Special purpose acquisition companies, otherwise known as SPACs, have flooded the equity markets over the last couple of years. According to www.spacresearch.com, SPAC IPOs in the United States more than quadrupled in 2020 compared to 2019. The acceleration of SPACs continued in 2021. US SPAC IPOs in 2021 more than doubled compared to 2020.
The rush of SPACs certainly came with financial reporting issues and regulatory scrutiny. According to Nicola White’s Bloomberg article, approximately 70% of companies that had reported accounting restatements in February and March 2022 were either SPACs or companies that became publicly traded via SPAC merger (also known as de-SPACs).
With all these accounting and financial reporting issues, it begs the question: who is auditing the SPACs? We dug through the data and arrived at some very interesting findings.
Only 5 audit engagement partners audited over 23% of the 789 SPACs since 2020
We reviewed the SEC filings (10-K, 20-F, etc.) for SPACs starting from 2020-01-01 through the present. During this time frame, there were 789 SPACs with audited SEC filings. A total of 193 audit engagement partners audited these SPACs.
Below were the top 5 audit partners by number of SPACs audited since 2020. These 5 audit engagement partners audited over 23% of all SPACs in the last year and a half!
Only two accounting firms account for 78% of all SPAC audits since 2020: Withum and Marcum
When looking at those top 5 auditors, you only see two accounting firms. We investigated further and discovered that these two firms, WithumSmith+Brown PC and Marcum LLP, audited over 78% of all SPACs since 2020!
We then looked into all the public companies that Withum and Marcum have audited since 2020. Withum had audited 359 publicly traded companies since 2020-01-01. Out of these companies, 319 were SPACs, which means that 89% of all of Withum’s publicly traded audit clients were SPACs! Marcum audited 477 publicly traded companies since 2020-01-01. As shown in the above table, Marcum audited 296 SPACs in this time frame - 66% of all of Marcum’s publicly traded audit clients were SPACs!
To put this into perspective, we analyzed the Big 42 accounting firms’ SPAC audit activity since 2020. The Big 4 audited 3,462 public companies in this time frame. Only 25 of these companies were SPACs, which represents less than 1% of their client base! KPMG had the highest number of SPAC audit clients at 15 during this period. The rest of the Big 4 all had fewer than 5 SPAC audit clients.
Deeper look into the top 2 SPAC auditors
Michael Tenny & Carl Scheuten of Withum audited the highest number of SPACs since 2020 with 40 each. The average number of public companies that a single audit engagement partner audits in one year is approximately 2 companies.3 Michael Tenny audited 26 public companies in the year 2021 alone, 25 of which were SPACs. Carl Scheuten audited 25 companies in 2021, all of which were SPACs.4 This is quite the load of companies to audit in a short time frame!
One of the SPACs that Michael Tenny audited was Union Acquisition Corp II ($LATN). The company later merged with PROCAPS GROUPS SA ($PROC). After the merger, Michael Tenny no longer audited the company. It is now audited by Luis Cleves Moses from Deloitte Colombia. Like many SPACs and de-SPACs, PROC reported accounting restatements in its recent annual report. It also reported ineffective internal controls.5
One SPAC that Carl Scheuten audited was VPC Impact Acquisition Holdings III, Inc ($VPCC), which later merged with DAVE INC ($DAVE). This company also reported ineffective controls in its most recently filed Form 10-Q.6
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1As of June 20, 2022.
2“Big 4” accounting firms include KPMG, EY, PwC, & Deloitte.
3Statistics based on analysis of 3,407 audit engagement partners from calendar year 2021.
4The one non-SPAC company Michael Tenny audited was Princeton Capital Corp.
5FY 2021 Form 20-F filed 2022-05-02.
6Q2 2022 Form 10-Q filed 2022-05-13.