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October 2016
Becoming a public company requires a significant shift in focus for the finance function. There is a need for more external reporting, expanded disclosures and possibly a need to change the reporting standards used. This means there is a need for strong competencies in accounting, financial disclosures and financial controls, as well as corporate governance, budgeting and forecasting, investor relations (IR), treasury, internal controls, and compliance to address the financial demands associated with a new regulatory, marketing and strategic environment.
The window for an IPO can open and close quickly, so being well prepared will position companies to seize their opportunity when it presents itself. Companies that are preparing for their IPO journey should begin by looking at their finance organization through the lens of the public markets.
EY can help you identify the skills mix, processes, policies and systems your finance team needs to prepare for, execute and deliver on a successful IPO.
Initiating an IPO is one of the biggest decisions a private company or its shareholders can make and can have a profound impact on the company’s finance organization.
Our research and experience suggest that companies with the most successful IPOs consistently approach the IPO as a transformational process rather than as an end game; they begin to act and operate as public companies at least one year prior to the IPO event.
This is especially true for the finance organization, which requires the experience, depth and agility to address the demands and scrutiny of the public markets.
Financial Accounting Advisory Services
How can your finance function become IPO ready?
2 | How can your finance function become IPO ready? October 2016
Key considerations preparing for the IPO
There are multiple considerations for the management team as they prepare for an IPO. The first step is to assess the IPO readiness of the business’s organization with a holistic and structured approach. The organization of the finance function is a key priority as they need to prepare and deliver financial information to multiple stakeholders.
An IPO often requires a change from internal to an external reporting: areas of change could include the accounting standards used to report the financial statements, the frequency of reporting, i.e., quarterly and half year reporting, the speed of financial close, new and expanded financial disclosures and financial guidance to investors and analysts. Often this needs to be completed within a short time frame and as part of the IPO readiness project.
In addition, as a company lists on a stock exchange, it will become subject to specific regulations. These will vary according to the IPO listing venue(s), with regulatory requirements often determined by the stock exchange or select governmental agencies. Corporate law and a variety of legal structures determine the corporate governance and compliance requirements.
Companies and their finance teams also need to be aware of other global IR leading practices post-IPO, and global accounting, tax and regulatory changes.
As you develop your plan for the finance organization to embark on its IPO journey and address the challenges, you should consider the following:
• Does your finance team have the mix of skills required?
• Does your finance team have relationships across your organization, e.g., with IT, human resources, legal and investor relations to address critical pre- and post-IPO activities?
• Will the company’s financial processes and systems support an accelerated financial close?
• Are accounting policies and procedures documented and appropriately distributed? Have formal written memos and white papers been developed to support the technical accounting policies taken in those policies?
• Is the segment reporting for public disclosure aligned with the equity story and the way management runs the company?
• Have auditor independence issues been resolved? Have audit schedules and processes been established to support the relevant regulator’s requirements?
• Have a draft registration statement and prospectus been prepared, as well as initial drafts of regulatory filings and disclosures to meet the new regulator’s requirements?
• Has the company determined how it plans to guide investors, how frequently to update its guidance and how to communicate?
• Has a process been established to support both routine and ad hoc analyst and investor financial communications? Has a process been established for dealing with issues raised by regulators and activist investors?
3How can your finance function become IPO ready? October 2016 |
How EY can help
The CFO frequently spearheads the IPO effort, coordinating internal and external resources, including the transformation of the finance function.
They make sure that the finance function is prepared to meet the enhanced demands of the regulators and public markets, and is aligned to other critical functions.
The CFO will identify the team of trusted advisors including lawyers, accountants, underwriters and frequently, independent IPO advisors.
The CFO needs to translate the company’s performance into a compelling equity story.
They may also implement the new IR function that is essential to deliver a consistent message to stakeholders and meet regulatory compliance and financial disclosures.
The controller will need to organize their team to deliver reporting more quickly.
They will need to be able to deliver a fast close process to meet regulator and investor expectations.
Financial statements will be required to be prepared in a short time period.
Expanded disclosures will be required for each reporting period.
Technical white papers will be required to support accounting positions.
Formal, written accounting policies and procedures should be established and distributed.
A robust internal control structure will form a strong foundation for the finance organization.
The treasurers’ remit has expanded across a range of activities in order to develop strategies to manage financial risks pre-and post-IPO.
In the run-up to an IPO, treasurers will work with accounting teams to provide the capitalization tables for each prospectus.
Post-IPO, the Treasury function manages funds according to the use of proceeds mentioned in the prospectus and investment and growth plan of the company. Treasury should be aligned to support the expanded needs of other functions, such as collaboration with finance planning and analysis (FP&A) to support a cash flow forecasting process.
Formal, written treasury policies, procedures and controls should be established. If listing in the US, a plan to become SOX 302 and 404 compliant, for controls such as fraud prevention and debt covenant compliance should be in place and documented.
A formal strategy should be in place to help management to communicate to investors how it plans to manage cash, financing obligations and related exposure.
The CFO The financial controller The treasurer
EY has the experience to help identify and assist in resolving IPO readiness gaps for the finance function.
EY contacts:
Martin SteinbachEurope, Middle East, India and Africa IPO Leader [email protected] +49 6196 996 11574
Jacqueline KelleyAmericas IPO Leader [email protected] +1 949 300 2812
Kieren CummingsAsia Pacific Markets Leader [email protected] +61 2 9248 4215
Lawrence LauGreater China and China Central IPO Leader [email protected] +86 21 2228 2816
Maggie SunChina North IPO Leader [email protected] +86 10 5815 3370
Lionel LiChina South and Hong Kong IPO Leader [email protected] +86 755 2502 8149
Masanori MigitaJapan IPO Leader [email protected]+81 3 3503 1100
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Why EY Successful IPO companies begin their IPO journey by looking at their finance organization through the lens of the public markets. EY can help companies develop a plan for the finance organization to help address challenges early on. This can include building the team, new infrastructure, processes, policies and systems with a view to successfully and sustainably operating as a public company.
Our IPO team has extensive experience in supporting IPOs. By leveraging our multidisciplinary team’s deep experience and our proven tools and methodologies, we can provide leading insights and practical actionable guidance to support your finance team find an effective way to organize to deliver your IPO successfully.
The scope of some of our services may be limited for an audit client and its affiliates in order to comply with applicable independence requirements. Please contact your local EY contact for further information.
