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Preparing to go public
• segment reporting for companies
that are engaged in multiple lines of
business or with operations in more
than one geographic area. Required
disclosures include separate revenues
and operating data for each segment;
• supplemental schedules for particular
industries and circumstances; and
• enhanced disclosure of financial and
operational metrics for companies in
certain industries.
Companies that are classified in any
of the following categories have modified
reporting requirements:
• “Smaller reporting company,” as
defined by Item 10(f)(1) of Regulation
S-K, generally applies to new issuers
with an expected public float of
less than $75 million when their
registration becomes effective.
• “Emerging growth company,” as defined
by Section 2(a) of the Securities Act,
generally applies to companies that
have their initial sale of registered
equity securities after December 8,
2011 and have “total annual gross
revenues” less than $1 billion during its
most recently completed fiscal
year.
• “Foreign private issuer,” as defined
by Section 3b-4 of the Exchange
Act, generally applies to companies
incorporated outside the United
States that meet certain additional
criteria.
Some additional details regarding
the first two categories, criteria for
qualification and some of the differences
in reporting requirements are outlined
later in this chapter on pages 21–22.
See Chapter 9 for additional information
regarding foreign private issuers. A table
containing selected comparative financial
statement reporting requirements for
these categories is provided in the
appendices. The following discussion
focuses on the SEC requirements for
companies that do not fall into any of the
above three categories.
Audited financial statements: Audited
annual financial statements required to
be included in the registration statement
include:
• balance sheets as of the end of the two
most recent fiscal years; if the company
has been in existence for less than
one year, an audited balance sheet as
of a date within 135 days of the date
of filing the registration statement is
required; and
• statements of income, cash flows,
changes in stockholders’ equity and
comprehensive income for each of the
most recent three fiscal years or such
shorter period as the company (and its
predecessors) has been in existence.
Designation of an acquired business
as a predecessor is generally required
where a company acquires in a single
succession, or in a series of related
successions, substantially all of the
business (or a separately identifiable
line of business) of another entity (or
group of entities) and the company’s
own operations prior to the succession
appear insignificant relative to the
operations assumed or acquired.
Audited financial statements for the
company and its predecessor must be
accompanied by an audit report issued by
independent accountants that are registered
with the Public Company Accounting
Oversight Board (PCAOB) and audited in
accordance with PCAOB standards. If any
of the audited financial statements required
to be included with the registration
statement were audited by a predecessor
independent accountant, consent may be
needed from that independent accountant
to allow for inclusion of those financial
statements and their audit report in the
registration statement.
The preparation of these financial
statements often raises certain data
collection, accounting and auditing issues,
such as:
• the need to reevaluate existing
accounting policies and consider
expanding disclosures to comply with
reporting requirements for public
companies (e.g., segment information,
tax-rate reconciliation, earnings per
share and general compliance with
Regulation S-X and SEC interpretations
of generally accepted accounting
principles (GAAP));
• the treatment of changes in accounting
policies or financial statement
presentation that arise during the
most recent period covered by the
financial statements that may have
a retroactive impact on the financial
statements and other financial
information presented for previous
years; and
• the retrospective presentation of
discontinued operations consistently
across the periods covered by the
financial information presented.
Accordingly, a company with financial
statements covering the required number
of years should revisit those financial
statements and ensure that they are
compliant with SEC requirements and
recent SEC staff interpretations. Any
modifications to previously issued audited
financial statements will likely require
the independent accountant to perform
additional procedures.
Age of financial statements: Knowing the
periods for which financial statements
will be required to complete a particular
financing is a critical step in planning an
IPO. Financial statements must comply
with the SEC’s age of financial statements
requirements before the SEC staff will
commence review of a filing.
The age of financial statements
included in an IPO is measured by the
number of days between the date of
effectiveness of the registration statement
and the date of the latest balance sheet
in the filing. The latest audited annual
financial statements included in the
prospectus cannot be more than one year
and 45 days old.
If more than 134 days have lapsed since
the latest audited annual balance sheet,
unaudited interim financial statements
must also be included in the registration
statement. Whenever updated interim
financial statements are included, an
interim income statement, statement of
comprehensive income and statement
of cash flows must be included for the
corresponding period of the prior year.
Interim financial statements for the
first and second quarters must each be
updated after 134 days. Interim financial
statements for the third quarter must be
updated 45 days after the following fiscal
year-end, at which time audited financial
16 NYSE IPO Guide