Page 48 - Initial Public Offering - An Introduction to IPO on Wall Street

COSO launched an updated model in 2013, to respond to today’s rapidly changing, dynamic,
technology -based global business environment.

Although the specifics of the first model stay the same, the 2013 model specifies 17 rules for
successful internal regulation within the five elements, as well as focal points that define the
rules’ attributes.

An efficient internal control system demands that every one of the five internal control elements
and related concepts is available and activated, and that the five elements work together in a
coordinated system.
Although newly-established public companies (identified as those that did need to submit an
annual report based on section 13(a) or 15(d) of the Stock Exchange Act of 1934 [the "1934
Act"] for the preceding financial year and did not submit an annual report for the preceding
financial year) are not needed to meet either the leadership or auditor reporting standards
associated with internal control over financial reporting till the second annual report,
companies planning for their IPO must understand their Section 404 strategy and schedule
mentioned in their promotional documents.

Organizations must, at their IPO filing, conform to Sections 302 and 906, which mandate that
a public company's CFO and CEO verify that the company's financial information is correct
and complies with the provisions of the 1934 Act and that the published data is communicated
reasonably.

Therefore, leadership should incorporate examination of internal controls as soon as possible
into the accounting processes of the organization to allow time for the implementation and
appropriate evaluation of the efficacy of such controls.

EGCs are also excluded from the obligation to undergo an independent audit of financial
statements. Keep in mind that this exception applies only to the internal control audit provisions
(Sarbanes-Oxley Section 404(b)).

EGCs are not excluded from the management provision for assessing internal control over
financial reporting (Sarbanes-Oxley Section 404(a)) starting with the second annual report of
the organization. All organizations must include the description of their proposal and timetable
under Section 404 in their registration statement.

Other Sarbanes-Oxley provisions which often coincide with some exchanges' listing
requirements include the following:

 Most of the members of the board at a public corporation must be from outside the
organization;
 Boards of public corporations must have an independent audit group with a minimum of
one member certified as a financial expert;
 External auditor of the organization is forbidden to provide such non-audit services
including, but not limited to, valuation, legal and internal audit services;
 The organization needs to have an ethics code for senior financial officers or explain why
one was not enforced

4.3.4 Tax

Another key activity that organizations need to perform to check their IPO readiness is
evaluating their existing tax structure’s efficiency. In a typical IPO, all previous owners hold

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