D.12 Internal Control Over Financial Reporting and Disclosure Controls and Procedures
The combined company must consider the requirements
related to ICFR and DCPs that apply to public companies. After the
close of the transaction, the combined company must be prepared to
(1) evaluate and disclose material changes to its ICFR on a
quarterly basis, (2) provide quarterly disclosures and
certifications from key executives that DCPs are effective, and (3)
disclose to the auditor and audit committee all significant
deficiencies and material weaknesses in ICFR and any fraud that
involves management or other employees who have a significant role
in ICFR. If the SPAC has previously filed its first Form 10-K, the
combined company must be prepared to evaluate the effectiveness of
ICFR on an annual basis (except in certain circumstances discussed
in the following paragraph). In addition, depending on its filing
status, the combined company may need to provide its auditor’s
attestation report on the combined company’s ICFR on an annual
basis. As long as the combined company remains an EGC or
nonaccelerated filer, an auditor’s attestation report on ICFR is not
required. See Section 7.5 for further details on ICFR and
DCPs.
In addition, the SEC may not object to the exclusion of
management’s report on ICFR in the first Form 10-K filed after the
close of the transaction. As noted in Section 215.02 of the
SEC’s C&DIs on Regulation S-K, it may not “always be possible to
conduct an assessment of the [target’s] internal control over
financial reporting in the period between the consummation date of
[the transaction] and the date of management’s assessment of
internal control over financial reporting required by Item 308(a) of
Regulation S-K.” In these circumstances, which may arise if the
transaction closes late in the fiscal year, the combined company
must also be prepared to disclose (1) why management’s assessment
has not been included, (2) the effect of the transaction on
management’s ability to conduct an assessment, and (3) the scope of
the assessment if one was conducted. However, if the transaction
closes at the beginning of the fiscal year and the Form 8-K is
amended to include the most recent annual period (see Example
D-4), this guidance would not apply and the first
Form 10-K that reflects the target’s financial statements must
include management’s ICFR report. Because of the complexity involved
in assessing these requirements, we recommend consultation with
accounting and legal advisers.