2015.1 Registrants must measure the significance of an acquired business under S-X 3-05 and S-X 8-04 using three tests, the:

These tests are described in further detail below.

2015.2 Financial Statements Used to Measure Significance — Generally, compare the most recent pre-acquisition annual financial statements of the acquired business to the registrant's pre-acquisition consolidated financial statements as of the end of the most recently completed audited fiscal year required to be filed with the SEC. Financial statements of both the acquired business and the registrant used to measure significance must be prepared in accordance with the comprehensive basis of accounting described in Section 2015.3, "Comprehensive Basis of Accounting Used to Measure Significance."

If a change in the reporting entity or a reorganization will occur at or after effectiveness of an initial registration statement but no later than closing of the IPO, the staff will consider requests for relief to use the combined financial statement amounts as the denominator for purposes of significance calculations in determining other financial statement requirements for the filing (e.g., S-X 3-05 and 3-09). (Last updated: 3/31/2010)

2015.3 Comprehensive Basis of Accounting Used to Measure Significance - A registrant that files its financial statements in accordance with or is required to provide reconciliation to U.S. GAAP should determine significance using amounts for both the acquired business and the registrant determined in accordance with U.S. GAAP; that is, both the numerator and denominator of the significance test would be determined in accordance with U.S. GAAP. A foreign private issuer that files its financial statements in accordance with IFRS as issued by the IASB should determine significance using amounts for both the acquired business and the registrant determined in accordance with IFRS as issued by the IASB; that is both the numerator and denominator of the significance test would be determined in accordance with IFRS as issued by the IASB. To illustrate these requirements, if a registrant that files its financial statements in accordance with U.S. GAAP acquires, both legally and for accounting purposes, a foreign private issuer or a foreign business that files its financial statements in accordance with IFRS as issued by the IASB, significance (both the numerator and denominator) must be determined in accordance with U.S. GAAP. This is true even though the acquired business did not reconcile its financial statements to U.S. GAAP.

2015.4 Asset Test - Compare registrant's share of acquired business's total assets to the registrant's consolidated total assets. Ordinary receivables and other working capital amounts not acquired should nevertheless be included as part of the assets of the acquired enterprise in tests of significance relative to the registrant's assets because that working capital is expected to be required and funded after the acquisition.

2015.5 Investment Test - Acquisition Accounting under ASC 805 and IFRS 3 as issued by the IASB -

Compare the total GAAP purchase price of the acquired business, as adjusted below, to the registrant's consolidated total assets.

GAAP purchase price in this context means the "consideration transferred", as that term is used in the applicable accounting standard. It includes the acquisition-date fair value of all contingent consideration and excludes acquisition-related costs.

The adjustment - For purposes of the "investment" test, "consideration transferred" should be adjusted to exclude carrying value of assets transferred by the acquirer to the acquired business that will remain with the combined entity after the business combination.

2015.6 [Reserved]

2015.7 Investment Test - Reorganization of Entities Under Common Control — Compare the net book value of the acquired business to the registrant's consolidated assets and compare the number of shares exchanged to registrant's outstanding shares at the date the combination is initiated.

2015.8 Income Test - Compare registrant's equity in the acquired business's income from continuing operations before taxes to that of the registrant.

There are three computational notes to the income test included at S-X 1-02(w). The second computational note indicates that if the registrant's income for the most recent fiscal year is 10% or more lower than the average of the registrant's income for the last five fiscal years, then the average income of the registrant should be used for this computation. This computational note also applies if the registrant reported a loss, rather than income. If the registrant reported a loss, the registrant should compare the absolute value of its reported loss to its average income for the last five fiscal years to determine if the registrant is required to use average income. In computing the registrant's average income for the last five fiscal years, loss years should be assigned a value of zero in computing the numerator for this average, but the denominator should be "5". Also, the acquiree's income may not be averaged. (Last updated: 12/31/2010)

2015.9 Significance — Absolute Values - In the case of a single acquisition, if either the registrant or the acquired business reported a pretax loss and the other entity reported pretax income, use the absolute values.

2015.10 Significance — Denominator - The acquired business is not considered part of the registrant's denominator in determining significance for purposes of S-X 3-05 [S-X 1-02(w)]

2015.11 Significance — Intercompany Transactions - When measuring significance for all three S-X 1-02(w) tests, intercompany transactions between the registrant and acquiree should be eliminated in the same way that would occur if the acquiree were consolidated. See by analogy S-X 1-02(w)(2).
(Last updated: 9/30/2009)

2015.12 Significance — "Related Businesses" - Acquisitions of "related businesses" must be treated as a single business acquisition. Businesses are related under S-X 3-05 if:

2015.13 Significance — Rounding - Do not round the results of the significance tests.