Member Article

Earlier this month, the Securities and Exchange Commission (SEC)adopted amendmentsto the accelerated filer and large accelerated filer definitions set forth under Rule 12b-2 of the Securities Exchange Act of 1934.

In large part, the amendments were a fix to the SEC’s previous June 2018 amendments to such definitions, which created a situation where a company might be categorized as a smaller reporting company (SRC), but still be subject to accelerated or large accelerated filers’ earlier filing deadlines and more stringent disclosure requirements. Please clickhere,here, andherefor Waller’s blog posts on those 2018 amendments.

More specifically, the amendments:

• exclude from the accelerated and large accelerated filer definitions an issuer that is eligible to be a SRC and that had annual revenues of less than $100 million in the most recent fiscal year for which audited financial statements are available.
• similarly exclude business development companies that had annual revenues of less than $100 million in the most recent fiscal year for which audited financial statements are available from the accelerated and large accelerated filer definitions.
• increase the transition thresholds for accelerated and large accelerated filers becoming non-accelerated filers from $50 million to $60 million, and for exiting large accelerated filer status from $500 million to $560 million.
• add a revenue test to the transition thresholds for exiting from both accelerated and large accelerated filer status.
• add a check box to the cover pages of Forms 10-K, 20-F, and 40-F to indicate whether an internal control over financial reporting (ICFR) auditor attestation is included in the filing.
  
  

Perhaps the most salient impact of the amendment is that by expanding the relief for all SRCs with less than $100 million in revenue, the universe of companies that no longer have to provide auditor attestations of their Sarbanes-Oxley Section 404 reports is significantly expanded. Of course, these SRCs will remain obligated to establish and maintain ICFR and have management assess and certify the effectiveness of their company’s ICFR.

It will be interesting to see whether the removal of the requirement to have these new SRC’s management’s assessment of the effectiveness of ICFR attested to by an independent auditor does indeed result in cost savings for such companies.

These rule amendments will become effective 30 days after publication in the Federal Register.

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