CPE ARTICLE
Accounting for de-SPAC Transactions By Josef Rashty CURRICULUM: Accounting and Auditing LEVEL: Intermediate DESIGNED FOR: CPAs in industry and public practice; management
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pecial Purpose Acquisition Companies (SPACs) offer an appealing alternative to the costly and time-consuming traditional initial public offerings (IPOs) for companies in burgeoning industries. SPACs, also called “blank-check companies,” are shell companies that are listed on a stock exchange with the sole purpose of acquiring a private company to take it public. The private company (target company), often a startup, then takes the SPAC’s place in the stock market as a public company. Merging with a SPAC has become a popular way for companies to go public because the process has more lenient regulatory requirements and often brings outsized returns for investors. The Securities and Exchange Commission (SEC) has recently reinforced its focus on the importance of corporate governance and financial reporting by SPACs. Several senior SEC regulators have issued statements warning companies going public through deals with SPACs against issuing enticing but misleading financial disclosures about their companies and their future prospects.
36 Texas Society of CPAs
OBJECTIVES: Explicate some of the accounting issues related to SPAC transactions and to elucidate the fundamental concepts of de-SPAC mergers within the framework of Financial Accounting Standards Board (FASB) and Securities and Exchange Commission (SEC) guidance KEY TOPICS: Definition of SPACs, SEC filing requirements and expectations, financial reporting requirements, determination of the acquirer, contingencies and contingent considerations, SPAC warrants, earnings per share calculation PREREQUISITES: None ADVANCED PREPARATION: None This article explicates some of the accounting issues related to SPAC transaction, and its goal is to elucidate the fundamental concepts of de-SPAC mergers within the framework of Financial Accounting Standards Board (FASB) and SEC guidance. Exhibit 1 defines some of the terminologies that this article has used.
