Note, that management’s quarterly DCP and annual internal control assessment requirements pursuant to 404(a) take effect immediately – so proper planning and internal control are still required prior to and immediately subsequent to an IPO and SPAC. For a recent IPO or SPAC, EGC designation provides the benefit of scaled-down disclosure requirements and relief from auditor ICFR attestation requirements and should generally get a company through the year of transaction without incurring 404(b) requirements this buys an organization sufficient time to formalize its system of internal control before external auditor attestation requirements kick in. (There are a few other criteria specific to debt, but let’s omit those for now to keep things simple.) For most SPAC and IPO candidates, this is a pretty low bar and a reasonable expectation to begin our consideration of ICFR requirements. Howver, emerging growth company (“EGC”) qualifications complicate the matter. Considering much of the SPAC (and some of the IPO) volume is driven by smaller high-growth companies, let’s start our consideration of internal control requirements with EGCs.Ī company qualifies as an emerging growth company if it has total annual gross revenues of less than $1.07 billion during its most recently completed fiscal year and has not sold common equity securities under a registration statement as of late 2011. In March 2020, the SEC adopted amendments to the “accelerated filer” and “large accelerated filer” definitions in Rule 12b-2 under the Securities Exchange Act of 1934 (“Exchange Act”). The result of the amendments is that low-revenue issuers may not be subject to Regulation S-K Item 308(b) attestation by an independent auditor as required by Section 404(b) of the Sarbanes Oxley Act. Internal control requirements are a function of a company’s filing status. However, considering how frothy the market is and the gross proceeds of the public offerings, accurately gauging internal control requirements governing a transaction requires a little conservatism in addition to knowing the rules. We continue to have conversations about these rules with our clients so we figured an article might be helpful for those companies considering a SPAC or IPO and for current public companies that may be near the market cap and revenue thresholds requiring transition to a new filing status. Along with that volume, many private companies hopeful for a shot at an acquisition or IPO are evaluating public company reporting requirements including internal control considerations. Public companies are generally required to maintain internal control over financial reporting (“ICFR”) and disclosure controls and procedures (“DCP”) pursuant to Securities Exchange Act of 1934 Rules 13a-15(a) and 15d-15(a). As of the writing of this article in May, over 300 SPACs and over 450 IPOs have closed year-to-date. Market conditions in 2021 continue to support public offerings as initial public offering (“IPO”) and Special Purpose Acquisition Company (“SPAC”) transaction volumes increase.
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