The SEC today voted to propose amendments to the definitions of "accelerated filer" and "large accelerated filer," which are used to determine, among other things, the filing deadlines for periodic reports and the requirement for providing an audit of internal control over financial reporting (ICFR). 

The proposed amendments would better align the definition of accelerated filer with recent changes to the definition of "smaller reporting company" (SRC). The amendments would:

• Exclude from the accelerated and large accelerated filer definitions an issuer that is eligible to be an SRC and had no revenues or annual revenues of less than $100 million in the most recent fiscal year for which audited financial statements are available
• Increase the transition thresholds for accelerated and large accelerated filers becoming a non-accelerated filer from $50 million to $60 million and for exiting large accelerated filer status from $500 million to $560 million
• Add a revenue test to the transition thresholds for exiting both accelerated and large accelerated filer status

As a result of the proposed amendments, smaller reporting companies with less than $100 million in revenues would not be required to obtain an attestation of their ICFR from an independent outside auditor. 

The proposals will be subject to a 60-day public comment period, following which the SEC will determined its next steps.

The Securities and Exchange Commission proposed amendments to the financial disclosure requirements in Rules 3-05, 3-14, and Article 11 of Regulation S-X, as well as related rules and forms, for financial statements of businesses acquired or to be acquired and for business dispositions. The proposed changes are intended to (1) improve for investors the financial information about acquired and disposed businesses; (2) facilitate more timely access to capital; and (3) reduce the complexity and cost to prepare the disclosure. The proposals will be subject to public comment, following which the SEC may make additional revisions before adopting any changes.

The proposed changes would, among other things:

• update the significance tests under these rules by revising the investment test and the income test, expanding the use of pro forma financial information in measuring significance, and conforming the significance threshold and tests for a disposed business;
• require the financial statements of the acquired business to cover up to the two most recent fiscal years rather than up to the three most recent fiscal years;
• permit disclosure of financial statements that omit certain expenses for certain acquisitions of a component of an entity;
• clarify when financial statements and pro forma financial information are required;
• permit the use in certain circumstances of, or reconciliation to, International Financial Reporting Standards as issued by the International Accounting Standards Board;
• no longer require separate acquired business financial statements once the business has been included in the registrant’s post-acquisition financial statements for a complete fiscal year;
• align Rule 3-14 with Rule 3-05 where no unique industry considerations exist;
• clarify the application of Rule 3-14 regarding the determination of significance, the need for interim income statements, special provisions for blind pool offerings, and the scope of the rule’s requirements;
• amend the pro forma financial information requirements to improve the content and relevance of such information; more specifically, these improvements would include disclosure of "Transaction Accounting Adjustments," reflecting the accounting for the transaction; and "Management’s Adjustments," reflecting reasonably estimable synergies and transaction effects; and
• make corresponding changes to the smaller reporting company requirements in Article 8 of Regulation S-X.

The SEC has issued a comment release soliciting input on many questions related to quarterly reporting. The release covers a lot of possible scenarios, any or none of which may occur. The format, as with many releases of this nature, has some limited analysis but is more dominated by questions as to which the public is invited to comment. As expected, there are some questions on whether quarterly reporting should be eliminated or changed to semi-annual, and if so, if this should only be for certain types of issuers (such as smaller reporting companies or emerging growth companies). Perhaps more interesting, there are a lot more questions and discussion of potential ways to combine quarterly earnings releases with Quarterly Reports on 10-Q, given their overlap and proximity in release/filing times. The thrust of many of the questions seems to be if there are ways to reduce redundancy without delaying the process.

Yesterday (without a meeting), the SEC approved final rules to require companies to disclose in proxy or information statements for the election of directors any practices or policies regarding the ability of employees or directors to engage in certain hedging transactions with respect to company equity securities. This rulemaking had been mandated by the Dodd-Frank Act in 2010 and had sat in proposal form for several years. 

Under the new rules, new Item 407(i) of Regulation S-K will require a company to describe any practices or policies it has adopted regarding the ability of its employees (including officers) or directors to purchase securities or other financial instruments, or otherwise engage in transactions, that hedge or offset, or are designed to hedge or offset, any decrease in the market value of equity securities granted as compensation, or held directly or indirectly by the employee or director. A company could satisfy this requirement by either providing a fair and accurate summary of the practices or policies that apply, including the categories of persons they affect and any categories of hedging transactions that are specifically permitted or specifically disallowed, or, alternatively, by disclosing the practices or policies in full. If the company does not have any such practices or policies, the rule will require the company to disclose that fact or state that hedging transactions are generally permitted.

Companies generally must comply with the new disclosure requirements in proxy and information statements for the election of directors during fiscal years beginning on or after July 1, 2019. However, smaller reporting companies and emerging growth companies do not have to comply until their proxy and information statements for the election of directors during fiscal years beginning on or after July 1, 2020. Listed closed-end funds and foreign private issuers will not be subject to the new disclosure requirements.

ISS has announced its 2019 updates to its proxy voting policies, which are generally applicable to shareholder meetings to be held on or after February 1, 2019.

The SEC today issued final rules to amend Securities Act Rule 701, which provides an exemption from registration for securities issued by private companies pursuant to compensatory arrangements, such as equity plans. As mandated by the Economic Growth, Regulatory Relief, and Consumer Protection Act, the amendment increases from $5 million to $10 million the aggregate sales price or amount of securities sold during any consecutive 12-month period in excess of which a company is required to deliver additional disclosures to investors/grantees. This will allow private companies to make more grants without having to meet more extensive disclosure requirements.

In addition, the SEC approved a "concept release" soliciting comment on possible ways to modernize rules related to compensatory arrangements in light of the significant evolution in both the types of compensatory offerings and the composition of the workforce since the SEC last substantively amended these rules in 1999. The SEC is soliciting comment on possible ways to update the requirements of Rule 701 and Form S-8 (which provides a simplified registration form for companies to use to issue securities pursuant to employee equity plans). Among other things, the concept release solicits comment on:

• "Gig economy" relationships, in light of issuers using internet platforms to provide workers the opportunity to sell goods and services, to better understand how they work and determine what attributes of these relationships potentially may provide a basis for extending eligibility for the Rule 701 exemption;
• Whether the SEC should further revise the disclosure content and timing requirements of Rule 701(e); and
• Whether the use of Form S-8 to register the offering of securities pursuant to employee benefit plans should be further streamlined.

The amendment to Rule 701 to increase the threshold will be immediately effective. The Concept Release is merely soliciting comments, and further action by the SEC will depend on many factors, including comments received and competing items on its regulatory agenda.

The SEC today approved amendments to the "smaller reporting company" definition to expand the number of companies that qualify for certain existing scaled disclosure accommodations. The new smaller reporting company definition enables a company with less than $250 million of public float to provide scaled disclosures, as compared to the $75 million threshold under the prior definition. The scaled disclosures for smaller reporting companies include, among other things, fewer disclosure requirements regarding executive compensation and financial statements.

The final rules also expand the definition to include companies with less than $100 million in annual revenues if they also have either no public float or a public float that is less than $700 million. This reflects a change from the revenue test in the prior definition, which allowed companies to provide scaled disclosure only if they had no public float and less than $50 million in annual revenues. The $700 million threshold in particular may help biotech and other development companies developing new drugs and products that have significant public floats but have not yet recognized significant revenues.

Notably, the amendments do not change the threshold in the somewhat overlapping "accelerated filer" definition that requires, among other things, that filers provide the auditor's attestation of management's assessment of internal control over financial reporting. So companies between the $75 million and $250 million threshold will still need to provide a SOX 404 audit report even if they take advantage of the scaled disclosures in other areas. However, the SEC has begun to formulate recommendations for possible additional changes to the "accelerated filer" definition, so stay tuned.

The rules will become effective 60 days after publication in the Federal Register.

Today the SEC adopted amendments to eXtensible Business Reporting Language (XBRL) requirements for operating companies and funds. The amendments are intended to improve the quality and accessibility of XBRL data by replacing the existing requirements for tagged data to be filed as exhibits to certain SEC filings and posted as separate files on companies’ websites. The amendments, which will go into effect in phases, require the use of Inline XBRL for financial statement information and risk/return summaries.    

While the amendments modify existing XBRL requirements, they do not change the categories of filers or scope of disclosures subject to XBRL requirements, nor do they change the relevant liability standards.

Operating companies that are currently required to submit financial statement information in XBRL will be required, on a phased basis, to transition to Inline XBRL, with large accelerated filers that use U.S. GAAP being required to comply beginning with fiscal periods ending on or after June 15, 2019, accelerated filers that use U.S. GAAP being required to comply beginning with fiscal periods ending on or after June 15, 2020, and all other filers being required to comply beginning with fiscal periods ending on or after June 15, 2021. Filers will be required to comply beginning with their first Form 10-Q (not 10-K) filed for a fiscal period ending on or after the applicable compliance date.

Funds that are currently required to submit risk/return summary information in XBRL will be required, on a phased basis, to transition to Inline XBRL, with large fund groups (net assets of $1 billion or more as of the end of their most recent fiscal year) being required to comply two years after the effective date of the amendments and all other funds being required to comply three years after the effective date of the amendments. The amendments also eliminate the 15 business day filing period for risk/return summary XBRL data, so that the data will be more timely available to the public.

The SEC posted today an interpretive release regarding its latest guidance public companies’ disclosure obligations under existing law with respect to matters involving cybersecurity risk and incidents. It also addresses the importance of cybersecurity policies and procedures and the application of disclosure controls and procedures, insider trading prohibitions, and Regulation FD and selective disclosure prohibitions in the cybersecurity context.

The timing of the release was a bit unusual. Initially, the SEC was scheduled to consider the guidance at an open meeting on February 21^st. It abruptly cancelled the meeting and instead put out a press release saying the interpretive guidance had been approved on February 20^th. Sounds like the SEC may be having its own issues with disclosure controls and procedures!

The SEC has approved a NYSE rule that will prohibit listed companies from issuing material news after the official closing time of trading until at least 5 minutes after closing (unless the company’s official closing price is published sooner).