SEC updates acquisition and disposal disclosures

The SEC’s Final Rule, Amendments to Financial Disclosures about Acquired and Disposed Businesses, updates the disclosure requirements in Rules 3-05 and 3-14, as well as in Article 11, under Regulation S-X. The Final Rule also amends the “significant subsidiary” definition in S-X Rule 1-02(w), updating the investment and income tests to facilitate more meaningful significance determinations.

The Final Rule contains several amendments that are designed to reduce the compliance burdens on registrants, while providing relevant and material information to investors, as follows:

• Limiting the number of periods for which the acquired business’s financial statements are required;
• Amending significance tests to reduce instances that yield anomalous results; and
• Permitting the filing of abbreviated financial statements if certain conditions are met.

Amendments to pro forma financial information are expected to increase relevance to investors; however, certain adjustments will require significant judgment on the part of registrants.

The Final Rule is effective Jan. 1, 2021. Early compliance is permitted.

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