Congress passed the Sarbanes-Oxley Act of 2002 (SOX) to restore confidence in the U.S. capital markets and public company financial reporting. This law has a far-reaching impact and is perhaps the most significant reform to securities laws since they were enacted in 1933.
On December 15, 2006, the Securities and Exchange Commission provided some temporary relief for small and newly public companies, including companies identified as non-accelerated filers, by extending the compliance due dates. This latest action, however, appears to refute the hopeful conjecture that small public companies might get a permanent reprieve from Section 404 requirements.
Small public companies will now face the same issues as larger SEC companies -- soaring audit and internal compliance costs due to increased audit scrutiny. The only way to reduce the burdensome costs associated with Section 404 implementation is to be prepared.
Get documentation ready and begin internal testing early to ensure that you catch problem areas and rectify them long before the compliance date. An investment in internal audit work now could substantially reduce the amount of time and money you spend on the external audit.
The new measure extends compliance as follows:
A non-accelerated filer is not required to provide management's report on internal control over financial reporting until it files an annual report for its first fiscal year ending on or after December 15, 2007.
A non-accelerated filer is not required to file the auditor's attestation report on internal control over financial reporting until it files an annual report for fiscal years ending on or after December 15, 2008.
Management's report included in a non-accelerated filer's annual report during the filer's first year of compliance with the Section 404(a) requirements will be deemed "furnished" rather than filed.
Companies that provide only management's report during their first year of compliance must state in the annual report that the report does not include the auditor's attestation report and that the company's registered public accounting firm has not attested to management's report on the company's internal control over financial reporting.
KraftCPAs can assist public companies by:
Conducting the internal control testing required for management's assessment of the effectiveness of the control structure and procedures over financial reporting
Designing an internal control test program to be implemented by the company's internal audit staff
Providing consultation to identify high-risk areas where internal control improvements are needed
Assisting your internal staff in developing required documentation
Providing high-level technology and internal audit professionals to augment the company's internal audit team
The firm is a member of the Center for Public Company Audit Firms (CPCAF). Membership in the Center is required because our firm audits public companies. To verify our compliance with Center standards, KraftCPAs submits to external peer reviews every three years as required by the CPCAF. Our most recent CPCAF peer review was conducted in 2006; the report is available upon request. Our firm is also inspected by the Public Company Accounting Oversight Board (PCAOB). The results of our most recent PCAOB inspection reports are available to the public at www.pcaobus.org/inspections.
Contact us to discuss how KraftCPAs can help your organization comply with Sarbanes-Oxley in the most efficient and cost-effective manner.
Wynne E. Baker, CPA, CFSA, CBA
Mike Ingram, CPA, CFSA
Beverly Horner, CPA, CFSA
