SEC Extends SOX Deadline for Foreign Companies

Information Management Journal, May/Jun 2005 by Swartz, Nikki

On March 2, the Securities and Exchange Commission (SEC) extended the deadline for mid-sized U.S. public companies with revenue of $75 million or less and foreign public companies to comply with section 404 of the Sarbanes-Oxley Act (SOX), which requires companies to report annually on the adequacy and effectiveness of their internal financial controls. The new deadline, July 15, 2006, is a one-year extension from the previously established deadline.

Generally speaking, the extension applies to those businesses incorporated or organized outside the United States with more than half of their ownership, management, assets, and/ or administration outside the United States.

Many European companies face burdens "above and beyond" those of U.S. companies as the European Union moves to adopt international financial reporting standards for the first time, SEC Chairman William Donaldson said. According to Donaldson, the changes will make it easier for new users of the European Union accounting rules - the International Financial Reporting Standards (IFRS) - to list on U.S. exchanges. The SEC has long permitted companies to use IFRS provided that the figures representing their companies' operations were reconciled with the United States' Generally Approved Accounting Practices (GAAP) over a three-year period. Under the new rule, first-time users of IFRS would need to reconcile their financial statements for only two years, Donaldson said.

In November 2004, the SEC gave small U.S. companies additional time to verify their internal controls after finding they were overwhelmed trying to meet the mid-2005 deadline for domestic firms.

Despite the extension to comply with Section 404, many consultants say the chief executive officers and chief financial officers of certain mid-size and foreign public companies must still execute and file certifications about their internal controls under Section 302 of SOX.