The Center for Audit Quality (CAQ) has issued an alert with some key considerations for auditors and audit committees related to the unique risks and challenges of a private company entering the public markets through a merger with a Special Purpose Acquisition Company (SPAC).
The guidance closely follows recent statements from the SEC reminding boards of directors, audit committees, management, and auditors of operating companies involved in a merger with a SPAC to fulfill their 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.
SPACs are shell companies formed to raise funds for acquisitions of existing operating companies. According to the CAQ, they have recently “exploded in popularity” for their quick access to the capital markets.
In 2019, just 59 SPAC IPOs were completed. This number has increased more than five-fold in just the first few months of 2021 to more than 300.
According to the CAQ, while SPACs can offer certain advantages due to their speed, their use raises complex financial reporting and governance considerations.
The CAQ is now providing guidance on specific factors auditors should consider prior to and during audits of SPACs and/or a private audit client preparing to go public through a SPAC. In addition to considerations for auditors, the CAQ also outlines considerations for audit committees during a SPAC transaction.
Julie Bell Lindsay, executive of the Center for Audit Quality, said: “Audit firms were quick to consult with the SEC staff to address emerging accounting issues as SPAC IPOs accelerated earlier this year. Our latest Alert will help auditors and audit committees continue to bring the same quality and rigor to audits of SPACs that they bring to companies that go public through traditional IPOs.”