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30.10 Other matters (accounting changes)
Publication date: 28 Feb 2022
us Financial statement presentation guide
Accounting changes may arise as part of a spin-off, sale, or business combination. Presentation and disclosure considerations vary depending on the circumstances.
30.10.1 Spin-off or sale of a subsidiary of an SEC-registered reporting entity
Reporting entities sometimes sell or spin-off divisions or subsidiaries. A spin-off is a transaction in which a portion of a reporting entity (e.g., division or subsidiary) becomes a new, separate reporting entity and the shareholders of the original reporting entity receive a pro rata ownership in the spun-off reporting entity.
When a division or subsidiary is preparing its financial statements to facilitate a sale or spin-off, the division or subsidiary usually follows the accounting principles of its parent. When a division or subsidiary is spun-off, it can change to an accounting principle different from that used by its parent, provided that the change is preferable. Such a change in accounting principle should be retrospectively applied in the financial statements.
The spun-off reporting entity must disclose the nature of the change in accounting principle and explain why the newly adopted accounting principle is preferable.
A spun-off reporting entity cannot, however, retrospectively reflect changes in estimates. Such changes should be reflected in the period in which they occur in both the consolidated (if applicable) and spun-off reporting entity's financial statements.
30.10.2 Conforming accounting policies of acquired entities
The need to conform the accounting policies of an entity acquired in a business combination to those of the acquiring reporting entity is discussed in BCG 2.12.
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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