Reverse merger audits
We audit private operating companies that are combining with a public shell, so the Super 8-K can include PCAOB-audited financial statements on day one. Our partner-led, bilingual team works to a written scope and timeline that match your closing date.
A reverse merger lets a private operating company become public by combining with an Exchange Act reporting shell company. Rule 12b-2 under the Exchange Act and Rule 405 under the Securities Act define a shell company as a registrant with no or nominal operations and either no or nominal assets, only cash and cash equivalents, or cash plus nominal other assets. The deal is fast to close. The hard part is the financial statements, because the SEC requires them on day one.
This service is for:
Once the shell acquires the operating business, that business becomes the registrant's predecessor. Item 2.01(f) of Form 8-K then requires the "Form 10 information" the predecessor would provide if it were registering on Form 10. That includes financial statements that meet Regulation S-X. For a smaller reporting company, Article 8 applies: Rule 8-02 calls for audited balance sheets as of the end of the two most recent fiscal years and audited statements of comprehensive income, cash flows and changes in stockholders' equity for both years. Rule 8-03 interim financial statements are added when required.
The SEC staff's Financial Reporting Manual, Topic 4 treats predecessor statements as requiring a PCAOB-registered auditor. It also says issuer statements audited by a non-registered firm are considered "not audited." An existing AICPA audit is therefore a useful starting point but rarely the finished product.
Form 8-K Items 2.01, 5.06 (change in shell company status) and 9.01 are due within four business days of closing. Normally, Item 9.01(a)(3) allows acquired-business financial statements to follow by amendment up to 71 calendar days later. Item 9.01(c) removes that extension when the registrant was a shell company, other than a business combination related shell company, immediately before the transaction. The audited statements and any pro forma information must be in the initial report (Form 8-K instructions). In practice, the audit has to be finished before closing.
Note: Post-merger securities have their own constraints. Rule 144(i) makes Rule 144 unavailable for securities of current and former shell companies until the issuer has filed Form 10 information and been current in its reports for 12 months, with resales permitted one year after the Form 10 information is filed. Rule 145a also treats a business combination with a reporting shell as a sale of securities to the shell's shareholders. These are legal questions for your securities counsel; our role is the audited financial statements.
The timeline below is illustrative for a company with two fiscal years to audit and records that are reasonably organized. Your actual schedule is confirmed in your written proposal and depends on the closing date your counsel sets.
Independence checks for the operating company and the shell, review of the draft merger agreement, and agreement on periods, entities and the filing date.
Opening balances, revenue and related-party walkthroughs, and a list of accounting issues such as equity instruments, convertible notes and foreign operations.
Substantive testing, confirmations and group-audit procedures for any subsidiaries in Latin America. Draft adjustments are shared weekly.
Review of interim statements, the recast equity statement and the draft Super 8-K financial pages.
Engagement quality review, communication with the audit committee, signed report and consent ready before closing. Form AP is filed with the PCAOB after issuance.
We quote a fixed fee in writing before fieldwork starts. The factors below determine it; see how we price for more detail.
SESGLO is the PCAOB audit practice of Asesoria Global, Sociedad Anónima, a public accounting firm registered with the PCAOB (Firm ID 7184) and headquartered in Guatemala City. You can verify any auditor's PCAOB registration before you engage them, including us.
The signing partner is involved from scoping to issuance, which matters when a closing date cannot move.
English and Spanish engagement teams work directly with Latin American finance staff and U.S. counsel.
A fixed fee, written scope and week-by-week timeline in the proposal. We reply to proposal requests within one business day.
Secure document exchange and virtual walkthroughs for U.S. issuers and their foreign subsidiaries.
Going public through a registered offering instead? See our IPO and Form S-1 audit service. Changing auditors after the deal? Read how to change auditors as a public company.
FAQ
No. Item 9.01(c) of Form 8-K says the 71-day extension in Item 9.01(a)(3) does not apply when the registrant was a shell company, other than a business combination related shell company, immediately before the transaction. The audited financial statements and any required pro forma information must be in the initial report, filed within four business days of closing.
Usually not as filed. After the transaction the operating company becomes the registrant's predecessor, and the SEC staff's Financial Reporting Manual treats predecessor financial statements as requiring an audit by a PCAOB-registered firm. Statements audited by a non-registered firm are considered not audited. In practice, the periods presented are audited or re-audited under PCAOB standards.
Usually the private operating company. When a private operating company merges into a non-operating public shell, the SEC staff views the deal as a reverse recapitalization: the operating company is treated as issuing shares for the shell's net monetary assets, and no goodwill or intangibles are recorded. The operating company's historical financial statements become those of the registrant.
Not automatically. The SEC staff notes that unless the same accountant reported on both the shell and the accounting acquirer, a reverse acquisition always results in a change in accountants. That change is disclosed under Item 4.01 of Form 8-K, and the audit committee should approve the auditor for the combined company.
Rule 144(i) makes the safe harbor unavailable for securities of current or former shell companies until the issuer has stopped being a shell, is subject to Exchange Act reporting, has filed all required reports for the preceding 12 months and has filed Form 10 information. Resales can begin one year after the Form 10 information is filed. Securities counsel should confirm each holder's position.
Nasdaq Rule 5110(c) generally requires a one-year seasoning period of trading after the transaction information, including audited financial statements, is filed. It also requires a sustained minimum price and timely periodic reports, including an annual report covering a full fiscal year that begins after that filing. A $40 million firm-commitment underwritten offering is an exception. NYSE American Section 101(e) has a similar framework.
We can, provided our independence checks under SEC Rule 2-01 of Regulation S-X and PCAOB Rule 3520 are clear for both entities. Some transactions also need a separate audit of the shell's final pre-merger period. We define in the written proposal which entities, periods and reports are covered, so nothing is left to assumption at closing.
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