1.2 Acquired or to Be Acquired Businesses (Rule 3-05)

When an SEC registrant (acquirer) consummates or it is probable that it will consummate a significant business acquisition, the SEC may require the filing of certain financial statements for the significant acquired or to be acquired business (acquiree). For example, the filing in a Form 8-K of financial statements for the acquiree may be required. Further, if the acquirer files a registration statement or a proxy statement, separate financial statements for the acquiree may be required in addition to the financial statements for the acquirer.

The following factors govern whether and, if so, for what period, financial statements for the acquiree are required:

• Whether the acquired or to be acquired assets and liabilities meet the definition of a business for SEC reporting purposes (see Section 2.1).
• Whether consummation of the business acquisition is probable (see Section 2.2) or has recently occurred (see Section 2.4).
• The significance of the acquiree, which is assessed by performing the investment, asset, and income significance tests outlined in Regulation S-X, Rule 1-02(w) (see Section 2.3).
• The type of SEC filing being submitted (see Section 2.4).
• The specific annual and interim periods (i.e., the “age of financial statements”) for acquiree financial statements (see Section 2.5).

In addition, the following topics are important to consider when evaluating the presentation of the acquiree’s financial statements and the requirements of Rule 3-05 in certain circumstances:

• Form and content requirements for the acquiree financial statements, including the use of abbreviated financial statements where appropriate (see Section 2.6).
• Acquirees that are “related businesses,” as outlined in Rule 3-05(a)(3) (see Section 2.7).
• Acquisition of additional equity interests in a business (commonly referred to as a “step acquisition”) (see Section 2.8).
• Determination of the need for acquiree financial statements under the rules on aggregate significance (see Section 2.9).
• Acquisition in a joint venture at its formation (see Section 2.10).
• Acquisition of a “foreign acquiree” (i.e., business that is not incorporated in the United States) (see Section 2.11).
• Acquiree financial statement requirements in an initial registration statement or an IPO (see Section 2.5 of Deloitte’s Roadmap Initial Public Offerings).

While most business acquisitions occur when an acquirer purchases the equity interests or the net assets of a business, some are the result of events other than a purchase transaction (e.g., veto rights of a noncontrolling interest lapse so that a registrant obtains control over the entity). The instructions to Form 8-K, Item 2.01, define an acquisition, in part, as “every purchase, acquisition by lease, exchange, merger, consolidation, succession or other acquisition.” Therefore, an acquirer obtaining control of a business through an event other than a purchase transaction meets the definition of an acquisition, and the transaction is subject to the reporting requirements in Item 2.01 as well as those in Rule 3-05 and Article 11. See Chapter 11 of Deloitte’s Roadmap Consolidation — Identifying a Controlling Financial Interest for a discussion of the reporting requirements for businesses acquired through events other than purchase transactions.