8.1 Introduction
Financial statements that include assets and operations of some
subcomponent of a larger consolidated reporting entity are commonly referred to as
“separate” or “carve-out” financial statements, and they are routinely required in
connection with an IPO, a spin-off, a sale, or debt covenant compliance.
When used broadly, “separate” and “carve-out” describe financial statements that are
derived from the financial statements of a larger parent company. In this context, the
words are often used interchangeably. A narrower use of the term “carve-out financial
statements” refers specifically to financial statements that are not the separate
financial statements of a legal entity subsidiary but rather of certain operations
(e.g., unincorporated divisions, branches, disregarded entities, or lesser components of
the parent reporting entity) that have been “carved out” of the parent entity or one or
more legal entity subsidiaries. In this chapter, we use “separate financial statements”
to refer to financial statements of one or more legal entity subsidiaries and “carve-out
financial statements” to refer to financial statements that are composed of the assets
and operations of divisions, branches, disregarded entities, or lesser components of the
parent entity or one of its subsidiaries.
Even though carve-out financial statements are not those of a legal
entity (i.e., they are composed of portions of a legal entity or entities that have been
“carved out”), they are commonly referred to as the financial statements of the
carve-out “entity.” See Deloitte’s Roadmap Carve-Out Financial Statements for further
discussion of carve-out financial statements.