Please ensure Javascript is enabled for purposes of website accessibility

Ironically for Some, This Ernst & Young Guide to a ‘Smooth IPO Registration’ Just Came Out Today

Posted on by Caleb Newquist

Recently, some high profile companies have been going public. Leading up to the big day, all kinds of people get ants in their pants because, contrary to what some of you believe, going public is AWESOME. There are roadshows, CNBC hype, and typically you get to ring a bell. Pretty sweet. Unfortunately, there are all kinds of boring details that involve securities law, GAAP, fancy-pants bankers, and technology that can trip you up along the way. 

Luckily, Ernst & Young has you covered. Today, the firm issued a "To the Point" memo entitled "Leading practices for a smooth IPO registration" (free registration required). This handy-dandy guide will ensure that your IPO experience is as pleasant as possible. Some "Leading Practices" we'll call attention to:

Discuss complex or unique accounting matters with the SEC staff before submitting your initial registration statement
Companies that are uncertain about the SEC staff’s view on the application of US GAAP or IFRS in a specific fact pattern should consider formal preclearance of accounting conclusions with the Office of the Chief Accountant (e.g., revenue recognition, consolidation, debt versus equity classification). 
Even if this memo had been issued, say, last summer, it doesn't specifically mention Adjusted Consolidated Segment Operating Income, so it's hard to say if you can always prevent an embarrassment.
 
Okay, so that's great, but what about more recent IPOers?
Disclose any preliminary results or capsule information carefully
Capsule financial information (i.e., financial information such as sales or net income for a recently completed period for which financial statements are not included in the IPO registration statement) may be presented in a registration statement for the most recent interim period and the corresponding period of the prior year. While a discussion of preliminary results or estimates for the latest reporting period can be useful to investors, companies should provide the proper context for such a discussion and determine that the disclosure of such amounts is balanced. For  example, a company highlighting increases in revenue also should highlight any declines in net income or other key metrics. Given the potential liabilities associated with false or misleading disclosures, companies should consider excluding financial estimates that are subject to a high risk of change.
Check and err, check.
 
Anything else worth noting?
Include your estimated price range in the filing as soon as possible
To complete its review, the SEC staff requires a complete registration statement, including the capitalization table, dilution calculation and pro forma financial information. These disclosures are all determined using the estimated sales price range in the IPO document. The sooner the estimated sales price is included in the document, the sooner the SEC staff can fully review the document for possible comment and provide sufficient time for any concerns to be addressed.
Hmmm, so is changing it a few days beforehand a problem?
 
Anyone can get this document through E&Y's Accounting Link, and according to a disclaimer, it's in "summary form" and "not intended to be a substitute for detailed research or the exercise of professional judgment" but maybe this could've helped? It's debatable – the document still doesn't say anything about offending investors by wearing a hoodie.

Related Posts

Comp Watch ’11: A Detailed Explanation of Uncle Ernie’s Complicated “Metrics”

… and it promises that if you just stick around for 12 years, you could be an executive, director, partner or principal.

Warning: the propaganda is absolutely raging in this piece of HR gold, dive into it accordingly (and turn your head to be able to read it).

EY Curve

Ernst & Young Aware of This Sino-Forest Situation, Seems Content to Watch It Play Out

Jonathan Weil has a column today on the train wreck that is Sino-Forest, the Chinese-Canadian timber company. In case you need caught up, there have been some questions about the company’s ability to report accurate disclosures and accounting. This led the research firm Muddy Waters to issue a not-so-flattering analysis of the company. Things like “Ponzi scheme” and “investing for the 23rd Century” don’t exactly get people jumping up and down for your company. Ask John Paulson.

Of course Sino-Forest didn’t do this all by themselves. They had credit rating agencies and auditors telling them everything was hunky dory for years and that’s Weil’s point. He reports that Fitch pulled its rating on S-F back in July and S&P finally pulled their rating this week. That just leaves Moody’s but guess who else is still hanging in there? Ernst & Young, baby! They’re still standing behind their audit opinions and showing no sign of budging. And JW is really curious to know who’s going to jump out of this tree first.

One question lingers: Which of the company’s paid opinion merchants will be the last to step aside? Will it be a credit rater? Or will it be the company’s auditor, Ernst & Young LLP in Toronto, which has yet to rescind any of its reports on Sino-Forest’s finances?

So far Ernst looks like the favorite, with only one rating company left in the hunt. Think of it as a contest between giant tortoises to see which one is slower. This time-honored ritual — of market gatekeepers waiting to blow the whistle until long after a scam has been exposed — has become so familiar, we might as well revel in the spectacle.

So these “gatekeepers” Weil speaks of – obviously this includes the Big 4. And it’s true that we’re all used to them waving their arms, screaming “DANGER!” in front of the burning heap that everyone has been aware of for ages (I didn’t say Lehman Brothers. Did you say Lehman Brothers? Who said Lehman Brothers?).

ANYWAY, E&Y should know that they have choices:

Ernst does have options, aside from bracing for the inevitable years of litigation and investigations. It could resign, explain why it is doing so and face criticism for acting too late. It could withdraw its previous audit opinions. It could insist to Sino-Forest’s directors that it be permitted to answer questions from the public about the work it has performed, as a condition of remaining onboard. Or it could hang on in silence, as it’s doing now, and watch its reputation endure more damage.

Could be that this is just another part of E&Y’s strategy. Sit tight while things play out, wait until things get really serious (i.e. bankruptcy, severe economic turmoil, civil charges, etc. etc.) and then come out swinging.

Tree Falls on Sino-Forest, Auditor Can’t Hear It [Bloomberg]

Any Attempts by Accounting Firms to Boost Morale May Be Too Late

From an accountant familiar with E&Y:

We got two voicemails today, one from head of Banking and one from the Vice-Chair of people, both talking about compensation. I think the underlying fear is that we don’t have enough people anymore in our practice because they keep stressing all the things that the partners are going to do besides compensation to boost morale (like have a lunch with staff sometime around cinco de Mayo).


The last month and a half has been a bit, shall we say, tough on the E&Y and the troops. That being said, the news that Ernie would beat P. Dubs raises may or may not have got some people to relax but it appears that the firm’s leadership is still on the offensive to keep spirits high.

After discussing it with our resident HR expert, the problem with these little wine & dine events is that at this point they are too little, too late. People don’t want they faces fed. They want answers. They are crawling the walls with anxiety about three things:

1. What raises will be.
2. If there will be a bonus pool.
3. Who is getting promoted.

And they want to know the answers ASAP. Raises have been triple-reassured at all the firms and people want to know that number; they want to know if there’s a bonus pool.

Everyone at the point of promotion has made up their minds about what they will do if they get promoted or not. Plus everyone who is not up for promotion is talking about who will get promoted, who won’t and the reactions that will result (e.g. storming out of the office or a nervous breakdown).

The reality is that these things take time. The fact that PwC put a number out there was impressive (and some have said, desperate) shows that partners are aware of the anxiety and they’re trying to get people to relax.

Deloitte is up first, as their fiscal ends 5/31 and we’ve heard that there has been generosity passed around there but it will ultimately depend on the the merit increases. We hear their all hands webcast is coming up soon and that discussions are occurring this month so it won’t be long.

No amount of margaritas, $100 bonuses or NHL playoff hockey tickets will change the fact that people have worked it out in their heads about what they will do when they get the news. And once that news is known, people will act fast. We would encourage everyone to be patient, try and be rational etc. etc. but we also know that’s an futile request.