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## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

Conformed to Federal Register version
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 229, 230, 240, and 249
Release No. 34-88365; File No. S7-06-19
RIN 3235-AM41
Accelerated Filer and Large Accelerated Filer Definitions
AGENCY: Securities and Exchange Commission.
ACTION: Final rule.
SUMMARY: The Securities and Exchange Commission (“Commission”) is adopting
amendments to the accelerated filer and large accelerated filer definitions to more appropriately
tailor the types of issuers that are included in the categories of accelerated and large accelerated
filers and promote capital formation, preserve capital, and reduce unnecessary burdens for
certain smaller issuers while maintaining investor protections. The amendments exclude from
the accelerated and large accelerated filer definitions an issuer that is eligible to be a smaller
reporting company and that had annual revenues of less than $100 million in the most recent
fiscal year for which audited financial statements are available. The amendments also include a
specific provision excluding business development companies from the accelerated and large
accelerated filer definitions in analogous circumstances. In addition, the amendments increase
the transition thresholds for accelerated and large accelerated filers becoming non-accelerated
filers from $50 million to $60 million, and for exiting large accelerated filer status from $500
million to $560 million. Further, the amendments add a revenue test to the transition thresholds
for exiting from both accelerated and large accelerated filer status. Finally, the amendments add
a check box to the cover pages of Forms 10-K, 20-F, and 40-F to indicate whether an internal

1

control over financial reporting (“ICFR”) auditor attestation is included in the filing. As a result
of the amendments, certain low-revenue issuers will remain obligated, among other things, to
establish and maintain ICFR and have management assess the effectiveness of ICFR, but they
will not be required to have their management’s assessment of the effectiveness of ICFR attested
to, and reported on, by an independent auditor.
DATES: This final rule is effective April 27, 2020.
FOR FURTHER INFORMATION CONTACT: John Fieldsend, Special Counsel, in the
Division of Corporation Finance, at (202) 551-3430, and Brian Johnson, Assistant Director, in
the Division of Investment Management, at (202) 551-6792, U.S. Securities and Exchange
Commission, 100 F Street NE, Washington, DC 20549-3628.
SUPPLEMENTARY INFORMATION: We are amending 17 CFR 229.10(f) (“Item 10(f)”)
under Regulation S-K; 1 17 CFR 230.405 (“Rule 405”) under the Securities Act of 1933; 2 and 17
CFR 12b-2 (“Rule 12b-2”), 17 CFR 249.220f (“Form 20-F”), 17 CFR 249.240f (“Form 40-F”),
and 17 CFR 249.310 (“Form 10-K”) under the Securities Exchange Act of 1934 (“Exchange
Act”). 3
Table of Contents
I.
II.

INTRODUCTION............................................................................................................. 5
DISCUSSION OF THE FINAL AMENDMENTS ........................................................ 7
A. Background ................................................................................................................. 7
B. Amendments to Exclude Low-Revenue SRCs from the Accelerated and Large
Accelerated Filer Definitions .................................................................................... 10
1. Proposed Amendments ........................................................................................ 10
2. Comments on the Proposed Amendments........................................................... 11
a. Comments on Using Revenue for Determining Accelerated and Large
Accelerated Filer Status .................................................................................. 12

1

15 U.S.C. 229.10 through 229.1305.

2

15 U.S.C. 77a et seq.

3

15 U.S.C. 78a et seq.

2

III.
IV.

b. Comments on the Proposed Amendments’ Effect on Capital Formation and
the Number of Public Issuers .......................................................................... 13
c. Comments on the Proposed Amendments’ Effect on Investor Protection ..... 15
d. Comments on the Disproportionate Costs and Benefits of the ICFR Auditor
Attestation Requirement to Small and Low-Revenue Companies ................. 20
e. Comments on the Relationship Between Non-Accelerated Filers and SRCs . 23
f. Other Comments ............................................................................................. 24
3. Final Amendments .............................................................................................. 27
a. Using Revenue for Determining Accelerated and Large Accelerated Filer
Status… ........................................................................................................... 28
b. Effect on Capital Formation and the Number of Public Companies .............. 29
c. Effect on Investor Protection .......................................................................... 32
d. Disproportionate Costs and Benefits of the ICFR Auditor Attestation for
Small and Low-Revenue Companies .............................................................. 38
e. Relationship Between Non-Accelerated Filers and SRCs .............................. 41
f. Effect on Business Development Companies ................................................. 42
g. Effect on Foreign Private Issuers .................................................................... 45
h. Requiring ICFR Auditor Attestation Less Frequently than Annually ............ 45
i. Check Box Indicating Whether an ICFR Auditor Attestation is Included in a
Filing... ........................................................................................................... 46
C. Amendments to Increase the Public Float Transition Thresholds from $50 million to
$60 million and $500 million to $560 million and to Add the SRC Revenue Test to
the Transition Threshold ........................................................................................... 48
1. Proposed Amendments ........................................................................................ 48
2. Comments ............................................................................................................ 51
3. Final Amendments .............................................................................................. 51
D. Transition Issues ........................................................................................................ 54
OTHER MATTERS ....................................................................................................... 55
ECONOMIC ANALYSIS .............................................................................................. 55
A. Introduction ............................................................................................................... 56
B. Baseline ..................................................................................................................... 62
1. Regulatory Baseline ............................................................................................ 62
2. Characteristics of Accelerated Filer Population .................................................. 71
3. Timing of Filings ................................................................................................. 74
4. Internal Controls and Restatements ..................................................................... 75
C. Discussion of Economic Effects................................................................................ 80
1. Affected Issuers ................................................................................................... 81
2. Potential Benefits of Expanding the Exemption from the ICFR Auditor
Attestation Requirement for Affected Issuers ..................................................... 92
a. Evidence on possible indirect costs of the ICFR auditor attestation
requirement ..................................................................................................... 92
b. Evidence on net costs of the ICFR auditor attestation requirement................ 94
i. Studies involving avoidance behavior ...................................................... 94
ii. Studies based on comparative analysis or market reactions ..................... 98
iii. Other evidence on net costs .................................................................... 100
c. Potential reduction in audit fees .................................................................... 102

3

d. Additional potential compliance cost savings............................................... 106
e. Implications of the cost savings .................................................................... 108
3. Potential Costs of Expanding the Exemption from the ICFR Auditor Attestation
Requirement for Affected Issuers...................................................................... 112
a. Broad considerations and evidence regarding the effects of ICFR auditor
attestations on financial reporting ................................................................. 113
b. Estimated effects on ICFR, the reliability of financial statements, and potential
fraud…. ......................................................................................................... 124
i. Effects on the prevalence of ineffective ICFR ........................................ 127
ii. Effects on the detection and disclosure of material weaknesses in ICFR128
iii. Effects on restatements ........................................................................... 131
iv. Effects on fraudulent financial reporting ................................................ 140
v. Timing of the effects ............................................................................... 147
c. Implications for investor decision-making ................................................... 149
d. Potential economic costs of effects on ICFR, the reliability of financial
statements, and potential fraud ..................................................................... 162
i. Computation of monetized estimates of costs ........................................ 164
ii. Discussion of economic costs ................................................................. 168
4. Potential Benefits and Costs Related to Other Aspects of the Amendments .... 175
a. Filing deadlines ............................................................................................. 175
b. Disclosures required of accelerated filers ..................................................... 177
c. Transition thresholds..................................................................................... 178
d. Disclosure ..................................................................................................... 181
5. Alternatives to the Amendments ....................................................................... 182
a. Exclude all SRCs from accelerated filer category ........................................ 183
b. Include or exclude certain issuer types ......................................................... 186
c. Alternative threshold..................................................................................... 190
V.
PAPERWORK REDUCTION ACT ........................................................................... 191
A. Summary of the Collections of Information............................................................ 191
B. Burden and Cost Estimates Related to the Final Amendments ............................... 192
1. ICFR Auditor Attestation Requirement ............................................................ 193
2. Filing Deadlines, Disclosure Regarding Filing Availability, and Unresolved Staff
Comments .......................................................................................................... 195
3. Check Box Disclosure ....................................................................................... 196
4. Total Burden Reduction .................................................................................... 197
VI.
REGULATORY FLEXIBILITY ACT ANALYSIS .................................................. 197
A. Need for, and Objectives of, the Final Amendments .............................................. 197
B. Significant Issues Raised by Public Comments ...................................................... 198
C. Small Entities Subject to the Amendments ............................................................. 198
D. Projected Reporting, Recordkeeping, and Other Compliance Requirements ......... 199
E. Agency Action to Minimize Effect on Small Entities ............................................. 200
STATUTORY AUTHORITY AND TEXT OF RULE AMENDMENTS ........................... 202

4

I.

INTRODUCTION
On May 9, 2019, we proposed amendments 4 to the “accelerated filer” and “large

accelerated filer” definitions in Rule 12b-2. 5 We proposed these amendments to promote capital
formation for certain smaller issuers while maintaining investor protections by more
appropriately tailoring the types of issuers that are included in the categories of accelerated and
large accelerated filers and revising the transition thresholds for accelerated and large accelerated
filers. Specifically, we proposed to exclude from the accelerated and large accelerated filer
definitions an issuer that is eligible to be a smaller reporting company (“SRC”) 6 and that has
annual revenue of less than $100 million in the most recent fiscal year for which audited
financial statements are available (“SRC revenue test”), with the effect that such an issuer would
not need to satisfy the requirements applicable to an accelerated or large accelerated filer. We
also proposed to increase the public float transition threshold for accelerated and large
accelerated filers to become a non-accelerated filer from $50 million to $60 million, and to
increase the exit threshold in the large accelerated filer transition provision from $500 million to
$560 million in public float. Finally, we proposed to add a revenue test to the transition
thresholds for exiting both accelerated and large accelerated filer status.
We received over 60 comment letters on the proposal, including over 40 unique letters
and approximately 20 letters that were substantially similar. Many of the commenters generally

4

Amendments to the Accelerated and Large Accelerated Filer Definitions, Release No. 34-85814 (May 9, 2019)
[84 FR 24876 (May 29, 2019)] (“Proposing Release”).

5

Although Rule 12b-2 defines the terms “accelerated filer” and “large accelerated filer,” it does not define the
term “non-accelerated filer.” If an issuer does not meet the definition of accelerated filer or large accelerated
filer, it is considered a non-accelerated filer.

6

See Item 10(f), Rule 405, and Rule 12b-2 (defining SRC).

5

supported the proposed amendments 7 while other commenters generally opposed them or
suggested the need for further empirical study. 8 In addition, the SEC’s Small Business Capital
Formation Advisory Committee (“SBCFAC”) adopted a recommendation supporting the
proposed amendments, 9 and the 2019 SEC Government-Business Forum on Small Business

7

See, e.g., letters from Adamas Pharmaceuticals, Inc. (July 19, 2019) (“Adamas”); Advanced Medical
Technology Association Accel (July 26, 2019) (“AdvaMed”); Aequor, Inc. (July 18, 2019) (“Aequor”);
Ardelyx, Inc. (July 18, 2019) (“Ardelyx”); American Securities Association (July 29, 2019) (“ASA”);
Biotechnology Innovation Organization (July 29, 2019) (“BIO”); Broadmark Capital (July 29, 2019)
(“Broadmark”); California Life Sciences Association (Jun. 10, 2019) (“CLSA”); Catalyst Biosciences, Inc.
(July 29, 2019) (“Catalyst”); Cerecor Inc. (July 3, 2019) (“Cerecor”); Chiasma, Inc. (July 11, 2019)
(“Chiasma”); Coalition of Four Small Businesses and their Investors (July 24, 2019) (“AdvaMed et al.”);
Concert Pharmaceuticals, Inc. (July 1, 2019) (“Concert”); Corvus Pharmaceuticals, Inc. (July 19, 2019)
(“Corvus”); Council of State Bioscience Associations (July 25, 2019) (“CSBA”); CSB Bancorp, Inc. (July 26,
2019) (“CSB”); CymaBay Therapeutics, Inc. (July 24, 2019) (“CymaBay”); Daré Bioscience, Inc. (July 10,
2019) (“Daré”); Darian B. Andersen, General Counsel, PC (Jun. 5, 2019) (“Andersen”); Equillium, Inc. (July
22, 2019) (“Equillium”); Evoke Pharma, Inc. (July 17, 2019) (“Evoke”); Gritstone Oncology Inc. (July 24,
2019) (“Gritstone”); Guaranty Federal Bancshares, Inc. (July 23, 2019) (“Guaranty”); Independent Community
Bankers of America (July 24, 2019) (“ICBA”); Kezar Life Sciences, Inc. (July 17, 2019) (“Kezar”); Kyle
Carver (May 25, 2019) (“Carver”); Marinus Pharmaceuticals, Inc. (July 17, 2019) (“Marinus”); Millendo
Therapeutics, Inc. (July 29, 2019) (“Millendo”); MSB Financial Corp. (July 19, 2019) (“MSB”); Nasdaq, Inc.
(July 29, 2019) (“Nasdaq”); Organovo, Inc. (July 18, 2019) (“Organovo”); Pieris Pharmaceuticals, Inc. (July 11,
2019) (“Pieris”); Revance Therapeutics, Inc. (July 22, 2019) (“Revance”); SI-BONE, Inc. (July 19, 2019) (“SIBONE”); South Carolina Bankers Association (July 26, 2019) (“SCBA”); Summit State Bank (May 28, 2019)
(“Summit”); Sutro Biopharma, Inc. (July 8, 2019) (“Sutro”); Syros Pharmaceuticals, Inc. (July 22, 2019)
(“Syros”); Teligent, Inc. (July 23, 2019) (“Teligent”); Terra Tech Corp. (May 29, 2019) (“Terra Tech”); The
Bank of South Carolina (July 26, 2019) (“BSC”); U.S. Chamber of Commerce’s Center for Capital Markets
Competitiveness (July 29, 2019) (“Chamber”); Xenon Pharmaceuticals Inc. (Jun. 19, 2019) (“Xenon”); and
Zynerba Pharmaceuticals, Inc. (July 8, 2019) (“Zynerba”).

8

See, e.g., letters from BDO USA, LLP (July 29, 2019) (“BDO”); Better Markets, Inc. (July 29, 2019) (“Better
Markets”); Center for Audit Quality (July 29, 2019) (“CAQ”); CFA Institute, in consultation with its Corporate
Disclosure Policy Council (Aug. 22, 2019) (“CFA Inst.”); Colleen Honigsberg, Associate Professor of Law,
Stanford Law School, et al. (July 22, 2019) (“Prof. Honigsberg et al.”); Consumer Federation of America (July
29, 2019) (“CFA”); Council of Institutional Investors (July 25, 2019) (“CII”); Crowe LLP (July 29, 2019)
(“Crowe”); Deloitte & Touche LLP (July 26, 2019) (“Deloitte”); Grant Thornton LLP (July 17, 2019) (“Grant
Thornton”); John Hassell, Indiana University (May 19, 2019) (“Prof. Hassell”); Mary Barth, Stanford
University, Wayne Landsman, University of North Carolina, Joseph Schroeder, Indiana University, and Daniel
Taylor, University of Pennsylvania (July 11, 2019) (“Prof. Barth et al.”); RSM US LLP (July 29, 2019)
(“RSM”); and Weili Ge, University of Washington; Allison Koester, Georgetown University; and Sarah
McVay, University of Washington (July 26, 2019) (“Prof. Ge et al.”).

9

See U.S. SEC. AND EXCH. COMM’N SMALL BUS. CAPITAL FORMATION ADVISORY COMM., Recommendation on
the Commission’s Proposal to Amend the Accelerated and Large Accelerated Filer Definitions (Aug. 23, 2019)
(“SBCFAC Recommendations”), available at https://www.sec.gov/spotlight/sbcfac/recommendations-rule-305-and-accelerated-filer-definition.pdf. Although it supported the proposed amendments, the SBCFAC stated
that it “would welcome the Commission to explore additional further amendments” to the accelerated and large
accelerated filer definitions and recommended exploring raising the revenue threshold to be a non-accelerated
filer to one higher than $100 million, basing the revenue test for an issuer to qualify as a non-accelerated filer

6

Capital Formation (“SEC Small Business Forum”) provided a recommendation on the
accelerated filer definition. 10 After taking into consideration these recommendations and the
public comments, we are adopting the amendments substantially as proposed. The final
amendments are consistent with our historical practice of providing scaled disclosure and other
accommodations for smaller issuers and with recent actions by Congress to reduce unnecessary
burdens on new and smaller issuers. 11
II.

DISCUSSION OF THE FINAL AMENDMENTS
A. Background
In June 2018, the Commission adopted amendments 12 to the SRC definition 13 to expand

the number of issuers that qualify for scaled disclosure accommodations. The amended SRC
definition allows an issuer to use either a public float 14 test or the SRC revenue test to determine
on a three-year rolling average instead of basing it on the revenue in the most recent fiscal year, and looking at
whether all SRCs should be non-accelerated filers.
10

See U.S. SEC. AND EXCH. COMM’N GOV’T-BUS. FORUM ON SMALL BUS. CAPITAL FORMATION, Report on the
38th Annual Government-Business Forum on Small Business Capital Formation (Aug. 14, 2019) (“SEC Small
Business Forum”), available at https://www.sec.gov/files/small-business-forum-report-2019.pdf. The SEC
Small Business Forum recommended aligning the definition of non-accelerated filer with the definition of
SRC to include issuers with a public float less than $250 million or with annual revenues less than $100
million (and either no public float or a public float less than $700 million) .

11

For example, Title I of the Jumpstart Our Business Startups Act of 2012 (‘‘JOBS Act’’) amended Section
404(b) of the Sarbanes-Oxley Act (“SOX”), 15 U.S.C. 7262(b), which relates to an issuer’s ICFR to exempt
emerging growth companies (“EGCs”) from the requirement of SOX Section 404(b). In particular, SOX
Section 404(b) requires that an issuer’s independent auditor attest to, and report on, management’s assessment
of the effectiveness of the issuer’s ICFR (“ICFR auditor attestation”). See Public Law 112–106, Sec. 103, 126
Stat. 306 (2012). In addition, Section 72002 of the Fixing America’s Surface Transportation Act of 2015
requires the Commission to revise Regulation S-K to further scale or eliminate requirements to reduce the
burden on EGCs, accelerated filers, SRCs, and other smaller issuers, while still providing all material
information to investors. See Pub. L. No. 114-94, 129 Stat. 1312 (2015).

12

See Smaller Reporting Company Definition, Release No. 33-10513 (June 28, 2018) [83 FR 31992 (July 10,
2018)] (“SRC Adopting Release”).

13

See note 6 above.

14

Public float is defined in paragraph (3)(i)(A) of the SRC definition in Rule 12b-2, which states that public float
is measured as of the last business day of the issuer’s most recently completed second fiscal quarter and
computed by multiplying the aggregate worldwide number of shares of its voting and non-voting common
equity held by non-affiliates by the price at which the common equity was last sold, or the average of the bid
and asked prices of common equity, in the principal market for the common equity. See also Item 10(f)

7

whether it is an SRC. The amendments increased the threshold in the public float test for an
issuer to initially qualify as an SRC from less than $75 million to less than $250 million. 15 The
Commission also expanded the revenue test to include issuers with annual revenues 16 of less than
$100 million if they have no public float or a public float of less than $700 million. 17 The
Commission intended the amendments to promote capital formation for smaller issuers by
reducing compliance costs for the newly eligible SRCs while maintaining appropriate investor
protections. 18
In conjunction with these amendments, the Commission also revised the accelerated filer
and large accelerated filer definitions in Rule 12b-2 to remove the condition that, for an issuer to
be an accelerated filer or a large accelerated filer, it must not be eligible to use the SRC
accommodations. 19 One result of these amendments is that some issuers now are categorized as
both SRCs and accelerated or large accelerated filers. 20 These issuers have some, but not all, of

(2)(i)(A) and Rule 405. An entity with no public float because, for example, it has equity securities outstanding
but is not trading in any public trading market would not be able to qualify on the basis of a public float test
alone. That entity must look to the SRC revenue test to determine whether it qualifies as an SRC.
15

To avoid situations where an issuer frequently enters and exits SRC status, each test includes two thresholds—
one for initially determining whether an issuer qualifies as an SRC and a subsequent transition threshold that is
lower for issuers that did not initially qualify as an SRC, or that no longer qualify as an SRC because they
exceeded the initial thresholds.

16

Annual revenues are measured as of the most recently completed fiscal year for which audited financial
statements are available. See Item 10(f)(2)(i)(B), Rule 405, and Rule 12b-2.

17

See Item 10(f)(1), Rule 405, and Rule 12b-2. The prior revenue test included issuers with no public float and
annual revenues of less than $50 million. See SRC Adopting Release, note 12 above, at 31995. The lower
transition thresholds under the revenue test for an issuer that did not initially qualify as an SRC, or that no
longer qualifies as an SRC because it exceeded the initial thresholds, were revised from less than $40 million of
annual revenues and no public float to less than $80 million of annual revenues and either no public float or a
public float of less than $560 million. See Item 10(f)(2)(iii)(B), Rule 405, and Rule 12b-2.

18

SRC Adopting Release, note 12 above, at 31992.

19

This amendment, among other things, preserved the existing thresholds in those definitions and did not change
the number of issuers subject to the ICFR auditor attestation requirement.

20

Although rare, under our existing rules, some issuers that meet the large accelerated filer definition may be
eligible to be an SRC because of the expanded revenue test in the SRC definition. See Proposing Release, note
4 above, at 24877, n. 25. As discussed below, in Section II.B.3., we are adopting the proposed amendment to

8

the benefits of scaled regulation. In particular, issuers that are categorized as both SRCs and
accelerated or large accelerated filers must comply with the earlier filing deadlines required of
accelerated and large accelerated filers for annual and quarterly reports and the requirement of
SOX Section 404(b). 21
Prior to the SRC amendments, the SRC category of filers generally did not overlap with
either the accelerated or large accelerated filer categories. 22 Now, however, as illustrated in
Figure 1 of this section, because the public float tests in the SRC and accelerated filer definitions
partially overlap, and the accelerated and large accelerated filer definitions no longer specifically
exclude an issuer that is eligible to be an SRC, an issuer meeting the accelerated filer definition
will be both an SRC and an accelerated filer 23 if it has:
•

A public float of $75 million or more, but less than $250 million, regardless of annual
revenues; or

•

Less than $100 million in annual revenues, and a public float of $250 million or
more, but less than $700 million.

Figure 1. Current Definitions of SRC, Accelerated Filer, and Large Accelerated Filer

the “large accelerated filer” definition so that an issuer that is eligible to be an SRC under the SRC revenue test
would not also qualify as a large accelerated filer.
21

15 U.S.C. 7262(b).

22

See SRC Adopting Release, note 12 above, at 32001.

23

The thresholds provided below are based on the initial thresholds of each definition; however, due to the
transition provisions of the accelerated and large accelerated filer definitions, additional issuers may also be
both an SRC and an accelerated or large accelerated filer.

9

B. Amendments to Exclude Low-Revenue SRCs from the Accelerated and Large
Accelerated Filer Definitions
1. Proposed Amendments
Under the existing accelerated filer and large accelerated filer definitions in Rule 12b-2,
an issuer must satisfy three conditions to be an accelerated filer or large accelerated filer. 24 We
proposed to add a new condition to the definitions of accelerated filer and large accelerated filer
that would exclude from those definitions an issuer that is eligible to be an SRC and that meets
the SRC revenue test. The most notable effect of the proposed amendments 25 would be that an
issuer that is eligible to be an SRC and that meets the SRC revenue test would not be subject to
the requirement of SOX Section 404(b) that an issuer’s independent auditor must attest to, and
report on, management’s assessment of the effectiveness of the issuer’s ICFR. 26 The final
amendments do not change an auditor’s role in a financial statement audit. 27
SOX Section 404(a) 28 requires almost all issuers, including SRCs, that file reports

24

The three existing conditions for qualifying as an accelerated filer are that an issuer: (1) had an aggregate
worldwide public float of $75 million or more, but less than $700 million, as of the last business day of the
issuer’s most recently completed second fiscal quarter; (2) has been subject to the requirements of 15 U.S.C.
78m (Exchange Act Section 13(a)) or 15 U.S.C. 78o(d) (Exchange Act Section 15(d)) for a period of at least
twelve calendar months; and (3) has filed at least one annual report pursuant to those sections. For a large
accelerated filer, conditions (2) and (3) are the same, but condition (1) is that an issuer had an aggregate
worldwide public float of $700 million or more, as of the last business day of the issuer’s most recently
completed second fiscal quarter. Also, as discussed in note 20 above, some issuers that meet the “large
accelerated filer” definition may be eligible to be an SRC.

25

The issuer also would not have to abide by the filing deadlines of an accelerated or large accelerated filer,
provide the disclosure required by Item 1B of Form 10-K and Item 4A of Form 20-F about unresolved staff
comments on its periodic and/or current reports, or provide the disclosure required by Item 101(e)(4) of
Regulation S-K about whether it makes filings available on or through its Internet website. See 17 CFR
229.101(e)(4).

26

See 17 CFR 240.13a-15(f) and 17 CFR 240.15d-15(f) (defining ICFR).

27

See letter from Deloitte (suggesting that the Commission explain how an auditor’s role in a financial statement
audit will change as a result of the amendments).

28

15 U.S.C. 7262(a).

10

pursuant to Exchange Act Section 13(a) or 15(d) 29 to establish and maintain ICFR and have their
management assess the effectiveness of their ICFR. 30 SOX Section 404(b) subjects certain
issuers not otherwise exempted to the ICFR auditor attestation requirement. 31 The most
significant exemption from the ICFR auditor attestation requirement is the exemption provided
to EGCs pursuant to Title I of the JOBS Act (“JOBS Act Exemption”). Generally, an EGC is a
company that has total annual gross revenues of less than $1.07 billion during its most recently
completed fiscal year end and that has not sold common equity securities under a registration
statement. 32 The JOBS Act Exemption provides EGCs with a five-year exemption from the
ICFR auditor attestation requirement. We estimate that the JOBS Act Exemption applies to
issuers with an aggregate market capitalization of about $585 billion, compared to about $95
billion in aggregate for the issuers that are newly exempt from the ICFR auditor attestation
requirement under the amendments. 33
2. Comments on the Proposed Amendments
Many commenters supported the portion of the proposed amendments that would exclude

29

See 17 CFR 240.13a-15 and 17 CFR 240.15d-15.

30

Investment companies registered under Section 8 of the Investment Company Act of 1940, 15 U.S.C 80a–8, are
specifically exempted from SOX Section 404 by SOX Section 405, 15 U.S.C. 7263. Notwithstanding the
exemption pursuant to SOX Section 405, these registered investment companies are subject to other
requirements regarding internal controls. See Proposing Release, note 4 above, at 24879, n. 44.

31

For example, SOX Section 404(c) exempts from Section 404(b) any issuer that is neither a large accelerated
filer nor an accelerated filer. See 15 U.S.C. 7262(c).

32

See 15 U.S.C. 77(b)(a)(19).

33

These estimates are based on staff analysis of data on market values from Compustat for annual reports in
calendar year 2018. See note 298 below for details on the identification of the population of different filer
types. See note 336 below for details on the identification of the population of affected issuers. Out of the
1,430 issuers who qualified as EGCs in 2018, 1,097 are also non-accelerated filers. The remaining EGCs are
still exempt from the ICFR auditor attestation requirement solely due to the JOBS Act Exemption, and those
issuers are significantly larger in terms of aggregate market capitalization (approximately $145 billion) than the
issuers newly exempted under the amendments (approximately $95 billion). This estimate excludes 41 EGCs
with an aggregate of approximately $20 billion in market capitalization for which we are unable to determine
non-accelerated filer status, the majority of which are Canadian issuers filing on Form 40-F.

11

an issuer that is eligible to be an SRC and that meets the SRC revenue test from the accelerated
and large accelerated filer definitions. 34 Other commenters opposed the proposed
amendments or suggested the need for further analysis. 35 Commenters’ views on different
aspects of the proposal, as well as its effects, are discussed topically, below.
a. Comments on Using Revenue for Determining Accelerated and
Large Accelerated Filer Status
A number of commenters stated explicitly that they supported using revenue as a measure
to determine whether an issuer should be subject to the ICFR auditor attestation requirement. 36
These commenters suggested that using a revenue measurement is preferable to using a public
float measurement 37 because public float is often affected by industry or economic trends not
specific to any particular issuer, 38 and that revenue is more predictable, 39 a better indicator of an
issuer’s complexity, 40 and a better indicator of an issuer’s ability to absorb the burdens of the
ICFR auditor attestation requirement. 41 Other commenters questioned whether revenue is an
appropriate measure for determining whether an issuer should be a non-accelerated filer in all

34

See, e.g., letters from Adamas, AdvaMed, AdvaMed et al., Aequor, Andersen, Ardelyx, Ardelyx’s slides from
its presentation to the SBCFAC Meeting (Aug. 13, 2019) (“Ardelyx Presentation”), ASA, BIO, Broadmark,
BSC, Carver, Catalyst, Cerecor, Chamber, Chiasma, CLSA, Concert, Corvus, CSB, CSBA, CymaBay, Daré,
Equillium, Evoke, Gritstone, Guaranty, ICBA, Institute of Management Accountants’ Financial Reporting and
Small Business Committees (July 16, 2019) (“IMA”), Kezar, Marinus, Millendo, MSB, National Association of
Manufacturers (July 26, 2019) (“NAM”), Nasdaq, Organovo, Pieris, Revance, SCBA, SI-BONE, Summit,
Sutro, Syros, Teligent, Terra Tech, Xenon, and Zynerba.

35

See, e.g., letters from BDO, Better Markets, CAQ, CFA, CFA Inst., CII, Crowe, Deloitte, Grant Thornton,
Prof. Barth et al., Prof. Ge et al., Prof. Hassell, Prof. Honigsberg et al., and RSM.

36

See, e.g., letters from BIO, Broadmark, Chamber, Concert, Corvus, and MSB.

37

See, e.g., letters from Broadmark, Chamber, Concert, Corvus, and MSB.

38

See letter from MSB.

39

See letter from Broadmark.

40

See, e.g., letters from Concert and Corvus.

41

See letter from Broadmark.

12

cases. 42 One commenter asserted that low-revenue companies may have less sophisticated or
experienced accounting functions and some aspects of their business may be associated with
accounting complexities. 43 This commenter also suggested that issuers may recognize revenue
in ways that could result in them frequently transitioning in and out of non-accelerated filer status.44
Another commenter indicated that an issuer could have a relatively low amount of revenue but
still have a large market capitalization and thus “greater investor exposure.” 45
b. Comments on the Proposed Amendments’ Effect on Capital
Formation and the Number of Public Issuers
Commenters expressed mixed views on the effect that the proposed amendments would
have on capital formation, the cost of capital, and the decisions of companies as to whether to
enter the public capital markets. Some commenters agreed with the view expressed in the
Proposing Release that, by expanding the JOBS Act Exemption, the proposed amendments
would enhance capital formation or allow affected issuers to preserve capital 46 while also
maintaining investor protection. 47 One commenter, questioning the benefits, if any, of the ICFR
auditor attestation requirement, asserted that there is no correlation between a smaller issuer’s
compliance with the ICFR auditor attestation requirement and stronger markets in general. 48
Additionally, some commenters suggested that eliminating the ICFR auditor attestation

42

See letter from Ernst & Young LLP (July 29, 2019) (“EY”), Grant Thornton, and National Association of State
Boards of Accountancy (July 23, 2019) (“NASBA”).

43

See letter from EY.

44

Id.

45

See letter from Grant Thornton.

46

See, e.g., letters from Andersen, CLSA, Concert, ICBA, and NASBA.

47

See, e.g., letters from ICBA and NASBA.

48

See letter from BIO.

13

requirement would encourage certain companies to enter the public markets. 49
Conversely, other commenters asserted that the proposed amendments would not enhance
capital formation, and some indicated they could even reduce capital formation. 50 Two of these
commenters expressed the view that eliminating the ICFR auditor attestation requirement could
increase the cost of capital for certain issuers because investors would require a premium to
invest in issuers due to the heightened risk of ineffective internal controls. 51 In addition, some
commenters maintained that the ICFR auditor attestation requirement does not prevent
companies from entering the public markets. 52 For example, one commenter suggested that the
Proposing Release’s statement about the significant decline in the number of issuers listed on
major exchanges implied that the cost of compliance with the ICFR auditor attestation
requirement has contributed materially to that decline. 53 This commenter and some others
asserted that the decline can be attributed to many other factors. 54 Some commenters stated that
confidence in the U.S. capital market system, likely stems, at least in part, from financial
reporting safeguards, including the ICFR auditor attestation requirement, and contended that the
proposed amendments would thereby reduce investor confidence in issuers’ financial reporting. 55
Several commenters indicated that the ICFR auditor attestation requirement is not

49

See, e.g., letters from AdvaMed, AdvaMed et al., Broadmark, Cerecor, and ICBA.

50

See, e.g., letters from Better Markets, CII, CFA, CFA Inst., and Prof. Ge et al.

51

See letters from Better Markets and CFA.

52

See, e.g., letters from CFA, CFA Inst., CII, and Crowe.

53

See letter from CFA.

54

See, e.g., letters from CII, CFA, CFA Inst., and Crowe. Other factors commenters cited include the expansion
of exemptions to registration that increase companies’ ability to raise funds privately, see, e.g., letters from
CFA, CII, and Crowe; corporate consolidations, see, e.g., letters from CFA and CII; market conditions, see
letter from CFA; and the general regulatory environment, see letter from Crowe.

55

See, e.g., letters from CAQ and CII.

14

necessary because issuers are permitted to voluntarily obtain an ICFR auditor attestation if they
believe it is in their interest to do so. 56 Some instances in which commenters suggested that
issuers may choose to voluntarily obtain an ICFR auditor attestation include when their investors
demand it, 57 when not obtaining it would have a negative impact on investment analysts’
coverage, 58 or when issuers otherwise deem it a good use of their capital resources. 59 In this
regard, one commenter suggested clarifying that it is the authority and responsibility of the issuer’s
audit committee to determine whether the issuer should voluntarily obtain an ICFR auditor
attestation.60
c. Comments on the Proposed Amendments’ Effect on Investor
Protection
Commenters’ views as to the effect of the proposed amendments on investor protection
were also mixed. Many commenters asserted that, even if the ICFR auditor attestation
requirement did not apply, other existing requirements would provide investors in these issuers
with sufficient protection. 61 Commenters cited a number of these other requirements, including
SOX Section 404(a); 62 Nasdaq’s listing standards, surveillance, and enforcement; 63 the required
management certifications; 64 and the obligation of an independent auditor to consider ICFR

56

See, e.g., letters from ASA, BIO, Broadmark, Chamber, Guaranty, and Nasdaq.

57

See, e.g., letters from BIO and Guaranty.

58

See letter from Guaranty.

59

Id.

60

See letter from EY.

61

See, e.g., letters from ASA, Broadmark, BSC, Carver, Cerecor, Guaranty, ICBA, MSB, NAM, Nasdaq, Pieris,
SCBA, and Xenon.

62

See, e.g., letters from ASA, Broadmark, Carver, ICBA, MSB, Nasdaq, and Xenon.

63

See letter from Nasdaq.

64

See 17 CFR 229.601(31)(i), 17 CFR 240.13a-14(a), and 17 CFR 240.15d-14(a). See, e.g., letters from MSB,
Nasdaq, and Xenon.

15

when conducting a financial statement audit. 65
For example, several commenters noted that, when conducting a financial statement
audit, the auditor is required to obtain an understanding of each component of ICFR, 66 which a
few of these commenters asserted would provide investors with sufficient protection absent the
ICFR auditor attestation requirement. 67 Other commenters noted that the requirement that an
auditor communicate to the issuer’s management and its audit committee any significant
deficiencies or material weaknesses related to ICFR in a financial statement audit would provide
a certain level of protection for investors in the affected issuers. 68 Some commenters expressed a
view that the ICFR auditor attestation requirement is not important or material to investors
generally. 69 A few of these commenters asserted that investors rarely ask an issuer that is
exempt from the ICFR auditor attestation requirement to voluntarily obtain such an attestation. 70
One commenter 71 cited a study 72 that found no statistically significant market response on

65

See, e.g., letters from ASA, Carver, Cerecor, MSB, NAM, and Xenon.

66

See, e.g., letters from ASA, CAQ, CFA Inst., Crowe, EY, Grant Thornton, Guaranty, NASBA, Nasdaq,
PricewaterhouseCoopers LLP (July 25, 2019) (“PWC”), and RSM.

67

See, e.g., letters from ASA, Guaranty, and Nasdaq.

68

See letter from Nasdaq.

69

See, e.g., letters from Adamas; Ardelyx; Ardelyx Presentation, ASA, BIO, Carver, Catalyst, Chiasma, Corvus,
CymaBay, Equillium, Evoke, Gritstone, Kezar, Marinus, Millendo, Organovo, Pieris, Revance, SI-BONE,
Syros, Teligent, and Zynerba. Some of these commenters and others asserted that the ICFR auditor attestation
requirement is not material for, or important to, investors based on the results of a study and their own
experience. See, e.g., letters from Adamas, Ardelyx, Catalyst, Chiasma, Corvus, CymaBay, Equillium, Evoke,
Gritstone, Kezar, Marinus, Millendo, Organovo, Pieris, Revance, SI-BONE, Syros, Teligent, and Zynerba
(citing Craig Lewis and Joshua White, Science or Compliance: Will Section 404(b) Compliance impede
Innovation by Emerging Growth Companies in the Biotech Industry, (Feb. 2019) (“BIO Study”), available at
https://www.bio.org/sites/default/files/BIO_EGC_White_Paper_02_11_2019_FINAL.pdf).

70

See, e.g., letters from Ardelyx Presentation and BIO.

71

See letter from BIO.

72

Jacqueline Hammersley, Linda Myers, and Catherina Shakespeare, Market Reactions to the Disclosure of
Internal Control Weaknesses and to the Characteristics of those Weaknesses under Section 302 of the Sarbanes
Oxley Act of 2002 (Mar. 2008), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=979538.

16

average to disclosures of material weaknesses in disclosure controls, which suggests, according
to the commenter, that investors do not significantly change their long-term value assessment of
an issuer based on these disclosures.
In addition to these broader points, several commenters in the banking sector pointed out
that community banks and bank holding companies are subject to extensive supervision and
regulation by federal and state banking regulators, which they stated would protect investors in
this industry even if the affected issuers were not subject to the ICFR auditor attestation
requirement. 73
Conversely, other commenters asserted that the ICFR auditor attestation requirement is
an important investor protection and that eliminating it would undermine such protection. 74 One
commenter disputed the contention in the Proposing Release that eliminating the ICFR auditor
attestation requirement for low-revenue issuers would not significantly affect the ability of
investors to make informed investment decisions. 75 Some commenters stated that the ICFR
auditor attestation requirement increases investor confidence generally 76 and that investors view
the requirement as beneficial. 77
Some commenters asserted that the SOX Section 404(a) requirement would not provide
investors in low-revenue SRCs with sufficient protection if they were not also subject to the
ICFR auditor attestation requirement 78 because, as one commenter stated, the ICFR auditor

73

See, e.g., letters from BSC, Guaranty, ICBA, and SCBA.

74

See, e.g., letters from Better Markets, Grant Thornton, and Prof. Barth et al.

75

See letter from Prof. Barth et al.

76

See, e.g., letters from Better Markets, CAQ, CFA Inst., and EY.

77

See, e.g., letters from CII, CFA Inst., and EY.

78

See, e.g., letters from Better Markets, CFA Inst., Crowe, Grant Thornton, and Prof. Barth et al.

17

attestation requirement acts as an effective check on SOX Section 404(a). 79 Another commenter
asserted that management’s assessment is weakened when management knows that it will not be
challenged by an ICFR auditor attestation. 80 A third commenter claimed that investors would
place undue reliance on management’s report when not accompanied by an ICFR auditor
attestation. 81
A few commenters noted that a financial statement audit does not provide the same level
of assurance as an integrated audit 82 because a financial statement audit’s objective is different
from that of an integrated audit as it relates to ICFR. 83 Therefore, some commenters asserted
that, without the ICFR auditor attestation requirement, the requirement for auditors to obtain an
understanding of each component of ICFR when conducting a financial statement audit would
not provide sufficient investor protection. 84 Similarly, other commenters suggested that some
testing of ICFR conducted as part of a financial statement audit would not provide sufficient
investor protection. 85 One commenter asserted that the control testing performed by a financial
statement auditor would not be as extensive as testing performed in an ICFR auditor attestation
and that it is more difficult for a financial statement auditor to challenge the design of ICFR. 86
Another commenter noted that, despite the requirement that a financial statement auditor

79

See letter from Better Markets.

80

See letter from CFA Inst.

81

See letter from Grant Thornton.

82

See, e.g., letters from CFA Inst., Crowe, and EY.

83

See, e.g., letters from CAQ, CFA Inst., and RSM (noting that a financial statement audit’s objective is for the
auditor to obtain an understanding of the issuer’s ICFR that is sufficient to assess the factors that affect the risks
of material misstatement and to design further audit procedures, whereas an integrated audit’s objective is to
test and express an opinion on the effectiveness of the issuer’s ICFR).

84

See, e.g., letters from CAQ, CFA Inst. Crowe, EY, and RSM.

85

See, e.g., letters from EY, Grant Thornton, and NASBA.

86

See letter from EY.

18

communicate any significant deficiencies or material weaknesses related to ICFR to the issuer’s
management and its audit committee, a financial statement audit is not designed to identify such
significant deficiencies or material weaknesses. 87
Some commenters indicated that the ICFR auditor attestation requirement promotes
effective ICFR and more accurate disclosures related to ICFR, 88 including the likelihood and
timeliness of disclosing ineffective ICFR. 89 Also, a number of commenters noted that, as
discussed in the Proposing Release, effective ICFR, generally, and the ICFR auditor attestation
requirement, more specifically, enhances transparency; 90 increases the quality and reliability of
issuers’ financial statements, 91 corporate governance, 92 audits, 93 and analyst forecasts; 94 and
reduces the number of issuers’ restatements, misstatements, 95 the instances of fraud, 96 and
occurrences of insider trading. 97
A few commenters expressed concern about the effect that the amendments could have
on the reliability of key performance indicators and other measures. One commenter indicated
that investors in certain issuers that would become non-accelerated filers under the amendments
rely on key performance indicators that are derived from their financial statements, such as
87

Id.

88

See, e.g., letters from Better Markets, CFA, CII, Crowe, Grant Thornton, Prof. Barth et al., and PWC.

89

See, e.g., letters from Better Markets, CFA, Crowe, and Prof. Barth et al.

90

See letter from EY.

91

See, e.g., letters from Better Markets, CAQ, CFA, CII, Deloitte, EY, Grant Thornton, Prof. Barth et al., PWC,
and RSM.

92

See letter from Deloitte.

93

See letter from CAQ.

94

See letter from CFA.

95

See, e.g., letters from CAQ, CFA, CFA Inst., Crowe, Deloitte, EY, Grant Thornton, and Prof. Barth et al.

96

See, e.g., letters from Better Markets and Deloitte.

97

See letter from CFA.

19

backlog, sales orders, and number of customers, and asserted that eliminating the ICFR auditor
attestation requirement could reduce the reliability of those indicators. 98 Another commenter
noted that investors in those issuers rely on non-GAAP financial measures, key performance
indicators, and other disclosures and stated that the Commission may wish to consider auditor
involvement with that information to address potential risks related to completeness and
accuracy. 99
d. Comments on the Disproportionate Costs and Benefits of the
ICFR Auditor Attestation Requirement to Small and LowRevenue Companies
A number of commenters stated that the ICFR auditor attestation requirement is quite
costly. 100 One of these commenters indicated that the ICFR auditor attestation requirement “is
the most costly aspect of being an [a]ccelerated [f]iler.” 101 Several commenters asserted more
specifically that the ICFR auditor attestation requirement is disproportionally costly to small
and/or low-revenue issuers. 102 Some of these commenters indicated that the reason for the
disproportionate costs is that there are fixed costs associated with the ICFR auditor attestation
requirement that are not scalable for smaller issuers. 103 Other commenters stated that the
benefits of the ICFR auditor attestation requirement do not outweigh the costs, 104 including the

98

See letter from NASBA.

99

See letter from CAQ.

100

See, e.g., letters from BIO, Broadmark, Carver, Guaranty, ICBA, MSB, Summit, and Syros.

101

Letter from Guaranty.

102

See, e.g., letters from AdvaMed et al., Andersen, BIO, Broadmark, Chamber, CLSA, CSB, Guaranty, and
NAM.

103

See, e.g., letters from Broadmark and Guaranty.

104

See, e.g., letters from ICBA, MSB, and Syros.

20

costs associated with ICFR auditor attestation fees, 105 issuer personnel time, 106 and outside
consultants. 107
Some commenters asserted that eliminating the ICFR auditor attestation requirement
would not substantially reduce costs to issuers. 108 A few of these commenters noted that ICFR
auditor attestations have become less expensive and more effective because auditors are more
experienced in conducting them. 109 Some commenters stated that potential compliance cost
reductions may be negated if there is a loss of investor confidence and protection, 110 if ICFR
deficiencies go undetected, 111 if there is an increase in restatements and misstatements, 112 or if
there are higher costs of capital. 113. Additionally, some commenters stated that any cost
reductions would vary widely among issuers 114 and would be hard to quantify. 115
Other commenters asserted that the benefits of the ICFR auditor attestation requirement
are not as great for low-revenue and smaller issuers as they are for other issuers. 116 These
commenters expressed the view that the issuers that would be exempt from the ICFR auditor
attestation requirement under the proposed amendments are less likely to have ineffective ICFR

105

See, e.g., letters from MSB and Summit.

106

See, e.g., letters from Carver, MSB, and Summit.

107

See, e.g., letters from MSB and Summit.

108

See, e.g., letters from BDO, Better Markets, CFA, CFA Inst., EY, Grant Thornton, and RSM.

109

See, e.g., letters from CFA Inst. and Deloitte.

110

See, e.g., letters from Better Markets and CII.

111

See letter from CFA Inst.

112

See, e.g., letters from BDO, CFA, and CFA Inst.

113

See, e.g., letters from CFA and CFA Inst.

114

See, e.g., letters from EY, Grant Thornton, and PWC.

115

See, e.g., letters from Grant Thornton, PWC, and RSM.

116

See, e.g., letters from BIO and Guaranty.

21

than other issuers. One commenter cited a study that concluded that biotech EGCs are less likely
to have ineffective ICFR than other issuers. 117 Another commenter noted that ineffective ICFR
is less of a concern for banking issuers because of the “federal and state regulatory
oversight and internal control audits of community banks.” 118
Conversely, a number of other commenters contended that the benefits of the ICFR
auditor attestation requirement are greater for low-revenue and smaller issuers than for other
issuers. 119 Some of the commenters discussed how those issuers are more likely to have
ineffective ICFR. 120 Commissioner Robert J. Jackson Jr.’s dissent from the Proposing Release
(“Commissioner Jackson’s Statement”) 121 asserted that investors care most about ICFR auditor
attestations at those issuers that would not be subject to the ICFR auditor attestation requirement
under the proposed amendments, and that high-growth companies, which potentially would
include some of the affected issuers, are those in which the risk and consequences of fraud are
the greatest. 122 Some commenters referred to statistics cited in the Proposing Release to argue
that issuers not subject to the ICFR auditor attestation requirement have higher levels of

117

See letter from BIO (citing the BIO Study). Note that the BIO Study investigates only the incremental effect of
being in the category of biotech EGCs after accounting for the association of ineffective ICFR with the other
characteristics of these issuers (such as their size and return on assets). It is unclear from the study whether
these issuers have a higher or lower rate of ineffective ICFR on average, when considering all of their
characteristics.

118

See letter from Guaranty.

119

See, e.g., letters from Better Markets, CAQ, CFA, CFA Inst., CII, Crowe, EY, Grant Thornton, IMA, NASBA,
Prof. Barth et al., Prof. Hassell, and RSM.

120

See, e.g., letters from Better Markets, CAQ, CFA, CII, Grant Thornton, IMA, NASBA, Prof. Barth et al., and
Prof. Hassell.

121

Commissioner Robert J. Jackson Jr., Statement on Proposed Amendments to Sarbanes Oxley 404(b) Accelerated
Filer Definition (May 9, 2019), available at https://www.sec.gov/news/public-statement/jackson-statementproposed-amendments-accelerated-filer-definition. A few commenters cited Commissioner Jackson’s
Statement. See, e.g., letters from CFA, CFA Inst., and CII.

122

We address Commissioner Jackson’s Statement in the Economic Analysis. See Section IV.C.3.c. below.

22

ineffective ICFR compared with issuers subject to that requirement. 123 Additionally,
commenters observed that some low-revenue issuers or smaller companies may still have
complex financial statements that require sophisticated accounting. 124
Finally, some commenters maintained that the risks of fraud 125 and financial statement
restatements or misstatements 126 are greater for the issuers that would not be subject to the ICFR
auditor attestation requirement under the proposed amendments than they are for other issuers.
Other commenters cited research that concludes that, since 2003, non-accelerated U.S. filers
accounted for 62 percent of the total U.S. financial statement restatements. 127 Some commenters
contended that issuers that would not be subject to the ICFR auditor attestation requirement
under the proposed amendments have fewer resources and personnel, 128 which could result in
increased misstatements, 129 unidentified material weaknesses, 130 and ineffective ICFR. 131
e. Comments on the Relationship Between Non-Accelerated Filers
and SRCs
A number of commenters discussed the relationship between the non-accelerated

123

Commenters cited the statistics in the Proposing Release, note 4 above, that over 40 percent of non-accelerated
filers that are not subject to the ICFR auditor attestation requirement have ineffective ICFR, compared to less
than approximately nine and five percent of accelerated and large accelerated filers, respectively. As noted in
the Proposing Release, note 4 above, over 68 percent of non-accelerated filers have reported two consecutive
years of ineffective ICFR and over 38 percent have reported four consecutive years of ineffective ICFR in their
annual reports. See, e.g., letters from Better Markets and Grant Thornton.

124

See, e.g., letters from BDO and RSM.

125

See, e.g., letters from Better Markets, CFA, CII, and Prof. Barth et al.

126

See, e.g., letters from Better Markets, CAQ, EY, Grant Thornton, IMA, Prof. Barth et al., and RSM.

127

See, e.g., letters from CAQ and CFA Inst.

128

See, e.g., letters from CAQ, Crowe, EY, and Grant Thornton.

129

See, e.g., letter from Crowe.

130

See, e.g., letter from EY.

131

See, e.g., letters from CAQ and Grant Thornton.

23

filer and SRC definitions. 132 Some commenters noted the current relationship is
incongruent, which results in complexity. 133 Several commenters indicated that the proposed
amendments would reduce some of this complexity by more closely aligning the definitions. 134
In contrast, other commenters asserted that the proposed amendments would increase the
complexity of determining filer status. 135
While supporting the proposed amendments, some commenters recommended that the
final amendments completely align the SRC and non-accelerated filer definitions. 136
Additionally, one commenter recommended further extending the relief from the ICFR auditor
attestation requirement to issuers with a public float that exceeds $700 million if their annual
revenues are less than $100 million. 137
f. Other Comments
We received a variety of other comments on the Proposing Release. Some commenters
noted that it is difficult for investors to easily determine whether an issuer’s filing includes an
ICFR auditor attestation. 138 These commenters suggested requiring issuers to disclose whether
they are exempt from the ICFR auditor attestation requirement 139 and/or have voluntarily

132

See, e.g., letters from ASA, BDO, BIO, Broadmark, CFA, CFA Inst., Chamber, EY, Grant Thornton, Guaranty,
KPMG LLP (July 29, 2019) (“KPMG”), NAM, Nasdaq, PWC, and RSM.

133

See, e.g., letters from BDO, BIO, Broadmark, CFA, and Nasdaq.

134

See, e.g., letters from BIO, Grant Thornton, KPMG, and Nasdaq.

135

See, e.g., letters from BDO, CFA Inst., EY, PWC, and RSM. See also SBCFAC Meeting Transcript (Aug. 13,
2019), available at https://www.sec.gov/info/smallbus/acsec/sbcfac-transcript-081319.pdf.

136

See, e.g., letters from ASA, Guaranty, NAM, and Nasdaq.

137

See letter from Corvus.

138

See, e.g., letters from CAQ, CFA Inst., and Grant Thornton.

139

See, e.g., letters from CFA Inst., CII, and Grant Thornton.

24

obtained an ICFR auditor attestation 140 either on a filing’s cover page, 141 such as with a check
box, 142 or in management’s report on ICFR. 143 Two commenters recommended that the
Commission engage in a post-implementation review of the impact of the final amendments, 144
with one of these commenters recommending that the final amendments require a review of the
impact of the changes on the affected registrants five years after adoption of the
amendments. 145 Some commenters requested that we allow sufficient time and notice for
auditors and issuers to prepare for compliance with the final amendments, 146 whereas other
commenters noted that some issuers may be subject to the ICFR auditor attestation
requirement for only a short time 147 and requested the Commission adopt final amendments
quickly. 148 One commenter asserted that the measurement date for non-accelerated filer
status and the timing of the start of the auditor’s attestation of ICFR is burdensome to small
biotech registrants. 149

140

See, e.g., letters from CFA Inst. and KPMG.

141

See, e.g., letters from CAQ, CFA Inst., CII, and Grant Thornton.

142

See, e.g., letters from CAQ and Grant Thornton.

143

See letter from Grant Thornton.

144

See letters from IMA and PWC.

145

See letter from IMA.

146

See, e.g., letters from BDO, CAQ, Crowe, EY, KPMG, PWC, and RSM.

147

See, e.g., letters from Concert, MSB, Nasdaq, and Xenon.

148

See, e.g., letters from MSB and Summit.

149

See letter from Corvus. Public float for both SRC status and accelerated and large accelerated filer status is
measured on the last business day of the issuer’s most recently completed second fiscal quarter, and revenue for
purposes of determining SRC status is measured based on annual revenues for the most recent fiscal year
completed before the last business day of the second fiscal quarter. Therefore, an issuer will be aware of any
change in SRC status or accelerated or large accelerated filer status as of that date. Although an issuer that
determines it will no longer be eligible to be an SRC is permitted to continue to use the SRC accommodations for the
Form 10-K for the year in which it fails the measurement test, an issuer that becomes an accelerated or large
accelerated filer on that same measurement date would be required to include the ICFR auditor attestation in that Form
10-K. See Rule 12b-2, Item 10(f)(2)(i)(C), and Rule 405. Although the transition provisions apply differently,
the measurement dates for SRC status and accelerated and large accelerated filer status each provide an issuer with at

25

Additionally, although we did not propose amendments to the accelerated and large
accelerated filer definitions that would specifically address foreign private issuers (“FPI”) or
business development companies (“BDC”), we solicited comment on these points and a few
commenters requested we do so. 150 One commenter asserted that there should be no disparity
between an FPI that presents its financial statements in accordance with International Financial
Reporting Standards (“IFRS”) and a domestic issuer or FPI that presents its financial statements
in accordance with U.S. GAAP. 151 The commenter noted that an FPI that presents its financial
statements in accordance with IFRS cannot be an SRC, so such an FPI cannot rely on the
proposed amendments. Another commenter recommended that the Commission extend the
benefits of non-accelerated filer status to BDCs if they have total investment income of less than
$80 million in their most recently completed fiscal year for which audited financial statements
are available and have either no public float or public float of less than $700 million. 152 The
commenter stated that allowing BDCs to qualify as non-accelerated filers under this modified
SRC revenue test would reduce regulatory asymmetry between BDCs and operating companies,
consistent with recent congressional mandates to allow BDCs to use the same offering rules as
operating companies. The commenter also suggested that allowing smaller BDCs to benefit
from non-accelerated filer status would ease regulatory costs and burdens, which could
encourage more BDCs to enter public markets, creating greater access to capital for small

least six months to prepare for a change in its status, and we continue to believe that this is an adequate amount of time to
prepare for the transition.
150

See, e.g., letters from Dorsey & Whitney LLP (Aug. 16, 2019) (“Dorsey & Whitney”) and Proskauer Rose LLP
(July 26, 2019) (“Proskauer”).

151

See letter from Dorsey & Whitney.

152

See letter from Proskauer.

26

operating companies and expanding investment opportunities for retail investors. 153
3. Final Amendments
After considering the comments, we are adopting the final amendments substantially as
proposed. The final amendments add a new condition to the accelerated and large accelerated
filer definitions in Rule 12b-2 that excludes an issuer that is eligible to be an SRC and that had
annual revenues of less than $100 million in the most recent fiscal year for which audited
financial statements are available. The amendments also allow BDCs to qualify for this
exclusion if they meet the requirements of the SRC revenue test using their annual investment
income as the measure of annual revenue, although BDCs would continue to be ineligible to be
SRCs. 154 The final amendments are consistent with our historical practice of providing scaled
disclosure and other accommodations for smaller issuers 155 and with recent actions by Congress
to reduce burdens on new and smaller issuers. 156 The table below summarizes the conditions
required to be considered an accelerated and large accelerated filer under the final amendments
to Rule 12b-2.

153

Id.

154

See Section II.B.3.f. below.

155

See, e.g., Smaller Reporting Company Regulatory Relief and Simplification, Release No. 33-8876 (Dec. 19,
2007) [73 FR 934 (Jan. 4, 2008)]; Smaller Reporting Company Regulatory Relief and Simplification, Release
No. 33-8876 (Dec. 19, 2007) [73 FR 934 (Jan. 4, 2008)] (“2007 SRC Adopting Release”); and SRC Adopting
Release, note 12 above.

156

See note 11 above.

27

Table 1. Accelerated Filer and Large Accelerated Filer Conditions Under the Final
Amendments
Final Accelerated Filer Conditions

Final Large Accelerated Filer Conditions

The issuer has a public float of $75 million or more,
but less than $700 million, as of the last business day
of the issuer’s most recently completed second fiscal
quarter.

The issuer has a public float of $700 million or more,
as of the last business day of the issuer’s most recently
completed second fiscal quarter.

The issuer has been subject to the requirements of
Exchange Act Section 13(a) or 15(d) for a period of at
least twelve calendar months.

Same.

The issuer has filed at least one annual report pursuant
Exchange Act Section 13(a) or 15(d).

Same.

The issuer is not eligible to use the requirements for
SRCs under the revenue test in paragraph (2) or
(3)(iii)(B), as applicable, of the “smaller reporting
company” definition in Rule 12b-2 or, in the case of a
BDC, does not meet the requirements of the revenue
test in those paragraphs using annual investment
income as the measure of its annual revenues.

Same.

Below we discuss specific aspects of the final amendments about which we received
significant public comment and our response to those comments. In many cases, our responses
reflect analysis and data that is more comprehensively presented in the Economic Analysis. 157
a. Using Revenue for Determining Accelerated and Large
Accelerated Filer Status
As discussed above, 158 several commenters supported the use of revenue in the proposal,
providing a variety of reasons that a revenue measurement is preferable to using a public float

157

See Section IV. below.

158

See Section II.A.2.a. above.

28

measurement. 159 Others, however, questioned whether revenue is an appropriate measure for
determining whether an issuer should be considered a non-accelerated filer. 160 One of these
commenters asserted that low-revenue issuers may have less sophisticated or experienced
accounting functions and some aspects of their business may be associated with accounting
complexities. 161 Also, the commenter suggested that these issuers may recognize revenue in
ways that could result in them frequently transitioning in and out of non-accelerated filer status.162
As we discuss in more detail below, 163 we continue to believe, as a general matter, that
there may be greater costs and relatively lower benefits to including low-revenue issuers, as
compared to other issuers, in the accelerated and large accelerated filer definitions. While we
recognize that the circumstances of individual issuers and their accounting systems and processes
may vary, we believe that low-revenue issuers may, on average, be less susceptible to the risk of
certain types of restatements, such as those related to revenue recognition. 164 We also note that
the revisions to the transition thresholds included in the final amendments may help minimize the
risk of frequent reclassifications of issuer status.165 For these reasons, we continue to believe that
revenue is an appropriate measure for determining whether an issuer should be considered a nonaccelerated filer.
b. Effect on Capital Formation and the Number of Public Companies
Under the final amendments, an issuer that is eligible to be an SRC and that meets the
159

See, e.g., letters from Broadmark, Chamber, Concert, Corvus, and MSB.

160

See, e.g., letters from EY and Grant Thornton, and NASBA.

161

See letter from EY.

162

Id.

163

See Sections II.B.3.d. and Section IV.C.2.d. below.

164

See Section IV.C.3. below.

165

See Section II.C. below.

29

SRC revenue test will not be required to comply with accelerated or large accelerated filer
requirements and, thereby, will not be subject to the ICFR auditor attestation requirement. Not
subjecting these affected issuers to the ICFR auditor attestation requirement should reduce their
compliance costs. As discussed in the Economic Analysis, 166 we estimate that, consistent with
the proposal, an issuer no longer subject to the ICFR auditor attestation requirement would save
approximately $210,000 per year comprised of approximately $110,000 per year reduction in
audit fees and an additional reduction in non-audit costs of approximately $100,000.
Some commenters stated that eliminating the ICFR auditor attestation requirement would
enhance capital formation or allow those issuers to preserve capital. 167 We note, however, that a
number of other commenters asserted that these cost savings would be small, 168 and may not
help capital formation. 169 As we discuss in the Economic Analysis, 170 we continue to believe
that the expected savings are likely to represent a meaningful cost savings for many of the
affected issuers and, therefore, may have a positive effect on capital preservation and formation.
Although the average annual cost savings may represent a small percentage of the average
affected issuer’s revenues and market capitalization, we believe those savings may be
meaningful given that affected issuers have, on average, negative net income and negative net
cash flows from operations. 171 More generally, low-revenue issuers are likely to face financing
constraints because they do not have access to internally generated capital. 172 Therefore, the
166

See Section IV.C.2.b. below.

167

See, e.g., letters from Andersen, CLSA, Concert, ICBA, and NASBA.

168

See letters from CFA, CFA Inst., CII, and Prof. Barth et al.

169

See note 50 above.

170

See Section IV.C.2.d. below.

171

See note 362 below.

172

This information is based on staff analysis of data from Compustat. See Section IV.C.2.d. below.

30

average savings of $210,000 per year for these issuers may be put to productive use 173 such as
developing the company. 174
As we noted in the Proposing Release, 175 the affected issuers are a type of smaller issuer
whose representation in public markets has decreased relative to the years before SOX. Over the
past two decades, the number of issuers listed on major exchanges has decreased by about 40
percent, 176 but the decline has been concentrated among smaller size issuers. For example, the
number of listed issuers with a market capitalization below $700 million has decreased by about
65 percent, 177 and the number of issuers with less than $100 million in revenue has decreased by
about 60 percent. 178 Although factors other than the ICFR auditor attestation requirement may
have contributed to the decline, 179 we believe that the described cost reductions associated with
the final amendments could be a positive factor in encouraging additional small companies to
register their securities offerings or a class of their securities, which would provide an increased

173

For example, in a survey of issuers in the biotech industry, among 11 biotech EGCs that responded to a question
regarding how an extension of the exemption from the ICFR auditor attestation requirement would affect them
given the costs associated with the requirement, eight out of the 11 issuers indicated that they expected a
positive impact on investments in research and development and six out of the 11 issuers indicated that they
expected a positive impact on hiring employees. See BIO Study, note 423 above.

174

See, e.g., letters from Adamas, Aequor, Andersen, Ardelyx, Catalyst, Chiasma, CLSA, Concert, Corvus,
CymaBay, Daré, Evoke, Equillium, Gritstone, ICBA, Kezar, Marinus, Millendo, NASBA, Organovo, Pieris,
Revance, SI-BONE, Sutro, Syros, Teligent, and Zynerba.

175

See Section III.C.1. of the Proposing Release, note 4 above. Staff extracted information regarding whether
issuers reported having securities registered under Section 12(b) of the Exchange Act from the cover page of
annual report filings using a computer program supplemented with hand collection. See note 336 below for
details on the identification of the population of affected issuers.

176

This estimate is based on staff analysis of data from the Center for Research in Security Prices database for
December 1998 versus December 2018. The estimate excludes RICs and issuers of ADRs.

177

Id.

178

This estimate is based on staff analysis of data from Standard & Poor’s Compustat and Center for Research in
Security Prices databases for fiscal year 1998 versus fiscal year 2017. The estimate excludes RICs and issuers
of ADRs.

179

See note 54 above.

31

level of transparency and investor protection with respect to those companies. 180
c. Effect on Investor Protection
We continue to believe that the amendments are not likely to have a significant effect on
the overall ability of investors in the affected issuers to make informed investment decisions and
note that many commenters agreed with this assessment. 181 As discussed in greater detail in the
Proposing Release, 182 issuers have a number of other obligations that we believe will provide
sufficient protections for investors in the affected issuers and allow investors in those issuers to
make informed investment decisions. These responsibilities derive from the Foreign Corrupt
Practices Act (“FCPA”) requirements with respect to internal accounting controls 183 as well as a
number of different changes to financial reporting that were introduced by SOX. 184
For example, although a non-accelerated filer that is eligible to be an SRC and that meets
the SRC revenue test will not be subject to the ICFR auditor attestation requirement, it will
remain subject to the SOX Section 404(a) requirement to state in its annual report the
responsibility of management for establishing and maintaining an adequate control structure and
procedures for financial reporting, and for that report to contain an assessment of the
effectiveness of that structure and its procedures. In addition, affected issuers are required to
devise and maintain a system of internal accounting controls sufficient to provide reasonable
assurances that transactions are recorded as necessary to permit the preparation of financial

180

See, e.g., letters from AdvaMed, AdvaMed et al., Broadmark, Cerecor, and ICBA.

181

See note 61 to 68 above and accompanying text.

182

See Section II.B. of the Proposing Release, note 4 above.

183

The FCPA added Section 13(b)(2)(B) to the Exchange Act, 15 U.S.C 78m(b)(2)(B) (referring to “internal
accounting controls” rather than ICFR).

184

See, e.g., SOX Sections 302, 15 U.S.C. 7241, and 404(a) and related rules. See 17 CFR 229.308, 17 CFR
240.13a-15, 17 CFR 240.15d-15, Form 20-F, Form 40-F, 17 CFR 270.30a-2, and 17 CFR 270.30a-3.

32

statements in conformity with GAAP. 185 Also, the principal executive and financial officers of
certain issuers are required to certify that, among other things, they are responsible for
establishing and maintaining ICFR, have designed disclosure controls and procedures to ensure
material information relating to the issuer and its consolidated subsidiaries is made known to
such officers by others within those entities, and have evaluated and reported on the
effectiveness of the issuer’s disclosure controls and procedures. 186
Furthermore, the issuers that are subject to the final amendments will remain subject to a
financial statement audit by an independent auditor, which will help maintain appropriate
investor protections. Even without an ICFR auditor attestation requirement, an independent
auditor is required to consider ICFR in the performance of a financial statement audit. 187 We
acknowledge, as stated by some commenters, 188 that the objective of a financial statement audit
and the level of control testing performed is different from an ICFR audit. However, we believe
that the requirements of a financial statement audit, among other requirements, provide some
additional protections and that, for low-revenue SRCs, this and the other protections and factors
associated with these issuers described above sufficiently mitigate the risk that the final
amendments will adversely affect the ability of investors to make informed investment
decisions. 189

185

15 U.S.C. 78m(b)(2)(B).

186

See 17 CFR 240.13a-14 or 17 CFR 240.15d-14 (requiring certification) and 17 CFR 229.601(b)(31)
(prescribing certification content). These rules were adopted pursuant to SOX Section 302. See 15 U.S.C.
7241.

187

See Public Company Accounting Oversight Board (“PCAOB”) Accounting Standard (“AS”) 2110, Identifying
and Assessing Risks of Material Misstatement, paragraphs .18 through.40 (“PCAOB AS 2110”), paragraphs .18
through .40.

188

See note 83 above.

189

See Section IV.C.3.b. below (stating that, in the Proposing Release, note 4 above, we noted that low-revenue
issuers may be less likely than other issuers to fail to detect and disclose material weaknesses in the absence of
an ICFR auditor attestation, perhaps because they have less complex financial systems and controls).

33

For example, the auditor in a financial statement audit is required to identify and assess
the risks of material misstatements, which is similar to the risk assessment evaluation required in
an ICFR auditor attestation. Additionally, the auditor engaged in a financial statement audit
often may test the operating effectiveness of certain internal controls even if not performing an
integrated audit to reduce the extent of substantive testing required to issue an opinion on the
financial statements. Moreover, even if an auditor decides not to rely on internal controls to
reduce the extent of substantive testing, the auditor may still identify internal control deficiencies
during such substantive testing in a financial statement audit.
Under PCAOB standards, the evaluation and communication of significant deficiencies
and material weaknesses in ICFR to management and the issuer’s audit committee is required in
both a financial statement audit and an ICFR auditor attestation. 190 The evaluation of the
severity of a control deficiency identified by the auditor is the same for a financial statement
audit and an ICFR auditor attestation. Further, a financial statement auditor has the
responsibility to review management’s disclosure for any misstatement of facts, such as a
statement that ICFR is effective when there is a known material weakness. 191 Therefore, we
continue to believe significant deficiencies and material weaknesses that an ICFR auditor
attestation may uncover also may be uncovered as a part of the financial statement audit of a
low-revenue SRC. As discussed above, 192 because of these requirements, a number of
commenters agreed that an auditor of the financial statements of a low-revenue issuer that would
be exempt from the ICFR auditor attestation requirement under the final amendments would still
be required to consider ICFR and therefore this process would provide sufficient investor
190

See Section II.C. of the Proposing Release, note 4 above.

191

Id.

192

See notes 61 to 68 above and accompanying text.

34

protection.
Other developments may serve to reinforce these existing investor protections. In 2010,
the PCAOB adopted enhanced auditing standards related to the auditor’s assessment of, and
response to, risk that, in part, clarify and augment the extent to which internal controls are to be
considered in a financial statement audit. 193 In particular, these risk assessment standards require
auditors in both an integrated and financial statement audit to evaluate the design of certain
controls. 194 The PCAOB has expressed concern about the number and significance of
deficiencies in auditing firm compliance with these risk assessment auditing standards, but it has
also noted promising improvements in their application. 195
Additionally, recent settled charges against four public companies for failing to maintain
effective ICFR for seven to 10 consecutive annual reporting periods 196 may have a deterrent
effect on issuers failing to remediate material weaknesses, which could reduce the overall rate of
persistence of material weaknesses in ICFR. Also, if management elects to obtain and use
automated controls testing and process automation, 197 this may result in improvements in ICFR

193

See Auditing Standards Related to the Auditor’s Assessment of and Response to Risk and Related Amendments
to PCAOB Standards, PCAOB Release No. 2010-004 (Aug. 5, 2010) (“PCAOB Release No. 2010-004”). See
also Public Company Accounting Oversight Board; Order Approving Proposed Rules on Auditing Standards
Related to the Auditor’s Assessment of and Response to Risk and Related Amendments to PCAOB Standards,
Release No. 34-63606, File No. PCAOB 2010-01 (Dec. 23, 2010) [75 FR 82417 (Dec. 30, 2010)] (“PCAOB
Release No. 2010-01”). These auditing standards are discussed in further detail in the Economic Analysis. See
Section IV.B.1. below.

194

See AS 2110, paragraphs .18 through.40, note 187 above.

195

See Inspection Observations Related to PCAOB "Risk Assessment" Auditing Standards (No. 8 through No.15),
PCAOB Release No. 2015-007 i through iii (Oct. 15, 2015) (“PCAOB Release No. 2015-007”).

196

See SEC Charges Four Public Companies with Longstanding ICFR Failures, press release (Jan. 29,2019)
(“SEC Press Release”), available at https://www.sec.gov/news/press-release/2019-6.

197

See, e.g., Kevin Moffitt, Andrea Rozario, & Miklos Vasarhelyi (2018), Robotic Process Automation for
Auditing, Journal of Emerging Technologies, 15(1) ACCT. 1 (“Robotic Process Automation”) (describing how,
for example, a robotic process automation program can be “set up to automatically match purchase orders,
invoices, and shipping documents [and] can check that the price and quantity on each of the documents match
[to] help auditors validate the effectiveness of preventive internal controls….”).

35

regardless of the ICFR auditor attestation requirement if their increased application results in
more robust financial reporting with fewer opportunities for ICFR deficiencies and/or in an
increase by management in their testing and related improvements of controls. In Section
IV.C.3.b.5, we note, as an example, that issuers may have made investments in systems,
procedures, or training to explain how control improvements may persist for certain affected
issuers. Finally, we note that auditors have had many years of experience with the 2010 risk
assessment standards, and therefore auditors may be more likely to test ICFR, even if an ICFR
auditor attestation is not required, as a means of enhancing auditing efficiency. 198
We recognize that some commenters disagreed with this assessment and asserted that
investor protections other than the ICFR auditor attestation requirement would not be sufficient
because, among other reasons, a financial statement audit has a different objective than an
integrated audit, 199 testing of ICFR in a financial statement audit is not as extensive, 200 it is more
difficult for a financial statement auditor to challenge the design of ICFR, 201 and a financial
statement audit is not designed to identify significant ICFR deficiencies or material
weaknesses. 202 As discussed in the Economic Analysis, we acknowledge that the amendments
may be associated with some adverse effects on the effectiveness of ICFR and the reliability of

198

See Study and Recommendations on Section 404(b) of the Sarbanes-Oxley Act of 2002 For Issuers With Public
Float Between $75 and $250 Million at 106 (Apr. 2011) (“2011 SEC Staff Study”), available at
https://www.sec.gov/news/studies/2011/404bfloat-study.pdf (stating that “…once effective controls are in place
at the issuer, the auditor is more likely to continue to test them even if [it is] not issuing an auditor attestation
during a particular year in order to rely on them for purposes of reducing substantive testing in the audit of the
financial statements, particularly for issuers that are larger and more complex”).

199

See, e.g., letters from CAQ, CFA Inst., and RSM.

200

See letter from EY.

201

Id.

202

Id.

36

financial statements for the affected issuers. 203 However, the Proposing Release presented
evidence that suggests that these effects and their impact on investor protection are likely to be
mitigated in the case of the affected issuers as compared to other accelerated filers. The
Economic Analysis provides further related analysis in response to commenter feedback and
does not find evidence that leads us to alter this view. 204
One commenter indicated that a low-revenue issuer could have a large market
capitalization and thus “greater investor exposure.” 205 As discussed in the Economic
Analysis, 206 we agree that, as capitalization increases, there is more investor capital at risk. We
note, however, that relative to higher-revenue issuers, on average, risk among these issuers is
likely more associated with their future prospects than their current financial statements. 207
Therefore, exempting low-revenue issuers from the ICFR auditor attestation requirement is less
likely to affect investor protections with respect to those issuers.
One commenter noted its concern that certain issuers that would no longer be subject to
the ICFR auditor attestation requirement are conducting large initial public offerings (“IPOs”)
based on key performance indicators that are derived from financial systems, and that eliminating
the ICFR auditor attestation requirement could result in potentially less robust internal controls
and unreliable data. 208 To the extent the commenter is primarily concerned with the information

203

See Section IV.A. below.

204

Id.

205

See letter from Grant Thornton.

206

See Section IV.C.3.d. below.

207

Also, the affected parties are limited to issuers with no more than $700 million in public float. Further, as
discussed in Section IV.C.3.d below, we estimate that in aggregate the affected issuers that will be newly
exempt from all ICFR auditor attestation requirements represent 0.2 percent of the total equity market
capitalization of issuers.

208

See letter from NASBA.

37

available to investors at the time of an IPO, we note that the affected issuers that would be newly
exempt from the ICFR auditor attestation requirement are generally more mature firms that are
not within five years of their IPO.
Also, we believe the risk for those low-revenue issuers for which key performance
indicators are material to investors and that are derived from financial systems is mitigated by
the requirement to maintain, evaluate, and disclose effectiveness of disclosure controls and
procedures 209 on a quarterly basis. 210 Key performance indicators or non-GAAP measures
disclosed within a report filed or submitted to the Commission generally are within the scope of
disclosure controls and procedures. The financial systems from which an issuer derives the key
performance indicator or non-GAAP measure would normally be included in ICFR and,
therefore, within the scope of management’s assessments as well. Further, the Commission
recently issued disclosure guidance on key performance indicators and metrics and reminded
issuers of the importance of effective controls and procedures when disclosing material key
performance indicators or metrics that are derived from their own information. 211
d. Disproportionate Costs and Benefits of the ICFR Auditor
Attestation for Small and Low-Revenue Companies
Not only is the ICFR auditor attestation requirement costly in general, as discussed
above, a number of commenters asserted that the ICFR auditor attestation requirement is
disproportionally costly to small and low-revenue issuers. 212 We agree that the costs of the ICFR

209

Although there is substantial overlap between an issuer’s disclosure controls and procedures and ICFR, there
are elements of each that are not subsumed by the other. See 17 CFR 240.13a-15 and 17 CFR 240.15d-15.

210

See 17 CFR 240.13a-14 and 17 CFR 240.15d-14.

211

See Commission Guidance on Management’s Discussion and Analysis of Financial Condition and Results of
Operations, Release No. 34-88094 (Jan. 30, 2020).

212

See note 102 above and accompanying text.

38

auditor attestation requirement may be particularly burdensome for these issuers because they
include fixed costs that are not scalable for smaller issuers, as also noted by several
commenters. 213 Further, low-revenue issuers have limited access to internally generated capital,
and so the costs may more directly impact their ability to spend on investments or hiring. 214 We
therefore expect that reducing these costs would have a more beneficial impact on small and
low-revenue issuers than it would for other issuers. Some commenters similarly expressed the
view that the amendments would enhance these issuers’ ability to preserve capital without
significantly affecting the ability of investors to make informed investment decisions based on
the financial reporting of those issuers. 215
As discussed above, other commenters claimed that eliminating the ICFR auditor
attestation requirement would not substantially reduce costs to issuers 216 and that there would be
other negative impacts of this change. 217 We acknowledge that the magnitude of these cost
savings likely will vary among issuers depending upon their particular facts and circumstances 218
and, as some commenters asserted, 219 ICFR auditor attestations have become less expensive over
time because auditors are more experienced in conducting them. However, based on the
comments received and our own analysis of available data, 220 we believe the cost reductions
from not being subject to the ICFR auditor attestation requirement could be substantial for

213

See letters from ASA, Broadmark, Chamber, and Guaranty.

214

See, e.g., letters from Daré, Summit and Xenon.

215

See letters from Andersen, CLSA, Concert, ICBA, and NASBA.

216

See note 108 above and accompanying text.

217

See notes 110 to 113 above and accompanying text.

218

See, e.g., letters from EY, Grant Thornton, and PWC.

219

See, e.g., letters from CFA Inst. and Deloitte.

220

See Section IV.C.2.d.

39

affected issuers.
We believe the benefits of the ICFR auditor attestation requirement likely are fewer for
low-revenue SRCs than for other issuers, an assessment supported by some commenters. 221 As a
result, obtaining the ICFR auditor attestation is likely, on average, to be less meaningful for these
issuers, and not obtaining one should have less of an impact on investor protection than for other
types of issuers. First, we note that low-revenue SRCs may be less susceptible to the risk of
certain kinds of misstatements, such as those related to revenue recognition. As discuss in the
Economic Analysis, 222 10 to 20 percent of restatements and about 60 percent of financial
disclosure fraud cases in recent times have been associated with improper revenue
recognition, 223 which is less of a risk, for example, for issuers that currently have little to no
revenue.
Second, as we noted in Table 14 of the Proposing Release, 224 issuers with revenues of
less than $100 million have, on average, restatement rates that are three to nine percentage points
lower than those for higher-revenue issuers. Moreover, certain low-revenue SRCs likely have
less complex financial systems and controls and, therefore, may be less likely than other issuers
to fail to detect and disclose material weaknesses in the absence of an ICFR auditor attestation.
Third, we believe that those issuers’ financial statements may be less critical to assessing
their valuation given, for example, the relative importance of their future prospects. We

221

See notes 116 to 118 above and accompanying text.

222

See Section IV.C.3. below.

223

See Audit Analytics, 2017 Financial Restatements: A Seventeen Year Comparison, (May 2018), and Committee
of Sponsoring Organizations of the Treadway Commission, (“COSO”), Fraudulent Financial Reporting 19982007: An Analysis of U.S. Public Companies (2010).) (“COSO 2010 Fraud Study”), available at
http://www.coso.org/documents/COSO-Fraud-Study-2010-001.pdf.

224

See Section III.C.4.b. of the Proposing Release, note 4 above.

40

recognize that other commenters disagreed and asserted that benefits of the ICFR auditor
attestation requirement are greater for lower-revenue and smaller issuers than for other issuers. 225
We carefully considered these comments and, as discussed in the Economic Analysis,
investigated the claims by conducting supplemental analysis, but we did not find evidence that
led us to alter our views. 226
e. Relationship Between Non-Accelerated Filers and SRCs
Under the final amendments, some, but not all, SRCs would become non-accelerated
filers. We are not adopting an alternative suggested by some commenters of fully aligning the
SRC and non-accelerated filer definitions. As we note in the Economic Analysis, 227 although
full alignment of the two definitions could provide several benefits, including greater regulatory
simplicity, reducing any frictions or confusion associated with issuers’ determination of their
filer status or reporting regime, and expanding the number of issuers that qualify as nonaccelerated filers, fully aligning the two definitions also could result in costs that are greater than
those for the amendments we are adopting. For example, the mitigating factors associated with
exempting low-revenue issuers, such as a potential lower susceptibility to the risks of certain
kinds of misstatements and a greater role of future prospects relative to current financial
statements in driving market valuations for these issuers as compared to other issuers, 228 may not
be present or may be more limited, for other types of SRCs.
As a result, fully aligning the SRC and non-accelerated filer thresholds could have
adverse effects on the reliability of the financial statements of the issuers with higher revenues
225

See notes 119 to 124 above and accompanying text.

226

See Section IV.C.3.a. below.

227

See Section IV.C.5.a. below.

228

See Section IV.C.3. below.

41

and the ability of investors to make informed investment decisions about those issuers. 229
Therefore, we do not believe it would be appropriate at this time to increase the public float
threshold for non-accelerated filers to align that definition with the SRC definition.
Additionally, we note that many non-accelerated filers remain eligible for the JOBS Act
Exemption for their first five years as a public company. The table below summarizes the
relationships between SRCs and non-accelerated and accelerated filers under the final
amendments.
Table 2. Relationships between SRCs and Non-Accelerated, Accelerated, and Large
Accelerated Filers under the Final Amendments
Relationships between SRCs and Non-Accelerated, Accelerated, and Large Accelerated Filers under the
Final Amendments
Status

Public Float

Annual Revenues

Less than $75 million

N/A

$75 million to less than $700 million

Less than $100 million

SRC and Accelerated Filer

$75 million to less than $250 million

$100 million or more

Accelerated Filer (not SRC)

$250 million to less than $700
million

$100 million or more

Large Accelerated Filer (not SRC)

$700 million or more

N/A

SRC and Non-Accelerated Filer

f. Effect on Business Development Companies
In a change from the proposal, the final amendments also exclude BDCs from the
accelerated and large accelerated filer definitions under circumstances that are analogous to the

229

Id.

42

exclusions for other issuers under the amendments. The amendments include a specific
provision applicable to BDCs, because BDCs are not eligible to be SRCs and to provide a
definition of “revenue” for BDCs to use for this purpose. 230 Specifically, a BDC will be
excluded from the accelerated and large accelerated filer definitions in Rule 12b-2 if the BDC:
(1) has a public float of $75 million or more, but less than $700 million; and (2) has investment
income of less than $100 million. 231 The amendments to Rule 12b-2 provide that, for this
purpose, a BDC’s revenue is the BDC’s investment income, as defined in Rule 6-07.1 of
Regulation S-X. 232 BDCs are subject to the same transition provisions for accelerated filer and
large accelerated status that apply to other issuers under the amendments, except that the
amendments’ BDC-specific “revenue” definition will apply to these transition provisions as
well. 233
Although the Commission did not propose to exclude BDCs from the accelerated and
large accelerated filer definitions using the SRC revenue test, the Commission did solicit
comment on such an approach and discussed the relative costs and benefits of this alternative in
the Proposing Release. 234 In response, one commenter urged that we adopt such an approach,
stating that, among other reasons, the policy reasons that support providing regulatory relief to
smaller reporting companies should apply equally to smaller BDCs. 235 This commenter
230

Although a BDC is considered to be eligible to use the requirements for SRCs under the revenue test in
paragraph (2) or (3)(iii)(B) of the “smaller reporting company” definition in Rule 12b-2 for purposes of the
amended accelerated filer and large accelerated filer definitions, BDCs will continue to be ineligible to be SRCs
under the final amendments.

231

See paragraphs (1)(iv), (2)(iv), and (4) of the amended definitions of accelerated filer and large accelerated filer
in Rule 12b-2. Consistent with the current definitions of these terms, a BDC with public float of less than $75
million is already a non-accelerated filer, regardless of the amount of its annual investment income.

232

See 17 CFR 210.6-07.1.

233

See Section II.C. below (discussing the amended transition provisions more generally).

234

See Sections II.C., II.E., and III.C.6. of the Proposing Release, note 4 above.

235

See letter from Proskauer.

43

suggested that the Commission expand the proposed amendment to the definition of accelerated
filer and large accelerated filer to exclude BDCs with total investment income of less than $80
million in the most recently completed fiscal year for which audited financial statements are
available and either no public float or public float of less than $700 million.
Although we observed in the Proposing Release that the SRC revenue test would not be
meaningful for BDCs because BDCs prepare financial statements under Article 6 of Regulation
S-X and generally do not report revenue, the final amendments’ definition of “revenue” for
purposes of the BDC-specific provisions incorporate information that BDCs report in their
financial statements. A BDC’s investment income includes income from dividends, interest on
securities, and other income. 236 We recognize, as stated in the Proposing Release, that investors
in BDCs generally may place greater significance on the financial reporting of BDCs relative to
low-revenue non-investment company issuers and BDC financial statements will continue to be
audited by an independent auditor. As the commenter supporting this approach observed,
however, the policy considerations supporting the final amendments generally apply to BDCs. 237
Moreover, BDCs that are excluded from the accelerated and large accelerated filer definitions
will remain obligated, among other things, to establish and maintain internal control over
financial reporting and have management assess the effectiveness of internal control over
financial reporting. The final amendments also are consistent with other rulemaking initiatives
in which we have sought to provide BDCs parity with other reporting companies in appropriate

236

A BDC’s annual investment income is equivalent to annual revenues solely for purposes of the accelerated filer
and large accelerated filer definitions. These amendments do not affect the meaning of “revenue” or
“investment income” in other Commission rules or provisions of the securities laws.

237

See letter from Proskauer.

44

circumstances. 238
g. Effect on Foreign Private Issuers
Under the proposed amendments, an FPI would be excluded from the accelerated and
large accelerated filer definitions if it qualifies as an SRC 239 under the SRC revenue test in
Exchange Act Rule 12b-2. One commenter asserted that the final amendments should permit an
FPI that presents its financial statements using IFRS to qualify for the exemption based on the
low-revenue test. 240 We note that foreign issuers that qualify as FPIs or SRCs are permitted to
avail themselves of special accommodations unique to each reporting regime, but must select one
reporting regime or the other. The final amendments provide an exemption from the ICFR
auditor attestation requirement for low-revenue SRCs. Issuers that qualify as FPIs and elect to
use the FPI reporting regime have other accommodations available to them, such as the ability to
disclose material changes in their ICFR and effectiveness of disclosure controls and procedures
on an annual basis, as compared to the quarterly basis required of U.S. issuers, including
SRCs. 241
h. Requiring ICFR Auditor Attestation Less Frequently than
Annually
The final amendments do not revise our rules to require an ICFR auditor attestation

238

See Securities Offering Reform for Closed-End Investment Companies, Release No. 33427 (Mar. 20, 2019) [84
FR 14448 (Apr. 10, 2019)].

239

See 2007 SRC Adopting Release, note 155 above, Section II, and Acceptance From Foreign Private Issuers of
Financial Statements Prepared in Accordance with International Financial Reporting Standards without
Reconciliation to U.S. GAAP, Release No. 33-8879 (Dec. 21, 2007) [73 FR 985 (Jan. 4, 2008)], Section III.E.4.
(stating that an FPI is not an SRC unless it makes its filings on forms available to U.S. domestic issuers and
otherwise qualifies to use the SRC scaled disclosure accommodations). We are adding instructions to the SRC
definitions in Item 10(f), Rule 405, and Rule 12b-2 clarifying our position that an FPI is not eligible to use the
requirements for SRCs unless it uses the forms and rules designated for domestic issuers and provides financial
statements prepared in accordance with U.S. GAAP.

240

See letter from Dorsey & Whitney.

241

See Rule 13a-15(d), Rule 15d-15(d), Item 15(d) of Form 20-F, and General Instruction B(6)(e) of Form 40-F.

45

requirement less frequently than annually. Issuers that are accelerated or large accelerated filers
will be required to obtain an ICFR auditor attestation every year, unless they qualify as EGCs, as
under our current rules. We did not propose to revise this requirement, but requested comment
on this matter, and every commenter that discussed the subject 242 asserted that issuers that are
subject to the ICFR auditor attestation requirement should obtain one annually. A few of these
commenters asserted that requiring the ICFR auditor attestation only once every three years
would not decrease costs significantly because auditors consider prior year audit results
when planning and performing the current year audit, so performing an audit of ICFR every
three years would reduce efficiencies gained from performing audits annually and add
complexity and costs. 243 Also, one commenter indicated that auditors in many instances
may continue to test internal controls in the financial statement audit, which potentially
limits any resulting cost reduction. 244
i. Check Box Indicating Whether an ICFR Auditor Attestation is
Included in a Filing
Although we did not propose a requirement that issuers report whether they have
obtained an ICFR auditor attestation, we requested comment on whether we should do so. As
discussed above, 245 some commenters recommended that the final rule include a requirement for
an issuer to prominently disclose in its filing whether an ICFR auditor attestation is included.
This type of disclosure was also recommended by the Government Accountability Office

242

See, e.g., letters from Crowe, KPMG, and NASBA.

243

See, e.g., letters from Crowe and KPMG.

244

See letter from KPMG.

245

See notes 138 to 143 above and the accompanying text.

46

(“GAO”) in a 2013 study of internal controls requirements. 246 No commenters opposed such a
requirement. Disclosure of the ICFR auditor attestation is currently required within the auditor’s
report on the financial statements and management’s annual report on ICFR. 247 After reviewing
these comments, we are persuaded to 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 because we
agree that more prominent and easily accessible disclosure of this information would be useful to
investors and market participants while imposing only minimal burdens on issuers.
Under the new rule, issuers will be required to include the check box on their cover pages
in any annual report filed on or after the final amendments’ effective date. Once issuers are
required to tag the cover page disclosure data using Inline eXtensible Business Reporting
Language (“Inline XBRL”), they will also be required to tag this cover page check box
disclosure in Inline XBRL because Item 406 of Regulation S-T (“Item 406”), 248 Item
601(b)(104), 249 paragraph 104 to “Instructions as to Exhibits” of Form 20-F, and paragraph B.17
under the “General Instructions” of Form 40-F require those issuers to tag every data point on the
cover pages of Form 10-K, Form 20-F, and Form 40-F. 250 We do not expect the incremental
compliance burden associated with tagging the additional cover page information to be
significant, given that registrants already are being required on a phased-in basis to tag other

246

See U.S. GOV’T ACCOUNTABILITY OFFICE, GAO-13-582, Internal Controls: SEC Should Consider Requiring
Companies to Disclose Whether They Obtained an Auditor Attestation (July 2013) (“2013 GAO Study”).

247

See Item 308 of Regulation S-K and PCAOB AS 3101.

248

17 CFR 232.406.

249

17 CFR 229.601(b)(4).

250

Item 406 mandates that companies required to tag their financial statements in Inline XBRL must also tag their
cover page data in Inline XBRL. Operating companies are required to tag their financial statements in Inline
XBRL on a phase-in basis. See Inline XBRL Filing of Tagged Data, Release No. 33-10514 (June 28, 2018) [83
FR 40846 (July 10, 2018)] and 17 CFR 232.405.

47

cover page information as well as information in their financial statements. 251
C. Amendments to Increase the Public Float Transition Thresholds from $50
million to $60 million and $500 million to $560 million and to Add the SRC
Revenue Test to the Transition Threshold
1. Proposed Amendments
An issuer initially becomes an accelerated filer after it first meets certain conditions as of
the end of its fiscal year, including that it had a public float of $75 million or more but less than
$700 million as of the last business day of its most recently completed second fiscal quarter. An
issuer initially becomes a large accelerated filer in a similar manner, including that it had a
public float of $700 million or more as of the last business day of its most recently completed
second fiscal quarter. Once the issuer becomes an accelerated filer, it will not become a nonaccelerated filer unless it determines at the end of a fiscal year that its public float had fallen
below $50 million on the last business day of its most recently completed second fiscal quarter.
Similarly, a large accelerated filer will remain one unless its public float had fallen below $500
million on the last business day of its most recently completed second fiscal quarter. If the large
accelerated filer’s public float falls below $500 million but is $50 million or more, it becomes an
accelerated filer. Alternatively, if the issuer’s public float falls below $50 million, it becomes a
non-accelerated filer. 252 The purpose of these transition thresholds is to avoid situations in

251

Electronic Data Gathering, Analysis and Retrieval System (“EDGAR”) filers that are required by Item 406 to
provide cover page Inline XBRL data tagging will be required to tag the ICFR data element only after a revised
Document Entity Identifier taxonomy has been posted to SEC.gov and the Commission has adopted a new
EDGAR Filer Manual that reflects appropriate changes to the submission of Forms 10-K, 20-F and 40-F.

252

For example, under the rules prior to these amendments, if an issuer that is a non-accelerated filer determines at
the end of its fiscal year that it had a public float of $75 million or more, but less than $700 million, on the last
business day of its most recently completed second fiscal quarter, it will become an accelerated filer. On the
last business day of its next fiscal year, the issuer must re-determine its public float to re-evaluate its filer status.
If the accelerated filer’s public float fell to $70 million on the last business day of its most recently completed
second fiscal quarter, it would remain an accelerated filer because its public float did not fall below the $50
million transition threshold. Alternatively, if the issuer’s public float fell to $49 million, it would then become a
non-accelerated filer because its newly determined public float is below $50 million. As another example, an

48

which an issuer frequently enters and exits accelerated and large accelerated filer status due to
small fluctuations in its public float.
In the SRC Adopting Release,253 we amended the SRC rules so that the SRC transition
thresholds were set at 80 percent of the corresponding initial qualification thresholds. In the
Proposing Release, we proposed to revise the accelerated and large accelerated filer transition
thresholds to be 80 percent of the corresponding initial qualification thresholds to align the
transition thresholds across the SRC, accelerated filer, and large accelerated filer definitions.
Additionally, we indicated that revising these thresholds would limit the cases in which an issuer
could be both an accelerated filer and an SRC or a large accelerated filer and an SRC, thereby
reducing regulatory complexity.
We proposed to revise the transition threshold for becoming a non-accelerated filer from
$50 million to $60 million and the transition threshold for leaving the large accelerated filer
status from $500 million to $560 million. We also proposed to add the SRC revenue test to the
public float transition thresholds for accelerated and large accelerated filers. If the SRC revenue test
were not added to the accelerated filer and large accelerated filer transition provisions, an
issuer’s annual revenues would never factor into determining whether an accelerated filer could
become a non-accelerated filer, or whether a large accelerated filer could become an accelerated
or non-accelerated filer. We proposed that an issuer that is already an accelerated filer would

issuer that has not been a large accelerated filer but had a public float of $700 million or more on the last
business day of its most recently completed second fiscal quarter would then become a large accelerated filer at
the end of its fiscal year. If, on the last business day of its subsequently completed second fiscal quarter, the
issuer’s public float fell to $600 million, it would remain a large accelerated filer because its public float did not
fall below $500 million. If, however, the issuer’s public float fell to $490 million at the end of its most recently
completed second fiscal quarter, it would become an accelerated filer at the end of the fiscal year because its
public float fell below $500 million. Similarly, if the issuer’s public float fell to $49 million, the issuer would
become a non-accelerated filer.
253

See note 12 above.

49

remain one unless either its public float falls below $60 million or it becomes eligible to use the
SRC accommodations under the revenue test in paragraph (2) or (3)(iii)(B) of the SRC
definition, 254 as applicable. 255 Therefore, under the proposed amendments, an accelerated filer
would remain an accelerated filer until its public float falls below $60 million or its annual
revenues fall below the applicable revenue threshold ($80 million or $100 million), at which
point it would become a non-accelerated filer.
Similarly, we proposed conforming amendments to the large accelerated filer transition
provisions for when an issuer that is already a large accelerated filer transitions to either
accelerated or non-accelerated filer status. To transition out of large accelerated filer status at the
end of the issuer’s fiscal year, an issuer would need to have a public float below $560 million as
of the last business day of its most recently completed second fiscal quarter or meet the revenue
test in paragraph (2) or (3)(iii)(B), as applicable, of the SRC definition. A large accelerated filer
would become an accelerated filer at the end of its fiscal year if its public float fell to $60 million
or more but less than $560 million as of the last business day of its most recently completed
second fiscal quarter and its annual revenues are not below the applicable revenue threshold ($80
million or $100 million). The large accelerated filer would become a non-accelerated filer if its
public float fell below $60 million as of the last business day of its most recently completed
second fiscal quarter or its annual revenues fell below the applicable revenue threshold ($80

254

Paragraph (2) of the SRC definition states that an issuer qualifies as an SRC if its annual revenues are less than
$100 million and it has no public float or a public float of less than $700 million. Paragraph (3)(iii)(B) of the
SRC definition states, among other things, that an issuer that initially determines it does not qualify as an SRC
because its annual revenues are $100 million or more cannot become an SRC until its annual revenues fall
below $80 million.

255

An issuer that is initially applying the SRC definition or previously qualified as an SRC would apply paragraph
(2) of the SRC definition. Once an issuer determines that it does not qualify for SRC status, it would apply
paragraph (3)(iii)(B) of the SRC definition at its next annual determination.

50

million or $100 million). 256
2. Comments
We received very few comments regarding the proposed changes to the transition
thresholds. The commenters who discussed the proposed amendments to increase the public
float transition thresholds supported them. 257 One commenter also suggested that the
Commission consider indexing the thresholds to inflation in a manner similar to the indexing that
applies to the EGC definition. 258 Only two commenters addressed the proposed amendments to
add the SRC revenue test to the transition thresholds, and these commenters supported that
proposal. 259
3. Final Amendments
After considering the comments, we are adopting the final amendments as proposed. As
discussed in greater detail in the Economic Analysis,260 transition thresholds in Rule 12b-2 are lower
than entry thresholds to keep issuers from frequently needing to reclassify their filer status. The
frequent reclassifications that would result without the transition thresholds may cause confusion for
issuers and investors as to the issuer’s status. Also, such frequent reclassifications may increase
issuers’ costs because they would frequently need to revise their disclosure schedules and

256

One exception to this requirement is that an issuer that was a large accelerated filer whose public float had
fallen below $700 million (but remained $560 million or more) but became eligible to be an SRC under the
SRC revenue test in the first year the SRC amendments became effective would become a non-accelerated filer
even though its public float remained at or above $560 million. See SRC Adopting Release, note 12 above, at n.
31 (“For purposes of the first fiscal year ending after effectiveness of the amendments, a registrant will qualify
as a SRC if it meets one of the initial qualification thresholds in the revised definition as of the date it is
required to measure its public float or revenues (the ‘measurement date’), even if such registrant previously did
not qualify as a SRC.”).

257

See, e.g., letters from CLSA, Nasdaq, and RSM.

258

See letter from RSM.

259

See letters from CLSA and Nasdaq.

260

See Section IV.C.4.c below.

51

continually consider the impact of whether they are subject to the ICFR auditor attestation
requirement from one year to the next, and may increase investors’ incremental costs of
evaluating the reliability of the issuer’s financial disclosures. Therefore, we believe a transition
threshold is appropriate. However, we recognize that providing a transition threshold results in some
issuers remaining in their filer status even though their public float or revenues are below that filer
status’s entry threshold.
The final amendments revise the public float transition threshold for accelerated and large
accelerated filers to become a non-accelerated filer from $50 million to $60 million and revise
the public float transition threshold for a large accelerated filer to lose its large accelerated filer
status from $500 million to $560 million. Prior to the final amendments, the public float threshold
for an accelerated and large accelerated filer to become a non-accele

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Asec%3A9ef1fcb487691ee7. Public record. Not legal advice.