Getting market-ready for a global listing

Many Indian companies are increasingly accessing global markets for capital. A global listing comes with multiple advantages, including lower cost of capital, greater analyst coverage, increased liquidity of the stock and an opportunity to build credibility as a global player.

However, the advantages come at a cost. IPO readiness is a time-consuming process and involves significant cost and effort. All organisational aspects should be “market ready” to be able to withstand the rigours of public scrutiny. Our interactions with Indian companies listed globally suggest challenges in accounting and related processes, making these a significant focus area in the IPO-readiness process.

Choosing the right GAAP

A majority of the stock exchanges across the world require financial information to be submitted in accordance with IFRS or US GAAP. Companies should choose their GAAP after studying carefully the existing local GAAPs of each entity in the group. For example, Indian companies reporting under Indian GAAP and with subsidiaries abroad that report under IFRS may prefer the reporting framework for global listing as IFRS, as that will significantly reduce conversion efforts.

Historical financial information

At the time of listing, companies are required to provide historical financial information of 3-5 years in the prospectus furnished to investors.

This requires preparation of the previous years' financial statements under the appropriate international GAAP, and restatement of the previous year numbers to make it comparable to the current year. Also, significant complications in accounting can arise when there is complex group restructuring to facilitate global listing and optimise tax considerations.

Building the right team

Converting to a new or more robust accounting standard and building historical data accordingly is a massive project that often stretches the finance departments to their limit. Thus, it is essential to build a strong and dedicated team that has the experience and skills to furnish the relevant information under the chosen GAAP.

Likewise, there is need for external advisors with extensive global-listing credentials, contacts and industry experience.

Systems and processes

The infrastructure and systems of a publicly traded company are very different from those of a typical private company and must be able to withstand the rigours and scrutiny that a public company normally faces. A restatement of results has the potential to impact and shake investor confidence.

According to a survey by Ernst and Young, two of the top-three reported control deficiencies contributing to a material weakness are competency and training of accounting resources; and inadequate accounting documentation, policies and/or procedures. Thus, robust financial systems and internal controls capable of delivering accurate and timely results must necessarily be in place.

Building a knowledge bank

The IPO is a transforming event for the people, processes and culture of a company. Thus, it is essential to stay abreast of the latest developments, regulatory changes and global events affecting the business.

Companies should have processes to track the latest developments in the accounting domain and assess their implication on financial statements. These processes can either be in-house or provided by external service providers.

Finally, the company must deliver on promises, and meet or exceed expectations.

The first year subsequent to a listing is all about credibility — Very hard to build but easy to lose. The latter needn't be the case if the accounting challenges are addressed effectively.

The author is Senior professional in a member firm of Ernst & Young Global.

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