D.2 Significance of the Acquired Business
The financial information, if any, that must be included in SEC filings is based
on the size of the acquiree, which the SEC refers to as the acquiree’s
“significance.” To determine the significance of the acquiree, the registrant must
perform the investment test, the asset test, and the income test:
- Investment test — The U.S. GAAP purchase price is compared with the aggregate worldwide market value of the registrant’s common equity. If the registrant has no aggregate worldwide market value (e.g., when common equity is not publicly traded, including in an IPO), total assets should be used in the test instead.
- Asset test — The registrant’s share of the acquiree’s total assets is compared with the registrant’s total assets on the basis of the most recent preacquisition annual financial statements of each company.
- Income test — The income test consists of an income
component and a revenue component:
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Income component — The registrant’s share of the acquiree’s pretax income is compared with the registrant’s pretax income on the basis of the most recent preacquisition annual financial statements of each company. Pretax income is defined in SEC Regulation S-X, Rule 1-02(w), as “consolidated income or loss from continuing operations before income taxes (after intercompany eliminations) attributable to the controlling interests.”
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Revenue component — If both the registrant and the acquiree have material revenue in each of the two most recently completed fiscal years, the revenue component is calculated by comparing the registrant’s share of the acquiree’s revenue with the registrant’s revenue on the basis of the most recent preacquisition annual financial statements of each company. If either the registrant or the acquiree does not have material revenue for each of the two most recently completed fiscal years, only the income component should be used.
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An acquiree will only be considered significant under the income test if both the income component and the revenue component (if applicable) exceed the significance threshold (i.e., 20 percent). When both components exceed the significance threshold, the lower of the income or revenue component is used to determine significance in accordance with the income test.
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The financial statement periods of the acquiree that the registrant must present
will be based on the test that results in the highest significance level, generally
as follows:
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Significance does not exceed 20 percent — No financial statements required.
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Significance exceeds 20 percent but not 40 percent — Financial statements for the most recent fiscal year (audited) and the latest year-to-date interim period that precedes the acquisition date (unaudited).
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Significance exceeds 40 percent — Financial statements for the two most recent fiscal years (audited), the latest year-to-date interim period that precedes the acquisition date (unaudited), and the corresponding interim period of the prior year (unaudited).
In addition, registration statement filings must include financial
statements and pro forma information for any probable or recently closed
acquisitions that are 50 percent or greater in significance. Registrants must also
consider the aggregate significance of the individually insignificant acquisitions
that are probable and consummated since the end of the registrant’s most recently
presented fiscal year. See Section
2.3 of Deloitte’s Roadmap SEC Reporting Considerations for Business
Acquisitions for further information.