You probably recall that, under SOX 404(b), all public reporting companies, other than non-accelerated filers and EGCs, are required to obtain an auditor attestation regarding the effectiveness of their internal control over financial reporting. SOX 404(a) requires all public reporting companies, including non-accelerated filers, to provide an assessment of ICFR by management. An analysis by Audit Analytics of SOX 404 reporting on ICFR over 14 years showed that the number of adverse auditor attestations—auditor attestations indicating ineffective ICFR— followed different trend lines than management-only assessments.
In this speech before the 36|86 Entrepreneurship Festival in Nashville, Tennessee, SEC Chair Jay Clayton discussed, among other topics, the coming agenda for public companies designed to “encourage capital formation for emerging companies seeking to enter our public capital markets.” The main topic was the plan to revisit the thresholds that trigger the SOX 404(b) requirement to provide an auditor attestation report on internal control over financial reporting. However, Clayton also added some news for private companies too. One thing is pretty clear from this speech: odds are excellent that relief from SOX 404(b) is in the offing for more small companies.
Will there be a JOBS Act 3.0? The JOBS and Investor Confidence Act of 2018 just passed the House by a vote of 406 to 4, so, even though Senators may often be chary of jumping on the House bandwagon—remember the doomed Financial Choice Act of 2016 and then 2017— the overwhelming and bipartisan approval in the House still makes the odds look better than usual.
Right after celebrating its second birthday, proposal to change the definition of “smaller reporting company” is adopted (updated)
[This post has been updated to reflect the adopting release, which has now been posted here, as well as posted statements from the Commissioners.] The pressure has been coming from all directions—the Congress, the Treasury—indeed, there’s been nary an advisory committee that hasn’t weighed in on this topic: time for the SEC to change the definition of “smaller reporting company.” After all, the proposal has just celebrated its second birthday—has it aged like a fine wine or is it moldy and stinky like an old piece of cheese? The verdict: moldy cheese that made no one happy, but they all ate it anyway.
In this report, Expanding the On-Ramp: Recommendations to Help More Companies Go and Stay Public, eight organizations—the American Securities Association, Biotechnology Innovation Organization, Equity Dealers of America, Nasdaq, National Venture Capital Association, Securities Industry and Financial Markets Association, TechNet and the U.S. Chamber of Commerce—joined forces to make recommendations about how to revitalize the IPO market and make public company status more appealing. Many of these recommendations have in the past been the subject of legislation or proposed rulemaking or have otherwise been floated in the ether but, nevertheless, have not advanced. Will the weight of these groups propel any of these recommendations forward?
The WSJ is reporting that “people familiar with the matter”—every reporter’s favorite source—say that the SEC is “weighing” expanding “test the waters” beyond just EGCs. You might recall that, in 2012, the JOBS Act allowed IPO candidates that were EGCs to take preliminary steps to determine the potential level of investor interest before committing to the expensive and time-consuming prospectus drafting and SEC review process. That flexibility, together with the new confidential IPO filing process—which allowed EGCs to start the SEC review process on a confidential basis so that sensitive information would not be disclosed if they ultimately determined not to move forward with the offering—was intended to promote and facilitate access to the public capital markets. Since that time, however, the IPO market has not exactly taken off like a rocket, and the hand-wringing over the lack of interest in going public has continued. In June 2017, Corp Fin extended the confidential filing process, permitting non-EGCs to submit confidential draft registration statement for IPOs and for most offerings made in the first year after going public. Will testing the waters be the next step?
Summarized below are some of the highlights of the 2017 PLI Securities Regulation Institute panel discussions with the SEC staff (Michele Anderson, Wesley Bricker, Karen Garnett, William Hinman, Mark Kronforst, Shelley Parratt, Ted Yu), as well as a number of former staffers and other commentators. Topics included the Congressional and SEC agendas, fresh insights into the shareholder proposal guidance, as well as expectations regarding cybersecurity, conflict minerals, pay ratio disclosure, waivers and many other topics.