CAQ offers advice on auditing SPACs

By Michael Cohn for AccountingToday.com

The Center for Audit Quality released an alert Monday discussing the audit considerations surrounding a private company entering the public markets through a merger with a special purpose acquisition company.

The alert offers an overview of what a SPAC is, as well as some of the main considerations that both auditors and audit committee members should bear in mind when it comes to the particular risks and challenges faced by private companies that enter the capital markets by merging with a SPAC.

The document comes at a time when the Securities and Exchange Commission has focused more attention on the risks of SPACs in its recent statements and guidance (see story). SPACs, also known as "blank check companies," are basically shell companies that have been formed to raise funds for acquisitions of existing operating companies. They have exploded in popularity in recent years thanks to the streamlined path they offer to the capital markets.

While in 2019, only 59 SPAC IPOs were completed, that number grew to more than 300 in the first few months of 2021. Although SPACs provide some advantages thanks to their speed, their use raises some significant financial reporting and governance considerations. The SEC has taken note and is cautioning auditors, which in turn has led the CAQ to issue its alert.

“Audit firms were quick to consult with the SEC staff to address emerging accounting issues as SPAC IPOs accelerated earlier this year,” said CAQ executive director Julie Bell Lindsay in a statement. “Our latest alert will help auditors and audit committees continue to bring the same quality and rigor to audits of SPACs that they bring to companies that go public through traditional IPOs.”

In the document, the CAQ describes some of the specific factors that auditors should consider before and during audits of SPACs and of private audit clients who are planning to go public via a SPAC. Along with considerations for auditors, the CAQ also discusses some of the considerations for audit committee members to bear in mind during a SPAC transaction.