Carve-Out Transactions (2019)

“Carve-out financial statements” is a general term used to describe financial statements derived from the financial statements of a larger parent entity. Carve-out transactions might occur when a parent entity wishes to pursue a sale, spin-off, or initial public offering (IPO) of a portion of the parent entity. Carve-out financial statements are needed to complete a carve-out transaction and reflect the portion of a parent entity’s balances and activities that are the subject of the transaction. Certain SEC staff guidance addresses some elements of carve-out financial statements (e.g., when the statements will be included in an SEC filing), and parent entities often refer to the SEC staff’s guidance on preparing financial statements for nonpublic carve-out entities. However, there is no single set of comprehensive guidance on preparing carve-out financial statements.

To help streamline the preparation of carve-out financial statements, this publication summarizes key factors to consider. Such considerations are presented in the following chapters:

• Chapter 1, “Key Concepts Related to Carve-Out Financial Statements” — This chapter identifies the basic principles of a carve-out transaction and provides considerations for management to use in identifying the carve-out entity and navigating the carve-out process. In addition, it highlights some practical considerations that management should take into account when preparing carve-out financial statements.
• Chapter 2, “Accounting Considerations Related to a Carve-Out Entity’s Statement of Financial Position” — This chapter discusses accounting and disclosure guidance on common balance sheet items included in carve-out financial statements.
• Chapter 3, “Accounting Considerations Related to a Carve-Out Entity’s Statement of Comprehensive Income” — This chapter discusses accounting and disclosure guidance on common income statement items included in carve-out financial statements.
• Chapter 4, “Other Accounting and Financial Reporting Items” — This chapter expands on the items introduced in Chapters 2 and 3 by discussing additional accounting and financial reporting guidance on topics such as statement of cash flows, discontinued operations, and subsequent events.
• Chapter 5, “SEC Reporting Topics” — This chapter identifies the various SEC reporting topics that carve-out entities and the parent entity need to consider when preparing IPO and other SEC filings.