If you find the title of this posting confusing, let me explain: On June 28, the SEC announced revisions to the definition of “smaller reporting company”that will significantly expand the number of companies that fit within that category (i.e., “smaller gets bigger”). As a result, more public companies will be able to reduce the disclosure they are required to provide under SEC rules (i.e., “which means less”). The new definition will go into effect 60 days after publication in the Federal Register.
The SEC adopted the reduced disclosure requirements applicable to smaller reporting companies, or SRCs, in 2007. These reduced requirements were intended to ease the costs and other burdens of disclosure for small companies. The reduced requirements enabled SRCs, among other things, to:
- present only two (rather than three) years of financial statements and the related management’s discussion and analysis;
- provide executive compensation for only three (rather than five) “named executive officers”;
- omit the compensation discussion and analysis in its entirety;
- present only two (vs. three) years of information in the summary compensation table; and
- omit other compensation tables, pay ratio disclosure, and narrative descriptions of various compensation matters.
In addition, SRCs that are not “accelerated filers” (companies that must file their Exchange Act reports on an accelerated basis) need not provide an audit attestation of management’s assessment of internal controls, required by the Sarbanes-Oxley Act. More on this below.