SEC Proposes Changes to the Accelerated Filer and Large Accelerated Filer Definitions

On May 9, 2019, the Securities and Exchange Commission (SEC) issued a proposed rule to amend the definitions of an accelerated filer and large accelerated filer. The proposed amendments would expand the number of issuers that qualify as non-accelerated filers, resulting in certain issuers no longer being required to provide auditor attestation of internal control over financial reporting.

In June of 2018, the SEC amended the smaller reporting company (SRC) definition to include registrants with a public float less than $250 million or a public float less than $700 million and annual revenues less than $100 million. This amendment resulted in some issuers being categorized as both SRCs and accelerated filers. The proposed amendments are intended to address this issue by better aligning those definitions.

Key Provisions

Smaller Reporting Companies Eligibility and Exclusions

The proposal amends the accelerated and large accelerated filer definitions under Rule 12b-2 to exclude any issuer that’s eligible to be an SRC under the SRC revenue test. Accordingly, an issuer with less than $100 million in annual revenues in the most recently completed fiscal year and less than $700 million in public float as of its annual measurement date would be categorized as a non-accelerated filer.

Issuers meeting those thresholds wouldn’t be subject to the accelerated filing deadlines or to the internal control over financial reporting auditor attestation requirement. However, the amendments don’t change management’s responsibilities, and these issuers will still be required to establish and maintain the effectiveness of their internal control over financial reporting. 

Under the proposal, issuers that qualify as an SRC under the public float test—and don’t qualify under the SRC revenue test—aren’t excluded from the definition of an accelerated filer. Therefore, some issuers with annual revenues greater than $100 million may continue to qualify as both SRCs and accelerated filers.

Transition Thresholds for Accelerated and Large Accelerated Filers

The proposal also amends the thresholds for issuers to transition between filer statuses.  Currently, under Rule 12b-2, an accelerated filer transitions to a non-accelerated filer once its public float falls below $50 million and a large accelerated filer transitions to a non-accelerated filer or accelerated filer once its public float falls under $50 million or $500 million, respectively.

The proposed amendments would revise the transition thresholds under Rule 12b-2 so that the exit threshold for accelerated filers would increase from $50 million to $60 million and the exit threshold for large accelerated filers would increase from $500 million to $560 million. The proposed thresholds are 80% of the initial qualification thresholds, which would be consistent with the transition provisions for SRCs.

It’s important to note that, consistent with the current SRC transition rules, an issuer that previously determined it didn’t qualify as an SRC remains unqualified until it meets 80% of the initial thresholds for either the revenue or public float tests. 

Therefore, under the proposed amendments, an issuer with annual revenues above $100 million would generally transition to a non-accelerated filer once one of the following  occur:

  • Public float falls below $60 million, or
  • The entity becomes eligible to be an SRC under the SRC revenue test

A large accelerated filer becomes eligible to be an SRC under the SRC revenue test when revenue falls below $80 million and public float is below $560 million. An accelerated filer becomes eligible to be an SRC under the SRC revenue test when revenue falls below $80 million. However, under the proposed amendments, an accelerated filer that has less than $250 million in public float—and therefore qualifies as an SRC under the public float test—may transition to non-accelerated filer status as soon as its annual revenues fall below $100 million.

Public Comment Period

The proposed amendments are subject to a 60-day public comment period following publication in the Federal Register.  

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