SEC statements on key considerations for SPACs

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In connection with the surge in transactions involving special purpose acquisition companies (SPACs), the SEC has turned its focus to SPAC-related matters, releasing several statements entities should consider.

Applicability

SPACs and entities that have merged or are planning to merge with a SPAC

Relevant dates

Effective immediately

The SEC’s Office of the Chief Accountant (OCA) and the Division of Corporation Finance (DCF) recently issued statements highlighting issues to be considered by SPACs and companies that have merged or are considering merging with a SPAC.

Accounting and reporting considerations for warrants issued by SPACs

On April 12, 2021, the OCA and DFC staff issued a joint statement that:

Addresses certain accounting considerations for warrants issued by SPACs, focusing on two specific accounting considerations:
- Indexation: An equity-linked financial instrument (or embedded feature) must be considered indexed to an entity’s own stock to qualify for equity classification
- Tender offer provisions: Identification of warrants that have provisions that may lead to settlement in cash
Discusses filing and other considerations if the registrant and auditor determine that there is an error in previously filed financial statements related to this issue

SPACs, IPOs and liability risk under the securities laws

On April 8, 2021, the DCF issued a statement that:

Focuses on legal liability associated with ‘de-SPAC’ transactions and the presentation of projections in registration and/or proxy statements

Financial reporting and auditing considerations of companies merging with SPACs

On March 31, 2021, the OCA issued a broad statement discussing:

Market and timing considerations
Financial reporting considerations
Internal control considerations
Corporate governance and audit committee considerations
Auditor considerations

Select issues pertaining to SPACs

On March 31, 2021 the DCF staff issued a statement discussing:

Shell company restrictions on filing and other matters
Books and records and internal controls requirements
Initial listing standards of national securities exchanges

Resource

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The SEC issued guidance on disclosure expectations for SPACs related to conflicts of interest.

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