Defining Issues  |  May 2019

SEC proposes changes to disclosures about acquired and disposed businesses

The SEC proposed amendments intended to improve information that investors receive about acquisitions and dispositions of businesses. The proposed rule would amend Rules 3-05, 3-14 and Articles 8 and 11 of Regulation S-X, and proposes a new Rule 6-11 for investment companies. 

Applicability

Release No. 33-10635; 34-85765; IC-33465; File No. S7-05-19

  • Public companies, including foreign private issuers, registered investment companies and registered investment advisers

Effective dates

  • Comments are due July 29, 2019

Key impacts

The proposed rule, among other things: 

  • updates the significance tests by:
    • revising the investment test and income test
    • expanding the use of pro forma financial information in measuring significance and
    • conforming the significance threshold and tests for a disposed business
  • requires up to the two most recent fiscal year financial statements of the acquired business instead of up to three years
  • clarifies when financial statements and pro forma financial information are required
  • permits the use of, or reconciliation to, IFRS in certain circumstances
  • eliminates the requirement to provide separate acquired business financial statements when the business has been included in the registrant’s post-acquisition financial statements for a complete fiscal year
  • aligns Rule 3-14 requirements for significant real estate operations to Rule 3-05 where no unique industry considerations exist 
  • improves the content and relevance of pro forma financial information 
  • conforms the smaller reporting company requirements in Article 8
  • adds a new Rule 6-11 for fund acquisitions by investment companies and business development companies