SEC Proposes Amendments to Accelerated Filer and Large Accelerated Filer Definitions

Kramer Levin Naftalis & Frankel LLP

On May 9, 2019, the SEC proposed amendments to the accelerated filer and large accelerated filer definitions under the Exchange Act. Unlike non-accelerated filers, accelerated filers and large accelerated filers are subject to shorter filing deadlines for quarterly and annual reports and are required to obtain independent auditor attestations to management’s assessment of the effectiveness of such issuers’ internal control over financial reporting (ICFR).

The SEC’s proposed amendments exclude from the definitions of accelerated filer and large accelerated filer any issuer that is eligible to be a smaller reporting company based on the issuer having annual revenues of less than $100 million. Smaller reporting companies are permitted to use scaled-down business, accounting, financial, executive compensation and corporate governance disclosures in their Securities Act and Exchange Act filings. They may also “forward” incorporate by reference when using Form S-1 registration statements.

Issuers can qualify as smaller reporting companies if their public equity float is less than $250 million. Issuers with annual revenue of less than $100 million can also qualify if they have no public equity float or public equity float of less than $700 million. On the other hand, issuers with a public equity float of $75 million or more but less than $700 million will be treated as accelerated filers, and issuers with $700 million or more of public equity float will be treated as large accelerated filers; in each case, they will be subject to the more stringent reporting requirements applicable to these types of reporting companies. Therefore, the current rules result in a significant number of smaller reporting companies also being treated as accelerated filers or large accelerated filers, and they require them to comply with tighter filing deadlines and incur increased costs associated with ICFR auditor attestations. The following chart illustrates this overlap under the current rules.

Amendments to the Accelerated Filer and Large Accelerated Filer Definitions, SEC Release No. 34-85814 (May 9, 2019) (“Proposing Release”), at footnote 30.

The effect of the SEC’s proposed rule change would be that a larger number of eligible smaller reporting companies would no longer be subject to the accelerated filing deadlines or the ICFR auditor attestation requirement.

In addition, the proposed amendments would increase the transition thresholds for existing accelerated filers and large accelerated filers becoming non-accelerated filers from $50 million to $60 million of public equity float and for exiting large accelerated filer status from $500 million to $560 million of public equity float. Issuers would then be able to discontinue complying with these more stringent reporting requirements when their public equity float fell below the new, higher thresholds.

The proposed amendments would also allow an accelerated filer or large accelerated filer to become a non-accelerated filer if it becomes eligible to be a smaller reporting company under the revenue test. The following table sets forth the new proposed relationships between smaller reporting companies and non-accelerated and accelerated filers after giving effect to the SEC’s proposed amendments.

Proposing Release, at footnote 70.

The SEC’s proposed amendments are subject to a 60-day public comment period.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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