From what I understand, GAAP does not imply IPO, rather it's a good way to get a better measurement of business performance. Basically - get your books in order for once.
Spotify has advertised for a new "external reporting specialist", fueling rumors that the online music streaming biz is getting ready for a stock-market debut. In a job ad on its website, Spotify said it was looking for someone who could "prepare the company for international financial standards". The new recruit should act …
Monday 17th February 2014 19:34 GMT Steve K
Not really. GAAP is about ensuring external stakeholder reporting in a consistent way, and IFRS about doing so internationally.
Internal management accounts can be prepared in any way that the management want to manage the business (although the auditors of a large enough concern may also have a say)
Tuesday 18th February 2014 01:59 GMT Don Jefe
Sure, it's not a requirement that privately held companies do GAAP, but it's really fucking stupid thing to do if you aren't going public.
GAAP has less than zero to do with 'getting your house in order'. GAAP exists solely to give investors (and lunatics) common ground in comparing companies in a sector, and giving brokers and fund managers something to point at when they're explaining why you have $2.7 million less than you did that morning.
GAAP tells you nothing about a company's operations because GAAP books aren't used in the actual operation of the business. GAAP books are put together quarterly, and annually, using the actual figures in the mostly insane internal accounting practices companies use.
If your books aren't GAAP friendly then nobody but (god of choice), and a couple of your accountants could make sense of the company's financials. Most CEO's don't understand the books of their own company. A HUGE part of the really long timelines of corporate accounting scandals is that even with armies of world class finance and accounting specialists it can take years to unwind a company's books.
If GAAP weren't a requirement for most institutional investors and funds to invest in them, nobody would screw around with GAAP books. It's extremely complex, extremely expensive and requires a completely seperate set of accounting specialists. On top of all that, most company's with huge revenues maintain very complex intraoffice communications protocols and often have one, sometimes two, internal audit teams, working full time, that don't talk to anyone but the CEO, COO and CFO, not even the other audit team. If you've got two audit groups going simultaneously you compare their numbers (that are never, ever, ever, not even once in the history of everything, identical) and investigate big discrepancies to see there's money hiding in there.
Then you've got the specialist accounting lawyers, regulatory agency liaisons, marketing guys specialized in financials, micro economists and all kinds of other complex and expensive shit. You could actually put a business out of business running GAAP books. It simply isn't worth it unless you want to go public.
A lot of companies also publish non-GAAP reports as well. You can actually gain useful knowledge about the company that way. It's still complex, but deals with real figures. A big, big part of GAAP books are actually mostly worthless and exist solely to meet some regulation or the other.
Tuesday 18th February 2014 04:09 GMT Don Jefe
I got distracted by the GAAP thing there, sorry.
Companies aren't shy about impending IPO's to build excitement or anything like that. They do it because the wrong person saying the wrong thing could be construed as the beginning of the pre-IPO quiet period regulations mandate.
That would not only have severe, and immediate, consequences, a big enough pre-IPO screw up could result in the bank underwriting the stock to reduce its financial backing and can nullify any first option contracts (allows investors to agree to purchase stock at the initial opening price even if the price has increased).
There's a bunch of other bad shit as well, but the stuff in that previous paragraph is really bad. That's where all the management, employees with stock, VC's, whatever dark god helped you get there and anybody else you promised would get rich get rich, get their money and/or actual stocks.
You've still got to pay for any options you were awarded (or whatever your company calls it) as well as the taxes. It would be really odd if the guys you were working with yesterday had many millions of dollars lying around to pay for the options they exercise. Those arrangements can be jeopardized by a big enough pre-IPO screwup.
IPO's aren't like 'hotly anticipated gadgets' on the rumor mill. What gets said, or not said, is the difference between many millions of dollars and not so many millions. It isn't even worth risking.
Tuesday 18th February 2014 10:00 GMT thedarke
Of course they won't acknowledge an IPO
If Spotify are in the process of an IPO they are bound by the first & second rule of IPO club: You don't talk about IPO Club. Otherwise you'd be inviting insider trading.
Of course, they'll love the press- helps the hype cycle. Thank you for contributing the circlejerk- the more hands the merrier!
Tuesday 18th February 2014 15:01 GMT Don Jefe
Re: Of course they won't acknowledge an IPO
IPO's have always, during my career anyway, been funny in that they are 'secret' until they are announced. IPO's involve hundreds, even thousands, of people outside the company. Governments, banks, law firms, catering companies, security agencies (disgruntled ex-employees who won't be making a bunch of money from the IPO sometimes lurk around the company/parties during the opening day shindigs), just so many people are involved. The only way an IPO could be a surprise is if you weren't looking.