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Preparing to go public<br />
and other advisors, to determine what<br />
financial information requirements might<br />
be applicable in its circumstances to allow<br />
for the planning of sufficient time and<br />
resources to complete the filing within<br />
manageable time frames.<br />
(b) Transition to being a public company<br />
The completion of an IPO marks the start<br />
of life as a public company. One of the first<br />
challenges for a successful transition is<br />
adapting to the new, often more complex,<br />
requirements of operating as a public<br />
company. New processes may need to<br />
be adopted, and management must now<br />
consider how decisions affect a much larger<br />
group of stakeholders and be conscious of<br />
ensuring regulatory compliance. Some of the<br />
transition areas that should be considered<br />
going forward are outlined below.<br />
Controls and procedures: The level of<br />
investor confidence in the reliability of<br />
financial disclosures can be a key factor<br />
in a public company’s success. To help<br />
ensure investor—and market—confidence,<br />
a public company’s internal controls<br />
systems must comply with all regulatory<br />
requirements. These requirements include<br />
quarterly certifications by executives and<br />
an audit report on the effectiveness of<br />
internal control over financial reporting<br />
required by Section 404 of the Sarbanes-<br />
Oxley Act, typically as of the second fiscal<br />
year-end after the IPO (although an EGC<br />
is exempt from the auditor attestation<br />
requirement in Section 404(b) of the<br />
Sarbanes-Oxley Act for as long as it<br />
qualifies as an EGC).<br />
Complying with Section 404 requires<br />
a significant investment of resources over<br />
several months to move through a project<br />
plan that includes a number of phases,<br />
such as:<br />
• assessing financial statement and<br />
general and specific fraud risks;<br />
• evaluating the control environment,<br />
entity-level controls and general IT<br />
controls;<br />
• identifying significant accounts and<br />
disclosures;<br />
• defining significant locations and<br />
business units;<br />
• documenting processes involving major<br />
classes of transactions;<br />
• identifying significant risk points and<br />
key mitigating controls;<br />
• providing preliminary assessment of<br />
effectiveness of design and operation of<br />
key controls;<br />
• remediating missing and ineffective<br />
controls;<br />
• demonstrating consideration of the<br />
regulatory risks and environment; and<br />
• conducting final tests that support an<br />
assertion of effective internal controls<br />
over financial reporting.<br />
Section 6.1 contains a more detailed<br />
discussion of the SOX compliance<br />
requirements.<br />
Financial accounting department:<br />
The process leading up to filing of the<br />
registration statement requires the<br />
gathering of various financial information.<br />
The company can utilize external advisors<br />
to assist in gathering this information,<br />
but once an IPO is completed, internal<br />
resources should be in place to support<br />
the ongoing reporting needs of a public<br />
company. The company will need to:<br />
• prepare ongoing reports that provide<br />
financial and nonfinancial information<br />
at a level of detail and in a time frame<br />
that generally was not required in the<br />
past;<br />
• develop a public entity organizational<br />
structure and recruit appropriate<br />
personnel to satisfy its public reporting<br />
requirements;<br />
• develop sufficient resources or<br />
processes to perform regular and<br />
consistent financial close and<br />
reporting processes to meet reporting<br />
requirements;<br />
• develop or enhance its accounting and<br />
reporting policies and procedures;<br />
• enhance the training and skills of<br />
its existing workforce involving<br />
accounting and reporting requirements<br />
of public companies;<br />
• develop or enhance its budgeting,<br />
forecasting and financial modeling<br />
processes to reflect its operations<br />
as a stand-alone entity with public<br />
shareholders; and<br />
• change underlying business processes<br />
to meet appropriate metrics or best-inclass<br />
services.<br />
After the IPO, the company will be<br />
subject to strict SEC reporting time lines<br />
for quarterly and annual reporting. It will<br />
also be required to file current reports<br />
on Form 8-K after the occurrence of<br />
certain specified material events within<br />
four business days of the occurrence of<br />
the event. Many private companies are<br />
unaccustomed to formal accounting closes<br />
for interim reporting periods and the strict<br />
reporting time lines for both quarterly and<br />
annual periods. In anticipation of going<br />
public, the following are some actions that<br />
the company should take in advance of the<br />
IPO:<br />
• Evaluate the current financial<br />
close process in light of post-IPO<br />
requirements and consider early<br />
implementation of an accelerated close<br />
time line that will be required of an<br />
SEC issuer, including the gathering of<br />
disclosure information for notes to<br />
the financial statements. Reducing the<br />
financial close cycle time will most<br />
likely involve changes in processes, IT<br />
systems and possibly resources. The<br />
transition to an established process can<br />
take time, but it is imperative that these<br />
modifications be in place before the first<br />
Form 10-Q or Form 10-K is required.<br />
• Evaluate the finance and accounting<br />
departments’ organizational structure<br />
and skill sets of key personnel in light<br />
of post-IPO reporting requirements,<br />
and identify gaps. Gaps can be filled by<br />
recruiting additional staff and providing<br />
training for current personnel.<br />
• Draft an accounting policy manual.<br />
Many private companies have informal<br />
policies and procedures, but public<br />
companies should have documented<br />
accounting policies as a component of<br />
their internal control environment.<br />
Budgeting and forecasting: After the<br />
IPO, investors will expect the company<br />
to implement the plans presented in the<br />
prospectus. The following are some of the<br />
organizational changes that the company<br />
should consider:<br />
• Review business strategies, forecasting<br />
processes and cost infrastructure<br />
in order to help ensure its<br />
competitiveness and meet shareholder<br />
expectations.<br />
• Develop an investor relations<br />
infrastructure and resources.<br />
• Develop or enhance budgeting,<br />
forecasting and financial modeling<br />
processes.<br />
NYSE IPO Guide<br />
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