The SPAC fever could freeze with this possible change in the rules of the bag

The SEC could bring a fire extinguisher to the SPAC market that has been lit. Uncertainty around the rules has stopped all new SPAC offerings as accounting firms will not approve any financial statements or company audits until they receive clarity from the government

After a record 2020, the SPAC market is booming in 2021. In the first three months of 2021, PwC reports that around 300 SPACs have hit public markets, raising nearly $ 90 billion in cash, more than the entire last year’s record volume. . But the high-flying industry could be temporarily halted. The reason? A change in the accounting rules mandated by the SEC.

Experts from accounting firms, investment banks and corporate law firms have told Forbes that they anticipate that the US government will change the classification of SPAC guarantees from a balance sheet share to a liability.

In the SPAC business, warrants (which provide the option to buy shares at a specific price in the future) are a crucial goodie bag for investors that provide potential windfall gains without risking a lot of capital.

Whistleblowers Forbes spoke to say the SEC has been quiet about how it will handle the orders. Uncertainty has stopped all new offerings from SPAC as accounting firms will not approve any financial statements or company audits until they receive clarity from the government. The accounting change could lead to further slowdowns and new costs, as the new collateral treatment will likely require future SPACs to rewrite financial statements and reporting documents.

Whistleblowers Forbes spoke to say the SEC has been quiet about how it will handle the orders. Uncertainty has stopped all new offerings from SPAC as accounting firms will not approve any financial statements or company audits until they receive clarity from the government. The accounting change could lead to further slowdowns and new costs, as the new collateral treatment will likely require future SPACs to rewrite financial statements and reporting documents.

The SEC ruling could have ramifications far beyond SPAC’s current IPO. While the details remain murky, experts have told Forbes that the SEC change could send even more SPACs around the world by forcing the hundreds of currently active SPACs to reformulate and resubmit their full list of states. financial The move could shed hundreds of hours of work at law and accounting firms (many of whom are paid a flat fee to go public with a SPAC) as they rush to get clients’ finances in order.

Some experts suspect the SEC has intentionally created confusion in the industry to temporarily slow the growing SPAC market so the agency can catch up on regulatory audits and governance. The SEC declined to comment.

In recent weeks, the SEC has increasingly expressed the risks of the SPAC deals and their complexities. On April 8, John Coates, acting director of the SEC’s corporate finance division, gave a detailed warning to SPAC market players. Coates reminded investors of the wide range of risks in SPAC deals and reminded SPAC issuers that they were responsible for misstatements and omissions in their Byzantine submissions. It also sought to dispel the myth that SPAC’s IPOs carried lower disclosure and legal burdens.

In the long term, Robert Willens, an independent corporate tax expert, says the accounting shift could cause market fluctuations to have a greater effect on earnings reporting, impact earnings, and make the already mountainous world. Russian from the SPAC is more turbulent. This is because, as a liability, any change in the fair market value of a collateral should be recorded as income and could have a significant impact on a company’s income statements. “Treating warrants as liabilities could lead to higher volatility in earnings reported by SPACs.”

The pressing question now is whether the potential bottleneck of new SPACs hitting the market will dampen investor enthusiasm for sparkling products or create an explosion of pent-up demand. Given the market action over the last year, that is anyone’s guess.

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