Redwood, United States – Sept 15, 2026 – Newly public companies watching their public float as the trigger for their first external auditor attestation of internal controls are watching the wrong number, according to A2Q2, a controls and compliance advisory firm. Crossing the accelerated filer threshold does not end an emerging growth company’s exemption from Section 404(b), and three of the four events that do end it have nothing to do with float.
Section 404 of the Sarbanes-Oxley Act has two halves. Under Section 404(a), management assesses its own internal control over financial reporting. Under Section 404(b), an external auditor additionally attests to that control. Accelerated and large accelerated filers are subject to 404(b), unless they also qualify as emerging growth companies. Emerging growth companies and non-accelerated filers are exempt from it.
A2Q2 says the consequence is widely misread. Because those two exemptions sit side by side, a company keeps its 404(b) exemption for as long as either one applies. An emerging growth company that crosses the accelerated filer float threshold is an accelerated filer and an emerging growth company at the same time, and it remains exempt.
Filer status is defined in Rule 12b-2 under the Securities Exchange Act, which sets conditions an issuer must meet as of the end of its fiscal year. Among them, an accelerated filer had an aggregate worldwide market value of voting and non-voting common equity held by non-affiliates of $75 million or more but less than $700 million, measured as of the last business day of its most recently completed second fiscal quarter. At $700 million or more the issuer is a large accelerated filer. The rule also requires a reporting history of at least twelve calendar months, at least one annual report already filed, and that the issuer is not eligible to use the smaller reporting company requirements under the applicable revenue test.
What actually ends the emerging growth company exemption is the end of that status, and it is defined separately. Under Rule 405 under the Securities Act, a company remains an emerging growth company until the earliest of four events. Total annual gross revenues of $1,235,000,000 or more in a fiscal year. The last day of the fiscal year following the fifth anniversary of its first registered sale of common equity. Issuing more than $1,000,000,000 in non-convertible debt across the previous three years. Or the date it is deemed a large accelerated filer. Only the fourth of those is a float event, and A2Q2 says that is the source of the confusion.
“Companies watch their float because it is the number they can see moving,” said Kim Le, founder and CEO of A2Q2. “But float only ends the exemption at the large accelerated filer line. In our engagements the ones caught out are the companies that never got near it and ran out the five-year clock instead, or issued debt without anyone connecting that to their attestation date.”
The firm notes that becoming a large accelerated filer is the single event that satisfies both tests at once, ending emerging growth company status under Rule 405 and establishing large accelerated filer status under Rule 12b-2 on the same date. That is a higher bar than clearing the $700 million float figure in Rule 12b-2, because the other three conditions above apply as well, so a recently listed company can hold that float and not yet reach the status.
The other three routes end emerging growth company status without doing anything to filer status, which is why they do not reach 404(b) on their own. A company is subject to 404(b) only once its emerging growth company status has ended and it is an accelerated or large accelerated filer.
Timing compounds the problem. Rule 12b-2 provides that the filer-status determination made at the end of a fiscal year governs the deadline for the annual report to be filed for that same fiscal year. A2Q2 says this means the change is binary rather than gradual, and that the year in which a company discovers it has lost the exemption is the year the attestation is already due, against a control environment that was operated to a different evidence standard throughout.
Based on its own engagements, A2Q2 says the areas that most often prove insufficient at a first attestation are information technology general controls, evidence quality on controls that were performed but never documented, and the period-end financial reporting process, where judgment is concentrated and structure is thin.
About A2Q2
A2Q2 is the Special Ops team for accounting and finance departments. The firm works with growth-stage and newly public technology companies on internal controls, SOX readiness and SOX compliance, and its services include SOX 404 readiness and 404b compliance support, segregation of duties analysis through its SOD Check tool, and business systems and information technology controls work. More information is available at a2q2.com.
Media Contact
A2Q2 Kim Le, Founder and CEO [email protected] 408-420-9108 https://a2q2.com/contact/
Media ContactCompany Name: A2Q2Contact Person: Kim LeEmail: Send EmailPhone: 408-420-9108City: RedwoodCountry: United StatesWebsite: https://a2q2.com/
