Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has published guidance on certain accounting, financial reporting and governance issues that should be carefully considered before a private operating company undertakes a business combination with a special purpose acquisition company (SPAC). Corp Fin cautions that SPACs are subject to certain limitations that should be considered by the SPAC and the private companies engaging in business combinations with SPACs before undertaking in such a transaction. These include:
Other topics discussed in this guidance include: (a) books and records and internal control requirements; and (b) initial listing standards of National Securities Exchanges.
In connection with Corp Fin’s guidance, SEC Acting Chief Accountant Paul Munter has issued a statement, Financial Reporting and Auditing Considerations of Companies Merging with SPACs. Munter indicates that in just the first two months of 2021, both the number of new SPACs and amount of capital raised by those SPACs have been reported to already match approximately three-fourths of all such activity last year.
Munter indicates that regarding SPAC transactions, it is “critical that the board of directors, audit committee (as applicable), management, and auditors of these operating companies fully understand and fulfill their respective professional responsibilities so that companies meet their obligations under the federal securities laws and investors are provided with high quality financial reporting at the time of the merger and on an ongoing basis in subsequent periods.”
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