BDO has extensive experience of acting as reporting accountant on transactions on the London Stock Exchange. Since 2015, BDO has acted as reporting accountant on over 70 completed capital markets transactions, including 39 IPOs.
BDO were the leading reporting accountants for AIM IPOs for seven of the last eight years and has acted on significantly more AIM IPOs than any other firm. In addition, a large 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. In 2017 we acted on more IPOs on the Main Market than any other firm.
The reporting accountant's role is:
- to provide certain 'public' opinions required by the rules governing capital markets transactions; and
- to perform financial due diligence for the directors and its adviser (typically a Sponsor or Nominated Adviser/Nomad).
The following are some of the key reports and opinions which may be requested from the reporting accountant on transactions on the London Stock Exchange:
Accountant's report on historical financial information
Many capital markets transactions require fully audited accounts under IFRS (or, for non-EU incorporated companies, certain other acceptable GAAPs) for at least the last 3 years.
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 – ie often IFRS.
The accountant’s report is a ‘true and fair’ opinion given on the company’s 3 year historical financial information and is very similar to an audit opinion. Sometimes you may see this referred to as the “short form report”.
The accountant’s report is published in the investment circular alongside the historical financial information.
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 true and fair opinion given for this work requires us to review any audit working papers from the relevant financial periods, perform any top up audit work we consider necessary, and audit any GAAP conversion.
- If no historical audits exist, or unusually the auditors are not prepared to provide access to their working papers, we would have to perform a full audit of the relevant financial periods.
Opinion on pro forma financial information
For some transactions, a pro forma net assets statement and a pro forma income statement will be prepared for inclusion in the investment circular, showing what 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 either be a private report addressed to the Company and its Sponsor/Nomad, or will be published within the investment circular.
- Advising management on preparation of the pro forma financial information
- Checking compliance with relevant guidance
- Reviewing calculations and supporting documentation
Long form report
This is a private report addressed to the Company and its Sponsor/Nomad.
It captures the key findings arising from financial due diligence on the company.
The topics to be looked at are agreed between the company and its Sponsor/Nomad, and would typically cover the following:
- History of the business
- Commercial activities of the business
- Organisation structure and employees
- Trading results
- Assets and liabilities
- Cash flows
- Confirm scope and key matters to be addressed
- Issue an information request list
- On site field work, including analysis of supporting information and discussion with management
- Report writing, review and discussion with management
Working capital report
This is a private report addressed to the Company and its Sponsor/Nomad.
It 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 approximately 18 months.
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
- Sensitivity analysis
- Arithmetic review of a fully integrated working capital model
- Assessing the assumptions underlying the projections
- Assessing the available facilities
- Assessing the sensitivities
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
- Any changes in relation to the above
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
- We typically review and assist the Directors with preparation of a detailed board report, documenting the procedures in place
- However, on certain transactions, we may instead prepare a detailed report on the financial position and prospects procedures
- As part of this, we will discuss with the Directors areas in which additional procedures may need to be implemented
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
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.