The Securities and Exchange Commission recently adopted amendments to the definitions of “Accelerated Filer” and “Large Accelerated Filer” in Rule 12b-2 of the Securities Exchange Act of 1934, as amended. The SEC originally proposed these amendments in May 2019, as summarized in a prior Corporate & Financial Weekly Digest article. As a result of these amendments, a greater number of smaller companies will be excluded from accelerated and large accelerated filer status, which will ease reporting burdens and reduce compliance costs for those companies.

Reporting companies are classified into three categories: large accelerated filers, accelerated filers and non-accelerated filers. Under Section 404(b) of the Sarbanes-Oxley Act, the independent auditors of large accelerated and accelerated filers, but not of non-accelerated filers, must attest to, and report on, management’s assessment of the effectiveness of their internal control over financial reporting (ICFR). Furthermore, non-accelerated filers have additional time to file quarterly and annual reports (until 45 days after quarter end and 90 days after year end, respectively). Accordingly, a non-accelerated filer benefits from reduced compliance costs and this additional time to file periodic reports. Some companies are not classified as non-accelerated filers even though they are smaller reporting companies (SRCs), eligible for scaled disclosure accommodations.

The amendments described below will become effective 30 days after publication in the Federal Register and apply to an annual report filing due on or after the effective date, even if the issuer’s fiscal year ends prior to the effective date.

Exclusion of low-revenue SRCs from the accelerated filer definition

 The amendments exclude from the accelerated filer definition any companies that are eligible to be a SRC that had annual revenues of less than $100 million in the most recent fiscal year for which audited financial statements are available (the “SRC Revenue Test”). The amendments also exclude business development companies from the accelerated filer definition if they have annual investment income of less than $100 million. As a result, some (but not all) SRCs and business development companies that are currently accelerated filers will become non-accelerated filers, exempt from the ICFR auditor attestation requirement and having additional time to file annual and quarterly reports. In the adopting release, the SEC provided the following table to summarize the relationships between SRCs and the categories of filers following the amendments:

Increased transition thresholds for exiting accelerated and large accelerated filer status

Pursuant to the amendments, the thresholds for exiting accelerated and large accelerated filer status were increased. In particular, the public float transition threshold for a large accelerated and accelerated filer to become a non-accelerated filer was raised from $50 million to $60 million, and the public float transition threshold for exiting large accelerated filer status was increased from $500 million to $560 million. In the adopting release, the SEC provided the following table to summarize the impact of these amendments on a company’s filing status:

The amendments also add the SRC Revenue Test to these transition thresholds. Under the amendments, an accelerated filer with a public float that falls below $60 million, or with annual revenues that fall below the SRC Revenue Test, would become a non-accelerated filer.

New check box on the cover pages of annual reports on Forms 10-K, 20-F and 40-F

 The amendments also add a check box to the cover pages of annual reports on Forms 10-K, 20-F and 40-F to indicate whether an ICFR auditor attestation is included in the filing, making it easier for investors to identify issuers that undergo an ICFR auditor attestation. This cover page check box must be tagged using Inline eXtensible Business Reporting Language (Inline XBRL).

The adopting release is available here.