The BDO Capital Markets team has extensive experience of acting as reporting accountant on transactions on the London Stock Exchange. Since 2014, BDO has acted as reporting accountant on over 90 completed capital markets transactions including 50 IPOs.
In addition, a significant proportion of our work includes IPOs and other transactions on the Main Market of the London Stock Exchange – Premium Segment and Standard Segment - as well as on the London Stock Exchange’s Specialist Funds Market. We were the leading reporting accountant for new admissions on the Main Market in 2017.
What is a Reporting Accountant?
The reporting accountant's role is:
- to provide certain 'public' opinions required by the rules governing capital markets transactions
- to perform financial due diligence for the directors and its adviser; a Sponsor or Nominated Adviser (Nomad)
Reporting Accountant: key reports and opinions
Below are explanations of the key reports and opinions that may be requested from the reporting accountant on transactions on the London Stock Exchange. The reports and opinions required for any particular transaction will differ depending on the nature of the transaction and the requirements of the company's Sponsor, Nomad or other adviser. For transactions on other stock markets, different reports may be required. We can help with advice on other markets, assisted by our overseas offices.
Our approach is always to combine efficient delivery of the technical information required for a particular report or opinion with our insights and recommendations. We want to add value to our clients’ transactions while maintaining the impartiality that underpins the credibility of our work.
Accountant's report on historical financial information or “Short Form Report”
The accountant’s report is an opinion given on the company’s three-year historical financial information and is very similar to an audit opinion. Sometimes you may see this referred to as the “short form report”. Many capital markets transactions require least the last three years’ fully audited accounts under IFRS or other GAAPs for non-EU incorporated companies.
Furthermore, depending on the transaction and stock market, fully audited accounts may be needed on any significant acquisitions proposed or which have occurred in the last three years. These will need to be prepared in accordance with the same accounting policies as the acquirer.
If the last audited year-end is not recent, then interim financial information may need to be prepared. Whether this needs to be audited or reviewed depends upon the choice of stock market.
The accountant’s report is published in the investment circular alongside the historical financial information.
Opinion on pro forma financial information
For some transactions, a pro forma statement of financial position and a pro forma statement of comprehensive income will be prepared for inclusion in the investment circular. This opinion explains the impact the transaction would have had on the company’s last balance sheet and last income statement if it had occurred at the last balance sheet date or at the start of the last period reported on.
We will provide an opinion on whether these pro forma statements have been properly compiled on the basis stated, and whether such basis is consistent with the company’s accounting policies.
Depending on the choice of stock exchange, this opinion will be either a private report addressed to the Company and its Sponsor/Nomad or made public through the investment circular.
Long form report
This is a private report addressed to the Company and its Sponsor or Nomad. It captures the key findings arising from financial due diligence on the company. The company and its Sponsor or Nomad will agree the areas to be examined. They would typically cover the following:
- History of the business
- Commercial activities of the business
- Organisation structure and employees
- Financial reporting environment
- Trading results
- Assets and liabilities
- Cash flows
Working capital report
The Working capital report supports a statement that the directors need to make in the investment circular concerning working capital. This work involves us reviewing the company’s projections for a post-transaction period of typically more than 18 months. This is also a private report addressed to the Company and its Sponsor or Nomad.
The contents are agreed with the company and its Sponsor/Nomad and would typically include:
- Basis of preparation of the projections
- Historical budgeting accuracy
- Current trading
- Profit and loss projections
- Cash flow projections
- Balance sheet projections
- Bank facilities and covenant headroom
- Sensitivity analysis
Financial position and prospects procedures
Procedures need to be established which provide a reasonable basis for the directors to make proper judgements as to the financial position and prospects of the company.
Financial position and prospects procedures enable the directors to be regularly informed of:
- The financial position, including balance sheet and profits/losses
- Projected profitability, cash flows and funding requirements
This is becoming an increasing areas of focus of companies and Sponsors/Nomads alike.
Our approach is to assist the Directors with preparation of a detailed board report, documenting the procedures in place. We may also prepare a detailed report on the financial position and prospects procedures. We will discuss with the Directors areas in which additional procedures may need to be implemented
Typical areas in respect of which procedures will be required include:
- High level reporting environment
- Budgeting and forecasting
- Management reporting
- Significant transaction complexity, potential financial exposure or risk
- Strategic projects and initiatives
- Financial accounting and reporting
- IT environment
Comfort letters in respect of US offerings
When securities are being offered into the US in a non-SEC registered offering, such as under SEC Rule 144A, certain procedures are performed in accordance with US auditing standards. This includes the provision of specialised comfort letters, produced under AU-C Section 920 issued by the AICPA Auditing Standards Board. These are often referred to as SAS 72 comfort letters.
We have extensive experience with the provision of such comfort letters.
Other comfort letters
A number of other comfort letters may be requested, covering matters such as:
- Work in connection with the director’s statement in the admission document that there has been no significant change in the company’s financial position between the date of the most recent audited financial information and the date of admission
- Confirmation as to the proper extraction of financial information in the admission document
- Confirmation as to whether tax disclosures in the investment circular comply with our understanding of current tax legislation
Any profit forecasts or estimates in the investment circular. Note that this is a complex area, requiring extensive diligence work