United States

Proposed disclosure amendments: Acquired and disposed businesses


The SEC recently proposed amendments to the financial disclosure requirements in Rules 3-05, 3-14, and Article 11 of Regulation S-X, as well as related rules and forms, for financial statements of businesses acquired or to be acquired and for business dispositions. If finalized, among other reforms, the proposed changes would:

  • Update the significance tests under these rules by revising the investment test and the income test, expanding the use of pro forma financial information in measuring significance, and conforming the significance threshold and tests for a disposed business
  • Require the financial statements of the acquired business to cover up to the two most recent fiscal years rather than up to the three most recent fiscal years
  • Permit disclosure of financial statements that omit certain expenses for certain acquisitions of a component of an entity
  • Clarify when financial statements and pro forma financial information are required
  • No longer require separate acquired business financial statements once the business has been included in the registrant’s post-acquisition financial statements for a complete fiscal year
  • Align Rule 3-14 with Rule 3-05 where no unique industry considerations exist
  • Clarify the application of Rule 3-14 regarding the determination of significance, the need for interim income statements, special provisions for blind pool offerings, and the scope of the rule’s requirements
  • Amend the pro forma financial information requirements to include disclosure of “Transaction Accounting Adjustments” reflecting the accounting for the transaction, and “Management’s Adjustments” reflecting reasonably estimable synergies and transaction effects
  • Make corresponding changes to the smaller reporting company requirements in Article 8 of Regulation S-X and to the Regulation A requirements

The SEC also proposed new Regulation S-X Rule 6-11 and amendments to govern financial reporting for fund acquisitions by investment companies and business development companies.