defined as having a market cap of less than $75 million. 

There are two parts of SOX that need to be understood:

SOX 404(a): Management Attestation, Effective December 15, 2007:

  • Requires the management of a public company to assess the effectiveness of the company's internal controls
  • Requires management to include in the company's annual report the conclusion of that assessment

SOX 404(b): Auditor Attestation, Effective June 15, 2009:

  • Management's external auditor's must review management's assessment and complete their own assessment and publish their results

The amendment, proposed by Reps. Scott Garrett (R., N.J.) and John Adler (D., N.J.), would grant a permanent reprieve for non-accelerated filers for section 404(b).  Scott Garrett said this reprieve would "free small businesses from onerous regulations."

Again, I left scratching my head. 

The Representatives would not require 404(b) but leave 404(a) in place which would continue to subject small businesses to the SOX requirements and annual certifications.   Just because 404(b) isn't in place does not mean that 404(a) does not apply.  Additionally, public companies are required to certify the effectiveness of their internal controls quarterly via the 302 attestations.  So, again, 404(a) and the 302 attestation are in place and yet companies would not be required to have auditors check if they are telling the truth.  This amendment does nothing to "free small businesses from onerous regulations"; the Representatives are mistaken and misguided.  If they were truly trying to accomplish what they stated, they would repeal both 404(a) and the 302 attestations as well.  I am not sure if they are just trying to look like hero's to small businesses but it seems they are not sure about what they are trying to accomplish. 

By Teresa Bockwoldt MBA, MST

CEO and Co-Founder of Vibato®, LLC

Office: 415.240.4867 | Mobile: 707.477.0008 | Fax: 888.407.7725

Tags: Non-accelerated filer 404(b) information