SEC Advisory Committee on Small Companies: Disclosure Requirements for Smaller Public Companies

This is the second in our series of Blogs about the recommendations of the Advisory Committee on Small and Emerging CompaniesIn this post, we discuss the Committee’s “Recommendations Regarding Disclosure and Other Requirements for Smaller Public Companies.”

This will be a two part post.  In this part, the first part, we’ll summarize the Committee’s recommendations so that you can see all of them in this area.  In the second part, coming later this week, we’ll point out the proposed changes that we believe would have the biggest impact for small companies like yours or like those that are our, and most possibly, your kinds of clients.

We, like the Committee, strongly believe that that regulatory relief should be provided to smaller reporting companies with respect to the Commission’s disclosure requirements that place a disproportionate burden on smaller reporting companies in terms of the cost of, and time spent on, compliance with such requirements without a corresponding benefit to investors.

The Committee made the following recommendations in this area:

1.  Revise the definition of “smaller reporting company” to include companies with a public float up to $250 million, or, if unable to calculate the public float, companies with less than $100 million in annual revenues

2.  Incorporate exemptions from the following requirements, which are available to emerging growth companies under the JOBS Act:

  • the requirement in Exchange Act Section 14A(a) to conduct shareholder advisory votes on executive compensation and on the frequency of such votes;
  • the requirement in Exchange Act Section 14A(b) to provide disclosure about and conduct shareholder advisory votes on golden parachute compensation;
  • the requirement in Section 953(b) of the Dodd-Frank Act to provide disclosure of the ratio of the median annual total compensation of all employees of the issuer to the annual total compensation of the chief executive officer (when adopted);
  • the requirement in Exchange Act Section 14(i) to provide disclosure of the relationship between executive compensation and issuer financial performance (when adopted);
  • any rules of the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer (auditor discussion and analysis).

3. Make scaled disclosure and other provisions available to a smaller reporting company for as long as the company meets the revised smaller reporting company definition.

4. Revise the definition of “accelerated filer” to include companies with a public float of $250 million or more, but less than $700 million, as of the last business day of the company’s most recently completed second fiscal quarter. As a result of such revision, the requirement to provide an auditor attestation report under Section 404(b) of the Sarbanes-Oxley Act would no longer apply to companies with public float between $75 million and $250 million.

5. Provide that smaller reporting companies will not be required to file schedules or similar attachments to such exhibits unless such schedules or attachments contain information which is material to an investment decision and which is not otherwise disclosed in the agreement or the disclosure document.

6. Provide an exemption for smaller reporting companies from the requirement to submit financial information in XBRL format for periodic reports and other public filings.

7. When adopting new disclosure rules, the Commission should consider whether such rules place a disproportionate burden on smaller reporting companies in terms of the cost of, and time spent on, compliance with such requirements, and if so, provide for exemptions from or phase-in periods for such new rules for smaller reporting companies.

As always, contact us if you’d like more information.

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