Non accelerated filer

What Is a Non-Accelerated Filer?

A non-accelerated filer is a classification of publicly traded companies by the Securities and Exchange Commission (SEC) that determines their deadlines for filing periodic reports and certain disclosure requirements. Within the broader realm of securities regulation, this status typically applies to smaller companies and newly public entities, affording them more time to submit their financial statements and other reports compared to larger, more established companies. Non-accelerated filers are explicitly defined by what they are not: they are neither an accelerated filer nor a large accelerated filer, and they generally do not meet certain revenue thresholds for larger reporting statuses.⁸⁶, ⁸⁷, ⁸⁸ Companies conducting an initial public offering (IPO) are automatically categorized as non-accelerated filers, regardless of whether they might otherwise meet the criteria for accelerated or large accelerated status.⁸⁴, ⁸⁵

History and Origin

The classification system for reporting companies, including the creation of the non-accelerated filer category, originated from the SEC's efforts to differentiate filing requirements based on company size and market activity. The concept of "accelerated filer" was formally introduced by the SEC with a final rule effective November 15, 2002. This rule, known as "Acceleration of Periodic Report Filing Dates and Disclosure Concerning Website Access to Reports" (Release No. 33-8128), aimed to speed up the filing of quarterly and annual reports for domestic reporting companies meeting specific thresholds, primarily those with a public float of at least $75 million.⁸⁰, ⁸¹, ⁸², ⁸³ By defining accelerated filers, the SEC implicitly established the category of companies that did not meet these accelerated criteria: non-accelerated filers.

Over time, the SEC has continued to refine these definitions to balance investor protection with reducing regulatory burdens on smaller companies, aiming to promote capital formation. A significant amendment occurred on March 12, 2020, with updates to the "accelerated filer" and "large accelerated filer" definitions. These changes expanded the eligibility for non-accelerated filer status to include companies that qualify as smaller reporting companies with annual revenues of less than $100 million, even if their public float exceeded the traditional non-accelerated filer threshold but remained below $700 million.⁷⁷, ⁷⁸, ⁷⁹ These amendments, effective April 27, 2020, were designed to reduce unnecessary compliance costs for certain smaller issuers.⁷⁴, ⁷⁵, ⁷⁶ Further details on these amendments are available in the SEC's Small Entity Compliance Guide.⁷³

Key Takeaways

• Non-accelerated filers are generally companies with a public float less than $75 million, or specific smaller reporting companies with revenues under $100 million.⁶⁹, ⁷⁰, ⁷¹, ⁷²
• They benefit from longer deadlines for filing their Form 10-K (annual report) and Form 10-Q (quarterly report) compared to accelerated and large accelerated filers.⁶⁷, ⁶⁸
• A key advantage of non-accelerated filer status is the exemption from the auditor attestation requirement for internal control over financial reporting (ICFR) under Section 404(b) of the Sarbanes-Oxley Act.⁶⁰, ⁶¹, ⁶², ⁶³, ⁶⁴, ⁶⁵, ⁶⁶
• Companies undergoing an IPO are initially classified as non-accelerated filers, irrespective of their public float or revenue.⁵⁸, ⁵⁹

Interpreting the Non-Accelerated Filer Status

The designation as a non-accelerated filer is primarily a regulatory classification that impacts a company's financial reporting obligations. It signifies that a company falls below certain thresholds set by the SEC, typically related to its public float and, more recently, its annual revenues. For investors, understanding a company's filer status can provide insight into its relative size and regulatory burden.

Companies classified as non-accelerated filers are not subject to the more stringent filing deadlines and auditing requirements imposed on larger companies. This allows them more time to prepare and submit their financial statements and other reports, potentially easing the administrative burden. While all public companies must maintain effective internal controls, non-accelerated filers are exempt from the external auditor attestation requirement regarding management's assessment of these controls, which can lead to reduced compliance costs.⁵⁶, ⁵⁷ This difference in reporting requirements is a critical aspect of how the non-accelerated filer status is applied in the real world of corporate compliance.

Hypothetical Example

Consider "Alpha Innovations Inc.," a hypothetical technology startup that recently completed its initial public offering. At the close of its most recent fiscal year, Alpha Innovations has a public float of $50 million and annual revenues of $15 million. Since it is a newly public company, and its public float is below the $75 million threshold, Alpha Innovations automatically qualifies as a non-accelerated filer.

This status means that for its upcoming annual report (Form 10-K), Alpha Innovations will have 90 days after its fiscal year-end to file, rather than the 75 or 60 days required for accelerated or large accelerated filers, respectively. Similarly, its quarterly reports (Form 10-Q) will be due within 45 days of the quarter-end, instead of 40 days. Furthermore, Alpha Innovations will not be required to obtain an independent auditor's attestation report on its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act, providing a cost-saving benefit.

Practical Applications

The non-accelerated filer status has several practical implications for companies, particularly in terms of operations and resource allocation. The extended filing deadlines for annual and quarterly reports provide companies with more time to gather and prepare their financial data, which can be beneficial for smaller teams with limited resources. This additional time can help ensure the accuracy and completeness of financial disclosures.

Moreover, the exemption from the Sarbanes-Oxley Act Section 404(b) auditor attestation requirement for ICFR offers significant relief. This attestation can be a substantial financial and operational burden, especially for smaller entities. Studies have indicated that audit fees can represent a disproportionately higher percentage of revenue for smaller reporting companies compared to larger filers.⁵⁴, ⁵⁵ For instance, one report highlighted that the average percentage change in audit fees for companies has soared by 127% over five years.⁵³ By alleviating this requirement, companies classified as non-accelerated filers can redirect resources that would otherwise be spent on extensive audit procedures towards core business functions like research and development or market expansion. This practical application directly supports the SEC's objective of promoting capital formation and reducing unnecessary burdens for certain smaller issuers.⁵¹, ⁵²

Limitations and Criticisms

While the non-accelerated filer status offers clear benefits, particularly in reducing regulatory burdens and compliance costs, it also comes with certain limitations and has faced some scrutiny. The primary criticism often revolves around the balance between reducing burdens for smaller companies and ensuring adequate investor protection and transparency.

The scaled-back disclosure requirements and exemptions from certain attestation mandates, while easing the burden on companies, might be viewed by some as potentially reducing the level of financial scrutiny compared to larger, more regulated entities. However, the SEC's intent behind these classifications is to tailor regulatory requirements to the size and complexity of the issuer, arguing that the benefits of certain requirements, like the Section 404(b) attestation, may be lower for issuers with limited revenues.⁴⁹, ⁵⁰

For example, the cost of audits, especially for smaller companies, has been a persistent concern. The relief provided to non-accelerated filers by exempting them from the auditor attestation of internal controls under Sarbanes-Oxley Section 404(b) is a direct response to this.⁴⁷, ⁴⁸ This exemption aims to allow smaller issuers to use their capital more effectively for growth initiatives, rather than allocating a significant portion to what might be considered disproportionate audit expenses.⁴⁶ However, companies must still establish and maintain effective internal controls, and management remains responsible for assessing their effectiveness under Sarbanes-Oxley Section 404(a).⁴⁵

Non-Accelerated Filer vs. Accelerated Filer

The distinction between a non-accelerated filer and an accelerated filer is crucial in U.S. securities law, primarily impacting filing deadlines and auditor attestation requirements.

Confusion can arise because a company's filer status can change over time based on its public float and revenue thresholds. Additionally, a smaller reporting company (SRC) can be either a non-accelerated or an accelerated filer, depending on its specific financial metrics. For example, an SRC with a public float between $75 million and $250 million but with annual revenues over $100 million would still be an accelerated filer.¹⁴, ¹⁵, ¹⁶ Conversely, an SRC with revenues under $100 million is exempt from accelerated filer status.¹², ¹³

FAQs

What are the main benefits of being a non-accelerated filer?

The primary benefits for a non-accelerated filer are extended deadlines for filing annual (Form 10-K) and quarterly (Form 10-Q) reports with the SEC, and exemption from the requirement for an external auditor to attest to management's assessment of internal control over financial reporting under Sarbanes-Oxley Section 404(b).⁹, ¹⁰, ¹¹ This typically results in reduced compliance costs and administrative burdens.

How does a company become a non-accelerated filer?

A company can be a non-accelerated filer if it does not meet the criteria for an accelerated filer or a large accelerated filer. This generally means having a public float of less than $75 million. Additionally, a smaller reporting company with annual revenues under $100 million will also be considered a non-accelerated filer, regardless of whether its public float exceeds $75 million (as long as it's below $700 million).⁶, ⁷, ⁸ Companies undertaking an initial public offering are also initially classified as non-accelerated filers.⁴, ⁵

Can a company's filer status change from non-accelerated to accelerated?

Yes, a company's filer status is reassessed annually. If a non-accelerated filer's public float increases to $75 million or more as of the last business day of its most recently completed second fiscal year, and it meets other conditions (such as having been a reporting company for at least 12 months and having filed one annual report), it may become an accelerated filer. The SEC also has specific revenue thresholds that determine how certain smaller reporting companies transition between statuses.¹, ², ³