Changing of filing status often occurs when there is growth within a public company, however recent changes in policy may also modify status. The Securities Exchange Commission (SEC) has recently voted in policy to edit thresholds that determine filing classification. Along with filing status, audits and financial reporting will likely be affected by the SEC changes.
Current filing categories
Currently, companies are assigned filing categories based on the amount of shares the company has available to the public for trading: also known as public “float.” Categories are determined by several requirements, but are most strongly determined by annual revenues as follows:
- Smaller reporting companies (SRCs) are nonaccelerated filers. Annual revenues must be under $50 million if their public float is zero in order to qualify.
- Nonaccelerated filers have a public float of less than $75 million and are not otherwise required to accelerate their filing deadlines.
- Accelerated filers have a public float between $75 million and $700 million and meet other requirements.
- Large accelerated filers have a public float of more than $700 million and meet other requirements.
The final group is the emerging growth company (EGC). An EGC has gross revenue under $1 billion in its most recent year among other requirements. Emerging growth companies are generally new public companies and receive many benefits during the first five years. Benefits include scaled-back disclosures and exemption from the auditor attestation of a company’s internal control over financial reporting as required by Section 404(b) of the Sarbanes-Oxley Act.
Once a company is established, and no longer an emerging growth company, it must begin to comply with Section 404(b), unless it is a nonaccelerated filer.
Changes and impact
As of June, the public float threshold for SRCs was changed to $100 million and nonaccelerated filers to $250 million. This policy was voted in by the SEC and is the final rule in Release No. 33-10513, Amendments to Smaller Reporting Company Definition. The new policy will go into effect 60 days after publication in the Federal Register, which is likely a few weeks after a rule is posted to the SEC website.
The SEC did not make conforming changes to the definition of an accelerated filer. The automatic exclusion of SRCs in the definitions of accelerated and large accelerated filers was eliminated. Now, a registrant could be both an SRC and an accelerated filer. This means that if an SRC is an accelerated filer, it is still required to comply with Sec. 404(b).
The SEC estimates that this new rule will affect 996 companies, who will now be eligible for smaller company status.
We can help
When filing status changes, so does the form, content, and timing of financial reports. Other changes include the external audit procedures. Evaluating your company’s status before the end of a fiscal year is important to prepare for changing guidelines. We can help with evaluation and managing the included changes. We can be contacted at 949-860-9902 or click here and we will contact you.