On May 9, 2019, the U.S. Securities and Exchange Commission (the “Commission”)
proposed amendments to the definitions of accelerated filer and large accelerated filer
that would eliminate, for low-revenue reporting companies, the requirement that an
independent auditor attest to and report on management’s assessment of the
effectiveness of internal control over financial reporting (the “Auditor Attestation”).
These companies would remain subject to other Sarbanes-Oxley Act requirements,
including establishing, maintaining and assessing the effectiveness of
internal control over financial reporting; providing certifications of
financial reports by the principal executive officer and the principal
financial officer; and maintaining an independent audit committee.
Companies subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), are categorized as nonaccelerated,
accelerated or large accelerated filers. Accelerated and large accelerated filers
must comply with the Auditor Attestation requirement under Section 404(b) of the
Sarbanes-Oxley Act. Historically, smaller reporting companies were generally excluded
from the accelerated and large accelerated filer definitions and did not have to comply
with the Auditor Attestation requirement. However, the June 2018 amendments to the
definition of smaller reporting company and the definitions of accelerated filer and large
accelerated filer resulted in some smaller reporting companies qualifying as accelerated
or large accelerated filers, which subjected those smaller reporting companies to the
Auditor Attestation requirement.
Below is a summary of the proposed amendments. The full text of the proposed rule is
available here. The Commission has requested comments within 60 days after
publication of the proposed rule in the Federal Register.
Excluding Low-Revenue Smaller Reporting Companies
An issuer is categorized as a smaller reporting company if it satisfies either a public float
test or a revenue test. Initially, those tests are whether the issuer (i) has a public float of
SEC Proposes to Eliminate Auditor
Attestation Requirement for Low-Revenue
May 23, 2019 2
less than $250 million or (ii) has annual revenues of less than $100 million and either
(x) no public float or (y) a public float of less than $700 million. An issuer must test its
status as a smaller reporting company annually, and an issuer that loses its status as a
smaller reporting company can regain it if the issuer either (i) has a public float of less
than $200 million or (ii) meets certain tests for qualification based on revenues and
The Commission’s proposal would revise the definitions of accelerated filer and large
accelerated filer such that an issuer that qualifies as a smaller reporting company based
on the revenue test would not be considered an accelerated or large accelerated filer.
Currently, to be considered an accelerated filer an issuer must have (i) a public float of at
least $75 million but less than $700 million as of the last business day of the issuer’s
most recently completed second fiscal quarter, (ii) been subject to the requirements of
Exchange Act Sections 13(a) or 15(d) for at least 12 calendar months and (iii) filed at
least one annual report pursuant to Exchange Act Sections 13(a) or 15(d). To be
considered a large accelerated filer an issuer must meet all the same requirements as an
accelerated filer, but have a public float of at least $700 million as of the last business
day of the issuer’s most recently completed second fiscal quarter.
The proposed amendments, if adopted, would add a fourth requirement to each of the
accelerated filer and large accelerated filer definitions that the issuer does not meet the
requirements for smaller reporting companies under the revenue test of the smaller
reporting company definition. Foreign private issuers that meet the low-revenue test of
the smaller reporting company definition would also be able to qualify as nonaccelerated
filers under the proposed amendments.
The Commission believes that the proposed amendments, if adopted, would likely
provide the greatest benefit to companies, among others, that may be in the
development stage, such as biotech and other life sciences companies, with great
promise but minimal to no sales, providing cost savings that can be reinvested in
business growth without significantly compromising the disclosure provided to
Aligning Transition Provisions in the Accelerated and Large Accelerated Filer
Once an issuer has been categorized as an accelerated or large accelerated filer, it is not
able to exit a category until its public float falls below enumerated thresholds, as
determined at the end of each fiscal year. The Commission proposes to revise the
transition thresholds for accelerated and large accelerated filers to more closely align
with the transition thresholds in the definition of smaller reporting company and to add
the smaller reporting company revenue test.
Under the proposed amendments, an issuer who initially qualifies as a large accelerated
filer could not transition to an accelerated filer unless its public float falls below
$560 million (previously $500 million), and an issuer who initially qualifies as an
accelerated filer (or a large accelerated filer) could not transition to a non-accelerated
filer unless its public float falls below $60 million (previously $50 million). In either
case, the proposed amendments would also allow for a transition to non-accelerated filer
status if the issuer meets the revenue test in the smaller reporting company definition.