Proposed Amendments to Financial Disclosure Requirements of Regulation S-K

On May 3, 2019 the SEC proposed amendments to Regulation S-X to simplify financial disclosure requirements for public companies relating to acquisitions and dispositions of businesses.  Among other changes, the amendments would modify the significance tests applicable to acquisitions as set forth in Rule 3-05 of Regulation S-X, which sets forth the number of years of financial statements of the acquired business that must be filed with the SEC. Specifically, the proposal would amend (i) the investment test to require a comparison of a company’s investment in an acquired business to the worldwide aggregate market value of the company’s common equity and (ii) the income test by requiring an acquired business to meet a new revenue component, in addition to the previously-used net income component.  Additionally, if an acquisition exceeds 50% significance, only two years of financial statements are required, and if an acquisition exceeds 20% but does not exceed 40%, then financial statements would only be required for the most recent interim period.

The proposal also provides that financial statements would no longer be required in registration statements and proxy statements filed with the SEC once the acquired business is reflected in the company’s post-acquisition financial statements for a complete fiscal year.  This specific amendment would eliminate the need to provide an acquired business’ financial statements when such statements have not been previously filed or when they have been filed but the acquired business is considered “significant”.

The proposal is currently subject to a 60-day public comment period, which ends on July 29, 2019.

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