What Is Non-Accelerated Filers?
Non-accelerated filers are a classification of public companies under the rules of the Securities and Exchange Commission (SEC) that do not meet the definitions of a "large accelerated filer" or an "accelerated filer." This categorization primarily dictates the deadlines by which these companies must submit their periodic reports, such as annual reports on Form 10-K and quarterly reports on Form 10-Q. The concept of non-accelerated filers falls under [Regulatory Finance], specifically relating to public company compliance and reporting requirements. These companies typically have a smaller market capitalization or lower revenues, and the SEC provides them with more flexible filing schedules to alleviate some of the regulatory burden.
History and Origin
The framework for categorizing public companies, including non-accelerated filers, evolved from the broader regulatory landscape established by the Securities Exchange Act of 1934, which mandated ongoing disclosure from public entities. The specific definitions for accelerated and large accelerated filers, and by implication, non-accelerated filers, were formalized by the SEC to stratify compliance obligations based on a company's size and public float.
A significant historical moment impacting these classifications was the enactment of the Sarbanes-Oxley Act (SOX) in 2002. While SOX aimed to restore investor confidence following major accounting scandals, its stringent requirements, particularly those concerning internal controls over financial reporting (Section 404), imposed substantial compliance costs on all public companies. Small businesses found this burden disproportionately heavy.7
In response to concerns about the compliance burden on smaller companies and to encourage more companies to consider going public, Congress passed the Jumpstart Our Business Startups (JOBS) Act in 2012. This act introduced the "Emerging Growth Company" (EGC) status, which provided certain exemptions from SOX requirements, including the auditor attestation report on internal controls, for a period of up to five years post-IPO. Many companies that qualify as EGCs would also fall under the non-accelerated filer definition, benefiting from eased regulatory pressures.6
Key Takeaways
- Non-accelerated filers are U.S. public companies that do not meet the SEC's thresholds for "accelerated filers" or "large accelerated filers."
- This classification grants them extended deadlines for submitting their annual reports (Form 10-K) and quarterly reports (Form 10-Q) to the SEC.
- The primary criterion for this status relates to a company's public float, typically less than $75 million.
- The relaxed reporting requirements are intended to reduce the regulatory and financial burden on smaller public entities.
- Companies often begin as non-accelerated filers, especially after going public through an Initial Public Offering (IPO).
Interpreting the Non-Accelerated Filer Status
For investors and analysts, identifying a company as a non-accelerated filer offers insights into its size and the associated regulatory timelines. Companies with this status generally have less public float, meaning a smaller portion of their equity is held by non-affiliates. This can sometimes imply less liquidity in the stock compared to larger companies.
The extended filing deadlines for non-accelerated filers mean that their financial statements and other periodic reports become publicly available later than those of accelerated or large accelerated filers. Investors performing due diligence must account for this delay in accessing the most current financial information. While the information ultimately becomes available, the time lag can be a factor for analysis, particularly in fast-moving market conditions. The status also indicates that the company may not be subject to the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, which can affect the perception of the rigor of their internal controls.
Hypothetical Example
Consider "Alpha Innovations Inc.," a nascent tech company that recently completed its Initial Public Offering (IPO). Its market capitalization, based on the aggregate worldwide market value of its common equity held by non-affiliates, is $50 million as of the last business day of its most recently completed second fiscal quarter. This value falls below the $75 million threshold set by the SEC for Accelerated filers.
As a result, Alpha Innovations Inc. is classified as a non-accelerated filer. This classification allows the company 90 days after its fiscal year-end to file its annual reports on Form 10-K and 45 days after its fiscal quarter-end to file its quarterly reports on Form 10-Q. For instance, if its fiscal year ends on December 31, its 10-K would be due by the end of March, whereas an accelerated filer would need to file by mid-February. This extra time can be crucial for Alpha Innovations, a relatively small business with limited accounting staff, allowing them more flexibility in preparing their comprehensive financial statements and ensuring accuracy.
Practical Applications
The classification of non-accelerated filers has several practical applications within the financial and regulatory landscape:
- Tailored Reporting Requirements: The primary practical application is the adjustment of filing deadlines for periodic reports. Non-accelerated filers are generally given 90 days to file their annual reports (Form 10-K) after their fiscal year-end and 45 days for their quarterly reports (Form 10-Q). This contrasts with the shorter 60-day/40-day or 75-day/40-day deadlines for large accelerated and accelerated filers, respectively.5 This provides smaller companies with valuable additional time to prepare their disclosures.
- Reduced Compliance Costs: Non-accelerated filers are exempt from the requirement under Section 404(b) of the Sarbanes-Oxley Act for an auditor attestation report on internal controls over financial reporting. While management must still assess and report on internal controls, the elimination of the external auditor's attestation significantly reduces audit fees and the overall burden of SOX compliance for these companies. This exemption is particularly beneficial for small businesses.
- Investor Due Diligence: For investors, understanding a company's filer status is crucial for establishing expectations regarding the timeliness of financial disclosures. While non-accelerated filers provide audited financial statements, the delayed release means that investors and analysts must factor in this lag when evaluating the most recent performance and financial health. The SEC provides detailed guidance on how companies assess and maintain their filer status, which informs investors about the regulatory expectations.4
- IPO Strategy: For companies considering going public, the non-accelerated filer status often represents the initial classification, regardless of their potential public float, until their first annual report is filed.3 This initial status allows new public entities to gradually adapt to the demands of public company reporting requirements before potentially moving to an accelerated status based on their growth.
Limitations and Criticisms
While the non-accelerated filer status aims to reduce the burden on smaller public companies, it is not without its limitations and criticisms:
One primary critique revolves around the potential for less timely information for shareholders and the market. The extended filing deadlines, while beneficial for the company's compliance costs and operational flexibility, mean that current financial statements and other critical disclosures are not available as quickly as those from larger firms. This information lag could theoretically disadvantage investors who rely on the most up-to-date data for investment decisions.
Additionally, the exemption from the external auditor's attestation on internal controls under Section 404(b) of the Sarbanes-Oxley Act has been a point of debate. While it saves smaller companies significant expense, some critics argue it could lead to less robust internal control environments compared to larger firms subject to the attestation requirement. The idea is that an independent auditor's attestation provides an additional layer of assurance regarding the effectiveness of these controls, which is absent for non-accelerated filers. A study by RAND Corporation suggested that the Sarbanes-Oxley Act disproportionately affected small publicly traded companies in its first year, leading some to be purchased by private firms to avoid compliance.2 This highlights the burden even with exemptions, and some argue the relief for non-accelerated filers doesn't go far enough or creates a two-tiered system of financial reporting reliability.
Non-Accelerated Filers vs. Accelerated Filers
The distinction between non-accelerated filers and Accelerated filers (and large accelerated filers) is rooted in their respective public floats and the resultant reporting requirements set by the Securities and Exchange Commission. A company is classified as an accelerated filer if it has a public float of $75 million or more but less than $700 million, has been subject to SEC reporting requirements for at least 12 calendar months, and has filed at least one annual report. In contrast, non-accelerated filers are simply those companies that do not meet the criteria for either an accelerated or a large accelerated filer. This typically means their public float is less than $75 million, or they are new public companies that have not yet met the other criteria. The most significant practical difference lies in the deadlines for filing their periodic reports: non-accelerated filers receive more time for their annual and quarterly reports, and they are exempt from the external auditor attestation on internal controls under Sarbanes-Oxley Section 404(b).
FAQs
What defines a non-accelerated filer?
A non-accelerated filer is a public company that does not meet the SEC's definitions of an "accelerated filer" (public float of $75 million to $700 million) or a "large accelerated filer" (public float of $700 million or more). This typically applies to small businesses with less than $75 million in public market capitalization or those that are newly public.1
What are the main benefits of being a non-accelerated filer?
The primary benefits include extended deadlines for filing annual reports (Form 10-K) and quarterly reports with the SEC, and an exemption from the requirement for an external auditor to attest to the effectiveness of the company's internal controls over financial reporting under Section 404(b) of the Sarbanes-Oxley Act. These provisions are designed to reduce the regulatory burden and compliance costs for smaller companies.
Can a company change its filer status?
Yes, a company's filer status can change annually based on its public float as of the last business day of its most recently completed second fiscal quarter. If a non-accelerated filer's public float grows and exceeds the $75 million threshold, it may become an Accelerated filers in the subsequent fiscal year, subjecting it to shorter deadlines and additional reporting requirements. Conversely, an accelerated filer whose public float falls below certain thresholds can revert to non-accelerated status.