The SEC voted on May 9th to propose amendments to the accelerated filer and large accelerated filer definitions. These amendments would reduce costs for certain lower-revenue companies by more appropriately tailoring the types of companies that are categorized as accelerated and large accelerated filers while maintaining effective investor protections. Under these new amendments to Exchange Act Rule 12b-2, smaller reporting companies with less than $100 million in revenues would not be required to obtain an attestation of their internal control over financial reporting from an independent outside auditor. The key protections from the Sarbanes-Oxley Act of 2002, including independent audit committee requirements, CEO and CFO certifications of financial reports, and the requirement that companies continue to establish, maintain, and assess the effectiveness of their internal control, would not be altered by the proposed changes.
The proposed changes are built upon amendments adopted by the SEC on June 28, 2018, to the smaller reporting company (SRC) definition that expanded the number of companies that benefit from scaled disclosure requirements. The reporting regimes for SRCs and non-accelerated filers were aligned before these changes. However, as a result of these 2018 amendments, some issuers became categorized as both a SRC and an accelerated or large accelerated filer. This required these SRCs to comply with the requirement that an outside independent auditor attest to the effectiveness of the company’s control over its financial reporting.
The SEC has examined recommendations on how to appropriately redefine the issuers that are designated as accelerated filers and thereby promote capital formation. SEC staff has considered the historical and current relationship between the definitions of SRCs and accelerated filers as well as how changing rules could reduce compliance costs for certain registrants while continuing to ensure investor protections.
Specifically, the proposed amendments would:
Exclude issuers that are eligible to be an SRC from the accelerated and large accelerated filer definitions if that company also had no revenues or annual revenues of less than $100 million in the most recent fiscal year.
Increase the transition thresholds for accelerated and large accelerated filers becoming a non-accelerated filer from $50 million to $60 million and for exiting large accelerated filer status from $500 million to $600 million.
Add a revenue test to the transition thresholds for exiting both accelerated and large accelerated filer status.
These proposed changes will be open for public comment for 60 days after publication in the Federal Register. The proposed rule changes can be read here. You can submit comments using the form available on the SEC’s website or by e-mailing rule-comments@sec.gov with the reference number (S7-06-19) in the subject line. You can also use the Federal Rulemaking Portal to submit comments or send your comments by mail to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090. Again, please remember to include reference number S7-06-19.
Sources:
SEC Proposes Amendments to More Appropriately Tailor the Accelerated and Large Accelerated Filer Definitions (www.sec.gov)
Amendments to the Accelerated Filer and Large Accelerated Filer Definitions (www.sec.gov)
