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Under the JOBS Act, emerging growth companies are given a phase-in period to come into full compliance with certain disclosure and accounting requirements under SEC rules. A recent WilmerHale memo (p. 24) looks at the extent to which EGCs are electing to take advantage of the relief from these requirements during this phase in period.

The memo says that the percentage of EGCs opting to take advantage of the ability to submit confidential draft registration statements and to provide reduced executive compensation disclosure has remained consistently high. In contrast, practices with respect to relief available for financial disclosure and changes in accounting principles have varied over the years. This excerpt addresses how and why practices with respect to these items have varied:

– Reduced Financial Disclosure. Overall, the percentage of EGCs electing to provide only two years of audited financial statements has increased dramatically, from 27% in 2012 to 98% in 2024. From the outset, life sciences companies—for which older financial information is often irrelevant—were likely to provide only two years of audited financial statements, with the percentage choosing this option reaching 100% each year since 2022.

Technology companies—which generally have substantial revenue and often have profitable operations—were slower to adopt this practice, but the percentage providing only two years of audited financial statements grew from 22% in 2012 to 91% in 2022 and 100% in both 2023 and 2024.

– Accounting Standards Election. Through 2016, the vast majority of EGCs opted out of the extension of time to comply with new or revised accounting standards. At that time, the decision appears to have been motivated by the uncertain value of the deferred application of future, unknown accounting standards and concerns that a company’s election to take advantage of the extended transition period could make it more difficult for investors to compare the company’s financial statements to those of its peers.

Starting in 2017, a major shift occurred, with the percentage of EGCs adopting the extended transition period jumping from 11% through 2016 to 50% between 2017 and 2019 and to 93% between 2020 and 2024. This trend appears to have been motivated by the desire of many EGCs to delay the application of new revenue recognition and lease accounting standards (which became mandatory for public companies in 2018–2019) or, at a minimum, to take more time to evaluate the effects of these standards before adopting them.

– John Jenkins