In Depth

On June 28, 2018, the US Securities and Exchange Commission (SEC) adopted rule amendments that raise the thresholds in the “smaller reporting company” definition. Under the amendments, the public float threshold for determining if a company qualifies as a smaller reporting company increased from less than $75 million to less than $250 million. The final rule amendments also expand the smaller reporting company definition to include companies with less than $100 million in annual revenues if they also have either no public float or a public float of less than $700 million. This reflects a change from the prior revenue test, under which companies with no public float and revenue of less than $50 million qualified as smaller reporting companies. The SEC rule amendments will become effective 60 days after publication in the Federal Register.

As a result of the higher thresholds, more companies will be eligible to comply with the current scaled disclosure requirements applicable to smaller reporting companies. The scaled disclosure requirements for smaller reporting companies permit them to, among other things, include in their SEC periodic reports and filings less extensive executive compensation disclosure than required of other reporting companies and provide audited financial statements for two years instead of three. The SEC estimates that an additional 966 companies will be eligible for smaller company reporting status in the first year under the new definition.

The SEC rule amendments do not change the threshold in the “accelerated filer” definition in Rule 12b-2 of the Securities Exchange Act of 1934 that requires filers to provide the auditor’s attestation of management’s assessment of internal control over financial reporting as required by Section 404(b) of the Sarbanes-Oxley Act of 2002. Consequently, companies with $75 million or more of public float that qualify as smaller reporting companies will remain subject to the requirements that apply to accelerated filers, including the timing of the filing of periodic reports and the requirement that accelerated filers provide the auditor’s attestation required by Section 404(b) of the Sarbanes-Oxley Act.