On March 12, 2020, the U.S. Securities and Exchange Commission (the “SEC”) adopted amendments to the “accelerated filer” and “large accelerated filer” definitions. The SEC stated that these amendments were adopted “to more appropriately tailor the types of issuers that are included in the categories of accelerated and large accelerated filers and promote capital formation, preserve capital, and reduce unnecessary burdens for certain smaller issuers while maintaining investor protections.”

The amendments exclude from the accelerated and large accelerated filer definitions an issuer that is eligible to be a smaller reporting company and that had annual revenues of less than $100 million in the most recent fiscal year for which audited financial statements are available. The amendments also exclude business development companies from the accelerated and large accelerated filer definitions in similar circumstances. The amendments also increase the transition thresholds for accelerated and large accelerated filers becoming non-accelerated filers from $50 million to $60 million, and for exiting large accelerated filer status from $500 million to $560 million. Further, the amendments add a revenue test to the transition thresholds for exiting from both accelerated and large accelerated filer status. As a result of the amendments, companies filing reports on Forms 10-K, 20-F, and 40-F will have to indicate whether an internal control over financial reporting auditor attestation is included in the filing.

Background

On May 9, 2019, the SEC proposed amendments to the Exchange Act definition of accelerated filer and large accelerated filer. The comment period for these proposals ended July 29, 2019. The SEC proposed amendments that would:

• exclude from the accelerated and large accelerated filer definitions an issuer that (i) is eligible to be a smaller reporting company and (ii) had annual revenues of less than $100 million in the most recent fiscal year for which audited financial statements are available;
• increase the transition thresholds for accelerated and large accelerated filers becoming non-accelerated filers from $50 million to $60 million and for exiting large accelerated filer status from $500 million to $560 million; and
• add a revenue test to the transition thresholds for exiting both accelerated and large accelerated filer status.

In the proposing release, the SEC indicated that, as a result of the proposed amendments, certain low-revenue issuers would not be required to obtain an internal control over financial reporting auditor attestation; however, such issuers would continue to be required to establish and maintain internal control over financial reporting and assess the effectiveness of such controls.

The SEC received 60 comment letters, most of which generally supported the amendments.

Excluding Low-Revenue Smaller Reporting Companies from the Accelerated and Large Accelerated Filer Definitions

The amendments add a new condition to the accelerated and large accelerated filer definitions in Rule 12b-2 of the Securities Exchange Act of 1934 (the “Exchange Act”) that excludes an issuer that is eligible to be an smaller reporting company and that had annual revenues of less than $100 million in the most recent fiscal year for which audited financial statements are available. These amendments also permit business development companies to qualify for this exclusion if they meet the requirements of the smaller reporting company revenue test using their annual investment income as the measure of annual revenue; however, business development companies would continue to be ineligible to be smaller reporting companies.

Under the definition as amended, an accelerated filer is an issuer that:

• has a public float 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;
• has been subject to the requirements of Exchange Act Section 13(a) or 15(d) for a period of at least 12 calendar months;
• has filed at least one annual report pursuant Exchange Act Section 13(a) or 15(d); and
• 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 Exchange Act Rule 12b-2 or, in the case of a business development company, does not meet the requirements of the revenue test in those paragraphs using annual investment income as the measure of its annual revenues.

Under the definition as amended, a large accelerated filer must meet the above conditions, except that, with respect to the first condition, the issuer has a public float of $700 million or more, as of the last business day of the issuer’s most recently completed second fiscal quarter.

An issuer that is eligible to be a smaller reporting company and that meets the smaller reporting company revenue test discussed above will not be required to comply with accelerated filer or large accelerated filer requirements, and therefore will not be subject to the internal control over financial reporting auditor attestation requirement.

A foreign private issuer is excluded from the definitions for accelerated filer and large accelerated filer if the issuer qualifies, and elects to be treated as, a smaller reporting company based on the smaller reporting company revenue test discussed above.

Annual Report Cover Page Changes

The cover pages of annual reports on Forms 10-K, 20-F, and 40-F were amended to include a check box to indicate whether an internal control over financial reporting auditor attestation is included in the report.

Changes to Transition Thresholds

The amendments increase the public float transition thresholds for accelerated filers and large accelerated filers to become non-accelerated filers from $50 million to $60 million, as well as increase the threshold for exiting large accelerated filer status from $500 million to $560 million. These amendments were adopted to increase the thresholds to be 80 percent of the initial thresholds, consistent with the approach for eligibility to be deemed a smaller reporting company.

The amendments also add the smaller reporting company revenue test to the transition thresholds applicable to accelerated filers and large accelerated filers.

Effectiveness and Transition Matters

The amendments are effective on April 27, 2020. The amendments will apply to an annual report filing due on or after the effective date.

The SEC noted that even if the annual report is for a fiscal year ending before the effective date, the issuer may apply the final amendments to determine its status as a non-accelerated filer, accelerated filer, or large accelerated filer. For example, an issuer that has a March 31, 2020 fiscal year end and that is due to file its annual report after the effective date of the amendments may apply the amendments to determine its filing status, even though its fiscal year end date precedes the effective date of the rule amendments. However, an issuer that met the definition of accelerated filer as of December 31, 2019 must file all of its quarterly reports on Form 10-Q in accordance with the accelerated filer deadlines during 2020, even if it meets the criteria to transition to non-accelerated file status under the amended rules. Such an issuer is not able to transition to non-accelerated filer status until it files its annual report on Form 10-K for the fiscal year ended December 31, 2020, assuming that the issuer continues to meet the criteria to transition to non-accelerate filer status at that date.

An issuer that determines it is eligible to transition to non-accelerated filer status under the amendments will not be subject to the internal control over financial reporting auditor attestation requirement for its annual report due and submitted after the effective date of the amendments, and may comply with the filing deadlines that apply to non-accelerated filers and avail itself of the other accommodations that are available to non-accelerated filers.

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