SPACs can’t put disclaimers in their financial statements that their financial reporting could run afoul of U.S. accounting rules, market regulators are warning.

At issue is just how far special purpose acquisition companies—blank-check outfits whose sole purpose is to acquire and take a promising company public—can go in issuing catch-all warnings to investors. The Securities and Exchange Commission in letters to some SPACS warned against broad disclaimers that long-standing SPAC accounting practice could change and lead to future errors. The letters come on the heels of a top SEC accountant saying the agency would object to such disclaimers.

The SPAC warnings—and the SEC’s admonishment against them—follows a turbulent year in SPAC accounting, coupled with increased regulator scrutiny of the market.

Twice in 2021, the SEC flagged pervasive accounting errors with SPAC financial statements. Hundreds of SPACs had to restate, or redo, their past financial statements in the spring because of how they accounted for key money-raising tools and again in the fall because of problems with how they classified shares they offer to investors.

In both cases, auditors and SPACs themselves were taken aback because even though the accounting was wrong, the accounting methods were ingrained in practice and hadn’t been questioned in the past.

But accepted practice is not the same as rules laid out in official U.S. generally accepted accounting principles (GAAP).

“The entities are trying to limit liability or pawn off some of the responsibility, in a sense, and the SEC is saying, ‘No, you have to own this,’” said Dane Dowell, director at Johnson Global Accountancy.

An SEC accountant in December said the agency had seen an uptick in “inappropriate” risk factor disclosures, such as a company saying it wasn’t able to guarantee or provide assurance that its current accounting treatment was correct. Some SPACs also have warned that the auditor of a target, or company the SPAC plans to acquire, could disagree with the SPAC’s accounting conclusions, said Melissa Rocha, deputy chief accountant in the SEC’s Division of Corporation Finance.

“If staff does come across risk factor disclosures, it is likely we will comment asking the appropriateness of any of these disclaimers,” Rocha said at an American Institute of CPAs conference in Washington.

The SEC’s objection to these types of risk factors is justified, said Dennis Beresford, who chaired the Financial Accounting Standards Board from 1987 to 2007. Industry practice does not carry the same weight as actual accounting standards as written by FASB and codified as U.S. GAAP, he said.

“Having said that, I don’t, frankly, think this would have hurt very much if they had left this in the filing,” Beresford said.

SPACs soared in popularity in 2020 and 2021 as an alternative to the lengthy, expensive process of of a traditional initial public offering. Electric vehicle maker Nikola Corp., online sports betting company DraftKings Inc., and social media site Nextdoor Holdings Inc. became publicly listed companies via merger with a SPAC.

All things SPAC-related are being scrutinized by the SEC, so it stands to reason that regulators are closely reading all SPAC filings and asking questions about risk factors, said Steve Soter, senior director of product marketing at Workiva Inc.

Prior to FASB’s sweeping revenue recognition and lease accounting standards going live in 2018 and 2019, some companies put disclaimers in their risk factors that, upon applying the new rules, reported revenues could look different, which could change their valuations. That kind of heads-up is acceptable, Soter said.

A heads-up that a mistake could lurk around the corner because accounting practice could change is not, he said.

“The SEC sees that and says, ‘This is a red line, full stop. You’re either GAAP or you’re not,’” Soter said.