The Securities and Exchange Commission issued another round of answers to “frequently asked questions,” clearing up some of the ambiguity of what types of companies can qualify as “emerging growth companies,” established by the JOBS Act. It also addresses filing requirements of EGCs, including how many years of audited financial statements are required in registration statements.

An initial list of 17 “Frequently Asked Questions” was released on April 16, a mere 11 days after the legislation was enacted. Questions 18-41, which also focus on general applicability under Title I of the JOBS Act, were posted on May 3. Title I streamlines and eases regulations and disclosure provisions for emerging growth companies, generally defined as having annual revenues of less than $1 billion.

Like the earlier FAQ, the SEC stresses that these scenarios are not intended, in and of themselves, as “rules, regulations, or statements.”

Among the scenarios fielded by the FAQ additions:

Do debt securities issued in an A/B debt exchange offer count toward the $1 billion debt limit for determining whether a company has lost EGC status?

The SEC will not object if a company does not count debt securities issued in an A/B exchange offer, as these are identical to (aside from not being restricted securities) and replace those issued in the non-public offering. It views the A/B exchange offer as, in effect, “the completion of the capital-raising transaction.”

Can an asset-backed securities (ABS) issuer qualify as an EGC?

An ABS issuer, usually a trust, acquires and holds a discrete pool of assetscredit card receivables, car leases, etc.that liquidate over a specified time period. It is subject to unique disclosure and reporting regime. However, many of the exemptions offered to emerging growth companies (no executive compensation disclosure or requirement to conduct a say-on-pay vote) are already not required.

How many years of audited financial statements are required to be included in an EGC's Form 10-K or Form 20-F?

For an EGC that is not a smaller reporting company, three years of audited financial statements are required to be included in its Form 10-K or Form 20-F. The provision permitting EGCs to file only two years of audited financial statements is limited to the registration statement for an IPO.

If an EGC chooses to take advantage of the extended transition period for complying with new or revised financial accounting standards, can it later decide to “opt in” and instead comply with the financial accounting standard effective dates applicable to non-emerging growth companies?

Yes, but the decision should be “prominently disclosed” in the first periodic report or registration statement following the decision and is irrevocable.

If an EGC submits a confidential draft registration statement, discovers a material error in its financial statements, and confidentially submits a draft amendment to correct it, when can it remove the restatement disclosures?

It would be required to include the restatement disclosures until its financial statements are updated for the next annual period.

According to Securities Act Section 2(a)(19)(B), an issuer will lose its emerging growth company status on the “last day of the fiscal year of the issuer following the fifth anniversary of the date of the first sale of common equity securities pursuant to an effective registration statement.” How is this date determined?

This date is determined by looking to the fiscal year during which the fifth anniversary occurs. The last day of this fiscal year will be the first day it becomes a non-emerging growth company.