SEC proposes to simplify reporting, auditing requirements

The Securities and Exchange Commission proposed to simplify the reporting requirements for companies seeking to go public.

The proposed rule amendments would raise the threshold for a public company to become a large accelerated filer from $700 million to $2 billion. A company would not become a large accelerated filer for at least 60 months following its initial public offering regardless of its public float, effectively providing it an "IPO on-ramp" to stabilize and grow while benefiting from disclosure scaling and other accommodations.

All other public companies would be categorized as non-accelerated filers and would benefit from nearly all disclosure scaling and other accommodations currently available to smaller and emerging companies. All non-accelerated filers would also be exempt from the requirement to obtain an auditor's attestation on their internal control over financial reporting.

In addition, the proposed rules would establish a subcategory of small non-accelerated filers that would receive an additional 30 days to file their Form 10-K annual reports and an extra five days to file their Form 10-Q quarterly reports. The change aims to reduce the reporting costs for this category of companies, which represent the smallest 18% of public companies by assets.

The proposed amendments would also extend disclosure scaling and other accommodations currently used by smaller or emerging companies to approximately 81% of all current public companies. New public companies would enjoy these accommodations for up to five years. The smallest public companies also would have extra time to file their annual and other periodic reports.

"Today, the Commission proposed two rulemakings that serve as the foundation for my agenda to Make IPOs Great Again," said SEC chairman Paul Atkins in a statement Tuesday. "These proposals build upon the legislative and regulatory concepts that have proven successful in the past and aim to extend that success to more companies — particularly small and mid-sized companies — and incentivize them to go and stay public. Today's proposed rulemakings are among the first important steps toward transforming the SEC's regulatory framework for public companies."

The proposed amendments, along with the recently proposed option for semiannual interim reporting and other upcoming rule proposals, aim to incentivize companies to go and stay public.

The new proposal would eliminate the categories of accelerated filer and smaller reporting company filer so all companies that aren't large accelerated filers would simply become non-accelerated filers, according to a fact sheet from the SEC. Non-accelerated filers wouldn't be required to obtain an auditor's attestation on a company's internal control over financial reporting.

Currently, the requirement to obtain an auditor's attestation on a company's internal controls applies to large accelerated filers, accelerated filers and certain smaller reporting companies that are also accelerated filers and not also emerging growth companies, but not to non-accelerated filers or emerging growth companies, the SEC noted.

Registered offering reforms

The SEC said the registered offering reform proposal, if it were to be adopted, would be the most significant modernization of the registered offering framework in more than 20 years. Under the proposal, more public companies would be able to conduct shelf offerings, enabling faster access to the public capital markets, regardless of the company's public float.

More public companies would be able to use certain registration and offering communication flexibilities that currently are reserved for companies with a large public float defined as "well-known seasoned issuers." The SEC predicted broker-dealers would be able to provide research report coverage for more public companies.

State securities law registration and qualification requirements would be preempted for all registered offerings, however, as part of a bid to lower the costs and complexity of conducting a multistate registered offering.

According to a fact sheet, the proposed amendments would define "qualified purchaser" under Section 18(b)(3) of the Securities Act and preempt state securities law registration and qualification requirements with respect to any registered offering. The preemption currently applies to registered offerings in which the securities being offered and sold are listed or approved for listing on a national securities exchange. The preemption currently does not, however, apply to registered offerings of unlisted securities.

The proposal would also maintain parity between certain Form N-2 filers and operating companies across registration, offering, and communication provisions, and access to broad-based advertising for certain non-variable annuity insurance products would be expanded.

Other facets of the registration process would also be streamlined under the proposal, such as the ability to incorporate information by reference into Form S-1.

The National Association of Manufacturers said it had requested the reporting changes from the SEC. "Today's proposals from the SEC are directly responsive to the NAM's priorities: reducing regulatory burdens and making it easier for small and mid-size companies to access capital on the public market," said NAM managing vice president of policy Charles Crain, in a statement Tuesday. "In particular, as the NAM said in our letter to the SEC earlier this year, reforming the non-accelerated filer definition to protect more small, mid-size, and newly public companies will encourage capital formation and drive manufacturing growth, investment, and job creation."

The public comment period for the proposals will be open for 60 days after publication of the proposing releases in the Federal Register.