[Federal Register Volume 84, Number 103 (Wednesday, May 29, 2019)]
[Proposed Rules]
[Pages 24876-24924]
[FR Doc No: 2019-09932]

Vol. 84

Wednesday,

No. 103

May 29, 2019

Part II

Securities and Exchange Commission

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17 CFR Parts 240

Amendments to the Accelerated Filer and Large Accelerated Filer
Definitions; Proposed Rule

Federal Register / Vol. 84 , No. 103 / Wednesday, May 29, 2019 /
Proposed Rules

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-85814; File No. S7-06-19]
RIN 3235-AM41

Amendments to the Accelerated Filer and Large Accelerated Filer
Definitions

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rules.

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SUMMARY: We are proposing amendments to the accelerated filer and large
accelerated filer definitions to promote capital formation for smaller
reporting issuers, by more appropriately tailoring the types of issuers
that are included in the categories of accelerated and large
accelerated filers and revising the transition thresholds for
accelerated and large accelerated filers. The proposed amendments would
exclude from the accelerated and large accelerated filer definitions an
issuer that is eligible to be a smaller reporting company and had
annual revenues of less than $100 million in the most recent fiscal
year for which audited financial statements are available. In addition,
the proposed amendments would increase the transition thresholds for
accelerated and large accelerated filers becoming non-accelerated
filers from $50 million to $60 million and for exiting large
accelerated filer status from $500 million to $560 million. Finally,
the proposed amendments would add a revenue test to the transition
thresholds for exiting both accelerated and large accelerated filer
status. As a result of the amendments, certain low-revenue issuers
would not be required to have their assessment of the effectiveness of
internal control over financial reporting attested to, and reported on,
by an independent auditor, although they would continue to be required
to make such assessments and to establish and maintain the
effectiveness of their internal control over financial reporting.

DATES: Comments should be received on or before July 29, 2019.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use our internet comment form (https://www.sec.gov/rules/proposed.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File No. S7-06-19 on the subject line.

Paper Comments

     Send paper comments to Secretary, Securities and Exchange
Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number S7-06-19. This file number
should be included on the subject line if email is used. To help us
process and review your comments more efficiently, please use only one
method. We will post all comments on our internet website (https://www.sec.gov/rules/proposed.shtml). Comments are also available for
website viewing and printing in our Public Reference Room, 100 F Street
NE, Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. All comments received will be posted without
change. Persons submitting comments are cautioned that we do not redact
or edit personal identifying information from comment submissions. You
should submit only information that you wish to make available
publicly.
    We or the staff may add studies, memoranda, or other substantive
items to the comment file during this rulemaking. A notification of the
inclusion in the comment file of any such materials will be made
available on our website. To ensure direct electronic receipt of such
notifications, sign up through the ``Stay Connected'' option at
www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT: John Fieldsend, Special Counsel, or
Jennifer Riegel, Special Counsel, in the Division of Corporation
Finance, at<PHONE_NUMBER>, U.S. Securities and Exchange Commission,
100 F Street NE, Washington, DC 20549-3628.

SUPPLEMENTARY INFORMATION: We are proposing amendments to 17 CFR 12b-2
(``Rule 12b-2'') under the Securities Exchange Act of 1934 (``Exchange
Act'').\1\
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    \1\ 15 U.S.C. 78a et seq.
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Table of Contents

I. Introduction
    A. Background
    B. Summary of the Proposed Amendments
II. Discussion of the Proposed Amendments
    A. Historical and Current Relationship Between the SRC and
Accelerated and Large Accelerated Filer Definitions
    B. ICFR Requirements
    C. Proposed Amendments To Exclude Low-Revenue SRCs From the
Accelerated and Large Accelerated Filer Definitions
    D. Proposed Amendments to the Transition Provisions in the
Accelerated and Large Accelerated Filer Definitions
    E. Request for Comment
III. Economic Analysis
    A. Introduction
    B. Baseline
    1. Regulatory Baseline
    2. Characteristics of Accelerated Filer Population
    3. Timing of Filings
    4. Internal Controls and Restatements
    C. Discussion of Economic Effects
    1. Affected Issuers
    2. Comparison Populations
    3. Potential Benefits of Eliminating the ICFR Auditor
Attestation Requirement for Affected Issuers
    4. Potential Costs of Eliminating the ICFR Auditor Attestation
Requirement for Affected Issuers
    5. Potential Benefits and Costs Related to Other Aspects of the
Proposed Amendments
    6. Alternatives to the Proposed Amendments
    D. Request for Comment
IV. Paperwork Reduction Act
    A. Summary of the Collections of Information
    B. Burden and Cost Estimates Related to the Proposed Amendments
    1. ICFR Auditor Attestation Requirement
    2. Filing Deadlines; Disclosure Regarding Filing Availability
and Unresolved Staff Comments
    3. Total Burden Reduction
    C. Request for Comment
V. Small Business Regulatory Enforcement Fairness Act
VI. Initial Regulatory Flexibility Act Analysis
    A. Reasons for, and Objectives of, the Proposing Action
    B. Legal Basis
    C. Small Entities Subject to the Proposed Rules
    D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
    E. Duplicative, Overlapping, or Conflicting Federal Rules
    F. Significant Alternatives
    G. Request for Comment
VII. Statutory Authority and Text of Proposed Rule Amendments

I. Introduction

A. Background

    In 2002, the Commission introduced a reporting regime that
categorized issuers subject to the Exchange Act reporting requirements
as non-accelerated, accelerated, and large accelerated filers.\2\ Under
this regime, accelerated

and large accelerated filers are subject to shorter filing deadlines
for quarterly and annual reports and are subject to some disclosure \3\
and other requirements that do not apply to non-accelerated filers. The
only difference between the requirements for accelerated and large
accelerated filers is that large accelerated filers are subject to a
filing deadline for their annual reports on Form 10-K that is 15 days
shorter than the deadline for accelerated filers.\4\
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    \2\ See Acceleration of Periodic Report Filing Dates and
Disclosure Concerning website Access to Reports, Release No. 33-8128
(Sept. 5, 2002) [67 FR 58480 (Sept. 16, 2002)]. The definitions in
Rule 12b-2 are not enumerated, including the definition of
``accelerated filer and large accelerated filer.'' The paragraphs
under the ``accelerated filer and large accelerated filer''
definition, however, are enumerated. Paragraph (1) defines
``accelerated filer,'' paragraph (2) defines ``large accelerated
filer,'' and paragraph (3) discusses entering and exiting
accelerated filer and large accelerated filer status. Also, although
Rule 12b-2 defines the terms ``accelerated filer'' and ``large
accelerated filer,'' it does not define the term ``non-accelerated
filer.'' See paragraphs (1) and (2) under the ``accelerated filer
and large accelerated filer'' definition in Rule 12b-2. If an issuer
does not meet the definition of accelerated filer or large
accelerated filer, it is considered a non-accelerated filer. See
Table 1 in Section II.C. below for the definitions of ``accelerated
filer'' and ``large accelerated filer.''
    \3\ Accelerated and large accelerated filers are required to
provide the disclosure required by Item 1B of 17 CFR 249.310 (``Form
10-K'') and Item 4A of 17 CFR 249.220f (``Form 20-F'') about
unresolved staff comments on their periodic and/or current reports.
Also, accelerated and large accelerated filers are required to
provide certain disclosures about whether they make filings
available on or through their internet website. See 17 CFR
229.101(e)(4).
    \4\ See Table 6 in Section III.B.1 below.
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    A significant requirement that applies to accelerated and large
accelerated filers, but not to non-accelerated filers, is the
requirement that an issuer's independent auditor must attest to, and
report on, management's assessment of the effectiveness of the issuer's
internal control over financial reporting (``ICFR'').\5\ Section 404(a)
of the Sarbanes-Oxley Act (``SOX'') \6\ requires almost all issuers,
including smaller reporting companies (``SRCs''), that file reports
pursuant to Exchange Act Section 13(a) or 15(d) to establish and
maintain ICFR and have their management assess the effectiveness of
their ICFR.\7\ In addition, SOX Section 404(b) \8\ requires those
issuers to have the independent accounting firm that prepares or issues
their financial statement audit report attest to, and report on,
management's assessment of the effectiveness of their ICFR (``ICFR
auditor attestation'').\9\ SOX Section 404(c),\10\ however, exempts
from the ICFR auditor attestation requirement issuers that are neither
large accelerated nor accelerated filers. Congress introduced the ICFR
auditor attestation requirement as part of a package of regulations
intended to improve the accuracy and reliability of corporate
disclosures.\11\ Although there are benefits to the ICFR auditor
attestation requirement, there are also costs and burdens, which we
discuss in more detail below.\12\
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    \5\ See 17 CFR 240.13a-15(f) and 17 CFR 240.15d-15(f) (defining
ICFR).
    \6\ 15 U.S.C. 7262(a).
    \7\ See 17 CFR 240.13a-15 and 17 CFR 240.15d-15.
    \8\ 15 U.S.C. 7262(b).
    \9\ See 15 U.S.C. 7262(b).
    \10\ See 15 U.S.C. 7262(c).
    \11\ See 15 U.S.C. 7262 (SOX's subheading is, ``AN ACT To
protect investors by improving the accuracy and reliability of
corporate disclosures made pursuant to the securities laws, and for
other purposes.'').
    \12\ See Section III.C below.
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    Initially, the categories of issuers under the accelerated and
large accelerated filer reporting regime existed separately from
categories that the Commission created to provide regulatory relief to
smaller entities.\13\ However, in 2007, when the Commission combined
its separate disclosure regime for small business issuers with the
regime for larger issuers, it attempted to align the SRC and non-
accelerated filer categories, to the extent feasible, to avoid
unnecessary complexity.\14\ As a result, an SRC generally was not an
accelerated or large accelerated filer and did not have to comply with
the accelerated or large accelerated filing deadlines or the ICFR
auditor attestation requirement.\15\
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    \13\ See, e.g., Smaller Reporting Company Regulatory Relief and
Simplification, Release No. 33-8876 (Dec. 19, 2007) [73 FR 934 (Jan.
4, 2008)] (``SRC Regulatory Relief Release'') (discussing small
business issuers and Regulation S-B).
    \14\ See id.
    \15\ In addition, an SRC also was not required to provide the
disclosure required by Item 1B of Form 10-K, and a non-accelerated
filer was not required to provide the disclosure required by Item 4A
of Form 20-F about unresolved staff comments on its periodic and/or
current reports. Further, non-accelerated filers were not required
to provide certain disclosures about whether they make filings
available on or through their internet website. See 17 CFR
229.101(e)(4).
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    This alignment changed in June 2018 when the Commission adopted
amendments \16\ to the SRC definition \17\ to expand the number of
issuers that qualify for scaled disclosure accommodations. The revised
SRC definition allows an issuer to use either a public float \18\ test
or a revenue test (``SRC revenue test'') to determine whether it is an
SRC. The amendments increased the threshold in the public float test
for an issuer to initially qualify as an SRC from less than $75 million
to less than $250 million.\19\ The Commission also expanded the revenue
test to include issuers with annual revenues \20\ of less than $100
million if they have no public float or a public float of less than
$700 million.\21\ Before the amendments, the revenue test in the SRC
definition applied only to issuers with no public float. In the SRC
Adopting Release, the Commission estimated that raising the threshold
used in the public float test and expanding the revenue test in the SRC
definition would result in an additional 966 issuers being eligible for
SRC status in the first year under the new definition.\22\ The
Commission intended the amendments to promote capital formation for
smaller reporting issuers by reducing compliance costs for the newly-
eligible SRCs while maintaining appropriate investor protections.\23\
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    \16\ See Smaller Reporting Company Definition, Release No. 33-
10513 (June 28, 2018) [83 FR 31992 (July 10, 2018)] (``SRC Adopting
Release'').
    \17\ See 17 CFR 229.10(f)(1)(i), 17 CFR 230.405 (``Rule 405''),
and Rule 12b-2.
    \18\ Public float is defined in paragraph (3)(i)(A) of the SRC
definition in Rule 12b-2, which states that public float is measured
as of the last business day of the issuer's most recently completed
second fiscal quarter and computed by multiplying the aggregate
worldwide number of shares of its voting and non-voting common
equity held by non-affiliates by the price at which the common
equity was last sold, or the average of the bid and asked prices of
common equity, in the principal market for the common equity. See
also 17 CFR 229.10(f) (2)(i)(A) and Rule 405. An entity with no
public float because, for example, it has equity securities
outstanding but is not trading in any public trading market would
not be able to qualify on the basis of a public float test.
    \19\ To avoid situations where an issuer frequently enters and
exits SRC status, each test includes two thresholds--one for
initially determining whether an issuer qualifies as an SRC and a
subsequent, lower threshold for issuers that did not initially
qualify as an SRC.
    \20\ Annual revenues are measured as of the most recently
completed fiscal year for which audited financials are available.
See 17 CFR 229.10(f)(2)(i)(B), Rule 405, and Rule 12b-2.
    \21\ See 17 CFR 229.10(f)(1), Rule 405, and Rule 12b-2. The
prior revenue test included issuers with no public float and annual
revenues of less than $50 million. See SRC Adopting Release, note 16
above, at 31995. The lower transition thresholds under the revenue
test for an issuer that did not initially qualify as an SRC were
revised from less than $40 million of annual revenues and no public
float to less than $80 million of annual revenues and either no
public float or a public float of less than $560 million. See Item
17 CFR 229.10(f)(2)(iii)(B), Rule 405, and Rule 12b-2.
    \22\ SRC Adopting Release, note 16 above, at 32005.
    \23\ Id. at 31992.
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    In conjunction with these amendments, the Commission also revised
the accelerated filer and large accelerated filer definitions in Rule
12b-2 to remove the condition that, for an issuer to be an accelerated
filer or a large accelerated filer, it must not be eligible to use the
SRC accommodations.\24\ One result of these amendments is that some
issuers now are categorized as both SRCs and accelerated or large
accelerated filers.\25\

These issuers have some, but not all, of the benefits of scaled
regulation and, in particular, are required to comply with earlier
filing deadlines for annual and quarterly reports and the ICFR auditor
attestation requirement.
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    \24\ This amendment, among other things, preserved the existing
thresholds in those definitions and did not change the number of
issuers subject to the ICFR auditor attestation requirement.
    \25\ Although rare, under our existing rules, some issuers that
meet the large accelerated filer definition may be eligible to be an
SRC because of the expanded revenue test in the SRC definition. An
issuer is eligible to be an SRC and a large accelerated filer if it:
(1) Previously qualified as a large accelerated filer because its
public float was $700 million or more; (2) its revenues for the most
recent fiscal year were less than $100 million; and (3) its public
float as of the end of the most recent second quarter is less than
$560 million (or, for the first year after the new SRC rules are
effective, is less than $700 million), such that it is eligible to
be an SRC, but does not fall below the $500 million transition
threshold necessary to exit large accelerated filer status. See SRC
Adopting Release, note 16 above, at 31994 n.31 and 32001 n.128. We
are proposing to revise the ``large accelerated filer'' definition
so that an issuer that would be eligible to be an SRC under the SRC
revenue test would not also qualify as a large accelerated filer.
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    At the time of the SRC Adopting Release, as noted in that release,
the Chairman directed the staff to formulate recommendations to the
Commission for possible rule amendments that, if adopted, would have
the effect of reducing the number of issuers that qualify as
accelerated filers to promote capital formation by reducing compliance
costs for certain registrants, while maintaining appropriate investor
protections.\26\ As part of the staff's consideration of possible
amendments to recommend, the Chairman directed the staff to consider,
among other things, the historical and current relationship between the
SRC and accelerated filer definitions.
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    \26\ See SRC Adopting Release, note 16 above, at 32001.
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B. Summary of the Proposed Amendments

    We are proposing to amend the accelerated and large accelerated
filer definitions in Rule 12b-2 to exclude any issuer that is eligible
to be an SRC under the SRC revenue test. The effect of this proposal
would be that such an issuer would not be subject to accelerated or
large accelerated filing deadlines for its annual and quarterly reports
or to the ICFR auditor attestation requirement.\27\ Other issuers that
are eligible to be SRCs but are not excluded from the accelerated or
large accelerated filer definition would need to satisfy all of the
requirements applicable to an accelerated or large accelerated filer,
including the ICFR auditor attestation requirement.
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    \27\ The issuer also would not have to provide the disclosure
required by Item 1B of Form 10-K and Item 4A of Form 20-F about
unresolved staff comments on its periodic and/or current reports or
the disclosure required by Item 101(e)(4) of Regulation S-K about
whether it makes filings available on or through its internet
website. See 17 CFR 229.101(e)(4).
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    Additionally, we are proposing to revise the transition provisions
set forth in the ``Entering and exiting accelerated filer and large
accelerated filer status'' section applicable to the Rule 12b-2
accelerated and large accelerated filer definitions. The proposed
amendments would revise the public float transition threshold for
accelerated and large accelerated filers to become a non-accelerated
filer from $50 million to $60 million. Also, the proposed amendments
would increase the exit threshold in the large accelerated filer
transition provision from $500 million to $560 million in public float
to align the SRC and large accelerated filer transition thresholds.
Finally, the proposed amendments would allow an accelerated or a large
accelerated filer to become a non-accelerated filer if it becomes
eligible to be an SRC under the SRC revenue test.

II. Discussion of the Proposed Amendments

A. Historical and Current Relationship Between the SRC and Accelerated
and Large Accelerated Filer Definitions

    Prior to the SRC amendments, the SRC category of filers generally
did not overlap with either the accelerated or large accelerated filer
categories.\28\ In addition, the accelerated and large accelerated
filer definitions explicitly excluded any issuer eligible to use the
SRC accommodations. Now, however, as illustrated in Figure 1 of this
section, because the public float tests in the SRC and accelerated
filer definitions partially overlap, and the accelerated and large
accelerated filer definitions no longer specifically exclude an issuer
that is eligible to be an SRC, an issuer meeting the accelerated filer
definition \29\ will be both an SRC and an accelerated filer \30\ if it
has:
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    \28\ See SRC Adopting Release, note 16 above, at 32001.
    \29\ As discussed in Section II.C below, the existing conditions
for qualifying as an accelerated filer are that an issuer: (1) Had
an aggregate worldwide public float of $75 million or more, but less
than $700 million, as of the last business day of the issuer's most
recently completed second fiscal quarter; (2) has been subject to
the requirements of 15 U.S.C. 78m (Exchange Act Section 13(a)) or 15
U.S.C. 78o(d) (Exchange Act Section 15(d)) for a period of at least
twelve calendar months; and (3) has filed at least one annual report
pursuant to those sections. For a large accelerated filer,
conditions (2) and (3) are the same, but condition (1) is that an
issuer had an aggregate worldwide public float of $700 million or
more, as of the last business day of the issuer's most recently
completed second fiscal quarter. Also, as discussed in note 25
above, some issuers that meet the ``large accelerated filer''
definition may be eligible to be an SRC.
    \30\ The thresholds provided below are based on the initial
thresholds of each definition; however, due to the transition
provisions of the accelerated and large accelerated filer
definitions, additional issuers may also be both an SRC and an
accelerated or large accelerated filer.
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     A public float of $75 million or more, but less than $250
million, regardless of annual revenues; or
     Less than $100 million in annual revenues, and a public
float of $250 million or more, but less than $700 million.
[GRAPHIC] [TIFF OMITTED] TP29MY19.000

    When the Commission proposed the amendments to the SRC
definition,\31\ it did not propose to exclude the newly-eligible SRCs
from the accelerated or large accelerated filer definitions but
solicited comment on this point. Some

commenters recommended that the Commission increase the threshold in
the accelerated filer definition to be consistent with changes to the
SRC definition,\32\ reduce compliance costs associated with the ICFR
auditor attestation requirement,\33\ and maintain uniformity across the
rules.\34\
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    \31\ Amendments to Smaller Reporting Company Definition, Release
No. 33-10107 (June 27, 2016) [81 FR 43130 (July 1, 2016)] (``SRC
Proposing Release'').
    \32\ See, e.g., letters from Acorda Therapeutics, Inc. et al.
(Aug. 23, 2016) (``Acorda, et al.''); Advanced Medical Technology
Association (Aug. 20, 2016) (``AMTA''); Biotechnology Innovation
Organization, (Aug. 30, 2016) (``BIO''); Calithera Biosciences (Aug.
8, 2016) (``Calithera''); CONNECT (Aug. 4, 2016) (``CONNECT'');
Corporate Governance Coalition for Investor Value (Aug. 30, 2016)
(``Coalition''); Council of State Bioscience Associations (Aug. 26,
2016) (``CSBA''); Independent Community Bankers of America (Aug. 29,
2016) (``ICBA''); The Dixie Group, Inc. (July 11, 2016) (``Dixie'');
MidSouth Bancorp, Inc. (Aug. 24, 2016) (``MidSouth''); Nasdaq (Aug.
30, 2016) (``Nasdaq''); National Venture Capital Association (Aug.
25, 2016) (``NVCA''); NYSE Group (July 25, 2016) (``NYSE''); and
Seneca Foods Corporation (Aug. 2, 2016) (``Seneca''). However, some
commenters expressed concern about amending the public float
thresholds. See letters from BDO USA, LLP (Aug. 29, 2016); Center
for Audit Quality and Counsel of Institutional Investors. (Aug. 30,
2016) (``CAQ/CII''); CFA Institute (Aug. 30, 2016) (``CFA''); and
Ernst & Young LLP (Sept. 8, 2016) (``EY''). References to comment
letters in this release refer to comments on the SRC Proposing
Release, available at https://www.sec.gov/comments/s7-12-16/s71216.htm, unless otherwise specified.
    \33\ See, e.g., letters from Acorda, et al.; AMTA; BIO;
Calithera; CONNECT; Coalition; CSBA; ICBA; MidSouth; Nasdaq; NVCA;
NYSE; and Seneca.
    \34\ See BIO; Coalition; Nasdaq; NVCA; and NYSE.
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B. ICFR Requirements

    Issuer obligations with respect to internal accounting controls and
ICFR derive primarily from the Foreign Corrupt Practices Act
(``FCPA''), which added Section 13(b)(2)(B) to the Exchange Act; \35\
SOX Sections 302 \36\ and 404(a); and related rules.\37\ Exchange Act
Section 13(b)(2)(B) requires every issuer that is required to file
reports pursuant to Exchange Act Section 13(a) or 15(d) to devise and
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that transactions are executed in accordance with
management's general or specific authorization and recorded as
necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles or any other criteria
applicable to such statements and to maintain accountability for
assets.\38\ Additionally, Exchange Act Section 13(b)(2)(B) requires
that the issuer's system of internal accounting controls provide
reasonable assurances that access to assets is permitted only in
accordance with management's general or specific authorization and that
the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.\39\
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    \35\ 15 U.S.C. 78m(b)(2)(B) (referring to ``internal accounting
controls'' rather than ICFR).
    \36\ 15 U.S.C. 7241.
    \37\ See 17 CFR 229.308, 17 CFR 240.13a-15, 17 CFR 240.15d-15,
Form 20-F, Form 40-F, 17 CFR 270.30a-2, and 17 CFR 270.30a-3.
    \38\ 15 U.S.C. 78m(b)(2)(B)(i)-(ii).
    \39\ 15 U.S.C. 78m(b)(2)(B)(iii)-(iv).
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    Similarly, pursuant to SOX Section 302, the Commission adopted
rules requiring the principal executive and financial officers of
certain issuers filing reports pursuant to Exchange Act Section 13(a)
or 15(d) to certify that, among other things, they are responsible for
establishing and maintaining ICFR, have designed ICFR to ensure
material information relating to the issuer and its consolidated
subsidiaries is made known to such officers by others within those
entities, and evaluated and reported on the effectiveness of the
issuer's ICFR.\40\ Also, pursuant to SOX Section 404(a), the Commission
adopted rules requiring each annual report required by Exchange Act
Section 13(a) or 15(d) to include a statement that it is management's
responsibility to establish and maintain adequate ICFR and to provide
management's assessment of the effectiveness of the issuer's ICFR.\41\
Issuers must evaluate and disclose any change to their ICFR that
occurred during each fiscal quarter.\42\
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    \40\ See 17 CFR 240.13a-14 or 17 CFR 240.15d-14 (requiring
certification) and 17 CFR 229.601(b)(31) (prescribing certification
content).
    \41\ See 17 CFR 229.308, 17 CFR 240.13a-15, 17 CFR 240.15d-15,
Item 15 of Form 20-F, and Certifications 4 and 5 of Form 40-F.
Effective ICFR is designed to provide reasonable assurance that an
issuer's financial disclosures are reliable and prepared in
accordance with U.S. Generally Accepted Accounting Principles
(``U.S. GAAP'') or International Financial Reporting Standards
(``IFRS''). See 17 CFR 240.13a-15(f) and 17 CFR 240.15d-15(f).
Effective ICFR includes policies and procedures designed to maintain
records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the issuer;
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that
receipts and expenditures of the issuer are being made only in
accordance with authorizations of management and directors of the
issuer; and provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of
the issuer's assets that could have a material effect on the
financial statements. See 17 CFR 240.13a-15(f) and 17 CFR 240.15d-
15(f). These controls can help prevent or detect financial
misstatements, whether intentional or unintentional. Id.
    \42\ See 17 CFR 240.13a-15(d) and 17 CFR 240.15d-15(d). See also
17 CFR 229.308(c). A registered investment company (``RIC'') must
disclose in each report on Form N-CSR any change in its ICFR that
has materially affected, or is reasonably likely to materially
affect, its ICFR. See Item 11(b) of Form N-CSR [17 CFR 249.331; 17
CFR 274.128].
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    Although SOX Section 404 generally requires and directs the
Commission to adopt rules regarding internal accounting controls and
ICFR that apply to every issuer that is required to file reports
pursuant to Exchange Act Section 13(a) or 15(d), RICs under Section 8
of the Investment Company Act of 1940 (``Investment Company Act'') \43\
are specifically exempted from SOX Section 404 by SOX Section 405.\44\
In addition, the Commission's rules implementing the FCPA and SOX
Section 404 exempted other types of issuers, such as asset-backed
securities (``ABS'') issuers, from the ICFR obligations.\45\ The
Commission also determined that foreign private issuers (``FPIs'') and
Canadian multijurisdictional disclosure system (``MJDS'') issuers must
have their management assess and report annually on the effectiveness
of their ICFR as of the end of their fiscal year and evaluate and
disclose any change in their ICFR that occurred during the period
covered by the annual report.\46\
---------------------------------------------------------------------------

    \43\ 15 U.S.C 80a-8.
    \44\ 15 U.S.C. 7263. Notwithstanding the exemption pursuant to
SOX Section 405, RICs are required to provide the certifications
pursuant to SOX Section 302 and to maintain ICFR. See 17 CFR
270.30a-2 and 270.30a-3; see also Management's Report on Internal
Control Over Financial Reporting and Certification of Disclosure in
Exchange Act Periodic Reports, Release No. 34-47986 (June 5, 2003)
[68 FR 36635 (June 18, 2003)]. RICs that are management companies,
other than small business investment companies, are also required to
file a copy of their independent public accountant's report on
internal controls. See Form N-CEN (17 CFR 274.101); see also
Investment Company Reporting Modernization, Release No. IC-32314,
notes 879-881 and accompanying text (Oct. 13, 2016) [81 FR 81870
(Nov. 18, 2016)].
    Additionally, business development companies (``BDCs'') are
subject to the rules adopted by the Commission to implement SOX
Section 404. BDCs are a type of closed-end investment company that
is not registered under the Investment Company Act and, therefore,
not within the exemption provided by SOX Section 405.
    \45\ See Asset-Backed Securities, Release No. 33-8518 (Dec. 22,
2004) [70 FR 1506, 1510 n.41 (Jan. 7, 2005)] (``ABS Release''). See
also 17 CFR 240.13a-15(a) and 17 CFR 240.15d-15(a) and Instruction J
to Form 10-K.
    \46\ See Items 15(b) and (d) of Form 20-F and Certifications 4
and 5 of Form 40-F.
---------------------------------------------------------------------------

    In addition to the responsibility of the issuer's management to
establish and maintain an effective internal control structure and
procedures for financial reporting, the independent accounting firm
that prepares or issues a financial statement audit report also helps
support effective ICFR. SOX Section 404(b) requires any issuer subject
to the rules the Commission adopted related to SOX Section 404(a),
other than an emerging growth company (``EGC''),\47\ to

have the accounting firm that prepares or issues its financial
statement audit report attest to, and report on, management's
assessment of the effectiveness of the issuer's ICFR. Under the current
Public Company Accounting Oversight Board (``PCAOB'') risk assessment
standards,\48\ the independent auditor for the ICFR attestation
considers certain information that is similar to information it
considers for purposes of the issuer's financial statement audit. SOX
Section 404(c) exempts non-accelerated filers from SOX Section 404(b)'s
ICFR auditor attestation requirement.
---------------------------------------------------------------------------

    \47\ An EGC is defined as an issuer that had total annual gross
revenues of less than $1.07 million during its most recently
completed fiscal year. See Rule 405; Rule 12b-2; 15 U.S.C.
77b(a)(19); 15 U.S.C. 78c(a)(80); and Inflation Adjustments and
Other Technical Amendments under Titles I and II of the JOBS Act,
Release No. 33-10332 (Mar. 31, 2017) [82 FR 17545 (Apr. 12, 2017)].
    Similar to other issuers, BDCs that qualify as an EGC or as a
non-accelerated filer are not subject to the auditor attestation
requirement in SOX Section 404(b). Unlike the Commission's SRC
definition, the statutory definition of EGC does not exclude BDCs.
See 15 U.S.C. 78c(80). Given the existing regulatory regime for BDCs
and the context of the Jumpstart Our Business Startups (``JOBS'')
Act of 2012, Public Law 112-106, Sec. 103, 126 Stat. 306 (2012), we
believe that BDCs can qualify as EGCs. BDCs invest in startup
companies and EGCs for which they make available significant
managerial experience, and are subject to many of the disclosure and
other requirements from which Title I of the JOBS Act provides
exemptions, including executive compensation disclosure, say-on-pay
votes, management discussion and analysis, and SOX Section 404(b).
    \48\ See PCAOB Accounting Standard (``AS'') 2110, Identifying
and Assessing Risks of Material Misstatement, paragraphs .18-.40.
---------------------------------------------------------------------------

    The ICFR auditor attestation requirement is intended to enhance the
reliability of management's disclosure related to ICFR. It also may
help an issuer identify and disclose a significant deficiency or
material weakness in ICFR that had not been identified or properly
characterized by management.\49\ In response to the SRC Proposing
Release, some commenters indicated that the ICFR auditor attestation
requirement strengthens the quality and reliability of issuers' ICFR,
which enhances investor protection.\50\ At the same time, the ICFR
auditor attestation requirement is associated with certain costs that
may be significant, particularly for low-revenue issuers. In response
to the SRC Proposing Release, several commenters indicated that this
requirement is the most costly aspect of being an accelerated filer
\51\ and that audit fees and other costs associated with the ICFR
auditor attestation requirement can divert capital from core business
needs.\52\ Some commenters asserted that these costs are especially
burdensome for emerging and growing biotechnology issuers,\53\ with a
few of these commenters specifying that the costs of the requirement
represent over $1 million of capital diversion from such issuers.\54\
---------------------------------------------------------------------------

    \49\ See Study and Recommendations on Section 404(b) of the
Sarbanes-Oxley Act of 2002 For Issuers With Public Float Between $75
and $250 Million 97-99 and 102-104 (Apr. 2011) (``2011 SEC Staff
Study''), available at https://www.sec.gov/news/studies/2011/404bfloat-study.pdf.
    \50\ See, e.g., letters from CAQ, CFA, and Deloitte (Aug. 23,
2016).
    \51\ See, e.g., letters from Acorda et al., AMTA, BIO,
Calithera, Coalition, CONNECT, CSBA, Dixie, and Seneca. One
commenter estimated that it will spend more than $400,000 annually
on compliance with SOX Section 404(b) upon expiration of its EGC
status. See letter from Calithera. Another commenter estimated that
relief from SOX Section 404(b) would result in a 35% reduction in
compliance costs. See letter from Seneca.
    \52\ See, e.g., letters from Acorda et al., BIO, CSBA, ICBA, and
NVCA. One commenter stated that expanding relief from the ICFR
auditor attestation requirement to issuers with a public float of
less than $250 million would encourage capital formation because the
reduced audit and disclosure requirements may encourage companies
that have been hesitant to go public to do so. See letter from ICBA
(citing a 2005 ICBA study that estimated that audit fees for
publicly held bank holding companies would drop dramatically--some
by as much as 50%--if these companies were exempted from the ICFR
auditor attestation requirement).
    \53\ See, e.g., letters from Acorda et al., BIO, CONNECT, CSBA,
and Seneca.
    \54\ See, e.g., letters from Acorda et al. and CONNECT.
---------------------------------------------------------------------------

C. Proposed Amendments To Exclude Low-Revenue SRCs From the Accelerated
and Large Accelerated Filer Definitions

    We are proposing amendments to revise the accelerated and large
accelerated filer definitions to exclude from those definitions issuers
that are eligible to be an SRC under the SRC revenue test. Permitting
these issuers to avoid the burdens of being an accelerated or large
accelerated filer may enhance their ability to preserve capital without
significantly affecting the ability of investors to make informed
investment decisions based on the financial reporting of those issuers.
Additionally, the benefits of having those issuers comply with the
accelerated and large accelerated filer requirements may be more
limited than for other issuers. Further, the proposed amendments are
targeted at issuers whose representation in public markets has
decreased over the years, and may be a positive factor in the decision
of additional companies to register their offering or a class of their
securities, which would provide an increased level of transparency and
investor protection with respect to those companies. As discussed
below,\55\ the number of issuers listed on major exchanges with market
capitalizations below $700 million decreased by about 65%,\56\ and the
number of listed issuers with less than $100 million in revenue
decreased by about 60% \57\ from 1998 to 2017. The issuers targeted by
the proposed amendments would not incur the cost of the ICFR
attestation until they exceed the SRC revenue test.
---------------------------------------------------------------------------

    \55\ See Section III.C.1 below.
    \56\ This figure is based on staff analysis of data from the
Center for Research in Security Prices database for December 1998
versus December 2018. The estimates exclude RICs and issuers of
American depositary receipts (``ADRs'').
    \57\ This figure is based on staff analysis of data from
Standard & Poor's Compustat and Center for Research in Security
Prices databases for fiscal year 1998 versus fiscal year 2017. The
estimates exclude RICs and issuers of ADRs.
---------------------------------------------------------------------------

    Under the existing accelerated filer definition in Rule 12b-2, an
issuer must satisfy three conditions to be an accelerated filer. First,
the issuer must have a public float of $75 million or more, but less
than $700 million, as of the last business day of the issuer's most
recently completed second fiscal quarter. Second, the issuer must have
been subject to the requirements of Exchange Act Section 13(a) or 15(d)
for a period of at least twelve calendar months. Third, the issuer must
have filed at least one annual report pursuant to those same Exchange
Act sections. Similarly, to be a large accelerated filer, an issuer
must meet the second and third conditions just described and have a
public float of $700 million or more as of the same measurement
date.\58\ We are proposing to add a new condition to the definitions of
accelerated filer and large accelerated filer that would exclude from
those definitions an issuer eligible to be an SRC under the SRC revenue
test.\59\
---------------------------------------------------------------------------

    \58\ See the large accelerated filer definition in Rule 12b-2.
    \59\ See proposed subparagraph (1)(iv) of the definition of
accelerated filer and proposed subparagraph (2)(iv) of the
definition of large accelerated filer in Rule 12b-2.
---------------------------------------------------------------------------

    The table below summarizes the current and proposed conditions to
be considered an accelerated and large accelerated filer under Rule
12b-2.

  Table 1--Current and Proposed Accelerated Filer and Large Accelerated
                            Filer Conditions
------------------------------------------------------------------------
                                            Proposed accelerated filer
  Current accelerated filer conditions              conditions
------------------------------------------------------------------------
The issuer has a public float of $75     Same.
 million or more, but less than $700
 million, as of the last business day
 of the issuer's most recently
 completed second fiscal quarter.
The issuer has been subject to the       Same.
 requirements of Exchange Act Section
 13(a) or 15(d) for a period of at
 least twelve calendar months.
The issuer has filed at least one        Same.
 annual report pursuant Exchange Act
 Section 13(a) or 15(d).
                                         The issuer is not eligible to
                                          use the requirements for SRCs
                                          under the revenue test in
                                          paragraphs (2) or (3)(iii)(B),
                                          as applicable, of the
                                          ``smaller reporting company''
                                          definition in Rule 12b-2.
------------------------------------------------------------------------
    Current large accelerated filer         Proposed large accelerated
               conditions                        filer conditions
------------------------------------------------------------------------
The issuer has a public float of $700    Same.
 million or more, as of the last
 business day of the issuer's most
 recently completed second fiscal
 quarter.
The issuer has been subject to the       Same.
 requirements of Exchange Act Section
 13(a) or 15(d) for a period of at
 least twelve calendar months.
The issuer has filed at least one        Same.
 annual report pursuant Exchange Act
 Section 13(a) or 15(d).
                                         The issuer is not eligible to
                                          use the requirements for SRCs
                                          under the revenue test in
                                          paragraphs (2) or (3)(iii)(B),
                                          as applicable, of the
                                          ``smaller reporting company''
                                          definition in Rule 12b-2.
------------------------------------------------------------------------

    The proposed new conditions would only be available to issuers that
are eligible to be an SRC under the SRC revenue test.\60\ Issuers that
are eligible to be an SRC that have a public float between $75 million
and $250 million \61\ would be accelerated filers if their annual
revenues are $100 million or more, and thus they would remain subject
to all of the requirements applicable to accelerated filers. We are
proposing to refer to ``paragraphs (2) or (3)(iii)(B), as applicable''
of the SRC definition in the proposed rule text instead of referring to
the actual numerical thresholds specified in those paragraphs. We
preliminarily believe that referring to the SRC definition would be the
clearest and most efficient way to codify the requirement given that
the thresholds could change in the future.
---------------------------------------------------------------------------

    \60\ Under the proposed amendments, an FPI that qualifies as an
SRC under the SRC revenue test and is eligible to use the scaled
disclosure requirements available to SRCs would qualify for the
exclusion under the accelerated filer definition. This position is
consistent with past guidance we have provided to FPIs. See Smaller
Reporting Company Regulatory Relief and Simplification, Release No.
33-8876 (Dec. 19, 2007) [73 FR 934 (Jan. 4, 2008)] (``2007 SRC
Adopting Release'') (noting that an FPI may also qualify as an SRC
and has the option to make filings on forms available to U.S.
domestic issuers if it presents financial statements pursuant to
U.S. GAAP).
    \61\ See paragraphs (1) and (3)(iii)(A) of the SRC definition in
Rule 12b-2.
---------------------------------------------------------------------------

    The SRC definition excludes ABS issuers, RICs, BDCs, and majority-
owned subsidiaries of issuers that do not qualify as an SRC. ABS
issuers are exempt from ICFR reporting obligations.\62\ While RICs are
also exempt from SOX Section 404,\63\ BDCs are not exempt. BDCs and
majority-owned subsidiaries of a non-SRC parent are subject to the ICFR
auditor attestation requirement to the same extent as other accelerated
and large accelerated filers. As a result, even if these issuers were
to fall within the public float and revenue thresholds in the SRC
revenue test, they cannot rely on the SRC revenue test because they are
excluded from the SRC definition. We estimate that 28 BDCs would meet
the same public float and revenue thresholds as the issuers affected by
the proposed rules, which constitutes about 60% of the total number of
BDCs.\64\ We further estimate that one majority-owned subsidiary of a
non-SRC parent may meet the same thresholds.
---------------------------------------------------------------------------

    \62\ See ABS Release, note 45 above, at 1501 n.41. See also
Instruction J to Form 10-K.
    \63\ See note 44 above.
    \64\ See Section III.C.6.b below.
---------------------------------------------------------------------------

    We considered potential amendments to the definition of accelerated
filer and large accelerated filer that would specifically address BDCs.
Unlike investors in low-revenue non-investment company issuers,
investors in BDCs may place greater significance on the financial
reporting of BDCs, many of which hold illiquid portfolio securities
valued using level three inputs of the U.S. GAAP fair value
hierarchy.\65\ The SRC revenue test would not be meaningful for BDCs
because BDCs prepare financial statements under Article 6 of Regulation
S-X \66\ and generally do not report revenue. Instead, BDCs report
investment income (dividends, interest on securities, fee income, and
other income) and realized and unrealized gains and losses on
investments on their statements of operations.\67\ RICs also prepare
financial statements under Article 6 of Regulation S-X. Even though
RICs are not subject to SOX Section 404, RICs are subject to an
independent public accountant's report on internal controls requirement
through Form N-CEN.\68\ Expanding BDCs' ability to be considered non-
accelerated filers, in contrast, would reduce auditor review of
internal controls for a significant majority of BDCs. Accordingly, the
proposed amendments to the definitions of accelerated and large
accelerated filer do not specifically address BDCs.\69\
---------------------------------------------------------------------------

    \65\ See Fair Value Measurement (Topic 820), Financial
Accounting Standards Board (``FASB'') Accounting Standards Update
No. 2010-06 (Jan. 2010).
    \66\ 17 CFR 210.6-01 et seq.
    \67\ See 17 CFR 210.6-07.
    \68\ Form N-CEN requires that the report be based on the review,
study, and evaluation of the accounting system, internal accounting
controls, and procedures for safeguarding securities made during the
audit of the financial statements for the reporting period. The
report should disclose any material weaknesses in: (a) The
accounting system; (b) system of internal accounting control; or (c)
procedures for safeguarding securities which exist as of the end of
the registrant's fiscal year. See Instruction 3 to Item G.1 of Form
N-CEN.
    \69\ Although the proposed amendments do not specifically
address BDCs, we are soliciting comment on whether alternative
approaches would be appropriate and the relative costs and benefits
of such alternatives.
---------------------------------------------------------------------------

    The tables below summarize the current and proposed relationships

between SRCs and non-accelerated and accelerated filers.\70\
---------------------------------------------------------------------------

    \70\ Tables 2 and 3 include only the initial SRC and accelerated
filer thresholds and exclude the transition thresholds. A large
accelerated filer may be eligible to be an SRC only through the
transition threshold, so the table does not reflect the relationship
between SRCs and large accelerated filers.

             Table 2--Existing Relationships Between SRCs and Non-Accelerated and Accelerated Filers
----------------------------------------------------------------------------------------------------------------
                 Existing relationships between SRCs and non-accelerated and accelerated filers
-----------------------------------------------------------------------------------------------------------------
                 Status                         Public float                       Annual revenues
----------------------------------------------------------------------------------------------------------------
SRC and Non-Accelerated Filer..........  Less than $75 million.....  N/A.
SRC and Accelerated Filer..............  $75 million to less than    N/A.
                                          $250 million.
                                         $250 million to less than   Less than $100 million.
                                          $700 million.
Accelerated Filer (not SRC)............  $250 million to less than   $100 million or more.
                                          $700 million.
----------------------------------------------------------------------------------------------------------------

             Table 3--Proposed Relationships Between SRCs and Non-Accelerated and Accelerated Filers
----------------------------------------------------------------------------------------------------------------
                 Proposed relationships between SRCs and non-accelerated and accelerated filers
-----------------------------------------------------------------------------------------------------------------
                 Status                         Public float                       Annual revenues
----------------------------------------------------------------------------------------------------------------
SRC and Non-Accelerated Filer..........  Less than $75 million.....  N/A.
                                         $75 million to less than    Less than $100 million.
                                          $700 million.
SRC and Accelerated Filer..............  $75 million to less than    $100 million or more.
                                          $250 million.
Accelerated Filer (not SRC)............  $250 million to less than   $100 million or more.
                                          $700 million.
----------------------------------------------------------------------------------------------------------------

    The proposed amendments would increase the number of issuers that
are exempt from the ICFR auditor attestation requirement by increasing
the number of non-accelerated filers. Although the proposed amendments
could, in some cases, result in investors receiving less or different
disclosure about material weaknesses in ICFR at low-revenue SRCs than
under our current rules, based on our experience with these matters,
including in the cases of EGCs, SRCs, and other smaller reporting
issuers, we believe it is unlikely there would be a significant effect
on the ability of investors to make informed investment decisions based
on the financial reporting of those issuers. A non-accelerated filer
that meets the SRC revenue test would remain subject to many of the
same obligations as accelerated and large accelerated filers with
respect to ICFR, including the requirements for establishing,
maintaining, and assessing the effectiveness of ICFR and for management
to assess internal controls.
    Additionally, pursuant to the PCAOB's recently adopted risk
assessment standards in financial statement audits, in many cases
auditors are testing operating effectiveness of certain internal
controls even if they are not performing an integrated audit. For
instance, an auditor may rely on internal controls to reduce
substantive testing in the financial statement audit. To rely on
internal controls, the auditor must obtain evidence that the controls
selected for testing are effectively designed and operating effectively
during the entire period of reliance.\71\ Also, an auditor must test
the controls related to each relevant financial statement assertion for
which substantive procedures alone cannot provide sufficient
appropriate audit evidence.\72\
---------------------------------------------------------------------------

    \71\ See AS 2301, The Auditor's Response to the Risks of
Material Misstatement, paragraph .16.
    \72\ See id., paragraph .17.
---------------------------------------------------------------------------

    The proposed amendments would not relieve an independent auditor of
its obligation to consider ICFR in the performance of its financial
statement audit of an issuer, if applicable, regardless of whether the
issuer is subject to the ICFR auditor attestation requirement, as is
the case today with respect to issuers that are non-accelerated
filers.\73\ For example, the risk assessment requirement in a financial
statement audit is similar to that in an ICFR attestation audit. In a
financial statement audit, the auditor is required to identify and
assess the risks of material misstatements. The auditor is, therefore,
required to ``obtain a sufficient understanding of each component of
[ICFR] to (a) identify the types of potential misstatements, (b) assess
the factors that affect the risks of material misstatement, and (c)
design further audit procedures.'' \74\ This understanding includes
evaluating the design of the controls relevant to the audit and
determining whether the controls have been implemented.\75\ A similar
evaluation is required in an ICFR attestation.\76\
---------------------------------------------------------------------------

    \73\ See 2110, note 48 above, paragraphs .18-.40.
    \74\ See id., paragraph .18.
    \75\ See id., paragraph .20.
    \76\ See generally AS 2201, An Audit of Internal Control Over
Financial Reporting That Is Integrated with An Audit of Financial
Statements. This standard relates to testing of design and whether
the controls are implemented are part of the ICFR auditor
attestation requirement.
---------------------------------------------------------------------------

    Also, evaluation and communication to management and the audit
committee of significant deficiencies and material weaknesses in ICFR
are required in both a financial statement audit and an ICFR
attestation audit.\77\ When the auditor becomes aware of a material
weakness, it has the responsibility to review management's disclosure
for any misstatement of facts, such as a statement that ICFR is
effective when there is a known material weakness, including in a
financial statement audit.\78\ Further, as discussed above, auditors
may also test operating effectiveness of internal controls in a
financial statement audit, such as when the auditor determines to rely
on those controls to reduce the substantive testing.
---------------------------------------------------------------------------

    \77\ See AS 1305, Communications About Control Deficiencies in
an Audit of Financial Statements, and id., at paragraphs .78-.80.
    \78\ See generally AS 2710, Other Information in Documents
Containing Audited Financial Statements.
---------------------------------------------------------------------------

    We note that, because certain of the information considered by the
independent auditor for the ICFR attestation is also considered by the
auditor for purposes of the issuer's financial statement audit, some of
the audit fees and the other audit-related costs associated with the
ICFR auditor

attestation requirement are included in the issuer's financial
statement audit costs. However, for issuers with less complex financial
systems and controls, such as issuers with lower revenues, this may be
less likely to be the case under the proposed amendments. For these
issuers, the auditor could determine that, in the absence of an ICFR
auditor attestation requirement, it may be a more effective and
efficient financial statement audit approach to not rely on and have to
test the operating effectiveness of certain controls, such as those
related to revenue recognition. Therefore, eliminating the ICFR auditor
attestation requirement could have a greater impact in the reduction of
costs for such issuers.
    As discussed in more detail in the Economic Analysis section
below,\79\ there are a number of component costs of the ICFR auditor
attestation requirement. In general, the largest individual cost
component relates to audit fees that would typically not be incurred in
audits in which an ICFR attestation is not required.\80\ We estimate
that such audit fees would average approximately $110,000 per year for
accelerated filers with revenues of less than $100 million. The ICFR
auditor attestation requirement is also associated with additional
costs,\81\ and we estimate that these non-audit costs would average
approximately $100,000 per year for accelerated filers. We believe that
the proposed amendments would eliminate these two types of costs for
issuers that are eligible to be an SRC under the SRC revenue test.
---------------------------------------------------------------------------

    \79\ See Section III.C.3 below.
    \80\ See Section III.C.3.b below.
    \81\ See Section III.C.3.c below.
---------------------------------------------------------------------------

    Although certain requirements and costs of the ICFR attestation
overlap with those associated with a financial statement audit, we
continue to believe that the ICFR auditor attestation requirement
incrementally can contribute to the reliability of financial
disclosures, particularly for issuers that typically have more complex
financial reporting requirements and processes. Accordingly, the
proposed amendments would not eliminate the requirement for all
accelerated filers that are SRCs. Instead, the proposed amendments
reflect a more tailored approach that recognizes that the impact of the
ICFR auditor attestation requirement on the reliability of an issuer's
financial disclosures is not necessarily the same across all issuers,
including all SRCs.\82\
---------------------------------------------------------------------------

    \82\ Although the proposed amendments would not eliminate the
attestation requirement for all accelerated filers that are SRCs, we
are soliciting comment on whether such an approach would be
appropriate and the relative costs and benefits of such an approach
for both issuers and investors.
---------------------------------------------------------------------------

    As noted in this section above, and discussed in greater detail
below,\83\ the compliance costs associated with the ICFR auditor
attestation requirement may be disproportionately burdensome for the
issuers that are eligible to be an SRC under the SRC revenue test and,
as with all compliance requirements, these costs may divert funds
otherwise available for reinvestment by these issuers because they have
less access than other issuers to internally-generated capital. In this
regard, the issuers we expect to be affected by the proposed amendments
are concentrated in a few specific industries. For example, 36.1% of
the issuers that are eligible to be an SRC under the SRC revenue test
are in the ``Pharmaceutical Products'' or ``Medical Equipment''
industries,\84\ and a number of commenters noted that the attestation
requirement is especially burdensome for biotechnology issuers.\85\ We
believe these and other low-revenue issuers would particularly benefit
from the cost savings associated with non-accelerated filer status and
could re-direct those savings into growing their business without
significantly affecting the ability of investors to make informed
investment decisions based on the financial reporting of those issuers.
---------------------------------------------------------------------------

    \83\ See Section III.A below.
    \84\ See Section III.C.1 below.
    \85\ See, e.g., letters from Acorda et al., BIO, CONNECT, CSBA,
and Seneca.
---------------------------------------------------------------------------

    Further, the benefits of the ICFR auditor attestation requirement
may be smaller for issuers with low revenues because they may be less
susceptible to the risk of certain kinds of misstatements, such as
those related to revenue recognition. Also, it is possible that low-
revenue issuers may have less complex financial systems and controls
and, therefore, be less likely than other issuers to fail to detect and
disclose material weaknesses in the absence of an ICFR auditor
attestation. Additionally, we note the financial statements of low-
revenue issuers may, in many cases, be less critical to assessing their
valuation given, for example, the relative importance of their future
prospects.\86\
---------------------------------------------------------------------------

    \86\ See Section III.C.4.a below.
---------------------------------------------------------------------------

    Providing this benefit to low-revenue SRCs is consistent with our
historical practice of providing scaled disclosure and other
accommodations for smaller issuers \87\ and with recent actions by
Congress to reduce burdens on new and smaller issuers.\88\ Issuers that
are eligible to be an SRC under the SRC revenue test no longer would be
required to comply with accelerated or large accelerated filer
requirements, reducing these issuers' compliance costs and thereby
enhancing their ability to preserve capital without significantly
affecting the ability of investors to make informed investment
decisions based on the financial reporting of those issuers.
---------------------------------------------------------------------------

    \87\ See, e.g., SRC Regulatory Relief Release, note 13 above,
2007 SRC Adopting Release, note 60 above, and SRC Adopting Release,
note 16 above.
    \88\ For example, Title I of the JOBS Act amended SOX Section
404(b) to exempt EGCs from the ICFR auditor attestation requirement.
In addition, Section 72002 of the Fixing America's Surface
Transportation Act of 2015 requires the Commission to revise
Regulation S-K to further scale or eliminate requirements to reduce
the burden on EGCs, accelerated filers, SRCs, and other smaller
issuers, while still providing all material information to
investors. See Public Law 114-94, 129 Stat. 1312 (2015).
---------------------------------------------------------------------------

D. Proposed Amendments to the Transition Provisions in the Accelerated
and Large Accelerated Filer Definitions

    We are also proposing to amend the transition thresholds for
issuers exiting accelerated and large accelerated filer status. First,
the proposed amendments would revise the public float transition
threshold for accelerated and large accelerated filers to become a non-
accelerated filer from $50 million to $60 million.\89\ Second, the
large accelerated filer public float transition provision would be
revised from $500 million to $560 million.\90\ Finally, the proposed
amendments would add the SRC revenue test to the transition threshold
for accelerated \91\ and large accelerated filers.\92\
---------------------------------------------------------------------------

    \89\ See proposed paragraphs (3)(ii) and (iii) of the
``accelerated and large accelerated filer'' definition in Rule 12b-
2.
    \90\ See proposed paragraph (3)(iii) of the ``accelerated and
large accelerated filer'' definition in Rule 12b-2.
    \91\ See proposed paragraph (3)(ii) of the ``accelerated and
large accelerated filer'' definition in Rule 12b-2.
    \92\ See proposed paragraph (3)(iii) of the ``accelerated and
large accelerated filer'' definition in Rule 12b-2.
---------------------------------------------------------------------------

    Under the current rules, once an issuer is an accelerated or a
large accelerated filer, it will not become a non-accelerated or
accelerated filer until its public float falls below a specified lower
threshold than the public float threshold that it needed to become an
accelerated or large accelerated filer initially. The purpose of this
lower threshold is to avoid situations in which an issuer frequently
enters and exits accelerated and large accelerated filer status due to
small fluctuations in its public float.
    Currently, an issuer initially becomes an accelerated filer after
it first meets certain conditions as of the end of its fiscal year,
including that it had a public

float of $75 million or more but less than $700 million as of the last
business day of its most recently completed second fiscal quarter. An
issuer initially becomes a large accelerated filer in a similar manner,
including that it had a public float of $700 million or more as of the
last business day of its most recently completed second fiscal quarter.
Once the issuer becomes an accelerated filer, it will not become a non-
accelerated filer unless it determines at the end of a fiscal year that
its public float had fallen below $50 million on the last business day
of its most recently completed second fiscal quarter.\93\ Similarly, a
large accelerated filer will remain one unless its public float had
fallen below $500 million on the last business day of its most recently
completed second fiscal quarter.\94\ If the large accelerated filer's
public float falls below $500 million but is $50 million or more, it
becomes an accelerated filer. Alternatively, if the issuer's public
float falls below $50 million, it becomes a non-accelerated filer.\95\
---------------------------------------------------------------------------

    \93\ See paragraph (3)(ii) of the ``accelerated and large
accelerated filer'' definition in Rule 12b-2.
    \94\ See paragraph (3)(iii) of the ``accelerated and large
accelerated filer'' definition in Rule 12b-2.
    \95\ For example, under the current rules, if an issuer that is
a non-accelerated filer determines at the end of its fiscal year
that it had a public float of $75 million or more, but less than
$700 million, on the last business day of its most recently-
completed second fiscal quarter, it will become an accelerated
filer. On the last business day of its next fiscal year, the issuer
must re-determine its public float to re-evaluate its filer status.
If the accelerated filer's public float fell to $70 million on the
last business day of its most recently-completed second fiscal
quarter, it would remain an accelerated filer because its public
float did not fall below the $50 million transition threshold.
Alternatively, if the issuer's public float fell to $49 million, it
would then become a non-accelerated filer because its newly-
determined public float is below $50 million.
    As another example, an issuer that has not been a large
accelerated filer but had a public float of $700 million or more on
the last business day of its most recently completed second fiscal
quarter would then become a large accelerated filer at the end of
its fiscal year. If, on the last business day of its subsequently
completed second fiscal quarter, the issuer's public float fell to
$600 million, it would remain a large accelerated filer because its
public float did not fall below $500 million. If, however, the
issuer's public float fell to $490 million at the end of its most
recently-completed second fiscal quarter, it would become an
accelerated filer at the end of the fiscal year because its public
float fell below $500 million. Similarly, if the issuer's public
float fell to $49 million, the issuer would become a non-accelerated
filer.
---------------------------------------------------------------------------

    The table below summarizes the existing transition thresholds and
how an issuer's filer status changes based on its subsequent public
float determination.

       Table 4--Subsequent Determination of Filer Status Based on Public Float Under Existing Requirements
----------------------------------------------------------------------------------------------------------------
                                              Existing requirements
-----------------------------------------------------------------------------------------------------------------
      Initial public float          Resulting filer     Subsequent public
          determination                  status        float determination         Resulting filer status
----------------------------------------------------------------------------------------------------------------
$700 million or more............  Large Accelerated    $500 million or      Large Accelerated Filer.
                                   Filer.               more.
                                                       Less than $500       Accelerated Filer.
                                                        million but $50
                                                        million or more.
                                                       Less than $50        Non-Accelerated Filer.
                                                        million.
Less than $700 million but $75    Accelerated Filer..  Less than $700       Accelerated Filer.
 million or more.                                       million but $50
                                                        million or more.
                                                       Less than $50        Non-Accelerated Filer.
                                                        million.
----------------------------------------------------------------------------------------------------------------

    The proposed amendments would revise the transition threshold for
becoming a non-accelerated filer from $50 million to $60 million and
the transition threshold for leaving the large accelerated filer status
from $500 million to $560 million. We preliminarily believe it would be
appropriate to increase these transition thresholds because doing so
would make the public float transition thresholds 80% of the initial
thresholds, which would be consistent with the percentage used in the
transition thresholds for SRC eligibility. In the SRC Adopting
Release,\96\ we amended the SRC rules so that the SRC transition
thresholds were set at 80% of the corresponding initial qualification
thresholds. Revising these transition thresholds to be 80% of the
corresponding initial qualification thresholds would align the
transition thresholds across the SRC, accelerated filer, and large
accelerated filer definitions. Additionally, revising these thresholds
would limit the cases in which an issuer could be both an accelerated
filer and an SRC or a large accelerated filer and an SRC, thereby
reducing regulatory complexity.
---------------------------------------------------------------------------

    \96\ See note 16 above.

        Table 5--Subsequent Determination of Filer Status Based on Public Float Under Proposed Amendments
----------------------------------------------------------------------------------------------------------------
                               Proposed amendments to the public float thresholds
-----------------------------------------------------------------------------------------------------------------
      Initial public float          Resulting filer     Subsequent public
          determination                  status        float determination         Resulting filer status
----------------------------------------------------------------------------------------------------------------
$700 million or more............  Large Accelerated    $560 million or      Large Accelerated Filer.
                                   Filer.               more.
                                                       Less than $560       Accelerated Filer.
                                                        million but $60
                                                        million or more.
                                                       Less than $60        Non-Accelerated Filer.
                                                        million.
Less than $700 million but $75    Accelerated Filer..  Less than $700       Accelerated Filer.
 million or more.                                       million but $60
                                                        million or more.
                                                       Less than $60        Non-Accelerated Filer.
                                                        million.
----------------------------------------------------------------------------------------------------------------

    In addition, the proposed amendments would add the SRC revenue test
to the public float transition thresholds for accelerated and large
accelerated filers. We are proposing that an issuer that is already an
accelerated filer will remain one unless either its public float falls
below $60 million or it becomes eligible to use

the SRC accommodations under the revenue test in paragraphs (2) or
(3)(iii)(B), as applicable, of the SRC definition. An issuer that is
initially applying the SRC definition or previously qualified as an SRC
would apply paragraph (2) of the SRC definition. Once an issuer
determines that it does not qualify for SRC status, it would apply
paragraph (3)(iii)(B) of the SRC definition at its next annual
determination.
    As discussed above, paragraph (2) of the SRC definition states that
an issuer qualifies as an SRC if its annual revenues are less than $100
million and it has no public float or a public float of less than $700
million. Paragraph (3)(iii)(B) of the SRC definition states, among
other things, that an issuer that initially determines it does not
qualify as an SRC because its annual revenues are $100 million or more
cannot become an SRC until its annual revenues fall below $80
million.\97\ Therefore, under the proposed amendments, an accelerated
filer would remain an accelerated filer until its public float falls
below $60 million or its annual revenues fall below the applicable
revenue threshold ($80 million or $100 million), at which point it
would become a non-accelerated filer.
---------------------------------------------------------------------------

    \97\ Under the proposed amendments, an accelerated filer with
revenues of $100 million or more that is eligible to be an SRC based
on the public float test contained in paragraphs (1) and (3)(iii)(A)
of the SRC definition could transition to non-accelerated filer
status in a subsequent year if it had revenues of less than $100
million.
     For example, assuming the proposed amendments were in effect,
an issuer with a December 31 fiscal year end that has a public float
as of June 29, 2018 of $230 million and annual revenues for the
fiscal year ended December 31, 2017 of $101 million would be
eligible to be an SRC under the public float test, but because the
issuer would not be eligible to be an SRC under the SRC revenue test
it would be an accelerated filer (assuming the other conditions
described in Table 1 were also met). At the next determination date
(June 28, 2019), if its public float as of June 28, 2019 remained at
$230 million and its annual revenues for the fiscal year ended
December 31, 2018 were less than $100 million, that issuer would be
eligible to be an SRC under the SRC revenue test (in addition to the
public float test) and thus it would also become a non-accelerated
filer.
     On the other hand, assuming the proposed amendments were in
effect, an issuer with a December 31 fiscal year end that has a
public float as of June 29, 2018 of $400 million and annual revenues
for the fiscal year ended December 31, 2017 of $101 million would
not be eligible to be an SRC under either the public float test or
the SRC revenue test and would be an accelerated filer (assuming the
other conditions described in Table 1 were also met). At the next
determination date (June 28, 2019), if its public float as of June
28, 2019 remained at $400 million, that issuer would not be eligible
to be an SRC under the SRC revenue test unless its annual revenues
for the fiscal year ended December 31, 2018 were less than $80
million, at which point it would be eligible to be an SRC under the
SRC revenue test and also become a non-accelerated filer.
---------------------------------------------------------------------------

    Similarly, we are proposing conforming amendments to the large
accelerated filer transition provisions that describe when an issuer
that is already a large accelerated filer transitions to either
accelerated or non-accelerated filer status. As discussed above, to
transition out of large accelerated filer status at the end of the
issuer's fiscal year, an issuer would need to have a public float below
$560 million as of the last business day of its most recently completed
second fiscal quarter or meet the revenue test in paragraph (2) or
(3)(iii)(B), as applicable, of the SRC definition. A large accelerated
filer would become an accelerated filer at the end of its fiscal year
if its public float fell to $60 million or more but less than $560
million as of the last business day of its most recently completed
second fiscal quarter and its annual revenues are not below the
applicable revenue threshold ($80 million or $100 million). The large
accelerated filer would become a non-accelerated filer if its public
float fell below $60 million or it meets the revenue test in paragraph
(2) or (3)(iii)(B), as applicable, of the SRC definition.
    For a large accelerated filer to meet the SRC revenue test,
generally, its public float would need to fall below $560 million as of
the last business day of its most recently completed second fiscal
quarter and its annual revenues would need to fall below the applicable
revenue threshold ($80 million or $100 million). One exception to this
requirement is that an issuer that was a large accelerated filer whose
public float had fallen below $700 million (but remained $560 million
or more) but became eligible to be an SRC under the SRC revenue test in
the first year the SRC amendments became effective would become a non-
accelerated filer even though its public float remained at or above
$560 million.\98\ If the SRC revenue test were not added to the
accelerated filer and large accelerated filer transition provisions, an
issuer's annual revenues would never factor into determining whether an
accelerated filer could become a non-accelerated filer, or whether a
large accelerated filer could become an accelerated or non-accelerated
filer. For example, if the SRC revenue test is not added to the
transition provisions, an accelerated filer with a public float that
remains more than $60 million but less than $700 million and with
annual revenues of $100 million or more would not be able to become a
non-accelerated filer even if its annual revenues subsequently fall
below $80 million.
---------------------------------------------------------------------------

    \98\ See SRC Adopting Release, note 16 above, at note 31 (``For
purposes of the first fiscal year ending after effectiveness of the
amendments, a registrant will qualify as a SRC if it meets one of
the initial qualification thresholds in the revised definition as of
the date it is required to measure its public float or revenues (the
`measurement date'), even if such registrant previously did not
qualify as a SRC.'')
---------------------------------------------------------------------------

E. Request for Comment

    We request and encourage any interested person to submit comments
regarding the proposed amendments, specific issues discussed in this
release and other matters that may have an effect on the proposals. We
note that comments are of the greatest assistance if accompanied by
supporting data and analysis of the issues addressed in those comments.
    1. Should we exclude an issuer that is eligible to be an SRC under
the SRC revenue test from the accelerated and large accelerated filer
definitions, as proposed? Why or why not? Are there investor protection
benefits in distinguishing an issuer that is eligible to be an SRC
under the SRC revenue test from an SRC that does not meet the revenue
test and therefore would be an accelerated or large accelerated filer?
Should we use different criteria to identify issuers to exclude from
the accelerated and large accelerated filer definitions? If so, what
criteria should we use and why?
    2. With respect to the ICFR auditor attestation requirement, is the
issuer's level of revenues relevant to the complexity of its financial
systems and controls and the nature of its ICFR? If so, how does that
complexity affect the benefits and costs of ICFR auditor attestation?
How do the benefits and costs of the ICFR auditor attestation
requirement vary with the complexity of an issuer's financial
reporting? Are the financial statements of low-revenue issuers less
susceptible to the risk of material misstatements or control
deficiencies such that the effect of an ICFR auditor attestation may be
less significant than for other types of issuers? Would the proposed
approach allow low-revenue issuers to benefit from cost savings without
significantly affecting the ability of investors to make informed
investment decisions based on the financial reporting of those issuers?
    3. As an alternative, should we instead exclude all SRCs from the
accelerated and large accelerated filer definitions? Why or why not?
What would be the effects, including the benefits and costs, of such an
approach for issuers and investors? What would be the effects on the
reliability of such issuers' financial reporting or their

susceptibility to the risk of material misstatements or control
deficiencies? What would be the effects on these issuers' willingness
to be public companies? How would such an alternative affect investor
protection? Are there additional considerations relevant to such
issuers that we should consider? If we were to adopt such an approach,
should we adjust the public float and annual revenue thresholds in the
accelerated filer definition to be the same as those in the SRC
definition? That is, should the accelerated filer definition include
only issuers with a public float of $250 million or more but less than
$700 million that had revenues of $100 million or more in the previous
year? Would this approach have an effect on the transition between
accelerated filer and non-accelerated status? If so, what would be the
effect? If we were to adopt this approach, should we revise the
transition thresholds for large accelerated, accelerated, and/or non-
accelerated filers? Alternatively, should we exclude SRCs from the
definition of accelerated filer without changing the thresholds in the
definition itself? Why or why not? Would these approaches have
different effects that we should consider?
    4. In the SRC Adopting Release, the Commission established the SRC
revenue test to include issuers with annual revenues of less than $100
million if they have no public float or a public float of less than
$700 million. The proposed amendments would use the SRC revenue test's
$100 million annual revenue threshold to determine whether an issuer
would qualify as an accelerated or large accelerated filer. Should the
proposed amendments use the SRC revenue test's $100 million annual
revenue threshold? Why or why not? Should there be a different annual
revenue threshold for determining whether an issuer is an accelerated
or large accelerated filer? Why or why not?
    5. Would it be more appropriate to determine filer status for any
given year by using the average of an issuer's public float, or
applying some other metric, such as the issuer's volume-weighted
average price (``VWAP'')? What would be the appropriate way to
calculate an issuer's VWAP? If filer status were determined through the
use of a VWAP calculation, should shares held by affiliates be included
in the calculation of the issuer's market value or public float? Why or
why not? Should a VWAP calculation reflect the average VWAP over a
longer period of time? If so, what longer period of time (e.g., three
consecutive trading days, one week, one month, or one quarter), or
different metric, would be more appropriate? What costs and benefits
would be associated with use of a longer period of time or a different
valuation standard? For example, if an average of an issuer's public
float over a longer period of time is used, are there additional costs
to issuers to compute their aggregate worldwide number of shares of
common equity held by non-affiliates on each of the respective days? If
we used a longer period of time or different valuation standard in the
accelerated filer definitions, should we similarly revise other
provisions that require an issuer to calculate its public float on a
single day, such as in the Rule 12b-2 definition of an SRC?
    6. Should all SRCs that meet the accelerated filer definition be
excluded from only the accelerated reporting deadlines? Would investors
be adversely affected by expanding the population of issuers that would
report later than they do today?
    7. Should we increase the non-accelerated filer transition
threshold from $50 million to $60 million and/or the large accelerated
filer transition threshold from $500 million to $560 million, as
proposed? Why or why not? Should we revise the non-accelerated filer
transition threshold to one other than $60 million and/or the large
accelerated filer transition threshold to one other than $560 million?
If so, what threshold would be appropriate?
    8. Should we align the transition thresholds in the accelerated
filer and large accelerated filer definitions with the SRC revenue test
transition threshold, as proposed? Why or why not? Instead of aligning
the transition thresholds, should we consider other approaches to the
transition thresholds in the accelerated filer and large accelerated
filer definitions? For example, should we adjust the transition
provisions of the large accelerated filer definition to permit all
issuers with a public float below $700 million and annual revenues
below $100 million to become non-accelerated filers even if such
issuers would not meet the transition thresholds to qualify as SRCs?
Why or why not? For example, what would be the effects of any such
alternatives on the frequency with which an issuer enters and exits
large accelerated, accelerated, or non-accelerated filer status due to
small fluctuations in public float or revenues?
    9. Should we adjust the transition provisions of the accelerated
filer and large accelerated filer definitions to include the respective
public float and annual revenue thresholds in the definitions, rather
than referencing the SRC revenue test? Why or why not?
    10. We request comment on alternative approaches that would include
or exclude additional issuer types from the accelerated and large
accelerated filer definitions. For example, should we exclude FPIs from
the proposed amendments? Why or why not? Should we permit BDCs and
majority-owned subsidiaries of non-SRCs, which are excluded from the
definition of SRC, to be non-accelerated filers if they meet the SRC
revenue test thresholds? Why or why not? The SRC revenue test
thresholds are based, in part, on an issuer's annual revenues. Are
there alternative metrics that should be applied for BDCs instead of
revenue? For example, should we use investment income received by the
BDC rather than revenue? Should we include realized gains and losses
from the sale of portfolio securities? Should unrealized gains and
losses affect a BDC's revenue for this purpose, and if so, how? Should
we use the net increase or decrease in net assets resulting from
operations? Alternatively, should we also exclude BDCs if they meet the
public float test in the SRC definition alone? Should we have a
specific BDC test of $250 million or less in public float and $50
million or less in investment income? \99\ Why or why not? Are there
other alternatives we should consider, such as providing an independent
accountant's report on internal controls similar to the one required by
Form N-CEN? If we were to require a Form N-CEN report, should we apply
the requirement only to those BDCs that were previously required to
provide a report under SOX Section 404(b)?
---------------------------------------------------------------------------

    \99\ A $250 million or less public float threshold would be
consistent with the SRC definition, and we estimate that the average
of the investment income of BDCs with market capitalization ranging
from $75 to $700 million is $50 million. See Section III.C.6 below.
---------------------------------------------------------------------------

    11. Should we provide a definition for the term ``non-accelerated
filer?'' If so, should we define it as a filer that is not an
accelerated or large accelerated filer? Why or why not? Should we use
some other definition?
    12. The proposed rule would refer to ``paragraphs (2) or
(3)(iii)(B)'' of the SRC definition instead of referring to the actual
numerical thresholds specified in those paragraphs. Should we include
the actual numerical thresholds? Why or why not?
    13. For the low-revenue issuers that would be newly exempted from
the ICFR auditor attestation requirement under the proposed amendments,
would an auditor engaged for the purpose of a financial statement only
audit be as likely to test the operating effectiveness of certain of
the issuer's internal

controls to reduce the amount of substantive testing it performs as it
may do under our existing rules? Given the potential for such testing
as well as the risk assessment standards that apply to a financial
statement only audit, to what extent would the consideration of
internal controls by the auditors of these issuers change as a result
of the proposed amendments?
    14. Should we consider any changes in how and where issuers report
their accelerated filer status, public float, or revenue? Should we
consider any new disclosure requirements associated with the proposed
amendments? For example, should we permit or require issuers that
voluntarily comply with SOX Section 404(b) to disclose that
information, such as on the cover page of their periodic filings? If
so, should we require issuers that voluntarily comply with SOX Section
404(b) to include the ICFR auditor attestation with the filing?
    15. In lieu of, or in addition to, the proposed amendments, should
we consider amendments that would result in ICFR attestation audits
being required at a reduced frequency? For example, should we require
the proposed affected issuers to provide an ICFR auditor attestation
only once every three years? If required once every three years, what
financial reporting periods should we require the ICFR attestation
audit to cover? Currently, the ICFR attestation audit is required to
cover only the current period. Should we require the ICFR attestation
audit to cover only the current period or should it include all three
years?

III. Economic Analysis

    We are mindful of the costs and benefits of the proposed
amendments. Exchange Act Section 3(f) requires us, when engaging in
rulemaking that requires us to consider or determine whether an action
is necessary or appropriate in the public interest, to consider, in
addition to the protection of shareholders, whether the action will
promote efficiency, competition, and capital formation.\100\ Exchange
Act Section 23(a)(2) requires us, when adopting rules, to consider the
impact that any new rule would have on competition and prohibits any
rule that would impose a burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Exchange Act.\101\
---------------------------------------------------------------------------

    \100\ 15 U.S.C. 78c(f).
    \101\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    The discussion below addresses the economic effects of the proposed
amendments, including their anticipated costs and benefits, as well as
the likely effects of the proposed amendments on efficiency,
competition, and capital formation. We also analyze the potential costs
and benefits of reasonable alternatives to what is proposed. Where
practicable, we have attempted to quantify the economic effects of the
proposal; however, in certain cases, we are unable to do so because
either the necessary data are unavailable or certain effects are not
quantifiable. In these cases, we provide a qualitative assessment of
the likely economic effects.

A. Introduction

    As discussed above, we are proposing amendments to the definition
of ``accelerated filer'' that will expand the number of issuers that
qualify as non-accelerated filers. Currently, issuers with no public
float or public float of less than $75 million are generally non-
accelerated filers. The proposed amendments would generally extend non-
accelerated filer status to issuers with a greater public float if they
are eligible to be SRCs and their revenues are less than $100 million.
As non-accelerated filers, these issuers would not be required to
obtain an ICFR auditor attestation pursuant to SOX Section 404(b). They
also would be permitted an additional 15 days and five days,
respectively, after the end of each period to file their annual and
quarterly reports, relative to the deadlines that apply to accelerated
filers.\102\ The proposed amendments also would revise the transition
provisions for accelerated and large accelerated filer status,
including increasing the public float thresholds to exit accelerated
and large accelerated filer status from $50 million and $500 million in
public float to $60 million and $560 million in public float.
---------------------------------------------------------------------------

    \102\ Non-accelerated filers also are not required to provide
disclosure required by Item 1B of Form 10-K and Item 4A of Form 20-F
about unresolved staff comments on their periodic and/or current
reports or disclosure required by Item 101(e)(4) of Regulation S-K
about whether they make filings available on or through their
internet websites.
---------------------------------------------------------------------------

    As discussed above, the ICFR auditor attestation requirement was
introduced together with other changes to the financial reporting
control environment with the intention of improving the accuracy and
reliability of corporate disclosures. Section III.C.4.a discusses the
evidence that the imposition of the ICFR auditor attestation
requirement has been associated with benefits to issuers and investors.
However, this requirement has also been associated with significant
compliance costs. Relative to other issuers that are subject to this
requirement, the affected issuers may find the costs to be particularly
burdensome, while the ICFR auditor attestation requirement may, on
average, provide fewer benefits related to the accuracy and reliability
of these issuers' financial statements. Further, issuers exempted from
this requirement may choose to voluntarily obtain an ICFR auditor
attestation if investors demand it or the issuers otherwise deem it,
from their perspective, to be the best use of their resources.\103\ The
proposed amendments are therefore intended to reduce compliance costs
for these issuers without significantly affecting the ability of
investors to make informed investment decisions based on the financial
reporting of those issuers.
---------------------------------------------------------------------------

    \103\ As discussed below, issuers may not always choose to
voluntarily obtain an ICFR auditor attestation even when the total
benefits of doing so would exceed the total costs because they may
not internalize some of the market-level benefits of compliance and
because the incentives of managers may not be aligned perfectly with
those of shareholders.
---------------------------------------------------------------------------

    In particular, we estimate that the affected issuers have median
annual revenues of about $40 million and a median number of employees
of about 125, while their median public float is about $145
million.\104\ The costs of providing an ICFR auditor attestation
include some fixed costs that do not scale proportionately with size,
and may therefore be disproportionately burdensome for smaller issuers.
For the affected issuers, these costs may represent a meaningful
percentage of their cash flows. Importantly, because these issuers have
limited access to internally-generated capital, compliance costs may be
more likely to displace spending on other things such as investment,
research, or hiring than for other issuers subject to the ICFR auditor
attestation requirement. Exempting these issuers from this requirement
would allow them the discretion to invest their funds in the way they
believe is most value-enhancing. At the same time, the ICFR auditor
attestation requirement may, on average, provide fewer benefits related
to these issuers versus other issuers subject to this requirement.
---------------------------------------------------------------------------

    \104\ See Section III.C.1 for detail on the data sources and
methodologies underlying these estimates.
---------------------------------------------------------------------------

    We find preliminary evidence consistent with the argument that,
compared to other issuers subject to the ICFR auditor attestation
requirement, the affected issuers may be less susceptible to the risk
of certain kinds of misstatements (such as those related to revenue
recognition). Although we expect that exempting these issuers may
result in some adverse effects on the effectiveness of their ICFR and
their

restatement rates, we preliminarily believe that these effects are
unlikely to result in a rate of restatements for the affected issuers
that exceeds that for the issuers that would remain subject to this
requirement. Moreover, in many cases, the market value of the affected
issuers may be driven to a greater degree by their future prospects
than by the current period's financial statements. We find evidence
consistent with this argument, which could further mitigate the extent
of the adverse effects of eliminating the ICFR auditor attestation
requirement for these issuers.
    The discussion that follows examines the potential benefits and
costs of the proposed amendments in detail, with consideration for the
likelihood that the effects of the ICFR auditor attestation have
changed over time with changes in auditing standards and other market
conditions.

B. Baseline

    To assess the economic impact of the proposed amendments, we are
using as our baseline the current state of the market under the
existing definition of ``accelerated filer.'' This section discusses
the current regulatory requirements and market practices. It also
provides statistics characterizing accelerated filers, the timing of
filings, disclosures about ineffective ICFR, and restatement rates
under the baseline.
1. Regulatory Baseline
    Our baseline includes existing statutes and Commission rules that
govern the responsibilities of issuers with respect to financial
reporting, as well as PCAOB auditing standards and market standards
related to the implementation of these responsibilities.
    In particular, accelerated and large accelerated filers are subject
to accelerated filing deadlines for their periodic reports relative to
non-accelerated filers. These deadlines are summarized in Table 6
below. All registrants can file Form 12b-25 (``Form NT'') to avail
themselves of an additional 15 calendar days to file an annual report,
or an additional five calendar days to file a quarterly report, and
still have their report deemed to have been timely filed.

             Table 6--Filing Deadlines for Periodic Reports
------------------------------------------------------------------------
                                                    Calendar days after
                                                        period end
                Category of filer                -----------------------
                                                    Annual     Quarterly
------------------------------------------------------------------------
Non-Accelerated Filer...........................          90          45
Accelerated Filer...............................          75          40
Large Accelerated Filer.........................          60          40
------------------------------------------------------------------------

    Section II.B. above discusses in detail the issuer and auditor
responsibilities with respect to disclosure controls and procedures and
ICFR for issuers of different filer types. These responsibilities
reflect the FCPA requirements with respect to internal accounting
controls as well as a number of different changes to the financial
reporting control environment that were introduced by SOX.
    In particular, all issuers \105\ are required to devise and
maintain an adequate system of internal accounting controls \106\ and
to have their corporate officers assess the effectiveness of the
issuer's disclosure controls and procedures \107\ and disclose the
conclusions of their assessments, typically on a quarterly basis.\108\
In addition, all issuers are required to have their corporate officers
certify in each of their periodic reports that the information in the
report fairly presents, in all material respects, the issuer's
financial condition and results of operations.\109\ All issuers other
than RICs and ABS issuers \110\ are also required to include
management's assessment of the effectiveness of their ICFR in their
annual reports.\111\ Further, all issuers are required to have the
financial statements in their annual reports examined and reported on
by an independent auditor, who, even if not engaged to provide an ICFR
auditor attestation, is responsible for considering ICFR in the
performance of the financial statement audit.\112\ Also, an auditor
engaged in a financial statement only audit may choose, though it is
not required, to test the operating effectiveness of some internal
controls in order to reduce the extent of substantive testing required
to issue an opinion on the financial statements. Finally, all issuers
listed on national exchanges are required to have an audit committee
that is composed solely of independent directors and is directly
responsible for the appointment, compensation, retention and oversight
of the issuer's independent auditors.\113\ Importantly, all of these
responsibilities with respect to financial reporting and ICFR apply
equally to non-accelerated as well as accelerated and large accelerated
filers.
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    \105\ Specifically, the requirements apply to all issuers that
file reports pursuant to Section 13(a) or 15(d) of the Exchange Act.
    \106\ See Section 13(b)(2)(B) of the Exchange Act.
    \107\ Although there is substantial overlap between an issuer's
disclosure controls and procedures and ICFR, there are elements of
each that are not subsumed by the other.
    \108\ See 17 CFR 240.13a-14 and 17 CFR 240.15d-14.
    \109\ See 17 CFR 240.13a-14(b) and 17 CFR 240.15d-14(b).
    \110\ See 17 CFR 240.13a-15 and 17 CFR 240.15d-15. A newly
public issuer is also not required to provide a SOX Section 404(a)
management report on ICFR until its second annual report filed with
the Commission. See Instructions to Item 308 of Regulation S-K.
    \111\ See Management's Report on Internal Control Over Financial
Reporting and Certification of Disclosure in Exchange Act Periodic
Reports, Release No. 33-8238 (June 5, 2003) [68 FR 36635 (June 18,
2003)]. These evaluations of ICFR, as well as any associated auditor
assessments of ICFR, should be based on a suitable, recognized
control framework. The most widely used framework for this purpose
is the one set forth in a report of the Committee of Sponsoring
Organizations of the Treadway Commission (``COSO'').
    \112\ See AS 2110, note 48 above. See also the discussion below
in this section about this auditing standard.
    \113\ See 17 CFR 240.10A-3.
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    Beyond these requirements, accelerated filers and large accelerated
filers other than EGCs, RICs, and ABS issuers are required under SOX
Section 404(b) and related rules to include an ICFR auditor attestation
in their annual reports. In addition, certain banks, even if they are
non-accelerated filers, are required under Federal Deposit Insurance
Corporation (``FDIC'') rules to have their auditor attest to, and
report on, management's assessment of the effectiveness of the bank's
ICFR and reporting procedures (the ``FDIC auditor attestation
requirement'').\114\ Some issuers that are not required to comply with
SOX Section 404(b) voluntarily obtain an ICFR auditor attestation.\115\
Estimates of the number of issuers of

each filer type are provided in Table 7 below.
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    \114\ Part 363 of the FDIC regulations requires that the auditor
of an insured depository institution with consolidated total assets
of $1 billion or more (as of the beginning of the fiscal year)
examine, attest to, and report separately on the assertion of
management concerning the effectiveness of the institution's
internal control structure and procedures for financial reporting.
    \115\ Up to about seven percent of exempt issuers voluntarily
provided an ICFR auditor attestation from 2005 through 2011. See
U.S. Gov't Accountability Office, GAO-13-582, Internal Controls: SEC
Should Consider Requiring Companies to Disclose Whether They
Obtained an Auditor Attestation (July 2013) (``2013 GAO Study'').
    \116\ The estimates in this table are based on staff analysis of
self-identified filer status for issuers filing annual reports on
Forms 10-K, 20-F, or 40-F in calendar year 2017, excluding any such
filings that pertain to fiscal years prior to 2016. Staff extracted
filer status from filings using a computer program supplemented with
hand collection and compared the results for robustness with data
from XBRL filings, Ives Group Audit Analytics, and Calcbench.
Foreign issuers in this table represent those filing on Forms 20-F
or 40-F and do not include FPIs that choose to file on Form 10-K.
EGC issuers are identified by using data from Ives Group Audit
Analytics and/or by using a computer program to search issuer
filings, including filings other than annual reports, for a
statement regarding EGC status. The estimates generally exclude RICs
because these issuers rarely file on the annual report types
considered. This table also excludes 135 issuers, mostly Canadian
MJDS issuers filing on Form 40-F (which does not require disclosure
of filer status or public float), for which filer type is
unavailable.
    \117\ The estimated number of non-accelerated filers includes
approximately 586 ABS issuers, which are not required to comply with
SOX Section 404. Staff estimates that very few, if any, ABS issuers
are accelerated or large accelerated filers. ABS issuers are
identified as issuers that made distributions reported via Form 10-
D.

                      Table 7--Filer Status for Issuers Filing Annual Reports in 2017 \116\
----------------------------------------------------------------------------------------------------------------
                                                          Non- accelerated
                                                               \117\           Accelerated     Large accelerated
----------------------------------------------------------------------------------------------------------------
Total..................................................              3,899              1,497              2,138
    Foreign............................................                240                146                255
    EGC................................................              1,201                375                  0
----------------------------------------------------------------------------------------------------------------

    Audits of ICFR and the associated ICFR auditor attestation reports
are made in accordance with AS 2201,\118\ previously known as Auditing
Standard Number 5 (``AS No. 5'').\119\ This standard, which replaced
Auditing Standard Number 2 (``AS No. 2'') in 2007, was intended to
focus auditors on the most important matters in the audit of ICFR and
eliminate procedures that the PCAOB believed were unnecessary to an
effective audit of ICFR.\120\ Among other things, the 2007 standard
facilitates the scaling of the evaluation of ICFR for smaller, less
complex issuers.\121\ It was accompanied by Commission guidance
similarly facilitating the scaling of SOX Section 404(a) management
evaluations of ICFR.\122\ Relative to AS No. 2, AS 2201 facilitates the
scaling of audits of ICFR by, for example, encouraging auditors to use
top-down risk-based approaches and to rely on the work of others in the
attestation process.
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    \118\ See note 76 above.
    \119\ AS No. 5 was renumbered as AS 2201, effective Dec. 31,
2016. See Reorganization of PCAOB Auditing Standards and Related
Amendments to PCAOB Standards and Rules, PCAOB Release No. 2015-002
(Mar. 31, 2015).
    \120\ See Auditing Standard No. 5, An Audit of Internal Control
Over Financial Reporting That Is Integrated with An Audit of
Financial Statements, and Related Independence Rule and Conforming
Amendments, PCAOB Release No. 2007-005A (June 12, 2007). See also
Public Company Accounting Oversight Board; Order Approving Auditing
Standard No. 5, An Audit of Internal Control Over Financial
Reporting that is Integrated with an Audit of Financial Statements,
a Related Independence Rule, and Conforming Amendments, Release No.
34-56152, File No. PCAOB 2007-02 (July 27, 2007) [72 FR 42141 (Aug.
1, 2007)].
    \121\ Id.
    \122\ See Commission Guidance Regarding Management's Report on
Internal Control Over Financial Reporting Under Section 13(a) or
15(d) of the Securities Exchange Act of 1934, Release No. 33-8810
(June 20, 2007) [72 FR 35323 (June 27, 2007)]. See also Amendments
to Rules Regarding Management's Report on Internal Control Over
Financial Reporting, Release No. 33-8810 (June 20, 2007) [72 FR
35309 (June 27, 2007)].
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    The adoption of AS 2201 in 2007 has been found to have lowered
audit fees.\123\ However, several studies have provided evidence that,
at least initially, audits of ICFR under the revised standard may not
have been as effective in improving the quality of ICFR as those under
AS No. 2.\124\ PCAOB inspections of auditors began, around 2010, to
include a heightened focus on whether auditing firms had obtained
sufficient evidence to support their opinions on the effectiveness of
ICFR.\125\ There is some evidence that these inspections have led to an
improvement in the reliability of ICFR auditor attestations,\126\ but
also concerns about whether they have resulted in increased audit
fees.\127\
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    \123\ See, e.g., Study of the Sarbanes-Oxley Act of 2002 Section
404 Internal Control over Financial Reporting Requirements (Sept.
2009) (``2009 SEC Staff Study''), available at https://www.sec.gov/news/studies/2009/sox-404_study.pdf; Rajib Doogar, Padmakumar
Sivadasan, & Ira Solomon, 48(4) J. of Acct. Res. 795 (2010).
    \124\ See, e.g., Joseph Schroeder & Marcy Shepardson, Do SOX 404
Control Audits and Management Assessments Improve Overall Internal
Control System Quality?, 91(5) Acct. Rev. 1513 (``Schroeder and
Shepardson 2016 Study''); Lori Bhaskar, Joseph Schroeder, & Marcy
Shepardson, Integration of Internal Control and Financial Statement
Audits: Are Two Audits Better than One? Acct. Rev. (forthcoming
2018) (``Bhaskar et al. 2018 Study''), available at http://aaajournals.org/doi/abs/10.2308/accr-52197.
    \125\ See Jeanette Franzel, Board Member, PCAOB, Speech by PCAOB
board member at the American Accounting Association Annual Meeting,
Current Issues, Trends, and Open Questions in Audits of Internal
Control over Financial Reporting (2015), available at https://pcaobus.org/News/Speech/Pages/08102015_Franzel.aspx.
    \126\ See Mark Defond & Clive Lennox, Do PCAOB Inspections
Improve the Quality of Internal Control Audits?, 55(3) J. of Acct.
Res. 591 (2017) (``Defond and Lennox 2017 Study'').
    \127\ See, e.g., Tammy Whitehouse, Audit Inspections:
Improvement? Maybe. Costs? Yes, Compliance Week (April 14, 2015),
available at https://www.complianceweek.com/news/news-article/audit-inspections-improvement-maybe-costs-yes#.W5LW7mlpCEd.
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    In 2010, the PCAOB adopted enhanced auditing standards related to
the auditor's assessment of and response to risk.\128\ The enhanced
risk assessment standards have likely reduced the degree of difference
between a financial statement only audit and an integrated audit (which
includes an audit of ICFR) because the standards clarify and augment
the extent to which internal controls are to be considered even in a
financial statement only audit. In particular, the risk assessment
standards applying to both types of audits require auditors, in either
case, to evaluate the design of certain controls, including whether the
controls are implemented.\129\
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    \128\ See Auditing Standards Related to the Auditor's Assessment
of and Response to Risk and Related Amendments to PCAOB Standards,
PCAOB Release No. 2010-004 (Aug. 5, 2010) (``PCAOB Release No. 2010-
004''). See also Public Company Accounting Oversight Board; Order
Approving Proposed Rules on Auditing Standards Related to the
Auditor's Assessment of and Response to Risk and Related Amendments
to PCAOB Standards, Release No. 34-63606, File No. PCAOB 2010-01
(Dec. 23, 2010) [75 FR 82417 (Dec. 30, 2010)].
    \129\ See AS 2110, note 48 above, paragraphs .18-.40.

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    Based on the results of inspections in the several years after the
adoption of the new risk assessment auditing standards, the PCAOB
expressed concern about the number and significance of deficiencies in
auditing firm compliance with these standards, but also noted promising
improvements in the application of these standards.\130\ While the risk
assessment standards may reduce the degree of difference between a
financial statement only audit and an integrated audit, there remain
important differences in the requirements of these audits as they
relate to controls. For example, in an integrated audit, but not a
financial statement only audit, the auditor is required to identify
likely sources of misstatements.\131\ Also, the extent of the
procedures necessary to obtain the required understanding of controls
generally will be greater in an integrated audit due to the different
objectives of such an audit as compared to a financial statement only
audit.\132\
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    \130\ See Inspection Observations Related to PCAOB ``Risk
Assessment'' Auditing Standards (No. 8 through No.15), PCAOB Release
No. 2015-007 i-iii (Oct. 15, 2015).
    \131\ See PCAOB Release No. 2010-004, note 128 above, at 7 and
A10-41. As discussed above, even in a financial statement only
audit, if the auditor becomes aware of a material weakness in ICFR,
it is required to inform management and the audit committee of this
finding and has the responsibility to review management's disclosure
for any misstatement of facts, such as a statement that ICFR is
effective when there is a known material weakness. See notes 77 and
78 above.
    \132\ See Proposed Auditing Standards Related to the Auditor's
Assessment of and Response to Risk and Conforming Amendments to
PCAOB Standards, PCAOB Release No. 2008-006 A9-8 (Oct. 21, 2008).
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    We also note that there have been some recent changes in accounting
and auditing that are part of our baseline and could increase the
uncertainty of our analysis due to their effects on factors such as
audit fees, restatements, and ICFR. For example, three new reporting
standards have been issued recently by FASB, on the topics of revenue
recognition, leases, and credit losses, which could temporarily
increase audit fees as issuers and auditors adjust to the new
standards.\133\ Recent changes in audit technology, such as the
potential for automated controls testing and process automation,\134\
may result in improvements in ICFR regardless of the ICFR auditor
attestation requirement. Such automation could also reduce audit fees,
including the costs of an audit of ICFR, but the uptake of these
technologies has been slow.\135\ Finally, auditors have had many years
of experience with integrated audits, as well as risk assessment
standards that require the consideration of ICFR even in the absence of
an ICFR auditor attestation. This experience may affect their execution
of financial statement only audits of issuers for whom the ICFR auditor
attestation requirement is eliminated. For example, given their
experience, auditors may be more likely to detect control deficiencies
or to increase their auditing efficiency by reducing substantive
testing in favor of testing some related controls even when an ICFR
auditor attestation is not required.\136\
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    \133\ Information on these and other FASB Accounting Standards
updates is available at https://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176156316498.
    \134\ See, e.g., Kevin Moffitt, Andrea Rozario, & Miklos
Vasarhelyi (2018), Robotic Process Automation for Auditing, Journal
of Emerging Technologies, 15(1) Acct. 1 (describing how, for
example, a robotic process automation program can be ``set up to
automatically match purchase orders, invoices, and shipping
documents [and] can check that the price and quantity on each of the
documents match [to] help auditors validate the effectiveness of
preventive internal controls . . . .'').
    \135\ See, e.g., Protiviti survey results, Benchmarking SOX
Costs, Hours and Controls (2018) (``Protiviti 2018 Report'').
    \136\ See, e.g., 2011 SEC Staff Study, note 49 above, at 106
(stating that ``. . . once effective controls are in place at the
issuer, the auditor is more likely to continue to test them even if
[it is] not issuing an auditor attestation during a particular year
in order to rely on them for purposes of reducing substantive
testing in the audit of the financial statements, particularly for
issuers that are larger and more complex'').
    \137\ Because of the accelerated filer transition provisions,
some accelerated filers have float below $75 million. The public
float of these issuers would previously have exceeded $75 million,
causing them to enter accelerated filer status, but has not dropped
below the $50 million public float level required to exit
accelerated filer status.
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2. Characteristics of Accelerated Filer Population
    Per Table 7, there were approximately 1,500 accelerated filers in
total in 2017. Figure 2 presents the distribution of public float
across these issuers.\137\
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[GRAPHIC] [TIFF OMITTED] TP29MY19.001

    The distribution of public float among accelerated filers is skewed
towards lower levels of float, but higher levels of float are also
significantly represented.
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    \138\ The estimates in the figure are based on staff analysis of
data from XBRL filings. See note 116 above for details on the
identification of the population of accelerated filers.
---------------------------------------------------------------------------

    Figure 3 presents the distribution of revenues across those
accelerated filers that have less than $1 billion in revenues. While
the full population of accelerated filers has revenues of up to over $8
billion, about 90% of accelerated filers have less than $1 billion in
revenues. We restrict the figure to this subset in order to more
clearly display the distribution in this range.

[GRAPHIC] [TIFF OMITTED] TP29MY19.002

BILLING CODE 8011-01-C
    The distribution of revenues for accelerated filers is heavily
skewed towards lower levels of revenue, with roughly three-quarters of
accelerated filers having revenues of less than $500 million and more
than a third having revenues of less than $100 million. Other than a
clustering of issuers with zero or near zero revenues, there are no
obvious breaks in the distribution.
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    \139\ The estimates of revenues are based on staff analysis of
data from XBRL filings, Compustat, and Calcbench. The revenue data
used is from the last fiscal year prior to the annual report in
calendar year 2017, because the SRC revenue test is based on the
prior year's revenues. See note 116 above for details on the
identification of the population of accelerated filers.
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    While a large range of industries are represented among accelerated
filers, a small number of industries account for the majority of these
issuers. The ``Banking'' industry accounts for about 14.2% of
accelerated filers, followed by ``Pharmaceutical Products'' (12.8%),
``Financial Trading'' (7.7%), ``Business Services'' (6.7%), ``Computer
Software'' (4.5%), ``Electronic Equipment'' (4.3%) and ``Petroleum and
Natural Gas'' (4.0%).\140\
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    \140\ These estimates are based on staff analysis of data
including SIC codes from XBRL filings and Ives Group Audit
Analytics, using the Fama-French 49-industry classification system.
See http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/Data_Library/det_49_ind_port.html. See note 116 above for details on