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SPACS and Warrant Accounting

Contact: Richard D. Hitt, Steven E. Richards

April 21, 2021

Special Purpose Acquisition Corporations (“SPACs”) often issue warrants as part of their formation and registration as a public entity. These warrants can be structured in many ways that can impact their accounting treatment and whether they are treated as equity or debt. The Securities and Exchange Commission (“SEC”) has recently been focused on this warrant accounting treatment. Many SPACs have treated the warrant issuance as equity when in fact the warrants should have been classified as debt recorded at fair value, and any changes in fair value from period to period would flow through the income statement.

Issues to consider:

  • Review the accounting treatment with your accounting firm or advisor (ASC 815).
    • An equity-linked financial instrument must be considered indexed to an entity’s own stock to qualify as equity.
    • Terms of the warrant and tender offer provisions need to be carefully assessed to determine when warrant holders are entitled to receive cash for their warrants in the event of a tender or exchange.
  • If the warrant does not qualify for equity treatment, it should be classified as a liability and carried at fair value.
  • A valuation of the warrants can be complex and will need to be performed at the IPO date and for subsequent quarters.
  • If after reviewing ASC 815 a registrant has determined that an error in previously-issued financial statements has occurred, the materiality of the error will need to be assessed to determine whether a restatement is required. The registrant will need to perform an internal controls assessment to determine whether remediation and disclosure are required.

Ankura’s Transaction Advisory Services practice has extensive experience in valuing complex securities and equity-linked financial contracts for financial and tax reporting purposes. We also have experience working with SPACs and providing fairness opinions and fair value accounting assistance associated with business combinations. In addition, Ankura’s Forensics practice has experience in the accounting for complex securities, internal controls, and restatements of previously-issued financial statements, as well as reviewing adequacy of auditing work related to complex securities and restatements. If we can be of assistance, please contact Richard Hitt, Transaction Advisory Services Practice Leader or Steven Richards, Forensics Practice Leader.


“SPACS and Warrant Accounting,” Ankura Consulting, 04/21/21; Hitt, Richard; Richards, Steven.