SEC Reduces Thresholds for Smaller Reporting Company Definition and Requires Mandatory Use of Inline XBRL
The U.S. Securities and Exchange Commission (SEC) has long recognized that smaller issuers should be subject to somewhat less stringent disclosure standards than larger companies. The SEC has referred to this as "scaled disclosure" and has embodied the idea in a series of rules for smaller reporting companies, or SRCs. The SEC has adopted final rules to expand the availability of scaled disclosure requirements for a company qualifying as an SRC by allowing companies with a public float of less than $250 million to qualify as an SRC, as compared to the $75 million threshold under the prior definition. In addition, companies that do not have a public float are now permitted to provide scaled disclosures if annual revenues are less than $100 million, as compared to the prior threshold of less than $50 million in annual revenues.
The adopting release for the change to the SRC definition discusses other important topics as well. For instance, the Commission did not raise the accelerated filer public float threshold or otherwise modify the Section 404(b) requirements (which include mandatory auditor attestation of internal controls) for registrants with a public float between $75 million and $250 million, choosing instead to defer such potential relief to future rulemaking. So public companies with a float of $75 million to less than $250 million can take advantage of scaled disclosures, but since accelerated filer status does not change, the deadline for filing reports stays constant. In addition, unless an issuer is an emerging growth company it will need to continue to provide auditor attestation of internal controls.
While not required under the new rules, issuers planning to avail themselves of the newly-available thresholds for SRCs should consider providing advance notice to the investing public that future filings will include scaled disclosures commensurate with requirements applicable to SRCs under Regulation S-K. This could be done in the upcoming second quarter 10-Q.
The SEC also adopted final rules mandating issuers use Inline XBRL. Inline XBRL embeds most of the XBRL data in the text of the SEC filing rather than an exhibit to the SEC filing. The SEC believes this makes the XBRL data more useful and easier to prepare, thereby reducing errors. While portions of the rule will be effective shortly, mandatory use of Inline XBRL is subject to an extended transition period. The Inline XBRL requirements for financial statement information will apply to all operating company filers, including SRCs, emerging growth companies and foreign private issuers.
We have published a comprehensive analysis of the new SEC rules on the Stinson blog Dodd-Frank.com.