SEC filer status rules may be changing. Are you ready?

The SEC’s proposed rule, Enhancement of Emerging Growth Company Accommodations and Simplification of Filer Status for Reporting Companies, if adopted as currently drafted, would transform how public companies are classified for reporting and compliance purposes. The proposed rule intends to simplify the SEC’s filer status framework through streamlining the framework into two primary categories: “large accelerated filer” (LAF) and “non-accelerated filer” (NAF), raising key status thresholds for public float calculation, and expanding access to scaled disclosure accommodations, which would relieve compliance requirements for qualifying mid-sized and smaller-sized public companies.

For audit practitioners, finance leaders, audit committee members and corporate executives, the proposal could have significant implications for financial reporting, internal controls, compliance costs and disclosure obligations. While the SEC is still reviewing comments received on the proposal, businesses are encouraged to evaluate how the changes could affect their reporting status and regulatory requirements. Understanding now what the implications of the rule change would be for your company can lead to quick action when the rule is effective.

To help explain the proposal, we've assembled answers to some of the most common questions about the proposed rule.

What is the purpose of the SEC proposed rule?

The proposed rule, SEC Release No. 33-11419 (PDF - 1.88KB), is intended to modernize and simplify the SEC's filer classifications and reporting requirements for public companies.

Why is the SEC proposing these changes?

The SEC has indicated that it wants to better align regulatory requirements with company size and market significance while reducing unnecessary compliance requirements on smaller issuers.

What are the most significant structural changes in the proposal?

The proposal would replace the current multi-tier filer framework with the LAF and NAF primary categories. The proposal would eliminate the “accelerated filer” and “smaller reporting company” (SRC) categories altogether and extend the accommodations in Article 8 of Regulation S-X that are currently available to SRCs, and the accommodations available to “emerging growth companies” (EGCs) to the broader NAF population. The framework only applies to registrants filing on domestic forms; foreign private issuers using FPI forms, asset-backed issuers and registered investment companies are excluded.

LAF already is a filer category. How would the filer status definition change?

If adopted as currently proposed, the rule would increase the public float threshold for LAF status from $700 million to $2 billion. The rule would also raise the seasoning requirement, or the length of time a company must have been reporting under the Securities Exchange Act of 1934 (Exchange Act), from 12 months to 60 months.

Therefore, a company would become an LAF only if it meets both tests: public float of $2 billion or more for two consecutive years and at least 60 consecutive months as an Exchange Act reporting company. All other companies not meeting the LAF tests would be NAFs until such time when the LAF criteria are met.

How is public float measured for determining filer status?

Today, public float is measured as of the last business day of a company's second fiscal quarter. That single-date measurement means a short burst of market volatility can change a company's filer status. Under the proposal, public float would be calculated using  the average closing price for each of the last 10 trading days of the second fiscal quarter, and would require a company to meet, or fall below, the threshold for two consecutive years before entering or exiting LAF status.

Why does the higher public float threshold matter?

Many companies currently subject to more burdensome LAF or accelerated filer requirements (including the requirements for auditor attestation on internal control over financial reporting) would become NAFs, making them eligible for reduced compliance and reporting obligations. The shift is substantial. Based on 2024 filings, the SEC estimates the NAF category would grow from roughly 52% to approximately 81% of domestic registrants.

Would companies still need to comply with SEC reporting requirements?

Yes. Companies would remain subject to SEC reporting requirements, but companies changing filer status from LAF to NAF could reduce the scope and complexity of those obligations.

What disclosure relief would become available?

Companies qualifying as NAFs under the proposed rule would gain broader access to the “scaled disclosure accommodations” that are currently available to SRCs and EGCs. The SEC believes the accommodations would reduce compliance costs while still giving investors all material information needed for making investment and voting decisions. See Grant Thornton LLP’s General SEC reporting requirements publication for further information on scaled disclosures and EGC accommodations currently available.

Could executive compensation reporting be affected?

NAFs would be allowed to provide more limited executive compensation disclosures than are required under the current framework, such as disclosing compensation for the top three named executives for two years as compared to the top five named executives for three years as well as excluding certain disclosures such as pay versus performance, pay ratio, and compensation and discussion analysis.

Are there any changes proposed for financial statement disclosures?

These same companies also would qualify to provide reduced historical financial information and other scaled financial reporting requirements.

Does the proposed rule, if enacted, affect Sarbanes-Oxley compliance?

Yes. Newly qualified NAFs would not be required to obtain an auditor attestation of internal control over financial reporting (ICFR) required under Section 404(b) of the Sarbanes-Oxley Act. Management's own responsibility to assess and report on the effectiveness of ICFR under Section 404(a) would remain. Only the independent auditor's attestation on ICFR would fall away for NAFs.

Why is this SOX Section 404(b) change significant?

For many smaller companies, auditor attestation requirements are costly and resource-intensive compliance obligation associated with being a public company.

Would filing deadlines change because of the rule?

For certain smaller companies and newly qualified NAFs, yes. The proposal creates a “small non-accelerated filer” (small NAF) subgroup that would receive additional time to file annual and quarterly reports. A small NAF would be company reporting total assets of $35 million or less as of the end of each of its two most recent second fiscal quarters, which the SEC estimates at roughly 17.9% of current issuers.

The relief is timing only: Form 10-K (annual periodic report) would be due 120 days after fiscal year-end (30 additional days as compared to current NAF deadlines) and Form 10-Q (quarterly periodic report) would be due 50 days (five additional days as compared to current NAF deadlines). A small NAF would carry the same disclosure obligations as other NAFs.

Does the proposal affect only small public companies?

No. Although the largest benefits are aimed at smaller and mid-sized companies, many companies currently classified as LAFs could be affected if they no longer meet the LAF tests and become an NAF.

Does filer status change automatically for qualifying companies?

No. Generally, companies are responsible for evaluating their own filer status based on SEC rules and the company's facts and circumstances. A company does not typically receive an SEC designation assigning it a filer status, management and its advisers must assess whether the applicable thresholds and requirements have been met and determine their filer status annually.

Will the SEC notify companies if their status changes because of the rule change?

No formal SEC notification process is generally associated with filer status determinations. Companies typically disclose their filer status in their periodic SEC filings after evaluating the applicable requirements.

Are there other accommodations in the proposal that companies should know about?

Two are worth highlighting:

1. NAFs, like SRCs today, could elect to present their financial statements under Article 8 of Regulation S-X. Roughly 30% of issuers qualify for that accommodation today, compared with more than 80% that would qualify under the proposal.
2. Newly public NAFs could defer compliance with new or revised FASB accounting standards for their first five years as a registrant.

How would the proposal affect companies going public?

All companies filing an initial registration statement would continue to enter as NAFs regardless of size, revenue, or prior debt issuances, however, companies would keep that status for a minimum of five years.