SUPPORTING STATEMENT FOR SMALLER REPORTING COMPANY REGULATORY RELIEF AND SIMPLIFICATION
This submission is pursuant to the Paperwork Reduction Act of 1995, 44 U.S.C. Section 3501 et seq. The original request for approval of the changes described in this Supporting Statement was made at the proposing stage, in connection with Release 33-8819. At OMB’s direction we are re-submitting this request in connection with Release No. 33-8876 in which the Commission adopted final rules.
A. Justification
Necessity of Information Collection
In Securities Act and Exchange Act Release No. 8876,1 the Commission adopted rule amendments relating to our disclosure and reporting requirements for smaller companies under the Securities Act of 1933 and Securities Exchange Act of 1934. The amendments extend the benefits of our current optional disclosure and reporting requirements for smaller companies to a much larger group of companies (approximately 1,580 additional companies). They allow companies with a public float of less than $75 million to qualify for the smaller reporting company requirements, up from $25 million for most companies today. The amendments combine for most purposes the “small business issuer” and “non-accelerated filer” categories for smaller companies into a single category of “smaller reporting companies.” Finally, the amendments maintain the current disclosure requirements for smaller companies contained in Regulation S-B, but integrate them into Regulation S-K.
Purposes of, and Consequences of Not Requiring, the Information Collection
The purpose of the amendments is to simplify regulation for small business and lower costs. The current dual system scheme is complex, and we believe this complexity may deter small companies from taking advantage of scaled regulation. The Commission also extended the benefits of our current small business issuer disclosure requirements to a much larger group of companies.
Role of Improved Technology and Obstacles to Reducing Burden
The rule amendments will not change the way data is gathered by the Commission. Form 10-Q continues to be filed electronically using the Commission’s Electronic Data Gathering and Retrieval (“EDGAR”) system.
Efforts to Identify Duplication
The rule amendments to our disclosure and reporting requirements for smaller companies do not duplicate, overlap, or conflict with other federal rules. States typically use Federal forms to meet at least some of their disclosure requirements.
Effect on Small Entities
The rule amendments affect small entities that have securities registered under Section 12 of the Exchange Act or that are required to file reports under Section 15(d) of the Exchange Act. If the small entity is currently a small business issuer the proposal will require it to use Form 10-Q rather than Form 10-QSB for its quarterly reports, but the issuer still will be eligible to provide disclosure scaled for smaller companies in the Form 10-Q’s it files.
Consequences of Less Frequent Collection
The rule amendments relate to the disclosure required to be filed with the Commission for smaller companies. Quarterly disclosure is required to protect investors in public companies. Without such disclosure, investors in smaller companies could be harmed.
Inconsistencies with Guidelines in 5 C.F.R. 1320.6
There have been no inconsistencies with the Guideline in 5 C.F.R. 1320.6.
Consultations Outside the Agency
The Commission chartered the Advisory Committee on Smaller Public Companies in March 2005. The panel assessed the current regulatory system for smaller companies under the federal securities laws and recommended changes to that system. The major rule amendments that the Commission adopted stem from Advisory Committee recommendations.
Payment or Gift to Respondent
Not applicable.
Assurance of Confidentiality
Not applicable.
Sensitive Questions
Not applicable.
Estimate of Respondent Reporting Burden
The elimination of Form 10‑QSB will cause the number of Form 10‑Qs to increase. We estimate that there were approximately 12,198 Form 10‑QSBs filed during the Commission’s last fiscal year so there will be a corresponding increase of approximately 12,198 Form 10‑Qs filed in future years. In addition, approximately 1,580 companies previously not eligible to file Form 10-QSB meet the definition of a “smaller reporting company” due to the amendments and therefore will be eligible to provide scaled disclosure in Form 10-Q that would be equivalent to the type of disclosure required by Form 10-QSB. Of these 1,580 companies that will be eligible to include scaled disclosure in their Form 10-Q reports, we estimate that approximately half, or 790, will choose to provide the scaled disclosure.
Our methodologies for deriving the burden hour and cost estimates presented below represent the average burdens for all issuers, both large and small. For 10‑Q, we estimate that 75% of the burden of preparation is carried by the company internally and that 25% of the burden is carried by outside professionals retained by the issuer at an average cost of $400 per hour.2
17,894 Form 10-Qs filed by non-smaller reporting companies
x 144 hours per Form 10-Q
2,576,736 hours
14,568 Form 10-Q’s filed by smaller reporting companies
x 136.5 hours per Form 10-Q
1,988,532 hours
2,576,736 hours
+1,988,532 hours
4,565,268 Total Hours
Estimate of Total Annualized Cost Burden
17,894 Form 10-Qs filed by non-smaller reporting companies
X 48 outside hours per Form 10-Q
858,912 Outside hours
x $400 per hour for outside professionals
$343,564,800
14,568 Form 10-Q’s filed by smaller reporting companies
x 45.5 outside hours per Form 10-Q
662,844 outside hours
x $400 per hour for outside professionals
$265,137,600
$343,564,800
+$265,137,600
$608,702,400
Cost to the Federal Government
The estimated cost of preparing the proposed amendments was approximately $70,000.
Explanation of Changes in Burden
The increase in reporting hours of 1,647,005 and increase in cost of $219,609,200 is attributable to the fact that all of the burden hours previously reflected for Form 10-QSB are now being included as part of the Form 10-Q burden. The net effect of the amendments is actually to reduce reporting burdens and costs due to the fact that approximately 1,580 companies now meet the definition of “smaller reporting company” and are newly eligible to provide scaled disclosure in Form 10-Q that is equivalent to the type of information previously requested on Form 10-QSB. We also have an adjustment of $97,267,200 due to an increase in our professional cost estimate for Form 10-Q ($300 per hour to $400 per hour).
Information Collections Planned for Statistical Purposes
Not applicable.
Explanation as to Why Expiration Date Will Not Be Displayed
Not applicable.
Exceptions to Certification
Not applicable.
B. Collection of Information Employing Statistical Methods
Not applicable.
1 Release No. 33-8876 (December 19, 2007) [73 FR 934 January 4, 2008].
2In connection with other recent rulemakings, we have had discussions with several private law firms to estimate an hourly rate of $400 as the average cost of outside professionals that assist issuers in preparing disclosure and conducting registered offerings.
| File Type | application/msword |
| File Title | SUPPORTING STATEMENT FOR FORM S-8 |
| Last Modified By | crawleyp |
| File Modified | 2008-02-27 |
| File Created | 2007-11-29 |