The company you cofounded last year is growing rapidly and has strong prospects
ID: 2650209 • Letter: T
Question
The company you cofounded last year is growing rapidly and has strong prospects for an IPO in the next year or two. The additional capitial that an IPO could raise wouold let you hire the brightest people in the industry and continue to innovate with new product research. There is one potential glitch: You and the rest of the executive team have been so focused on launching the business that you haven't paid much attention to financial control. You've had plenty of funds from venture capitalists and early sales, so working capital hasn't been a problem, but an experienced CEO in your industry recently told you that you'll never have a successful IPO unless you clean up the financial side of the house. Your cofounders say they are too busy chasing great opportunities right now and they want to wait until right before the IPO to hire a seasoned financial executive to put things in order. What should you do and why?
Explanation / Answer
Financial and Accounting requirement for IPO
Companies going to begin IPO process should consider the various financial statement accounting and disclosure requirement. A lot of accounting and disclosure requirements are not applicable to non-public companies. Therefore to go before IPO additional accounting and disclosure requirements directed by US GAAP and required by SEC need to be followed. Public Disclosure requirements for public companies are more than private companies. So before proceeding for IPO, accounting and disclosure requirement followed by a company need to be reviewed. If any required disclosures are not followed the same should be included in financial statements.
When a non-public company go to SEC for IPO it should apply all accounting standard applicable to public companies as if it had always been a public company. In some cases retrospective revision in financial statements also required.
Some Examples of Additional Requirements
Segment Reporting- Under ASC 280 public companies should disclose disaggregated information in the financial statements as a note to financial statement.
Earnings Per Share- ASC 260 requires to present EPS in the financial statements and in IPO registration statements. EPS should be disclosed as Basic EPS and Diluted EPS.
Other ASC