2.4 Acquiree Financial Statements Required in SEC Filings

A registrant may be required to present historical financial statements of an acquiree in SEC filings such as the following:

Form 8-K (see Section 2.4.1).
Registration statements (see Section 2.4.2).
Prospectus supplements (see Section 2.4.3).
Registration statements filed on Form S-4 for securities issued for a business acquisition (see Section 2.4.4).
Proxy statements for a business acquisition (see Section 2.4.5).
Registration statements filed on Form S-4 or proxy statements for targets in SPAC transactions (see Section 2.4.6).

An acquiree’s financial statements are not required in annual or quarterly reports filed on Form 10-K or 10-Q (unless the acquiree is a predecessor, as discussed below). When such financial statements are required, a registrant generally also must include pro forma financial information under Rule 11-01. See Chapter 4 for further discussion.

In addition, a significant acquiree itself may have recently completed an acquisition (“acquiree of an acquiree”). In such a case, the financial statements of the acquiree of the acquiree do not have to be filed along with the significant acquiree’s financial statements unless the significant acquiree's financial statements would be misleading or substantially incomplete without them.

Additional considerations are necessary in the application of Rule 3-05 to an IPO registration statement (see Section 2.12).

In certain circumstances, a registrant’s own operations before an acquisition may appear insignificant relative to the operations of the acquired entity. The target in such cases may be identified as the “predecessor” of the registrant. For example, the target of a SPAC or “shell” company will generally be considered the registrant’s predecessor. Identifying a target as a predecessor is important because additional reporting requirements apply in such cases.

Predecessor financial statements are considered financial statements of a registrant rather than those of a company that is acquired in accordance with Rule 3-05. For example, the preacquisition financial statements of the target/predecessor will be reported for historical periods included in periodic filings (e.g., Forms 10-Q and 10-K) after the close of the transaction. In addition, the predecessor’s financial statements will need to be audited in accordance with PCAOB standards. See Section 2.4.6 for a discussion of the application of these requirements to SPAC transactions. For a discussion of predecessor financial statement requirements in an IPO, see Chapter 2 of Deloitte’s Roadmap Initial Public Offerings.

2.4.1 Form 8-K

SEC registrants are required to periodically file current reports on Form 8-K to inform investors of certain events. Under Form 8-K, Item 2.01, a registrant must file a Form 8-K within four business days after a consummated acquisition of (1) a significant amount of assets or (2) a business that is significant. As indicated in the instructions to Item 2.01, “[t]he term acquisition includes every purchase, acquisition by lease, exchange, merger, consolidation, succession or other acquisition.”

2.4.1.1 Form 8-K — Significant Consummated Business Acquisition

A registrant must file an initial Form 8-K within four business days of the consummation of a business acquisition that exceeds the 20 percent significance level. If they are available, the financial statements required by Rule 3-05 and the related pro forma financial information required by Rule 11-01 may be filed by the registrant along with the initial Form 8-K. If that information is “substantially the same” as information that has been previously reported, such information can be omitted from the Form 8-K (see Section 2.5.3.1). Otherwise, the registrant has an additional 71 calendar days to file an amended Form 8-K that includes these financial statements and pro forma financial information (i.e., the grace period). Note, however, that the filing of a registration statement or certain proxy statements during the grace period may accelerate the requirement to provide the financial statements and pro forma financial information, as discussed in Section 2.4.2.1. If the required due dates fall on a weekend or holiday, the information may be filed on the following business day.

A registrant that is a shell company does not have an additional 71 calendar days to provide the required information in an amended Form 8-K. Under Items 2.01(f) and 9.01(c) of that form, these financial statements and related pro forma financial information, as well as all the content required by Form 10, must be included in the initial Form 8-K within four business days of the consummation of the business acquisition (often referred to as a “Super 8-K”). See Section 2.4.6 for information about the application of these requirements to SPAC transactions.

In certain situations, registrants may wish to seek relief from complying with the financial statement requirements of Rule 3-05 or Rule 3-14, even before an acquisition is consummated. For example, a registrant may not want to finalize an acquisition until it is assured that it can meet the requirements or secure a waiver. We understand that if a registrant is granted relief from providing the Rule 3-05 financial statements and related pro forma information, the registrant is still required to disclose the completion of the acquisition on Form 8-K, Item 2.01. The waiver granted by the CF-OCA under Rule 3-13 only applies to the historical and pro forma financial statement requirements and does not provide relief from filing Item 2.01. For more information, see Section 1.5.

A registrant may elect to report business acquisitions that do not exceed the 20 percent significance level in accordance with the requirements in Form 8-K, Item 8.01.

2.4.1.2 Form 8-K — Significant Probable Business Acquisition

A registrant is not required to file Form 8-K, Item 2.01, for a significant probable business acquisition. However, upon agreeing to the terms of an acquisition that is significant, a registrant must comply with the applicable Form 8-K filing requirements, which may include those in Item 1.01. Note, though, that a registrant may be required to include, in a registration statement or proxy statement, financial statements and related pro forma financial information for a probable business acquisition that exceeds the 50 percent significance threshold on the basis of the three significance tests described in Section 2.3. See Section 2.4.2 for more information.

2.4.1.3 Form 8-K — Significant Asset Acquisition

There may be separate Form 8-K filing requirements for acquisitions of assets and assumptions of liabilities that do not meet the definition of a business for SEC reporting purposes. See Section 2.1.3 for further discussion.

2.4.1.4 Form 8-K — Control Obtained Through Means Other Than a Purchase

As indicated in the instructions to Form 8-K, Item 2.01, “[t]he term acquisition includes every purchase, acquisition by lease, exchange, merger, consolidation, succession or other acquisition” (emphasis added). Therefore, a registrant must consider the requirements for filing a Form 8-K for the consolidation of a business when control is obtained through an event other than a purchase transaction. See Chapter 11 of Deloitte’s Roadmap Consolidation — Identifying a Controlling Financial Interest for discussion of the reporting requirements for businesses acquired through events other than purchase transactions.

In addition, when a registrant contributes assets or a business in exchange for an equity interest in a joint venture, the registrant is transferring an interest in such assets or business in exchange for an ownership interest in the joint venture. For SEC reporting purposes, the formation of a joint venture in this manner consists of two events that may require the registrant to file a Form 8-K: an acquisition and a disposition. See Section 2.10 for more information.

2.4.2 Registration Statements

The financial statement and audit requirements for a registration statement or combined proxy/registration statement filed on a Form S-4 for securities being offered to security holders of a business that has been identified as a potential acquisition (i.e., target) may be different from those specified in Rule 3-05. See Sections 2.4.4 through 2.4.6 for guidance on the financial statement and audit requirements for target companies.

2.4.2.1 General Requirements

A registrant is generally required to file financial statements for a significant business acquisition that was consummated 75 or more days before a registration statement is filed or declared effective. Such financial statements may be included in the registration statement or incorporated from a previously filed Form 8-K. In addition, Rule 3-05(b)(4)(i) requires that registration statements include financial statements for a probable or recently consummated acquisition that exceeds the 50 percent significance level. These requirements are discussed further in the sections below.

2.4.2.1.1 Consummated Acquisitions

If the acquisition of a significant business was consummated 75 or more days before a registration statement is filed or declared effective, the financial statements of the significant acquiree are required unless the registrant’s audited financial statements reflect the operating results of the acquiree for nine or twelve months, as described in Section 2.4.2.2.

If the acquisition of a significant business was recently consummated (i.e., less than 75 days before the registration statement was filed or declared effective), the requirement to file financial statements of the acquiree depends on the significance of the acquired business as follows:

If a significant acquired business does not exceed the 50 percent significance level (on the basis of any of the three tests described in Section 2.3), a registrant may exclude the financial statements of the business unless the registrant has already filed them (e.g., for another registration statement).
If a significant acquired business exceeds the 50 percent significance level (on the basis of any of the three tests described in Section 2.3), a registrant must include the financial statements of the business in the registration statement before they would otherwise be due on Form 8-K/A.

Example 2-20

Registrant A acquires Company B on Monday, March 1, 20X1. Company B is 55 percent significant to A. Therefore, A must (1) provide B’s audited financial statements covering two years and any required interim periods and (2) file its initial Form 8-K announcing the acquisition on March 5, 20X1 (i.e., within four business days). The initial Form 8-K does not contain B’s financial statements. Registrant A has an additional 71 calendar days before it is required to file B’s financial statements and pro forma financial information in a Form 8K/A.

Registrant A files a registration statement on April 1, 20X1. Even though A is not required to file B’s financial statements in a Form 8-K/A until May 17, 20X1 (i.e., 71 calendar days after the initial Form 8-K had to be filed), A must provide B’s financial statements in the registration statement because B is greater than 50 percent significant to A. If A did not exceed the 50 percent significance level, financial statements of A would not be required in the registration statement.

2.4.2.1.2 Probable Acquisitions

As discussed above, a registrant is not required to file a Form 8-K that contains financial statements for a significant probable business acquisition, but it must include them in a registration statement if the probable acquisition exceeds the 50 percent significance level (on the basis of any of the three significance tests described in Section 2.3).

2.4.2.1.3 Individually Insignificant Acquisitions

Under Rule 3-05, the financial statements of acquirees that do not exceed the 20 percent significance level are not required. However, when filing a registration statement, a registrant must evaluate the aggregate significance of (1) probable acquisitions that do not exceed 50 percent, (2) consummated acquisitions that exceed 20 percent but do not exceed 50 percent and whose financial statements do not yet have to be filed (i.e., within the grace period), and (3) any acquisitions consummated since the end of the registrant’s most recently completed fiscal year presented that do not exceed 20 percent. The acquirees in all three categories are commonly referred to as individually insignificant acquirees, and if their aggregate significance exceeds 50 percent, the registration statement must include:

The audited preacquisition financial statements for the most recent fiscal year and interim period for any acquirees in categories (1) and (2) above that exceed 20 percent significance and have not yet been filed.
Pro forma financial information to reflect the aggregate effects of all individually insignificant acquisitions.

For additional information on individually insignificant acquisitions, see Section 2.9.

2.4.2.2 Exceptions to the General Requirements

Rule 3-05(b)(4)(iii) allows a registrant to apply certain exceptions for significant business acquisitions in which the operations of an acquired business are included in the registrant’s consolidated financial statements. For example, the acquiree’s financial statements are not required in a registration statement once the registrant’s audited financial statements reflect the operating results of an acquiree for at least:

Nine months if any of the results of the significance tests are greater than 20 percent but none are greater than 40 percent.
A complete fiscal year if the results of any of the significance tests are greater than 40 percent.

Further, Rule 3-05(b)(4)(iv) allows a registrant to omit a separate audited balance sheet of the acquiree if the registrant’s most recent audited balance sheet is for a date after the acquisition was consummated. The registrant is still required to provide the acquiree’s statements of operations, comprehensive income, cash flows, and changes in equity for the appropriate periods along with the related footnotes.

These exceptions are commonly applied in IPO registration statements (see discussion in Section 2.12).

2.4.2.3 Non-IPO Draft Registration Statements

Section 2.12 discusses accommodations that may be available in a draft registration statement that is voluntarily submitted to the SEC staff for a nonpublic review before a registrant’s public filing. For example, a registrant may be able to omit the financial statements of a significant acquired or to be acquired business in certain circumstances. A draft registration statement may be submitted to the SEC staff for such a review for (1) IPOs and initial registration statements under the Securities Act of 1933 (“Securities Act”), (2) initial registration statements under Section 12(b) of the Securities Exchange Act of 1934 (“Exchange Act”) for a class of securities (e.g., Form 10), and (3) Securities Act offerings within one year of an IPO or Exchange Act Section 12(b) registration (the latter circumstance is only available for the initial submission). See Deloitte’s July 11, 2017 (updated August 24, 2017), Heads Up, which discusses draft registration statements and the nonpublic review process.

In addition, a registrant may be able to omit from a draft registration statement the historical financial statements of a significant business acquisition or significant probable business acquisition and the related pro forma information required by Article 11 if it reasonably believes that those financial statements will not be required at the time of the public filing (or, for emerging growth companies [EGCs], at the time of the contemplated offering). See the SEC staff’s C&DIs on (1) Securities Act Forms (Questions 101.04 and 101.05) and (2) the FAST Act (Questions 1 and 2).

Example 2-21

Company C is a calendar-year-end business that completed its IPO in June 20X7 and plans to submit a draft registration statement in December 20X7 to complete a secondary offering in early 20X8. In the fourth quarter of 20X6, it completed a significant acquisition of Company B that was greater than 20 percent but did not exceed 40 percent significance. One year of B’s financial statements was required in C's IPO registration statement under Rule 3-05.

Company C plans to include its 20X7 annual audited financial statements in its public filing in early 20X8 for its secondary offering. Thus, after C publicly files the registration statement, B will have been part of C’s audited financial statements for at least nine months, eliminating the need for C to provide B’s separate financial statements. In this scenario, it is our understanding that the staff in the Division of Corporation Finance will not delay its review of the draft registration statement in December 20X7 if B’s financial statements and the related pro forma financial information are omitted from the submission.

2.4.2.4 Registration Statements for Guaranteed Debt Securities or Securities Collateralized by Securities of an Affiliate

In addition to the reporting requirements outlined in Rule 3-05 (discussed in the sections above), registrants must apply the guidance in Regulation S-X, Rules 13-01(a)(5) and 13-02(a)(5), which address registration statements for (1) guaranteed debt securities and (2) securities collateralized by securities of an affiliate, respectively. Those rules state that such registration statements must contain the preacquisition summarized financial information of any recently acquired subsidiary guarantors or recently acquired affiliates whose securities collateralize the issued securities if the subsidiary has not been included in the registrant's most recent balance sheet and the subsidiary or affiliate is considered a significant business. The significance tests under Rules 13-01(a)(5) and 13-02(a)(5) are the same as those under Rule 3-05, and a recently acquired guarantor subsidiary or recently acquired affiliate is significant if it exceeds the 20 percent threshold.

See Deloitte’s Roadmap SEC Reporting Considerations for Guarantees and Collateralizations for more information about the disclosure requirements related to registered guaranteed or collateralized debt securities.

2.4.3 Prospectus Supplements to Currently Effective Registration Statements

For currently effective registration statements (e.g., an existing Form S-3) upon which a registrant wishes to draw down or issue securities, a registrant may use a prospectus supplement. The requirement to provide historical financial statements of the acquiree before issuing securities on an effective registration statement depends on various factors, including (1) the significance of the acquisition, (2) whether the financial statements of the acquiree have been provided within the 71-calendar-day extension (i.e., the grace period), (3) whether the acquisition has been consummated or is probable, and (4) whether the acquisition represents a fundamental change.

We understand that a domestic registrant is not obligated to update the prospectus except with respect to any fundamental change (as specified by Securities Act Section 10(a)(3) and Regulation S-K, Rule 512(a)). If a consummated acquisition does not exceed 50 percent significance and does not represent a fundamental change, the registrant has no specific obligation to provide or update the financial statements of the acquiree. It is the responsibility of management, in consultation with SEC legal counsel, to determine what constitutes a fundamental change.

In addition, it is our understanding that if a consummated acquisition exceeds 50 percent significance and a registrant has not yet provided financial statements during the grace period, offerings in accordance with registration statements that currently are effective may not proceed without the historical financial statements of the acquiree, except in certain limited circumstances (i.e., offerings or sales of securities upon the conversion of outstanding convertible securities or upon the exercise of outstanding warrants or rights, dividend or reinvestment plans, employee benefit plans, transactions involving secondary offerings, and sales of securities under Securities Act Rule 144).

As noted in the highlights of the October 2015 CAQ SEC Regulations Committee joint meeting with the SEC staff, the Committee asked the SEC staff to confirm that the requirement to provide financial statements of a consummated acquisition that exceeds 50 percent significance does not apply to a probable business acquisition unless management determines that the probable business acquisition constitutes a fundamental change. “The staff confirmed that the ‘bright line’ guidance [i.e., exceeds 50 percent significance] only applies to completed acquisitions.”

All posteffective amendments are considered “new filings” and are subject to the guidance discussed in Section 2.4.2.

2.4.4 Form S-4 Registration Statements for Securities Issued for a Business Acquisition

A registration statement filed on a Form S-4 may be used to register securities being offered for a potential acquisition (i.e., target). As noted in Section 2.4.2, the financial statement and audit requirements for a target in Form S-4 filings may be different from the requirements specified in Rule 3-05 (Rule 3-05 does not extend to target companies included in a proxy statement or a registration statement filed on Form S-4). For a discussion of the financial statement and audit requirements for a target in a SPAC transaction, see Section 2.4.6.

2.4.4.1 Form S-4 Financial Statement Requirements

The Form S-4 financial statement requirements for a target vary according to the facts, which may include whether an issuer’s shareholder vote is required or whether the target is a registrant. In addition, a registrant’s Form S-4 may or may not include proxy materials for a shareholder vote to approve the potential transaction.

The table below summarizes the Form S-4 financial statement requirements for a target. However, it does not reflect requirements that may apply to EGCs or smaller reporting companies (SRCs); those are discussed beneath the table.

Table 2-2 Form S-4 Financial Statement Requirements for a Target

Are the Issuer’s Shareholders Voting?	Is the Target an SEC Reporting Entity?	Target Financial Statement Requirements
Yes	Yes	Balance sheets as of the two most recent fiscal years (audited). Statements of operations, comprehensive income, cash flows, and changes in shareholders’ equity for the three most recent fiscal years (audited). Required interim information (unaudited), if applicable. Financial statements of the target’s significant acquired or to be acquired business under Rule 3-05. Note that the target’s financial statements are required regardless of significance and may differ from those that must be provided under Form 8-K or other registration statements.
No	Yes
Yes	No	Balance sheets as of the two most recent fiscal years. Statements of operations, comprehensive income, cash flows, and changes in shareholders’ equity for the three most recent fiscal years. Required interim information, if applicable. Financial statements of the target’s significant acquired or to be acquired business under Rule 3-05 if the omission of those financial statements renders the target company’s financial statements substantially incomplete or misleading. Note that the target’s financial statements are required regardless of significance and may differ from those that must be provided under Form 8-K or other registration statements. See Table 2-3 for the applicable audit requirements.
No	No	If the significance of a target does not exceed 20 percent, the target’s financial statements are not required. However, a registrant must aggregate individually insignificant business acquisitions, including the insignificant target, to assess compliance with Rule 3-05. See Section 2.9 for additional discussion. If the significance of the target exceeds 20 percent and Form S-4 will be used for resale by persons considered underwriters under Rule 145(c) of the Securities Act, financial statements must be provided for the periods required by Rule 3-05(b)(2). If the significance of a target exceeds 20 percent and the Form S-4 will not be used for resale by persons considered underwriters under Rule 145(c) of the Securities Act, the financial statements of the most recent fiscal year and interim period are required in the registration statement. Prior years’ financial statements are also required if they were previously furnished to a target’s security holders. See Table 2-3 for the applicable audit requirements.

If the target is eligible to apply the SRC reporting requirements (e.g., the target is either a currently reporting SRC or a nonreporting target that would be an SRC if it were an issuer [e.g., its revenues are less than $100 million]), only two years of financial statements must be provided. If the transaction involves an operating EGC registrant that acquires a target, two years of target financial statements may be appropriate in (1) a Form S-4 that is the EGC’s IPO of common equity securities or (2) a Form S-4 filed after the EGC’s IPO of common equity securities but before it files its first Form 10-K.

In addition, while Rule 3-06(b) permits “the filing of financial statements covering a period of 9 to 12 months” to satisfy the one-year financial statement requirement for an acquiree, it does not apply to a target company’s financial statements included in a proxy statement or Form S-4. However, registrants with unusual circumstances may want to request preclearance with the CF-OCA. If such preclearance is contemplated, registrants should consider consultation with their auditors and SEC legal counsel. For additional guidance on Rule 3-13 waivers and prefiling letter requests, see Section 1.5.

Pro forma financial information reflecting the acquisition must be included in a Form S-4 if the target exceeds the 20 percent significance level under Rule 3-05. In addition to the requirements noted above, financial statements of other acquired businesses (unrelated to the acquisition of the target company) may be necessary in a registration statement or a merger proxy statement under Rule 3-05. For example, if a registrant previously consummated an unrelated significant business acquisition or is considering the acquisition of an unrelated significant business acquisition (i.e., a probable acquisition), financial statements (and related pro forma financial information) may be required for that business acquisition.

Example 2-22

Registrant A contemplated a merger with Registrant B. Registrant A was preparing a Form S-4 to register the securities being offered to B’s shareholders. Registrant A’s shareholders will vote on the potential acquisition of B. Accordingly, financial statements for the three years and interim periods were required for A and B (see Table 2-2).

In addition to the potential merger between A and B, during the latest year (more than 75 calendar days ago), A consummated an acquisition of Company X. Upon acquiring X, A concluded that the acquisition was significant under Rule 3-05 and filed audited financial statements of X and the appropriate pro forma financial information on Form 8-K. Therefore, besides A’s potential acquisition of B, A’s Form S-4 filing needs to include X’s historical financial statements since A did not meet any of the exceptions to the general requirements discussed in Section 2.4.2.2. Further, the pro forma financial statements must give effect to A’s acquisition of X as well as its potential acquisition of B. See Section 4.2.2.4.

Changing Lanes

In March 2022, the SEC issued a proposed rule that would require public companies to provide enhanced and standardized climate-related disclosures. The proposed rule’s requirements would apply to private operating companies (targets) merging with a registrant (including a SPAC; see Section 2.4.6). For target companies, the disclosures would be required in the proxy statement or Form S-4 filed in advance of the transaction. For more information about the proposed rule, see Deloitte’s March 21, 2022 (updated March 29, 2022), Heads Up.

2.4.4.2 Form S-4 Audit Requirements

If a target company is an SEC reporting entity, all fiscal years presented for the target must be audited in accordance with PCAOB standards. If the target is not an SEC reporting entity, the audit requirements for the target financial statements referred to in the table below depend on whether the securities that are being registered on Form S-4 will be used for resale by persons considered underwriters under Rule 145(c) of the Securities Act.

Table 2-3 Audit Requirements When the Target Is Not an SEC Reporting Entity

Form S-4 to Be Used for Resales	Form S-4 Not to Be Used for Resales
Audited financial statements are required for the same periods that must be audited in accordance with Rule 3-05(b)(2). Financial statements must be audited in accordance with AICPA standards.	The financial statements for the latest fiscal year must be audited only if it is practicable to perform such an audit. A registrant determines practicability by considering the feasibility of completing the audit on a timely basis. Nevertheless, since a target’s audited financial statements will be required in a Form 8-K once an acquisition is consummated, a registrant must be able to explain why it is able to submit those financial statements on time but cannot do so for the Form S-4. Note that although such relief from obtaining an audit of financial statements may be available, a registrant is still required to furnish all financial statements specified by Form S-4, Item 17, on an unaudited basis. The financial statements for the fiscal years before the latest fiscal year need not be audited if they were not previously audited. If audited financial statements are required, the audit must be performed in accordance with AICPA standards.

Form S-4 to Be Used for Resales

Form S-4 Not to Be Used for Resales

Audited financial statements are required for the same periods that must be audited in accordance with Rule 3-05(b)(2).

Financial statements must be audited in accordance with AICPA standards.

The financial statements for the latest fiscal year must be audited only if it is practicable to perform such an audit. A registrant determines practicability by considering the feasibility of completing the audit on a timely basis. Nevertheless, since a target’s audited financial statements will be required in a Form 8-K once an acquisition is consummated, a registrant must be able to explain why it is able to submit those financial statements on time but cannot do so for the Form S-4.

Note that although such relief from obtaining an audit of financial statements may be available, a registrant is still required to furnish all financial statements specified by Form S-4, Item 17, on an unaudited basis.

The financial statements for the fiscal years before the latest fiscal year need not be audited if they were not previously audited.

If audited financial statements are required, the audit must be performed in accordance with AICPA standards.

Relief from the requirement to audit a target company’s financial statements is available only for merger proxies and transactions registered on Form S-4 — not on other forms. Even if such relief is obtained, if an acquisition exceeds the 20 percent significance level, audited financial statements for the appropriate periods would ordinarily still be required in a Form 8-K after consummation.

The audit requirements may differ for a nonpublic target that is an accounting acquirer in a reverse merger with a public operating company. The premerger financial statements of the target included in a related Form S-4, proxy statement, or Form 8-K may be audited in accordance with AICPA standards. However, once the financial statements of the target are presented as the registrants’ historical financial statements (i.e., once the reverse merger is reported in an SEC filing), any reissuance of audited premerger target financial statements would have to be audited in accordance with PCAOB standards. See the highlights of the March 2018 CAQ SEC Regulations Committee joint meeting with the SEC staff. Also see Section 2.6 for a discussion of adoption dates of new standards in this circumstance.

2.4.5 Proxy Statements for a Business Acquisition

As noted above, the financial statement and audit requirements for a target in a proxy statement may be different from those specified in Rule 3-05 (Rule 3-05 does not extend to target companies included in a proxy statement or registration statement on Form S-4). For a discussion of the financial statement and audit requirements for a target in a SPAC transaction, see Section 2.4.6.

2.4.5.1 Financial Statement Requirements for a Proxy Statement

The financial statement requirements for a target in a merger proxy statement vary according to factors such as (1) who the voting shareholders are and (2) the form of consideration. If the consideration issued in the business combination includes registered securities, the registrant must comply with the financial statement requirements of Form S-4 (see Section 2.4.4.1).

The table below summarizes the requirements for including the financial statements of a target in a proxy statement for a business combination that does not involve registered securities (i.e., one that is not filed on Form S-4). However, it does not reflect requirements that may apply to EGCs or SRCs; those are discussed beneath the table.

Table 2-4 Financial Statement Requirements for Proxy Statements

Voting Shareholders	Consideration Issued to Effect the Business Combination	Financial Statements
Acquirer only	Cash only, exempt securities only, or a combination of cash and exempt securities	Financial statements of a target are required because the information is material to a voting decision. Such financial statements include: Balance sheets as of the two most recent fiscal years. Statements of operations, comprehensive income, cash flows, and changes in shareholders’ equity for the three most recent fiscal years. Required interim information, if applicable. Note that the target’s financial statements are required regardless of significance and may differ from those that must be provided under Form 8-K or other registration statements. An acquirer’s financial statements are not required unless they are material to an informed voting decision because shareholders are presumed to have access to information about the acquirer. Pro forma financial information is required if it is material to a voting decision.
Target only	Cash only	Except in the case of going-private transactions (as defined by Exchange Act Rule 13e-3), financial statements of the target are not required because the security holders are presumed to have access to information about their company. Financial statements of the acquirer are not required unless the information is material to an informed voting decision. If acquirer financial statements are required, only the two most recent fiscal years and interim periods must be provided. No pro forma information is required.
Target only	Exempt securities only or a combination of cash and exempt securities	Except in the case of going-private transactions (as defined by Exchange Act Rule 13e-3) or roll-up transactions (as described by Regulation S-K, Item 901), financial statements of the target are not required because the security holders are presumed to have access to information about their company. Financial statements of an acquirer are generally required because the information is material to a voting decision. However, the acquirer would only need to present the two most recent fiscal years and interim periods. Pro forma financial information is required, if material.
Acquirer and target	Cash only	Financial statements of a target are required and include: Balance sheets as of the two most recent fiscal years. Statements of operations, comprehensive income, cash flows, and changes in shareholders’ equity for the three most recent fiscal years. Required interim information, if applicable. Note that the target’s financial statements are required regardless of significance and may differ from those that must be provided under Form 8-K or other registration statements. An acquirer’s financial statements are not required unless they are material to an informed voting decision. If the acquirer’s financial statements are required, only the two most recent fiscal years and interim periods need to be provided. Pro forma financial information is required if it is material to a voting decision by the acquirer’s shareholders.
Acquirer and target	Exempt securities only or a combination of cash and exempt securities	Financial statements of a target are required and include: Balance sheets as of the two most recent fiscal years. Statements of operations, comprehensive income, cash flows, and changes in shareholders’ equity for the three most recent fiscal years. Required interim information, if applicable. Note that the target’s financial statements are required regardless of significance and may differ from those that must be provided under Form 8-K or other registration statements. An acquirer’s financial statements are generally required for the two most recent fiscal years and interim periods. Pro forma financial information is required, if material.

If the target is eligible to apply the SRC reporting requirements (e.g., target is either a currently reporting SRC or a nonreporting target that would be an SRC if it were an issuer [e.g., its revenues are less than $100 million]), only two years of annual financial statements are required. If the transaction involves an operating EGC, two years of target financial statements may be appropriate in a proxy statement filed after the EGC’s IPO of common equity securities but before it files its first Form 10-K.

Pro forma financial information reflecting the acquisition is generally required in a proxy statement if the target exceeds the 20 percent significance level under Rule 3-05. In addition to the requirements noted above, financial statements of other acquired businesses (unrelated to the acquisition of the target company) may need to be included in a merger proxy statement under Rule 3-05. For example, if a registrant previously consummated an unrelated significant business acquisition or is considering the acquisition of an unrelated significant business acquisition (i.e., a probable acquisition), the registrant may be required to provide financial statements (and related pro forma financial information) for that business acquisition. See Example 2-22.

In addition, Rule 3-06(b), which permits “the filing of financial statements covering a period of 9 to 12 months” to satisfy the one-year financial statement requirement for an acquiree, does not apply to a target’s financial statements included in a proxy statement or Form S-4. However, registrants with unusual circumstances may preclear them with the CF-OCA. If such preclearance is contemplated, registrants should consider consultation with their auditors and SEC legal counsel. For additional guidance on Rule 3-13 waivers and prefiling letter requests, see Section 1.5.

Changing Lanes

The SEC’s March 2022 proposed rule on enhanced and standardized climate-related disclosures would require private operating companies (targets) merging with a registrant (including a SPAC; see Section 2.4.6) to provide such disclosures. In addition, the disclosures for target companies would be required in the proxy statement or Form S-4 filed in advance of the transaction. For more information about the proposed rule, see Deloitte’s March 21, 2022 (updated March 29, 2022), Heads Up.

2.4.5.2 Audit Requirements for a Proxy Statement

If a target is an SEC registrant, all annual financial statements must be audited in accordance with PCAOB standards. If the target is not an SEC registrant, only the financial statements for the latest fiscal year must be audited, if practicable, and may be audited in accordance AICPA standards. Financial statements for prior years need not be audited if they were not previously audited.

Registrants (acquirers) are encouraged to consult with their auditors and legal counsel for assistance in determining the merits of an assertion that an audit for the latest fiscal year is impracticable on the basis of the particular facts and circumstances. Although relief from obtaining an audit of financial statements may be available as described above, registrants are still required to file the target’s audited financial statements (in accordance with AICPA standards) in Form 8-K once the acquisition is consummated, if significant.

As discussed in Section 2.4.4.2, a nonpublic target that is an accounting acquirer in a reverse merger with a public operating company may have different audit requirements. An audit of the premerger financial statements of the target may be performed in accordance with AICPA standards for a related Form S-4, proxy statement, or Form 8-K. But if the financial statements of the target are presented as the registrant’s historical financial statements (i.e., once the reverse merger is reported in an SEC filing), an audit of any reissuance of premerger target financial statements would have to be performed in accordance with PCAOB standards. For more information, see the highlights of the March 2018 CAQ SEC Regulations Committee joint meeting with the SEC staff. Also see Section 2.6 for a discussion of adoption dates of new standards in this circumstance.

2.4.6 Financial Statement and Audit Requirements for Targets in SPAC Transactions

A SPAC is a newly formed company that raises cash in an IPO and uses that cash or the equity of the SPAC, or both, to fund the acquisition of a target. After a SPAC IPO, the SPAC’s management looks to complete an acquisition of a target within a specified time.

Before completing an acquisition, SPACs hold no material assets other than cash; therefore, they are nonoperating public “shell companies,” as defined by the SEC. Since a SPAC does not have substantive operations before an acquisition has been completed, the target becomes the SPAC’s predecessor upon the close of the transaction, and the operations of the target become those of a public company. As a result, the SEC staff views the SPAC transaction to be equivalent to an IPO of the target, and the target must therefore be able to meet all the public-company reporting requirements.

Since a SPAC’s shareholders are generally required to vote on the transaction, the SPAC may file either (1) a proxy statement on Schedule 14A or (2) a combined proxy and registration statement on Form S-4. These documents must include the target’s financial statements, which are expected to comply with public-company U.S. GAAP disclosure requirements as well as SEC rules and requirements. For annual periods, the financial statements are expected to be audited in accordance with PCAOB standards.

See Deloitte’s October 2, 2020 (updated April 11, 2022), Financial Reporting Alert for guidance on SPACs. In addition, transactions with a shell company that is not a SPAC may have financial statement reporting requirements that are similar to those of a SPAC.

Changing Lanes

The SEC issued a proposed rule in March 2022 that is intended to “more closely align the financial statement reporting requirements in business combinations involving a shell company and a private operating company [target company] with those in traditional [IPOs].” For more information about the proposed rule as well as SPACs, see Deloitte’s October 2, 2020 (updated April 11, 2022), Financial Reporting Alert.

Also in March 2022, the SEC issued a proposal that would require public companies to provide enhanced and standardized climate-related disclosures. Private operating companies (targets) merging with a registrant (including a SPAC) would be subject to the proposed rule’s requirements, and disclosures for target companies would be provided in the proxy statement or Form S-4 filed in advance of the transaction. For more information about the proposed rule, see Deloitte’s March 21, 2022 (updated March 29, 2022), Heads Up.

Confidential and Proprietary — for Use Solely by Authorized Personnel

This SEC Reporting Interpretations manual provides comprehensive guidance; however, the manual does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.