SEC issues compliance guide for new smaller reporting company rules

Category: SEC, smaller reporting companies

SEC issues compliance guide for new smaller reporting company rules


The Securities and Exchange Commission’s (SEC) changes to the “smaller reporting company” (SRC) definition are set to take effect next month on September 10.

As we wrote previously, the amendments change the definition so that companies of a certain size (a company with less than $100 million in annual revenue, for example) will no longer have to file as many required disclosures with the SEC.

In anticipation of this change, the SEC issued a small entity compliance guide for issuers that explains the amendments that will be made next month, including reporting thresholds, scaled disclosure items and filing requirements for SRCs.

Importantly, the guide points out that a reporting company will need to determine whether it qualifies as an SRC annually as of the last business day of its second fiscal quarter.

To do so, a company needs to calculate its public float by multiplying the aggregate number of shares 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.

A company that does not qualify under the “public float” test would determine whether it qualifies as a SRC based on its annual revenue in its most recent fiscal year completed before the last business day of the second fiscal quarter.

If qualified under one of the two tests, the company may elect to reflect its SRC status and use the scaled disclosure accommodations beginning with its second quarter Form 10-Q, and it must reflect its SRC status in its Form 10-Q for the first fiscal quarter of the next year.

Similarly, foreign companies may use the SRC scaled disclosure accommodations if they use domestic forms instead of the separate forms for foreign private issuers and prepare financial statements in accordance with U.S. GAAP, the guide explains. However, the staff cautions, investment companies, asset-backed issuers, and majority-owned subsidiaries of a parent that is not an SRC are not eligible for SRC status.

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