Appendix D — SEC Reporting Considerations for Business Combinations

D.3 Form of Financial Statements

Preacquisition financial statements of the acquiree are generally prepared on the same basis as if the acquiree were a registrant. Such acquirees need to comply with Regulation S-X. In addition, an acquiree that is not a public company does not need to comply with certain disclosure requirements that apply only to public companies, such as those related to segments or earnings per share. Also, some accounting standards differentiate between adoption dates for PBEs and those for nonpublic entities. Significant acquirees whose financial statements are included in a registrant’s filing under Rule 3-05 are considered PBEs under U.S. GAAP. Therefore, such acquirees should use the adoption dates and disclosure requirements for PBEs when preparing their financial statements. However, the SEC staff announced that it would not object to elections by certain PBEs to use the non-PBE effective dates for the sole purpose of adopting the FASB’s standards on revenue (ASC 606) and leases (ASC 842). In addition, since an acquired business meets the definition of a PBE, it is not eligible to elect certain accounting and reporting alternatives in U.S. GAAP, including those developed by the Private Company Council and subsequently endorsed by the FASB (see Chapter 8 for more information). Also, the effects of any previously elected private-company alternatives would have to be eliminated in the acquiree’s financial statements.

Generally, the annual financial statements for a significant acquisition may be audited in accordance with AICPA standards. If an acquired company is identified as a predecessor, however, the audit may need to be performed in accordance with PCAOB standards (in addition to complying with SEC Regulation S-X, Rule 3-01). In addition, while SEC regulations do not require registrants to obtain an audit or review of the interim financial statements provided under Rule 3-05, a company’s underwriters will often require that a review of interim information be performed by an independent auditor for due diligence or comfort letter purposes.

See Section 2.6 of Deloitte’s Roadmap SEC Reporting Considerations for Business Acquisitions for further information.

Confidential and Proprietary — for Use Solely by Authorized Personnel

This publication provides comprehensive guidance; however, it 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.