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Considering an IPO? Make Sure Your Board is Focused on Financial Reporting

Written by: Jared. R Kelly, CPA, MBA

Have you determined if an initial public offering (IPO) is right for your company? Regardless of whether your business needs capital to fund its growth, private investors are looking to exit, or senior management wants to cash in on their efforts, maximizing your shareholder value is critical to the success of your IPO. Starting from the initial pricing process with your investment bank to post-IPO, investors will require you to provide them with reliable financial information they can use to evaluate the opportunities and risks of their investment choices. Similarly, the SEC sets a high bar for reliable financial information to protect investors’ ability to evaluate opportunities and risks. If there is any lack of confidence in the reliability of your company’s financial reporting, this could significantly reduce the value of your stock, and even hold up the IPO. To lessen your risk of falling victim to this outcome, not only do you need a qualified and reliable management team, your Board of Directors needs to set a tone that demands and supports quality financial reporting and forecasting from management. However, this can’t be accomplished if your Board doesn’t have the right skillsets to help set those expectations, which is why you need to assess their skillsets and capabilities by asking questions such as these:

  • Can they devote the time necessary to provide effective oversight?
  • Do they have relevant industry experience?
  • What is the depth of their financial reporting experience?
  • Have they had exposure to public offerings before? 

Your Board may already have the necessary skillsets regarding industry expertise and financial reporting, but you’re entering new territory in the public markets where the stakes are bigger. As a result, you should periodically evaluate your Board’s skillsets to ensure that the individuals charged with your company’s governance at the highest level are qualified to do so. If you find that financial reporting is an area that needs improvement among your current Board, consider using the following continuing education resources to help train them: 

  • The online publications page on the SEC website for publications addressing auditing, industry, financial reporting and other specific investor issues
  • The AICPA’s Audit Committee Toolkit for Public Companies, which is available on the AICPA website
  • CPE opportunities, research modules and publications relevant to technical accounting matters, auditing and internal control, which you can access on the AICPA website

Moreover, if your Board’s focus has shifted away from financial reporting to other areas such as cybersecurity, consider allocating oversight of this important function to your recently established - or future - audit committee. The SEC is continuing to focus on advancing the role and effectiveness of audit committees in financial reporting as can be seen with the significant changes coming to auditor communications and financial reporting rules. For instance, there are new accounting standards over revenue recognition, leases, and credit losses that will become effective over the next few years. These changes will require companies to expend greater effort in making and documenting accounting judgments and estimates, and maintaining effective internal control over the accounting changes and their overall financial reporting system. 

There is a lot at stake with an IPO and not succeeding could derail your company’s strategic plans. To support your company’s success in the IPO process, you need to have reliable financial information. Implementing an effective financial reporting system well ahead of your IPO can contribute to your success, but ultimately, the tone from the top of your organization – your Board – sets the foundation of your company’s focus on high quality and effective financial reporting.

For more information on this topic, contact Jared R. Kelly, CPA, MBA, Audit Manager, at 617-933-3368 or jkelly@wolfandco.com