Joy Pan
WELCOME TO THE U.S. MARKET.
Of all the challenges facing CEOs of newly public companies trading on U.S. exchanges, the most exacting may be the new mindset that you will need in order to navigate the rigors of SEC compliance and stock market regulations.
The access to capital afforded by the U.S. public markets and the attendant opportunities it creates also come with stringent financial reporting requirements designed to ensure the integrity and transparency of the marketplace and to protect shareholder value.
Non-negotiable filing deadlines and demanding regulatory compliance mandates are your new priorities. Earnings reports, regulatory filings, analyst and investor guidance, and the necessary steps to comply with the provisions of the Sarbanes-Oxley Act (SOX) are your new mission.
As a public company, you will be answerable to a vastly expanded group of stakeholders, including SEC counsel, your Audit Committee, outside auditors, Wall Street analysts and, of course, your investors.
You will be subject to public company policies and procedures that dictate important aspects of how you operate and that enforce parameters around how you make certain decisions.
Your financial disclosure obligations must be managed in tandem with the day-to-day demands of scaling a successful business.
Post-IPO, you also will need to acclimate to working under the oversight of a Board of Directors, whose role is to ensure the company is acting in the best interest of shareholders. Board approval will be needed for all significant decisions and transactions, including new strategic directions, mergers and acquisitions, or other material changes.
Many private company owners do not fully recognize the new reality that awaits them as public company CEOs. This shift in mindset may be especially challenging for CEOs of non-U.S. companies unaccustomed to the strict compliance environment of the U.S. securities markets.
A well-prepared CEO will fully utilize the 9-12 months pre-IPO to begin adopting public company practices, well ahead of the listing event. You will begin thinking and operating like a public company immediately once the decision to pursue an IPO is made, and start to build-out the financial team, IT infrastructure and reporting systems that will position the company to successfully pass its IPO assessment audit and win approval from the regulators to list on a U.S. securities exchange.
A well-prepared CEO will fully utilize the 9-12 months pre-IPO to begin adopting public company practices
Internal Controls
Under PCAOB(Public Company Accounting Oversight Board) rules, companies must maintain independence from their external auditors.
To remain independent, a company’s auditors can no longer assist with financial reporting and disclosures. The management team must take ownership of financial reporting, disclosure and remediation activities.
Auditors, however, continue to play a pivotal role post-IPO in ensuring the company’s financial integrity and transparency. They are responsible for establishing the policies and procedures that will govern your reporting and risk management, and for making sure they are followed.
Post-IPO Periodic Financial Reporting and Internal Control RequirementsAfter a registration statement is declared effective, you are required to file quarterly reports on Form 10-Q and annual reports on Form 10-K. As a public company, you must also file a current report on Form 8-K, disclosing any material events occurring between periodic reports. You will need to address two types of controls and procedures in your post-IPO filings with the SEC:
In addition, as your company’s principal executive, you and your principal financial officer (typically the CFO) must file certifications of the financial statements in your quarterly and annual reports to shareholders, as prescribed by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act” or “Sarbanes-Oxley”). Quarterly reports to shareholders are due within 45 days of quarter’s end. There is little margin for error or delay – failure to file within a 5-day grace period risks having your stock delisted. |
THE 5 COMPONENTS AND 17 PRINCIPLES OF INTERNAL CONTROLControl Environment1. Commitment to integrity and ethical values. 2. Board independence from management and oversight of internal controls. 3. Management structures, reporting lines, and appropriate authorities and responsibilities in the pursuit of objectives. 4. Commitment to attract, develop, and retain competent individuals in alignment with objectives. 5. Accountability for internal control responsibilities in the pursuit of objectives. Risk Assessment 6. Specification of objectives with sufficient clarity to enable the identification and assessment of risks. 7. Identification and analysis of risks. 8. Assessment of the potential for fraud in assessing risks. 9. Identification and assessment of changes that could significantly impact the system of internal control. Control Activities 10. Mitigation of risks. 11. Control activities over technology to support the achievement of objectives. 12. Policies that establish what is expected and procedures that put policies into action. Information and Communication 13. Use of relevant, quality information to support the functioning of internal control. 14. Internal communication of information necessary to support the functioning of internal control. 15. Communication with external parties regarding matters affecting the functioning of internal control. Monitoring Activities 16. Ongoing and/or separate evaluations to ascertain whether the components of internal control are present and functioning. 17. Timely evaluation and communication of internal control deficiencies to those responsible for taking corrective action, including senior management and the board of directors. |
