Post by icemandios on Apr 13, 2021 14:03:38 GMT
SEC Drops Accounting Bomb, Blows Up SPAC Boom
The SEC last week began privately telling accountants that warrants, which are issued to early investors in the deals, might not be considered equity instruments. Bloomberg explains:
In a SPAC, early investors buy units, which typically includes a share of common stock and a fraction of a warrant to purchase more stock at a later date. They’re considered a sweetener for backers and have thus far been considered equity instruments for accounting purposes.
The proposed changes could result in warrants being considered a liability for accounting purposes, according to the Marcum note. The shift would spell a massive nuisance for accountants and lawyers, who are hired to ensured SPACs are in compliance with the agency.
In a SPAC, early investors buy units, which typically includes a share of common stock and a fraction of a warrant to purchase more stock at a later date. They’re considered a sweetener for backers and have thus far been considered equity instruments for accounting purposes.
The proposed changes could result in warrants being considered a liability for accounting purposes, according to the Marcum note. The shift would spell a massive nuisance for accountants and lawyers, who are hired to ensured SPACs are in compliance with the agency.
Simply put, as Bloomberg notes, the communications mean that filings for new SPACs may not go forward until the warrants issue is addressed.
Perhaps worst still, SPACs that are already public and that have struck mergers with targets may have to restate their financial results.
Perhaps worst still, SPACs that are already public and that have struck mergers with targets may have to restate their financial results.