The SEC’s proposed simplification of filer status

The Securities and Exchange Commission (SEC) is proposing to reduce public company filer status to just two primary categories — large accelerated filers and non-accelerated filers. The SEC would also raise the threshold for large accelerated status and increase the time period, or seasoning requirement, to become a large accelerated filer; apply reduced disclosure requirements to all public companies other than large accelerated filers; and extend filing deadlines, particularly for the smallest reporting companies.

If adopted, these changes would significantly affect the reporting obligations of a large swath of public companies by eliminating a significant number of items on which they are currently required to report.

The proposed changes would also eliminate the required auditor attestation for internal control over financial reporting (ICFR) for these companies¹. Together, these changes would promote significant savings in terms of both costs and management time for many public companies. The comment period on the proposed rules expires on July 20.

Background

There is no question that the SEC’s reporting requirements for public companies have increased significantly over the years. Consider, for example, the information that is required to be included in a company’s annual proxy statements under Regulation 14A. The following table compares the page length of the annual proxy statements of certain iconic public companies over the years and is indicative of the sizeable growth in reporting requirements.

Not only has the quantum of public company reporting increased substantially over the years, but in the wake of high-profile public company misconduct, Congress has also imposed requirements for controls over financial reporting and for the certification and auditing of those controls. These requirements have added meaningfully to the auditing costs for public companies.

At the same time, the number of public companies in the United States has come down. From a peak of 9,208 reporting domestic issuers in 2009, the number of reporting domestic issuers declined to 5,466 in 2024.² In its proposing release, the SEC states that evidence indicates the regulatory changes in reporting requirements over the past two decades have contributed to the decline in reporting companies. The Commission believes that its proposed rule changes will make the public markets more attractive and will encourage more companies to go public.³ Although the proposed rule changes would result in reduced disclosure for many issuers, the Commission believes that this would be more than offset by the benefit of having more companies choosing to register with the SEC and become public reporters.⁴

Current reporting classification

The SEC currently classifies reporting public companies in five categories: large accelerated filer, accelerated filer, non-accelerated filer, emerging growth company⁵ and smaller reporting company. The consequences of the categorization areas follows: first, whether the issuer is eligible for reduced reporting obligations, referred to as “scaled reporting”;⁶ second, whether auditor attestation is required for ICFR; and third, the number of days following the closing of a reporting period before an issuer must file its quarterly and annual reports. The table below summarizes the current reporting classification and its consequences.

Proposed amendments

The proposed amendments would collapse the number of filer categories from five to two, with one subcategory having extended filing deadlines. The result would be a substantial increase in the number of issuers eligible for scaled reporting. These issuers would also be relieved of the requirement to furnish an auditor attestation for ICFR, as described specifically here:

• Filer categories. There would be two filer categories: large accelerated filers (LAFs) and non-accelerated filers (NAFs).
• Large accelerated filers. The public float required for classification as a large accelerated filer would increase from $700 million to $2 billion. There would also be three other changes to the large accelerated filer regime:
  1. The seasoning period required to become a large accelerated filer would increase from 12 months to 60 months.
  2. The determination of whether an issuer qualifies as a large accelerated filer would continue to key off the end of the issuer’s second fiscal quarter. However, instead of measuring the public float as of a single business day at the end of the quarter, the public float would be measured over a 10-business-day period at quarter end.
  3. Transitioning in and out of large accelerated filer status would require two years rather than one year. To achieve large accelerated filer status, an issuer would be required to satisfy the public float criteria for two consecutive fiscal years. Similarly, once an issuer has achieved large accelerated filer status, it could not transition back to non-accelerated filer status unless it fails to satisfy the public float criteria for two consecutive fiscal years.
• Non-accelerated filers. Any issuer that is not a large accelerated filer would be categorized as a non-accelerated filer.
• Scaled reporting. All non-accelerated filers would be eligible for scaled reporting.⁷ The SEC estimates that the percentage of issuers eligible for scaled reporting would increase from 44% to 81%. However, the proportion of the total market public float represented by issuers eligible for scaled reporting would remain relatively small at 6.5%.^8,9
• ICFR auditor attestation. All non-accelerated filers would be relieved of the requirement to furnish an auditor’s attestation regarding ICFR. The requirement that management attest to the issuer’s ICFR would remain unchanged and continue to be applicable to all public companies.
• Small non-accelerated filers. A new subcategory of the non-accelerated filer category, denominated small non-accelerated filers, would be created. To qualify for this category, an issuer would be required to have total assets of $35 million or less as of the end of its two most recent second fiscal quarters, determined as of the last day of the issuer’s fiscal year. Just as it would take two years to enter this subcategory, it would generally take two years to exit. Once an issuer becomes a small non-accelerated filer, it would not relinquish this status until it reports more than $35 million in assets as of the end of its two most recently completed second quarters, or until it becomes a large accelerated filer.
  
  A small non-accelerated filer would have 120 days after the end of its fiscal year to file its annual report on Form 10-K and 50 days after the end of the relevant fiscal quarters to file its quarterly reports on Form 10-Q. Otherwise, it would be subject to the same disclosure requirements as other non-accelerated filers.

The proposed rule changes are summarized in the following table.

Transition

Under proposed transition rules, issuers would be allowed to assess their filing status at any time from the date on which the rule amendments became effective until the last day of the issuer’s fiscal year in which the amendments went into effect. If the issuer does not make this assessment, it would be treated as a large accelerated filer if it was previously a large accelerated filer or otherwise be treated as a non-accelerated filer, until the next date on which it could reassess its status under the new rules. Once a company makes an assessment of its status on the basis of which it is eligible for relaxed reporting requirements, it could avail itself of the rule changes on its next Form 10-Q or 10-K.

Conclusion

The reporting requirements for public companies have increased substantially over the years. At the same time, the number of companies that have chosen to become or remain publicly reporting companies has markedly declined. The SEC believes that the two phenomena are related — that a material contributor to the apparent aversion to public company status is the reporting burdens that it imposes. The Commission is therefore willing to trade off a certain measure of public disclosure against the entry of more companies into the public markets.

Whether or not the correlation identified by the SEC is the main or even a meaningful contributor to the decline in the number of public companies is difficult to assess. Moreover, it cannot yet be known whether the across-the-board relaxation of the reporting burden for non-accelerated filers will be sufficient to stimulate the desired growth in the public company population in the United States. What is undoubtedly true, however, is that the reporting relief being offered by the SEC to a considerable number of reporting issuers will be warmly welcomed by those public companies eligible for the relief.