By Angela Ciagne, Finance Consultant
Could an IPO be in your company’s future?
IPOs require significant preparation from finance departments. Most IPO advisors recommend 1-2 years of preparation, and yet some companies attempt to execute readiness-type activities at the same time as the IPO process.
To get your finance team started, consider these top best practices:
- Ensure your processes and systems can support the rigors of public company reporting. Being a public company requires increased financial reporting. Assess whether your financial close and reporting process is consistent, repeatable, and sustainable, and look for opportunities to improve the process and reduce the risk of errors or inconsistencies. You may discover you need a longer-term solution such as new reporting systems or software, but you may also find more immediate ways to create efficiencies. For example, can similar data used in multiple disclosures be obtained from a single source? Would adding or enhancing account or report reconciliations help detect errors? Could Excel schedule preparation be streamlined by utilizing an untapped Excel function?
- Examine the impact of adopting public company reporting requirements. In filing public company financial statements, most organizations need to analyze the accounting and disclosure impact of segment reporting and earnings per share requirements. Other accounting considerations may be required depending on your company’s current debt and equity structure or if you have made past elections to adopt private company accounting standards. Additionally, if your company has made recent acquisitions, you also may have additional required SEC disclosures of the acquired company’s pre-acquisition financials. Early and open dialogue with your auditors is key to successfully completing the public company audit and preparing financial statements that withstand the scrutiny of the SEC.
- Be prepared for additional audit procedures, including on prior year(s) audited financials. Public company financial statements require audits performed under Public Company Accounting Oversight Board (PCAOB) standards, which tend to be more stringent than private company standards. In many instances, audit materiality levels for public companies are lower than materiality for private companies. These two factors usually result in two things: a) an increase in audit procedures and requests in the first full year subject to a PCAOB audit and b) your auditors will likely need to perform additional procedures on prior years. If the timing of your IPO requires quarterly financial information, your auditors will need to review current and prior year quarterly financial information to include in the initial filing.
- Look beyond the IPO process to the compliance requirements associated with being public. You typically have a team of advisors (underwriters, attorneys, accounting professionals, and other experts) to help navigate the IPO process, as well as assist with filing and reporting requirements. However, post-IPO, most new issuers need to hire or find additional resources to support ongoing compliance requirements, including SEC counsel, external financial reporting expertise, internal audit, and investor relations. It’s important to find the right people to work with your team. While your finance department may not be responsible for hiring or outsourcing all of these roles, they will interact with each one on a regular basis.
Going public is an exciting venture for organizations with the potential to accelerate growth, capital, and exposure. If you have questions about the IPO process or need guidance along the way, contact Salo. We’re happy to help your team navigate the journey of going public.