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Excerpt from ASC 805-30-50-1(c) and ASC 805-20-50-1(a)
Excerpt from ASC 805-20-50-1(b)
Excerpt from ASC 805-20-50-1(b)
Excerpt from ASC 805-20-50-1(b)
Excerpt from ASC 805-20-50-1(d)
Excerpts from ASC 805-30-50-1
Excerpt from ASC 805-30-50-1(f)
In a business combination achieved in stages, all of the following:
Excerpt from ASC 805-10-50-2(h)
SEC filing |
Supplemental pro forma required |
Supplemental pro forma not required |
Explanation |
Q2 20X2 |
X |
Present pro forma revenue and earnings as if the acquisition occurred on January 1, 20X1 for the three and six months ended June 30, 20X1 and 20X2. |
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Q3 20X2 |
X |
Present pro forma revenue and earnings as if the acquisition occurred on January 1, 20X1 for the three months ended September 30, 20X1 and the nine months ended September 30, 20X1 and 20X2. |
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Annual 20X2 |
X |
Present pro forma revenue and earnings as if the acquisition occurred on January 1, 20X1 for the annual periods ended December 31, 20X1 and December 31, 20X2. |
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Q1 20X3 |
X |
No requirement to present pro forma information because the period of acquisition would not be presented in the comparative first quarter 20X2 financial statements. |
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Q2 20X3
Q3 20X3 |
X X |
Retain the 20X2 pro forma disclosures because the 20X2 period of acquisition is presented as comparative information. |
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Annual 20X3 |
X |
Retain the 20X1 and 20X2 pro forma disclosures because the 20X1 and 20X2 periods are presented as comparative information. |
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Annual 20X4 |
X |
Retain the 20X2 pro forma disclosures because the 20X2 period is presented as comparative information. |
Periods to present
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ASC 805 requires that US public business entities disclose supplemental
pro forma information for the results of operations for the current period and the comparable prior period.
Pro forma financial information related to results of operations of periods prior to the combination is limited to the results of operations for the immediately preceding period.
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Regulation S-X Article 11 requires a pro forma condensed balance sheet based on the latest balance sheet included in the filing (unless the acquisition is already reflected in the historical balance sheet). The pro forma condensed income statement is based on the latest fiscal year (unless required to be accounted for retrospectively (e.g., common control transactions, discontinued operations)) and subsequent interim period included in the filing.
Comparative prior year interim period information is permissible, but not required.
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Length of time disclosures must be “retained”
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Pro forma disclosures should be repeated whenever the year or interim period of the acquisition is presented. See Question FSP 17-1 and Example FSP 17-1.
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In a subsequent registration statement, if historical financial statements of the acquired entity are required to be included or incorporated, a pro forma condensed balance sheet is not required if an acquisition is already reflected on the historical balance sheet; however, disclosures related to the acquisition are required.
Generally, a pro forma condensed income statement must be presented until the transaction to which the pro forma disclosure relates has been reflected in the audited financial statements for a 9 - 12-month period (depending on significance). In other words, a pro forma condensed income statement should be filed for the most recent fiscal year and for the period from the most recent fiscal year end to the most recent interim date for which a balance sheet is required (a pro forma condensed income statement for the corresponding interim period of the preceding fiscal year may also be filed). However, a pro forma condensed income statement may not be filed when the historical income statement reflects the transaction for the entire period.
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Format
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ASC 805-10-50-2h requires disclosure of revenue and earnings amounts on a pro forma basis. Additional line items (e.g., operating income, income from continuing operations) are permissible.
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Regulation S-X Article 11 requires a pro forma condensed balance sheet, pro forma condensed income statements, which must include income (loss) from continuing operations and income (loss) from continuing operations attributable to the controlling interest, and explanatory footnotes. The pro forma financial information must also include an introductory paragraph that provides a description of each transaction for which pro forma effect is being given, entities involved, periods for which the pro forma information is presented, and an explanation of what the pro forma presentation shows.
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Materiality
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ASC 805 disclosure requirements are based on materiality to the financial statements taken as a whole.
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Regulation S-X Article 11 pro forma information is based on the quantitative significance of the acquisition to the acquirer under Regulation S-X Rule 1-02(w), substituting 20% for 10% each place it appears therein.
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Date of combination
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If comparative financial statements are not presented, ASC 805 requires that the pro forma information be prepared for the current reporting period as though the acquisition had occurred as of the beginning of the current annual reporting period.
If comparative financial statements are presented, the pro forma information should be prepared as though the acquisition occurred at the beginning of the comparable prior annual reporting period. The “as if” date of the acquisitions would not be revised in the pro forma information in future periods when additional financial statement periods are presented.
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Regulation S-X Rule 11-02(a)(6)(i)(B) states that the pro forma adjustments related to the condensed income statement should be computed assuming the transaction was consummated at the beginning of the fiscal year presented. The SEC staff has interpreted this to mean that the pro forma adjustments are to be computed for both the annual and interim income statements, assuming that the acquisition occurred at the beginning of the annual period.
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Nonrecurring items
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ASC 805 requires adjustments that are nonrecurring in nature to be included in the pro forma amounts.
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Regulation S-X Rule 11-02(a)(6) and Regulation S-X Rule 11-02(a)(7) include the following three categories of adjustments:
(1) Transaction accounting adjustments to reflect only the application of required accounting to the transaction, such as acquisition accounting;
(2) Autonomous entity adjustments to reflect the operations and financial position of the registrant as an autonomous entity if the registrant was previously part of another entity, such as a spin-off transaction in which the costs allocated to the entity do not reflect all of the expected costs of operating as a standalone public company; and
(3) Management’s adjustments depicting synergies and dis-synergies of an acquisition or disposition for which pro forma effect is being given.
Transaction accounting and autonomous entity adjustments are required when the conditions for their presentation are met. Autonomous entity adjustments must be presented in a separate column from transaction accounting adjustments.
Management’s adjustments may (but are not required to) be presented only in the notes to the pro forma financial statements at the discretion of management if, in management’s opinion, they enhance an understanding of the pro forma effects of the transaction and certain conditions are met.
All pro forma adjustments should refer to notes that clearly explain the assumptions involved. |
Per share data
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ASC 805 does not require pro forma per share data.
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Regulation S-X Rule 11-02(a)(9i) and Regulation S-X Rule 11-02(a)(9ii) require the following to be presented on the face of the pro forma income statement:
The number of shares used in the computation of the pro forma per share amounts based on the weighted average number of shares outstanding during the period adjusted to give effect to the number of shares issued or to be issued to consummate the transaction, or if applicable, whose proceeds will be used to consummate the transaction, as if the shares were outstanding as of the beginning of the period presented. The pro forma effect of potential common stock being issued in the transaction (e.g., a convertible security), or the proceeds that would be used to consummate the transaction, on pro forma earnings per share is calculated in accordance with US GAAP as if the potential common stock was outstanding as of the beginning of the period presented.
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Footnotes
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ASC 805 requires disclosure of the nature and amount of any material, nonrecurring pro forma adjustments directly attributable to the acquisition included in the reported pro forma revenue and earnings.
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Regulation S-X Article 11 requires explanatory footnotes to be sufficiently detailed to enable a clear understanding of the assumptions and calculations involved in developing each of the pro forma adjustments. Regulation S-X Rule 11-02(a)(11)(i) requires that the explanatory notes disclose the revenues, expenses, gains and losses, and related tax effects that will not recur in the income of the registrant beyond twelve months after the transaction. Incremental disclosures are specifically required in the explanatory footnotes for Transaction accounting adjustments (Regulation S-X Rule 11-02(a)(11)(ii)) and Autonomous entity adjustments (Regulation S-X Rule 11-02(a)(11) (iii)).
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Other completed or probable transactions
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ASC 805 allows adjustments for completed business acquisitions but does not permit adjustments for probable business acquisitions or other significant transactions (e.g., a completed or probable significant business disposition).
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Regulation S-X Article 11 allows adjustments for probable business acquisitions and other significant transactions (e.g., a completed or probable significant business disposition).
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If the initial accounting for a business combination is incomplete (see paragraphs 805-10-25-13 through 25-14) for particular assets, liabilities, noncontrolling interests, or items of consideration and the amounts recognized in the financial statements for the business combination thus have been determined only provisionally, the acquirer shall disclose the following information for each material business combination or in the aggregate for individually immaterial business combinations that are material collectively to meet the objective in paragraph 805-10-50-5:
Excerpt from ASC 805-30-50-4
PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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