Not deterred by the pandemic, the Securities and Exchange Commission seems to be continuing its work tackling the items on the regulatory agenda. Today, the SEC announced that adopted amendments to its requirements related to disclosures for acquisitions and dispositions. We had previously blogged and written about these proposals.

The amendments affect Regulation S-X, including Rules 3-05, 3-14, 8-04, 8-05, 8-06, and Article 11, as well as other related rules and forms. In its fact sheet, the SEC highlights a number of the most important elements of the amendments, which we will address in more detail in a forthcoming legal update. Among the key elements of the amendments:

  • Changes to the significance tests in the "significant subsidiary" definition in Rule 1-02(w), Securities Act Rule 405, and Exchange Act Rule 12b-2 to improve their application and to assist registrants in making more meaningful determinations of whether a subsidiary or an acquired or disposed business is significant;
  • Changes to Article 11 of Regulation S-X, which relates to pro forma financial statement requirements;
  • Conforming, to the extent applicable, the significance threshold and tests for disposed businesses to those used for acquired businesses;
  • Modifying and enhancing the required disclosure for the aggregate effect of acquisitions for which financial statements are not required or are not yet required by eliminating historical financial statements for insignificant businesses and expanding the pro forma financial information to depict the aggregate effect in all material respects;
  • Requiring the financial statements of the acquired business to cover no more than the two most recent fiscal years;
  • Permitting disclosure of financial statements that omit certain expenses for certain acquisitions of a component of an entity; and
  • No longer requiring separate acquired business financial statements once the business has been included in the registrant's post-acquisition financial statements for nine months or a complete fiscal year, depending on significance.

The amendments will be effective on January 1, 2021, but voluntary compliance will be permitted in advance of the effective date. See the press release and fact sheet here. The adopting release is available here.

Originally published May 21, 2020

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