I hope you have had an enjoyable summer filled with some memorable activities. Even though we still have a couple weeks to go until Labor Day, I am already feeling the twinge of back-to-school jitters, as I make final preparations for the course I co-teach during the Fall semester and get ready to take my youngest child back to college.

One summer activity that is not so enjoyable is tackling a public company’s filer status determination. As we noted in the May-June 2021 issue of The Corporate Counsel, the many companies with calendar year-end fiscal years must use June 30 as their determination date for deciding what they have to disclose and how fast they have to disclose it. As we noted in that issue:

Primarily to make things easier on what are perceived as smaller public companies, the SEC and Congress have created what is often a bewildering maze of filer status tests that are used to determine when a company files its reports with the SEC and the content of those reports. In the old days, there was a relatively clear line of demarcation between the “regular” companies and companies that were designated as “small business issuers,” and small business issuers had their own integrated disclosure regime codified in Regulation S-B and their own registration forms.

Over the years, for a variety of reasons, that approach gave way to a patchwork of sometimes overlapping filer designations that are generally still geared toward the goal of scaling the SEC reporting and disclosure system to the size and sophistication of the reporting company. As recently as last year, the SEC revisited the various tests used for determining filer status in an effort to “right-size” the burdens on public companies (see our July-August 2020 issue at page 2). In this issue, we revisit this topic with a comprehensive guide to filer status.

Much like back-to-school jitters are a true summer phenomenon, filer status determination jitters are a real thing as well. Changing filer status can represent a significant development for companies, both positive and negative. In The Corporate Counsel article, we offered these important suggestions to keep in mind:

– Disclosure Committee Involvement – If the company has a disclosure committee, it is important that the committee be aware of and discuss the implications of changes in filer status. The disclosure committee should prepare contingency plans for situations when filer status changes and significant disclosure changes may be required, such as moving from non-accelerated filer to accelerated filer status (which results in the need to provide a Sarbanes-Oxley Section 404 auditor attestation) or losing smaller reporting company status (which would result in the need to provide more, e.g., financial and executive compensation disclosure). The disclosure committee can also consult with the financial reporting and accounting functions to discuss the preparations necessary for meeting accelerated filing deadlines.

– Audit Committee Involvement – For some companies, it may be important to keep the audit committee apprised of the company’s filer status, particular at times when the filer status has changed or is likely to change. With this information, the Audit Committee can be prepared for, e.g., obtaining an auditor attestation for a company transitioning from non-accelerated to accelerated filer status or for providing more financial information when a company loses smaller reporting company status.

– Ownership – The filer status determination can tend to get lost in the press of other business, so it is important to assign one person or department within the company with ownership of the filer status determination to make sure that it happens in a timely manner and is communicated to the appropriate people within the company once the determination is made. Adding the relevant filer status determination dates to the company’s reporting calendar and/or checklist is also helpful to ensure that the determination is made in a timely manner.

– Determination Date Caution – As discussed above, the prospect for SEC Enforcement interest if the company were perceived to be manipulating the filer status determination means that companies should be cautious if they find themselves in a position of being near a filer status transition point around the last business day of the company’s second fiscal quarter. A risk assessment should be done when a company finds itself in that situation, and the company may want to implement special measures to avoid the appearance of improper trading.

– Planning Ahead – In our experience, no non-accelerated filer or smaller reporting company wants to retain that status forever. As a company grows and its market capitalization increases, it makes sense to anticipate and plan for filer status transitions. In some situations, such as with smaller reporting companies, this may mean providing more disclosure than is currently required, so that the company is ready to provide larger company disclosures when the smaller reporting company status goes away. In the case of non-accelerated filers, it means preparing for an auditor attestation of internal controls before the company finds itself in the situation of only have 6 months to do so.

Fortunately for all of this, the SEC’s current leadership seems to be interested in exploring potential changes to the filer status maze. We hope that some consideration will be given to reducing the complexity while enhancing the accommodations available to emerging growth companies and smaller reporting companies.

– Dave Lynn