On August 9, 2006, the United States Securities Exchange Commission (the "SEC") extended by an additional year the date by which certain foreign private issuers must comply with Section   404(b) of the Sarbanes-Oxley Act of 2002 ("SOX").  Foreign private issuers that are accelerated filers (but not large accelerated filers), and that file their annual reports on Form 20-F or Form 40-F, must now provide an auditor's attestation report on internal control over financial reporting with annual reports filed for fiscal years ending on or after July 15, 2007.  The extension does not affect the compliance deadline for the implementation of SOX Section 404(a), which requires management's report on the effectiveness of the issuer's internal control over financial reporting.  Management's report must be included with annual reports filed for fiscal years ending on or after July 15, 2006.  The extension likewise does not affect the date by which a foreign private issuer that is a large accelerated filer must comply with all of the requirements of SOX Section 404.  Foreign private issuers that are large accelerated filers are required to comply with both Section 404(a) and Section 404(b) beginning with annual reports filed for fiscal years ending on or after July 15, 2006. 

In a companion release also issued on August 9, 2006, the SEC proposed rules that would extend the dates by which all U.S. and non-U.S. non-accelerated filers would be required to comply with the Section 404(a) management report requirement and the Section 404(b) auditor attestation requirement.  The proposed rule would require non-accelerated filers to comply with the management report requirement of Section 404(a) beginning with annual reports filed for fiscal years ending on or after December 15, 2007, and would require such issuers to provide an auditor's attestation report with annual reports filed for fiscal years ending on or after December 15, 2008.  The proposed rule also provides that during the first compliance year (i.e., the year in which a management report, but not an auditor's attestation is filed), non-accelerated filers would only be required to "furnish" rather than "file" management's report.  The SEC indicated that if the proposed rules are adopted, they intend to afford similar relief to accelerated foreign private issuers during their first compliance year.

The companion release also proposes to provide transition relief from the Section 404 requirements for newly public companies, including foreign private issuers that list on a U.S. exchange for the first time.  The proposed rule would relieve newly public companies of the obligation to provide management's report and an auditor's attestation with their first annual reports.  Newly public companies would instead be required to comply with SOX Section 404 beginning with their second annual reports.

This is the SEC's fourth extension of the compliance deadlines related to implementation of SOX Section 404.  The SEC stated that its decision to further extend the compliance date was based on the need to provide relief from the "special burden" the Section 404 reporting requirements impose on foreign private issuers, smaller companies and newly public companies.

 If you have questions concerning this Flash, or United States securities laws generally, please do not hesitate to contact Bonnie Roe on (212) 588-5543, Gerald Shepherd on (212) 588-5540 or Scott Tayne on (212) 588-5520.  
 

Davies Ward Phillips & Vineberg LLP, with over 235 lawyers, practises nationally and internationally from offices in Toronto, Montréal, New York and an affiliate in Paris and is consistently at the heart of the largest and most complex commercial and financial matters on behalf of its North American and overseas clients.

The information and comments herein are for the general information of the reader and are not intended as advice or opinions to be relied upon in relation to any particular circumstance. For particular applications of the law to specific situations, the reader should seek professional advice.