SEC Tailors the Accelerated and Large Accelerated Filer Definitions
Overview of Amendments
On March 12, 2020, the SEC voted to adopt amendments to the definitions of “accelerated filer” and “large accelerated filer” (the Amendments). The SEC’S rationale for adopting the Amendments is to “more appropriately tailor the types of issuers that are included in the definitions, thereby reducing unnecessary burdens and compliance costs for certain smaller issuers while maintaining investor protections.” The Amendments will become effective 30 days after publication in the Federal Register.
The Amendments: (i) modify the accelerated filer and large accelerated filer definitions to provide an exemption for issuers that are eligible to be a “smaller reporting company” and have annual revenues of less than $100 million in the most recent fiscal year for which audited financial statements are available; (ii) increase the transition threshold for accelerated and large accelerated filers to become a non-accelerated filer from $50 million to $60 million; (iii) increase the transition threshold for exiting large accelerated filer status from $500 million to $560 million; (iv) add a revenue test to the transition thresholds for exiting both accelerated and larger accelerated filer status; and (v) add a checkbox to the cover pages of annual reports on Forms 10-K, 20-F, and 40-F to indicated whether an internal control over financial reporting (ICFR) auditor attestation is included in the filing.
Effect of Amendments
As a result of the Amendments, smaller reporting companies that meet the eligibility requirements for the exemption will not be required to comply with Section 404(b) of the Sarbanes-Oxley Act (SOX), which requires an issuer’s independent auditor to attest to, and report on, management's assessment of the effectiveness of their ICFR, which can be burdensome and costly. While the auditor attestation requirement set forth in SOX Section 404(b) will no longer apply to issuers eligible for the exemption, their principal executives and financial officers will continue to be required to certify that they are responsible for creating and overseeing the issuer’s ICFR and that they have evaluated and reported on the effectiveness of its disclosure controls and procedures pursuant to SOX 404(a). Further, independent auditors will continue to be required to consider ICFR in connection with the performance of financial statement audits.
Issuers entitled to the exemption provided by the Amendments will also be entitled to other benefits associated with non-accelerated filer status, such as more generous timing requirements for filing periodic reports and the ability to forego providing disclosure on outstanding SEC comments in periodic reports.