SEC Amends Smaller Reporting Company Thresholds

On June 28, 2018, the SEC voted to increase the number of Companies that qualify for scaled disclosures under Regulations.

S-K and S-X by amending the definition of smaller reporting company (SRC). These changes are effective September 10, 2018

Prior to the amended definition, the SEC defined SRC as a company with either of the following characteristics:

  • Less than $75 million of public float
  • Less than $50 million in annual revenues if the company has no public float.

Upon the effective date of the change, the thresholds will be increased to include companies with either of the following characteristics:

  • Less than $250 million of public float
  • Less than $100 million in annual revenues if the company has either no public float or public float of less than $700 million.

Consistent with current practice, public float is determined as of the last business day of the most recently completed second fiscal quarter and annual revenue is calculated as of the most recently completed fiscal year for which audited financial statements are available.

While the thresholds to qualify as an SRC have been increased, there has been no change to the thresholds for qualification as an “accelerated filer” or “large accelerated filer” and a company who meets the amended qualifications of an SRC will still be required to comply with existing accelerated filer requirements (e.g. accelerated filing deadlines and compliance with the requirements of Section 404(b) of the Sarbanes Oxley Act). The SEC staff are currently considering potential changes to the accelerated filer definition with a focus on reducing the number of companies classified as accelerated filers.

Rule 3-05(b)(2)(iv) of Regulation S-X has also been amended to increase the net revenue threshold from $50 million to $100 million. For businesses acquired (or those to be acquired) by non-SRCs, the earliest of three fiscal years of audited financial statements may be omitted if the net revenues of the acquired business are less than $100 million. SRCs are subject to Rule 8-04 of Regulation S-X which requires no more than two years of audited financial statements of businesses acquired or to be acquired.

Implementation guidance

For purposes of the first fiscal year ending after the effective date of the SEC’s amendments, registrants would qualify as an SRC if they meet one of the amended qualification thresholds as of the date they measure their public float or revenues, even if they did not quality as an SRC previously. For example, a company with a fiscal year ending September 30 that was not previously an SRC and had a public float of $220 million as of March 30 will qualify as an SRC for the year ended September 30, 2018. The SEC will likely provide additional implementation and transition guidance in the coming weeks.

We encourage management, audit committees, and other stakeholders to work together in evaluating the impact of these changes. If you have any questions regarding the amended definition of an SRC, please contact your DHG client service team or any DHG assurance partner.


Dave Hinshaw
Partner, Professional Standards Group
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