4.1 Pro Forma Financial Information Required in SEC Filings
To allow investors to understand and evaluate the impact of a
transaction (or group of transactions), pro forma financial information depicts the
accounting treatment for such transaction to show how it might have affected the
registrant’s historical financial position and results of operations. Under
Regulation S-X, Article
11, a registrant may be required to provide pro forma financial
information in several circumstances, including those in which:
- A significant business acquisition has occurred or is probable.
- The disposition of a significant portion of a business has occurred or is probable.
Similarly, pro forma financial information is required for
consummated or probable acquisitions and dispositions of real estate operations. See
Chapter 3 for more
information.
Beyond the acquisition or disposition transaction itself, Article 11
addresses other transactions for which pro forma financial information would be
material to an investor. For example, a registrant may issue new debt or equity
securities before an acquisition to fund the purchase. While such a financing
transaction would not be accounted for specifically as part of the acquisition, it
would generally be material to an investor within the context of the acquisition
transaction and thus included in the pro forma financial information.
In certain circumstances, pro forma financial information may need
to reflect multiple outcomes or transactions, such as a probable business
acquisition along with the acquisition of another business during the fiscal year or
subsequent interim period. Registrants must consider their specific facts and
circumstances to determine whether pro forma financial information is meaningful to
an investor and, if so, the appropriate manner of presenting it.
While the guidance in this chapter primarily addresses pro forma
financial information for a consummated or probable business acquisition, much of it
also applies to other transactions, such as the disposition of a significant portion
of a business. However, when preparing pro forma financial information for
transactions other than consummated or probable business acquisitions, registrants
should also consult other relevant guidance (e.g., Section 8.5 of Deloitte’s Roadmap Impairments and Disposals of
Long-Lived Assets and Discontinued Operations for
considerations related to presenting pro forma financial information for significant
consummated or probable business dispositions).
The types of SEC filings in which a registrant may be required to present pro forma
financial information for a significant consummated or probable business acquisition
include:
- Forms 8-K.
- Registration statements.
- Proxy statements.
- Prospectus supplements.
Neither Form 10-K nor Form 10-Q require pro forma financial
information under Article 11. However, a registrant’s notes to the financial
statements must include revenue and earnings of the combined entity as though the
business combination had occurred as of the beginning of the comparable prior annual
reporting period (i.e., supplemental pro forma data) as required by U.S. GAAP under
ASC 805. Note that this Roadmap does not provide guidance on U.S. GAAP requirements
for supplemental pro forma data (e.g., the requirements for business combinations
under ASC 805). For that guidance, readers should refer to ASC 805 and Section 7.9 of Deloitte’s Roadmap Business
Combinations.
The form and content of pro forma financial information is discussed
in Section 4.2, and the
periods to be presented are discussed in Section 4.3. The guidance in Section 4.4 addresses pro
forma adjustments, which may fall into three categories: transaction accounting
adjustments, autonomous entity adjustments, and management’s adjustments. See also
Appendix A for
examples of the pro forma financial information a registrant may be required to
disclose under Regulation S-X for a significant consummated business
acquisition.
Pro forma financial information for a consummated or probable
business acquisition is generally required whenever the separate preacquisition
financial statements of a significant acquiree must be provided. However, in certain
circumstances (see Section
4.5), pro forma financial information may be required even when
separate preacquisition financial statements are not necessary. See Section 2.4 for further
discussion of whether and, if so, in which filings separate preacquisition financial
statements of a significant acquiree are required.