Guide to Public Company Transformation

64 Pages·2016·5.06 MB·English

Guide to Public Company Transformation
Frequently Asked Questions
Third Edition
INTRODUCTION
“The only way you survive is you continuously transform into something else. It’s this
1
idea of continuous transformation that makes you an innovation company.”
– Ginni Rometty, IBM CEO
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Guide to Public Company Transformation | FAQs i
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S TNETNO C
INTRODUCTION i
THE PUBLIC COMPANY READINESS (PCR) PROCESS 1
1 What is an initial public offering (IPO)? 2
2 What is the difference between an IPO and a public debt offering? 2
3 What are the pros and cons of going public? 2
4 How long does it take to achieve PCR, and what are the key milestones within the process? 2
5 How does a company determine the best time to pursue an IPO? 3
6 How do companies choose among different listing exchanges? 4
7 How has the nature of public company requirements and the public company
preparation process changed in recent years? 4
8 How much does it cost to take a company public, and what are the largest cost components? 4
9 What are the largest ongoing costs of operating as a public company? 4
10 What external service providers comprise an effective IPO transaction team, and what does
each of these experts provide? 4
11 What is the Form S-1 registration statement, and what type of information is required to be submitted? 6
12 If a company prepares for an IPO and then opts to delay the transaction, what is involved
in sustaining its PCR? 6
AN OVERVIEW OF THE PUBLIC COMPANY READINESS EFFORT 7
13 What are the most common mistakes made or oversights committed during a PCR effort? 8
14 What are the largest risks a company faces if it conducts an incomplete or ineffective
preparation process? 8
15 What are the primary elements of PCR related to organizational infrastructure
that need to be addressed? 9
16 What are the most important characteristics present among successful PCR efforts? 9
Guide to Public Company Transformation | FAQs iii
17 What are some of the most costly and time-consuming remediation activities pre-public
companies typically perform as part of the readiness effort? 10
18 What are the ongoing operational and management challenges pre-public companies
must address while simultaneously conducting the PCR effort? 10
19 What are the key diagnostics that provide an organization with an accurate assessment
of its baseline PCR? 11
20 What are the primary steps involved in managing IPO risks and addressing all of the
elements required to achieve PCR? 11
FINANCIAL REPORTING CONSIDERATIONS 14
Accurate Financial Reporting
21 What are the key fnancial reporting risks that management should address? 15
22 How can companies ensure their revenue recognition process and other technical
accounting and reporting areas are consistent and reliable? 15
23 What additional public company fnancial reporting requirements must be addressed
during the PCR process? 16
24 How can companies ensure that their planning, forecasting and budgeting processes are suffcient? 16
25 How do the SEC’s rules concerning XBRL affect newly public companies? 16
26 Do any plans regarding the potential convergence of International Financial Reporting Standards
(IFRS) and U S generally accepted accounting principles (GAAP) affect pre-public companies? 17
27 What employee compensation and benefts policies and programs, including employee
stock ownership plans (ESOPs) and other employee equity ownership plans, should be
addressed from a fnancial reporting perspective? 17
28 What fnancial reporting policies and processes need to be reviewed and documented
as part of the readiness effort? 17
29 What fnance and accounting skills and capabilities are required to manage the rigors
of accounting and fnancial reporting for a public company? 18
30 What fnancial and accounting information systems and data requirements should be
addressed during the readiness process? 18
31 What is a “disclosure committee,” and what is its role in ensuring that an accurate
fnancial reporting process exists within pre-public companies? 18
32 How do recent and pending acquisitions and any other major transactions need to be
handled from a fnancial reporting perspective during the pre-public phase? 19
33 What is a “fnancial reporting risk profle” (FRRP), and how can it help strengthen PCR? 19
iv FAQs | Guide to Public Company Transformation
E f � c i e n t Fin a n c i a l C l ose
34 When do public companies have to submit their annual (10-K) and quarterly (10-Q)
fnancial statements? 20
35 What risks do pre-public companies with ineffcient fnancial close processes confront? 20
36 What are the key components, or practices, within a disciplined and effcient fnancial close process? 21
37 How can pre-public companies migrate to a more disciplined and effcient fnancial close
process during a PCR effort? 21
38 What does a comprehensive “close activity checklist” include? 22
39 What is a “close manager,” and how can this position help drive a more effcient fnancial close? 22
40 What is a “close dashboard,” and how can this tool help drive a more effcient fnancial close? 22
41 What are some of the leading practices and tools that companies are adopting to achieve
a more disciplined and timely fnancial close? 22
LEGAL AND REGULATORY CONSIDERATIONS 23
Sar b a n es-O x l e y Act C o m p l i a n c e
42 What are the most important components of compliance with the Sarbanes-Oxley Act,
and when do they need to be completed? 24
43 How much lead time is necessary for pre-public companies to achieve Sarbanes-Oxley compliance? 25
44 What are some of the leading practices among Sarbanes-Oxley compliance efforts at
pre-public companies? 25
45 What lessons from previous Section 404 compliance efforts can be applied by pre-public
companies working on Sarbanes-Oxley compliance? 25
46 What are some key questions that help pre-public companies assess their state of
Sarbanes-Oxley compliance readiness? 26
47 What are the most common internal control issues reported by public companies? 26
48 Does an external auditing frm need to verify a company’s Sarbanes-Oxley compliance
readiness prior to the IPO? 26
49 Moving forward after an IPO, what resources does a public company require to
sustain Sarbanes-Oxley compliance? 27
50 What are the key activities required of management and a company’s external auditors
to maintain Sarbanes-Oxley compliance after the IPO is complete? 27
The J u m psta r t O u r B usin ess St a r t u ps Act
51 What are the primary objectives of the JOBS Act? 28
52 What is an emerging growth company? 29
Guide to Public Company Transformation | FAQs v
53 How long does a company retain its EGC eligibility? 29
54 Does the FAST Act provide a grace period for an EGC that ceases to be an EGC? 29
55 To what companies does the JOBS Act apply? 29
56 May companies that qualify for EGC status choose to forgo the available exemptions? 29
57 What are the primary advantages, related to going public, of the JOBS Act? 30
58 What is “crowdfunding,” and how is it treated within the JOBS Act? 30
59 What are the primary JOBS Act advantages related to the traditional fnancial reporting
requirements of going public? 31
60 Does the JOBS Act pose any potential risks or problems for pre-IPO companies? 32
61 Why is it important to monitor EGC status? 32
62 To what traditional reporting and compliance requirements must EGCs continue to adhere? 32
63 Besides exempting EGCs from Sarbanes-Oxley Section 404(b) compliance requirements
(for up to fve years), does the JOBS Act absolve EGCs from other facets of Sarbanes-Oxley’s rules? 33
64 How does the JOBS Act affect the process through which pre-public companies achieve
a confdent state of PCR? 33
65 Is the JOBS Act subject to future revisions or other changes? 34
Legal and Procedural Considerations
66 From a procedural perspective, what are the most common issues that arise during a
public offering transaction? 34
67 What types of legal cleanup issues and disclosure activities need to be conducted
as part of an IPO or public debt fling? 35
68 What fling documentation do management and the board of directors need to
furnish to the SEC and the listing exchange? 35
69 What is the pricing committee’s role? 35
70 What is a “controlled company,” and how do its listing exchange requirements
differ from those of other companies? 35
71 What is “gun jumping,” and to what publicity restrictions does a pre-public company need to adhere? 36
72 What are “cheap stock” issues, and how should they be evaluated and addressed? 36
GOVERNANCE CONSIDERATIONS 38
73 How can a pre-public company ensure that it has in place a suffcient set of governance,
risk and compliance (GRC) capabilities? 39
74 How many corporate directors do boards typically contain? 39
75 Are public companies required to maintain an internal audit function? 39
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76 What is the role of the internal audit function? 39
77 What are a company’s different options for creating an internal audit function? 40
78 What jurisdiction do the SEC and PCAOB have over internal audit functions? 40
79 What personal qualities, knowledge and skills should internal auditors possess? 40
Adi t i o n a l C o m p l i a n c e a n d C o r p o r a t e G o v e r n a n c e C o nsid e r a t i o ns
80 What are the relevant listing exchange and SEC requirements concerning the
composition of the board of directors? 41
81 Are pre-public companies required to operate investor relations (IR) functions? 41
82 Must the external auditor be registered with the PCAOB? 41
83 What is “auditor independence,” and how does it apply to the selection and
use of an external auditing frm? 41
84 How much does an annual external audit typically cost? 42
85 What role does an external auditing frm play in the PCR effort? 42
86 What are Federal Sentencing Guidelines, and should their consideration be included in the PCR process? 42
87 What is the Foreign Corrupt Practices Act, and does it apply to all U S public companies? 42
88 What FCPA considerations and steps should pre-public companies take? 42
89 How does FCPA compliance relate to Sarbanes-Oxley compliance? 43
90 Are pre-public companies required to have a formal code of conduct and an ethics program? 43
91 Are formal records management, business continuity management (BCM) and/or enterprise
risk management (ERM) programs required to be in place before a company can complete an
IPO or public debt offering? 43
RISK MANAGEMENT CONSIDERATIONS 44
92 What is directors and offcers (D&O) liability insurance, and are companies required
to purchase D&O insurance for their board members? 45
93 What board committees should be created prior to an IPO or public
debt offering? 45
94 What is the compensation committee’s responsibility related to the oversight of
executive compensation plans? 46
95 What is an audit committee “fnancial expert”? 46
96 Does the board have any responsibilities or duties within the PCR effort? 46
97 What are the most common PCR risks that boards and senior management need to address? 47
Guide to Public Company Transformation | FAQs vii
A SCALABLE IT ENVIRONMENT 48
98 What IT strategies should be assessed and evaluated during the PCR effort? 49
99 What are the largest and most common IT-related risks that pre-public companies must address? 49
100 Given these risks, what steps should pre-public companies take to ensure that their IT
environments are scalable and, thus, able to adapt to increased demands? 49
101 How frequently do pre-public companies elect to implement a new ERP system during
the readiness effort, and how long does the implementation typically take? 50
102 What other IT policy- and process-related evaluations and activities should pre-public
companies undertake? 50
103 What IT staffng and skills evaluations should pre-public companies perform? 51
104 What types of IT management reports do pre-public companies typically implement
as part of the readiness effort? 51
ABOUT PROTIVITI 53
viii FAQs | Guide to Public Company Transformation
THE PUBLIC COMPANY
READINESS (PCR) PROCESS
Much like a race against the clock, the decision about whether to
go public can feel overwhelming To begin our guide, we focus on
key considerations in the IPO decision-making process, including
the pros and cons of going public and determining the best time
to pursue an IPO
Guide to Public Company Transformation | FAQs 1