SEC Division of Corporation Finance Acting Chair John Coates and SEC Acting Chief Accountant Paul Munter (the "officials") highlighted certain considerations in accounting for warrants issued by Special Purpose Acquisition Companies ("SPACs"). In a public statement, the SEC Division of Corporation Finance and the Office of the Chief Accountant staff ("staff") reviewed the potential accounting implications and "the financial reporting considerations that apply if a registrant and its auditors determine there is an error in any previously-filed financial statements." The staff determined that there were circumstances relating to indexation and tender offer provisions common in SPAC warrants that would require the warrants to be classified as "a liability measured at fair value," with changes in fair value reported each period in earnings.

The staff asserted that if a registrant and its auditor discover an error in a previously filed financial statement based on the misclassification of a warrant, the registrant would then need to determine the materiality of the error. In doing so, registrants should assess the impact of the error on their financial statements to determine whether to file:

  • a restatement of a previously issued financial statement; and

  • an Item 4.02 ("Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review") on Form 8-K.

The staff also maintained that the errors may affect several fiscal quarters and years of previously filed reports, which should be corrected by amending the most recent Form 10-K and any subsequently filed Forms 10-Q by:

  • restating financial statements and applicable footnote disclosures;

  • restating quarterly financial information under Regulation S-K Item 302 ("Supplementary financial information"); and

  • revising information under Regulation S-K Item 303 ("Management's discussion and analysis of financial condition and results of operations") based on the restated financial information.

The staff also recommended that registrants determine whether their internal controls over financial reporting and disclosure are adequate and evaluate whether prior disclosure regarding internal controls needs to be revised in amended filings.