5.1 Acquisition or Disposition of an Investee

In the year in which a significant equity method investee is acquired, the registrant should provide the investee’s audited financial statements from the date of acquisition through year-end. This view was expressed at the March 2001 AICPA SEC Regulations Committee joint meeting with the SEC staff and reiterated at their September 2006 joint meeting. As also indicated in paragraph 2405.4 of the FRM, a registrant should not present financial statements of equity method investees for periods before its ownership of the investment (although, as discussed in the note to paragraph 2405.4, such financial statements may be required under Rule 3-05).

Similarly, as noted in paragraph 2405.4 of the FRM, if a registrant disposes of a significant equity method investee in the current year, the investee’s audited financial statements should be presented through the disposal date. If the equity method investee is not significant in the current year but was significant in the previous two years, the registrant should present (1) unaudited financial statements for the current year through the disposal date and (2) audited financial statements for the previous two years.

An acquisition or disposition of a significant equity method investee during a fiscal year results in a requirement to present the investee’s financial statements for a partial year. However, paragraph 2405.4 of the FRM also indicates that the SEC staff will, upon a written request, consider accepting the financial statements of the equity method investee for the full fiscal year if the partial-year financial statements cannot be obtained without undue difficulty or cost. In such circumstances, registrants should also consider consultation with their auditors and SEC legal counsel.