On May 19, the SEC issued a Proposed Rule (PDF - 1.88KB), Enhancement of Emerging Growth Company Accommodations and Simplification of Filer Status for Reporting Companies. The proposal would, among other things, streamline the public company filer status framework into two primary categories: large accelerated filer (LAF) and non-accelerated filer (NAF). Also, the proposed amendments would only apply to companies filing on domestic forms.
The comment period on the proposal ends on July 20.
Filer status updates
The proposal would streamline the overlapping filer status framework, resulting in two primary categories for registrants:
- LAF status would be revised to increase the public float threshold from $700 million to $2 billion and the requirement to have been reporting under the Securities Exchange Act of 1934 (Exchange Act) from 12 to 60 months. As such, a company would become an LAF if its public float is $2 billion or more for two consecutive years and it has been an Exchange Act reporting company for at least 60 consecutive months.
- NAF status would be defined as any issuer that is not an LAF. An NAF would become an LAF when the criteria noted above are met.
The proposal would also eliminate the “accelerated filer” and “smaller reporting company” definitions.
Small non-accelerated filer
The proposed amendments also create a subcategory, small NAF, which would include NAFs with reported total assets of $35 million or less as of the end of the two most recent second fiscal quarters. Small NAFs would be permitted to file Form 10-K 120 days after their fiscal year-end and Form 10-Q 50 days after their fiscal quarter-ends, extending the current deadlines by 30 and 5 days, respectively. If a small NAF elects to report semiannually,1 the additional five days would also extend to the proposed Form 10-S.
The extended deadlines would apply beginning with Form 10-K for the year in which filer status is determined.
A company would remain a small NAF until it either becomes an LAF or reports more than $35 million in total assets as of the end of the two most recent second fiscal quarters, in which case, it would become an NAF.
Public float calculation
Under the proposal, the public float calculation would continue to be assessed as of the end of a company’s fiscal year. However, instead of using the public float as of the last day of the most recently completed second fiscal quarter, the Proposed Rule would require calculating public float based on the average of a registrant’s stock price over the last 10 trading days in each of the second quarters for both the current and preceding fiscal years, multiplied by the aggregate worldwide number of shares of the voting and non-voting common equity held by non-affiliates as of the last day of the second fiscal quarter for each year.
The proposed change is aimed at mitigating the impact of short-term volatility in stock prices.
Initial public offering
All new reporting companies would be NAFs since one of the proposed requirements to meet LAF status is 60 consecutive months of reporting history.
New reporting companies that report $35 million or less in total assets for each of the two recent balance sheets included in the registration statement would qualify as small NAFs. The total assets test would differ for new reporting companies since the initial registration statement would not include the balance sheets as of the end of the two most recent second fiscal quarters.
Scaled disclosure and other accommodations
The proposed amendments would extend to NAFs the scaled disclosures and other accommodations currently available to smaller reporting companies and emerging growth companies (EGCs), including permitting NAFs to comply with Article 8 of Regulation S-X.
Scaled requirements include the following, among others:
- Presenting two years of financial statements
- Excluding separate financial statements of significant equity method investments
- Excluding the auditor attestation report on internal control over financial reporting (ICFR); however, management’s assessment of ICFR would remain
- Presenting two years of financial information in Management’s Discussion and Analysis
- Presenting two years of executive compensation disclosures for the top three named executives
- Excluding certain executive compensation disclosures, including pay versus performance, pay ratio, and compensation and discussion analysis
See Grant Thornton LLP’s General SEC reporting requirements publication for further information on scaled disclosures and EGC accommodations currently available.
Transition
Under the proposed amendments, companies would be required to initially assess filer status as of the end of their fiscal year prior to the effectiveness of the Final Rule. Companies that would become NAFs could apply the proposed scaled disclosures and accommodations immediately. If the initial assessment is not made before the last day of the fiscal year in which the Final Rule is effective, a company’s filer status would remain until the next annual assessment.
1 See Proposed Rule (PDF - 1.88KB), Semiannual Reporting.
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Partner-in-charge, SEC Regulatory Matters; Audit Quality and Risk
Partner, Audit Services, Grant Thornton LLP
Partner, Grant Thornton Advisors LLC
Rohit Elhance is a partner in SEC Regulatory Matters group, with more than 17 years of international experience serving large multinational and entrepreneurial companies in the areas of audit, risk advisory and transaction services.
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Cindy is a managing director in the firm’s SEC Regulatory Matters group, with more than 15 years of auditing, accounting, and SEC reporting experience. She began her career in 2006 in the audit practice where she served public and private companies, primarily in the manufacturing and healthcare industries.
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