1.5 Smaller Reporting Companies
1.5.1 What Are SRCs?
A registrant may qualify as an SRC on the basis
of either a public float test or a revenue test. The thresholds for
qualification as an SRC are as follows:
|
Criteria
|
Definition
|
|---|---|
|
Public float test
|
Less than $250 million of public float
as of the last business day of the registrant’s second
fiscal quarter
|
|
Revenue test
|
Less than $100 million of revenue as of
the most recently completed fiscal year for which
audited financial statements are available and public
float less than $700 million as of the last business day
of the registrant’s second fiscal quarter
|
For initial 1933 Act or 1934 Act registration statements, public float is
measured as of a date within 30 days of the filing and is computed by
multiplying the estimated public offering price of the shares by the sum of (1)
the aggregate worldwide number of all shares outstanding held by nonaffiliates
before the filing of the registration statement and, in the case of a Securities
Act registration statement, (2) the number of such shares included in the
registration statement.
A company may qualify as both an SRC and an EGC (see Section 1.6); however,
unlike the five-year limit for qualifying as an EGC, there is no time limit for
qualifying as an SRC. Investment companies, asset-backed issuers, and
subsidiaries that are majority-owned by non-SRC registrants cannot qualify as
SRCs. An issuer that becomes an investment company or qualifies as an
asset-backed issuer is disqualified from being considered an SRC for its next
filing. Registrants should consider consulting with their legal counsel when
determining whether they qualify as SRCs.
1.5.2 Accommodations Applicable to SRCs
A key feature of reducing the reporting burden on SRCs is the scaling back of the requirements in both
Regulation S-X and Regulation S-K.
SRCs may be eligible to apply the scaled disclosure requirements as part of
their IPO. Under those requirements, SRCs do not have to disclose as many years
of audited financial statements and MD&A as non-SRCs. SRCs are also exempt
from the requirements for unaudited quarterly financial information after a
retrospective accounting change as well as qualitative and quantitative
information about market risk. See Chapter 4 for more information about the
disclosure requirements in Regulation S-K. For a more detailed analysis of the
scaled disclosure requirements for SRCs, see Appendix B. Topic 5 of the FRM also discusses the SEC
staff’s views on many SRC-related issues. Other than within this section and
Appendix B,
this Roadmap generally does not specifically address SRC requirements.
Companies that qualify as SRCs may choose to apply the scaled disclosure requirements on an item-by-item (or an “a
la carte”) basis. However, their disclosures should be consistent from year to year and must comply with
federal securities laws, including those that require disclosures not to be misleading.
Connecting the Dots
In determining which scaled disclosure requirements to
apply, eligible companies may wish to conduct outreach and consider the
information needs of their investors and other financial statement
users. Thus, eligible companies may consider weighing any potential cost
savings associated with the scaled disclosure requirements against not
disclosing information that investors may consider valuable.
1.5.3 Interaction of SRC and Accelerated Filer Status
After its IPO, a company could both (1) qualify as an SRC and be eligible for the
scaled disclosure requirements available to such a company and (2) be an accelerated
filer and subject to those requirements, including the shorter deadlines for
periodic filings and the requirement to include in the company’s filings an
auditor’s attestation report on ICFR, as required by Section 404(b) of
Sarbanes-Oxley. See Chapter 7 for further
discussion of filer deadlines and internal control requirements.
The table below further summarizes the initial assessment criteria
for SRC status on the basis of public float and revenue levels in the context of the
requirements in Section 404(b) of Sarbanes-Oxley.
|
Status
|
Definition
|
Sarbanes-Oxley Section 404(b)
Requirement
| |
|---|---|---|---|
|
Public Float
|
Annual Revenues
| ||
|
SRC and nonaccelerated filer
|
Less than $75 million
$75 million to less than $700 million
|
No limit
Less than $100 million
|
No
No
|
|
SRC and accelerated filer
|
$75 million to less than $250 million
|
$100 million or more
|
Yes for non-EGCs; no for EGCs
|