The Securities and Exchange Commission has voted to adopt amendments to the definitions of “accelerated filer” and “large accelerated filer” in the Exchange Act, revisions that would exclude issuers that are both eligible to be a “smaller reporting company” and have less than $100 million in annual revenues.

The amendments are intended to provide relief to smaller issuers and reduce cost for certain public companies, which effectiveness may encourage more companies to go public. The public float initial thresholds to qualify as an accelerated or large accelerated filer, however, are not changing.

Before the rule change, some issuers were categorized as both “smaller reporting companies” and accelerated or large accelerated filers. Issuers classified as an accelerated or large accelerated filer are currently required to have their auditors attest to, and report on, management’s assessment of the of internal control over financial reporting (ICFR).

The amendments provide that smaller reporting companies with less than $100 million in revenues in the most recent fiscal year will no longer be required to obtain a separate audit of their ICFR from an outside auditor and also not be subject to the accelerated or large accelerated filers’ earlier filing deadlines for annual and quarterly reports.

They will, however, continue to be required to establish and maintain effective ICFR, and their principal executive and financial officers must continue to certify that they are responsible for establishing and maintaining ICFR and have evaluated and reported on the effectiveness of the company’s disclosure controls and procedures. In addition, these companies will continue to be subject to a financial statement audit by an independent auditor required to consider ICFR in performing the audit.

The Jumpstart Our Business Startups (JOBS) Act of 2012 exempted many new smaller public companies from the ICFR attestation requirement for up to five years after going public. “These amendments would allow smaller reporting companies that have made it to that five-year point, but have not yet reached $100 million in revenues, to continue to benefit from that exemption as they build their businesses, while still subjecting those companies to important investor protection requirements,” said SEC Chairman Jay Clayton.

The amendments include the following:

  • Exclude from the accelerated and large accelerated filer definitions an issuer that is eligible to be a smaller reporting company and had annual revenues of less than $100 million in the most recent fiscal year for which audited financial statements are available;
  • Increase the public float transition thresholds for an accelerated and a large accelerated filer to become a non-accelerated filer from $50 million to $60 million and to exit large accelerated filer status and become an accelerated filer from $500 million to $560 million;
  • Add a revenue threshold test to the public float transition thresholds for exiting both accelerated and large accelerated filer status; and
  • Add a check box to the cover pages of annual reports on Forms 10-K, 20-F, and 40-F to indicate whether the filing includes an ICFR auditor attestation.

Commissioner Allison Herren Lee dissented to the rule change, saying she believes it increases risk to investors of unreliable financial reporting. Fellow Commissioner Hester Peirce, however, supported the change, even suggesting it didn’t go far enough.

The amendments will become effective 30 days after publication in the Federal Register and will apply to annual report filings due on or after the effective date.

The final rules are available on the SEC’s Website.