On May 21, 2020, as part of its broader efforts to modernize and simplify disclosure requirements, the Securities and Exchange Commission (“SEC”) adopted amendments to (i) streamline the required financial disclosures for acquisitions and dispositions of businesses, inclusive of real estate operations, (ii) update the “significant subsidiary” tests, and (iii) adopt new tailored requirements regarding acquisitions specific to registered investment companies and business development companies. These amendments will become effective as of January 1, 2021, but early voluntary compliance is permitted.

Specifically, as it relates to the streamlined financial disclosures for acquisitions and dispositions and as summarized by the final rule, the amendments:

  • “Expand the use of pro forma financial information in measuring significance;
  • Conform, to the extent applicable, the significance threshold and tests for a disposed business to those used for an acquired business;
  • Require the financial statements of the acquired business to cover only up to the two most recent fiscal years;
  • Permit disclosure of abbreviated financial statements for certain acquisitions of a [division or portion] of an entity;
  • Permit the use of, or reconciliation to, International Financial Reporting Standards as issued by the International Accounting Standards Board in certain circumstances;
  • No longer 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;
  • 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, the need for interim income statements, special provisions for blind pool offerings, and the scope of the rule’s requirements;
  • Amend the pro forma financial information requirements to improve the content and relevance of such information;
  • Clarify when financial statements and pro forma financial information are required, and update the language used in [SEC] rules to take into account concepts that have developed since adoption of the rules over 30 years ago; and
  • Make corresponding changes to the smaller reporting company requirements in Article 8 of Regulation S-X.”

The amendments also update the significance tests and modify regulatory requirements specific to investment companies to tailor the types of financial disclosures required with respect to acquisitions of investment companies and other types of funds.

If you have questions as to how these amendments may impact regulatory requirements applicable to your business, please reach out to a member of our Securities and Capital Markets team. The final rule can be found here and the accompanying press release here.


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