SEC Amends the Definition of Accelerated Filer
By George Wilson
Even with the disruption of the coronavirus the SEC is moving forward with its regulatory agenda. On March 12, 2020 the SEC finalized a significant part of this agenda by changing the definition of Accelerated Filer. The rule finalized a proposal made on May 9, 2019.
The Final Rule will be effective 30 days after publication in the Federal Register and applies to all filings due on or after the effective date.
The major change in the Final Rule is that companies with public float of over $75 million but less than $700 million AND less than $100 million in revenues will now be Non-Accelerated Filers. These companies, which had been Accelerated Filers, will be able to use the longer 90 day and 45 day deadlines for Forms 10-K and 10-Q, respectively, and will not be required to obtain an auditors attestation report on their ICFR. (As in the existing rules public float will be measured on the last business day of the company’s second fiscal quarter.)
This table from page 53 of the Final Rule summarizes how the definitions of Non-Accelerated Filer, Accelerated Filer, Large Accelerated Filer and Smaller Reporting Company will fit together:
The Final Rule will also add a check box to the cover page of Form 10-K to indicate if the report includes an auditors attestation report on ICFR.
In the press release accompanying the Final Rule the SEC makes a very important point about ICFR for the population of Non-Accelerated Filers:
Following the adoption of the amendments, smaller reporting companies with less than $100 million in revenues will continue to be required to establish and maintain effective internal control over financial reporting (ICFR). Their principal executive and financial officers must continue to certify that, among other things, they are responsible for establishing and maintaining ICFR and have evaluated and reported on the effectiveness of the company’s disclosure controls and procedures. In addition, these smaller companies will continue to be subject to a financial statement audit by an independent auditor, who is required to consider ICFR in the performance of that audit. As a result of these amendments, and unlike larger issuers, these smaller companies will no longer be required to obtain a separate attestation of their ICFR from an outside auditor. These smaller issuers will be able to redirect the associated cost savings into growing their businesses. Business development companies will receive analogous treatment as a result of the amendments.
The Final Rule, on page 81, also provides these estimates of the number of companies expected to be affected:
We estimate that the amendments will result in 527 additional issuers being classified as non-accelerated filers, and therefore no longer subject to the filing deadlines and ICFR auditor attestation requirement applicable to accelerated filers. Of these, an estimated 154 issuers are EGCs and are thereby already exempt from the ICFR auditor attestation requirement.
Among the total 527 affected issuers, an estimated 492 issuers are accelerated filers (or large accelerated filers that have public float of less than $560 million) that will be newly classified as non-accelerated filers because they have annual revenues of less than $100 million and are eligible to be SRCs.
The Final Rule also changes the public float thresholds to change from Accelerated Filer to Non-Accelerated Filer to $60 million and the threshold to change from Large Accelerated Filer to Accelerated Filer to $560 million. The Final Rule also adds that a company can exit Accelerated or Large Accelerated Filer status if it meets the definition of a smaller reporting company based on the revenue test in that definition.
As always, your thoughts and comments are welcome!