In order to be listed on NASDAQ, the company must have its financial statements audited by an audit firm registered with the PCAOB (Public Company Accounting Oversight Board) in accordance with SEC (US Securities and Exchange Commission) regulations. Simply to say, a company cannot be listed on NASDAQ without an audit by an audit firm.
Companies seeking a listing on NASDAQ are often not listed on the Japanese securities markets and are not audited by an auditing company or a certified public accountant under the Companies Act, so they often have great difficulty in dealing with audits by these firms. The response to an audit by an auditing company does not simply end with the submission of accounting books and documents, but involves the accurate and prompt submission of evidence and data to the auditing company to support the figures in the financial statements, as well as the identification of accounting issues (e.g. revenue recognition under IFRS), accounting estimates (many companies aiming to be listed on NASDAQ do not make accounting estimates) and other items that are not included in the financial statements. Many companies seeking to list on NASDAQ do not use accounting estimates), and to provide sufficient documentation and evidence to provide assurance to the audit firm for their sample balance and transaction tests.
These audit responses alone can be a daunting and time-consuming task for companies that have never had to deal with an audit before. To add to this, a NASDAQ listing is a listing on the US market, and if the auditing firm is an overseas networked firm, it is also necessary to prepare documents and communicate in English. In addition, the audit is conducted by an audit firm registered with the PCAOB (Public Company Accounting Oversight Board) under the regulations of the SEC (US Securities and Exchange Commission), which is significantly more stringent than the accounting audits that Japanese companies generally receive from audit firms.
It is extremely difficult to establish an accounting team that can cope with these requirements, and many companies aiming to go public on NASDAQ have difficulty in doing so. Hiring these external consultants as members of the audit response team is likely to relieve you of the immense response and stress of an audit and make you more likely to be audit-ready in one fell swoop.
The main points to consider when using external consultants are as follows.
- Business English language skills (speaking, writing, etc. for business meetings and chatting).
- Have a certain number of years’ experience at a major PCAOB-registered auditing firm (minimum of 10 years)
- Have experience of working overseas (in the US) during their time at an audit firm.
- Experience in auditing local US listed companies when stationed overseas (not just liaison to Japanese companies).
- Experience with PCAOB audit clients in Japan (it is essential to have experience in both Japan and the US).
- Appropriate promotion during his/her time at the audit firm (if the same CPA does not promote to upper management, his/her competence will be questioned).
Preparation for a NASDAQ listing will cost you more and more time and money if you do not respond proactively, resulting in losses that will continue to spread. To avoid this, it is essential to find a reliable external consultant who can handle your NASDAQ listing audit as soon as possible.
The Firm has members who have all the above-mentioned points that an external consultant should have in place, and can provide assistance in dealing with audits for NASDAQ listings.
Please feel free to contact us if you require any assistance.