The U.S. Securities and Exchange Commission today issued two releases that would grant smaller public companies and many foreign private issuers a delay in complying with the internal control reporting provisions of Section 404 of the Sarbanes-Oxley Act of 2002.

The commission is proposing to grant relief to smaller public companies by extending the date by which non-accelerated filers must start providing a report by management assessing the effectiveness of the company’s internal control over financial reporting. The initial compliance date for these companies would be moved from fiscal years ending on or after July 15, 2007, until fiscal years ending on or after Dec. 15, 2007.

The SEC also proposes to extend the date by which non-accelerated filers must begin to comply with the requirement to provide an auditor’s attestation report on internal control over financial reporting in their annual reports. This deadline would be moved to the first annual report for a fiscal year ending on or after Dec. 15, 2008. This proposed extension would result in all non-accelerated filers being required to complete only the management’s portion of the internal control requirements in their first year of compliance with the requirements.

The SEC says that this proposal is intended to, “provide cost savings and efficiency opportunities to smaller public companies and to assist them as they prepare to comply fully with Section 404’s reporting requirements.”

Approximately 44% of the domestic companies and 38% of the foreign private issuers that file periodic reports with the commission are non-accelerated filers.

The SEC is also granting relief from Section 404 compliance for foreign private issuers that are accelerated filers (but not large accelerated filers). These companies will have their compliance deadline extended for an additional year, so that they will not begin complying until fiscal years ending on or after July 15, 2007. The commission’s data indicate that about 23% of the approximately 1,200 foreign private issuers are accelerated filers that will receive the one-year extension.

The commission’s actions today do not change the date by which a foreign private issuer that is a large accelerated filer must comply with both the Section 404 requirements. These filers are required to include both a report by management and an attestation report by the issuer’s registered accounting firm on internal control over financial reporting for a fiscal year ending on or after July 15, 2006.

The SEC is also proposing a transition period for newly public companies. This transition relief would apply to any company that has become public through an IPO or a registered exchange offer. It would include a foreign private issuer that is listing on a U.S. exchange for the first time.

“To provide meaningful relief to companies that are new to the U.S. markets and our reporting requirements, the commission is proposing to amend its rules so that a company would not be required to provide either a management assessment or an auditor attestation report until it has previously filed one annual report with the commission,” it says. “This relief is being proposed in recognition of the fact that preparation of a newly public company’s first annual report can be a time and resource intensive process that may quickly follow an IPO or initial listing. By not requiring the Section 404 reports until a newly public company files its second annual report with the SEC, the commission hopes to increase the efficiency and effectiveness with which those companies ultimately meet their Section 404 compliance obligations.”

“We have heard that the Section 404 reporting requirements impose a special burden on foreign private issuers, smaller companies and newly public companies. These companies play an important role in our capital markets, and these releases illustrate the Commission’s commitment to improving the efficiency and effectiveness of Section 404 implementation for them,” said John White, director of the Division of Corporation Finance. “We believe our proposed transition relief for newly public companies should enhance the attractiveness and cost-effectiveness of participating in our markets both for companies contemplating IPO’s and for foreign companies considering listing in the U.S. for the first time, without sacrificing important investor protections, and we look forward to receiving comment from a diversity of interested parties on that proposal.”

“The actions taken in these releases continue the commission’s efforts to be sensitive and responsive to the particular needs of smaller public companies and foreign private issuers, and to minimize the burdens that Section 404 may impose on them,” said SEC chairman Christopher Cox. “By offering further relief for smaller companies and most foreign issuers, today’s actions will allow time for the Commission and the PCAOB to redesign Section 404 implementation in a way that is efficient and cost effective for investors.”