On March 12, 2020, the Securities and Exchange Commission (“SEC”) voted to adopt a final rule that amends the definitions of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and adjusts the transition thresholds for entering and exiting non-accelerated, accelerated, and large accelerated filer status, among other changes.
As a result of this final rule, smaller reporting companies that meet the requirements of the exemption from the definitions of accelerated filer or large accelerated filer will not be required to provide an independent auditor’s attestation of internal control over financial reporting (“ICFR”). Additionally, as an issuer’s filer status determines its deadlines for filing periodic reports under the Exchange Act, a company that can take advantage of the new rule will also have a longer timeframe in which to file its period reports.
Initial Determination of Filer Status Remains Unchanged
An issuer is an accelerated filer after it first meets the following conditions as of the end of its fiscal year:
- a public float of $75 million or more, but less than $700 million, as of the last business day of its most recently completed second fiscal quarter;
- subject to the requirements of Section 13(a) or Section 15(d) of the Exchange Act for at least 12 calendar months; and
- has filed at least one annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act.
Similarly, an issuer is a large accelerated filer after it first has a public float of $700 million or more as of the last business day of its most recently completed second fiscal quarter and meets the other two conditions applicable to accelerated filers.
These initial determination thresholds are not changed by the SEC’s new final rule.
New Transition Thresholds
Under the existing rule, an accelerated filer transitions to a non-accelerated filer if its public float falls below $50 million and a large accelerated filer transitions to an accelerated filer if its public float falls below $500 million.
The SEC’s final rule adjusts these thresholds to (i) $60 million when transitioning from an accelerated filer to a non-accelerated filer and (ii) $560 million when transitioning from a large accelerated filer to an accelerated filer.
Amended Definitions of Accelerated and Large Accelerated Filers
The final rule excludes issuers that (i) are 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 from the definitions of accelerated and large accelerated filers. As a result, smaller reporting companies with less than $100 million in annual revenues will not be required to provide the auditor’s attestation of ICFR, even if they have a public float of $60 million (or $75 million, as applicable) or more.
Form 10-K Cover Page Changes
In connection with the changes outlined above, the Form 10-K will include a new cover page checkbox to indicate whether an auditor’s attestation of ICFR is contained within the report.
What Happens Next
The final rule becomes effective on April 27, 2020. The SEC’s final rule is available at this link.