The reporting accountant is a fixture in any admission, but their importance should not be underestimated.
Charles Simpson, partner and head of Saffery Champness Corporate Finance, on the role of the reporting accountant in the flotation process.
The reporting accountant plays a mandatory role in any flotation, with their role broadly involving the production of a number of independent reports for the company’s broker or nominated adviser.
This report is a crucial part of the thorough due diligence process that companies approaching an admission must go through – the AIM admission document, for example, is required to be underpinned by ‘due and careful enquiry’ – and covers all aspects of the business prior to its listing.
Areas receiving particular scrutiny in these reports will generally include the company’s financial condition – in particular, its anticipated working capital position for the period after coming to market – its history and development, the market(s) in which it operates and the strengths and weaknesses of its management team.
In addition to their formal reporting and due diligence requirements listed above, the reporting accountant’s ongoing role can encompass both compliance and transactional advice.
For example, the accountant may provide advice towards simplifying a company’s financial structure to meet market requirements or, in the case of businesses operating across multiple jurisdictions, may be involved in corporate tax structuring or the conversion to certain accounting reporting standards. Accountants can provide audit and tax advice going forward after flotation, as well offering corporate finance advice on acquisitions, disposals or further fundraisings.
Making the right appointment
There are several factors worth considering when appointing a reporting accountant. Reputation is obviously important – you should ask around to get a picture of the prospective firm’s reputation for reliability, deal execution and above all its track record of completing jobs to cost and timetable. You should maybe also consider the size of the firm relative to your own, as a complementary ‘fit’ here usually makes for a better and more cost-effective relationship.
Rapport and relationship also has a definite role to play: ideally, your relationship with the accountancy firm’s team leader should be based on frankness and openness – as with many aspects of a transaction, when all parties are able to communicate openly the whole process tends to run more effectively and to timetable.
Sector expertise may also be an issue, depending on your company’s area of business. Some sectors – exploration and mining on AIM, for example – are subject to additional rules and reporting requirements. In such cases, the appointment of a specialist adviser with a track record in particular sector is sometimes advisable.
Fees are usually charged on the basis of time taken to complete the job. In order to safeguard the reporting accountant’s status as an independent adviser, the firm may not be retained on a fee that is in any way contingent on the eventual success of the flotation. The reporting accountant will provide an estimate of costs at the outset, which will be agreed with both the client and broker.