The perspective of raising capital from the stock market for active development is always very tempting for company owners and boards. Entering the stock market seems to be an easy task, however the process is very complex, time and effort consuming for the owners, the board, financial and accounting departments and other employees.
Trust the experts and benefit from our experience
Due to the complexity of the IPO process and the necessity of applying numerous complicated law regulations it is not an exaggeration to say that the support of dedicated consultants is necessary. When choosing the way to raise capital (the stock market is not always the best option), preparing to go public, issuing and approving a prospectus and making the offer, your company should be accompanied by trusted consultants. The success of the project depends on their experience, knowledge and professionalism.
We would like to emphasize that while the introduction of a company to the market in a good economic situation is not a hard process, successful IPO in times of downturn is truly challenging. In such an important process, you should choose your associates wisely, looking at their experience and repute.
According to the provisions regulating the capital market, a company has to cooperate with two partners: an auditing company and a broker house. Our experience shows that it is justified as well to engage a financial consultant (this role can be filled by an auditing company), legal counselor and PR agency in the process. An auditing company can perform both attestation and consulting tasks.
Attestation functions of an auditing company in the IPO process.
The task of an expert auditor who fulfills the attestation functions while preparing the prospectus is to examine and issue an opinion about:
Examination of historical financial data
The fundamental task of an auditor is to check if the historical financial data which is included in the prospectus reflects the actual situation of the company. Historical financial information includes the last 3 fiscal years (or a shorter period from the establishment of the issuing company). The prospectus needs to include information saying that historical financial information was examined by an auditor. If expert auditors refuse to issue an opinion on historical financial information or if the opinion is negative or contains reservations or refusal, this needs to be included in whole along with a justification.
Analysis of forecast or estimated results
The issuer may use the right to include financial forecasts (data for current and future periods of time), as well as estimated financial results (data of past period of time when the results were not published) in the prospectus. If the issuer exercises this right, then the forecasts and estimations are studied by an expert auditor. A report from this study, where the expert auditor defines if the forecasts or estimations were made in the correct way, according to the assumptions presented and if the accounting principles used to develop the forecasts or estimations are compatible with the accounting principles used by issuer, is then featured in the prospectus.
Pro forma financial data examination
Pro forma information included in the prospectus is essential in case of a significant gross change in the issuer’s situation in relation to a specific transaction, i.e. over 25% change of one or more indicators of the size of the issuer’s enterprise, e.g. balance sheet total or financial result. The job of an expert auditor is to create a report, where he/she will confirm if the pro forma financial data was developed correctly based on the prospectus and if it is coherent with issuer’s accounting principles.
Interim financial data examination
An expert auditor can examine the interim financial data. If the issuer has published his last quarter or half year financial information after the date of his last financial statements examined by an expert auditor this information must be included in the prospectus. If the quarter or half year financial information was reviewed or examined in the prospectus, a relevant report has to be included; if no review or examination was performed, such information needs to be provided. If the prospectus date is nine months after the end of the previous fiscal year, there needs to be interim financial information included in the prospectus which will encompass at least first six months of the fiscal year. It does not have to be examined by an expert auditor, but this needs to be indicated.
Counseling functions of auditing company in IPO process
For the IPO process to be successful, it is recommended to use counseling services, which can be provided by auditing company. The scope of potential services is very wide, depending on the issuer’s specific needs. For example cooperation between the issuer and an auditing company can concern stock valuation, tax counseling, financial and tax due diligence, IFRS use support, help in prospectus preparation and support in its approval.
Successful issuance does not end the cooperation between the issuer and auditing company. Entering the stock market results in the necessity of meeting investors’ expectations, by increasing transparency, among others; this is why financial statements for next years need to be examined by an expert auditor, and half year reports need to be reviewed.
An auditing company can support the issuer in ongoing reporting, as well as in the application of more and more rigorous principles of good practice. It is worth to use the services of an auditing company in the scope of obligatory attestation services, and take advantage of its experience in the IPO process.