SPAC Accounting: Lessons from Recent SEC Enforcement

The SPAC boom of 2020 and 2021 left a compliance legacy that the accounting profession is still working through in 2025. Following the SEC's Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies in April 2021, which triggered hundreds of restatements across the SPAC universe, a further wave of enforcement actions and informal guidance has clarified the standards applicable to SPAC accounting in ways that remain relevant for any entity that completed a de-SPAC transaction or sponsors a currently active blank-cheque company.

The fundamental accounting question for SPAC common shares is whether Class A shares subject to possible redemption should be classified as permanent equity or temporary equity (mezzanine) under ASC 480-10-S99. The SEC's position, articulated through comment letters and enforcement actions, is that when redemption is potentially within the control of shareholders — as it is in virtually all SPACs — the full redemption value of those shares must be classified outside permanent equity. Many SPACs initially classified only a portion of redeemable shares as temporary equity, arguing that the shares were not "mandatorily redeemable" in a narrow technical sense. This position was rejected by the SEC, and companies that have not yet evaluated their redemption accounting should do so promptly.

Warrant classification under ASC 815-40 has been the more complex and litigated issue. The central question is whether SPAC warrants should be classified as equity instruments or as liabilities that must be remeasured at fair value through earnings each reporting period. The SEC's analysis focuses on whether the settlement amount of the warrant could vary based on inputs other than the issuer's stock price — a condition that is satisfied by many SPAC warrant agreements that include provisions for alternative settlement in certain change-of-control scenarios. Warrants that fail the fixed-for-fixed test under ASC 815-40-15 must be classified as liabilities, with changes in fair value recognised in earnings, typically creating significant EPS volatility.

For audit firms, the SPAC enforcement wave has reinforced the importance of independent technical accounting analysis rather than reliance on client-prepared assessments for complex instruments. The deficiencies identified in enforcement actions frequently involved auditors accepting management's accounting conclusions without conducting independent evaluations of the relevant authoritative literature. Audit procedures for SPAC clients should include a structured review of all outstanding equity instruments against the applicable classification criteria, documented by the engagement team independently of management's analysis, and reviewed by the firm's national office technical accounting group before the audit report is issued.