SEC Adopts Amendments to Accelerated Filer and Large Accelerated Filer Definitions

The Securities and Exchange Commission recently voted to adopt amendments to the accelerated filer and large accelerated filer definitions in Rule 12b-2 under the Securities Exchange Act of 1934. The amendments generally track the May 2019 proposed rules to (i) exclude low-revenue smaller reporting companies from the accelerated and large accelerated filer definitions, (ii) increase the transition thresholds for accelerated filers and large accelerated filers becoming non-accelerated filers, and (iii) add a new revenue test to the transition thresholds. A summary chart of the amended thresholds is below.

As a result of these amendments, low-revenue smaller reporting companies that previously met the definition of an accelerated filer or large accelerated filer will not be required to obtain an attestation of their internal control over financial reporting (ICFR) from an independent outside auditor and will not be required to comply with the shorter SEC filing deadlines that apply to accelerated filers. However, smaller reporting companies with a public float of at least US$75 million and that have more than US$100 million in annual revenues will continue to be both a smaller reporting company and an accelerated filer.

The amendments follow recent amendments to the smaller reporting company definition, which was amended by the SEC in 2018 to (i) substantially increase the public float threshold (from US$75 million to US$250 million—unless the company previously exceeded the US$250 million threshold, in which case the threshold is US$200 million) and the revenue threshold (from US$50 million to US$100 million—unless the company previously exceeded US$100 million in annual revenues, in which case the threshold is US$80 million), and (ii) expand the availability of the revenue test to companies with a public float of less than US$700 million.

The SEC adopting release is available here, our prior analysis of the proposal is available here, and our analysis of the 2018 amendments to the smaller reporting company definition is available here.

The final rules are effective April 27, 2020 and are applicable beginning with annual reports due on or after the effective date (even if the company’s fiscal year ended prior to the April 27, 2020 effective date of the amendments).

Amendment to Exclude Low-Revenue Smaller Reporting Companies

The amendments partially conform the accelerated and large accelerated filer definitions to the revised smaller reporting company definition by expressly excluding low-revenue smaller reporting companies from those definitions. Prior to these amendments, certain companies satisfied both the smaller reporting company and either the accelerated filer or large accelerated filer definitions, requiring those companies to, among other things, comply with the burdensome requirement that the company’s independent auditor attest to the effectiveness of the company’s ICFR, despite the company’s eligibility for smaller reporting company status.

Pursuant to Rule 12b-2, the prior definition of accelerated filer included companies that: (i) had a public float of US$75 million or more, but less than US$700 million (as of the last business day of the issuer’s most recently completed second fiscal quarter); (ii) were subject to the reporting requirements under Sections 13(a) or 15(d) of the Exchange Act for a period of at least 12 calendar months; and (iii) filed at least one annual report pursuant to Sections 13(a) or 15(d). Large accelerated filers were defined to include companies with a public float of US$700 million or more that satisfy the second and third requirements noted above.

The amendments revise both the accelerated filer and large accelerated filer definitions to expressly exclude companies that are eligible for smaller reporting company status pursuant to the revenue test in smaller reporting company definition (i.e., because the company had annual revenues of less than US$100 million in the most recent fiscal year for which audited financial statements are available). Companies with a public float between US$75 million and US$250 million that do not satisfy the revenue test under the smaller reporting company definition would, however, continue to be both smaller reporting companies and accelerated filers.

The amendments therefore ensure that companies with revenue of less than US$100 million or US$80 million, as applicable, based on the annual audited financial statements for their most recent fiscal year, (i) are not required to obtain an attestation of their ICFR from an independent outside auditor and (ii) are not subject to the shorter filing deadlines for quarterly and annual reports that are applicable to accelerated filers (40 and 75 days for accelerated filers, respectively, compared to 45 days and 90 days for non-accelerated filers). The principal executive and financial officers of a smaller reporting company must still continue to certify that, among other things, they are responsible for establishing and maintaining ICFR and have evaluated and reported on the effectiveness of the company’s ICFR. In addition, smaller reporting companies also remain subject to a financial statement audit by an independent auditor, who is required to consider (but not attest to the effectiveness of) ICFR in the performance of that audit.

Amendment to Forms 10-K, Form 20-F, and Form 40-F

In addition to adopting the proposed amendments, the rulemaking also revises the cover pages of SEC forms used for annual reports (Forms 10-K, 20-F, and 40-F) to include a separate check-box indicating whether an ICFR attestation report by the company’s independent auditors is included in the filing.

Amendments to Transition Thresholds

The amendments also align the transition thresholds for exiting accelerated and large accelerated filer status with the revised transition thresholds for smaller reporting company eligibility by (i) increasing the thresholds to 80% of the initial definitional threshold and (ii) including a revenue-based transition threshold matching the exclusion of low-revenue smaller reporting companies from the definition of accelerated and large accelerated filer. The amendments revise the transition thresholds as follows:

• The transition threshold to exit from accelerated filer to non-accelerated filer increases from US$50 million to US$60 million (80% of the US$75 million initial definitional threshold).
• The transition threshold to exit from large accelerated filer to accelerated or non accelerated filer increases from US$500 million to US$560 million (80% of the US$700 million initial definitional threshold).
• The transition thresholds for both accelerated filers and large accelerated filers now also include companies that satisfy the revenue test under the smaller reporting company definition (i.e., annual revenues of less than US$100 million or US$80 million, as applicable).

Summary Table of Amendments

For ease of reference, a summary of the revised qualification thresholds and transition thresholds is below.

Also for ease of reference, a summary of the previously-adopted qualification thresholds and transaction thresholds for smaller reporting companies is below. A registrant may qualify as a smaller reporting company at the same time it may also qualify as an accelerated filer, large accelerated filer, or non-accelerated filer.