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Company Filings More Search Options. Back to Investr of Contents. This topic identifies circumstances in which financial statements of entities other than the registrant or predecessor s of the registrant are required to be included in filings. The guidance applicable to financial statements of the registrant in Topic 1 applies also to financial statements of the other entities, unless specified otherwise in this topic.
The staff may require other financial statements as necessary for a fair presentation of the financial condition of any entity whose financial statements are either required or otherwise necessary for the protection of investors. Overview – In general, S-X and S-X require the filing of separate pre-acquisition historical financial statements when the acquisition of a significant business has occurred or is probable. A flowchart to assist you is located at Section Refer to Sections and regarding age of financial statements.
An acquired business that is a nonpublic entityas that term is defined in GAAP, need not include disclosures if specifically excluded from the scope of the FASB standard. Refer to Section regarding definition of a “business”. Acquisition is probable where registrant’s financial statements alone would not provide adequate financial information to make an investment decision.
Those rules call for financial statements of the acquiree and its predecessor sif applicable. Financial statements of recently acquired businesses of the acquiree or equity method investees of the acquiree need not be filed unless their omission would render the acquiree’s financial statements misleading or substantially incomplete.
| Financial Reporting Manual
If a shell company acquires an operating entity in a transaction accounted for as the acquisition of the shell company by the operating entity i. See Invesitr 12 for further discussion of the reporting requirements for reverse recapitalizations.
The determination investr what inveetir a business for accounting purposes e. It is possible for the determination to be different under the two requirements. There is a presumption in S-X d that a separate entity, subsidiary, or division is a business. A lesser component, such as a product line, also may be considered a business.
In evaluating whether a lesser component is a business, S-X d requires registrants to consider the following:. Investur staff’s analysis of whether an acquisition constitutes the acquisition of a business, rather than of assets, focuses primarily on whether the nature of the revenue producing activity previously associated with the acquired assets will remain generally the same after the acquisition.
New carrying values of assets, or changes in financing, management, operating procedures, or other aspects of the business are not unusual following a business acquisition.
Such changes typically do not eliminate the relevance of historical financial statements. Registrants that have succeeded to a revenue producing activity by merger or acquisition, with at least one of the other factors listed above remaining after the acquisition, are encouraged to obtain concurrence from the staff in advance of a filing if they intend to omit financial statements related to the assets and activity.
Registrants ihvestir direct requests related to appropriate financial statements of an acquired entity or group of assets to CF-OCA.
Refer invstir Section The degree of continuity between historical investment income streams and the assets acquired to fund the acquired policy liabilities should also be considered.
Registrants may request CF-OCA interpretation in unusual situations or relief where strict application of the rules and guidelines results in a requirement that is unreasonable under the circumstances.
In certain circumstances, registrants preparing an initial registration statement may consider applying SAB 80 instead of S-X or S-X See further discussion at Section”SAB Financial statements of both the acquired business and the registrant used to measure significance must be prepared in accordance with the comprehensive basis of accounting described in Section If a change in the reporting entity or a reorganization will occur at or after effectiveness of an initial registration statement but no later than closing of the IPO, the staff will consider requests for relief to use the combined financial statement amounts as the denominator for purposes of invesfir calculations in determining other financial statement requirements for the filing e.
Ijvestir should determine significance using amounts for both the acquired business and the registrant determined in accordance with U. GAAP; that is, both the numerator and denominator of the significance test would be determined in accordance with U.
To illustrate 20065 requirements, if a registrant that files its financial statements in accordance with U. GAAP acquires, both legally and for accounting purposes, a foreign private issuer or a foreign business that files its financial statements in accordance with IFRS as issued by the IASB, significance both the numerator and denominator must be determined in accordance with U.
This is true even though the acquired business did not reconcile its financial statements to U. Ordinary receivables and other working capital amounts not acquired should nevertheless be included as part of the assets of the acquired enterprise in tests of significance relative to the registrant’s assets because that working capital is expected to be required and funded after the acquisition.
GAAP purchase price in this context means the “consideration transferred”, as that term is used in the applicable accounting standard. The adjustment – For purposes of the “investment” test, “consideration transferred” should be adjusted to exclude carrying value of assets transferred by the acquirer to the acquired inveatir that will remain with the combined entity after the business combination.
The numerator of the investment test for the purchase of an equity method investment should include transaction costs, consistent with the accounting under ASC The numerator should also include contingent consideration on a gross basis if the likelihood of payment is more than remote.
GAAP purchase price in this context means the “cost of the acquired entity”, as that phrase is used in SFASor “cost of the business combination” as that term is used in IFRS 3 prior to the revision.
For purposes of the “investment” test, “cost of the acquired entity” or “cost of a business combination” should be adjusted to:. There are three computational notes to the income test included at S-X w. This computational note also applies if the registrant investtir a loss, rather than income.
If the registrant reported a loss, the registrant should compare the absolute value of its reported loss to its average income for the last five fiscal years to determine if the registrant is required to use average income. In computing the registrant’s average income for the last five fiscal years, loss years should be assigned a value of zero in computing the numerator for this average, but the denominator should be “5”.
Also, the acquiree’s income may not be averaged. See by analogy S-X w 2. Businesses are related under S-X if:. In order to achieve consistent application and fair treatment across all registrants and industries, the staff will not accept alternative significance tests.
The tests should be performed based on the requirements of S-X, and gas applicable. If after performing the required significance tests a registrant believes that the tests specify periods beyond those reasonably necessary to inform investors, the registrant may make a written request to CF-OCA to waive one or more years of financial statements. In making this request, registrants should consider all facts and circumstances that provide an indication of the relative size of the acquired business.
Historically, such requests have only been granted in highly exceptional circumstances where income has been affected by an unusual and nonrecurring item and the resultant income test is significantly disproportionate to the asset and investment tests. Even in such highly exceptional circumstances it is unlikely that CF-OCA will waive all audited periods required by S-X, or g when there is continuity of the revenue stream between pre- and post-acquisition periods and the assets continue to be used for the same purpose on a post-acquisition basis as they were on a pre-acquisition basis.
In some circumstances, SFAS R [ASC ] and IFRS 3R require retrospective adjustment of provisional amounts recognized at the acquisition date and the recognition of additional assets or liabilities that were not recognized at the acquisition date. The pre-acquisition financial statements for the most recently completed fiscal year used to measure significance should include measurement period adjustments for acquisitions completed within the most recently completed fiscal year when new information obtained about facts and circumstances that existed at the acquisition date for those acquisitions is known: A prior to effectiveness of an IPO for a new registrant or B on or before the date the initial Item 2.
If a registrant increases its investment in a business relative to the prior year, base the tests of significance on the increase in the registrant’s proportionate interest in assets and net income during the year, rather than the cumulative interest to date. However, step acquisitions which are part of a single plan to be completed within a twelve month period should be aggregated.
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The guidance to base significance on the increase in the registrant’s proportionate interest applies even if the registrant must discontinue applying the cost method and start applying the equity method as a result of the increase in investment.
Step Acquisition — Remeasurement. The remeasurement of the previously held equity interest is not included in the asset or the investment test and the resulting gain or loss from remeasurement would be excluded from the income test as it is not included in the registrant’s most recently completed fiscal year. When a registrant increases its investment in a company that is already reflected as a consolidated subsidiary in the audited financial statements of the registrant for a complete fiscal year, financial statements of the acquired investment are ordinarily not required.
However, pro forma information may be investlr. Illustrative, but not all-inclusive, examples of when historical financial statements of an acquired business may be required in a step acquisition include:.
Registrant’s assets may not be increased for purposes of 2605 significance tests by including the pro forma effect of public offering proceeds received after the balance sheet date. S-X requires that related businesses be treated as a single business when measuring significance. Further guidance on this requirement is included below. If S-X significance is met, separate financial statements of each of the related businesses are required, except that financial statements of the related businesses that are inevstir common control or management may be, but are not required to be, presented on a combined basis for any annual or interim periods specified in S-X for which the businesses are under common 20665 or management.
If the registrant believes that application of the significance tests results in a requirement to present financial statements of one or more related businesses that are not reasonably necessary to inform investors, the registrant may make a request to CF-OCA for relief. Both the asset test and the investment test should be performed for each related business using the guidance provided in Section See the Notes at Section S-X indicates that related businesses should be treated as if they are a single business combination.
Therefore, calculate the income test significance using the combined income or loss from continuing operations before income taxes, extraordinary items and cumulative effect of a change in accounting principle of all of the related businesses.
The combined income or loss should be used to measure income test significance irrespective of whether any of the related businesses are under common control or management.
Financial Reporting Manual
If the income test significance exceeds the S-X significance levels see Sectionseparate financial statements should be provided for the periods required by S-X for each related business, except that financial statements of the related businesses that are under common control or management may be, but are not required to be, presented on a combined basis for any annual or interim periods specified in S-X for which the businesses are under common control or management.
Subsequent to filing its Form K, a registrant may be required to include or incorporate by reference into a registration statement its audited annual financial statements giving retrospective effect to a discontinued operation or a change in accounting principle that was appropriately not reflected in the audited financial statements for the most recently completed fiscal year included in its Form K.
See Topic 13 for a discussion of this requirement. Generally, a registrant measures invwstir using its pre-acquisition consolidated financial statements as of the end of the most recently completed audited fiscal year required to be filed with the SEC. For purposes of evaluating significance in invesrir situation:. If a calendar year-end registrant filed a registration statement containing a pro forma balance sheet as of June 30, giving effect to an acquisition consummated on September 14, and then made an acquisition on November 30,the asset and investment test would be based on a pro forma balance sheet as of December 31, the last audited balance sheet on file with the SEC.
Whether or not the transaction is accounted for at fair value, the investment test should be based on the fair value of the consideration given up or the consideration inveztir, whichever is more reliably determinable. If reporting of both the disposition and the acquisition are required by Form 8-K, a registrant may be unable to present a pro forma income statement depicting the joint venture formation because financial statements of the business contributed by the other party are not available.
Those investtir statements and related pro forma financial statements need not be filed until 71 calendar days after the date that the initial report reporting the transactions on Form 8-K must be filed that is, the sum of 4 business days after the transaction is consummated plus 71 calendar days.
Pro forma financial statements depicting a significant disposition are ordinarily required to be filed within 4 business days of the disposition.
In these circumstances, the initial Form 8-K reporting invedtir transaction should include a narrative description of the effects of iinvestir disposition, quantified to the extent practicable, and complete pro forma information depicting the effects of the exchange of interests should be filed at the time that the audited financial statements of the acquired business are filed.
If the registrant inveshir the acquiree has been in existence for more than one year, measure significance using income for full 12 months; do not adjust the audited income statement to equal the same number of months as acquiree or registrant that has been in existence for less than one year. If a registrant or acquiree has changed its fiscal year and the transition period See definition at Section If both the registrant and the acquiree have changed their fiscal years, registrants should measure significance using a consistent approach [either A or B ] for both the registrant and the acquiree [not A for one and B for the other].
If the transition period is greater than 9 months, use the audited financial statements for that period. In certain cases, a registrant that is a successor to a predecessor company may not have a full year of income statement information available to use as the denominator in the calculation of the income test. In these cases, the significant subsidiary income test should be calculated using only the results of operations of the successor company in the denominator.
If the results are anomalous, CF-OCA will consider a request by the registrant to perform the significance test using pro forma amounts determined in accordance with S-X Article 11 as if the predecessor had been acquired at the beginning of the fiscal year being measured.
The staff generally believes that combining the historical results of the successor and predecessor without S-X Article 11 pro forma adjustments is not an appropriate surrogate for the significance test. If audited successor financial statements of the acquiree include twelve months of successor results, the income test should be applied in the normal fashion.
If audited successor financial statements of the acquiree include less than twelve months of successor results, it will generally be necessary to use pro forma amounts of the successor for the year determined in accordance with S-X Article