Yesterday, the Securities and Exchange Commission approved changes to the definition of a “smaller reporting company,” or SRC, that will significantly increase the availability of the less burdensome, scaled disclosure requirements applicable to companies qualifying as SRCs . The amendments increase the public float threshold for qualification as an SRC from less than $75 million to less than $250 million, in each case regardless of the company’s revenues. In addition, the SEC expanded the provision that permitted companies with no public float and annual revenues of less than $50 million to qualify as an SRC to include reporting companies with no public float or a public float of less than $700 million, so long as they had less than $100 million in revenues in their most recently completed fiscal year. We expect the amendments to be published in the Federal Register in the coming days, and they will become effective 60 days after that.
The SEC’s scaled disclosure accommodations provide a significant benefit to SRCs by permitting them to omit or narrow certain disclosures that would otherwise be required in their SEC filings. Examples include streamlined executive compensation disclosure and reduced financial statement and corresponding MD&A requirements.
Previously all SRCs met the definition of “non-accelerated filers” and were, therefore, exempt from the auditor attestation requirements for internal control over financial reporting imposed by Section 404(b) of the Sarbanes-Oxley Act and eligible to take advantage of extended annual and quarterly reporting deadlines. Notably, in its actions yesterday the SEC declined to extend the definition of non-accelerated filer to cover companies that will now qualify as smaller reporting companies under the new standards, but instead retained the current threshold for accelerated filers–public float of between $75 million and $700 million measured as of the last day of the second fiscal quarter of the company’s most recently completed fiscal year. As a consequence, some companies that will now qualify as SRCs will remain accelerated filers that will be required to provide auditor attestation reports on internal control over financial reporting and meet the shorter accelerated filer reporting deadlines. Jay Clayton, the Chairman of the SEC, has directed the SEC staff to make recommendations to the Commissioners with respect to possible changes to the accelerated filer definition with the goal of reducing the number of companies that qualify as accelerated filers; there is, however, no deadline for further action on that front.