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).
When a registrant is required to present an acquiree’s financial
statements, the registrant generally also must include pro forma financial
information under Rule
11-01 (see Chapter
4 for additional information regarding the pro forma requirements).
Note that an acquiree’s financial statements are not required in annual or quarterly
reports filed on Form 10-K or Form 10-Q except in circumstances in which the
acquiree is a predecessor, as discussed below.
In addition, a significant acquiree itself may have recently
completed an acquisition (“acquiree of an acquiree”). In such a case, in accordance
with paragraph 2905.5 of the FRM,
the financial statements of the acquiree’s 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 2.5 of
Deloitte’s Roadmap Initial Public
Offerings).
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 Rule 3-05 does not apply to predecessor financial statements;
instead, Rules 3-01 and 3-02 should be applied to predecessor financial statements.
See paragraphs 2905.6 and
2905.7 of the FRM for
additional discussion.
In a de-SPAC transaction or other merger with a shell company,
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.
A target may also be the “predecessor” of the registrant as a result
of a merger between two operating companies. Before completion of the acquisition of
a business that is determined to be the predecessor to the registrant, the to be
acquired business should be evaluated under Rule 3-05 if there are any registration
statements filed by the registrant (or as a target in a proxy statement or Form S-4)
or Form 8-K filings reporting the acquisition. However, when the financial
statements for the period in which the transaction closed are issued in the normal
course of business in a periodic filing, the acquired business is considered the
predecessor to the registrant, and its financial statements become those of the
registrant. Therefore, the preacquisition financial statements of the predecessor
will be required for historical periods that are included in periodic filings (e.g.,
Forms 10-Q and 10-K) after the close of the transaction. In addition, such
preacquisition financial statements of the predecessor will need to be audited in
accordance with PCAOB standards. See Section 2.4.4 and Section 2.4.5.2 for further information.
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, as stated in paragraph 2930.1 of the FRM. 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
(e.g., target financial statements in a merger proxy or registration
statement), such information can be omitted from the Form 8-K (see Section 2.5.3.1).
Otherwise, as discussed in paragraph 2930.2 of the FRM, Form
8-K, Item 9.01, indicates that the registrant has an additional 71 calendar
days to file an amended Form 8-K that includes these financial statements
and the 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.
As discussed in paragraph
2930.3 of the FRM, Form 8-K, Item 9.01(c), notes that 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. In addition, such a waiver does not cover any future registration
statements unless specifically requested in the waiver. For additional
guidance on Rule 3-13 waivers and prefiling letter requests, see Section 2.5 of Deloitte’s Roadmap Initial Public Offerings.
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
As indicated in note 3 to paragraph 2930.1 of the FRM, 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. As noted in
paragraph 2930.8 of the FRM, 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 Section 2.4.4, Section
2.4.5, and Section 2.4.6
for guidance on the financial statement and audit requirements for target
companies.
2.4.2.1 General Requirements
In accordance with paragraph 2930.10 of the FRM, 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.
As stated in paragraph
2930.10 of the FRM, 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) file its
initial Form 8-K announcing the acquisition by
March 5, 20X1 (i.e., within four business days),
and (2) provide B’s audited financial statements
covering two years and any required interim
periods in an amendment to the Form 8-K (on a Form
8-K/A) filed within 71 calendar days from the date
of the initial Form 8-K. Note that the initial
Form 8-K does not contain B's financial
statements.
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 B
did not exceed the 50 percent significance level,
financial statements of B would not be required in
the registration statement.
2.4.2.1.2 Probable Acquisitions
As discussed above, as well as in paragraph 2930.10 of the FRM and
note 2 to paragraph
2930.1 of the FRM, 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 Acquirees Subject to the Aggregation Evaluation
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 have
not yet been 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 (together,
“the acquirees”). In accordance with paragraph 2945.9 of the FRM, if the acquirees’
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 acquirees in categories (1), (2), and (3) above.
For additional information on aggregate significance,
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. For more information, see Section
2.5 of Deloitte’s Roadmap Initial Public Offerings.
2.4.2.3 Draft Registration Statements
Section 2.5 of
Deloitte’s Roadmap Initial Public
Offerings 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.
Connecting the Dots
In March 2025, the SEC further expanded
accommodations for filing draft registration statements. See the
SEC’s March 3, 2025, release for additional
information on the enhanced accommodations.
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 corporation finance
interpretations (CFIs) 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 provided that the
financial statements were filed on Form 8-K within the grace period. It is the
responsibility of management, in consultation with SEC legal counsel, to
determine what constitutes a fundamental change.
In addition, as discussed in paragraph 2930.15 of the FRM, 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 interest reinvestment plans,” “employee benefit plans,”
“transactions involving secondary offerings,” and “sales of securities pursuant
to 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.”
As discussed in paragraph
2930.13 of the FRM, posteffective amendments are generally
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?2
|
Is the Target an SEC Reporting
Entity?
|
Target Financial Statement
Requirements
|
|---|---|---|
|
Yes
|
Yes
|
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
|
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.
|
As indicated in paragraph
2200.4 of the FRM, 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 because its revenues are less than $100 million), only two years of
financial statements must be provided. Under paragraphs 10220.6 and 10220.7 of the FRM, 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, paragraph 1140.8 of the FRM indicates
that this 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 2.5
of Deloitte’s Roadmap Initial Public Offerings.
As indicated in paragraph 2200.10 of the FRM, 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. However, as
stated in paragraph 2905.5 of the FRM, registrants may omit the
financial statements of recently acquired businesses of the acquiree or
equity method investees except in instances in which their omission would
render the acquiree’s financial statements “misleading or substantially
incomplete.”
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 if its significance to A
is greater than 20 percent. See Section
4.2.2.4.
2.4.4.2 Form S-4 Audit Requirements
In accordance with paragraph 2200.6 of the FRM, 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 Resales3
|
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
such periods were not previously audited, AICPA
standards require an auditor to state that fact in
the report and to indicate that the auditor
therefore assumes no responsibility for those
periods. However, if such periods were previously
audited, AICPA standards require an auditor to
address the periods in the audit report. See
Section
2.2.3 of Deloitte’s Roadmap SEC Reporting Considerations
for Equity Method Investees for
more information.
If audited financial statements are
required, the audit must be performed in accordance
with AICPA standards.
|
The note to paragraph
2200.7 of the FRM indicates that 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. As discussed in paragraph
12250.2 of the FRM, 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 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 Shareholders4
|
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:
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:
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:
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 because 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
2.5 of Deloitte’s Roadmap Initial Public Offerings.
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.
Paragraph 1140.5 of the
FRM indicates that 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 with 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 SEC 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 of this Roadmap and
paragraph
12250.2 of the FRM, 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. Therefore, as indicated in paragraph 2200.7 of the FRM, 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 targets’ 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 target financial statements are expected
to be audited in accordance with PCAOB standards.
Regulation S-X, Rule 15-01(d), and paragraphs 12300.2 and 12300.3 of the FRM also address previously
consummated or probable acquisitions by the predecessor. Rule 3-05 applies to
these consummated and probable acquisitions by the predecessor, and therefore
the SPAC’s registration statement may need to include financial statements of
these acquirees. In these instances, the predecessor’s consolidated financial
statements should be used to perform the significance tests. Further, in
accordance with paragraph 12300.3 of the FRM, if these Rule 3-05 financial
statements are eligible for omission from the registration statement or proxy
statement because they are within the grace period, “those financial statements
must be filed in a Form 8-K by the later of the filing of the Form 8-K filed
pursuant to Item 2.01(f) of Form 8-K or 75 days after consummation of the
acquisition.”
See Deloitte’s February 6, 2024, Heads Up 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
On January 24, 2024, the SEC issued a final rule
on financial reporting and disclosures for SPACs. The final rule aims to
(1) “enhance investor protections in initial public offerings [IPOs] by
[SPACs] and in subsequent business combination transactions between
SPACs and private operating companies [also known as de-SPAC
transactions]” and (2) “more closely align the treatment of private
operating companies [target companies] entering the public markets
through de-SPAC transactions with that of companies conducting
traditional IPOs.” For more information about the final rule as well as
SPACs, see Deloitte’s February 6, 2024, Heads Up.
Footnotes
2
Information in this table is
derived from Section
2200 of the FRM.
3
Information in this table is
derived from paragraph
2200.7 of the FRM.
4
Information in this table is
derived from paragraph
1140.3 of the FRM.