If the carve-out financial statements are part of a registration statement, SAB Topic 1.B.2 requires pro forma financial information when the carve-out financial statements are not indicative of the ongoing entity. The pro forma financial information should be in accordance with Regulation S-X Article 11.
A pro forma balance sheet as of the most recent balance sheet date and an income statement for the most recently completed fiscal year and subsequent year-to-date interim period included in the SEC filing are generally required. The three types of pro forma adjustments under Regulation S-X Article 11 are: (1) transaction accounting adjustments, (2) autonomous entity adjustments, and (3) management’s adjustments. Transaction accounting and autonomous entity adjustments are presented in separate columns in the pro forma information, and management’s adjustments, if any are identified, are included within the accompanying footnotes. The first two adjustment types are required when applicable, and the third adjustment type, which is meant to reflect synergies or the lack of synergies, is optional.
If the carve-out financial statements are being prepared in connection with the acquisition of a business, the historical financial information of the buyer and acquired business must be within one quarter of each other, if practicable. Pro forma transaction accounting adjustments reflect the accounting for the transaction under GAAP and would include items such as the allocation of the purchase price and conforming accounting policy adjustments. Revenue, expenses, gains and losses and the related tax effects that are not expected to continue for a period beyond 12 months must be disclosed.
In connection with a spin-off transaction, pro forma financial information would reflect autonomous entity adjustments such as new contractual arrangements with the former parent. The pro forma financial information may also need to reflect transaction accounting adjustments, such as the divestiture of assets or depooling of businesses that were included in the carve-out financial statements but that will not be transferred in connection with the spin-off.
See SEC 4560, Pro Forma Financial Information, for additional information.
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