On June 28, the SEC adopted amendments that expanded the definition of a "smaller reporting company" (SRC). Under the amended definition, a registrant would qualify as a SRC if it meets one of following tests:
The SEC did not make conforming changes to the definition of an accelerated filer. Rather, the SEC eliminated the automatic exclusion of SRCs in the definitions of accelerated and large accelerated filers. As a result, a registrant could be both an SRC and an accelerated filer. As an accelerated filer, a registrant would be required to obtain an auditor attestation of internal control over financial reporting (ICFR).
SEC Chairman Jay Clayton directed the SEC staff to develop recommendations to the Commission for possible additional changes to the accelerated filer definition, with the focus on potentially reducing the number of companies subject to the auditor attestation requirement of the Sarbanes-Oxley Act.
Consistent with the current SRC definition, a registrant that previously determined it does not qualify as an SRC remains unqualified until it meets one or more lower qualification thresholds based on 80% of the threshold amounts. For example, an entity that previously had a public float above $250 million, would not meet the SRC definition until it had public float less than $200 million. This provision does not apply for the first fiscal year after effectiveness of the amendments.
Registrants that meet the definition of an SRC qualify for certain reduced disclosure requirements (known as "scaled disclosures"), including:
The scaled disclosure requirements were not changed by the adoption of this rule.
The SEC also amended Rule 3-05 of Regulation S-X to eliminate the requirement for registrants to present financial statements of acquired businesses for the third year if revenue of the acquiree is less than $100 million.
The changes may reduce compliance costs for existing registrants and companies considering an Initial Public Offering. Chairman Clayton's request for recommendations for changes to the accelerated filer definition reflects his objective of promoting capital formation for the benefit of Main Street Investors.
The amended rules become effective 60 days after publication in the Federal Register. Registrants should assess whether they meet the definition of an SRC under the new guidelines. After the rule is effective, companies that qualify as an SRC will be eligible to report scaled disclosures immediately.
Also on June 28, the SEC adopted a rule requiring the use of Inline eXtensible Business Reporting Language (XBRL) format for the submission of operating company financial statements and mutual fund risk/return summaries. The amendment eliminated the 15 business day XBRL filing period for fund risk/return summaries and the requirement for filers to post Interactive Data Files on their websites. Inline XBRL allows filers to embed XBRL data directly into an HTML document, eliminating the need to tag a copy of the information in a separate XBRL exhibit. These changes are intended to improve data quality and, over time, reduce the cost of preparing data for submission. The requirements associated with this amendment are effective June 15, 2019 for large accelerated GAAP filers (with adoption in 2020 for accelerated filers, and 2021 for all other filers).