when moving from low revenue to higher revenue, including for
accelerated filers other than EGCs (which have relatively low rates of
ineffective ICFR), we preliminarily believe that the lower restatement
rates for low-revenue issuers are not driven by a difference in the
ability to detect misstatements among these categories of issuers.
    Despite the lower restatement rates of low-revenue issuers, we
expect that the proposed amendments will have some eventual adverse
impact on the restatement rates of the affected issuers. Table 14
demonstrates that, among low-revenue issuers, the accelerated filers
other than EGCs have a two percent (relative to non-accelerated filers
other than EGCs) or five percent (relative to EGCs) lower restatement
rate than the issuers in the comparison populations, which are not
subject to the ICFR auditor attestation requirement. However, as
discussed in Section III.C.2 above, the issuers in the comparison
groups may have higher rates of restatement than would a group of
issuers that is more comparable to the affected issuers in terms of
size and maturity. We therefore look to the low end of this range and
preliminarily estimate that, over time, the rate of restatements among
the affected issuers may increase by two percentage points. However,
given their lower current rates of restatement, even after such an
increase the affected issuers may, on average, restate their financial

statements at a rate that is lower than that of issuers that would
remain accelerated filers, and that does not exceed that of non-
accelerated filers and EGCs with comparable revenues.\264\
---------------------------------------------------------------------------

    \264\ We note that an estimate on the high end of the range also
would not lead to an estimated eventual restatement rate for the
affected issuers that would exceed the estimated average restatement
rate of those that would remain accelerated filers.
---------------------------------------------------------------------------

    While we anticipate that the frequency of ineffective ICFR and, to
a lesser extent, restatements may increase among the affected issuers
as a result of the proposed amendments, the economic effects of these
changes may be mitigated by another factor that may apply to many of
these issuers. In particular, the usefulness of more reliable financial
statements is linked to the degree to which they factor into the
decisions of investors,\265\ for example, with respect to these
investors' valuations of issuers.\266\ The financial statements of many
low-revenue issuers may have relatively lower relevance for market
performance if, for example, relative to higher revenue issuers, their
valuation hinges more on their future prospects than on their current
financial performance. We explore this possibility empirically in Table
15, which uses the methodology applied in previous studies to
calculate, for issuers above and below the $100 million revenue
threshold, the extent to which the variation in market performance is
related to the variation in financial measures.
---------------------------------------------------------------------------

    \265\ See, e.g., Dechow and Schrand 2004 Monograph, note 254
above.
    \266\ See Jennifer Francis & Katherine Schipper, Have Financial
Statements Lost Their Relevance?, 37(2) J. of Acct. Res. 319 (1999)
(``Francis and Schipper 1999 Study'').

  Table 15--Percentage of Variation in Market Performance Explained by
  Variation in Financial Performance for 1998 Through 2017, by Revenue
                             Category \267\
------------------------------------------------------------------------
                                                  Revenue      Revenue
       Market variable           Explanatory      <$100MM      >=$100M
                                  variables      (percent)    (percent)
------------------------------------------------------------------------
Market value of equity.......  Book value of           29.5         62.3
                                assets, book
                                value of
                                liabilities.
Market value of equity.......  Book value of           30.5         70.0
                                equity,
                                earnings.
Stock return.................  Earnings,                4.6          7.5
                                change in
                                earnings.
------------------------------------------------------------------------

    For issuers at or above $100 million in revenue, we find that the
financial variables used as explanatory variables in Table 15 explain
about 60 to 70% of the variation in equity market capitalization and
7.5% of the variation in stock returns. These results are consistent
with the findings of previous studies for all issuers.\268\ In
contrast, for issuers with revenues of less than $100 million, we find
that these financial variables explain about 30% of the variation in
equity market capitalization and just over 4.5% of the variation in
stock returns. Importantly, these results show that financial
statements are not irrelevant for low-revenue issuers. Thus, the
anticipated reduction in the reliability of financial statement for the
affected issuers is expected to have some negative implications.
However, the lower empirical relevance of financial statements on
average for these issuers may partially mitigate the potential adverse
effects of the proposed amendments.
---------------------------------------------------------------------------

    \267\ The reported statistics are adjusted R-squared statistics
based on regression analysis by staff using data from the Standard &
Poor's Compustat and Center for Research in Security Prices
databases. Market value and financial variables are measured as of
the end of the fiscal year. Earnings is income before extraordinary
items. Stock return is the 15-month stock return ending three months
after fiscal year-end, to account for reporting lags. For stock
return regression, earnings are scaled by the lagged market value of
equity, and outliers in one percent tails of variable distributions
are dropped to reduce noise. See id. for additional details.
    \268\ See, e.g., Francis and Schipper 1999 Study. While that
study ends in 1994, before our 20-year horizon, the results are
similar. For example, for the most recent ten years in that study,
the book values of assets and liabilities explain 54 to 70% of the
variation in equity market valuation, the book value of equity and
earnings explain 63 to 78% of the variation in equity market
valuation, and earnings and the change in earnings explain six to
20% of the variation in stock returns.
---------------------------------------------------------------------------

    Finally, we anticipate that the potential adverse effects of the
proposed amendments will develop gradually and are likely to be
relatively limited in the short term. The preceding discussion is based
on the comparison of steady-state differences across issuers in
different categories, and represents an analysis of the eventual
effects of the proposed amendments. Because the proposed amendments
would allow some current accelerated filers to transition to non-
accelerated filer status, some issuers that have already been subject
to an audit of ICFR for one or more years may no longer be required to
obtain an ICFR auditor attestation. While other issuers will enter into
the affected issuers category without having previously obtained an
ICFR auditor attestation, and such issuers are likely to represent a
larger fraction of the affected issuers over time, initially issuers
with experience with ICFR auditor attestations are expected to
represent a substantial fraction of the affected issuers. Nevertheless,
we recognize that a delay in realizing some of the associated costs
from the proposed amendments would not necessarily mitigate their
ultimate effects.
    Newly exempt issuers may have implemented control improvements that
would persist regardless of a transition. For example, they may have
made investments in systems, procedures, or training that are unlikely
to be reversed. It is difficult to predict the degree of inertia in
ICFR and financial reporting in order to gauge how quickly, if at all,
issuers that cease audits of ICFR may evolve such that their ICFR and
the reliability of their financial statements is more characteristic of
exempt issuers.\269\ The gradual nature of such an evolution, and the
associated halo effect of the last disclosed ICFR auditor attestation,
may limit the short-term costs of the proposed amendments. In addition,
issuers that believe control improvements are valuable for reporting
and certifying results would be free to spend the resources saved on
the attestations on such improvements.
---------------------------------------------------------------------------

    \269\ We note that there is a relatively small sample of
accelerated filers transitioning to non-accelerated filer status
because of changes in their public float, as compared to transitions
in the other direction, and that such transitions likely represent
special circumstances such as underperformance. Therefore, such
transitions are not particularly helpful for predicting the outcomes
of accelerated filers transitioning to non-accelerated filer status
because of the proposed amendments.
---------------------------------------------------------------------------

    Affected issuers with experience with audits of ICFR may also be
more likely to continue to obtain an ICFR auditor attestation on a
voluntary basis than other exempt issuers are to begin voluntary audits
of ICFR. This may be due to such issuers having already incurred
certain start-up costs or facing demand from their current investors to
continue to provide ICFR auditor

attestations. Some issuers in the groups that we use for comparison,
which are not subject to an ICFR auditor attestation requirement,
voluntarily obtain an ICFR auditor attestation. Thus, the comparisons
made above at least partially account for the fact that some issuers
may choose to obtain an ICFR auditor attestation even in the absence of
a requirement. However, to the extent the rate of voluntary ICFR
auditor attestations would be higher amongst the issuers that would be
newly exempt from the ICFR auditor attestation requirement than other
exempt issuers, the anticipated costs of the proposed amendments in the
near term may be further reduced.
c. Potential Economic Costs of Effects on ICFR and Reliability of
Financial Statements
    Per the discussion in Section III.C.4.a above, any impact of the
proposed amendments on the effectiveness of ICFR and the reliability of
financial statements may have issuer-level implications as well as
market-level implications. At the issuer level, the potential increase,
on average, in the rate of ineffective ICFR and restatements may lead
investors to charge a somewhat higher average cost of capital for the
affected issuers. An issuer's cost of capital, or the expected return
that investors demand to hold its securities, determines the price at
which it can raise funds. Thus, any such increase may be associated
with a reduction in capital formation to the extent that it decreases
the rate at which the affected issuers raise new capital towards new
investments. Further, the affected issuers may also experience reduced
operational efficiency because of the reduced reliability of financial
information available to management for the purpose of making operating
decisions. These potential effects are supported by a number of studies
discussed above.\270\
---------------------------------------------------------------------------

    \270\ See Section III.
---------------------------------------------------------------------------

    The potential issuer-level effects on cost of capital and operating
performance are difficult to confirm and to quantify for the affected
issuers because the existing studies may not be generalizable to the
affected issuers and to the current nature of ICFR auditor attestations
(after the 2007 change in the ICFR auditing standard, the 2010 change
in risk assessment auditing standards, and recent PCAOB inspections
focused on these aspects of audits). Further, some of these studies
provide mixed evidence, as discussed in Section III.C.4.a above.
Moreover, the methods used in previous studies are difficult to apply
to a comparable sample of low-revenue issuers in more recent years
because, for example, there would only be a small sample of such
issuers that recently switched filing status and because methods of
measuring the implied cost of capital are particularly problematic for
such issuers.\271\
---------------------------------------------------------------------------

    \271\ See note 243 above.
---------------------------------------------------------------------------

    The available evidence supports the qualitative, directional
effects noted above. However, the previous section demonstrated that
the potential increase in material weaknesses in ICFR that we estimate
could occur may translate into a more limited effect on the reliability
of disclosures, as measured by the rate of restatements, for the
affected issuers. Also, based on our analysis, the financial metrics of
these issuers have lower explanatory power for investors' determination
of their value than in the case of other issuers. These two factors may
mitigate the potential adverse effects on the affected issuers' cost of
capital and operating performance.
    Importantly, some of the costs of extending the exemption from the
ICFR auditor attestation requirement to additional issuers may be
further mitigated by the fact that some issuers, even if exempted, may
voluntarily choose to bear the costs of obtaining such an
attestation.\272\ Affected issuers that expect a lower cost of capital
with an ICFR auditor attestation, such as those with effective
ICFR,\273\ and particularly those that will be raising new debt or
equity capital,\274\ are more likely to voluntarily obtain an ICFR
auditor attestation. We note that low-revenue issuers have less access
to internally-generated capital, as discussed above, so they may be
more reliant on external financing for capital. However, it is probably
not the case that voluntary compliance with the ICFR auditor
attestation requirement would be undertaken in every case in which the
total benefits of doing so would exceed the total costs.\275\ Further,
we note that the benefits of voluntary compliance may be partially
constrained by a lack of prominent disclosure of such compliance, in
that investors may not be able to readily discern which issuers
voluntarily comply,\276\ although we expect that voluntary compliers
may be likely to make investors aware of their compliance through other
means.
---------------------------------------------------------------------------

    \272\ Studies have associated voluntary compliance with the ICFR
auditor attestation requirement with decreased cost of capital and
value enhancements. See, e.g., Cory Cassell, Linda Myers, & Jian
Zhou, The Effect of Voluntary Internal Control Audits on the Cost of
Capital, Working Paper (2013) (Cassell et al. 2013 Study), available
at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1734300; Todd
Kravet, Sarah McVay, & David Weber, Costs and Benefits of Internal
Control Audits: Evidence from M&A Transactions, Rev. of Acct. Stud.
(forthcoming 2018), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2958318; and Carnes et al. 2019 Study, note
194 above. We note that the latter two studies are not able to
differentiate between the effects of the ICFR auditor attestation
and of management's assessment of ICFR under SOX Section 404(a).
    \273\ See Brown et al. 2016 Study, note 193 above.
    \274\ See Cassell et al. 2013 Study.
    \275\ There is substantial literature describing the fact that
in certain circumstances the incentives of managers are not
perfectly aligned with those of shareholders. See, e.g., Michael
Jensen & William Meckling, Theory of the Firm: Managerial Behavior,
Agency Costs and Ownership Structure, 3(4) J. of Fin. Econ. 305
(1976). Also, as discussed in Section III.C.4.a above, the ICFR
auditor attestation requirement can have important market-level
benefits through network and spillover effects that issuers are
unlikely to internalize. That is, issuers are likely to balance the
issuer-level benefits against the issuer-level costs of voluntary
compliance without considering these externalities.
    \276\ See 2013 GAO Study, note 115 above.
---------------------------------------------------------------------------

    Issuers and other market participants may also adapt to the
proposed changes in other ways, which may serve to enhance or mitigate
the anticipated costs. However, these actions, and therefore their net
effects, are difficult to predict. For example, it has been posited
that issuers reacted to the requirements of SOX by reducing accruals-
based earnings management and, in its stead, making suboptimal business
decisions for the purpose of real earnings management.\277\ It is
therefore possible that newly exempt issuers could, to some extent,
reduce real earnings management in favor of accruals-based management.
Another possibility is that scrutiny from analysts may provide an
alternative source of discipline for some of the affected issuers,
although there is evidence that analysts may stop covering issuers
whose financial statements are deemed to have become less
reliable.\278\
---------------------------------------------------------------------------

    \277\ See Daniel Cohen, Aiyesha Dey, & Thomas Lys, Real and
Accrual-Based Earnings Management in the Pre- and Post-Sarbanes
Oxley Periods, 83(3) Acct. Rev. 757 (2008) (finding that an increase
in real earnings management partially offset the decrease in
accruals-based earnings management that followed SOX). See also
Coates and Srinivasan 2014 Study, note 181 above, at 646-647.
    \278\ See Sarah Clinton, Arianna Pinello, & Hollis Ashbaugh-
Skaife, The Implications of Ineffective Internal Control and SOX 404
Reporting for Financial Analysts,'' 33(4) J. of Acct. and Pub. Pol'y
303 (2013) (finding that the disclosure of internal control
weaknesses are followed by a decline in analyst coverage).
---------------------------------------------------------------------------

    While the preceding analysis considers the average effects across
the affected issuers on the effectiveness of ICFR and the reliability
of financial statements, the potential issuer-level costs of the
proposed extension of the exemption from the ICFR auditor attestation
requirement likely vary

across different types of affected issuers. In particular, for issuers
without (and that continue not to have) underlying material weaknesses
in their ICFR, a lack of an auditor attestation may decrease confidence
in the effectiveness of their ICFR and therefore increase their cost of
capital, particularly for those with characteristics that might
otherwise lead the market to believe that they likely have unreported
material weaknesses.\279\ Issuers without underlying material
weaknesses in their ICFR are less likely to experience effects on the
reliability of their financial statements or operating performance.
---------------------------------------------------------------------------

    \279\ See, e.g., Ashbaugh-Skaife et al. 2009 Study, note 240
above (finding that an unqualified SOX 404 opinion is associated
with a 116 basis point decrease in the cost of capital for companies
with the characteristics most associated with having ICFR
deficiencies, and no significant change for those with
characteristics least associated with such deficiencies). See also
Ge et al. 2017 Study, note 177 above, at 372 (finding that 90% of
issuers with management reports disclosing effective ICFR that then
transition to accelerated filer status receive an auditor
attestation that also finds no material weaknesses in ICFR).
---------------------------------------------------------------------------

    Among issuers with (or that develop) material weaknesses in ICFR,
some may fully detect and disclose these in their SOX Section 404(a)
management reports even in the absence of an ICFR auditor attestation
requirement. For such issuers, evidence suggests that the removal of
the ICFR auditor attestation requirement may reduce the likelihood that
they remediate, or the speed with which they remediate, such material
weaknesses.\280\ For these issuers, an exemption from the ICFR auditor
attestation requirement may, over time, result in less reliable
financial statements, a higher cost of capital, and some operational
underperformance.
---------------------------------------------------------------------------

    \280\ See Ge et al. 2017 Study, note 177 above, at 372 (finding
that 62.5% of companies that reported material weaknesses as non-
accelerated filers remediate these upon entering accelerated filer
status). We note that this rate is significantly higher than the
remediation rate for non-accelerated filers in general. We estimate
that 10%, 11%, and six percent respectively of the non-accelerated
filers reporting material weaknesses in ICFR in 2014, 2015, and 2016
that remain non-accelerated filers in the following year report no
such weaknesses in the following year. See note 143 above for detail
on the data sources and methodologies underlying this estimate.
---------------------------------------------------------------------------

    Other issuers with (or that develop) material weaknesses in ICFR
may not detect or disclose all of these material weaknesses in the
absence of an ICFR auditor attestation requirement. Those that would,
however, report ineffective ICFR when subject to the ICFR auditor
attestation requirement \281\ may have a temporarily reduced cost of
capital if exempted from this requirement, particularly if they have
characteristics that do not otherwise lead the market to suspect that
their ICFR may be ineffective (such as those without past
restatements).\282\ Any such reduced cost of capital for these under-
reporters may be temporary, as such issuers may be less likely to
remediate underlying material weaknesses in their ICFR and could thus
eventually face a higher cost of capital due to less reliable financial
statements and could experience negative effects on their operating
performance.\283\
---------------------------------------------------------------------------

    \281\ Id. (finding that about ten percent of issuers reporting
effective ICFR in their management reports as non-accelerated filers
report ineffective ICFR upon entering accelerated filer status).
    \282\ See, e.g., Ashbaugh-Skaife et al. 2009 Study, note 240
above (finding that companies that newly disclose material
weaknesses in their ICFR have an increase in their cost of capital,
but that this increase is lower for companies with the
characteristics most associated with having such material
weaknesses, at about 50 basis points, and higher for companies
without such characteristics, at about 125 basis points).
    \283\ See Ge et al. 2017 Study, note 177 above. See also the
evidence summarized in Section III.C.4.a.
---------------------------------------------------------------------------

    To the extent that the reliability of financial statements is
somewhat reduced on average at the issuer level for the affected
issuers, the efficient allocation of capital at the market level may be
negatively affected given a diminished ability to reliably evaluate
different investment alternatives.\284\ Further, such effects could
negatively impact capital formation through a reduction in investor
confidence. Section III.C.4.a provides additional discussion of these
market-level factors. We anticipate that any such market-level effects
may be limited by the small percentage of the total value of traded
securities that is represented by the affected issuers and the size of
the expected effect on the reliability of these issuers' disclosures.
---------------------------------------------------------------------------

    \284\ The efficient allocation of capital may be further reduced
to the extent that the potential cost of capital effects discussed
above operate through a reduction in the liquidity of the market for
these issuers' shares, which increases the costs to investors
looking to adjust their investments or redeploy their capital. See
Diamond and Verrecchia 1991 Study, note 239 above.
---------------------------------------------------------------------------

5. Potential Benefits and Costs Related to Other Aspects of the
Proposed Amendments
    In this section we consider the potential effects of the proposed
amendments with regard to other implications of accelerated filer
status, specifically with respect to the timing of filing deadlines,
certain required disclosures, and the determination of filer status. We
also consider below some incremental effects of the proposed amendments
to the thresholds for exiting accelerated and large accelerated filer
status.
a. Filing Deadlines
    As discussed in Section III.B.1 above, non-accelerated filers are
permitted an additional 15 days and five days, respectively, beyond the
deadlines that apply to accelerated filers, to file their annual and
quarterly reports. Extending these later deadlines to the affected
issuers may provide these issuers with additional flexibility in
preparing their disclosures, while modestly decreasing the timeliness
of the data for investors.
    Table 8 in Section III.B.3 demonstrates that while the filing
deadlines are not a binding constraint for most accelerated filers,
with 64% filing their annual reports over five days early in recent
years, some accelerated filers would benefit from an extended deadline.
For example, filing Form NT automatically provides a grace period of an
additional 15 days to file an annual report, and over the past four
years, about five percent of accelerated filers filed their annual
reports within this grace period rather than by the original deadline.
A further four percent of accelerated filers filed their annual reports
after these additional 15 days had passed.
    Even affected issuers that would otherwise have filed by the
accelerated filer deadline may avail themselves of the additional time
provided under the proposed amendments to balance other obligations or
to prepare higher quality disclosures. The 2003 acceleration of filing
deadlines for accelerated filers from 90 to 75 days was associated, at
least initially, with a higher rate of restatements for the affected
issuers.\285\ This finding suggests that a later deadline may allow
some issuers to provide more reliable financial disclosures. While
these issuers could alternatively file Form NT to receive an automatic
extension, studies have found that investors interpret such filings as
a negative signal, resulting in a negative stock price reaction.\286\
Issuers may thus prefer to meet the original deadline if possible.
---------------------------------------------------------------------------

    \285\ See, e.g., Colleen Boland, Scott Bronson, & Chris Hogan,
Accelerated Filing Deadlines, Internal Controls, and Financial
Statement Quality: The Case of Originating Misstatements, 29(3)
Acct. Horizons 551 (2015) (``Boland et al. 2015 Study''); and Lisa
Bryant-Kutcher, Emma Yan Peng, & David Weber, Regulating the Timing
of Disclosure: Insights from the Acceleration of 10-K Filing
Deadlines, 32(6) J. of Acct. and Pub. Pol'y 475- (2013).
    \286\ See Joost Impink, Martien Lubberink, & Bart van Praag, Did
Accelerated Filing Requirements and SOX Section 404 Affect the
Timeliness of 10-K Filings?, 17(2) Rev. of Acct. Stud. 227 (2012)
and Eli Bartov & Yaniv Konchitchki, SEC Filings, Regulatory
Deadlines, and Capital Market Consequences, 31(4) Acct. Horizons 109
(2017).
---------------------------------------------------------------------------

    On the other hand, allowing the affected issuers to file according
to the

later non-accelerated filer deadlines may reduce the timeliness and
therefore usefulness of the disclosures to investors. Studies have
found a reduction in the market reaction to disclosure when the
reporting lag between the end of the period in question and the
disclosure date is lengthy, as more of the information becomes
available through other public channels.\287\ Researchers have also
questioned whether such lags increase information asymmetries, because
some investors are more able to access or process information that
could provide indirect insight into an issuer's financial status or
performance through alternative channels.\288\
---------------------------------------------------------------------------

    \287\ See, e.g., Dan Givoly & Dan Palmon, Timeliness of Annual
Earnings Announcements: Some Empirical Evidence, 57(3) Acct. Rev.
486 (1982).
    \288\ See, e.g., Nils Hakansson, Interim Disclosure and Public
Forecasts: An Economic Analysis and a Framework for Choice, 52(2)
Acct. Rev. 396 (1977) and Baruch Lev, Toward a Theory of Equitable
and Efficient Accounting Policy, 63(1) Acct. Rev. 1 (1988). We note
that Regulation FD generally prohibits public companies from
disclosing nonpublic, material information to selected parties
unless the information is distributed to the public first or
simultaneously. See 17 CFR 243.100 to 17 CFR 243.103.
---------------------------------------------------------------------------

    One study found that the 2003 acceleration of filing deadlines was
associated with a decrease in the market reaction to the disclosure of
annual reports for accelerated filers.\289\ Based on this result and
supplementary tests regarding the change in disclosure quality and
change in timeliness after the acceleration of deadlines, the authors
concluded that the negative effect of the shorter deadline on the
quality of disclosure appeared to dominate the beneficial effect on the
timeliness of the disclosure for these issuers.\290\ While this finding
might not be directly applicable 15 years later, and there is some
evidence that some of these effects were temporary,\291\ in the absence
of other evidence we preliminarily expect the net effect of the
extended filing deadlines to be beneficial on average but modest
overall.
---------------------------------------------------------------------------

    \289\ See Jeffrey Doyle & Matthew Magilke, Decision Usefulness
and Accelerated Filing Deadlines, 51(3) J. of Acct. Res. 549 (2013).
We note that this study found the reverse to be true for large
accelerated filers.
    \290\ Id.
    \291\ See, e.g., Boland et al. 2015 Study, note 285 above.
---------------------------------------------------------------------------

b. Disclosures Required of Accelerated Filers
    Non-accelerated filers are not required to provide disclosure
regarding the availability of their filings under Item 101(e)(4) of
Regulation S-K. While some investors may benefit from reduced search
costs due to such disclosures, we do not expect that extending the
exemption from these disclosures to the affected issuers would have
significant economic effects.
    Non-accelerated filers are not required to provide disclosure
required by Item 1B of Form 10-K or Item 4A of Form 20-F about
unresolved staff comments on their periodic and/or current reports.
Studies have found that the eventual disclosure of staff comments and
related correspondence, as well as interim information about these
comments before they are made public, are value-relevant (in that they
affect the pricing of securities) for investors.\292\ While our
understanding is that Items 1B and 4A disclosures are relatively
uncommon,\293\ extending the exemption from the requirement to disclose
unresolved staff comments to the affected issuers may, in some
circumstances, prevent the timely disclosure of value-relevant
information to public market investors. Moreover, because Item 1B of
Form 10-K and Item 4A of Form 20-F requires unresolved staff comments
to be disclosed if they were made not less than 180 days prior to the
end of that fiscal year, issuers no longer subject to this disclosure
requirement may have a reduced incentive to resolve comments in a
timely manner. This could reduce the efficiency of the review process
and could increase the number of unresolved staff comments at any given
time, and thus also decrease the quality of reporting for the period
over which comments continue to be unresolved.
---------------------------------------------------------------------------

    \292\ See, e.g., Patricia Dechow, Alastair Lawrence, & James
Ryans, SEC Comment Letters and Insider Sales, 91(2) Acct. Rev. 401
(2015) and Lauren Cunningham, Roy Schmardebeck, & Wei Wang, SEC
Comment Letters and Bank Lending, Working Paper (2017), available at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2727860.
    \293\ Based on staff analysis using the Intelligize database,
approximately 20 issuers included Item 1B disclosures in Forms 10-K
filed in 2017.
---------------------------------------------------------------------------

c. Transition Thresholds
    The proposed amendments include revisions to the transition
thresholds that address when an accelerated filer or large accelerated
filer can transition into a different filer status. The proposed
amendments would allow accelerated or large accelerated filers to
become non-accelerated filers if they qualify under the SRC revenue
test or meet a revised public float transition threshold. An issuer
whose revenues previously exceeded the SRC initial revenue threshold of
$100 million will not qualify under the SRC revenue test unless its
revenues fall below $80 million. The $80 million transition threshold
for the SRC revenue test is 80% of the initial threshold of $100
million in revenue. An issuer whose public float previously exceeded
the $75 million initial threshold for accelerated filer status would
become a non-accelerated filer if its public float fell below $60
million, or 80% of that initial threshold, as opposed to the current
threshold of $50 million. Finally, the proposed amendments also revise
the public float transition threshold for exiting large accelerated
filer status and becoming an accelerated filer from $500 million to
$560 million in public float, or 80% of the $700 million entry
threshold, to align with the transition threshold for entering SRC
status after having exceeded $700 million in public float.
    The filer type exit thresholds in Rule 12b-2 are set below the
corresponding entry thresholds to provide some stability in issuer
classification given normal variation in public float and revenues. The
exact placement of these thresholds involves a tradeoff between the
degree of volatility in classification versus the extent to which the
categories persistently include issuers that are below the initial
entry thresholds. Table 16 illustrates this tradeoff using 20 years of
data on the evolution of company year-end market capitalizations and
revenues. While market capitalization is different from public float,
we expect the volatility of these measures to be similar because
changes in stock price represent the dominant source of variation in
both measures.

        Table 16--Transitions in Equity Market Capitalization and Revenue Level, 1998 Through 2017 \294\
----------------------------------------------------------------------------------------------------------------
                                                                        Exit threshold as percentage of entry
                                                                                threshold
                          Entry threshold                           --------------------------------------------
                                                                       60%      70%      80%      90%      100%
----------------------------------------------------------------------------------------------------------------
Percentage of new entrants that exit and re-enter over next two
 years:

    $700M market cap...............................................      3.0      3.5      4.7      6.6      9.5
    $250 M market cap..............................................      3.1      4.0      5.1      6.9      9.1
    $75M market cap................................................      3.1      4.3      5.6      7.1      8.4
    $100 M revenue.................................................      0.9      1.1      1.4      2.3      4.5
Percentage of new entrants that do not exit but are below entry
 threshold for next two years:
    $700 M market cap..............................................      5.7      3.4      1.6      0.4      0.0
    $250 M market cap..............................................      4.6      2.8      1.4      0.5      0.0
    $75M market cap................................................      4.0      2.5      1.3      0.5      0.0
    $100 M revenue.................................................      3.6      2.8      1.9      0.6      0.0
----------------------------------------------------------------------------------------------------------------

    Consider an entry threshold of $700 million in market
capitalization. The first panel of Table 16 demonstrates potential
fluctuations in issuer classification based on this entry threshold. A
higher exit threshold is associated with more volatility in
classification. For example, an exit threshold of $700 million, or 100%
of the entry threshold, would have led almost ten percent of the new
entrants to exit the following year and then re-enter the year after
that. Issuers and investors may be confused as a result of such
frequent fluctuations in filer type. They may also bear resulting
costs, such as (for issuers) the cost of frequently revising disclosure
schedules and the scope of auditing contracts and (for investors) any
incremental cost of evaluating the reliability of financial disclosures
for an issuer that is not consistently subject to the ICFR auditor
attestation requirement. The second panel of Table 16 demonstrates the
persistence of classification for issuers that drop below the entry
threshold. A lower exit threshold is associated with a greater number
of issuers remaining in a particular category despite falling below the
entry threshold. For example, in the first row of this panel, an exit
threshold of $420 million, or 60% of the $700 million entry threshold,
would have prevented almost six percent of the new entrants from
exiting despite falling below the entry threshold in the next two
years. A low exit threshold can thus risk having a filer status
effectively apply to a broader group of issuers than intended.
---------------------------------------------------------------------------

    \294\ The estimates in this table are based on staff analysis of
data from Compustat.
---------------------------------------------------------------------------

    Table 16 demonstrates that the balance between limiting filer
status volatility while enabling filer status mobility provided by an
exit threshold of 80% is similar around a $250 million, $75 million,
and $700 million market capitalization. We therefore expect the
proposed increase in the thresholds to exit accelerated and large
accelerated filer status to $60 and $560 million, or 80% of the entry
thresholds, to lead to a similar tradeoff in these factors as the 80%
public float threshold to re-enter SRC status. Table 16 also
demonstrates that revenue is more stable than market capitalization, so
the 80% threshold in the revenue test for exiting accelerated and large
accelerated filer status is expected to provide a lower degree of filer
status fluctuations for a comparable degree of filer status mobility.
Overall, we expect the proposed transition thresholds to provide a
tradeoff between filer status mobility and volatility that is
consistent with the tradeoff provided by the recently revised SRC
transition provisions.
6. Alternatives to the Proposed Amendments
    Below we consider the relative costs and benefits of reasonable
alternatives to the implementation choices in the proposed amendments.
a. Exclude All SRCs From Accelerated Filer Category
    We have considered excluding all SRCs from the accelerated filer
definition, consistent with the past alignment of the SRC and non-
accelerated filer categories. This alternative would include SRCs that
meet the revenue test, as proposed, as well as those that have a public
float of less than $250 million when initially determining SRC status.
Incremental Benefits of Excluding All SRCs From Accelerated Filer
Category
    This alternative would have several benefits, such as promoting
regulatory simplicity and reducing any frictions or confusion caused by
issuers having to make multiple determinations of their filer type. It
would also expand the benefits of the proposed amendments to additional
issuers. We estimate that 357 additional issuers \295\ would be non-
accelerated filers rather than accelerated filers under this
alternative, of which 68 are EGCs and 289 would newly be exempt from
the ICFR auditor attestation requirement under SOX Section 404(b)
(although we estimate that 13 of these newly exempt filers would still
be subject to the FDIC auditor attestation requirement).
---------------------------------------------------------------------------

    \295\ This estimate is based on staff analysis of the number of
accelerated filers in 2017 with public float of at least $60 million
but less than $250 million and prior fiscal year revenues of at
least $100 million and that are eligible to be SRCs (i.e., excluding
ABS issuers, RICs, BDCs, and subsidiaries of non-SRCs). Revenue data
is sourced from XBRL filings, Compustat, and Calcbench. See note 116
above for details on the identification of the population of
accelerated filers. We note that the incremental number of affected
issuers could be higher than this estimate because there are
approximately 230 issuers, the vast majority of which are foreign
issuers, for which filer status and/or public float data are not
available (and revenue data is either unavailable or revenues are at
least $100 million).
---------------------------------------------------------------------------

    To estimate the benefits to these additional issuers, we begin by
considering the audit fees of lower-float issuers of different types,
as we did for low-revenue issuers in Table 12 of Section III.C.3. These
results are presented in Table 17.

                        Table 17--Average Total Audit Fees in Dollars by Filer type \296\
----------------------------------------------------------------------------------------------------------------
                                                                 Issuers with public float <$250 million
                                                        --------------------------------------------------------
                                                          Accelerated (ex.   Non-Accelerated
                                                               EGCs)            (ex. EGCs)            EGC
----------------------------------------------------------------------------------------------------------------
2014...................................................           $750,550           $294,576           $232,006
2015...................................................            723,337            309,296            239,374
2016...................................................            837,010            419,357            225,294
2017...................................................            842,675            438,939            244,554
Average/year...........................................            788,393            365,542            235,307
----------------------------------------------------------------------------------------------------------------

    The analysis includes, per year, 551 to 675 lower-float accelerated
filers (other than EGCs), 1,537 to 2,784 lower-float non-accelerated
filers (other than EGCs), and 163 to 985 lower-float EGCs.\297\ For
these lower-float issuers, the difference between the average annual
audit fees for accelerated filers subject to the ICFR auditor
attestation requirement and the comparison populations that are exempt
from this requirement represents, as a percentage of the total audit
fees for accelerated filers, roughly 50 to 70% of those total audit
fees.\298\ This range of percentages is significantly higher than the
estimates of the cost of an ICFR auditor attestation from other sources
discussed in Section III.C.3.b above. Also, as discussed in Section
III.C.2 above, the lower audit fees for the comparison populations may
be partially attributable to their smaller size, and the disparity in
size in this case is greater than in the analysis of a revenue
threshold.\299\ We therefore select a lower estimate of 40% for the
audit fee savings associated with an exemption of these issuers from
the ICFR auditor attestation requirement, which is still significantly
higher than the 25% we applied for low-revenue issuers and is higher
than the five percent to 35% range of estimates from other sources,
resulting in an estimate of 40% of $788,393 or about $315,000 in
average savings on audit fees under this alternative.
---------------------------------------------------------------------------

    \296\ The estimates in this table are based on staff analysis of
data from Ives Group Audit Analytics and public float data from XBRL
filings. The accelerated and non-accelerated categories exclude
EGCs. See note 116 above for details on the identification of filer
type.
    \297\ The analyses in Table 18 and 19 that follow exclude non-
accelerated filers (other than EGCs) because of a lack of higher-
float non-accelerated filers and also include, per year, 436 to 583
higher-float accelerated filers (other than EGCs) and 89 to 135
higher-float EGCs. The sample size varies across years and is based
on issuers of a given filer type with public float data available
from XBRL filings and a SOX Section 404(a) management report
available in the Ives Group Audit Analytics database. See note 116
above for details on the identification of filer type.
    \298\ For non-accelerated filers other than EGCs, the average
difference is $788,393 minus $365,542, or $422,851, which is about
53.6% of $788,393. For EGCs, the average difference is $788,393
minus $235,307, or $553,086, which is about 70.2% of $788,393.
    \299\ In the case of low-revenue issuers, the assets and
employees of the comparison population were about one-third of what
they were for the accelerated filers in the analysis, as discussed
in Section IV.C.2 above. In the case of low float issuers, the
assets and employees of the comparison population are about one-
fifth of what they were for the accelerated filers in the analysis.
---------------------------------------------------------------------------

    Adding this cost savings to our estimate of additional potential
compliance cost savings beyond audit fee savings of $100,000 from
Section III.C.3.d above, for which the analysis for lower public float
issuers would not differ, we estimate an average cost savings of
$415,000 for the additional issuers that would be affected under this
alternative, with some of these issuers experiencing lesser or greater
savings. This represents a significant cost savings for issuers with
less than $250 million in public float and may thus have beneficial
economic effects on competition and capital formation. As discussed
above, smaller issuers generally bear proportionately higher compliance
costs than larger issuers. Reducing these additional issuers' costs
would reduce their overhead expenses and may enhance their ability to
compete with larger issuers. To the extent that the cost savings for
the additional affected issuers enable capital investments that would
not otherwise be made, this alternative would also lead to additional
benefits in capital formation.
Incremental Costs of Excluding all SRCs From Accelerated Filer Category
    This alternative could also impose several costs. Overall, we
expect costs of this alternative to be greater than for the proposed
amendments, primarily due to the broader application of the exemption
from the ICFR auditor attestation requirement and the diminished impact
of some of the mitigating factors discussed in Section III.C.4 above on
SRCs that meet the public float test rather than the revenue test.
    To explore these potential costs further, we follow the analysis
set forth in Section III.C.4 above. We begin by considering the
potential impact of an exemption from the ICFR auditor attestation
requirement on the effectiveness of ICFR and reliability of financial
statements for these issuers. Table 18 presents our estimates of the
percentage of issuers with public float below $250 million and those
with public float of at least $250 million that report ineffective ICFR
in their management report in recent years. We compare accelerated
filers (other than EGCs) to EGCs because the latter are not currently
subject to the ICFR auditor attestation requirement but may have public
float that is greater or less than $250 million (while non-accelerated
filers are not suitable for this analysis because they would generally
not have public float of greater than $250 million). We omit the year
2014 in the second panel because of an insufficient sample of EGCs with
public float greater than $250 million in 2014.

Table 18--Percentage of Issuers Reporting Ineffective ICFR in Management
                              Report \300\
------------------------------------------------------------------------
                                     Accelerated (ex.
       Ineffective ICFR Year         EGCs) (percent)     EGC (percent)
------------------------------------------------------------------------
Public Float <$250M:
    2014..........................                9.0               46.6
    2015..........................                9.5               48.0

    2016..........................               10.9               50.0
    2017..........................               10.5               51.8
    Average/year..................               10.0               49.1
Public Float >=$250M:
    2015..........................                7.7               11.2
    2016..........................                6.3               12.6
    2017..........................                8.0                7.6
    Average/year..................                7.3               10.5
                                   -------------------------------------
        Difference in average/year                2.7               38.6
------------------------------------------------------------------------

    As in the case of EGCs and non-accelerated filers (other than EGCs)
with low revenues, as shown in Table 13, Table 18 demonstrates that
EGCs with lower public float are significantly more likely to report
ineffective ICFR than those with higher public float. In comparison, as
in the case of our revenue analysis, there is not a distinct pattern in
the rate of ineffective ICFR across this public float threshold for
accelerated filers. EGCs with lower public float report ineffective
ICFR at a rate that is almost 40 percentage points higher than EGCs
with higher public float or accelerated filers (other than EGCs) with
lower public float. As in our estimation for low-revenue issuers, we
acknowledge the potential inflation of these statistics due to the
relation between size and age and rates of material weakness. Because
we have a single comparison sample in this case, rather than a range of
statistics based on two comparison samples as in our analysis based on
revenue, we apply a downward adjustment to account for these
differences and preliminarily estimate that extending the exemption
from the ICFR auditor attestation requirement to issuers that are
eligible to be SRCs based on their public float may result in an
average increase in the rate of ineffective ICFR of about 25 percentage
points among these issuers, somewhat higher than our estimate for low-
revenue issuers. We next look to see whether, as with the low-revenue
issuers analyzed in Section III.C.4, there are mitigating factors that
could limit the potential adverse effects of extending the exemption
from the ICFR auditor attestation requirement.
---------------------------------------------------------------------------

    \300\ The estimates in this table are based on staff analysis of
Ives Group Audit Analytics data and public float data from XBRL
filings. ICFR effectiveness is based on the last amended management
report for the fiscal year. Percentages are computed out of all
issuers of a given type and float category with a SOX Section 404(a)
management report available in the Ives Group Audit Analytics
database. The accelerated category excludes EGCs. 2014 statistics
are omitted in this table, relative to Table 13, because of an
insufficient sample of EGCs with float greater than $250 million in
that year. See note 116 above for details on the identification of
filer type.
---------------------------------------------------------------------------

    Table 19 presents the rate of restatements in recent years by
issuers in these categories. As in the case of Table 18, 2014 is
excluded in the second panel due to an insufficient sample size of high
float EGCs.

Table 19--Percentage of Issuers Issuing Restatements by Year of Restated
               Financials, by Public Float Category \301\
------------------------------------------------------------------------
                                     Accelerated (ex.
           Restated year             EGCs) (percent)     EGC (percent)
------------------------------------------------------------------------
Public Float <$250M:
    2014..........................               10.4               17.2
    2015..........................               12.3               16.2
    2016..........................                7.3                8.8
    Average/year..................               10.0               14.1
Public Float >=$250M:
    2015..........................               10.1               16.9
    2016..........................                8.3               11.9
    Average/year..................                9.2               14.4
                                   -------------------------------------
        Difference in average/year                0.8               -0.3
------------------------------------------------------------------------

    In this case, the results are distinct from the results in Table
14, which had analyzed the restatement rates for issuers around the
$100 million revenue threshold. As shown in Table 14, low revenue
issuers restated their financial statements at rates that were three to
nine percentage points lower than for higher revenue issuers, whether
or not they were subject to the ICFR auditor attestation requirement.
In contrast, as shown in Table 19, restatement rates are quite similar
above and below a $250 million public float threshold. We therefore
believe that the proposition that low-revenue issuers may, on average,
be less susceptible to certain kinds of misstatements may not apply to
the same extent to issuers with low public float. Because the lower-
float EGCs on average restate their financials

at a rate about four percentage points higher than that for lower-float
accelerated filers (other than EGCs), which is comparable to the five
percentage point difference between the corresponding rates for low-
revenue EGCs and low-revenue accelerated filers (other than EGCs) in
Table 14, we preliminarily estimate that the increase in restatement
rates for the additional affected issuers may be comparable to the two
percentage points we estimated for low-revenue issuers. However, in
contrast to the results for low-revenue issuers, this effect may result
in higher restatement rates for the affected issuers than for the
higher public float issuers that would remain accelerated filers.
---------------------------------------------------------------------------

    \301\ The estimates in this table are based on staff analysis of
Ives Group Audit Analytics data and public float data from XBRL
filings. Percentages are computed out of all issuers of a given
filer type and float category with a SOX Section 404(a) management
report available in the Ives Group Audit Analytics database. The
accelerated category excludes EGCs. 2014 statistics are omitted in
this table, relative to Table 14, because of an insufficient sample
of EGCs with float greater than $250 million in that year. See note
116 above for details on the identification of filer type.
---------------------------------------------------------------------------

    To the extent that extending the exemption from the ICFR auditor
attestation requirement may reduce the reliability of financial
statements for the affected issuers, Table 15 in Section III.C.4
demonstrates that the potential adverse impact of such a change may be
mitigated by the lower empirical relevance of financial statements for
the market valuation of these issuers. Therefore, we next consider
whether a similar proposition could hold for lower public float
issuers. In Table 20, we consider the extent to which the variation in
stock returns can be explained by the variation in earnings and changes
in earnings for these lower and higher public float issuers over a 20-
year horizon. We use market capitalization as a rough proxy for public
float, given the limited availability of public float data over the
horizon of this analysis. We cannot reliably apply the relevance
analysis using market capitalization that we considered in the first
two rows of Table 15 in this setting because dividing the sample by the
same variable that is being analyzed in a regression analysis like this
one generally results in biasing estimates downward (an ``attenuation
bias''), and we are unable to correct for such a bias. However, the
analysis below based on stock returns mirrors the analysis in the third
row of Table 15 and should not be subject to such a bias.

Table 20--Percentage of Variation in Market Performance Explained by Variation in Financial Performance for 1998
                              Through 2017, by Market Capitalization Category \302\
----------------------------------------------------------------------------------------------------------------
                                                                                Market Cap       Market Cap
               Market variable                      Explanatory variables            <$250M          >=$250M
                                                                                (percent)        (percent)
----------------------------------------------------------------------------------------------------------------
Stock return.................................  Earnings, change in earnings...             6.7              6.7
----------------------------------------------------------------------------------------------------------------

    We find that the percentage of the variation in returns that is
explained by the explanatory financial variables is similar for issuers
with market capitalization of less than $250 million as compared to
those with higher market capitalization, at about 6.7%. That is, it
does not appear that the market relies on financial statements to a
lesser extent for the valuation of issuers with public float less than
$250 million (as compared to issuers with a larger public float), and
so this further mitigating factor that applies to low-revenue issuers
likely does not apply equally to lower public float issuers.
---------------------------------------------------------------------------

    \302\ The reported statistics are adjusted R-squared statistics
based on regression analysis by staff using data from the Standard &
Poor's Compustat and Center for Research in Security Prices
databases. Market value and financial variables are measured as of
the end of the fiscal year. Earnings is income before extraordinary
items. Stock return is the 15-month stock return ending three months
after fiscal year-end, to account for reporting lags. Earnings are
scaled by the lagged market value of equity, and outliers in one
percent tails of variable distributions are dropped to reduce noise.
See Francis and Schipper 1999 Study for additional details.
---------------------------------------------------------------------------

    Finally, as in Section III.C.3, we re-examine responses to the
2008-2009 Survey. When asked about the net benefits of complying with
SOX Section 404, 16% of respondents at accelerated filers with public
float of less than $250 million claimed that the costs far outweighed
the benefits, in contrast to, as reported above, 30% of respondents at
accelerated filers with revenues of less than $100 million.\303\ While
this survey data is somewhat dated, it provides an indication as to the
perception by executives at issuers at that time of the relative costs
and benefits of the ICFR auditor attestation requirement. To the extent
that this perception is borne out by the actual costs and benefits of
the ICFR auditor attestation requirement for issuers that meet the SRC
revenue test and for those that would otherwise be SRCs under the
public float test, this data may suggest that low-revenue issuers would
benefit more from qualifying as non-accelerated filers than would other
types of SRCs.
---------------------------------------------------------------------------

    \303\ These estimates are based on staff analysis of data from
the 2008-09 Survey. The analysis considers responses pertaining to
the most recent year for which a given respondent provided a
response. We note that the rate of responses to the question about
net benefits was lower than for other questions. See 2009 SEC Staff
Study, note 123 above, and Alexander et al. 2013 Study, note 197
above, for details on the survey and analysis methodology.
---------------------------------------------------------------------------

    We are soliciting comment on our analysis of the benefits and costs
of extending non-accelerated filer status to all SRCs and whether there
are benefits and/or costs of this alternative that we have overlooked.
We particularly invite comment on the methodology used to carry out
this analysis and any suggestions for alternative or supplemental
methodologies to help inform our analysis.
b. Include or Exclude Certain Issuer Types
    Alternatively, we have considered approaches that would include or
exclude additional issuer types. For example, we could extend non-
accelerated filer status to other issuers with between $75 million and
$700 million in public float that meet the SRC revenue test but would
not be eligible to be SRCs due to other reasons. In particular, BDCs
and majority-owned subsidiaries of non-SRCs cannot qualify as SRCs and
are not otherwise excluded from the ICFR auditor attestation
requirement. We estimate that 28 BDCs and one majority-owned subsidiary
of a non-SRC parent would meet the same public float and revenue
thresholds as the affected issuers.\304\ We estimate that 29 BDCs have
a market capitalization between $75 million and $700 million, and of
these BDCs, 13 have market capitalizations between $250 million and
$700 million and the remainder had market capitalizations between $75
million and $250 million. Given the limited number of issuers that are
excluded due to their disqualification from SRC status, we
preliminarily expect the aggregate incremental costs and benefits of
this alternative relative to the proposed approach to be modest,

as compared to the universe of Form 10-K filers, although they could be
significant for any particular issuer and significant for BDCs as a
class of Form 10-K filers as we estimate the total number of BDC filers
to be 50 (of which six have a market capitalization below $75 million
and would be already considered non-accelerated filers).
---------------------------------------------------------------------------

    \304\ Our staff used market capitalization valuations as of
February 2019 to determine the set of potentially affected BDCs.
While this methodology is different than the approach used by Rule
12b-2, which uses the aggregate worldwide market value of the voting
and non-voting common equity held by non-affiliates as of the last
business day of the issuer's most recent second fiscal quarter, we
do not believe that it would substantially change our analysis. This
analysis did not remove BDCs who may qualify as non-accelerated
filers based on their status as EGCs. After identifying the set of
potentially affected BDCs, our staff manually reviewed the most
recent Form 10-K filed on our EDGAR system for each BDC.
---------------------------------------------------------------------------

    Since BDCs do not report revenue on their financial statements, we
examined potential alternative metrics to the SRC revenue test
threshold of less than $100 million. Of the 29 BDCs with a market
capitalization between $75 million and $700 million, our review found
that only one BDC reported investment income in excess of $100 million.
No BDC reported changes in net realized and unrealized gains and losses
or net increase in net assets resulting from operations in amounts
greater than $100 million.

            Table 21--Characteristics of BDCs With Market Capitalization Between $75 and $700 Million
                                                  [In millions]
----------------------------------------------------------------------------------------------------------------
                                                                                Net increase in
                                                                             Net realized and      net assets
                                            Market       Investment income   unrealized gains    resulting from
                                      capitalization as   for most recent     and losses for     operations for
                                       of February 2019     fiscal year        most recent        most recent
                                                                               fiscal year        fiscal year
----------------------------------------------------------------------------------------------------------------
High................................            $507.91            $108.28             $43.12              60.69
Low.................................              89.69               1.62          (-123.33)          (-114.28)
Average.............................             255.30              49.37           (-11.15)               7.70
Median..............................             244.72              47.67            (-4.44)              13.01
----------------------------------------------------------------------------------------------------------------

    We also considered whether to permit BDCs to provide an independent
public accountant's report on internal controls, similar to the one
required by RICs on Form N-CEN, since both RICs and BDCs prepare
financial statements under Article 6 of Regulation S-X,\305\ in place
of the auditor attestation required by SOX Section 404(b). We
considered whether such a substitution should be permitted for all BDCs
or only those BDCs that would no longer be required to provide a report
under SOX Section 404(b) if BDCs were permitted to be a non-accelerated
filer based on a test similar to the SRC revenue test. We do not have
any data, however, regarding the potential benefits and costs of using
a Form N-CEN report on internal controls as compared to the auditor
attestation required by SOX Section 404(b).
---------------------------------------------------------------------------

    \305\ 17 CFR 210.6-01 et seq.
---------------------------------------------------------------------------

    We have also considered excluding FPIs, which are included in the
affected issuers to the extent that they meet the required thresholds
and other qualifications, from the proposed amendments. Researchers
have found that the restatement rates of foreign issuers may be
artificially depressed due to a lower likelihood of detection and
disclosure of misstatements for these issuers.\306\ It is therefore
possible that encouraging more effective ICFR through an ICFR auditor
attestation requirement may be particularly important for such issuers.
However, because of limitations in the availability of data such as
filing status or public float for many FPIs, we are unable to reliably
measure the potential effects for this subset of issuers. Because low-
revenue FPIs may have similar characteristics to low-revenue domestic
issuers, including them in the group of affected issuers may help to
maintain an even playing field for competition amongst these issuers
and avoid discouraging foreign companies from issuing securities in
U.S. public markets.
---------------------------------------------------------------------------

    \306\ See, e.g., Suraj Srinivasan, Aida Sijamic Wahid, & Gwen
Yu, Admitting Mistakes: Home Country Effect on the Reliability of
Restatement Reporting, 90(3) Acct. Rev. 1201 (2015).
---------------------------------------------------------------------------

c. Alternative Threshold or Alternative Metrics
    We have considered alternative levels at which a revenue threshold
could be set. A $100 million dollar revenue threshold was recommended,
in conjunction with a public float threshold, for the accelerated filer
definition as well as the SRC definition by the 2017 Small Business
Forum and a participant at the September 2017 meeting of the
ACSEC.\307\ The $100 million threshold is also aligned with the SRC
revenue test. Empirically, we find no obvious break in the distribution
of revenue or in the results of our analysis. In general, lowering the
revenue threshold would reduce the expected benefits of the proposed
amendments by reducing the number of issuers that would experience cost
savings, while also reducing the expected costs of the proposed
amendments by reducing the potential adverse impact on the reliability
of financial statements. Increasing the threshold would increase the
expected benefits while also increasing the expected costs.
---------------------------------------------------------------------------

    \307\ See Final Report of the 2017 SEC Government Business Forum
on Small Business Capital Formation (Mar. 2018), available at
https://www.sec.gov/files/gbfor36.pdf; and William J. Newell,
Presentation at ACSEC Meeting Sarbanes-Oxley Section 404(b): Costs
of Compliance and Proposed Reforms, (Sept. 13, 2017), available at
https://www.sec.gov/info/smallbus/acsec/william-newell-acsec091317.pdf.
---------------------------------------------------------------------------

d. Disclosure
    While filer status is reported prominently on the cover page of
annual reports for most issuers, there is not similarly prominent
disclosure of whether an ICFR auditor attestation is provided. In
addition to, or in lieu of, the proposed amendments, we could permit or
require such disclosure, as recommended by the GAO.\308\ This would
make it easier for investors to identify issuers that undergo a
voluntary ICFR auditor attestation with only minimal additional
disclosure expense for registrants. This, in turn, may enhance the
value to issuers of pursuing an ICFR auditor attestation even when it
is not required. While those issuers that voluntarily obtain an ICFR
auditor attestation would bear additional costs to do so, we expect
they would voluntarily bear these costs only if they believe that the
associated issuer-level benefits (e.g., a reduced cost of capital),
which could be enhanced by more prominent disclosure, would more than
offset those costs. Voluntary compliance with the ICFR auditor
attestation requirement by some of the issuers for which this
requirement would be eliminated, as discussed above, could mitigate
some of the potential negative effects of the proposed amendments.
However, we note that investors can already ascertain whether an ICFR
auditor attestation is included by searching an issuer's annual report,
and

that including additional items on the annual report cover page could
marginally decrease the salience of each item already reported there.
---------------------------------------------------------------------------

    \308\ See 2013 GAO Study, note 115 above.
---------------------------------------------------------------------------

D. Request for Comment

    Throughout this release, we have discussed the anticipated costs
and benefits of the proposed amendments. We request and encourage any
interested person to submit comments regarding the proposed amendments
and all aspects of our analysis of the potential effects of the
amendments. We request comment from the point of view of investors,
issuers, and other market participants. With regard to any comments, we
note that such comments are particularly helpful to us if accompanied
by quantified estimates or other detailed analysis and supporting data
regarding the issues addressed in those comments. We also are
interested in comments on the alternatives presented in this release,
in particular, the alternative of extending non-accelerated filer
status to all SRCs, as well as any additional alternatives to the
proposed amendments that should be considered.
    1. What are the costs and benefits of the proposed amendments for
investors and issuers? For example, what are the direct costs
associated with an ICFR auditor attestation requirement, such as audit
fees, as well as indirect costs, such as those related to managerial
time and attention, for the group of SRCs that would be exempted from
that requirement under the proposed approach? What would be the effects
on potential direct and indirect benefits associated with the ICFR
auditor attestation requirement for the group of SRCs that would be
exempted from that requirement under the proposed approach? Is it
possible to relate the benefits to restatement rates or other measures
of financial reporting quality for this group? What would be the effect
on these issuers' cost of capital and investor confidence?
    2. For issuers with revenues of less than $100 million, how do the
costs of ICFR auditor attestations compare with the benefits? Do such
issuers have simpler financial statements, less variation in their
revenue arrangements, fewer revenue-related records to reconcile, or
other characteristics that lead to a lower opportunity for
misstatements? Or do such issuers have a greater opportunity for
errors, perhaps due to staffing constraints or to lower external
scrutiny of their disclosures?
    3. Do investors rely to a lesser extent on the financial statements
of issuers with revenues of less than $100 million than on the
financial statements of other types of issuers when making investment
decisions? Or is the reliability of the financial statements of such
issuers particularly important for valuation because of the sensitivity
of future projections to current data?
    4. To what extent is the ability of investors to gauge the
reliability of financial statements likely to be affected by the
proposed amendments? To what extent is the actual reliability of
financial statements likely to be affected by the proposed amendments?
    5. We request comment on our estimate of the number of affected
issuers, our estimates of the internal and external costs of the ICFR
auditor attestation requirement, our estimates of the potential changes
in the rates of ineffective ICFR and restatements among the affected
issuers, and other estimates made in this release. We also request
comment on whether there are additional costs and benefits that we can
reliably quantify, and request any data that could allow us to make
more precise estimates.
    6. We request comment on our analysis of existing studies. Are
there additional considerations or additional studies that we should
consider?
    7. We request comment on the methodologies used to estimate the
internal and external costs of the ICFR auditor attestation
requirement, to estimate the potential changes in rates of ineffective
ICFR and restatements, and to make other estimates in this release. Is
our consideration of the experience of issuers that are not currently
subject to the ICFR auditor attestation requirement (non-accelerated
filers, other than EGCs, and EGCs) in estimating the potential effects
on the affected issuers appropriate? Are our estimates and the related
adjustments that we make when comparing accelerated filers with issuers
that are not currently subject to the ICFR auditor attestation
requirement appropriate given the smaller size and lower age of the
issuers in our comparison samples? Are there alternative methodologies
that we should consider?
    8. We request comment on our estimate of the average savings on
audit fees that would be associated with the proposed amendments. Is
our estimate of audit fee savings of about 25% of total audit fees or
about $110,000 per year on average across the issuers that would be
newly exempt from the ICFR auditor attestation requirement appropriate,
too high, or too low? We request specific estimates of fees paid to
auditors by issuers to obtain ICFR auditor attestations, separated to
the extent possible from other audit costs and accounting for the risk
assessment standards that would apply even to a financial statement
only audit. We also request specific estimates of other costs
associated with obtaining these attestations, such as the hours of
managerial and internal staff time spent to facilitate the audit of
ICFR. In addition, we request data that would allow us to better
understand how all of these costs vary across issuers of different
types.
    9. We request statistics on FPIs that would allow us to better
characterize the anticipated effects on these issuers. Do low-revenue
FPIs have similar characteristics as low revenue domestic issuers?
    10. We request statistics and analysis that would allow us to
better understand the externalities that the quality of ICFR at one
issuer may have on other issuers and on the market as a whole.
    11. Would issuers or auditors take actions in response to the
proposed amendments that would affect the potential economic effects of
the proposed amendments? If so, what actions would they take and why?
Do issuers currently take actions to stay below the accelerated filer
public float threshold? If so, to what extent would such actions be
expected to continue or change under the proposed amendments? Is the
pricing of auditing services for all issuers likely to change as a
result of the proposed amendments? For example, are auditors likely to
change the incremental fees they charge for integrated, rather than
financial statement only, audits due to the decrease in the number of
companies required to obtain an ICFR auditor attestation?
    12. Are there current or developing auditing practices or
technology that may impact the economic effects of the proposed
amendments? What are those practices or technology and what effects are
they likely to have? For example, are there anticipated effects of the
proposed amendments on the cost or quality of substantive testing in
the financial statement audit? Are there any effects of automation
technology in auditing that we should consider? Overall, how would
accounting for such auditing practices or technology change the
analysis of the benefits and costs of the proposed amendments and
alternatives in this release?
    13. We request comment on our analysis of the benefits and costs of
the alternative of extending non-accelerated filer status to all SRCs,
including the quantitative estimates of the number of additional
affected issuers, the cost savings, and the potential impact on the
rate of ineffective ICFR and restatements

for these additional affected issuers. Are there additional benefits
and/or costs of this alternative that we have overlooked? What would be
the effects of this alternative on efficiency, competition, and capital
formation?
    14. We request comment on the alternative of requiring or
permitting prominent disclosure of whether an ICFR auditor attestation
is provided, either in addition to, or in lieu of, amendments to the
accelerated filer and large accelerated filer definitions. For example,
what would be the economic effects of requiring issuers to prominently
identify whether they voluntarily comply with the ICFR auditor
attestation requirement, such as adding a check box to the cover page
of appropriate filings? Would such disclosure result in more voluntary
compliance with the ICFR auditor attestation requirement? Could
prominent disclosure of whether an ICFR auditor attestation is included
have the unintended consequence of confusing investors, such as by
leading some investors to incorrectly interpret the cover page
disclosure as a sign of effective ICFR even if the more detailed
disclosure included in the ICFR auditor attestation report shows
otherwise?
    15. We request comment on alternative approaches that would include
or exclude additional issuer types. For example, what would be the
economic effects of allowing BDCs and/or subsidiaries of non-SRCs,
which are excluded from the definition of an SRC, to be non-accelerated
filers if they meet the proposed thresholds? What would be the economic
effects of excluding FPIs from the proposed changes? What would be the
economic effects of using a different threshold or different metric to
identify the additional issuers that would become non-accelerated
filers? What would be the economic effects of allowing all BDCs that
meet the public float and revenue thresholds in the SRC definition, or
those criteria with any alternative metric in lieu of annual revenues,
to be non-accelerated filers? For BDCs, what would be the benefits and
costs to providing an independent public accountant's report on
internal controls required by Form N-CEN as compared to an auditor
attestation under SOX Section 404(b)? What would be the economic
effects on BDC investors if a Form N-CEN report on internal controls
was provided in place of a SOX Section 404(b) attestation? Does it
decrease the efficiency of independent auditors to provide different
types of internal control audits for RICs and BDCs, even though both
types of issuers provide financial reporting under Article 6 of
Regulation S-X? Are there other alternatives we should consider?
    16. What effect would the proposed amendments have on competition?
Would the proposed amendments put any issuers at a significant
competitive advantage or disadvantage? If so, what changes to the
proposed requirements could mitigate any such impact?
    17. What effect would the proposed amendments have on efficiency?
How could the proposed amendments be changed to promote any positive
effect or to mitigate any negative effect on efficiency?
    18. What effect would the proposed amendments have on capital
formation? Are there any positive or negative effects of the proposed
amendments on capital formation that we have overlooked? How could the
proposed amendments be changed to better promote capital formation or
to mitigate any negative effect on capital formation resulting from the
amendments?

IV. Paperwork Reduction Act

A. Summary of the Collections of Information

    Certain provisions of our rules and forms that would be affected by
the proposed amendments contain ``collection of information''
requirements within the meaning of the Paperwork Reduction Act
(``PRA''). We are submitting the proposal to the Office of Management
and Budget (``OMB'') for review in accordance with the PRA.\309\ The
hours and costs associated with preparing and filing the forms and
reports constitute reporting and cost burdens imposed by each
collection of information. An agency may not conduct or sponsor, and a
person is not required to respond to, a collection of information
requirement unless it displays a currently valid OMB control number.
Compliance with the information collections is mandatory. Responses to
the information collections are not kept confidential and there is no
mandatory retention period for the information disclosed. The titles
for the affected collections of information are:
---------------------------------------------------------------------------

    \309\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------

     ``Form 10-K'' (OMB Control No. 3235-0063);
     ``Form 10-Q'' \310\ (OMB Control No. 3235-0070); \311\
---------------------------------------------------------------------------

    \310\ 17 CFR 249.308a.
    \311\ The only proposed revision to this form would be changing
filing deadlines, which would neither increase nor decrease the
burden hours necessary to prepare the filing because there would be
no change to the amount of information required in the filing.
---------------------------------------------------------------------------

     ``Form 20-F'' (OMB Control No. 3235-0288);
     ``Form 40-F'' (OMB Control No. 3235-0381); and
     ``Regulation 12B'' \312\ (OMB Control No. 3235-0062);
\313\
---------------------------------------------------------------------------

    \312\ 17 CFR 240.12b-1 through 240.12b-37.
    \313\ Our estimates for Forms 10-K, 20-F, and 40-F take into
account the burden that would be incurred by including the proposed
disclosure in the applicable annual report. To avoid a PRA inventory
reflecting duplicative burdens, we estimate that the proposed
disclosure would not impose an incremental burden related to
Regulation 12B.
---------------------------------------------------------------------------

    The regulation and forms listed above were adopted under the
Exchange Act. The regulation and forms set forth the disclosure
requirements for periodic reports filed by registrants to help
investors make informed investment decisions. A description of the
proposed amendments, including the need for the information and its
proposed use, as well as a description of the likely respondents, can
be found in Section II above, and a discussion of the economic effects
of the proposed amendments can be found in Section III above.

B. Burden and Cost Estimates Related to the Proposed Amendments

    We estimate that the proposed amendments would result in
approximately 539 additional issuers being classified as non-
accelerated filers.\314\ Accelerated filers are subject to the ICFR
auditor attestation requirement and shorter deadlines for filing their
Exchange Act periodic reports.\315\ Additionally, accelerated filers
must provide disclosure regarding the availability of their filings and
the 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.
---------------------------------------------------------------------------

    \314\ See Section III.C.1 above.
    \315\ See Section I.A above.
---------------------------------------------------------------------------

1. ICFR Auditor Attestation Requirement
    We believe that eliminating the ICFR auditor attestation
requirement would reduce the PRA burden for 358 of the 539 affected
issuers.\316\ An ICFR auditor

attestation is required only in annual reports on Forms 10-K, 20-F, and
40-F. Table 22, below, shows the estimated number of affected issuers
that are subject to the ICFR auditor attestation requirement that file
on each of these forms and the average estimated audit-fee and non-
audit costs, as described above,\317\ to comply with the ICFR auditor
attestation requirement.
---------------------------------------------------------------------------

    \316\ We estimate that the remaining 181 of the 539 affected
issuers are EGCs, which are not required to comply with the ICFR
auditor attestation requirement under SOX Section 404(b). See
Section III.C.1 above. In addition to the 181 EGCs, we estimate that
a further 76 of the 539 affected issuers are currently also subject
to the FDIC's auditor attestation requirement. See Section 18A of
Appendix A to FDIC Rule 363. These issuers would continue to incur
burden hours and costs associated with an auditor attestation
requirement even if the proposed amendments were adopted. However,
the FDIC's auditor attestation requirement is not part of our rules.
For purposes of considering the PRA effects of the proposed
amendments, therefore, we have reduced the burden hours and costs
for these 76 issuers as we would for the other affected issuers that
are not EGCs.
    \317\ See Sections III.C.3 and III.C.5 above.

     Table 22--Estimated Annual Costs per Issuer of ICFR Auditor Attestation Requirement for Specified Forms
----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Audit-fee       Non-audit
                            Form type                                affected        costs per       costs per
                                                                      issuers         issuer          Issuer
----------------------------------------------------------------------------------------------------------------
Form 10-K.......................................................             322        $110,000        $100,000
Form 20-F.......................................................              35         110,000         100,000
Form 40-F \318\.................................................               1         110,000         100,000
----------------------------------------------------------------------------------------------------------------

    Because these issuers would no longer be subject to the ICFR
auditor attestation requirement under the proposed amendments, they
would no longer incur these costs. For purposes of the PRA, this
reduction in total burden is to be allocated between a reduction in
internal burden hours and a reduction in outside professional costs.
Table 23, below, sets forth the percentage estimates we typically use
for the burden allocation for each form.
---------------------------------------------------------------------------

    \318\ Form 40-F does not require disclosure of filer status or
public float, which makes it very difficult to determine filer
status. So as not to overestimate the burden hour and cost reduction
of the proposed amendments, we estimate that only one MJDS issuer
that files on Form 40-F would not be subject to the ICFR auditor
attestation requirement.

   Table 23--Standard Estimated Burden Allocation for Specified Forms
------------------------------------------------------------------------
                                                             Outside
               Form type                    Internal      professionals
                                           (percent)        (percent)
------------------------------------------------------------------------
Form 10-K.............................               75               25
Form 20-F.............................               25               75
Form 40-F.............................               25               75
------------------------------------------------------------------------

    For the $100,000 reduction in annual non-audit costs,\319\ we
allocate the burden based on the percentages in Table 23 above.
However, we believe that 100% of the $110,000 annual burden reduction
for audit-fee costs related to the ICFR auditor attestation requirement
should be ascribed to outside professional costs because that amount is
an estimate of fees paid to the independent auditor conducting the ICFR
attestation audit. Table 24, below, shows the resulting estimated
reduction in cost per issuer associated with outside professionals.
---------------------------------------------------------------------------

    \319\ As discussed in Section III.C.3, above, in deriving this
estimate of the reduction in non-audit costs, we have looked to
outside vendor and internal labor costs, and not to non-labor costs,
because we believe that those non-labor costs (such as software,
hardware, and travel costs) are primarily attributable to
management's ICFR responsibilities under SOX Section 404(a) and thus
would continue to be incurred. To the extent elimination of the
auditor attestation requirement also results in a reduction in
management's time burden, we believe this reduction generally would
be captured by the estimated $100,000 reduction, as this amount
reflects an overall reduction in non-audit costs.

      Table 24--Estimated Reduction in Outside Professional Costs From Proposed Elimination of ICFR Auditor
                                             Attestation Requirement
----------------------------------------------------------------------------------------------------------------
                                                                   Total outside
                                      Outside         Outside      professional                   Total proposed
                                   professional    professional      costs per       Number of     reduction in
     Issuer type (form used)         costs per       costs per     issuer (non-      affected         outside
                                   issuer (Non-    issuer (audit   audit + audit      issuers      professional
                                      audit)           fees)           fees)                           costs
----------------------------------------------------------------------------------------------------------------
Form 10-K.......................         $25,000        $110,000        $135,000             322     $43,470,000
Form 20-F.......................          75,000         110,000         185,000              35       6,475,000
Form 40-F.......................          75,000         110,000         185,000               1        $185,000
----------------------------------------------------------------------------------------------------------------

    For PRA purposes, an issuer's internal burden is estimated in
internal burden hours. We are, therefore, converting the internal
portions of the non-audit costs to burden hours. These activities would
mostly be performed by a number of different employees with different
levels of knowledge, expertise, and responsibility. We believe these
internal labor costs will be less than the $400 per hour figure we
typically use for outside professionals retained by the issuer.
Therefore, we use an average rate of $200 per hour to estimate an
issuer's internal non-audit labor costs. Table 25, below, shows the
resulting estimated reduction in internal burden hours from the
proposed elimination of the ICFR auditor attestation requirement.

  Table 25--Estimated Reduction in Internal Burden Hours From Proposed Elimination of ICFR Auditor Attestation
                                                   Requirement
----------------------------------------------------------------------------------------------------------------
                                                                   Burden hours                   Total proposed
                                                   Internal cost    per issuer       Number of     reduction in
             Issuer type (form used)                per issuer    (internal cost/    affected        internal
                                                    (non-audit)        $200)          issuers      burden hours
----------------------------------------------------------------------------------------------------------------
Form 10-K.......................................         $75,000             375             322         120,750
Form 20-F.......................................          25,000             125              35           4,375
Form 40-F.......................................          25,000             125               1             125
----------------------------------------------------------------------------------------------------------------

2. Filing Deadlines; Disclosure Regarding Filing Availability and
Unresolved Staff Comments
    As the Commission has recognized previously, changing filing
deadlines neither increases nor decreases the burden hours necessary to
prepare the filing because there is no change to the amount of
information required in the filing.\320\ Therefore, we do not believe
that the proposed change to the filing deadlines would affect an
issuer's burden hours or costs for PRA purposes.
---------------------------------------------------------------------------

    \320\ Revisions to Accelerated Filer Definition and Accelerated
Deadlines for Filing Periodic Reports, Release No. 33-8644 (Dec. 21,
2005) [70 FR 76634 (Dec. 27, 2005)].
---------------------------------------------------------------------------

    We believe that eliminating the requirements to provide disclosure
regarding the availability of their filings and the 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 would reduce their
burden hours and costs, but we do not expect that reduction to be
significant. As opposed to the burden reduction resulting from the
elimination of the ICFR auditor attestation requirement, which would
apply only to 358 of the 539 total affected issuers that are not EGCs,
the burden reduction from eliminating these disclosure requirements
would apply to all the 539 affected issuers, including the 181 affected
issuers that are EGCs. Of these 181 affected EGC issuers, 160 file
annual reports on Form 10-K, 21 file annual reports on Form 20-F, and
none file annual reports on Form 40-F. For purposes of the PRA, we
estimate the reduction to be approximately one hour for each of the 539
affected issuers.\321\ That reduction is allocated by form as shown in
Table 26, below.
---------------------------------------------------------------------------

    \321\ We believe that this one-hour reduction will be solely for
an issuer's internal burden hours.

    Table 26--Estimated Reduction in Internal Burden Hours per Issuer From Proposed Elimination of Disclosure
                    Requirements Regarding Filing Availability and Unresolved Staff Comments
----------------------------------------------------------------------------------------------------------------
                                                                                Proposed
                                                                   Burden hours      Number of     reduction in
                            Form type                               per issuer       affected        internal
                                                                                issuers      burden hours
----------------------------------------------------------------------------------------------------------------
Form 10-K.......................................................               1             482             482
Form 20-F.......................................................               1              56              56
Form 40-F.......................................................               1               1               1
----------------------------------------------------------------------------------------------------------------

3. Total Burden Reduction
    Table 27, below, shows the total estimated reduction in internal
burden hours and outside professional costs for all aspects of the
proposed amendments.

                                                               Table 27--Requested Paperwork Burden Under the Proposed Amendments
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Current burden                                                       Proposed burden change
                                              --------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Proposed
                                                                                Proposed    change in
                                                 Current      Current                        change in     company      Proposed total    Proposed change    Proposed burden     Proposed cost
                                                  annual       burden       Current cost      company     hours from  change in company   in professional       hours for          burden for
                                                responses      hours           burden        hours from   disclosure        hours              costs             affected           affected
                                                                                auditor    requirement                                            responses          responses
                                                                                attestation  elimination
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                       (A)          (B)                (C)          (D)          (E)    (F) = (D) + (E)                (G)    (H) = (B) + (F)    (I) = (C) + (G)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
10-K.........................................        8,137   14,217,344     $1,896,280,869    (120,750)        (482)          (121,232)      ($43,470,000)         14,096,112     $1,852,810,869
20-F.........................................          725      480,226        576,270,600      (4,375)         (56)            (4,431)        (6,475,000)            475,795        569,795,600
40-F.........................................          160       14,187         17,025,360        (125)          (1)              (126)          (185,000)             14,187         16,840,360
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

C. Request for Comment

    Pursuant to 44 U.S.C. 3506(c)(2)(B), we request comment in order
to:
     Evaluate whether the proposed collections of information
are necessary for the proper performance of the functions of the
Commission, including whether the information will have practical
utility;
     Evaluate the accuracy of our assumptions and estimates of
the burden of the proposed collection of information;
     Determine whether there are ways to enhance the quality,
utility, and clarity of the information to be collected;
     Evaluate whether there are ways to minimize the burden of
the collection of information on those who respond, including through
the use of automated collection techniques or other forms of
information technology; and

     Evaluate whether the proposed amendments would have any
effects on any other collection of information not previously
identified in this section.
    Any member of the public may direct to us any comments concerning
the accuracy of these burden estimates and any suggestions for reducing
these burdens. Persons submitting comments on the collection of
information requirements should direct their comments to the Office of
Management and Budget, Attention: Desk Officer for the U.S. Securities
and Exchange Commission, Office of Information and Regulatory Affairs,
Washington, DC 20503, and send a copy to, Vanessa A. Countryman, Acting
Secretary, U.S. Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549, with reference to File No. S7-06-19. Requests for
materials submitted to OMB by the Commission with regard to the
collection of information requirements should be in writing, refer to
File No. S7-06-19 and be submitted to the U.S. Securities and Exchange
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC
20549. OMB is required to make a decision concerning the collection of
information requirements between 30 and 60 days after publication of
the proposed amendments. Consequently, a comment to OMB is best assured
of having its full effect if the OMB receives it within 30 days of
publication.

V. Small Business Regulatory Enforcement Fairness Act

    For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996 (``SBREFA''),\322\ the Commission must advise OMB as to
whether the proposed amendments constitute a ``major'' rule. Under
SBREFA, a rule is considered ``major'' where, if adopted, it results or
is likely to result in:
---------------------------------------------------------------------------

    \322\ Public Law 104-121, tit. II, 110 Stat. 857 (1996).
---------------------------------------------------------------------------

     An annual effect on the economy of $100 million or more
(either in the form of an increase or a decrease);
     A major increase in costs or prices for consumers or
individual industries; or
     Significant adverse effects on competition, investment, or
innovation.
    We request comment on whether our proposed amendments would be a
``major rule'' for purposes of SBREFA. We solicit comment and empirical
data on:
     The potential effect on the U.S. economy on an annual
basis;
     Any potential increase in costs or prices for consumers or
individual industries; and
     Any potential effect on competition, investment, or
innovation.
    Commenters are requested to provide empirical data and other
factual support for their views to the extent possible.

VI. Initial Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act (``RFA'') \323\ requires the
Commission, in promulgating rules under Section 553 of the
Administrative Procedure Act,\324\ to consider the impact of those
rules on small entities. The Commission has prepared this Initial
Regulatory Flexibility Analysis (``IRFA'') in accordance with Section
603 of the RFA. It relates to the proposed amendments to the
accelerated filer and large accelerated filer definitions in Rule 12b-2
under the Exchange Act.
---------------------------------------------------------------------------

    \323\ 5 U.S.C. 601 et seq.
    \324\ 5 U.S.C. 553.
---------------------------------------------------------------------------

A. Reasons for, and Objectives of, the Proposing Action

    The purpose of the proposed amendments to the accelerated filer and
large accelerated filer definitions in Rule 12b-2 is to promote capital
formation by more appropriately tailoring the types of issuers that are
included in the category of accelerated filers and revising the
transition thresholds for accelerated and large accelerated filers. The
reasons for, and objectives of, the proposed amendments are discussed
in more detail in Sections I and II above.

B. Legal Basis

    We are proposing the rule and form amendments contained in this
release under the authority set forth in Sections 3(b), 12, 13, 15(d)
and 23(a) of the Exchange Act, as amended.

C. Small Entities Subject to the Proposed Rules

    The proposed changes would affect some registrants that are small
entities. The RFA defines ``small entity'' to mean ``small business,''
``small organization,'' or ``small governmental jurisdiction.'' \325\
For purposes of the RFA, under our rules, an issuer, other than an
investment company, is a ``small business'' or ``small organization''
if it had total assets of $5 million or less on the last day of its
most recent fiscal year.\326\
---------------------------------------------------------------------------

    \325\ 5 U.S.C. 601(6).
    \326\ See 17 CFR 240.0-10(a) under the Exchange Act.
---------------------------------------------------------------------------

    We estimate that there are 1,171 issuers that file with the
Commission, other than investment companies, which may be considered
small entities and are potentially subject to the proposed
amendments.\327\ Investment companies, which include BDCs, qualify as
small entities if, together with other investment companies in the same
group of related investment companies, they have net assets of $50
million or less as of the end of their most recent fiscal year.\328\
Commission staff estimates that, as of June 2018, approximately 19 BDCs
are small entities.\329\ We believe it is likely that virtually all
issuers that would be considered small businesses or small
organizations, as defined in our rules, are already non-accelerated
filers and would continue to be encompassed within that category if the
proposed amendments are adopted. To the extent any such issuers are not
already non-accelerated filers, we believe it is likely that the
proposed amendments would capture those entities.
---------------------------------------------------------------------------

    \327\ This estimate is based on staff analysis of issuers,
excluding co-registrants, with EDGAR filings of Form 10-K, 20-F and
40-F, or amendments, filed during the calendar year of January 1,
2018 to December 31, 2018. This analysis is based on data from XBRL
filings, Compustat, and Ives Group Audit Analytics.
    \328\ 17 CFR 270.0-10(a).
    \329\ These estimates are based on staff analysis of Morningstar
data and data submitted by investment company registrants in forms
filed on EDGAR between April 1, 2018 and June 30, 2018.
---------------------------------------------------------------------------

D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements

    The proposed amendments would reduce the number of accelerated
filers, which would reduce the compliance burden for those issuers,
some of which may be small entities, because they would no longer have
to satisfy the ICFR auditor attestation requirement, comply with
accelerated deadlines for filing their Exchange Act periodic reports,
provide disclosure regarding the availability of their filings, or
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. Compliance with certain rules affected by the proposed
amendments would require the use of professional skills, including
accounting and legal skills. The proposed amendments are discussed in
detail in Sections I and II above. We discuss the economic effect
including the estimated costs and burdens, of the proposed amendments
on all registrants, including small entities, in Section III above.

E. Duplicative, Overlapping, or Conflicting Federal Rules

    We believe that the proposed amendments would not duplicate,
overlap, or conflict with other federal rules.

F. Significant Alternatives

    The RFA directs us to consider alternatives that would accomplish
our stated objectives, while minimizing any significant adverse effect
on small entities. Accordingly, we considered the following
alternatives:
     Establishing different compliance or reporting
requirements or timetables that take into account the resources
available to small entities;
     Clarifying, consolidating or simplifying compliance and
reporting requirements for small entities under our rules as revised by
the amendments;
     Using performance rather than design standards; and
     Exempting small entities from coverage of all or part of
the amendments.
    We do not believe that establishing different compliance or
reporting obligations in conjunction with the proposed amendments is
necessary. The proposed amendments would not impose any significant new
compliance obligations. In fact, the proposed amendments would reduce
the compliance obligations of affected issuers by increasing the number
of issuers, including small entities, that are subject to the
different, less burdensome, compliance and reporting obligations for
non-accelerated filers. Similarly, because the proposed amendments
would reduce the burdens for these issuers, we do not believe it is
appropriate to exempt small entities from all or part of the proposed
amendments.
    We believe that some of the issuers that would become eligible to
be non-accelerated filers if the proposed amendments are adopted may be
smaller entities. Therefore, to the extent that any small entities
would become newly eligible for non-accelerated filer status under the
proposed amendments, their compliance and reporting requirements would
be further simplified. We note in this regard that the Commission's
existing disclosure requirements provide for scaled disclosure
requirements and other accommodations for small entities, and the
proposed amendments would not alter these existing accommodations.
    Finally, with respect to the use of performance rather than design
standards, because the proposed amendments are not expected to have any
significant adverse effect on small entities (and may, in fact, relieve
burdens for some such entities), we do not believe it is necessary to
use performance standards in connection with this rulemaking.

G. Request for Comment

    We encourage the submission of comments with respect to any aspect
of this IRFA. In particular, we request comments regarding:
     How the proposed rule and form amendments can achieve
their objective while lowering the burden on small entities;
     The number of small entities that may be affected by the
proposed rule and form amendments;
     The existence or nature of the potential effects of the
proposed amendments on small entities discussed in the analysis; and
     How to quantify the effects of the proposed amendments.
    Commenters are asked to describe the nature of any effect and
provide empirical data supporting the extent of that effect. Comments
will be considered in the preparation of the Final Regulatory
Flexibility Analysis, if the proposed rules are adopted, and will be
placed in the same public file as comments on the proposed rules
themselves.

VII. Statutory Authority and Text of Proposed Rule Amendments

    The rule amendments described in this release are being proposed
pursuant to Sections 3(b), 12, 13, 15(d) and 23(a) of the Exchange Act,
as amended.

List of Subjects in 17 CFR Part 240

    Reporting and recordkeeping requirements, Securities.

    For the reasons set out in the preamble, the Commission is
proposing to amend title 17, chapter II of the Code of Federal
Regulations as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934

0
1. The authority citation for part 240 continues to read in part as
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f,
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4,
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20,
80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 7201 et seq.; and
8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 1350; and
Pub. L. 111-203, 939A, 124 Stat. 1887 (2010); and secs. 503 and 602,
Pub. L. 112-106, 126 Stat. 326 (2012), unless otherwise noted.
* * * * *
0
2. Amend Sec.  240.12b-2 by, in the definition of ``Accelerated filer
and large accelerated filer,'':
0
a. Removing ``.'' at the end of paragraph (1)(iii) and adding in its
place ``; and'';
0
b. Adding paragraph (1)(iv);
0
c. Removing ``.'' at the end of paragraph (2)(iii) and adding in its
place ``; and'';
0
d. Adding paragraph (2)(iv); and
0
e. Revising paragraphs (3)(ii) and (3)(iii).
    The addition and revisions read as follows:

Sec.  240.12b-2  Definitions.

* * * * *
    Accelerated Filer and large accelerated filer-- (1) * * *
    (iv) The issuer is not eligible to use the requirements for smaller
reporting companies under the revenue test in paragraph (2) or
(3)(iii)(B) of the ``smaller reporting company'' definition in this
section, as applicable.
    (2) * * *
    (iv) The issuer is not eligible to use the requirements for smaller
reporting companies under the revenue test in paragraph (2) or
(3)(iii)(B) of the ``smaller reporting company'' definition in this
section, as applicable.
    (3) * * *
    (ii) Once an issuer becomes an accelerated filer, it will remain an
accelerated filer unless: the issuer determines, at the end of a fiscal
year, that the aggregate worldwide market value of the voting and non-
voting common equity held by its non-affiliates was less than $60
million, as of the last business day of the issuer's most recently
completed second fiscal quarter; or it determines that it is eligible
to use the requirements for smaller reporting companies under the
revenue test in paragraph (2) or (3)(iii)(B) of the ``smaller reporting
company'' definition in this section, as applicable. An issuer that
makes either of these determinations becomes a non-accelerated filer.
The issuer will not become an accelerated filer again unless it
subsequently meets the conditions in paragraph (1) of this definition.
    (iii) Once an issuer becomes a large accelerated filer, it will
remain a large accelerated filer unless: it determines, at the end of a
fiscal year, that the aggregate worldwide market value of the voting
and non-voting common equity held by its non-affiliates (``aggregate
worldwide market value'') was less than $560 million, as of the last
business day of the issuer's most recently completed second fiscal
quarter or it determines that it is eligible to use the requirements
for smaller reporting companies under the revenue test in paragraph (2)
or (3)(iii)(B) of the ``smaller reporting company'' definition in this
section, as applicable. If the issuer's aggregate worldwide market
value was $60 million or more, but less than $560

million, as of the last business day of the issuer's most recently
completed second fiscal quarter, and it is not eligible to use the
requirements for smaller reporting companies under the revenue test in
paragraph (2) or (3)(iii)(B) of the ``smaller reporting company''
definition in this section, as applicable, it becomes an accelerated
filer. If the issuer's aggregate worldwide market value was less than
$60 million, as of the last business day of the issuer's most recently
completed second fiscal quarter, or it is eligible to use the
requirements for smaller reporting companies under the revenue test in
paragraph (2) or (3)(iii)(B) of the ``smaller reporting company''
definition in this section, it becomes a non-accelerated filer. An
issuer will not become a large accelerated filer again unless it
subsequently meets the conditions in paragraph (2) of this definition.
* * * * *

    By the Commission.

    May 9, 2019.
Vanessa A. Countryman,
Acting Secretary.
[FR Doc. 2019-09932 Filed 5-28-19; 8:45 am]
 BILLING CODE 8011-01-P