SPAC targets must establish and maintain internal control over financial reporting and disclosure controls and procedures upon the close of the transaction, which may necessitate advanced planning.Ĥ, Corporate governance and audit committee. Public company disclosure requirements and adoption dates for new accounting standards.ģ.SPAC transactions involve several complex areas of financial accounting and reporting, including:Īccounting for earn-out arrangements and complex financial instruments. A SPAC target may have not begun preparing to become a public company and may need to evaluate “the status of various functions, including people, processes, and technology, that will need to be in place to meet SEC filing, audit, tax, governance, and investor relations needs” after the SPAC transaction.Ģ. He also highlighted five key considerations, many of which are further addressed in this article:ġ. Munter stated that such transactions are subject to the same review process by the SEC as traditional IPOs. On March 31, 2021, SEC Acting Chief Accountant Paul Munter issued a public statement regarding SPAC transactions. Once the SPAC's shareholders approve the transaction, the acquisition will close, and the combined company has four business days to file a special Form 8-K (“Super 8-K”) that includes all the information that would have been required if the target were filing an initial registration statement on Form 10.Īccordingly, the SPAC and the target should take care to ensure that the acquisition is not closed until all the financial information required for the Super 8-K, including financial statements that comply with the SEC’s age requirements, is available and audited in accordance with the standards of the PCAOB. For annual periods, the financial statements are expected to be audited in accordance with PCAOB standards. These documents must include the target’s financial statements, which are expected to comply with public-company GAAP disclosure requirements as well as SEC rules and requirements. Since a SPAC’s shareholders are required to vote on the transaction, the SPAC may file either a proxy statement on Schedule 14A or a combined proxy and registration statement on Form S-4 (both are collectively referred to herein as a “proxy/registration statement”). Many of the requirements discussed in this article are related to the fact that the target is considered the predecessor to an SEC registrant (that is, the SPAC). As a result, the target must be able to meet all the public-company reporting requirements that apply to the combined company. Since a SPAC does not have substantive operations before an acquisition has been completed, the target becomes the predecessor of the SPAC upon the close of the transaction, and the operations of the target become those of a public company. If an acquisition cannot be completed within the required time frame, the cash raised by the SPAC in the IPO must be returned to the investors and the SPAC is dissolved (unless the SPAC extends its timeline via a proxy process).īefore completing an acquisition, SPACs hold no material assets other than cash therefore, they are nonoperating public “shell companies,” as defined by the SEC. For example, they may consider funding through a private investment in public equity (PIPE), which will generally close contemporaneously with the consummation of the transaction. In many cases, the SPAC and target may need to secure additional financing to facilitate the transaction. After a SPAC IPO, the SPAC’s management looks to complete an acquisition of a target (the “transaction”) within the period specified in its governing documents. Therefore, a target will need to devote a considerable amount of time and resources to technical accounting and reporting matters.Ī SPAC is a newly formed company that raises cash in an IPO and uses that cash or the equity of the SPAC, or both, to fund the acquisition of a target. After a SPAC merges with a private operating company (the “target”), the target’s financial statements become those of the combined public company (the “combined company”).
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