SEC Proposes Amendments to Accelerated and Large Accelerated Filer Definitions

On May 9, 2019, the SEC proposed to amend the definitions of an accelerated and large accelerated filer. As proposed, smaller reporting companies (SRCs)[1] with less than $100 million in annual revenue would not be required to obtain an audit of their internal controls over financial reporting. The proposed amendments would not change other key protections from the Sarbanes-Oxley Act of 2002, such as independent audit committee requirements, CEO and CFO certifications of financial reports, or the requirement that companies continue to establish, maintain, and assess the effectiveness of their ICFR.  The proposed changes are intended to reduce compliance costs and promote capital formation for smaller reporting issuers.
 
Specifically, the proposed amendments would:

• Change the definitions of an accelerated and large accelerated filer to exclude issuers that otherwise qualify as an SRC and have annual revenues of less than $100 million in their most recently completed fiscal year.  The initial qualification thresholds for accelerated and large accelerated filer status based on public float[2]  would remain the same (i.e., $75 million or more but less than $700 million in public float for an accelerated filer and more than $700 million in public float for a large accelerated filer).  

  • Examples of registrants that will no longer qualify as accelerated filers under the proposed definitions include:

    • Registrants with annual revenue of less than $100 million and public float between $75 million and $250 million; and

    • Registrants with no revenue and public float between $75 million and $700 million.  

  • Conversely, registrants with more than $100 million in annual revenue and between $75 million and $250 million in public float would still qualify as accelerated filers. 

Key takeaway 

• If the amendments are adopted as proposed, a larger number of smaller registrants will no longer be required to obtain audits of their internal controls over financial reporting and will have more time to file their periodic reports on Form 10-K and 10-Q.  

 

The amendments would also add a conforming revenue test to the transition thresholds for exiting both accelerated and large accelerated filer status.

• Increase the public float transition thresholds for exiting accelerated and large accelerated filer status to 80% of the initial qualification thresholds as reflected in the table below: 

	Current Threshold for Exiting Status	Proposed Threshold for Exiting Status
Accelerated filer	Public float is less than $50 million at end of second fiscal quarter	Public float is less than $60 million (80% of $75 million initial qualification threshold), at end of second fiscal quarter
Large Accelerated filer	Public float is less than $500 million at end of second fiscal quarter	Public float is less than $560 million (80% of $700 million initial qualification threshold), at end of second fiscal quarter

 

The proposal is subject to a 60-day public comment period after it is published in the Federal Register.

  [2] Public float is measured as of the end of a registrant’s second fiscal quarter.