Small companies received a regulatory gift on Feb. 4 when the Securities and Exchange Commission’s (SEC) Release No. 33-8876 was
published as a final rule. The new rule
is actually an amendment to various
rules regarding disclosure and reporting requirements of smaller public companies published under the Securities
Act of 1933 and the Securities
Exchange Act of 1934. The new rules
create the new category, “smaller
reporting company.”
Smart Business asked J. Marc Welch,
CPA, principal-in-charge of the audit
department at Tauber & Balser, P.C., to
overview some of the significant highlights of the new rules.
What is the purpose of the new rules?
The new ruling has three primary
objectives:
- Expanding the number of smaller
companies eligible to use scaled disclosure requirements - Reducing unnecessary complexity
in SEC regulations by combining the
category of ‘small business issuers’ with
the category of ‘non-accelerated filers’
to the extent feasible - Simplifying disclosure requirements
by moving scaled disclosure requirements for smaller companies from
Regulation S-B into Regulation S-K, the
integrated disclosure system for other
companies
What is the new definition for ‘smaller
reporting company’?
A ‘smaller reporting company’ is
defined as a company that meets all of
the following criteria: It is not an investment company, an asset-backed issuer,
or a majority-owned subsidiary of a parent that is not a smaller reporting company; it had a public float of less than
$75 million as of the last business day of
its most recently completed second fiscal quarter; and, in the case of an issuer
whose public float was zero, it had
annual revenue of less than $50 million during its most recently completed fiscal year for which audited financial
statements are available on the date of
the filing.
Public float is calculated by multiplying the aggregate worldwide number of
shares of the company’s voting and non-voting common equity by the price at
which its shares of common equity
were last sold or the average of the bid
and asked prices in its principal market
as of the measurement date.
The new provisions permit all foreign
companies to file as ‘smaller reporting
companies’ if they otherwise qualify and
choose to file on domestic company
forms and provide financial statements
prepared in accordance with U.S. Generally Accepted Accounting Principles.
A company that qualifies as a smaller
reporting company will be required to
check the ‘smaller reporting company’
box on the registration statement or
periodic report filed, whether or not it
chooses to rely on the scaled disclosure
standards of the amended Regulation
S-K requirements.
What are the compliance dates?
The SEC has instituted a transition
period where companies that are currently designated as ‘small business
issuers,’ as of Feb 4, 2008, have the
option to use the new scaled disclosure
requirements immediately or to continue to report on Form 10-KSB for their
first fiscal year ending on or after Dec.
15, 2007, and on Form 10-QSB for quarterly reports filed in 2008.
With the elimination of Regulation SB, all ‘SB’ designated forms will be
phased out, including Forms 10-KSB,
10-QSB, SB-1 and SB-2. The new ruling
moves 12 nonfinancial scaled disclosure item requirements from Regulation
S-B into Regulation S-K. These scaled
requirements will be available only for
smaller reporting companies. The
remaining 24 item requirements of
Regulation S-B are substantially the
same as their corresponding Regulation
S-K item requirements.
Form 10-QSB may be used until Oct.
31, 2008, and Form 10-KSB may be used
until March 15, 2009.
Current non-accelerated filers that
qualify as smaller reporting companies
may use the new scaled disclosure provisions for their first Form 10-K filed
after Feb. 4, 2008, and for all Forms 10-Q filed after the company’s first Form
10-K.
For a more in-depth look at the
changes this new ruling brings, you
can download the full text here:
http://sec.gov/rules/final/2007/
33-8876.pdf.
J. MARC WELCH, CPA, is the principal-in-charge of the audit department at Tauber & Balser, P.C. He has more than 20 years of experience with a concentration in assurance and attestation services. Marc has obtained experience in the technology, construction, manufacturing and wholesale distribution industries, among others. His background includes consulting with public companies on the application of GAAP and other reporting requirements of the SEC. Reach him at (404) 814-4990 or [email protected].