Accounting industry overseer urges CFOs to strictly uphold IPO quality

Last Friday, SpaceX completed its initial public offering (IPO) with a market value exceeding $2 trillion, adding fuel to the already hot IPO market. However, this spectacle deeply worries Francine McKenna, a veteran accounting industry watchdog. McKenna is a former CPA from the Big Four accounting firms, now a journalist, academic, and self-appointed overseer of the accounting profession.

The core theme of her concern—which she believes CFOs should also pay attention to—is that the current "overwhelming desire to go public" may be pushing some companies to rush into IPOs without having established robust internal controls and governance systems, which are precisely what enterprises need for long-term prosperity.

McKenna runs a Substack column called "The Dig," offering a critical perspective on the accounting and auditing industry. In an interview with CFO Dive last week, she emphasized that companies should not go public and absorb public and retail investor funds before they are fully "ready to face the public." By "ready," she means having strong accounting and financial infrastructure, sound IT systems, and rigorous internal controls.

"If you only market the IPO as an economic victory without caring about how the company operates in the long run, you are essentially abdicating your responsibility as a regulator or participant in the financial markets," McKenna said. She views financial executives as key gatekeepers of the financial markets. "CFOs need to think about their role as protectors or custodians of the integrity of corporate financial reporting, and be willing to push back against the CEO, COO, and the board."

McKenna points to WeWork as a classic case of a company going public too early. Just months after the office-space sharing company went public in October 2021, it announced it would restate several quarters of results due to material weaknesses in internal controls related to the misclassification of certain shares, as reported by The Wall Street Journal at the time. WeWork subsequently filed for Chapter 11 bankruptcy protection in 2023.

In her "The Dig" column published on Friday, McKenna outlined the warning signs and risk factors she focused on in the SpaceX IPO. For example, she cited a report from the Financial Times blog FT Alphaville noting that SpaceX used 23 banks in its IPO, an arrangement that comes with the benefit of suppressing "potential critical voices." Additionally, she noted the company is borrowing to support its cash balance, and its prospectus shows net losses over the past two years, including a $4.9 billion loss last year, with the company "having no idea when it will achieve profitability."

McKenna believes a major obstacle to CFOs exercising greater rigor in the IPO process or delaying an IPO until the company is ready is that many prospective public companies rely too heavily on their advisors, who often have a vested interest in pushing the IPO forward. Furthermore, since the dot-com bubble, more companies have hired CFOs without accounting backgrounds, who may not understand the internal control systems the company needs.

"CFOs with an accounting background, or at least some interest and competence in accounting, tend to have a longer-term perspective," said McKenna, who teaches accounting at Montclair State University in New Jersey. "They are also more aware of the consequences of making wrong decisions—whether it's dressing up earnings, statements, or metrics for short-term compensation."

McKenna also expressed concern about the U.S. Securities and Exchange Commission's (SEC) plan to ease regulations for some public companies. Last month, the SEC proposed raising the threshold for defining "large accelerated filers"—a status that requires companies to comply with strict reporting and internal control audit requirements, as CFO Dive previously reported. The SEC framed the plan as an effort to encourage more companies to enter the market at a time when many are reluctant to go public due to regulatory costs.

In McKenna's view, the proposal would further advance efforts from the Trump administration era to relax related requirements, allowing more companies to escape the checks and balances of mandatory internal control oversight.

"This way, companies could operate with material weaknesses for a long period of time," McKenna said.