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The year 2020 brought us both a global pandemic and a historic presidential election. But amid those headlines, it also saw an active initial public offering (IPO) market supercharged through the use of investment vehicles known as special purpose acquisition companies (SPACs). Although it’s early, this trend shows no sign of abating in 2021. This will no doubt stoke interest for portfolio companies owned by private equity firms and other privates with aspirations to go public.
While a capital raising event can have numerous benefits, the process requires a thoughtful and comprehensive roadmap to identify the key steps and ensure you’re ready. One often overlooked component is considering the impact of new accounting standards whose adoption may be accelerated — most notably the new lease accounting standard, ASC 842. The new leasing standard is one of the most significant accounting changes that remains unadopted by private companies, due mainly to its potentially pervasive impacts on accounting, data, systems and processes.
Many private companies aren’t required to adopt ASC 842 until January 2022 (assuming a calendar year end). Since many private companies only report annually, the impact of adoption of the new standard may feel far off. However, given the current IPO market, many private companies may need to accelerate their adoption timeline. Public offerings can be transformative to businesses, and that is likely to bring pressure to identify and address financial reporting requirements — sometimes under a highly compressed timeline where internal resources may be constrained.
Capital markets event (IPO and SPAC mergers): If you’re contemplating a capital raising event such as an IPO or via a SPAC merger, you need a plan. Considering the adoption of ASC 842 should be a part of it.
The adoption timeline will vary depending on the nature of the transaction (e.g., SPAC, traditional IPO) and the filing status of the entity:
Our team offers private companies deep, integrated lease accounting, tax and operational expertise. We can help evaluate and analyze a wide range of lease accounting solutions to enable compliance, accuracy, savings, process automation and operational efficiencies. We look forward to discussing how we can help you navigate ASC 842 adoption and emerge stronger.
Specifically, if your company needs to quickly achieve ASC 842 compliance to meet an accelerated effective date due to capital raising and other milestone events, we can provide a clear path for achieving your lease accounting transformation. Leveraging our deep experience and expertise, we have helped companies successfully implement the new standard in as little as two to four months by following our three stage approach focusing on key impact areas:
Take advantage of the extra time you may have now to start assessing the impact and implementing the new standard. The more proactive your company is with the analysis, the better prepared you’ll be to execute on successful capital markets and other milestone events that your company is contemplating.
“Observations from the front lines” provides PwC’s insight on current economic issues, our perspective regarding the financial reporting complexities and what companies should be thinking about to effectively address those issues. For more information, visit www.pwc.com/us/cmaas.
Partner, PwC US
Brandon Campbell Jr.
Managing Director, PwC Deals Practice, PwC US
Deals Senior Manager, PwC US