TAKEAWAYS
The recent statement by the Staff of the SEC (the Staff Statement) will likely impact almost every SPAC or post-de-SPAC entity with warrants in its structure.
SPAC/post-de-SPAC entities should review warrant terms to determine appropriate accounting treatment in light of the recent Staff Statement and assess the materiality of any changes required and if a full restatement is needed.
If a correction or full restatement is required, SPAC/post-de-SPAC entities should also consider disclosure and filing requirements, as well as the impact on existing SEC filings and commercial agreements, including registration rights agreements, debt facility agreements, and other agreements.
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On April 12, 2021, the U.S. Securities and Exchange Commission (SEC) published a joint statement by John Coates, Acting Director of the Division of Corporation Finance, and Paul Munter, Acting Chief Accountant, which provides their view on the accounting treatment of warrants issued by special purpose acquisition companies (SPACs). This statement, titled
Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (SPACs),
1 suggests that the SEC staff has concerns that the warrants issued by many SPACs should be properly accounted for under the liability method on the balance sheet. As such, the staff advises that companies with these outstanding warrants (whether SPACs or the combined company following a de-SPAC transaction) consider the need to amend previously-filed audited and unaudited financial statements.
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SEC Division of Corporation Finance Acting Chair John Coates and
SEC Acting Chief Accountant Paul Munter (the officials )
highlighted certain considerations in
accounting for warrants issued by Special Purpose Acquisition
Companies ( SPACs ). In a public statement, the SEC
Division of Corporation Finance and the Office of the Chief
Accountant staff ( staff ) reviewed the potential
accounting implications and the financial reporting
considerations that apply if a registrant and its auditors
determine there is an error in any previously-filed financial
statements. The staff determined that there were
Staff Posts Guidance On Accounting For Warrants Issued In SPAC Transactions - Accounting and Audit mondaq.com - get the latest breaking news, showbiz & celebrity photos, sport news & rumours, viral videos and top stories from mondaq.com Daily Mail and Mail on Sunday newspapers.
SEC: Staff Statement On Accounting And Reporting Considerations For Warrants Issued By Special Purpose Acquisition Companies (âSPACsâ) John Coates, Acting Director, Division Of Corporation Finance, Paul Munter, Acting Chief Accountant, April 12, 2021 Date
In a recent statement, Acting Chief Accountant Paul Munter highlighted a number of important financial reporting considerations for SPACs.[2] Among other things, that statement highlighted challenges associated with the accounting for complex financial instruments that may be common in SPACs. Additionally, CF staff also issued a recent statement[3] highlighting key filing considerations for SPACs.
We recently evaluated fact patterns relating to the accounting for warrants issued in connection with a SPAC’s formation and initial registered offering. While the specific terms of such warrants can vary, we understand that certain features of warrants issued in SPAC transactions may be common across many entities.