The rule amends Regulation S-X for acquisitions and dispositions of businesses, including real estate operations, in Rules 3-05 and 3-14, Articles 8 and 11, and adds new Rule 6-11 for investment companies and business development companies.
The final amendments, among other things:
- Update the significance tests by:
- revising the investment and income tests;
- 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 no more than the two most recent fiscal years.
- Permit abbreviated financial statements for certain acquisitions of a component of an entity.
- Codify current practices for acquired businesses that include oil- and gas-producing activities by:
- requiring certain ASC 932 disclosures on an unaudited basis for each full year of operations presented for the acquired business; and
- permitting abbreviated financial statements if certain conditions are met.
- Do not require separate acquired business financial statements once the business has been included in the registrant’s post-acquisition audited annual financial statements for either nine months or a complete fiscal year, depending on significance.
- Modify and enhance the required disclosure for the aggregate effect of acquisitions for which financial statements are not required or are not yet required, and expand the pro forma requirements.
- Permit the use of, or reconciliation to, International Financial Reporting Standards as issued by the International Accounting Standards Board in certain circumstances.
- 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, need for interim income statements, special provisions for blind pool offerings and the scope of the rule’s requirements.
- Replace existing pro forma adjustment criteria with:
- ‘Transaction Accounting Adjustments’
- ‘Autonomous Entity Adjustments’
- optional ‘Management’s Adjustments’.
- Make corresponding changes to the smaller reporting company requirements in Article 8 of Regulation S-X, which will also apply to issuers relying on Regulation A.
- Amend the definition of ‘significant subsidiary’ to provide a definition that is specifically tailored for investment companies.
- Add new Rule 6-11 and amend Form N-14 for fund acquisitions by investment companies and business development companies.