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The SEC Amends the Definition of a Smaller Reporting Company

July 3, 2018

The Securities and Exchange Commission (SEC) adopted amendments to the definition of "smaller reporting company" as used in the SEC rules and regulations. The amendments expand the number of registrants that qualify as smaller reporting companies and are intended to reduce compliance costs for these registrants and promote capital formation, while maintaining appropriate investor protections.

Main Provisions

The amendment defines a “smaller reporting company” to include registrants with a public float of less than $250 million, as well as registrants with annual revenues of less than $100 million for the previous year and either no public float or a public float of less than $700 million.

Additionally, the SEC is also amending other rules and forms in light of the new definition of "smaller reporting company," including amendments to the definitions of "accelerated filer" and "large accelerated filer" to preserve the existing thresholds in those definitions. Qualifying as a “smaller reporting company” will no longer automatically make a registrant a non-accelerated filer. For example, accelerated filers, with a public float of $75 million or more, are still required to independently audit their internal controls over financial reporting even though they are now also considered a smaller reporting company. The Chairman, however, has directed the staff to formulate recommendations to the Commission for possible additional changes to the "accelerated filer" definition that, if adopted, would have the effect of reducing the number of registrants that qualify as accelerated filers.

Scaled Disclosures

The expansion of the definition of smaller reporting companies will mean that more companies will be able to take advantage of scaled disclosures afforded by the SEC. This is expected to reduce the cost and complexity of completing filings.

In general, smaller reporting companies are permitted to provide less narrative in disclosures and may be exempted from certain required disclosures under S-K, such as the five-year contractual obligations table and qualitative disclosures about market risk. In addition, smaller reporting companies are only required to provide two fiscal years of audited financial statements.

For More Information

The final rule becomes effective 60 days after publication to the Federal Register. If you have any specific questions, comments or concerns, please share them with James Comito at jcomito@cbiz.com or 858.795.2029 or Rich Howard at rhoward@cbiz.com or 949.450.4402 of MHM's Professional Standards Group, or your MHM service professional.

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