8.7 “To-Be-Issued” Accountant’s Report
In anticipation of an initial public offering, an entity may enter into a
transaction to dispose of a component or group of components that meets the
discontinued-operations criteria in ASC 205-20. Although the disposal may occur
after the date of the entity’s most recent balance sheet included in the
registrant’s financial statements (in which case presentation as a discontinued
operation would typically be precluded under U.S. GAAP), in certain circumstances
the registrant may be able to present the transaction retrospectively in the
entity’s financial statements and include a “to-be-issued” auditor’s report on those
financial statements. See Sections
3.8 and 5.6.2.1 of Deloitte’s
Roadmap Initial Public
Offerings for further discussion of “to-be-issued” auditor’s
reports.
Specifically in relation to discontinued operations, the
highlights of the June 25, 2014, CAQ SEC Regulations Committee
joint meeting with the SEC staff discuss the following:
The FRM
guidance cites specific examples of when such a draft report may be used but
indicates that use of a draft report is not limited to these events. The
Committee asked the staff whether a registration statement including a
to-be-issued audit report and the related retrospectively revised financial
statements might be reviewed in a situation where a registrant has a component
that qualifies as a discontinued operation before an initial registration
statement is filed but after the date of the latest balance sheet included in
the initial filing.
In order to qualify, the following
must be completed prior to the initial filing: 1) the
disposal of the discontinued operation has occurred; 2) the audit of the
financial statements, including the retrospective revision; and 3) registrant consultation with the appropriate Assistant Director
group. [Emphasis added]
In addition to meeting all the requirements discussed by the SEC Regulations
Committee above, a pre-effective amendment to the registration statement must
contain (1) updated financial statements for a period that includes the disposal
date and (2) an unrestricted accountant’s report. That is, the registration
statement cannot be declared effective until the to-be-issued report is removed and
the accountant’s report is finalized. Entities are encouraged to consult with their
independent accountants if they believe that they meet the requirements noted
above.