NOTICE: The Center for Audit Quality (CAQ) SEC Regulations Committee meets periodically with the staff of the SEC to discuss emerging financial reporting issues relating to SEC rules and regulations. The purpose of the following highlights is to summarize the issues discussed at the meetings. These highlights have not been considered or acted on by senior technical committees of the AICPA and do not represent an official position of the AICPA or the CAQ. As with all other documents issued by the CAQ, these highlights are not authoritative and users are urged to refer directly to applicable authoritative pronouncements for the text of the technical literature. These highlights do not purport to be applicable or sufficient to the circumstances of any work performed by practitioners. They are not intended to be a substitute for professional judgment applied by practitioners.

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The staff provided the following updates on personnel developments in the Division:

The staff is continuing its work on updates to the FRM, focusing on revisions to reflect recently released rules and deleting references to outdated rules and requirements.

The Committee members and staff considered an illustrative scenario in which a calendar year-end SEC registrant SPAC merged with a calendar year-end private operating company in Q1 2021 in a transaction that was accounted for as a reverse recapitalization. The post-merger registrant intends to file a new registration statement on Form S-1 (e.g., to register the shares of common stock which may be issued upon exercise of warrants to purchase the registrant’s common stock).

The Committee members asked whether the staff would object to a registrant not including the pre-merger historical financial statements of the SPAC in connection with the Form S-1 if it includes financial statements of the registrant for a post-merger interim period and also includes the historical financial statements of the previously private operating company retrospectively revised, as appropriate, for the impact of the share exchange.

In this scenario, the staff indicated it would not object if the registrant omits the pre-merger historical financial statements of the SPAC from the Form S-1. The staff indicated, however, that this position would not necessarily apply in situations other than reverse recapitalizations.

The staff indicated that it would object if the Form S-1 omits the pre-merger historical financial statements of the SPAC in situations where the registration statement does not include financial statements of the registrant for a post-merger period and the historical financial statements of the previously private operating company retrospectively revised, as appropriate, for the impact of the share exchange.

The Committee members asked whether a non-reporting target in a SPAC transaction that has had a change in accountants during the two most recent fiscal years or any subsequent interim period would be required to provide disclosures required by Item 304(a) of Regulation S-K in a proxy statement on Schedule 14A or a combined proxy and registration statement on Form S-4. The staff stated that disclosure under Item 304(a) is not required for a non-reporting target in a proxy statement or in a combined proxy and registration statement, but the disclosure could be provided if the information was believed to be material. That said, the disclosures set forth in Item 304(b) of Regulation S-K would be required in both the proxy statement on Schedule 14A or a combined proxy and registration statement on Form S-4.

This response is specific only to a proxy statement or combined proxy and registration statement. FRM 12230.3 contains the following guidance with respect to the Form 8-K filed to report the loss of shell company status shortly after the completion of the de-SPAC merger:

The staff discussed reporting requirements that apply when a registrant loses its EGC status because it exceeded the rolling three-year $1 billion non-convertible debt issuance threshold after fiscal period end (annual or quarterly) but before the periodic report associated with that period end (either Form 10-K or Form 10-Q) is filed. For example, a calendar year-end registrant loses EGC status in January 2021 because it exceeded the rolling three-year $1 billion non-convertible debt issuance threshold and will not file its 2020 Form 10-K until February 2021. Given this scenario, the staff addressed the question of whether non-EGC reporting requirements would be applicable in the 2020 Form 10-K.

The staff indicated that the JOBS Act stipulates that EGC status is lost on the date non-convertible debt issuances exceed $1 billion over a rolling three-year period; from that point on, the entity must comply with non-EGC reporting requirements. In addition, the staff noted that form eligibility is assessed on the date the form is filed. In the above scenario, the registrant would be required to comply with the reporting requirements applicable to a non-EGC in its 2020 Form 10-K since the registrant is no longer an EGC as of the date the Form 10-K is filed. For example, the registrant would not be permitted to avail itself of the exemption afforded to EGCs relating to the auditor attestation requirements relating to internal control over financial reporting set forth in Item 308(b) of Regulation S-K in connection with the 2020 Form 10-K. The registrant also would not be permitted to use the extended transition period exemption for new or revised accounting standards for EGCs and would need reflect in its 2020 Form 10-K the adoption of such accounting standards that had previously been deferred.

The staff also indicated that the same conclusion would apply in the context of a reverse merger in which the accounting acquiror had issued more than $1 billion in non-convertible debt during a relevant 3-year period.