(The news featured below is a selection from the news covered in Federal Securities Law Reporter, which is distributed to subscribers of Federal Securities Law Reporter.)

Advisory Committee Submits Recommendations to SEC

The SEC's Advisory Committee on Smaller Public Companies has submitted two recommendations to the SEC. The first calls for a delay in the compliance date for non-accelerated filers of the internal control reporting requirement and the second requests the SEC not to further accelerate the due date of quarterly and annual reports for smaller public companies. Committee co-chairs Herbert Wander and James Thyen explained in their letter to SEC Chairman Christopher Cox that prompt action to further delay the Section 404 requirements will prevent the expenditure of significant costs to meet the current deadline. The co-chairs also advised that the recommendations, which were adopted by a unanimous vote at the committee's recent meeting, did not merit further study and should be acted upon promptly rather than waiting for the committee's final report in April 2006.

The advisory committee's resolution regarding the Section 404 compliance date for non-accelerated companies calls for a delay until the first fiscal year ending on or after July 15, 2007, instead of the current July 15, 2006. The resolution adds that, if necessary, corresponding extensions should be made to the application of Exchange Act Rules 13a-14(a) and 15d-14(a) and to the introductory language of the certification required by those rules.

The chairmen advised that there was a consensus in support of the recommendation among committee members and those who provided written or oral testimony. The committee obtained information showing that the costs of implementing Section 404 was far greater than originally anticipated and disproportionately more so for smaller companies. Management has had to expend considerable time and effort to establish and attest to the effectiveness of their companies' internal control over financial reporting. The process was far more complex and difficult to implement than expected, the chairmen noted, and it continues to evolve.

The chairmen acknowledged the efforts of the SEC and the PCAOB to provide guidance to improve the process, and noted that COSO will also issue guidance. However, the committee does not believe that these efforts will provide results for some time, so non-accelerated filers should be given additional time until the efforts to improve the process have progressed further. The committee urged the SEC to take action to implement this recommendation as soon as possible so that companies that are in the process of implementing their internal control over financial reporting will not incur significant costs to meet the rules that the committee hopes to see postponed.

The committee also concluded, based on oral and written presentations and the experience of its members, that smaller companies will be severely challenged by a further phase-in of the accelerated filing requirements. Wander and Thyen pointed to increases in other securities regulatory burdens and the lack of capacity in the securities regulatory infrastructure, such as the capacity of internal compliance personnel and external professional advisers for smaller public companies. If the current phase-in schedule takes effect, the chairmen warned that the result may be an increase in late filings and/or less accurate filings.

The chairmen also pointed to the increased costs of a further acceleration of annual and quarterly filings, which the committee believes would exceed the benefits to investors and the public. In addition to recommending that smaller public companies not be subject to any further acceleration of the due dates of these filings, the committee urged the SEC to look for guidance in defining the term "smaller public company" in the definition recently adopted by the advisory committee. This internal working definition will guide the subcommittee's future recommendations, according to the chairmen.

The chairmen included with their recommendations the committee's definition of a smaller public company and the factors on which the members based their determination in adopting the definition.