Management's Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports of Companies That Are Not Accelerated Filers, 56825-56828 [05-19426]
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Federal Register / Vol. 70, No. 188 / Thursday, September 29, 2005 / Rules and Regulations
56825
Three-year average actual
costs
Three-year
percentage of
volume
Average year
2005 fee
Chicago Board of Trade ..............................................................................................................
Chicago Mercantile Exchange .....................................................................................................
New York Mercantile Exchange ..................................................................................................
New York Board of Trade ............................................................................................................
Kansas City Board of Trade ........................................................................................................
Minneapolis Grain Exchange .......................................................................................................
OneChicago .................................................................................................................................
$5,127
256,683
186,234
61,296
22,034
24,591
6,011
33.4148
51.6763
11.4811
1.9919
1.0113
0.1409
0.0718
$5,127
256,683
125,378
36,245
13,859
12,691
3,207
Subtotal .................................................................................................................................
National Futures Association .......................................................................................................
561,977
33,692
99.7881
N/A
453,190
33,692
Total ...............................................................................................................................
589,657
99.7881
486,882
An example of how the fee is
calculated for one exchange, the
Minneapolis Grain Exchange, is set forth
here:
a. Actual three-year average costs
equal $24,591
b. The alternative computation is:
(.5) ($24,591) +(.5)(.001409)($561,977) =
$12,691.
c. The fee is the less of a or b; in this
case $12,691.
As noted above, the alternative
calculation based on contracts traded is
not applicable to the NFA because it is
not a contract market and has no
contracts traded. The Commission’s
average annual cost for conducting
oversight review of the NFA rule
enforcement program during fiscal year
2002 through 2004 was $33,692 (onethird of $101,076). The fee to be paid by
the NFA for the current fiscal year is
$33,692.
Payment Method
The Debt Collection Improvement Act
(DCIA) requires deposits of fees owed to
the government by electronic transfer of
funds (See 31 U.S.C. 3720). For
information about electronic payments,
please contract Stella Lewis at (202)
418–5186 or slewis@cftc.gov, or see the
CFTC Web site at https://www.cftc.gov,
specifically https://www.cftc.gov/cftc/
cftcelectronicpayments.htm.
Regulatory Flexibility Act
The Regulatory Flexibility Act, 5
U.S.C. 601, et seq., requires agencies to
consider the impact of the rules on
small business. The fees implemented
in this release affect contract markets
(also referred to as exchanges) and
registered futures associations. The
Commission has previously determined
that contract markets and registered
futures associations are not ‘‘small
entities’’ for purposes of the Regulatory
Flexibility Act. Accordingly, the
Chairman, on behalf of the Commission,
certifies pursuant to 5 USC 605(b) that
the fees implemented here will not have
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14:57 Sep 28, 2005
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a significant economic impact on a
substantial number of small entities.
Issued in Washington, DC on September
23, 2005, by the Commission.
Edward W. Colbert,
Deputy Secretary of the Commission.
[FR Doc. 05–19461 Filed 9–28–05; 8:45 am]
BILLING CODE 6351–01–M
SECURITIES AND EXCHANGE
COMMISSION
17 CFR Parts 210, 228, 229, 240 and
249
[Release Nos. 33–8618; 34–52492; File Nos.
S7–40–02; S7–06–03]
RIN 3235–AI66 and 3235–AI79
Management’s Report on Internal
Control Over Financial Reporting and
Certification of Disclosure in Exchange
Act Periodic Reports of Companies
That Are Not Accelerated Filers
Securities and Exchange
Commission.
ACTION: Final rule; extension of
compliance dates; request for comment.
AGENCY:
SUMMARY: We are extending the
compliance dates that were published
on March 8, 2005, in Release No. 33–
8545 [70 FR 11528], for companies that
are not accelerated filers, for certain
amendments to Rules 13a–15 and 15d–
15 under the Securities Exchange Act of
1934, Items 308(a) and (b) of
Regulations S–K and S–B, Item 15 of
Form 20–F and General Instruction B of
Form 40–F. These amendments require
companies, other than registered
investment companies, to include in
their annual reports a report of
management and accompanying
auditor’s report on the company’s
internal control over financial reporting.
The amendments also require
management to evaluate, as of the end
of each fiscal period, any change in the
company’s internal control over
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financial reporting that occurred during
the period that has materially affected,
or is reasonably likely to materially
affect, the company’s internal control
over financial reporting. We are also
extending the compliance dates
applicable to companies that are not
accelerated filers for amendments to
certain representations that must be
included in the certifications required
by Exchange Act Rules 13a–14 and 15d–
14 regarding a company’s internal
control over financial reporting. Finally,
we are soliciting comment about the
implementation of these rules.
DATES: Effective Date: The effective date
published on June 18, 2003, in Release
No. 33–8238 [68 FR 36636] remains
August 14, 2003. The effective date of
this document is September 29, 2005.
Comment Date: Comments should be
received on or before October 31, 2005.
Compliance Dates: The compliance
dates are extended as follows: A
company that is not an accelerated filer
must begin to comply with these
requirements for its first fiscal year
ending on or after July 15, 2007.
Companies must begin to comply with
the provisions of Exchange Act Rule
13a–(d) or 15d–(d), whichever applies,
requiring an evaluation of changes to
internal control over financial reporting
requirements with respect to the
company’s first periodic report due after
the first annual report that must include
management’s report on internal control
over financial reporting.
In addition, during the extended
compliance period, a company that is
not an accelerated filer may continue to
omit the amended portion of the
introductory language in paragraph 4 of
the certification required by Exchange
Act Rules 13a–14(a) and 15d–14(a) that
refers to the certifying officers’
responsibility for establishing and
maintaining internal control over
financial reporting for the company, as
well as paragraph 4(b). This language,
however, must be provided in the first
annual report required to contain
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Federal Register / Vol. 70, No. 188 / Thursday, September 29, 2005 / Rules and Regulations
management’s internal control report
and in all periodic reports filed
thereafter. The extended compliance
dates also apply to the amendments of
Exchange Act Rules 13a–15(a) and 15d–
15(a) relating to the maintenance of
internal control over financial reporting.
The compliance dates relating to
accelerated filers and registered
investment companies published in
Release No. 33–8392 [69 FR 9722] are
not affected by this release.
While the definition of an accelerated
filer in Exchange Act Rule 12b–2
previously has had applicability only
for a foreign private issuer that files its
Exchange Act periodic reports on Forms
10–K and 10–Q, the definition by its
terms does not exclude foreign private
issuers. As of December 1, 2005, a
foreign private issuer that is an
accelerated filer and files its annual
report on Form 20–F will become
subject to a requirement in new Item 4A
of Form 20–F to disclose unresolved
staff comments. This change was part of
our recently adopted Securities Offering
Reform final rules published in Release
No. 33–8591 [70 FR 44722]. A foreign
private issuer that is an accelerated filer
under the Exchange Act Rule 12b–2
definition, and that files its annual
reports on Form 20–F or Form 40–F,
must begin to comply with the internal
control over financial reporting and
related requirements in the annual
report for its first fiscal year ending on
or after July 15, 2006. A foreign private
issuer that is not an accelerated filer
under the Exchange Act Rule 12b–2
definition must begin to comply in its
annual report for its first fiscal year
ending on or after July 15, 2007.
ADDRESSES: Comments may be
submitted by any of the following
methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/other.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number S7–06–03 on the subject line;
or
• Use the Federal eRulemaking Portal
(https://www.regulations.gov). Follow the
instructions for submitting comments.
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–9303.
All submissions should refer to File
Number S7–06–03. This file number
should be included on the subject line
if e-mail is used. To help us process and
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review your comments more efficiently,
please use only one method. The
Commission will post all comments on
the Commission’s Internet Web site
(https://www.sec.gov/rules/other.shtml).
Comments are also available for public
inspection and copying in the
Commission’s Public Reference Room,
100 F Street, NE., Washington, DC
20549. All comments received will be
posted without change; we do not edit
personal identifying information from
submissions. You should submit only
information that you wish to make
available publicly.
FOR FURTHER INFORMATION CONTACT:
Sean Harrison, Special Counsel, Office
of Rulemaking, Division of Corporation
Finance, at (202) 551–3430, U.S.
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–3628.
SUPPLEMENTARY INFORMATION: On June 5,
2003,1 the Commission adopted several
amendments to its rules and forms
implementing Section 404 of the
Sarbanes-Oxley Act of 2002.2 Among
other things, these amendments require
companies, other than registered
investment companies, to include in
their annual reports a report of
management on the company’s internal
control over financial reporting and an
accompanying auditor’s report, and to
evaluate, as of the end of each fiscal
quarter, or year in the case of a foreign
private issuer filing its annual report on
Form 20–F or Form 40–F,3 any change
in the company’s internal control over
financial reporting that occurred during
the period that has materially affected,
or is reasonably likely to materially
affect, the company’s internal control
over financial reporting.
On February 24, 2004, we approved
an extension of the original compliance
dates for the amendments related to
internal control reporting.4 Specifically,
we extended the compliance dates for
companies that are accelerated filers, as
defined in Rule 12b–2 5 under the
1 See Release No. 33–8238 (June 5, 2003) [68 FR
36636].
2 15 U.S.C. 7262.
3 17 CFR 249.20f and 249.40f.
4 See Release No. 33–8392 (February 24, 2004) [69
FR 9722].
5 17 CFR 240.12b–2. An ‘‘accelerated filer’’ means
an issuer after it first meets the following conditions
as of the end of its fiscal year: (i) the aggregate
market value of the voting and non-voting common
equity held by non-affiliates of the issuer is $75
million or more; (ii) the issuer has been subject to
the requirements of Section 13(a) or 15(d) of the
Exchange Act for a period of at least twelve
calendar months; (iii) the issuer has filed at least
one annual report pursuant to Section 13(a) or 15(d)
of the Exchange Act; and (iv) the issuer is not
eligible to use Forms 10–KSB and 10–QSB for its
annual and quarterly reports. In a separate release
that we are issuing today, we are proposing to add
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Securities Exchange Act of 1934,6 to
fiscal years ending on or after November
15, 2004, and for companies that are not
accelerated filers and for foreign private
issuers, to fiscal years ending on or after
July 15, 2005. We believed that
providing additional time for
compliance was appropriate in light of
both the substantial time and resources
needed to properly implement the rules
and to provide additional time for
companies and their auditors to
implement Auditing Standard No. 2,
which set forth new standards for
conducting an audit of internal control
over financial reporting performed in
conjunction with an audit of the
financial statements.7
On March 2, 2005, we approved a
further one-year extension of the
compliance dates for companies that are
not accelerated filers and for foreign
private issuers filing annual reports on
Form 20–F or 40–F.8 In granting this
relief, we noted that an extension was
warranted, in part, in view of the
significant effort being expended by
many foreign private issuers to begin
complying with new International
Financial Reporting Standards.9
In addition, we thought it was
appropriate to provide an additional
extension for non-accelerated filers in
recognition of other efforts in the market
place that might affect the
implementation of internal control
reporting by smaller companies. For
example, at the request of Commission
staff, the Committee of Sponsoring
Organizations of the Treadway
Commission (‘‘COSO’’) established a
task force to provide more guidance on
how the COSO Internal ControlIntegrated Framework (the
a definition of ‘‘large accelerated filer’’ to Exchange
Act Rule 12b–2. If we adopt that proposal, the
extension of compliance dates for internal control
reports affected by this release would apply to
companies, including foreign private issuers, that
are neither accelerated filers nor large accelerated
filers. See Release No. 33–8617 (September 22,
2005).
6 15 U.S.C. 78a et. seq.
7 See Release No. 34–49884 File No. PCAOB
2004–03 (June 17, 2004) [69 FR 35083]. Auditing
Standard No. 2 provides the professional standards
and related performance guidance for independent
auditors to attest to, and report on, the effectiveness
of companies’ internal control over financial
reporting.
8 See Release No. 33–8545 (March 2, 2005) [70 FR
11528].
9 In March 2004, we proposed amendments to
Form 20–F under the Exchange Act to provide
foreign private issuers a one-time accommodation
relating to financial statements prepared under the
International Financial Reporting Standards. These
amendments were adopted in April 2005. See
Release No. 34–49403 (March 11, 2004) [69 FR
12904] and Release No. 34–51535 (April 12, 2005)
[70 FR 20674].
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Federal Register / Vol. 70, No. 188 / Thursday, September 29, 2005 / Rules and Regulations
‘‘framework’’)10 can be applied to
smaller public companies. Moreover,
the Commission organized the Advisory
Committee on Smaller Public
Companies in March 2005 to examine
the impact of the Sarbanes-Oxley Act
and other federal securities laws on
smaller companies.11 These efforts were
just commencing at the time we
approved the extension.
Today we are again extending the
dates for complying with our internal
control over financial reporting
requirements for companies, including
foreign private issuers, that are not
accelerated filers. The extended
compliance period does not in any way
alter requirements regarding internal
control that are in effect, including,
without limitation, Section 13(b)(2) of
the Exchange Act 12 and the rules
thereunder. In this regard,
notwithstanding the deferral of the
applicability of the specific
requirements of our rules under Section
404 of the Sarbanes-Oxley Act (and also,
as a result, the deferral of the
applicability of Auditing Standard No. 2
of the Public Company Accounting
Oversight Board), non-accelerated filers
must continue to assess whether the
company’s internal accounting controls
are sufficient to meet applicable
requirements under federal securities
laws, and we would expect that officers
with responsibility for financial
reporting and internal control and audit
committees (or in the absence of audit
committees, boards of directors) would
continue to work together in this area.
Moreover, independent auditors of nonaccelerated filers must consider filers’
internal accounting controls in
connection with the conduct of audits of
financial statements in accordance with
the standards of the Public Company
Accounting Oversight Board.13
10 Under Commission rules, a reporting company
is required to use a suitable, recognized control
framework that is established by a body or group
that has followed due-process procedures, such as
the COSO Framework, to assess the effectiveness of
the company’s internal control over financial
reporting. See Exchange Act Rules 13a–15(c) and
15d–15(c) [17 CFR 240.13a–15(c) and 240.15d–
15(c)].
11 See SEC Press Release 2004–174 (December 16,
2004) and Release No. 33–8514 (December 16, 2004)
[69 FR 76498]. The Advisory Committee held its
first meeting on April 12, 2005.
12 15 U.S.C. 78m(b)(2).
13 See Auditing Standards Board, AICPA,
Statement on Auditing Standards No. 78,
Consideration of Internal Control in a Financial
Statement Audit: An Amendment to Statement on
Auditing Standards No. 55 (1995), adopted by the
PCAOB in Rule 3200T, Interim Auditing Standards,
and as amended by the PCAOB on September 15,
2004 in Conforming Amendments to PCAOB
Interim Standards Resulting From the Adoption of
PCAOB Auditing Standard No. 2, ‘‘An Audit of
Internal Control Over Financial Reporting
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The Commission, for good cause,
finds that notice and solicitation of
comment regarding extension of the
compliance dates is impractical,
unnecessary and contrary to the public
interest.14 First, comments regarding
current requirements under Section 404,
including comments provided at, and in
connection with our Roundtable on
Implementation of Internal Control
Reporting Provisions held on April 13,
2005, raise issues as to whether a
broadly accepted or demonstrably
suitable framework is currently in place
for evaluating internal control at smaller
public companies, including nonaccelerated filers. As stated above, the
Commission staff has sought an
enhanced framework for smaller public
companies, including by calling on
COSO to evaluate its existing framework
and possible adjustments, modifications
or supplemental guidance for smaller
public companies.
We believe that the COSO task force
has devoted significant time and effort
to this matter and appreciate their
contribution in an important area. We
also believe, however, that the task has
proven challenging and more timeconsuming than anticipated. The COSO
task force has indicated to the
Commission staff that it is approaching
the point when an exposure draft will
be made available for public comment.
Any conclusions are a number of
months away.
Second, by that time, significant work
will have been done, and significant
expenses incurred, by many nonaccelerated filers to comply with the
existing requirement for their first fiscal
year ending on or after July 15, 2006,
unless the current compliance date is
extended. We believe that only an
immediate deferral of the current
compliance date can forestall that result.
Due to the significant costs that smaller
companies are likely to incur to prepare
for initial compliance with the internal
control requirements, we think that it is
critical to make the extension effective
as soon as possible so that they have the
certainty of knowing that they can rely
on it. We believe that many smaller
companies already have begun to
prepare for compliance with the internal
reporting control requirements.15
Performed in Conjunction With an Audit of
Financial Statements.’’
14 See Section 553(b)(3)(B) of the Administrative
Procedure Act [5 U.S.C. 553(b)(3)(B)] (stating that
an agency may dispense with prior notice and
comment when it finds, for good cause, that notice
and comment are ‘‘impracticable, unnecessary, or
contrary to the public interest.’’).
15 See, for example, the statement of William A.
Loving, Jr., Executive Vice President and Chief
Executive Officer of Pendleton County Bank that he
submitted on behalf of the Independent Community
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56827
In addition, the Advisory Committee
on Smaller Public Companies continues
to study the internal control over
financial reporting requirements for
smaller public companies and is
scheduled to complete its work by April
2006. In the interim, the Advisory
Committee recently has recommended
that the Commission further extend the
compliance date for companies that are
not accelerated filers.16
The Commission further notes that
many accelerated filers who became
subject to the internal control over
financial reporting requirements for the
first time this year had difficulty filing
their Form 10–K annual reports on
time.17 Moreover, several of the
responses that we received from
accelerated filers in connection with our
internal control roundtable indicated
that many of the costs that they incurred
in the initial year of compliance would
not be recurring costs; they expected the
internal control reporting process to
become more efficient and less costly in
subsequent years. Companies that are
not accelerated filers may be able to
benefit from the experiences of
accelerated filers in the second year of
compliance with the internal control
reporting requirements as best practices
emerge and increased efficiencies are
realized. Finally, the Commission notes
that the overwhelming majority of
market capitalization of U.S. public
companies is subject to our
requirements under Section 404
notwithstanding this deferral. On the
basis of the foregoing, for good cause
and because the extension will relieve a
Bankers of America. In his statement, Mr. Loving
indicated that his bank already has spent
approximately $40,000 in consultancy and outside
vendor costs, $10,000 in training and education,
and 160 staff hours to comply with Sarbanes-Oxley
Act requirements. It anticipated incurring an
additional 1,600 staff hours to prepare for
compliance with the internal control requirements.
Mr. Loving estimated the costs of the testing alone
to be $50,000, not including internal staffing costs
and additional external audit costs. Mr. Loving’s
statement is available at: https://www.sec.gov/rules/
other/265–23/icba060805.pdf.
16 On August 10, 2005, the Advisory Committee
adopted a resolution recommending that the
Commission extend the compliance dates of the
internal control reporting requirements for
companies that are not accelerated filers. The
Advisory Committee is of the opinion that there is
overall consensus and widely-held support for its
recommendation and suggested that we implement
it as soon as possible. See The Advisory
Committee’s Letter to Securities and Exchange
Commission Chairman Christopher Cox, dated
August 18, 2005.
17 During the first 11 months of the Commission’s
current fiscal year which ends on September 30,
2005, we received 2,320 notifications of late Form
10–K filings on Form 12b–25. This represented a
13% increase over the total number of similar
notifications that we received during all of our 2004
fiscal year.
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Federal Register / Vol. 70, No. 188 / Thursday, September 29, 2005 / Rules and Regulations
restriction, the extension will be
effective on September 29, 2005.
To assist us in our ongoing
consideration of Section 404 of the
Sarbanes-Oxley Act in the context of
smaller public companies, we are
including a list of questions below to
solicit public comment on some
substantive issues regarding the
application of our internal control over
financial reporting requirements to
these companies. We also are soliciting
public comment on the amount of time
and expense that companies that are not
accelerated filers have incurred to date
to prepare for compliance with the
internal control reporting requirements.
These comments will assist us in any
future proposals regarding our rules
under Section 404. We would expect to
provide formal notice and an additional
opportunity for public comment on any
such proposals.
In this regard, we note that the
Advisory Committee recently also has
solicited public input on a range of
issues related to the current securities
regulatory system for smaller
companies, including the impact on
smaller public companies of the internal
control reporting requirements
mandated by Section 404 of the
Sarbanes-Oxley Act of 2002. In
formulating any possible proposed
revisions to the internal control
reporting requirements that would affect
smaller reporting companies, we intend
to consider relevant recommendations
made to the Commission by the
Advisory Committee.
Request for Comment
• Should there be a different set of
internal control over financial reporting
requirements that applies to smaller
companies than applies to larger
companies? Would it be appropriate to
apply a different set of substantive
requirements to non-accelerated filers,
or for management of non-accelerated
filers to make a different kind of
assessment? Why or why not? If you
think that there should be a different set
of requirements for companies that are
not accelerated filers, what should those
requirements be? What would be the
impact of any such differences in the
requirements on investors?
• Would a public float threshold that
is higher or lower than the $75 million
threshold that we use to distinguish
accelerated filers from non-accelerated
filers be more appropriate for this
purpose? If so, what should the
threshold be and why? Would it be
better to use a test other than public
float for this purpose, such as annual
revenues, number of segments or
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number of locations or operations? If so,
why?
• Should the independent auditor
attestation requirements be different for
smaller public companies? If so, how
should the requirements differ?
• Should the same standard for
auditing internal control over financial
reporting apply to auditors of all public
companies, or should there be different
standards based on the size of the public
company whose internal control is
being audited? If the latter, how should
the standards differ?
• How can we best assure that the
costs of the internal control over
financial reporting requirements
imposed on smaller public companies
are commensurate with the benefits?
• We solicit comment describing the
actions that non-accelerated filers
already have taken to prepare for
compliance with the internal control
over financial reporting requirements.
Specific time and cost estimates would
be particularly helpful. We also would
be interested in receiving additional
information about the compliance
burdens incurred this year by smaller
accelerated filers that included internal
control reports in their Form 10–K
annual reports.
Dated: September 22, 2005.
By the Commission.
Jonathan G. Katz,
Secretary.
[FR Doc. 05–19426 Filed 9–28–05; 8:45 am]
BILLING CODE 8010–01–U
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Food and Drug Administration
21 CFR Part 101
[Docket Nos. 1991N–0384H and 1996P–
0500] (formerly 91N–384H and 96P–0500)
RIN 910–AC49
Food Labeling; Nutrient Content
Claims, Definition of Sodium Levels for
the Term ‘‘Healthy’’
AGENCY:
Food and Drug Administration,
HHS.
ACTION:
Final rule.
SUMMARY: The Food and Drug
Administration (FDA) is amending its
regulations concerning the maximum
sodium levels permitted for foods that
bear the implied nutrient content claim
‘‘healthy.’’ The agency is retaining the
currently effective, less restrictive,
‘‘first-tier’’ sodium level requirements
for all food categories, including
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Sfmt 4700
individual foods (480 milligrams (mg))
and meals and main dishes (600 mg),
and is dropping the ‘‘second-tier’’ (more
restrictive) sodium level requirements
for all food categories. Based on the
comments received about technological
barriers to reducing sodium in
processed foods and poor sales of
products that meet the second-tier
sodium level, the agency has
determined that requiring the more
restrictive sodium levels would likely
inhibit the development of new
‘‘healthy’’ food products and risk
substantially eliminating existing
‘‘healthy’’ products from the
marketplace. After reviewing the
comments and evaluating the data from
various sources, FDA has become
convinced that retaining the higher firsttier sodium level requirements for all
food products bearing the term
‘‘healthy’’ will encourage the
manufacture of a greater number of
products that are consistent with dietary
guidelines for a variety of nutrients. The
agency has also revised the regulatory
text of the ‘‘healthy’’ regulation to
clarify the scope and meaning of the
regulation and to reformat the nutrient
content requirements for ‘‘healthy’’ into
a more readable set of tables, consistent
with the Presidential Memorandum
instructing that regulations be written in
plain language.
DATES: This final rule is effective
September 29, 2005.
FOR FURTHER INFORMATION CONTACT:
Constance Henry, Center for Food Safety
and Applied Nutrition (HFS–832), Food
and Drug Administration, 5100 Paint
Branch Pkwy., College Park, MD 20740,
301–436–1450.
SUPPLEMENTARY INFORMATION:
I. Background
In the Federal Register of May 10,
1994 (59 FR 24232), FDA published a
final rule amending § 101.65 (21 CFR
101.65) to define the term ‘‘healthy’’ as
an implied nutrient content claim under
section 403(r) of the Federal Food, Drug,
and Cosmetic Act (the act) (21 U.S.C.
343(r)). The 1994 final rule defined
criteria for use of the implied nutrient
content claim ‘‘healthy’’ and its
derivatives (e.g., ‘‘health’’ and
‘‘healthful’’) on individual foods,
including raw, single-ingredient seafood
and game meat, and on meal and main
dish products. It also established two
separate timeframes in which different
criteria for sodium content would be
effective for foods bearing a ‘‘healthy’’
claim (i.e., before January 1, 1998, and
after January 1, 1998).
According to the 1994 final rule,
before January 1, 1998, individual foods
E:\FR\FM\29SER1.SGM
29SER1
]]>Agencies
[Federal Register Volume 70, Number 188 (Thursday, September 29, 2005)]
[Rules and Regulations]
[Pages 56825-56828]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-19426]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 210, 228, 229, 240 and 249
[Release Nos. 33-8618; 34-52492; File Nos. S7-40-02; S7-06-03]
RIN 3235-AI66 and 3235-AI79
Management's Report on Internal Control Over Financial Reporting
and Certification of Disclosure in Exchange Act Periodic Reports of
Companies That Are Not Accelerated Filers
AGENCY: Securities and Exchange Commission.
ACTION: Final rule; extension of compliance dates; request for comment.
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SUMMARY: We are extending the compliance dates that were published on
March 8, 2005, in Release No. 33-8545 [70 FR 11528], for companies that
are not accelerated filers, for certain amendments to Rules 13a-15 and
15d-15 under the Securities Exchange Act of 1934, Items 308(a) and (b)
of Regulations S-K and S-B, Item 15 of Form 20-F and General
Instruction B of Form 40-F. These amendments require companies, other
than registered investment companies, to include in their annual
reports a report of management and accompanying auditor's report on the
company's internal control over financial reporting. The amendments
also require management to evaluate, as of the end of each fiscal
period, any change in the company's internal control over financial
reporting that occurred during the period that has materially affected,
or is reasonably likely to materially affect, the company's internal
control over financial reporting. We are also extending the compliance
dates applicable to companies that are not accelerated filers for
amendments to certain representations that must be included in the
certifications required by Exchange Act Rules 13a-14 and 15d-14
regarding a company's internal control over financial reporting.
Finally, we are soliciting comment about the implementation of these
rules.
DATES: Effective Date: The effective date published on June 18, 2003,
in Release No. 33-8238 [68 FR 36636] remains August 14, 2003. The
effective date of this document is September 29, 2005.
Comment Date: Comments should be received on or before October 31,
2005.
Compliance Dates: The compliance dates are extended as follows: A
company that is not an accelerated filer must begin to comply with
these requirements for its first fiscal year ending on or after July
15, 2007. Companies must begin to comply with the provisions of
Exchange Act Rule 13a-(d) or 15d-(d), whichever applies, requiring an
evaluation of changes to internal control over financial reporting
requirements with respect to the company's first periodic report due
after the first annual report that must include management's report on
internal control over financial reporting.
In addition, during the extended compliance period, a company that
is not an accelerated filer may continue to omit the amended portion of
the introductory language in paragraph 4 of the certification required
by Exchange Act Rules 13a-14(a) and 15d-14(a) that refers to the
certifying officers' responsibility for establishing and maintaining
internal control over financial reporting for the company, as well as
paragraph 4(b). This language, however, must be provided in the first
annual report required to contain
[[Page 56826]]
management's internal control report and in all periodic reports filed
thereafter. The extended compliance dates also apply to the amendments
of Exchange Act Rules 13a-15(a) and 15d-15(a) relating to the
maintenance of internal control over financial reporting. The
compliance dates relating to accelerated filers and registered
investment companies published in Release No. 33-8392 [69 FR 9722] are
not affected by this release.
While the definition of an accelerated filer in Exchange Act Rule
12b-2 previously has had applicability only for a foreign private
issuer that files its Exchange Act periodic reports on Forms 10-K and
10-Q, the definition by its terms does not exclude foreign private
issuers. As of December 1, 2005, a foreign private issuer that is an
accelerated filer and files its annual report on Form 20-F will become
subject to a requirement in new Item 4A of Form 20-F to disclose
unresolved staff comments. This change was part of our recently adopted
Securities Offering Reform final rules published in Release No. 33-8591
[70 FR 44722]. A foreign private issuer that is an accelerated filer
under the Exchange Act Rule 12b-2 definition, and that files its annual
reports on Form 20-F or Form 40-F, must begin to comply with the
internal control over financial reporting and related requirements in
the annual report for its first fiscal year ending on or after July 15,
2006. A foreign private issuer that is not an accelerated filer under
the Exchange Act Rule 12b-2 definition must begin to comply in its
annual report for its first fiscal year ending on or after July 15,
2007.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/other.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number S7-06-03 on the subject line; or
Use the Federal eRulemaking Portal (https://
www.regulations.gov). Follow the instructions for submitting comments.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-9303.
All submissions should refer to File Number S7-06-03. This file
number should be included on the subject line if e-mail is used. To
help us process and review your comments more efficiently, please use
only one method. The Commission will post all comments on the
Commission's Internet Web site (https://www.sec.gov/rules/other.shtml).
Comments are also available for public inspection and copying in the
Commission's Public Reference Room, 100 F Street, NE., Washington, DC
20549. All comments received will be posted without change; we do not
edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly.
FOR FURTHER INFORMATION CONTACT: Sean Harrison, Special Counsel, Office
of Rulemaking, Division of Corporation Finance, at (202) 551-3430, U.S.
Securities and Exchange Commission, 100 F Street, NE., Washington, DC
20549-3628.
SUPPLEMENTARY INFORMATION: On June 5, 2003,\1\ the Commission adopted
several amendments to its rules and forms implementing Section 404 of
the Sarbanes-Oxley Act of 2002.\2\ Among other things, these amendments
require companies, other than registered investment companies, to
include in their annual reports a report of management on the company's
internal control over financial reporting and an accompanying auditor's
report, and to evaluate, as of the end of each fiscal quarter, or year
in the case of a foreign private issuer filing its annual report on
Form 20-F or Form 40-F,\3\ any change in the company's internal control
over financial reporting that occurred during the period that has
materially affected, or is reasonably likely to materially affect, the
company's internal control over financial reporting.
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\1\ See Release No. 33-8238 (June 5, 2003) [68 FR 36636].
\2\ 15 U.S.C. 7262.
\3\ 17 CFR 249.20f and 249.40f.
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On February 24, 2004, we approved an extension of the original
compliance dates for the amendments related to internal control
reporting.\4\ Specifically, we extended the compliance dates for
companies that are accelerated filers, as defined in Rule 12b-2 \5\
under the Securities Exchange Act of 1934,\6\ to fiscal years ending on
or after November 15, 2004, and for companies that are not accelerated
filers and for foreign private issuers, to fiscal years ending on or
after July 15, 2005. We believed that providing additional time for
compliance was appropriate in light of both the substantial time and
resources needed to properly implement the rules and to provide
additional time for companies and their auditors to implement Auditing
Standard No. 2, which set forth new standards for conducting an audit
of internal control over financial reporting performed in conjunction
with an audit of the financial statements.\7\
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\4\ See Release No. 33-8392 (February 24, 2004) [69 FR 9722].
\5\ 17 CFR 240.12b-2. An ``accelerated filer'' means an issuer
after it first meets the following conditions as of the end of its
fiscal year: (i) the aggregate market value of the voting and non-
voting common equity held by non-affiliates of the issuer is $75
million or more; (ii) the issuer has been subject to the
requirements of Section 13(a) or 15(d) of the Exchange Act for a
period of at least twelve calendar months; (iii) the issuer has
filed at least one annual report pursuant to Section 13(a) or 15(d)
of the Exchange Act; and (iv) the issuer is not eligible to use
Forms 10-KSB and 10-QSB for its annual and quarterly reports. In a
separate release that we are issuing today, we are proposing to add
a definition of ``large accelerated filer'' to Exchange Act Rule
12b-2. If we adopt that proposal, the extension of compliance dates
for internal control reports affected by this release would apply to
companies, including foreign private issuers, that are neither
accelerated filers nor large accelerated filers. See Release No. 33-
8617 (September 22, 2005).
\6\ 15 U.S.C. 78a et. seq.
\7\ See Release No. 34-49884 File No. PCAOB 2004-03 (June 17,
2004) [69 FR 35083]. Auditing Standard No. 2 provides the
professional standards and related performance guidance for
independent auditors to attest to, and report on, the effectiveness
of companies' internal control over financial reporting.
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On March 2, 2005, we approved a further one-year extension of the
compliance dates for companies that are not accelerated filers and for
foreign private issuers filing annual reports on Form 20-F or 40-F.\8\
In granting this relief, we noted that an extension was warranted, in
part, in view of the significant effort being expended by many foreign
private issuers to begin complying with new International Financial
Reporting Standards.\9\
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\8\ See Release No. 33-8545 (March 2, 2005) [70 FR 11528].
\9\ In March 2004, we proposed amendments to Form 20-F under the
Exchange Act to provide foreign private issuers a one-time
accommodation relating to financial statements prepared under the
International Financial Reporting Standards. These amendments were
adopted in April 2005. See Release No. 34-49403 (March 11, 2004) [69
FR 12904] and Release No. 34-51535 (April 12, 2005) [70 FR 20674].
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In addition, we thought it was appropriate to provide an additional
extension for non-accelerated filers in recognition of other efforts in
the market place that might affect the implementation of internal
control reporting by smaller companies. For example, at the request of
Commission staff, the Committee of Sponsoring Organizations of the
Treadway Commission (``COSO'') established a task force to provide more
guidance on how the COSO Internal Control-Integrated Framework (the
[[Page 56827]]
``framework'')\10\ can be applied to smaller public companies.
Moreover, the Commission organized the Advisory Committee on Smaller
Public Companies in March 2005 to examine the impact of the Sarbanes-
Oxley Act and other federal securities laws on smaller companies.\11\
These efforts were just commencing at the time we approved the
extension.
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\10\ Under Commission rules, a reporting company is required to
use a suitable, recognized control framework that is established by
a body or group that has followed due-process procedures, such as
the COSO Framework, to assess the effectiveness of the company's
internal control over financial reporting. See Exchange Act Rules
13a-15(c) and 15d-15(c) [17 CFR 240.13a-15(c) and 240.15d-15(c)].
\11\ See SEC Press Release 2004-174 (December 16, 2004) and
Release No. 33-8514 (December 16, 2004) [69 FR 76498]. The Advisory
Committee held its first meeting on April 12, 2005.
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Today we are again extending the dates for complying with our
internal control over financial reporting requirements for companies,
including foreign private issuers, that are not accelerated filers. The
extended compliance period does not in any way alter requirements
regarding internal control that are in effect, including, without
limitation, Section 13(b)(2) of the Exchange Act \12\ and the rules
thereunder. In this regard, notwithstanding the deferral of the
applicability of the specific requirements of our rules under Section
404 of the Sarbanes-Oxley Act (and also, as a result, the deferral of
the applicability of Auditing Standard No. 2 of the Public Company
Accounting Oversight Board), non-accelerated filers must continue to
assess whether the company's internal accounting controls are
sufficient to meet applicable requirements under federal securities
laws, and we would expect that officers with responsibility for
financial reporting and internal control and audit committees (or in
the absence of audit committees, boards of directors) would continue to
work together in this area. Moreover, independent auditors of non-
accelerated filers must consider filers' internal accounting controls
in connection with the conduct of audits of financial statements in
accordance with the standards of the Public Company Accounting
Oversight Board.\13\
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\12\ 15 U.S.C. 78m(b)(2).
\13\ See Auditing Standards Board, AICPA, Statement on Auditing
Standards No. 78, Consideration of Internal Control in a Financial
Statement Audit: An Amendment to Statement on Auditing Standards No.
55 (1995), adopted by the PCAOB in Rule 3200T, Interim Auditing
Standards, and as amended by the PCAOB on September 15, 2004 in
Conforming Amendments to PCAOB Interim Standards Resulting From the
Adoption of PCAOB Auditing Standard No. 2, ``An Audit of Internal
Control Over Financial Reporting Performed in Conjunction With an
Audit of Financial Statements.''
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The Commission, for good cause, finds that notice and solicitation
of comment regarding extension of the compliance dates is impractical,
unnecessary and contrary to the public interest.\14\ First, comments
regarding current requirements under Section 404, including comments
provided at, and in connection with our Roundtable on Implementation of
Internal Control Reporting Provisions held on April 13, 2005, raise
issues as to whether a broadly accepted or demonstrably suitable
framework is currently in place for evaluating internal control at
smaller public companies, including non-accelerated filers. As stated
above, the Commission staff has sought an enhanced framework for
smaller public companies, including by calling on COSO to evaluate its
existing framework and possible adjustments, modifications or
supplemental guidance for smaller public companies.
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\14\ See Section 553(b)(3)(B) of the Administrative Procedure
Act [5 U.S.C. 553(b)(3)(B)] (stating that an agency may dispense
with prior notice and comment when it finds, for good cause, that
notice and comment are ``impracticable, unnecessary, or contrary to
the public interest.'').
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We believe that the COSO task force has devoted significant time
and effort to this matter and appreciate their contribution in an
important area. We also believe, however, that the task has proven
challenging and more time-consuming than anticipated. The COSO task
force has indicated to the Commission staff that it is approaching the
point when an exposure draft will be made available for public comment.
Any conclusions are a number of months away.
Second, by that time, significant work will have been done, and
significant expenses incurred, by many non-accelerated filers to comply
with the existing requirement for their first fiscal year ending on or
after July 15, 2006, unless the current compliance date is extended. We
believe that only an immediate deferral of the current compliance date
can forestall that result. Due to the significant costs that smaller
companies are likely to incur to prepare for initial compliance with
the internal control requirements, we think that it is critical to make
the extension effective as soon as possible so that they have the
certainty of knowing that they can rely on it. We believe that many
smaller companies already have begun to prepare for compliance with the
internal reporting control requirements.\15\
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\15\ See, for example, the statement of William A. Loving, Jr.,
Executive Vice President and Chief Executive Officer of Pendleton
County Bank that he submitted on behalf of the Independent Community
Bankers of America. In his statement, Mr. Loving indicated that his
bank already has spent approximately $40,000 in consultancy and
outside vendor costs, $10,000 in training and education, and 160
staff hours to comply with Sarbanes-Oxley Act requirements. It
anticipated incurring an additional 1,600 staff hours to prepare for
compliance with the internal control requirements. Mr. Loving
estimated the costs of the testing alone to be $50,000, not
including internal staffing costs and additional external audit
costs. Mr. Loving's statement is available at: https://www.sec.gov/
rules/other/265-23/icba060805.pdf.
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In addition, the Advisory Committee on Smaller Public Companies
continues to study the internal control over financial reporting
requirements for smaller public companies and is scheduled to complete
its work by April 2006. In the interim, the Advisory Committee recently
has recommended that the Commission further extend the compliance date
for companies that are not accelerated filers.\16\
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\16\ On August 10, 2005, the Advisory Committee adopted a
resolution recommending that the Commission extend the compliance
dates of the internal control reporting requirements for companies
that are not accelerated filers. The Advisory Committee is of the
opinion that there is overall consensus and widely-held support for
its recommendation and suggested that we implement it as soon as
possible. See The Advisory Committee's Letter to Securities and
Exchange Commission Chairman Christopher Cox, dated August 18, 2005.
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The Commission further notes that many accelerated filers who
became subject to the internal control over financial reporting
requirements for the first time this year had difficulty filing their
Form 10-K annual reports on time.\17\ Moreover, several of the
responses that we received from accelerated filers in connection with
our internal control roundtable indicated that many of the costs that
they incurred in the initial year of compliance would not be recurring
costs; they expected the internal control reporting process to become
more efficient and less costly in subsequent years. Companies that are
not accelerated filers may be able to benefit from the experiences of
accelerated filers in the second year of compliance with the internal
control reporting requirements as best practices emerge and increased
efficiencies are realized. Finally, the Commission notes that the
overwhelming majority of market capitalization of U.S. public companies
is subject to our requirements under Section 404 notwithstanding this
deferral. On the basis of the foregoing, for good cause and because the
extension will relieve a
[[Page 56828]]
restriction, the extension will be effective on September 29, 2005.
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\17\ During the first 11 months of the Commission's current
fiscal year which ends on September 30, 2005, we received 2,320
notifications of late Form 10-K filings on Form 12b-25. This
represented a 13% increase over the total number of similar
notifications that we received during all of our 2004 fiscal year.
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To assist us in our ongoing consideration of Section 404 of the
Sarbanes-Oxley Act in the context of smaller public companies, we are
including a list of questions below to solicit public comment on some
substantive issues regarding the application of our internal control
over financial reporting requirements to these companies. We also are
soliciting public comment on the amount of time and expense that
companies that are not accelerated filers have incurred to date to
prepare for compliance with the internal control reporting
requirements. These comments will assist us in any future proposals
regarding our rules under Section 404. We would expect to provide
formal notice and an additional opportunity for public comment on any
such proposals.
In this regard, we note that the Advisory Committee recently also
has solicited public input on a range of issues related to the current
securities regulatory system for smaller companies, including the
impact on smaller public companies of the internal control reporting
requirements mandated by Section 404 of the Sarbanes-Oxley Act of 2002.
In formulating any possible proposed revisions to the internal control
reporting requirements that would affect smaller reporting companies,
we intend to consider relevant recommendations made to the Commission
by the Advisory Committee.
Request for Comment
Should there be a different set of internal control over
financial reporting requirements that applies to smaller companies than
applies to larger companies? Would it be appropriate to apply a
different set of substantive requirements to non-accelerated filers, or
for management of non-accelerated filers to make a different kind of
assessment? Why or why not? If you think that there should be a
different set of requirements for companies that are not accelerated
filers, what should those requirements be? What would be the impact of
any such differences in the requirements on investors?
Would a public float threshold that is higher or lower
than the $75 million threshold that we use to distinguish accelerated
filers from non-accelerated filers be more appropriate for this
purpose? If so, what should the threshold be and why? Would it be
better to use a test other than public float for this purpose, such as
annual revenues, number of segments or number of locations or
operations? If so, why?
Should the independent auditor attestation requirements be
different for smaller public companies? If so, how should the
requirements differ?
Should the same standard for auditing internal control
over financial reporting apply to auditors of all public companies, or
should there be different standards based on the size of the public
company whose internal control is being audited? If the latter, how
should the standards differ?
How can we best assure that the costs of the internal
control over financial reporting requirements imposed on smaller public
companies are commensurate with the benefits?
We solicit comment describing the actions that non-
accelerated filers already have taken to prepare for compliance with
the internal control over financial reporting requirements. Specific
time and cost estimates would be particularly helpful. We also would be
interested in receiving additional information about the compliance
burdens incurred this year by smaller accelerated filers that included
internal control reports in their Form 10-K annual reports.
Dated: September 22, 2005.
By the Commission.
Jonathan G. Katz,
Secretary.
[FR Doc. 05-19426 Filed 9-28-05; 8:45 am]
BILLING CODE 8010-01-U
