On May 21, 2020, the SEC issued final rules that amend the financial disclosure requirements of Regulation S-X for acquired and disposed businesses. The SEC also amended the significance tests for a “significant subsidiary” in certain SEC rules. The amendments are part of the SEC’s ongoing Disclosure Effectiveness Initiative and follow similar proposed amendments from May 2019. The amendments are intended to enhance the financial information about acquired and disposed businesses for investors, facilitate access to capital and reduce the complexity and cost associated with the related disclosures. The amendments are effective at the beginning of a registrant’s fiscal year beginning after December 31, 2020. However, early application is permitted if the amendments are applied in their entirety.
When a registrant acquires a significant business, the registrant is required to provide separate audited annual and unaudited interim pre-acquisition financial statements of the acquired business based on the significance of the entity acquired to the business of the registrant (see S-X Rules 1-02 (w), 3-05 and 3-14 (real estate operations)) and unaudited pro forma financial information (see Article 11).
Some of the significant amendments compared to the current requirements are as follows:
Topic |
New Guidance |
Current Guidance |
Measuring the significance of an acquired business |
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Measuring the significance of a disposed business |
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Financial statement requirements for a significant acquired business |
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Financial statement requirements for individually insignificant businesses |
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Financial statement requirements for acquired real estate operations |
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Pro forma financial statements presented in accordance with S-X Article 11 |
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The amendments also include updates to:
- Expand the use of pro forma financial information to measure significance;
- Clarify when historical financial statements and pro forma financial information are required within S-X Rule 3-05 and Article 11;
- Make corresponding changes to the requirements for smaller reporting companies;
- Permit the use of, or reconciliation to, IFRS as issued by the IASB in the financial statements of an acquired business in certain circumstances;
- Define a significant subsidiary tailored to investment companies; and
- Address financial reporting for fund acquisitions by business development companies and investment companies.
About Centri Business Consulting, LLC
Centri Business Consulting provides the highest quality advisory consulting services to its clients by being reliable and responsive to their needs. Centri provides companies with the expertise they need to meet their reporting demands. Centri specializes in financial reporting, internal controls, technical accounting research, valuation, and CFO and HR advisory services for companies of various sizes and industries. From complex technical accounting transactions to monthly financial reporting, our professionals can offer any organization the specialized expertise and multilayered skillsets to ensure the project is completed timely and accurately.
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