June 29, 2018

SEC Adopts $250M “Smaller Reporting Company” Def’n

Yesterday, the SEC announced that it adopted amendments to expand the number of “smaller reporting companies” that qualify for scaled disclosure. Here’s the 105-page adopting release – and we’re posting memos in our “Smaller Reporting Companies” Practice Area (also see this blog from Cooley’s Cydney Posner & this blog from Dorsey’s Cam Hoang). These are the key points:

– Companies with a public float of less than $250 million will qualify as SRCs.

– A company with no public float or with a public float of less than $700 million will qualify as a SRC if it had annual revenues of less than $100 million during its most recently completed fiscal year.

– A company that determines that it does not qualify as a SRC under the above thresholds will remain unqualified until it determines that it meets one or more lower qualification thresholds. The subsequent qualification thresholds, set forth in the release, are set at 80% of the initial qualification thresholds.

– Rule 3-05(b)(2)(iv) of Regulation S-X is amended to increase the net revenue threshold in that rule from $50 million to $100 million, so that more companies may be able to omit dated financial statements of acquired businesses.

– The final amendments preserve the application of the current thresholds contained in the “accelerated filer” and “large accelerated filer” definitions in Exchange Act Rule 12b-2. As a result, companies with $75 million or more of public float that qualify as SRCs will remain subject to the requirements that apply to accelerated filers, including the timing of the filing of periodic reports and the requirement that accelerated filers provide the auditor’s attestation of management’s assessment of internal control over financial reporting required by Section 404(b) of the Sarbanes-Oxley Act of 2002.

That last point was emphasized during the SEC’s open meeting (here’s Commissioner Stein’s Statement – and here’s Commissioner Piwowar’s Statement). Corp Fin has begun to formulate recommendations to the Commission for possible additional changes to the “accelerated filer” definition that, if adopted, would have the effect of reducing the number of companies that qualify as accelerated filers (and are subject to auditor attestation requirements). Some – but not all – believe this would promote capital formation by reducing compliance costs for those companies.

SEC Adopts Inline XBRL

Yesterday, with Commissioner Peirce dissenting, the SEC announced amendments to require the use of Inline XBRL for financial statement information. This means that companies will embed XBRL data directly into Edgar filings instead of posting separate files – and the new data will be readable by both humans & machines. The amendments also eliminate the requirements for companies to post XBRL data on their websites.

There’s no change to the categories of filers or scope of disclosures subject to XBRL requirements. Here’s the 143-page adopting release – also see this Cooley blog.

There’s a phase-in period to comply:

– Large accelerated filers that use U.S. GAAP will be required to comply beginning with fiscal periods ending on or after June 15, 2019.

– Accelerated filers that use U.S. GAAP will be required to comply beginning with fiscal periods ending on or after June 15, 2020.

– All other filers will be required to comply beginning with fiscal periods ending on or after June 15, 2021.

– Filers will be required to comply beginning with their first Form 10-Q filed for a fiscal period ending on or after the applicable compliance date.

SEC Proposes Changes to Whistleblower Program

In March, John blogged about the largest whistleblower award to-date – and noted that the SEC has awarded more than $262 million to 53 whistleblowers since the program’s inception in 2012.

Yesterday, the SEC proposed amendments to its whistleblower program. The amendments will allow awards based on deferred prosecution & non-prosecution agreements and clarify the requirements for anti-retaliation protection, among other things. There’s also a controversial proposal to cap award amounts. Here’s the SEC’s announcement & fact sheet. The comment period will remain open for 60 days following publication of the proposing release in the Federal Register.

Liz Dunshee