Non-Accelerated Filers 2661

  • I am interested to know people’s best thoughts on whether the 404 requirements for smaller filers will be extended again (or not). Thanks.

  • It depends on the professional background and personality of the SEC commissioners and whether they will decide based on facts or based on the prevailing political sentiment. There is probably a political sentiment for stricter regulation and no exceptions to regulation in congress given the current financial crisis.%0AThe study on whether to extend the 404 audit exemption for non-accelerated filers is made by a guy from a small university and having looked at the questions on the SEC website, I am unsure whether information that can be readily understood by non-accountants will be presented to the SEC commissioners.%0AIf the actual external costs of a 404 audit of accelerated filers, that are just above the accelerated filer threshold are collected and if they are presented in a manner that is understandable for investors and SEC commissioners (i.e. the increase of audit fees led to an average reduction of % of net profits for small accelerated filers and that is a proxy for the potential impact on non-acclerated filers), then there is a chance that they will say that the costs of the audit of ICFR outweigh the (hard to quantify) benefits.%0AIn addition, there are more cost-effective alternatives for non-accelerated filers. They SEC could force non-accelerated filers to disclose any material weaknesses and significant deficiencies in ICFR that the auditor discovered during his normal audit of the financial statements. This could also include any material or significant misstatements that the auditor identified in the financial statements that were presented to him to audit, but that had not been published yet (instead of just quietly correcting those errors and never mentioning them unless they are restatements of past periods). Those additional disclosures cost nothing since the information is already produced as part of the normal audit.%0AThe SEC could also change the rules and enforcement/penalties concerning negligent misstatements of books and records and material weaknesses in ICFR. This would also have a deterrent effect on non-accelerated filers to get their ICFR and their accounting department up to shape and to take the quality of financial reporting seriously. This would probably lead to more resources, more qualified staff and higher salaries in accounting departments of public companies that are afraid of penalties. Those companies that want to take the risk of penalties can continue as they want without incurring higher costs for beefing up their competence in financial reporting.

  • Doubtful, they have already extended it several times.

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