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Chapter 3 — SEC Disclosure Topics

3.8 Emerging Growth Companies

3.8 Emerging Growth Companies

An EGC is a category of issuer that was established in 2012 under the JOBS Act and was granted additional accommodations in 2015 under the FAST Act to encourage public offerings by small and developing companies. A private company undertaking an IPO will generally qualify as an EGC if it (1) has total annual gross revenues of less than $1.235 billion during its most recently completed fiscal year and (2) has not issued more than $1 billion of nonconvertible debt over the past three years. Once a company completes its IPO, it must meet additional criteria to retain EGC status. The regulatory and reporting requirements for EGCs are less stringent than those for other types of issuers. For example, EGCs:
  • Need only two years of audited financial statements in an IPO of common equity.33
  • May elect not to adopt new or revised accounting standards until they become effective for private companies (i.e., nonissuers).
  • May omit financial information (including audited financial statements) from an IPO registration statement if that financial information is related to periods that are not reasonably expected to be required at the time the registration statement becomes effective.34
  • Are exempt from the requirement to obtain an attestation report on ICFR from their auditor.
  • Are eligible for reduced executive compensation disclosures.

Footnotes

33
This accommodation is limited to an IPO of common equity. As the SEC clarifies in paragraph 10220.1 of the FRM, an entity will generally need to include three years of audited financial statements when entering into an IPO of debt securities or filing an Exchange Act registration statement, such as a Form 10, to register securities.
34
On August 17, 2017, the Division updated Question 1 of its C&DIs on the FAST Act and added a corresponding C&DI (Question 101.04) to the C&DIs on Securities Act forms to clarify the interim financial information that may be omitted from a draft registration statement submitted by an EGC. For additional information, see Deloitte’s July 11, 2017 (updated August 24, 2017), Heads Up.
35
For example, the EGC’s total gross revenues do not exceed $1.235 billion in any year during the five-year period, the EGC’s market capitalization does not exceed $700 million (i.e., the EGC does not meet the definition of a large accelerated filer), and the EGC does not issue more than $1 billion in nonconvertible debt in a three-year period (which is not limited to calendar or fiscal years and is a rolling three-year period from the date of the EGC’s last debt issuance).