(Last updated: 6/30/2009)
12250.1 Reverse Recapitalization with a Public Shell Company
a. In a reverse recapitalization by a non-public company (accounting acquirer) with a public shell company, the financial statements of the accounting acquirer filed in the 8-K or 20-F must be audited by a public accounting firm registered with the PCAOB.
b. The auditor of the accounting acquirer would need to be independent under PCAOB/SEC independence rules for all years required to be in the filing because the Form 8-K must contain Form 10 content, and Form 10 requires financial statements meeting the requirements of Regulation S-X. For Form 20-F, the auditor of an accounting acquirer that is a foreign private issuer must comply with SEC/PCAOB independence rules at least for the latest fiscal year as long as the auditor is independent in accordance with home-country standards for earlier periods. [S-X 2-01(f)(5)(iii)]
12250.2 Reverse Acquisition with a Registrant that is Not a Shell Company
a. Reverse acquisitions involving two operating companies in which the accounting acquirer is a non-public company may result in PCAOB/SEC auditor issues once the acquisition is consummated and the financial statements of the non-public company become those of the registrant.
b. The auditor of the S-X 3-05 or S-X 8-04 financial statements of an accounting acquirer/legal acquiree that is a non-public company need not be registered with the PCAOB because the pre-consummation financial statements are not those of an issuer on the date of the filing. A nonregistered accountant could reissue its opinion on the pre-acquisition financial statements of the accounting acquirer after consummation of the acquisition. A nonregistered accountant could also audit a restatement of the accounting acquirer's financial statements for periods ended prior to the consummation of the acquisition up until the date that the first periodic report is filed that contains post-merger financial statements. Once the post-acquisition financial statements are filed, a nonregistered accountant could not perform the work on the restatement of or retrospective application of a change in accounting principle in the pre-acquisition financial statements or otherwise update or dual date its report on those financial statements because those financial statements become the registrant's financial statements on the date the post-acquisition financial statements are filed. (Last updated: 12/31/2011)
c. After consummation of the acquisition, a PCAOB registered auditor must audit or review the post-acquisition financial statements of the registrant because the non-public company's financial statements become the issuer's financial statements.
d. Normally, auditors of S-X 3-05 financial statements of non-public companies need not comply with the independence standards of the PCAOB or SEC as long as the auditors comply with the AICPA independence standards. However, after consummation of a reverse acquisition between two operating companies, the auditor of the registrant's financial statements (previously those of the accounting acquirer) must be independent in accordance with PCAOB/SEC independence rules for all periods presented because the non-public company's financial statements become the issuer's financial statements. This may require a reaudit of prior period financial statements of the accounting acquirer. A registrant should consult with OCA in advance of the reverse acquisition if it believes there may be an independence issue between the auditor and the accounting acquirer under PCAOB/SEC rules.
For example: A public company that is not a shell merged with a private operating company on November 1, 20X1. Both companies have a December 31 year-end. The Form 8-K filed by the registrant included audited financial statements for the three years ended December 31, 20X0 and unaudited interim financial statements for the nine months ended September 30, 20X1 for the non-public operating company. The financial statements could be and were audited by a nonregistered accountant. The December 31, 20X1 Form 10-K would reflect the financial statements of the accounting acquirer for the three years ended December 31, 20X1, for which the auditor(s) must be independent under PCAOB/SEC rules for all years. A PCAOB registered accountant would need to audit the year ended December 31, 20X1 and future years and review any interim financial statements filed on Form 10-Q beginning in 20X2.
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