Finance and reporting readiness: the CFO's IPO workstream

Why finance is on the critical path

Investors buy numbers before they buy stories. A prospectus must contain historical financial information that is audited, comparable and prepared under the accounting standards the venue requires. Comfort letters, interim reviews and the working capital statement all depend on the finance team. If finance is late, everything is late.

1. Map the financial information the prospectus needs

Before anything else, agree with auditors and counsel on a financial information matrix:

Every one of these drives work and dates. Lay them on the calendar before the kick-off.

2. Accounting framework and conversion

Companies reporting under local GAAP often need to convert to IFRS. Areas that typically need the most work:

• Revenue recognition for contracts with multiple performance obligations, long-term projects (over-time recognition) and variable consideration.
• Leases, which come onto the balance sheet.
• Financial instruments, including expected credit loss models for receivables.
• Business combinations and purchase price allocations for past acquisitions.
• Share-based payments, especially management incentive plans set up for the IPO.
• Deferred taxes and uncertain tax positions.
• Segment reporting based on how the chief operating decision maker reviews the business.

Conversion of comparative periods has to be audited too. Plan for at least one full audit cycle.

3. Close speed and quality

Listed companies publish within fixed deadlines. Regulated-market issuers in the EU must publish annual financial reports within four months of year end and half-year reports within three months, and many markets or segments expect quarterly statements and much faster publication in practice. Investors judge companies on whether they report early and without surprises.

Targets to work towards:

• Monthly close in a short, fixed number of working days, with reconciliations completed and reviewed.
• Quarterly pack with consolidated statements, segment data, KPIs and variance commentary.
• A hard-close or fast-close process at year end that supports the audit timetable.
• Documented accounting policies and a technical accounting function for judgemental areas.

4. Pro forma financial information

When the group has changed materially, investors need to see what the results would have looked like had the change happened earlier. Pro forma information:

• shows the effects of a transaction on historical figures, with clearly stated assumptions,
• is illustrative only and must not include synergies that are not factually supportable,
• often needs an accountant's report in the prospectus.

Start the methodology early. Pro forma work depends on data from acquired businesses that may not have been audited to the same standard.

5. KPIs and alternative performance measures

The equity story will rest on measures such as organic growth, adjusted EBITDA, order intake, backlog, net retention or unit economics. In Europe, alternative performance measures in regulated information must be defined, reconciled to the nearest IFRS figure and applied consistently.

For each KPI, document:

• the definition and calculation,
• the source system and owner,
• the reconciliation to audited figures,
• how it will be reported every quarter after listing.

A KPI that cannot be reproduced reliably after listing should not be in the prospectus.

6. Comfort letters and the circle-up

Banks rely on the auditors' comfort letter to show they made reasonable investigation of financial information in the prospectus. In practice this means:

• A circle-up exercise: every financial figure in the prospectus is traced to its source and marked with the evidence.
• Agreed-upon procedures on figures derived from accounting records.
• Negative assurance on the period after the latest reviewed balance sheet, often refreshed with a bring-down letter at closing.

Assign a finance owner for the circle-up. It takes far more time than most teams expect.

7. Working capital and forecast discipline

The working capital statement and any forecast must be backed by a robust model. Banks and auditors will test assumptions, sensitivities and covenant headroom. A daily or weekly cash view for the coming months is a strong support, especially for project-based businesses with lumpy cash flows.

8. Building the listed-company finance function

During the IPO project, build the post-listing capabilities in parallel:

• Financial calendar for the first two years: reporting dates, AGM, closed periods.
• Disclosure committee and process for assessing price-sensitive information.
• Guidance policy: what the company will and will not guide on.
• Investor relations reporting: presentations, consensus tracking, Q&A preparation.
• Capacity: technical accounting, consolidation, controlling, treasury and tax.

A practical sequence for the CFO

1. Agree the financial information matrix with auditors and counsel.
2. Lock the reporting calendar and audit plan around it.
3. Start conversion and pro forma work with the longest lead times first.
4. Define KPIs and alternative performance measures, with reconciliations.
5. Run a mock quarter-end at listed-company speed.
6. Prepare the circle-up team and process before the first prospectus draft.
7. Build the post-listing finance calendar and disclosure process.

Track it with the prospectus financial information checklist.