Following a record-breaking year, the 2022 Initial Public Offering (IPO) market has slowed significantly due to inflation uncertainties and a harsh global geopolitical climate. Increasing market unpredictability has resulted from increased uncertainty, posing issues for the new issue market.
Interestingly, organizations are working actively to comply with the Sarbanes-Oxley Act of 2002 as they prepare to expand their business, develop new goods and services, and establish future income sources. Several CEOs underestimate the work necessary to comply with SOX and neglect the fact that planning for SOX may put the organization up for future success. Additionally, SOX compliance demonstrates that the firm has not followed a "growth at any cost" strategy and understands how to manage risks, build solid internal controls, and implement a good financial reporting system.
Compliance with Sarbanes-Oxley Section 404 (SOX) - Internal Control Over Financial Reporting is one of the initial phases in the planning process if your firm is considering going public (ICFR). A good SOX Section 404 implementation requires an awareness of the risks to financial reporting as well as the system of internal controls that will give assurances to administrators while also passing the scrutiny of external auditors. This imposes the use of focused resources as well as individuals with SOX implementation knowledge.
Make a head start so you're ready to move into the market when the appropriate time unfolds. Whether you're a start-up looking to learn more about the IPO process or a late-stage firm considering going public, there's no better time than now to create an IPO checklist and double-check it.
A checklist of key considerations that a firm should think about and fulfill before entering the public markets through an IPO, Special Purpose Acquisition Corporation (SPAC), or Direct Listing (DL) is listed as follows:
The most significant matter to inquire about is why companies are preferring to continue privately. In fact, there are only a few reasons. An initial public offering (IPO) is complex, dangerous, time-consuming, and costly. The Sarbanes-Oxley Act (SOX) required public businesses to undergo critical audits, complex compliance duties, and other perplexing disclosure requirements. Smaller companies basically lack the process to meet these inconvenient standards, as conflicting to larger companies that can afford to engage full-time support to negotiate the IPO process and assure compliance with the US Securities and Exchange Commission. Furthermore, banks control higher IPO costs to smaller firms – a $100 million IPO carries typically a 6.5 - 7% fee, which is reduced to only 3% for companies worth more than a billion dollars.
However, going public is on the top of the iceberg; maintenance is what lies underneath the surface. The obstacles faced by firms preparing for their initial public offerings (IPOs) frequently fade in contrast to the complications that follow going public—the sustainment phase. Given the additional complications of SOX compliance, infrastructure, resources, and change, this phase may be the most difficult.
SOX compliance is a significant attempt for any business. Each institution should think about the resources available not just for designing and implementing compliance actions, but also for preserving future state compliance.
SOX compliance is a considerable undertaking for any company. Each institution should consider its resources not just for creating and conducting compliance activities, but also for ensuring future state compliance. Companies that are SOX compliant can reduce business risks. Companies would benefit from bringing compliance and security together to better corporate governance. SOX is well-known for creating a change in highlighting from internal controls and compliance to risk management and its alignment with business objectives and procedures for commercial value.
The following key areas have helped SOX function for the improvement and value of business processes:
Businesses desire to have a comprehensive understanding of their company risks and goals. Businesses gain corporate-wide visibility and openness in procedures, coordination, and prompt mitigation by integrating a single and comprehensive risk management framework into the organizational culture. Additionally, it boosts performance monitoring and anti-fraud efforts.
Organizations are enhancing the relationship between control and risk by utilizing industry-recognized control frameworks including COSO and COBIT. Additionally, this streamlines the evaluation of control procedures and documentation of controls. Business advantages such as more efficient operations, more reliable financial reporting, and industry-leading compliance programs result from improving internal control.
The implementation of SOX resulted in the formation of the Public Company Accounting Oversight Board (PCAOB), which is responsible for monitoring management's accounting choices and determining the personal accountability of auditors, executives, and board members. Due to this, the audit was able to pledge the operation of an organization's risk management, governance, and internal control systems as a separate assurance function. The time between an audit's plan and execution was shortened and simplified as a result.
