Many entrepreneurs see an IPO (Initial Public Offering) where the company’s shares are floated on a stock market as a desirable stage in their company’s development.  There are several reasons for this as having a stock market listing gives a market determined valuation, an exit route (especially if funding has been raised from external investors) and a level of status.  Generally it leaves the current management team in control of the company.

Over the last two years I have been involved in helping two companies prepare for their IPOs.  A key feature of this is being able to demonstrate that the company has the processes in place to comply with its obligations as a listed company.  This has to be demonstrated to the sponsoring broker who will ask the reporting accountants to check the processes.

The best starting point is to compile a risk register detailing all the significant risks (that will be) faced by the listed business together with how they are mitigated by the controls that the company has in place.  In some cases the control environment will need to be enhanced to deal with the new environment that the company will be operating in.  A common area for enhancement will be the need for monthly management accounts, prepared on a consolidated basis (covering all the companies in the group) under international financial reporting standards (IFRS).

The key risks and how they are managed are documented in the Financial Position and Prospects Procedures Memorandum (FPPP).  This will develop into a significant document which will go through multiple iterations, before being approved by the board.  The reporting accountants will review the FPPP in detail and seek evidence that the controls mentioned are operating correctly.  One of the […]