SEC Amendment to Accelerated Filer Definition
Thursday, March 19, 2020
On March 12, 2020, the Securities and Exchange Commission (SEC) adopted amendments to the accelerated filer and large accelerated filer definitions. The accelerated filer definition triggers the external auditor attestation requirement over internal control over financial reporting (ICFR) under Section 404(b) of the Sarbanes Oxley Act.
The amendments will become effective 30 days after publication in the Federal Register. The final amendments will apply to annual report filings due on or after the effective date.
The following table summarizes key components of the amended rule:
What are the key changes?
- Under the previous definition, an issuer with public float of $75 million or greater qualified as an accelerated filer. There was no revenue test. Under the amended rule, other than during a transition period, issuers with public float between $75 and $700 million and $100 million or more in annual revenue qualify as an accelerated filer.
- Business development companies (BDCs) that have a public float of $75 million or more but less than $700 million and have investment income of less than $100 million are now excluded from the accelerated and large accelerated filer definitions. BDCs continue to be ineligible to be smaller reporting companies (SRCs).
- A check box now is required for the cover pages of annual reports on Forms 10-K, 20-F, and 40-F to indicate whether an ICFR auditor attestation is included in the filing.
- The amendments increase the transition thresholds for exiting accelerated filer status from $50 million to $60 million, and for exiting large accelerated filer status from $500 million to $560 million. Further, the amendments add a revenue test to the transition thresholds for exiting both accelerated and large accelerated filer status.
The accelerated filer and SRC definitions do not align under the amended rule. Issuers can be both an accelerated filer and an SRC (see table below). An SRC is defined as an issuer with less than $250 million of public float or less than $100 million in annual revenue. Qualifying as an SRC is not the trigger that determines the auditor attestation over ICFR requirement. Issuers meeting the definition of an SRC qualify for certain scaled disclosure requirements.
The following table summarizes the relationship between accelerated filer status and SRC definitions:
What has not changed?
- The accelerated filer definition still determines whether an issuer is required to have an auditor attestation over ICFR.
- The public float threshold for large accelerated filers has not changed. For these filers, there is still no revenue requirement and an ICFR auditor attestation is still required.
- These requirements do not apply to emerging growth companies (EGCs) until they exit EGC status.
- There is no change to management’s responsibilities to assess ICFR under Section 404(a) of the Sarbanes Oxley Act. For example, the issuers’ principal executive and financial officers must 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 disclosure controls and procedures.
How might this impact you? For issuers with annual revenue of less than $100 million and public float between $75 million and $700 million:
- Issuers – Your company may now qualify as a non-accelerated filer. Talk to your auditor to determine the implications to your future audits. Review the transition provisions carefully as well as public float and annual revenue definitions.
- Auditors – Discuss the potential impact of the amended definition with issuer audit clients. Help ensure they are aware of the related transition provisions and the potential impact to future audits.
- Audit Committees – Your company may now qualify as a non-accelerated filer. Ask management to prepare a filer status analysis to determine if there is any change to the company’s auditor attestation over ICFR requirement. If the auditor attestation over ICFR is no longer required, discuss the impact with the company’s auditor. Audit committees may want to consider the benefit of continuing an external auditor attestation over ICFR, even if not mandated.
The CAQ encourages member firms to read the final rule in its entirety at the hyperlink provided below. All entities should carefully evaluate how requirements apply to their organization. For more information, see the SEC’s final rule.