In March 2020, the Securities and Exchange Commission (SEC) voted to adopt amendments to the “accelerated filer” and “large accelerated filer” definitions. These definitions are of critical importance to public companies because they determine whether an auditor attestation of an issuer’s internal control over financial reporting is required and the amount of time an issuer gets to file its quarterly and annual reports. This post outlines the key changes to the distinction between the filers.
What changed
| Non-accelerated filer | Accelerated filer | Large accelerated filer | |
|---|---|---|---|
| The Old | Public float less than $75M | Public float is between $75M and $700M | Public float is $700M or more |
| The New | Public float less than $75M OR Public float is between $75M and $700M with annual revenue less than $100M | Public float is between $75M and $700M with annual revenue more than $100M | Public float is $700M or more |
The amendments also 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.
What stayed the same
Certain provisions and requirements have remained unchanged:
- CEO and CFO will still be required to submit their certifications of the filed quarterly and annually produced financial reports.
- Companies are expected to continue to establish, maintain, assess and report on the effectiveness of their internal control over financial reporting (ICFR) and disclosure controls and procedures.
- The amendments have no impact and do not apply to emerging growth companies (EGCs) until they exit EGC status.
- Audit firms are still required to obtain an understanding of a company’s ICFR in order to plan and execute their audits.
Effective dates
It should be noted that the definition of a Smaller Reporting Company (SRC) did not change. Scaled disclosure requirements are available to SRCs, who continue to be defined as issuers with less than $250 million of public float or less than $100 million in annual revenues with public float of less than $700 million or no public float at all. More importantly, a company that meets the definition of an SCR may still be an accelerated filer under the amendments if it has over $100 million in revenues but less than $250 million in public float.
SOX requirement changes for some companies
The amendments have been highly anticipated by public companies that do not generate significant revenues due to various factors (such as early infancy in its life cycle), as they will no longer be subjected to the SOX 404(b) auditor ICFR attestation requirements. The SEC estimates that a company would save approximately $210,000 a year, which the SEC viewed as a “meaningful cost savings for many of the affected issuers.” The much-needed cost-saving measures can certainly be allocated elsewhere to allow companies to focus on its core competencies to continue to grow. In addition, the cost reduction could be a positive factor that may encourage more companies to go public.
Given the many challenges that the year 2020 has brought, the SEC’s revised definitions are a welcomed development that will make public company reporting more cost-effective and more straightforward. If you would like to discuss this important topic in more detail, please reach out to a Haskell & White team member or contact us through the website.