Topic 13: Effects of Subsequent Events on Financial Statements Required in Filings
(Last updated: 9/30/2009)
Certain events that occur after the end of a fiscal year will require retrospective revision of that year’s financial statements (the “pre-event financial statements”) if they are reissued after financial statements covering the period during which the event occurred have been filed. Such events include reporting a discontinued operation, a change in reportable segments, or a change in accounting principle for which retrospective application is either required or elected.
13110.1 Reissuance of the pre-event financial statements is required if those financial statements are required to be included or incorporated by reference into a registration or proxy statement (with the exception of Form S-8 as noted below) along with financial statements covering the period during which the event occurred (the "post-event" financial statements).
13110.2 In the case of a registration statement on Form S-3, Item 11(b)(ii) of that form would specifically require retrospective revision of the pre-event audited financial statements that were incorporated by reference to reflect a subsequent change in accounting principle (or consistent with staff practice, discontinued operations and changes in segment presentation) if the Form S-3 also incorporates by reference post-event interim financial statements. If post-event financial statements have not been filed, the registrant would not revise the pre-event financial statements in connection with the Form S-3, however, pro forma financial statements in accordance with Article 11 of Regulation S-X may, in certain circumstances, be required. In contrast, a prospectus supplement used to update a delayed or continuous offering registered on Form S-3 (e.g., a shelf takedown) is not subject to the Item 11(b)(ii) updating requirements. Rather, registrants must update the prospectus in accordance with S-K 512(a) with respect to any fundamental change. It is the responsibility of management to determine what constitutes a fundamental change.
13110.3 If the pre-event financial statements are not reissued in connection with any filing under the Securities Act or Exchange Act, annual information does not need to be retrospectively revised until that information is included in the registrant’s next Annual Report on Form 10-K.
13110.4 Retrospectively revised quarterly information is required in Form 10-Qs filed with post-event financial statements.
13110.5 For the information of investors, once post-event financial statements have been filed with the SEC, a registrant may elect (if reissuance is not required) to file under cover of Form 8-K (Item 8.01) audited retrospectively revised financial statements for the pre-event periods.
NOTE to SECTION 13100: The requirement to revise financial statements for Form S-3 and the exception for Form S-8 noted below are derived from the Division of Corporation Finance’s Compliance and Disclosure Interpretations August 14, 2009, Securities Act Forms Q126.40:
After its Form 10-K is filed, a registrant has a change in accounting principles (or changes in segment presentation or discontinued operations), which will cause the financial presentation in its subsequent Form 10-Qs to differ from that in the Form 10-K. In this situation, Item 11(b)(ii) of Form S-3 would require the annual audited financial statements filed in the Form 10-K to be restated to reflect the change in accounting principles (or changes in segment presentation or discontinued operations). Would General Instruction G.2 of Form S-8, which requires that “material changes in the registrant’s affairs” be disclosed in the registration statement, also require such restatement?
Not necessarily. Form S-8 does not contain express language similar to Item 11(b)(ii) of Form S-3, requiring the restatement of financial statements to reflect specified events. The fact that financial statements eventually will be retroactively restated does not necessarily mean that there are “material changes in the registrant’s affairs,” thereby requiring the financial statements to be restated for inclusion, or incorporation by reference, in a Form S-8. In other words, financial statements for which Item 11(b)(ii) of Form S-3 would require restatement may not necessarily need to be restated for incorporation by reference in a Form S-8. The registrant is responsible for determining if there has been a material change and, if so, the related information that is required to be disclosed in a Form S-8. Correspondingly, it is the auditor’s responsibility to determine if it will issue a consent to use of its report in a Form S-8 if there has been a change in the financial statements in a subsequent Form 10-Q where the financial statements in the Form 10-K have not been retroactively restated.
13110.6 Form 10-K/A ordinarily should not be used to file retrospectively revised financial statements that reflect a subsequent change in accounting principle, discontinued operations or change in segment presentation. However, the staff will not object if a registrant, in a Form 10-K/A filed to correct a material error, also reflects the retrospective effects of accounting changes (or consistent with staff practice, discontinued operations and changes in segment presentation) that have been reflected in filings with the SEC subsequent to the original Form 10-K. If the Form 10-K/A is incorporated by reference into a registration statement, then the correction of the error and the accounting change would be required to be presented in the Form 10-K/A. In these circumstances, the financial statements in the Form 10-K/A should clearly distinguish the effects of the material error from those of any subsequent accounting change. (Last updated: 9/30/2010)
13200 Discontinued Operations
(Last updated: 9/30/2008)
13210.1 If financial statements as of a date on or after the date a component of the registrant has been disposed of or classified as held for sale are required in a registration or proxy statement, retrospective reclassification of all prior periods to report the results of that component in discontinued operations in accordance with ASC 205-20 is required. This guidance is applicable even where the filing incorporates by reference annual audited financial statements issued prior to the classification of the component in discontinued operations. The auditor's consent to incorporation of those financial statements in a registration or proxy statement is deemed a reissuance that requires consideration of the effects of subsequent events. Moreover, the financial statements prepared by management and included in the filing are required to comply with U.S. GAAP at the date of effectiveness or mailing, necessitating retrospective reclassification pursuant to ASC 205-20.
13210.2 Predecessor financial statements are required to be retrospectively reclassified to reflect the impact of a successor’s discontinued operations. Registrants should contact the staff if unusual facts and circumstances may prohibit the company’s ability to reclassify predecessor fiscal periods. (Last updated: 3/31/2010)
13300 Changes in Segments
(Last updated: 3/31/2009)
13310.1 If management changes the structure of its internal organization in a manner that causes the composition of its reportable segments to change, the corresponding information for prior periods should be retrospectively revised if practicable in accordance with ASC 280. If annual financial statements are required in a registration or proxy statement that includes subsequent periods managed on the basis of the new organization structure, the annual audited financial statements should include a revised segment footnote that reflects the new reportable segments. The registrant's Description of Business and MD&A should be similarly revised. The revised annual financial statements and related disclosures may be included in the registration or proxy statement or in a Form 8-K incorporated by reference.
13400 Change in the Reporting Entity or a Business Combination Accounted for in a Manner Similar to a Pooling of Interests
(Last updated: 3/31/2010)
13410.1 ASC 250 requires that a change in the reporting entity or the consummation of a transaction accounted for in a manner similar to a pooling of interests, i.e., a reorganization of entities under common control, be retrospectively applied to the financial statements of all prior periods when the financial statements are issued for a period that includes the date the change in reporting entity or the transaction occurred.
13410.2 If a change in the reporting entity or a reorganization occurs for a currently reporting registrant after a year-end balance sheet date but before that year-end Form 10-K is filed, the financial statements in the Form 10-K should not be retrospectively revised to reflect the change in reporting entity or the reorganization. However, the issuer may elect to provide supplemental audited combined financial statements of the entities to be reorganized. Unusual situations can be discussed with CF-OCA.
13410.3 In an initial registration statement, if a change in the reporting entity or a reorganization will occur at or after effectiveness of the registration statement but no later than closing of the IPO, the staff will consider requests to present consolidated or combined financial statements as the primary financial statements of the registrant in lieu of the separate financial statements of the registrant and of the entities to be reorganized based on the particular facts and circumstances.
13500 Stock Splits
(Last updated: 9/30/2008)
Stock splits also require retrospective presentation. Ordinarily, the staff would not require retrospective revision of previously filed financial statements that are incorporated by reference into a registration or proxy statement for reasons solely attributable to a stock split. Instead, the registration or proxy statement may include selected financial data which includes relevant per share information for all periods, with the stock split prominently disclosed.
13600 MEASUREMENT PERIOD ADJUSTMENTS
(Last updated: 9/30/2009)
13610 Financial Statement Requirements in Registration Statements Pursuant to Retrospective Adjustments to Provisional Amounts in a Business Combination
If a registrant determines it must make a material retrospective adjustment to provisional amounts it previously reflected in its financial statements pursuant to the requirements of ASC 805-10-25 and this adjustment has not yet been reflected in any historical financial statements, the registrant should provide or incorporate by reference revised financial statements reflecting the retrospective adjustment if the adjustment is material. If this retrospective adjustment has been reflected in subsequent interim historical financial statements, but the acquisition occurred in the preceding fiscal year and the adjustments are not reflected in the annual financial statements, the registrant should provide revised audited financial statements for the year of acquisition reflecting the adjustments. The revised financial statements are generally filed via Form 8-K.