It’s time for companies to assess next year’s filing status

For many US public companies, June 30 marks the end of their second fiscal quarter, which means it’s time to prepare their quarterly reports on Form 10-Q. It also means that it is time for these companies to assess their filing status for the next fiscal year. Here are a few things to remember.

Determination of original applicant status

A company with a December 31 fiscal year-end is required to calculate its public float as of June 30 (the last business day of its second most recent fiscal quarter) to determine its SEC filer status for the fiscal year. next. [1] Based on the calculation of the public float, a company can initially be qualified as:

  • Large Accelerated Workbook – a public float of $700 million or more and is not a reporting small company (“RCC”) under the CBC income test referred to below;[2]

  • Accelerated file – a public float of $75 million or more, but less than $700 million and which is not an SRC according to the SRC income test mentioned below;[3] Where

  • spinning unaccelerated – a public float of less than $75 million, qualifies as an SRC under the SRC revenue test referenced below, or otherwise does not meet the requirements of a large expedited filer or expedited filer.

In addition to these filing categories, a December 31 year-end company may also initially qualify as an SRC if, as of June 30, it has (1) a public float of less than $250 million or (2) annual revenues less than $100 million. for its last fiscal year for which audited financial statements are available, and either (a) no public float or (b) less than $700 million public float. A company that is a SRC is exempt from the requirement to provide an internal control over financial reporting (“ICFR”) auditor’s certification under section 404(b) of the Sarbanes-Oxley Act and may take advantage of certain less stringent disclosure requirements if it chooses to do so.[4] A company must disclose that it is an SRC no later than in its quarterly report on Form 10-Q for the first quarter of its following year, but may indicate that it is an SRC and take advantage of the disclosure requirements phased with its next quarterly report on Form 10-Q for the second quarter. In addition, an SRC under the earnings test referred to in clause 2 above is also considered a non-accelerated filer even if it would otherwise be a large accelerated filer or an accelerated filer, and therefore, extended the filing deadlines with the SEC.[5]

The following table provides a summary of the initial filer alternatives as well as whether the company is required to obtain separate certification of its ICFR from external auditors and its future SEC filing deadlines:

*Under the Jumpstart Our Business Startups Act (known as the JOBS Act), emerging growth companies (a company is generally considered an emerging growth company until the earliest of the following days: (1) the last day of the fiscal year ending after the fifth anniversary of its initial public offering; (2) the last day of the fiscal year in which its total annual gross revenues are $1.07 billion or more or (3) the date it becomes a large expedited filer) are already exempt from the auditor certification requirement.

Entering and Exiting a Filer Status After Initial Determination

If a company has already made its initial determination of filing status, it will remain in that category of issuer until on a future determination date (i.e., a subsequent June 30) it reaches the thresholds indicated in the following table:

In addition to these public floating thresholds, a Large Accelerated Filer or Accelerated Filer also transitions to Non-Accelerated Filer status if it is an SRC under the SRC Earnings Test described below.

As noted above, a company may initially qualify as an SRC if it has (1) a public float of less than $250 million or (2) annual revenues of less than $100 million and a public float of less than $700 million. Once a company determines that it does not qualify as an SRC, it will remain unqualified under the public float test under clause (1) above until it determines that it has a public float of less than $200 million and it will remain unqualified under the income test under clause (2) above until it determines that it meets the requirements of public float and annual revenues set out in the following table:

The SEC has provided some examples of how the CBC’s transition rules will apply to the determination of filer status:

Example 1 – An issuer with a December 31 fiscal year-end that has not exceeded the June 30, 2019 free float threshold and has a June 30, 2020 free float of $230 million and annual revenue for the fiscal year-end on December 31, 2019 $101 million will be eligible to be an SRC under the public float test; however, since the issuer would not be eligible to be an SRC under the SRC earnings test, it will be an accelerated filer (assuming the other requirements for being an accelerated filer are also met). On the next determination date (June 30, 2021), if its public float remains at $230 million and its annual revenue for the year ended December 31, 2020 is less than $100 million, the issuer will be eligible to be an SRC under the SRC earnings test (in addition to the public float test) and therefore will become a non-accelerated filer.

Example 2 – By contrast, an issuer whose fiscal year ends December 31 and has a public float, as of June 30, 2020, of $400 million and annual revenues for the fiscal year ended December 31, 2019 of $101 million will not qualify to be an SRC under either the public float test or the SRC income test, and will be an accelerated filer (assuming the other requirements for being an accelerated filer are also met). On the next determination date (June 30, 2021), if its public float remains at $400 million, that issuer will not qualify to be an SRC under the SRC revenue test unless its annual revenue for the fiscal year ended December 31, 2020 are less than $80 million, in which case it will be eligible to be an SRC under the SRC earnings test and to become a non-accelerated filer.


FOOTNOTES

[1] Public float is the aggregate worldwide market value of the company’s voting and non-voting common stock held by non-affiliates by reference to the price at which the common stock was last sold, or the average bid and ask prices for common shares. shares, in the main common stock market on the particular date.

[2] The company must also be subject to SEC reporting requirements for a period of at least twelve calendar months and have filed at least one annual report.

[3] See note 2.

[4] Although an ICFR auditor’s certificate is not required for qualifying businesses, such businesses are still required to establish, maintain and assess the effectiveness of ICFR; provide certificates of financial reports by the Chief Executive Officer and the Chief Financial Officer; and conduct an audit of the financial statements by an independent auditor who is required to consider ICFR in performing that audit.

[5] Foreign private issuers that apply US GAAP and file on designated domestic forms for domestic issuers are also excluded from the definitions of expedited filer and expedited large filer if they qualify as an SRC under the income test. CRS.

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