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SEC Proposes Postponement of Accelerated Filing for One Year

The SEC has proposed to postpone for one year the final phase-in period for the accelerated filing of Forms 10-K and 10-Q in order to give filers and their auditors additional time to focus on the new internal control requirements (Rel. No. 33-8477, August 25, 2004). The SEC explained that its current rules would require accelerated filers to comply for the first time with the internal control reporting requirements while at the same time adjusting to a shortened annual report filing deadline from 75 days to 60 days for fiscal years ending on or after December 15, 2004. A number of companies and auditors had raised concerns about the internal controls and accelerated filings deadlines which led the SEC to propose the postponement of the final phase-in period for accelerated periodic report filing dates.

The accelerated filers who are subject to the shortened filing requirements are those with a public float of at least $75 million that have previously been subject to the 1934 Act reporting requirements for at least 12 months and that have previously filed at least one annual report. The accelerated filing requirement does not apply to filers of Forms 10-KSB and 10-QSB. The accelerated filing deadlines were to be phased in over a three-year period with 2004 being year two. For fiscal years ending on or after December 15, 2004, the annual reports are currently required to be filed within 60 days and the quarterly reports within 35 days, which is where the deadlines were to remain for all subsequent periods.

Accelerated filers must begin to include both a management report and an auditor report on the effectiveness of their internal control over financial reporting in the annual report for the first fiscal year ending on or after November 15, 2004. The SEC said it is critical that all 1934 Act reporting companies completely and carefully implement the internal control requirements mandated by section 404 of the Sarbanes-Oxley Act to improve the accuracy and reliability of financial reporting. The SEC has urged companies to conduct thorough assessments of their internal control over financial reporting. The PCAOB adopted Audit Standard No. 2 to provide for the audit of internal control and management's assessment, the SEC noted, so it is critical that financial management, external auditors and audit committees consult about the audit.

Some commenters, including members of the Big Four accounting firms, raised concerns that the final step in the acceleration of the periodic report filing deadlines may impede efforts to implement the internal control requirements with the care and attention that is needed. The SEC concluded that a temporary postponement of the accelerated filing deadlines would benefit investors by providing filers with additional time to resolve any deficiencies or weaknesses that are discovered during the assessments of their internal controls. Under the SEC's proposal, the phase-in period would resume in year four, for fiscal years ending on or after December 15, 2005. The SEC advised that it remains committed to the concept of filing on a more timely basis and to the completion of the final phase-in period after the proposed one-year postponement.

Among the issues commenters are asked to address is whether the final phase-in should be postponed for both annual and quarterly reports, given that only the annual reports must include the management's internal control report. The SEC also asked whether it should instead provide extensions to the filing deadlines only for accelerated filers that request it, or only for those companies that can demonstrate a need for an extension. Commenters are asked to submit their views within 30 days.