As a result, qualifying transaction costs incurred by the target company are charged directly to equity. Instead, the substance of these types of reverse mergers are capital transactions of the legal acquiree and are equivalent to the issuance of shares by the target company for the net monetary assets of the SPAC accompanied by a recapitalization. A reverse merger with a SPAC is typically accounted for as a reverse recapitalization because often the SPAC’s only pre-merger asset is cash received from investors and the SPAC generally does not meet the definition of a business. If the target company is the accounting acquirer, the transaction is considered a reverse merger.

Certain arrangements with target company owners, such as earnouts or tax receivable arrangements, may be accounted for differently in a business combination versus a reverse recapitalization. The transaction would be accounted for as a business combination, not a reverse recapitalization. In this scenario, the SPAC entity, as primary beneficiary, would be the accounting acquirer per the guidance in ASC 805-10-25-5. For example, the SPAC entity may be designated as the general partner or managing member of the target entity, have power to control the most significant activities of the target company, and have an economic interest that provides it with the ability to participate significantly in the target’s benefits and losses. In an Up-SPAC transaction when the target company is a VIE (as described above), the public SPAC entity may become the primary beneficiary. If the target company is a variable interest entity, the entity that is the primary beneficiary and consolidates the VIE is deemed the accounting acquirer. To qualify as an SRC, generally the non-reporting target company would need to have reported annual revenue less than $100 million in its most recent fiscal year. Smaller Reporting Companies (SRCs) - The SEC staff has indicated it will not object if a target company includes two years of annual audited financial statements rather than three years if it qualifies as an SRC.For a target that is a private company to qualify as an EGC, its total annual gross revenues need to be less than $1.235 billion for the most recently completed fiscal year and it can not have issued more than $1.0 billion of nonconvertible debt over the past three years. Emerging Growth Companies (EGCs) - If the SPAC is an EGC and has not filed its first Form 10-K, and the target company would qualify as an EGC assuming it was conducting its own IPO, only two years of annual audited financial statements would be required.Within the proxy or Form S-4/proxy statement, the SPAC and the target company will need to consider the following: Transfers and servicing of financial assets Revenue from contracts with customers (ASC 606) Loans and investments (post ASU 2016-13 and ASC 326)

Investments in debt and equity securities (pre ASU 2016-13) Insurance contracts for insurance entities (pre ASU 2018-12) Insurance contracts for insurance entities (post ASU 2018-12) IFRS and US GAAP: Similarities and differences Business combinations and noncontrolling interestsĮquity method investments and joint ventures

D spac transaction