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A Roadmap to SEC Reporting Considerations for Business Combinations (2019)

Published on: 24 Jun 2019

This Roadmap combines the SEC’s guidance on reporting for business acquisitions — including acquisitions of real estate operations and pro forma financial information — with Deloitte’s interpretations (Q&As) and examples in a comprehensive, reader-friendly format. Because the SEC made no significant changes to its guidance on reporting for business acquisitions since the issuance of last year’s Roadmap, most of the updates in the 2019 edition expand on or clarify existing text. The new edition also contains discussion of the SEC’s proposed rule that would amend the financial statement requirements for acquisitions and dispositions of businesses, including real estate operations, and related pro forma financial information.

The guidance in this Roadmap is intended to help registrants navigate their SEC reporting requirements related to the acquisition or probable acquisition of a business. Such registrants may be required under SEC rules to file the acquiree’s separate annual and interim preacquisition financial statements along with the related pro forma financial information. Disclosure of this information can be important to investors because an acquisition will generally affect a registrant’s financial condition, results of operations, liquidity, and future prospects. While registrants are also required to disclose the nature and financial impact of a business combination under the FASB’s accounting standards, the SEC’s requirements are significantly more detailed and can result in considerable financial reporting responsibilities regardless of whether a company acquires businesses frequently or only occasionally.

In May 2019, the SEC proposed changes intended to improve the information investors receive regarding acquired or disposed businesses, reduce complexity and costs of preparing the required disclosures, and facilitate timely access to capital. For example, the proposed rule would modify certain significance tests to reduce the potential for anomalous results that may require a registrant to provide acquiree financial statements that may not be material to investors. Further, it would allow registrants to (1) present fewer acquiree financial statement periods, (2) present acquiree financial statements in fewer circumstances, and (3) when certain criteria are met, use abbreviated financial statements without requesting permission from the SEC staff.

In addition, the proposed rule would modify the criteria for pro forma adjustments by replacing current requirements with two categories of adjustments that depict only the accounting for the transaction (referred to as transaction accounting adjustments) and reasonably estimable synergies and other effects of the transaction (referred to as management’s adjustments).

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