Special Purchase Acquisition Companies (“SPACs”) continue to receive significant attention by many capital market participants and regulatory bodies. On April 12, 2021, the SEC released a Public Statement, Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”). This SEC release notes potential errors in the classification of warrants issued by SPACs. The Statement notes warrants may be incorrectly equity classified rather than liability classified. An error in classification as equity rather than a liability will necessitate valuations to help SPAC management understand whether the error is material to the financial statements. A valuation may be required to confirm whether an item is material to the financial statements or not. If the liability is material to the financial statements, revaluations of the warrant at various prior filing dates will be required and corrected financial statements will need to be filed with the SEC. Globalview valuation professionals are available to assist in valuing the SPAC warrants.
This important SEC release may be found at https://www.sec.gov/news/public-statement/accounting-reporting-warrants-issued-spacs. The statement represents staff views of the SEC’s Division of Corporation Finance (“CF”) and the Office of the Chief Accountant (“OCA”). Key extracts from this SEC Public Statement follow:
“We recently evaluated fact patterns relating to the accounting for warrants issued in connection with a SPAC’s formation and initial registered offering.”
“We are issuing this statement to highlight the potential accounting implications of certain terms that may be common in warrants included in SPAC transactions and to discuss the financial reporting considerations that apply if a registrant and its auditors determine there is an error in any previously-filed financial statements.”
“If, after considering this statement, a registrant and its independent auditors conclude that there is an error in previously filed financial statements, the registrant would then need to evaluate the materiality of the error. In doing so, registrants should assess the impact of the error on their financial statements to determine whether they are required to file 1) a restatement of previously issued financial statements; and 2) an Item 4.02, Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review, Form 8-K.”
“Generally, previously-filed Exchange Act reports containing materially misstated financial statements must be amended. The errors in accounting for warrants described above may affect several fiscal quarters and years of a registrant’s previously-filed reports.”
“To facilitate CF’s processing of pending submissions and filings, a registrant that determines such filings include the accounting error(s) described in this statement and also determines that the accounting error(s) is not material to the required financial statements and disclosures included in the pending submissions and filings may provide the staff with a written representation to that effect in correspondence on Edgar.”
Globalview valuation professionals have performed financial reporting valuations since the late 1990s to today. We have deep knowledge of the available financial reporting guidance on fair value matters and auditors documentation requirements which are critical elements required to support a valuation. Given our focus on financial reporting, we have decades of experience working with registrants, their auditors and the auditors valuation specialists. We’re here to work with you and your accounting team and advisers as needed.
For further information, please contact Raymond Rath, ASA, CEIV™, CFA® at +1 (949) 475-2808 or email firstname.lastname@example.org; or Michael Haghighat, ASA at +1 (949) 475-2801, email email@example.com; or Joseph Hirsch at +1 (949) 475-2803 or firstname.lastname@example.org.