The U.S. Securities and Exchange Commission (SEC) recently adopted amendments to the financial disclosure requirements in Regulation S-X for acquisitions and dispositions of businesses.1 These amendments are part of the SEC’s continuing initiative to improve the quality and efficiency of such disclosure and facilitate more timely access to capital.
Currently, following the acquisition of a “significant” business, registrants generally must file separate audited annual and unaudited interim pre-acquisition financial statements of that business. Similarly, certain unaudited pro forma financial information must be provided for significant acquisitions or dispositions. Three separate tests are used to compute “significance”: the investment test, the asset test, and the income test. The relative significance of the acquisition or disposition dictates the period of the required historical and pro forma financial statements.
Highlights of these amendments are summarized below:
The amendments will be effective on January 1, 2021, but early voluntary compliance is permitted. Registrants should familiarize themselves with the amendments and assess their impact on the reporting of near-term acquisitions or dispositions.
1 See “Amendments to Financial Disclosures about Acquired and Disposed Businesses,” SEC Release No. 33-10786 (May 21, 2020), available at https://www.sec.gov/rules/final/2020/33-10786.pdf. The SEC also made conforming changes to applicable rules and Forms to provide uniform treatment on these matters.