Hundreds of companies racing to comply with a federal law requiring a thorough review of their internal controls got more time yesterday as regulators pushed back their deadline.
The Securities and Exchange Commission said it had extended by 45 days the cutoff for companies with less than $700 million in market capitalization to attest to the quality of their internal controls, which include security and asset protection, and ensuring accurate financial reporting.
Under Section 404 of the Sarbanes-Oxley law, the deadline for most public companies had been the e first annual report for companies whose fiscal years ended after Nov. 15. That meant those on a calendar-year cycle typically would have until mid-March to file.
Companies that make the new cutoff can file their attestations near the end of April. About 2,000 companies will be eligible for the extension, SEC spokesman John Heine said.
Although companies frequently say they see value in formalizing processes to ensure compliance with the law, many have complained about the time and expense involved.
A study this year by Financial Executives International found that businesses with less than $100 million in revenue expected compliance to take about 3,000 internal and external hours of work, and more than $450,000 in external consulting, software and auditor costs.
Much of that effort, experts said, is required not to establishor evaluate the controls - which frequently have been in compliance - but to put them on paper.
"The huge exercise is documenting it," Dan Andersen, who coordinates Section 404 services at accountants Virchow, Krause & Co., said recently.
Smaller companies frequently say they don't have big enough staffs to allow workers to devote the time necessary to meet tight deadlines.
Independent auditors also have been under pressure because they, too, must approve managements' assessments of their controls.
SEC officials acknowledged those concerns in announcing the extension.
"The commission is sensitive to resource constraints at accounting firms and at smaller public companies," said SEC Chief Accountant Don Nicolaisen.
The Chicago Tribune is a Tribune Publishing newspaper.