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Peter M. Fass Peter M. Fass

On May 3, 2019, the Securities and Exchange Commission (SEC) issued a release (release) proposing amendments to the financial disclosure requirements for financial statements of businesses acquired (including real estate acquisitions) or to be acquired and for business dispositions. See, Securities Act Release 33-10635; 84 Fed. Reg. 24,600 (May 28, 2019). The release changes are intended to improve the information investors receive regarding acquired or disposed businesses, reduce complexity and costs of preparing the required disclosures, and facilitate timely access to capital. Among the changes, the release includes changes to improve the disclosure requirements for (1) acquired or to be acquired businesses in Rule 3-05 of Regulation S-X; and (2) real estate operations in Rule 3-14 of Regulation S-X.

Financial Statement Requirements for Acquired Businesses

Rule 3-05. Rule 3-05 of Regulation S-X generally requires the inclusion of financial statements of an acquired business when the acquired business is significant to the registrant. Whether an acquisition is significant under Rule 3-05 is determined by applying an investment, asset and income test. Currently, Rule 3-05 requires separate audited annual and unaudited interim pre-acquisition financial statements of the business if any of the investment, asset or income tests exceeds the 20% significance threshold. The periods for which financial statements are required also depends on the relative significance of the business acquired or to be acquired.

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