Accelerated Filer, Large Accelerated Filer and Smaller Reporting Company: Which ICFR Rules Apply

Whether a registrant needs an auditor's attestation on internal control over financial reporting depends on its filer status, and filer status depends on definitions in Exchange Act Rule 12b-2 that combine public float, time as a reporting company and a revenue test. Clients and CPA firms get this wrong in both directions: assuming a small company is exempt when it is not, or preparing for an attestation that does not apply. This post sets out the definitions as the rule states them and works through classification cases.

Why status matters

Section 404(b) of the Sarbanes-Oxley Act requires the registered public accounting firm that prepares or issues the audit report to attest to and report on management's ICFR assessment. Section 404(c) says subsection (b) does not apply to any audit report prepared for an issuer that is neither a large accelerated filer nor an accelerated filer. Item 308(b) of Regulation S-K likewise requires the auditor's attestation report from accelerated and large accelerated filers and excludes emerging growth companies. Management's own assessment under 404(a) and Item 308(a) applies to all registrants. See /us/blog/sox-404-b-exemption-non-accelerated-filers-and-emerging-growth-companies.

The definitions in Rule 12b-2

Accelerated filer. At fiscal year-end, an issuer is an accelerated filer if it meets all of these: the market value of its common equity held by non-affiliates is $75 million or more but less than $700 million, measured as of the last business day of its most recently completed second fiscal quarter; it has been subject to Section 13(a) or 15(d) for at least 12 calendar months and has filed at least one annual report; and it is not eligible to use the smaller reporting company revenue test.

Large accelerated filer. The same conditions, with public float of $700 million or more.

Leaving the status. An accelerated filer becomes a non-accelerated filer if, at fiscal year-end, its public float was less than $60 million, or it is eligible to use the smaller reporting company revenue test. A large accelerated filer stops being one if its float was below $560 million or it is eligible for the revenue test; if its float was $60 million or more but under $560 million and it is not eligible for the revenue test, it becomes an accelerated filer.

Smaller reporting company. An issuer that is not an investment company, asset-backed issuer or majority-owned subsidiary of a parent that is not a smaller reporting company, and that had a public float of less than $250 million, or annual revenues of less than $100 million and either no public float or a public float of less than $700 million.

Re-qualification. After an issuer exceeds a threshold, the rule sets lower re-entry levels: public float under $200 million, or the revenue and float combinations in the rule's table, such as revenues under $80 million and float under $560 million when prior revenues were $100 million or more.

The point to catch: smaller reporting company status and accelerated filer status are separate questions. An issuer can be a smaller reporting company by the $250 million float test and still be an accelerated filer, because accelerated filer status turns on whether it is eligible to use the revenue test.

Worked classification cases

Assume each issuer has been public for more than 12 months and filed an annual report.

Issuer C is the case that surprises management teams. It qualifies for scaled disclosure as a smaller reporting company and still needs an auditor attestation on ICFR.

Re-qualification and the transition rules matter at the edges, so compute the status each year from the rule text rather than carrying last year's answer forward. Work on a determination should use the public float at the last business day of the second fiscal quarter and keep the workpaper.

What the determination affects for the audit team

For an accelerated filer the audit is an integrated audit under PCAOB AS 2201, with the auditor opining directly on the effectiveness of ICFR. For a non-accelerated filer, management still performs and reports its assessment, and the auditor tests controls only as needed for the financial statement audit.

Timing

Status is determined at fiscal year-end using the second-quarter float, which means a company planning an offering, a spin-off or a listing change should model the effect on the following year's compliance cost. For newly public companies, the 12-month and first annual report conditions apply before accelerated filer status begins.

Checklist for a status memo

• Public float calculation: shares held by non-affiliates times the price on the last business day of Q2, with the affiliate list.
• Months as a reporting company and number of annual reports filed.
• Revenue test calculation, using annual revenues as the rule defines them.
• Resulting status and the date it takes effect.
• Effect on 404(b), disclosure scaling and filing deadlines.

CORAA prepares ready-to-review audit files for US CPA firms from client books; the firm keeps the client, the review and the signature. See /us.

Sources

• SEC, 17 CFR 240.12b-2, Definitions (accelerated filer, large accelerated filer, smaller reporting company): https://www.ecfr.gov/current/title-17/section-240.12b-2
• Sarbanes-Oxley Act section 404, 15 U.S.C. 7262(b) and (c): https://www.law.cornell.edu/uscode/text/15/7262
• SEC, 17 CFR 229.308, Item 308(b): https://www.ecfr.gov/current/title-17/section-229.308

AU-C references are to AICPA Professional Standards, paraphrased here; read the standard itself before relying on a requirement. This page is guidance, not professional advice. Report an error