Pre-IPO Accounting & Reporting Hot Topics

by Feb 28, 2023IPO

Going through a full readiness exercise can be a time consuming exercise for companies looking to IPO.

Where to begin? My advice – look at processes & procedures around accounting hot topics. Could a new hire easily book those transactions or put together the FS disclosures with adequate SOPs? Do they stand up against GAAP for a potential audit?

  1. Revenue recognition – Not only do you need to ensure full compliance with ASC 606 or IFRS 15, but you need to ensure a well documented accounting policy can support this, including the nature of all earned revenues and the recognition pattern on the same. Are you able to track your revenue streams separately for disaggregated disclosures or to produce MD&A explanations? Have you fully substantiated your separate performance obligations and point in time vs. over time revenue recognition?
  2. Stock compensation – Cheap stock is a very common SEC comment when a company has issued equity in the 12-24 months leading up to IPO. Do you have appropriate 3rd party valuations to support the expense recognized? Is your capitalization table in order and easily managed? Complex capital structure can make required EPS disclosure more time intensive. You may be required to pro forma your EPS, so it’s important that this is automated to the extent possible.
  3. Segment reporting – Private companies haven’t normally formalized their segments, do you understand who is your CODM and what information they are using to assess the business? To the revenue point above, are you able to report separate revenues & operating results across business or geographic regions? How does your ERP allow for this data to be summarized?
  4. Fair value measurement – If you have made any acquisitions, what support is available for PPA & how FV has been determined? We have already discussed the importance of FV support of equity, but how about other assets & liability on your BS as fair value, can you support those in an audit?
  5. Disclosures – SEC disclosures require a step-up from normal GAAP disclosures across the board. Can you produce entity-wide information such as disaggregated revenues and geographical data? Are you ready for additional business combination & EPS disclosures? Do you have disclosure controls & procedures? This is required in a SOX environment.

Regarding those accounting/reporting hot topics, well this is just a handful of them. There’s of course many more areas to consider, always happy to chat further about it!

Navigating US GAAP Conversion as a European finance team

An excerpt from my CFO 4.0 podcast interview

As an experienced cross-border accounting advisor, I’ve dedicated significant parts of my career to helping companies bridge the gap between European and U.S. accounting standards.

Particularly, mastering U.S. Generally Accepted Accounting Principles (US GAAP) poses a substantial challenge for UK and European businesses aiming to expand their investor footprint into the U.S. market.

My recent discussion on the CFO 4.0 Podcast shed light on the nuances and critical strategies required to make this transition as smooth as possible.

Here’s the top takeaways: 

1. Pre-Audit Preparation is Crucial

Transitioning to US GAAP is an intricate process that demands meticulous preparation. Before even considering an audit, it’s crucial to have a well-documented finance function.

This includes thoroughly analyzing your chart of accounts, policies, and transactions under current GAAP.

From there, my recommended approach involves a three-phased method: starting with discovery, followed by a qualitative differences analysis, and finally, crafting a matrix of existing policies alongside suggested US GAAP policies.

2. Understand Strategic Audit Differences between Countries

The audit process under US GAAP is more rigorous compared to that in the Europe, focusing significantly on accuracy and a detailed audit trail.

My experience has shown that European companies often need to recalibrate their expectations and practices to meet these stringent requirements, which encompass not just financial scrutiny (i.e. a lower audit materiality) but also a broad evaluation of corporate governance and internal controls.

3. Thoughtfully Structure your Conversion Approach

I align my strategic advice for GAAP conversion along a well-structured three-phase approach. It begins with a qualitative and quantitative assessment of financial statements, transitioning into the actual preparation of these statements under US GAAP. Depending on the complexity and the readiness of your company, this transition can take between two to six months. Throughout this period, patience and openness to adapt to stringent U.S. standards are essential.

4. Gain an Understanding of US Regulations

Entering the U.S. market, especially in heavily regulated industries like fintech, necessitates a deep understanding of the U.S. regulatory environment.

For example, a UK-based fintech entity establishing a subsidiary in the States would require comprehensive US GAAP conversion from day one, not only for legal compliance but for operational and strategic alignment with U.S.-based stakeholders.

5. Ensure Documentation Supports Knowledge Transfer

Effective documentation practices not only ensure compliance but enhance operational efficiency and transparency. Recognizing a prevalent gap in knowledge sharing and ongoing support for European entities, I have developed a comprehensive guide available on my website, designed to aid companies in understanding and preparing for US GAAP requirements (you can find the link to access this guide below).

Listen to the full podcast here to gain insights in adopting a proactive, well-informed strategy when tackling US GAAP conversions.

Preparation, strategic phased implementation, and continuous education and support create a solid groundwork for international companies aspiring to thrive in the U.S. market. 

For those interested, my Notion guide can be accessed below.

Katrina Nacci

Katrina Nacci

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