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The accounting for business combinations and the related disclosures are a consistent area of focus for the SEC staff, with frequent comments related to:
  • how the registrant assessed the considerations of asset acquisition vs. business combination;
  • why the registrant omitted the disclosures required by ASC 805, such as amounts of post-acquisition revenues and earnings and supplemental pro forma financial information; and
  • compliance with the Regulation S-X Article 11 pro forma financial information and Regulation S-X Article 3-05 financial statements of businesses acquired or to be acquired requirements for significant business combinations disclosed on Form 8-K and in certain registration statements.
Comment examples (generalized to identify overarching themes, with specific details pertaining to individual companies omitted)
Guidance references
  • Please provide a detailed analysis of how you concluded that the Acquisition was the acquisition of assets rather than a business under FASB ASC 805.
  • Please expand to disclose the amount of net sales and income since the acquisition date included in your statements of income. Refer to ASC 805-10-50-2h(1). Please disclose the nature and amount of any material, nonrecurring pro forma adjustments directly attributable to the acquisition included in the pro forma net sales and income amounts. Refer to ASC 805-10-50-2h(4). Also, please reconcile the costs associated with the closing of the transaction with the amount disclosed in MD&A. Further, we note your narrative disclosures of the assets acquired and liabilities assumed. Given the significance of this acquisition, please consider providing a tabular reconciliation of the preliminary purchase price allocation and consideration paid using the guidance of ASC 805-20-50-1(c) and ASC 805-10-55-41.
  • Please revise future filings to more clearly disclose the information required by ASC 805-30-50-1 for each of your business combinations. Refer to ASC 805-10-55-41 for example illustrative disclosure.
  • We note your company purchased all the outstanding stocks for an acquired business. Please provide us with an analysis that you are not required to file Rule 3-05 financial statements and pro forma financial information under Article 11 of Regulation S-X.
  • We note your statement in the fifth paragraph that pro forma disclosures were not included as the "impact to the Company's results of operations not material." In this regard, we note that the purchase price was material to your balance sheet. Please demonstrate why the impact to the results of operations was not material or alternatively, revise to include the information.
  • Please revise the purchase price allocation tables for each acquisition to conform to the illustration presented in ASC 805-10-55-41, whereby goodwill represents the residual of consideration transferred and the fair value of any noncontrolling interest in the acquiree over the net assets acquired. Your current presentation includes goodwill within the allocation of assets acquired. Pursuant to ASC 805-30-50-1(b), also clearly disclose for each acquisition the acquisition-date fair value of each major class of consideration transferred. 
  • We note that you filed a Form 8-K to report the Agreement and Plan of Merger for an acquired business. Please tell us how you determined that you complied with the reporting requirements of Items 2.01 and 9.01 of Form 8-K.

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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