SEC Expands Smaller Reporting Company Relief


Internal Control Over Financial Reporting and Filing Deadlines

On March 12, 2020, the Securities and Exchange Commission adopted amendments to the definitions of “accelerated filer” and “large accelerated filer.” As a result of these amendments, and unlike larger issuers, smaller reporting companies with less than $100 million in revenues (and less than $700 million in public float) will be non-accelerated filers and will no longer be required to obtain a separate attestation of their internal control over financial reporting (ICFR) from an outside auditor under Sarbanes-Oxley 404(b). The SEC stated that the “smaller issuers will be able to redirect the associated cost savings into growing their businesses.” Qualifying companies will also benefit from existing rules that allow non-accelerated filers an additional 15 days and five days, respectively, beyond the deadlines that apply to accelerated filers, to file their annual and quarterly reports.

These smaller reporting companies will still have their obligations under Sarbanes-Oxley 404(a) to establish and maintain effective internal controls over financial reporting, and their principal executive and financial officers will still be required to 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. Smaller reporting companies must still have their financial statements audited by an independent auditor who is required to consider ICFR in the performance of that audit.

The final rules can be found here, and will take effect 30 days after they're published in the Federal Register and will apply to an annual report filing due on or after the effective date (for a qualifying company such annual report can omit the auditor attestation and is due on the deadline for non-accelerated filers, 15 days later than the deadline for accelerated filers).

SEC Chairman Jay Clayton noted, “The amendments represent an incremental, but meaningful, change that builds on the benefits of the JOBS Act for smaller public companies.” He further stated: “The JOBS Act provided a well-reasoned exemption from the ICFR attestation requirement for emerging growth companies during the first five years after an IPO. 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.”

Technical Update

All reporting companies should note that the amendments also add a check box to the cover pages of Forms 10-K, 20-F, and 40-F to indicate whether an ICFR auditor attestation is included in the filing.

For Comments or Questions Please Contact:
Brett Cooper (San Francisco), Karen Dempsey (San Francisco), Niki Fang (San Francisco), Timo Holzborn (Munich), Bill Hughes (San Francisco), Ed Lukins (London) and Jeffrey Sun (Shanghai, Beijing)