IPO Advisory
Bearing in mind the future aspirations of our clients, we provide support in initial public offerings (IPOs) from a long-term perspective.
Going public is an important step for an unlisted growing company that is ready to pursue further growth. Once a company is listed, it has access to capital markets where it can procure funds directly. This in turn enables it to enhance its financial position as well as its visibility and creditability, and improves its ability to recruit talented human resources and boost the pride and morale of its employees. As a company grows, however, so too do the accountability of management and corporate social responsibility as well as requirements for disclosure and compliance. As incidents in the corporate world in recent years attest, inadequate internal control and naivety on the part of management have led to serious breaches in what is considered acceptable corporate conduct to the detriment of not only the companies involved but also to the detriment of society at large.
Companies preparing to go public must not only aspire to further growth but also recognize the need to put in place organizational and system frameworks that can sustain that growth. We provide support services for IPOs in Japan that are not only aimed at assisting our clients in going public but also at placing them in good stead for growth from a long term perspective after IPO. |
General Schedule for IPOs
Audits of pre-IPO companies financial Statements
Prior to the application for listing, a company planning to go public is required to have its financial statements audited by certified public accountants (CPA) for two years immediately prior to listing. Throughout this two-year period the company must put in place and operate a management control system capable of complying with the required disclosure level during listing. During the pre-listing audit, we provide advice and counseling to help our clients build a sound management system to prepare the groundwork for going public. |
(1)Pre-deal evaluation
Upon a company’s commencement of IPO preparation, we conduct a pre-deal evaluation to ascertain and analyze details of the company’s business, its financial situation, business management framework, and relationship with related companies, and provide suggestions for improvement prior to listing for any issues identified at this time. The pre-deal evaluation clarifies what preparations a particular company needs to make in the lead up to its IPO.
(2)Non-statutory audit / Voluntary audit
In many cases results of the pre-deal evaluation indicate that a company is not yet structurally ready for the two-year audit period prior to IPO registration. In this case, it is essential for a company to undergo a non-statutory audit as a preparatory measure for the two-year audit prior to listing. During this non-statutory audit, we provide counseling and advice to clients on establishing an appropriate management framework for compliance with the Securities and Exchange Law audit required for two years prior to listing.
Examples of improvements made as a result of non-statutory audits
- Correction of error on accounting principles in the past
- Accounting principles and accounting methods
（From a tax-centered accounting method to one based on an appropriate disclosure system）
- Transactions between related companies and related parties
- Structuring of basic internal control system
(3)Audit for IPO registration
Once problem areas identified during the voluntary audit are resolved and the basic corporate framework is in order, a company undergoes auditing required by the Securities and Exchange Law for a two-year period prior to IPO registration. At this time the company must receive qualified opinions on both consolidated and non-consolidated financial statements, as applicable, for the two years (including an unqualified opinion of a CPA the year immediately prior to listing). We provide audits for this purpose based on a rigorous disclosure system in the same way as we provide audit services for IPO registration for listed companies.
(4)Audit for post-listing
A company that is successful in its goal of becoming listed is next required to prepare on an annual basis financial documentation including asset security reports and submits this documentation to the office of the prime minister. Our firm provides rigorous audit services to enable companies to provide appropriate disclosure.
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IPO consulting
Companies inevitably encounter various problems during the IPO preparation processes. As an audit firm backed by years of experience and a solid track record, Yusei repeatedly demonstrates the extent of its knowledge and expertise when it guides clients smoothly through IPO preparation processes. However, it is important to note that under the Financial Instruments Sales Law the same firm is not allowed to provide both audit services for IPO registration and IPO advisory services. Therefore, our IPO consulting service is available to only non-audit clients of ours. |
(1) Review and structuring of a corporate management framework
To ensure that the business activities of a company will be executed with efficiency and consistency over time, the establishment and ongoing operation of an appropriate corporate management organization are essential. This means that internal control in a company must function appropriately. Internal control is essentially a series of mechanisms that provide for procedures in operations such as the appropriate preparation of financial statements, compliance with laws and regulations, the safeguarding of assets, and the efficient implementation of the company’s business activities. J-SOX, an internal control audit system for financial reporting came into effect from fiscal years starting on or after April 1, 2008. Under this system, companies intending to go public are now required to put in place a more rigorous corporate management system in order to comply with J-SOX. At Yusei, we provide support in the establishment of an appropriate corporate management framework to accommodate J-SOX requirements following a company’s listing.
Examples of reviews of corporate management systems
- Development of management system of each operation
（Sales management, purchase management, inventory management, fund management, fixed asset management, labor management, and other）
- Development of regulations
- Structuring of the organization framework
- Structuring of a conference system
- Establishment of monthly and annual settlement system
- Development of medium term management plan and budget control system
(2) Support and advisory for preparation of IPO applications
A company is required to submit a large number of documents during the IPO application process and the most important of these are the so-called “Part I” and “Part II” documents. The “Part I” financial report is almost the same as the financial report listed corporations provide for disclosure purposes on an ongoing basis after becoming listed. “Part Ⅱ” provides details of a company’s history, business contents, characteristics of its products and markets, and its profit plan. This “Part Ⅱ” is, however, not required by emerging markets such as the Mothers Market of the Tokyo Stock Exchange. We help reduce the workload of companies by providing back-up support in the preparation of documents necessary for appropriate disclosure.
(3) Advice on policies for related companies
In many cases, related companies require structural modifications prior to IPO. Following are examples of such cases and the support our firm provides:
[1] A company has a personal relationship with a related company which it controls through personnel, technology or transactions, and there is a transfer of profit and loss between the two companies. In this case, we provide proposals for establishing compliant accounting procedures.[2] A company owns as least 20% of issued stock in a related company and must make a decision regarding the related company’s future survival and the propriety of the equity relationship. In this case, we provide advice concerning appropriate equity relationships. [3] It is unclear if consolidated financial statements are properly disclosing financial conditions and operation results of companies subject to consolidation. In this case, we conduct an examination based on views of relevant standards and past examples and provide advice on clarifying the scope of consolidation.
The above are some of the ways in which we provide support for the appropriate restructuring of related companies in preparation of a company’s registration.
(4) Advice on equity policy
A pre-listing equity policy refers to the policy for the issue of new stocks and the transfer of stocks for raising funds and the appropriate realization of shareholders’ profits and reasonable shareholder structure for going public. A well-planned policy can have a significant impact on the improvement of a company’s financial position, the policy for shareholder stabilization, and the founder’s profits. Therefore, it is necessary to pay attention to the following matters while considering fund demands.
- Number of stocks to be issued upon IPO
- Structuring of shareholders upon IPO
- Capital to be raised upon listing and sales amount from founder
- Utilization of stock options
Equity policy is an important aspect of an IPO and can determine its success or failure. At Yusei we provide appropriate advice to clients bearing in mind the post-listing environment. |