The US Securities and Exchange Commission (SEC) extended the deadline for those companies until July 15, 2006 to comply with the Sarbanes-Oxley provision requiring the public disclosure, according to a SEC Web statement . The provision requires a company to include in its annual reports a report by management on the company’s internal control over financial reporting and an accompanying auditor’s report.
“Section 404 reporting has the long-term potential to substantially improve the reliability of financial reporting. It is already having that effect for companies with the vast majority of US market capitalization,” said Alan Beller, director of the division of corporation finance, in the SEC statement. “Given the burdens in designing and implementing Section 404 compliance for smaller and non-US companies, this extension strikes the right balance. Companies should use the extension not to delay but to improve the quality of their efforts.”
Smaller and foreign companies have complained about the impact of the law enacted at the height of the scandals that ensnared Enron Corp., WorldCom Inc. and other big companies, saying it is too costly and difficult to administer.
The SEC statement pointed out that many foreign companies are facing regulatory and reporting challenges in addition to internal control reporting as companies incorporated in a European Union member country are required to prepare their financial statements for 2005 to meet new International Financial Reporting Standards.
Recent accounting scandals have tainted several major European companies, including Royal Dutch/Shell Group, Italian dairy giant Parmalat Finanziaria SpA and French media conglomerate Vivendi Universal. Most recently, Irish drug maker Elan Corp. agreed to pay $15 million to settle SEC charges that it misled investors about revenue from a joint venture.