New filing rules Featured

8:00pm EDT April 25, 2008

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: 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