In June 2018, when the SEC changed the definition of “smaller reporting company” (SRC) by increasing the public float threshold from $75 million to $250 million and adding a revenue test, the Commission also directed the staff to review the issues in changing the definitions of accelerated and large accelerated filer. (The current definition is at the end of this post if you would like to review it.)

These instructions to the staff came to fruition on May 9, 2019.  As we mentioned in this post the SEC met on that date to consider changing the definitions of accelerated and large accelerated filers.  At the meeting the Commission voted to issue this proposed rule.  You can read a summary of the proposal in this fact sheet.

The proposed rule does have an interesting level of complexity.  It would not completely conform the definitions involved. According to the proposed rule:

“The proposed new conditions would only be available to issuers that are eligible to be an SRC under the SRC revenue test. Issuers that are eligible to be an SRC that have a public float between $75 million and $250 million would be accelerated filers if their annual revenues are $100 million or more, and thus they would remain subject to all of the requirements applicable to accelerated filers.”

The actual regulatory language that would be added to Rule 12b-2 in the definitions of accelerated and large accelerated filer is:

(iv) The issuer is not eligible to use the requirements for smaller reporting companies under the revenue test in paragraph (2) or (3)(iii)(B), as applicable, of the “smaller reporting company” definition in this section.

Thus, the dollar thresholds in the definitions would not be changed.  For example, the new definition of accelerated filer would read as follows:

(1) Accelerated filer. The term accelerated filer means an issuer after it first meets the following conditions as of the end of its fiscal year:

(i) The issuer had an aggregate worldwide market value of the voting and non-voting common equity held by its non-affiliates of $75 million or more, but less than $700 million, as of the last business day of the issuer’s most recently completed second fiscal quarter;

(ii) The issuer has been subject to the requirements of section 13(a) or 15(d) of the Act (15 U.S.C. 78m or 78o(d)) for a period of at least twelve calendar months; and

(iii) The issuer has filed at least one annual report pursuant to section 13(a) or 15(d) of the Act.

(iv) The issuer is not eligible to use the requirements for smaller reporting companies under the revenue test in paragraph (2) or (3)(iii)(B), as applicable, of the “smaller reporting company” definition in this section.

The relevant paragraph in the SRC definition refers to the $100 million-dollar revenue test. (That definition is at the end of this post.)

This table provides a summary of how the proposed rule would work:

The big issue in this change of course is that more companies would become non-accelerated filers and would not be required to have an annual audit of their internal control over financial reporting.   The affected companies would also be subject to the longer deadlines for non-accelerated filers.

 In the economic analysis section of the proposed rule the SEC provides a wealth of data and analysis, along with the estimate that an additional 539 companies would become non-accelerated filers.

 The proposed rule also would increase the thresholds for exiting accelerated filer status (from $50 to $60 million) and large accelerated filer status (from $500 to $600 million).

As always, your thoughts and comments are welcome!

Lastly, here, as mentioned above, is the SRC definition:

Smaller reporting company. As used in this part, the term smaller reporting company means an issuer that is not an investment company, an asset-backed issuer (as defined in §229.1101 of this chapter), or a majority-owned subsidiary of a parent that is not a smaller reporting company and that:

(1) Had a public float of less than $250 million; or

(2) Had annual revenues of less than $100 million and either:

(i) No public float; or

(ii) A public float of less than $700 million.