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The Securities and Exchange Commission announced last week that it would give small and foreign companies an extra year to comply with a section of the Sarbanes-Oxley Act. The new rules that require them to test and report on their internal controls against fraud were originally expected to take effect July 2005. The SEC said it was delaying the compliance deadline for Section 404 of the Sarbanes-Oxley Act by a year to fiscal years ending on July 15, 2006, or afterward for foreign issuers and many small and mid-sized companies. That section requires companies to admit to any shortcomings in their accounting procedures that could lead to inaccurate reporting or fraud. A number of companies both in the U.S. and in Europe have complained about the onerous costs associated with the documenting and testing of controls. “I don’t underestimate the effort this will require for smaller companies and foreign private issuers, but this extension will provide additional time for those issuers to take a good hard look at their internal controls,” said SEC Chief Accountant Donald T. Nicolaisen in a statement. The rule singles out problems on three levels in internal control reviews: minor internal control deficiencies; significant internal control deficiencies and serious material weaknesses. To date only the U.S.’s biggest public companies have been required to complete internal control reviews. The SEC plans to hold a forum in Washington on April 13 on the rule.

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