PBI Electronic Publication # EP-3207
Private Placement Accounting Issues
Stephen M. Simpson, CPA
Ernst & Young LLP
Philadelphia
A chapter from Private Placements: Legal and Practical Considerations
Pub. No. 5290, published February 2008
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Table of Contents Private Placement Accounting Issues
Stephen M. Simpson, CPA
I.
Overview of a Private Placement ...................................................... 139
II.
Private and Limited Offerings – Regulation D................................. 141
III.
General Conditions of Regulation D ................................................. 142
IV.
Information Disclosure Requirements .............................................. 143
V.
Financial Statement Requirements .................................................. 145
A. Offerings up to $2,000,000 .......................................................... 145
B. Offerings up to $7,500,000 .......................................................... 145
C. Offerings Over $7,500,000 .......................................................... 145
D. Limitation of Manner of Offering ............................................... 145
VI.
Accounting Issues .............................................................................. 146
A. Earnings per Share Issues .......................................................... 146
1. Nominal Issuances................................................................ 146
2. Distributions to Owners/Promoters at or Prior to
Closing of the IPO................................................................. 146
3. Subchapter S Corporations and Partnerships .................... 147
4. Escrowed Shares................................................................... 147
5. Stock Splits ........................................................................... 148
6. Other Changes to Capitalization at or Prior to
Closing of the IPO................................................................. 148
7. Pre-IPO Stock Valuation ...................................................... 148
B. Stock Compensation .................................................................... 148
Accounting for Equity Instruments that are Issued to Other
than Employees (EITF Issue No. 96-18) .................................... 149
C. Goodwill and Other Intangibles Assets...................................... 150
D. Revenue Recognition ................................................................... 151
E. Expense Accruals......................................................................... 153
F. Recognition of Losses .................................................................. 154
G. Deferred Costs ............................................................................. 154
H. Balance Sheet Disclosure of Equity............................................ 154
I. Receivables from Sale of Stock ................................................... 154
J. Redeemable Equity Securities .................................................... 155
K. Instruments with Characteristics of both Liabilities and
Equity........................................................................................... 156
L. Related Party Transactions ........................................................ 157
M. Transfers of Property (Exclusive of Financial Instruments)..... 157
N. Transfers of Financial Instruments ........................................... 158
O. Principal Shareholder Transactions for the
Company’s Benefit....................................................................... 158
P. Carve-outs.................................................................................... 158
Q. Push Down Accounting ............................................................... 159
R. Leveraged Buyouts ...................................................................... 159
S. Reverse Acquisitions ................................................................... 160
T. “Put-Together” Transactions....................................................... 160
U. Issuance Costs ............................................................................. 160
V. Business Combinations Compliance........................................... 161
W. Consolidation of Variable Interest Entities ............................... 161
X. Predecessor Auditors................................................................... 162
Y. Materiality ................................................................................... 162
Z. New Accounting Pronouncements .............................................. 163
FAS 141(R), Business Combinations and FAS 160,
Noncontrolling Interests in Consolidated Financial
Statements – an Amendment of ARB No. 51 .............................. 163
FAS 159, The Fair Value Option for Financial Assets and
Financial Liabilities .................................................................... 164
FAS 158, Employers’ Accounting for Defined Benefit Pension
and Other Postretirement Plans.................................................. 164
FAS 157, Fair Value Measurement............................................. 165
VII.
Sarbanes-Oxley Requirements .......................................................... 166
VIII.
Conclusion .......................................................................................... 166