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Preparing to go public
If the company qualifies as a
smaller reporting company in an initial
registration statement, it must reassess
this status at the end of its second fiscal
quarter in each subsequent fiscal year.
If the company fails to meet the test, a
transition to the larger company reporting
requirements commences with the first
quarter of the subsequent fiscal year.
Emerging growth company: The JOBS
Act created a new category of public equity
issuers called emerging growth companies
that are exempt from certain SEC reporting
requirements for up to five years. (For a
more detailed discussion of the JOBS Act,
see Chapter 4). An EGC 8 is a company that
has not had an initial sale of registered
equity securities on or before December 8,
2011 and has total annual gross revenues 9
less than $1 billion for its most recently
completed fiscal year.
Among the reduced reporting
requirements allowed an EGC under the
JOBS Act are the following:
• An EGC may limit presentation of
audited financial statements in the
initial registration statement of its
common equity securities to the two
most recent fiscal years. 10,11,12 The
JOBS Act does not change the existing
8
An FPI may also qualify as an EGC.
9
“Total revenues” means the revenues presented
in a company’s most recent fiscal year’s income
statement prepared under U.S. GAAP (for
domestic companies and foreign companies
that present a reconciliation to U.S. GAAP) or
International Financial Reporting Standards
(IFRS) as issued by the International Accounting
Standards Board (IASB).
10
The JOBS Act provision that permits an EGC to
file only two years of audited financial statements
is limited to the registration statement for the
EGC’s initial public offering of common equity
securities. However, an EGC will not be required
to include, in its first annual report on Form 10-K
or on Form 20-F, audited financial statements
for any period prior to the earliest audited period
included in the registration statement filed in
connection with its initial public offering of
common equity securities.
11
If an EGC is not a smaller reporting company,
it must include three years of audited financial
statements in its initial registration statement
for debt securities.
12
An FPI qualifying as an EGC may comply with
the scaled disclosure provisions in a Form 20-F.
If an FPI takes advantage of any benefit available
to an EGC, then it will be treated as an EGC.
requirement that registrants present
unaudited financial statements for
the most current interim period and
comparative prior year period in
registration statements.
• An EGC may comply with the
management’s discussion and analysis
(MD&A) and selected financial data
requirements of Regulation S-K by
presenting information about the same
periods for which it presents financial
statements in an initial registration
statement.
• Because an EGC is not required
to present more than two years of
audited financial statements in a
registration statement for an initial
public offering of its common equity
securities, the SEC will not object
to limiting the years of financial
statements provided under Rule 3-05
or 3-09 to two years. The SEC
staff would also not object if an
EGC voluntarily provides the third
year of audited financial statements
in the initial registration statement
but chooses to provide only two
years of audited financial statements
under Rules 3-05 or 3-09 when
three years of audited financial
statements may otherwise be
required based on the significance
of the acquired business or equity
method investment. An EGC will
also be allowed to apply these
accommodations to any other
registration statement it files.
• An EGC may apply the effective date
provisions applicable to nonpublic
companies for adoption of new or
revised accounting standards issued by
the FASB but must make this choice at
the time the company is first required
to file a registration statement,
periodic report, or other report with
the SEC. 13
13
EGCs must adhere to public company effective
dates for all standards issued prior to April 5,
2012. Any update to the FASB’s Accounting
Standards Codification after April 5, 2012 would
be eligible for adoption according to the private
company timetable. If an EGC elects to comply
with public company effective date provisions, it
must comply with them consistently for all new
and revised standards throughout the period it
qualifies as an EGC.
• An EGC is exempt from the requirement
for auditor attestation of internal control
over financial reporting (ICFR). 14
• An EGC may report using the scaled
disclosure requirements available
to smaller reporting companies for
executive compensation disclosures.
An EGC retains this status until the
earliest of:
• the last day of its fiscal year in which
it has total annual gross revenues of $1
billion or more;
• the last day of its fiscal year following
the fifth anniversary of the date of the
first sale of common equity securities
pursuant to an effective registration
statement;
• the date on which the issuer has issued
more than $1 billion in nonconvertible
debt during the previous three-year
period; or
• the date on which the issuer is deemed
to be a large accelerated filer.
An EGC must continually revaluate
its ability to qualify for EGC status. If
an entity fails to qualify for EGC status
at any point, the entity must follow
certain transitional rules and commence
complying with non-EGC reporting
requirements during the year in which the
entity no longer qualifies as an EGC. See
Chapter 4 for further details of transitional
offboarding rules.
Summary: Planning an IPO is a complex
undertaking that requires the compilation
and collection of numerous financial
statements and related information.
Knowing what financial statements and
other information will be required to
complete a registration statement is a
critical step in planning an IPO. The
company should consult the SEC rules
and regulations, as well as its auditor
14
Under existing SEC rules and regulations,
newly public entities, other than nonaccelerated
filers, begin complying with Section 404(b)
auditor attestation of the Sarbanes-Oxley
Act with their second annual report filed with
the SEC. An EGC will be exempt from this
requirement as long as it qualifies as an EGC;
however, management’s reporting on internal
control is still required, as according to Section
404(a).
22 NYSE IPO Guide