Corporate restatements reached a 15-year high last year as hundreds of special purpose acquisition companies (SPACs) were instructed to fix multiple rounds of pervasive accounting errors, Financial Times reported.
Corrections to financial statements totaled 1,470 in 2021, soaring 289% over 2020 according to Audit Analytics. The increase is the highest on record since 2006, when tougher audit requirements were adopted to prevent corporate fraud following the fallout from the dot-com boom and bust era from 1995 through 2001.
SPACs accounted for 77% of the corrections reported to the U.S. Securities and Exchange Commission (SEC) last year. Restatements would have dropped 10% if SPACs weren’t part of the picture, according to the report.
Some restatements had so many corrections that the companies had to refile an entirely new set of financial statements. Those types of restatement were up 62% in 2021, the highest level since 2005.
The CFA Institute, an organization for investment professionals, wants more transparency from SPACs and asked regulators to tighten disclosure requirements. The organization wants SPAC sponsors to fully disclose any affiliations with investors and other target companies, along with any side deals with anchor or pipe investors.
SPACs gain momentum as a streamlined way to take cutting-edge startups — particularly tech companies — public. That model is now being questioned by regulatory agencies as well as by Wall Street. SPACs have only so much time to find a target and take it public — otherwise, they have to return the money to the backers.
Companies that went public with a SPAC — like DraftKings, for example — are down an average of more than 50% in recent months, outpacing declines in the tech-heavy NASDAQ, which is off by more than 25% year to date, PYMNTS reported last week.