For most companies, establishing the income tax provision under ASC 740 is a calculation that must be performed from the ground up as part of a comprehensive financial reporting package in preparation for a SPAC transaction. Get it right and avoid missteps that can undermine a deal.
By Davinia Lyon
Special purpose acquisition companies (SPACs) had a big year in 2020. With available wealth chasing deals and owners looking to revitalize their companies, 2021 is trending to be even bigger.
A SPAC is a non-active shell listed on the stock exchange with the intent of purchasing one or a multitude of companies together. It is also an option for entities to go public rather than the traditional IPO route.
In preparation for completing a SPAC transaction, business owners assemble financial statements as if they were a public company. This typically requires enhanced reporting structures, disclosures and a full ASC 740 calculation.
For most companies, establishing the income tax provision under ASC 740 is a calculation that must be performed from the ground up as part of a comprehensive financial reporting package that includes:
- Accounting for uncertain tax positions
- Determining valuation allowances
- Proving out tax balance sheet accounts
- Preparing comparables, including prior year-end and prior quarter calculations
- Aligning financial statements with generally accepted accounting principles (GAAP) and SEC reporting requirements
Once it goes through an IPO, a SPAC typically has 18-24 months to complete the acquisition process, or de-SPAC. The quick turnaround creates time pressure to account for the current state of accounting and tax positions, resources and potential disclosures to be reported during the acquisition process.
Help is here
ASC 740 compliance is a detail-oriented, complex and time-consuming accounting standard that requires painstaking attention to detail and deep knowledge to get it right. Missteps in analyzing and disclosing income tax risk can undermine a deal.
We help businesses get it right by building the comprehensive financial statements they need to be prepared for acquisition. Reach out to us to prepare your company for its next transaction.
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