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Key Facts
- Federal level: An issuer generally qualifies as an emerging growth company when its total annual gross revenues are below $1.235 billion for its most recently completed fiscal year and it met the December 8, 2011 condition described by the SEC.
- Federal level: Emerging growth company status typically continues for the first five fiscal years after an issuer’s IPO unless an identified termination trigger occurs.
- Federal level: The regulatory emerging growth company definition uses a less-than-$1.235-billion revenue test and includes “earliest of” termination triggers such as exceeding that revenue threshold or becoming a large accelerated filer.
- Federal level: Sarbanes-Oxley Act Section 404(b) includes an auditor-attestation requirement for the internal control assessment, but the statute contains an exception for issuers that are emerging growth companies.
- Federal level: The JOBS Act amended Sarbanes-Oxley Act Section 404(b) to insert the emerging growth company carve-out into the auditor-attestation clause before the “shall attest to” language.
- Federal level: PCAOB AS 2201 explains an integrated internal-controls audit approach in which the auditor audits management’s assessment and expresses an opinion on effectiveness.
- Federal level: Under PCAOB AS 2201, if one or more material weaknesses exist, internal control over financial reporting cannot be considered effective.
- Federal level: Dodd-Frank’s say-on-pay framework in 15 U.S.C. § 78n-1 requires periodic shareholder resolutions on executive compensation and also includes an emerging growth company exemption from relevant subsections.
Regulatory dollar thresholds and definitions can be updated; this summary discusses Federal emerging growth company (EGC) carve-outs tied to SOX 404(b) and Dodd-Frank say on pay, so the linked Federal sources should be consulted for the current text and figures.
- What “emerging growth company” means under the SEC’s framework
- When EGC status ends and why termination triggers matter
- SOX 404(b) auditor attestation and the EGC exception
- Where the JOBS Act made the change to Section 404(b)
- How PCAOB’s integrated audit standard ties in
- Dodd Frank say on pay what can change for EGCs
- Why these “carve outs” are separate rather than one combined rule
- Federal and State governance considerations
- Sources (linked in the references section)
- Sources
Headlines sometimes group the JOBS Act, Dodd-Frank, and Sarbanes-Oxley together, but the legal effects usually depend on whether a company has EGC status under Federal securities law; that status can change specific obligations rather than eliminating all Federal compliance duties.
What “emerging growth company” means under the SEC’s framework
Under the SEC’s explanation of the EGC status, a company’s qualification turns on a total annual gross revenues test (below $1.235 billion) and a December 8, 2011 condition described in the SEC’s guidance for going-public issuers (see SEC emerging growth companies).
When EGC status ends and why termination triggers matter
EGC status is not permanent: the SEC explains that the status generally lasts for the first five fiscal years after an IPO unless an identified termination trigger occurs (for example, certain changes that can include meeting revenue conditions or becoming a large accelerated filer) (see SEC emerging growth companies).
SOX 404(b) auditor attestation and the EGC exception
Sarbanes-Oxley Act Section 404(b) directs auditor attestation of management’s internal control assessment in the statute, but the codified language includes an exception for “an issuer that is an emerging growth company” (see 15 U.S.C. § 7262).
Where the JOBS Act made the change to Section 404(b)
The JOBS Act amended Sarbanes-Oxley Act Section 404(b) by inserting the emerging growth company carve-out into the auditor-attestation clause (see Jumpstart Our Business Startups Act (Public Law 112-106)).
How PCAOB’s integrated audit standard ties in
When integrated internal-controls audits are performed under PCAOB requirements, PCAOB’s AS 2201 describes the integrated audit engagement and the auditor’s objective to express an opinion on effectiveness (see PCAOB AS 2201).
Dodd Frank say on pay what can change for EGCs
Dodd-Frank’s say-on-pay framework codified at 15 U.S.C. § 78n-1 includes shareholder resolution mechanics (including timing at intervals not less frequently than once every 3 years) and also contains an emerging growth company exemption from relevant subsections (see 15 U.S.C. § 78n-1).
Why these “carve outs” are separate rather than one combined rule
In practice, EGC status can reduce or alter distinct Federal requirements that come from different statutes: (1) the SOX 404(b) auditor-attestation element tied to the internal controls assessment, and (2) the say-on-pay shareholder vote mechanics tied to executive compensation resolutions; the carve-outs operate through the specific statutory provisions, not through a single consolidated obligation.
Federal and State governance considerations
Even though the EGC carve-outs discussed here are Federal securities-law provisions, implementation can intersect with State corporate governance structures (for example, how a board or committees operate under the applicable State corporate law and charter provisions), so internal process design may still need State-law coordination even when the Federal carve-out reduces a particular Federal filing or audit requirement.
Attorney-client privilege concepts can also come up when internal investigations, audits, and compliance documentation are handled alongside disclosure decisions; for a general background on the concept, see attorney-client privilege basics.
Sources (linked in the references section)
The Federal legal information summarized above is based on the statutory text, SEC explanations, and PCAOB guidance linked in the Sources list, and those links are intended to support direct review of the operative language.
