The SEC adopted amendments to the definitions of "accelerated filer" and "large accelerated filer" under Exchange Act Rule 12b-2. The amendments reduce reporting costs for certain lower-revenue companies.

As previously covered, smaller reporting companies ("SRCs") with less than $100 million in revenue will no longer be required to obtain an attestation of their internal controls over financial reporting ("ICFR") from an independent auditor. In addition, the amendment increases the transition thresholds for becoming a non-accelerated filer, and creates a revenue test for existing accelerated and large accelerated filer status.

Based on the comments received, the SEC made several edits to the initial proposal, including:

  • an additional condition that SRCs must meet to be excluded from the accelerated and large accelerated filer definitions; and
  • an option for business development companies to be exempt from the condition if they satisfy their SRC revenue test.

Commissioner Statements

SEC Chair Jay Clayton called the final amendments a "much needed recalibration" of reporting requirements. He noted that the final amendments are part of a retrospective review to modernize the SEC's regulatory framework to align with Congressional directives (i.e., the JOBS Act) exempting emerging growth companies from certain requirements.

SEC Commissioner Hester M. Peirce stated that in her "ideal regulatory regime," it would be optional whether management chooses to obtain an auditor attestation for assessing its internal controls over financial reporting.

SEC Commissioner Allison Herren Lee disagreed with Ms. Peirce, and criticized the final amendments for removing a "layer of investor protection" in financial reporting by no longer requiring auditors to attest to the adequacy of certain internal controls over financial control ("ICFR") standards. She stated that this ultimately lessens the reliability of financial reporting for investors.

The final amendments will go into effect 30 days after publication in the Federal Register.

Commentary

The dissent of Commissioner Lee reflects her ongoing philosophical disagreement with the views of the current majority of the Commissioners. That said, it is not so obvious that "investors" generally are opposed to the amendment, as she argues. From the file of comment letters, there were very few from the buy-side, beyond the one letter from the Council of Institutional Investors. Two of the other letters cited by Commissioner Lee (see footnote 1 of her remarks) were from non-profits, including one from Better Markets, an organization that uniformly opposes any reduction in regulation. If the reduction in regulatory burden is in fact so detrimental to investors (who, after all, also benefit from a reduction in costs at the companies in which they invest), one might have expected somewhat more notable opposition to the amendments.

On the other hand, small companies did express considerable support for the amendment. By way of example, the letter from the California Life Science Association, which purports to represent 3,418 companies employing over 133,000 people, might reasonably be regarded as carrying more weight to the SEC Commissioners.