S-1 Financial Statement Requirements for First-Time Registrants

A private company that files its first Form S-1 meets Regulation S-X for the first time, and so does the CPA firm that audits it. The form itself says little about periods, scope or format. It hands the question to Regulation S-X. This guide traces that path, shows how the answer changes for an emerging growth company or a smaller reporting company, and lists what the audit file must show.

Where the requirement starts

Item 11 of Form S-1 lists the information about the registrant. Item 11(e) calls for financial statements meeting the requirements of Regulation S-X, with schedules that Regulation S-X requires filed as financial statement schedules under Item 15. It also calls for any financial information required by Rule 3-05 and Article 11 of Regulation S-X, which govern financial statements of acquired businesses and pro forma information. A smaller reporting company may provide the information in Rules 8-04 and 8-05 in place of the Rule 3-05 and Article 11 information.

The same item sends the registrant to Item 304 of Regulation S-K on changes in and disagreements with accountants, and to Item 303 for management's discussion and analysis. A first-time registrant that changed auditors during its run-up to the offering therefore has an Item 304 disclosure to prepare. See Form 8-K Items 4.01 and 4.02 for how Item 304 reads.

Periods: the standard case

Rule 3-02 covers the statements of comprehensive income and cash flows. For a registrant that is not scaled, audited statements are required for each of the three fiscal years preceding the date of the most recent audited balance sheet, or for such shorter period as the registrant and its predecessors have been in existence. Interim statements are also required for any period between the latest audited balance sheet and the most recent interim balance sheet, along with the corresponding period of the prior fiscal year. Interim statements may be unaudited and need not be presented in greater detail than Rule 10-01 requires.

Two points that catch first-time filers:

• The three years are fiscal years before the balance sheet date. The count starts from the audited balance sheet in the filing, not from the date of the filing.
• A predecessor counts. If the registrant was formed to hold an older operating business, the statements cover the predecessor for the periods the rule reaches.

Emerging growth companies

Rule 3-02 provides that in a Securities Act registration statement for an initial public offering of equity securities, an emerging growth company may present two fiscal years instead of three. The relief is tied to that offering context. For the definitions, see smaller reporting company and emerging growth company definitions.

Smaller reporting companies

Rule 8-02 applies to a smaller reporting company that elects the Article 8 form and content. It requires an audited balance sheet for the registrant, its consolidated subsidiaries and its predecessors at the end of each of the two most recent fiscal years. If the issuer has existed for less than one fiscal year, a balance sheet dated within 135 days is acceptable. It also requires audited statements of comprehensive income, cash flows and changes in stockholders' equity for each of the two fiscal years before the date of the most recent audited balance sheet, or the shorter period of existence.

The scaled rule shortens the audit file by a year. It does not change the standard the audit is performed to.

A worked example

Birchwell Components, Inc. was formed in March of Year 1 to acquire an operating business, and the acquisition closed in July of Year 2. Until then, the operating business was run by a predecessor. The registrant files its first Form S-1 in Year 4 with audited balance sheets at December 31 of Year 3 and Year 2, and it is an emerging growth company that is also a smaller reporting company.

1. Which rule. The company qualifies for Rule 8-02. It needs audited statements of comprehensive income, cash flows and changes in equity for two fiscal years, Year 3 and Year 2, and balance sheets at the two year-ends.
2. The predecessor. Because the predecessor carried the operations until July of Year 2, both entities fall within the statement periods, so the file must make clear which entity carried the operations in each period and how the predecessor's statements connect to the registrant's.
3. Interim. If the filing goes out with a June 30, Year 4 balance sheet, it needs the interim income statement and cash flows for the six months ended June 30, Year 4 and the comparable Year 3 period. They may be unaudited.
4. Auditor change. The company switched from a local firm to the engagement firm in Year 3. Item 304 requires the disclosure for the two most recent fiscal years and the later interim period, so the former firm's letter becomes part of the filing package.

A first-time registrant that is neither a smaller reporting company nor an emerging growth company would present three fiscal years under Rule 3-02.

What the audit file has to show

• Period map. A one-page chart showing each statement, each period, the entity covered, the audit status and the governing rule.
• Opening balance evidence. A first-time engagement needs opening balance work. See the predecessor and successor guide.
• Predecessor and acquisition support. Where Rule 3-05 or Article 11 applies, the file needs a trace from the acquired business's statements to the amounts the registrant presents.
• Schedules. Any Regulation S-X schedule is filed as a financial statement schedule under Item 15, so it needs its own tie-out to the audited statements.
• Interim cut-off. The audited balance sheet date, interim balance sheet date and comparative interim period tied to each other.
• Subsequent events. Plan the subsequent events procedures around the date the financial statements are issued. See the subsequent events standard.

Common misses

• Counting years from the filing date instead of the audited balance sheet date.
• Assuming the emerging growth company two-year relief applies to any registration statement rather than an initial public offering of equity securities.
• Overlooking that the Item 304 disclosure covers the auditor change even when the new firm was engaged for the first-year audit.
• Leaving schedules out of the tie-out.

For the age and staleness rules on top of these periods, see Regulation S-X age of financial statements.

Where CORAA fits

CORAA prepares ready-to-review audit files for US CPA firms, including period maps, tie-outs and comparative schedules. The firm keeps the client, the review and the signature. See /us.

Sources

• SEC, Form S-1: https://www.sec.gov/files/forms-1.pdf
• Legal Information Institute, 17 CFR 210.3-02: https://www.law.cornell.edu/cfr/text/17/210.3-02
• Legal Information Institute, 17 CFR 210.8-02: https://www.law.cornell.edu/cfr/text/17/210.8-02

AU-C references are to AICPA Professional Standards, paraphrased here; read the standard itself before relying on a requirement. This page is guidance, not professional advice. Report an error