3 Key Steps to de-SPAC Audit Readiness

The rebirth of the SPAC market has created a fast lane to public markets for many technology companies, particularly in the energy and cleantech space. But before your company merges with a SPAC, audit readiness is critical. This is where many delays and surprises occur in the process, and where proactive planning can save both time and money.

In most de-SPAC transactions, the private company’s historical financial statements become those of the public entity. These statements must comply with SEC Regulation S-X and be audited under PCAOB standards for inclusion in merger documents and post-closing filings. After signing the merger agreement, SEC filings such as Form S-4, proxy statements, and the “Super 8K” are due within four business days of closing. Lack of audit readiness can lead to delays and increased costs.

To prepare for the audits required under the de-SPAC process, companies should consider the following steps:

First, check if the company after the merger will be a Smaller Reporting Company (SRC) or an Emerging Growth Company (EGC). This status affects how much you need to audit. SRCs and EGCs need only 2 years of audited financial statements, while non SRC and non-EGC registrants must provide 3 years. This choice affects your audit schedule, workload, and costs.

Depending on when the deal happens, you may need up to three quarters of reviewed financial statements for the first merger filing. These reviews are less work than full audits, but they still add time and cost to the project.

All historical financial statements included in SEC filings must be audited under PCAOB standards, which require a higher level of independence and additional review procedures than private company audits.

An example of a higher level of independence is that under PCAOB standards, the auditor cannot be engaged to assist in the preparation of the financial statements. This, in turn, comes at a higher cost and greater time commitment for both the audit and management teams. If your company has prior audits performed under AICPA standards, you’ll need to plan to update the statements to conform with PCAOB standards (i.e., adding earnings per share or segment reporting).

More commonly, emerging growth companies have not been audited before entering into a de-SPAC transaction and will require their first audit under PCAOB standards to meet SEC requirements. Starting this process early during the merger process is essential, as many companies begin from scratch and face compressed timelines once the de-SPAC transaction is underway.

SEC filings require more detailed disclosures, stricter audit standards, and tight deadlines, which can put significant pressure on your team. Because of this, most companies work closely with external advisors on important tasks such as SEC reporting, technical accounting, and transaction modeling. To avoid last-minute problems, it is important to find any resource gaps and bring in the right experts early for both the transaction and the audit.

Getting ready for a de-SPAC audit is a key step that can affect your deal’s timing. By checking your reporting status, starting PCAOB audits early, and ensuring you have the right people, you can avoid costly delays and surprises. If your company has complex accounting or unique revenue models, planning ahead is even more important. The earlier you begin, the easier your journey to becoming a public company will be.