Page 85 - Initial Public Offering - An Introduction to IPO on Wall Street

The lawyers of a corporation and the
lawyers of its underwriters would also
provide questionnaires to the officers and
directors, asking them to review, check
and comment on the details found in the
draft of the statement of registration.
Furthermore, the lawyers may interview
the officers and directors.

'Keeping current' processes are carried
out by external auditors to assess if
anything has happened with regard to the
business’s financial situation or activities
that would have a significant impact on the financial reports contained in the registration
statement up to the issue date of the registration statement.

Underwriters seek comfort letters from the external auditors of an organization as part of their
due diligence processes. Comfort letters detail information that exists outside the financial
reports in the registration statement, as well as activities after the date of the auditor's report. It
is normal for underwriters to ask for these letters to get as much details as possible. Auditing
requirements allow auditors to provide these letters with details obtained from accounting
reports that are subject to the internal regulation of financial statements by the organization. In
general, the more comfort the underwriters look for, the more costly the process becomes. In
view of this, and to prevent any miscommunications and unnecessary delays, it is vital that an
organization, its auditors and underwriters agree on the details that the auditors would provide
comfort letters for during the initial phases of the registration process.

Two comfort letters are usually provided to the underwriters, one at the time of signing the
underwriting contract (usually the price date) and one at the closure date (an revised letter or
'bring-down letter'). The principal underwriter conducts a due diligence session after the
registration statement is submitted, but before it becomes active. The chief underwriter and
sometimes participants of the underwriting team join the due diligence session, as well as the
main officers, and attorneys of a company, the lawyers of the underwriters and the auditors. At
this session, the participants of the underwriting team are given the chance to exercise due
diligence with regard to the proposed offer by asking any questions relating to the organization
and its business, its goods, its competitive landscape, its latest developments in accounting, its
advertising, its operations and its potential prospects.

Timeliness of Financial Information and Going “Stale”

The financial statements included in the publicly registered registration statement must
conform to the SEC Staleness Rules at the time of submission. A daunting part of the execution
of an IPO may be the juggling act of planning timely financial data while maintaining up with
the business as-usual routine. All through the public filing process, the financial reports
submitted to the SEC must be continuously updated. The table below shows the dates on which,
given a calendar year-end business, the most recent available financial reports become stale.

Reporting Period Stale Date
Nine months ended September 30, 20x1 After February 14, 20x2
Year ended December 31, 20x1 After May 14, 20x2
Three months ended March 31, 20x2 After August 12, 20x2
Six months ended June 30, 20x2 After November 12, 20x22

Page 85