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Within the proxy or Form S-4/proxy statement, the SPAC and the target company will need to consider the following:
  • Emerging Growth Companies (EGCs) - If the SPAC is an EGC and has not filed its first Form 10-K, and the target company would qualify as an EGC assuming it was conducting its own IPO, only two years of annual audited financial statements would be required. For a target that is a private company to qualify as an EGC, its total annual gross revenues need to be less than $1.07 billion for the most recently completed fiscal year and it can not have issued more than $1.0 billion of nonconvertible debt over the past three years.
  • Smaller Reporting Companies (SRCs) - The SEC staff has indicated it will not object if a target company includes two years of annual audited financial statements rather than three years if it qualifies as an SRC. To qualify as an SRC, generally the non-reporting target company would need to have reported annual revenue less than $100 million in its most recent fiscal year.
If the first annual report on Form 10-K of the SPAC has been filed and the target does not qualify as an SRC, three years of audited annual financial statements of the target are required. The SEC staff has indicated that the inclusion of annual audited financial statements of the SPAC in a proxy or Form S-4/proxy statement is equivalent to the filing of its first annual report on Form 10-K for purposes of determining the number of years of audited annual financial statements of the target that are required.
The evaluation of the required number of years to include in a filing and consideration of the age of the financial statements needs to be performed each time an amendment is filed (e.g., in response to an SEC staff comment letter) and when the Super 8-K is filed.
Financial statements considerations
The financial statements of the target company need to be compliant with Regulation S-X and SEC Staff Accounting Bulletins (SABs). Private company accounting alternatives adopted by the Private Company Counsel (PCC alternatives) are not permitted. Any PCC alternatives applied (for example, amortization of goodwill) would need to be unwound.
Other key reminders for private companies preparing Regulation S-X compliant financial statements include, but are not limited to, the following: (1) stating separately product, service, rental, and other revenue (if applicable) on the face of the income statement (Regulation S-X, Rule 5-03(b)), (2) disclosure of an income tax rate reconciliation (Regulation S-X, Rule 4-08(h)), (3) identifying related party transactions on the face of the financial statements (Regulation S-X, Rule 4-08(k)), and (4) disclosure of required balance sheet line items (Regulation S-X, Rule 5-02).
The target company also needs to consider if it has completed significant business acquisitions (Regulation S-X, Rule 3-05) or has significant equity method investments (Regulation S-X, Rule 3-09) that would require the inclusion of financial statements. SRCs may follow the scaled disclosures under Regulation S-X, Article 8.
Typically an acquired company that is private need not include certain disclosures such as EPS (ASC 260-10-15-2) or segments (ASC 280-10-15-3) as the company is nonpublic as defined by those accounting standards and therefore the disclosures are not required. However, the target in a SPAC transaction will likely be the predecessor entity. Accordingly, the definition of public business entity (PBE) in each applicable accounting standard will need to be assessed to determine whether the disclosures are required. Typically, EPS and segment disclosures are required.
Additionally, public companies are required to present contingently redeemable preferred stock (i.e., redeemable upon the occurrence of an event outside the control of the issuer) and preferred stock that is redeemable at the option of the holder, in mezzanine equity. See Section 5.6.3.1 in PwC’s Financial statement presentation guide for additional details on mezzanine equity presentation.
QUESTION 1.1
Since Regulation S-X, Article 12 schedules (e.g., valuation and qualifying accounts schedule) are not required to be included with historical financial statements required under Regulation S-X, Rule 3-05, would Article 12 schedules be required to be included with the historical financial statements of a target in a SPAC merger?
PwC response
Yes, while Article 12 schedules are specifically excluded from the Regulation S-X, Rule 3-05 financial statement requirement, this exclusion does not apply to financial statements of a target company in a SPAC merger. However, if a target company is required to include its own Regulation S-X, Rule 3-05 financial statements, those financial statements could omit the schedules.
Accounting standards for the target company are required to be adopted on the PBE timeline, with deferred adoption available if (1) the SPAC entity is an EGC and has deferred the adoption of accounting standards on the PBE timeline, (2) the target company meets the criteria to be an EGC, and (3) the combined company will maintain EGC status following the consummation of the transaction. See the highlights of the July 2020 CAQ SEC Regulations Committee meeting for financial statement requirements in a filing for a target with a SPAC.
QUESTION 1.2
When would a calendar year-end target company be required to adopt recent accounting standards such as ASC 606, Revenue, ASC 842, Leases, and ASC 326, Credit Losses?
PwC response
If the criteria referenced above are met with respect to EGC status of the SPAC, the target company, and post-merger entity, the financial statements of a target company with a December 31 fiscal year end could reflect the adoption of ASC 606 as of January 1, 2020, ASC 842 as of January 1, 2022, and ASC 326 as of January 1, 2023. See In depth US2019-20: How to apply the FASB’s deferral of effective dates, for additional information on accounting standard adoption dates.
Other areas that may present complexities when preparing the financial statements to be included in a proxy or Form S-4/proxy statement include: different year ends for the SPAC and the target company; multiple target companies being acquired by the SPAC in the transaction; and the acquisition of a division or business that results in the need for carve-out financial statements. Refer to PwC’s Carve-out financial statements guide for further details on the preparation of carve-out financial statements.
Audit requirements
Typically, private companies are audited in accordance with auditing standards generally accepted in the United States (US GAAS) issued by the AICPA Auditing Standards Board. In a SPAC merger, the target’s financial statements included in the SEC filing are required to be audited in accordance with PCAOB standards by a firm that is registered with the PCAOB. The audit will be under dual standards, both PCAOB and AICPA, which usually results in incremental audit procedures by the registered accounting firm. For dual standard audits of fiscal years ended on or after December 15, 2020, critical audit matters must be included in auditors’ reports. Financial statement preparers and auditors should evaluate the implications on the audit report, even if the SPAC is an EGC and the target would qualify as an EGC.
Age of financial statements
The guidelines for determining the age of a registrant's and a target’s financial statements to be filed with the SEC in a proxy or Form S-4/proxy statement are set forth in Regulation S-X Rule 3-01, Regulation S-X Rule 3-02, and Regulation S-X Rule 3-12. Smaller reporting companies, if eligible, may use the scaled disclosure requirements of Regulation S-X Rule 8-08. The age of financial statements in the Form 8-K due upon completion of the merger is determined by reference to Item 13 of Form 10.
As a general rule, the most recent financial statements provided in the filing should not be dated more than 134 days before the date the filing is made (or more than 129 days in the case of an accelerated filer or a large accelerated filer). Registrants must meet the age of financial statements requirements at the initial filing date, at the date of any amendment (pre-effective or post-effective), at the effective date, and, with respect to a proxy statement, as of the mailing date. In the case of a Form S-4/proxy statement, the SEC staff has indicated that the age of financial statements requirements do not need to be evaluated as of the mailing date of the proxy unless the mailing is delayed beyond the time necessary to prepare the material for mailing (generally no more than a few days after the Form S-4 becomes effective).
Audited annual financial statements
If a proxy or Form S-4/proxy statement filing is made 45 days or less after the most recently completed fiscal year, the SPAC and the target company are not required to provide audited financial statements for that recently completed fiscal year unless those audited financial statements are available.
The following discussion and examples assume the SPACs are non-accelerated filers and have incurred losses. A non-accelerated SPAC filing a proxy or Form S-4/proxy statement on day 46 through (and including) day 89 after year-end would typically need to include audited financial statements for its most recently completed fiscal year and therefore likely does not meet the requirements of Regulation S-X Rule 3-01(c) or Regulation S-X Rule 8-08(b) for an SRC.
Unaudited interim financial statements
If the audited balance sheet date is 135 or more days from the filing date (or mailing/effective date), then the unaudited financial statements must be dated no more than 134 days before the filing date (or mailing/effective date).
Figure 1-1 illustrates the age of financial statement requirements for different filing dates. The age of financial statements can present unique challenges and the specifics for each transaction should be considered early in the process.
Figure 1-1
Age of financial statements - illustrative examples
SPAC is a calendar year company formed in 2021 that completes its initial IPO in July 2021.The SPAC files its first Form 10-K in March 2022 with inception to date financial statements for 2021. In September 2022, the SPAC announces an agreement to acquire a target company. The target company is a non-public, privately held entity. The SPAC qualifies as an EGC and the target company would qualify as an EGC if evaluated separately.
Filing date :
SPAC
Target company
Pro forma
November 1, 2022
Audited financial statements as of December 31, 2021 and for the period from inception to December 31, 2021
Unaudited interim financial statements as of June 30, 2022 and for the year-to-date comparative financial statements
Audited financial statements as of December 31, 2021 and 2020 and for the years ended December 31, 2021, 2020, and 2019
Unaudited interim financial statements as of June 30, 2022 and for the year-to-date comparative financial statements
Pro forma balance sheet as of June 30, 2022 and pro forma statement of operations for the year ended December 31, 2021 and the interim year-to-date period ended June 30, 2022
December 18, 2022
Audited financial statements as of December 31, 2021 and for the period from inception to December 31, 2021
Unaudited interim financial statements as of September 30, 2022 and for the year-to-date comparative financial statements
Audited financial statements as of December 31, 2021 and 2020 and for the years ended December 31, 2021, 2020, and 2019
Unaudited interim financial statements as of September 30, 2022 and for the year-to-date comparative financial statements
Pro forma balance sheet as of September 30, 2022 and pro forma statement of operations for the year ended December 31, 2021 and the interim year-to-date period ended September 30, 2022
If a SPAC has (1) not yet filed its first Form 10-K or updated its annual financial statements to include an additional year in the proxy or Form S-4/proxy and (2) the SPAC qualifies as an EGC and the target company would qualify as an EGC if evaluated separately, only two years of audited financial statements are required for the target company.
In compliance with Item 303 of Regulation S-K, MD&A is required for all annual and interim periods presented in the financial statements for the SPAC and the target company.

1Proxy or Form S-4/proxy statement filing example dates

2Form 10-Q for quarter ending September 30 has not yet been filed by the SPAC

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