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Technical Line - Reminders about ‘cheap stock’ issues for companies going public in IPOs and SPAC mergers


Private companies need to consider the valuation of equity securities issued as compensation under ASC 718 if they are planning to go public through an initial public offering (IPO) or a merger with a special purpose acquisition company (SPAC). A key financial reporting concern is often referred to as “cheap stock,” which is when the value of the underlying stock at the grant date is significantly less than the estimated IPO price or the fair value implied by the SPAC merger transaction.

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