Size Growth Financial Market
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Public companies are subject to certain SEC disclosure requirements, such as specified data by industry segment. To prepare
for these disclosures, the company should fine-tune its financial reporting system to provide the necessary data, which should in any
case be reviewed by the auditor. Many internal reporting system already provide industry segment data in some form, but the method
they use may not correspond to the one prescribed by the SEC or by Statement No. 14, “Segment Reporting” issued by the Financial
Accounting Standards Board FASB. By making the necessary changes in accounting practices early, the company can avoid the
inconvenience of having to implement then when they will distract from the IPO, or, worse, having to delay the offering
A company also can run into problems if in the two three years preceding a public offering, it acquires a significant business that saw
not previously audited. Because the financial statements of unaudited subsidiaries affect the consolidated financial statements, and also
because of the SEC requirement of separate audited financial statements for significant acquired companies, a company that makes
such an acquisition may not be able to go public until the needed audits done. Any company that is planning a public offering of securities in
the next two or three years will want to keep SEC audit requirements in mind when considering any acquisitions.
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Many private companies have annual audits even if they are not otherwise required. This puts them in a position to go public on the
short notice. An audit improves the credibility and reliability of the company’s financial statements and will help in dealings with external
lenders and suppliers and improve internal management. Another benefit is that an independent auditor who is
knowledge-able about the business may come up with creative solutions to the business needs of the company. These ideas, whether
communicated in personal meeting or in management letters, can lead to cost-effective ways to improve internal controls. Effective and
timely internal financial reporting and a good system of internal controls may be crucial for public companies but they are also highly
important for a private company. In addition to their professional and advisory services, the
auditors will help determine whether the accounting practices used are appropriate for a public company. Sometimes, SEC interpretations of
GAAP may necessitate a change in accounting practices and disclosures by a company about to go public. Alternatively, companies
may desire to conform their accounting policies to those more commonly used by other public companies in their industry and thereby
to enchance the value of the IPO. By making the necessary changes early, a company can avoid the distractions of having to do so as it goes