On May 2nd 2019 the SEC proposed
amendments to the financial reporting
requirements for acquisitions and
dispositions of businesses. This video
was prepared by the SEC's Office of the
Advocate for Small Business Capital
Formation to highlight some potential
impacts of this proposed rule on small
businesses and their investors. It is
meant only to provide a very high-level
summary and should not be viewed as a
substitute to reading the full proposal.
Let me start with a little background. When a company buys or sells a business,
including a real estate operation, it can
result in significant changes to its
results of operations, liquidity, or
future prospects, which can influence
investors decision-making. Currently
regulation SX requires reporting
companies, including smaller reporting
companies, to file audited financial
statements of an acquired business or
real estate operation and unaudited pro
forma financial information for an
acquisition or disposition if the
business is significant. Significance is
determined by calculating certain
prescribed ratios that compare the
acquired business to the reporting
company's business. These ratios are
referred to as the significance tests.
As part of the SEC's ongoing evaluation of
its disclosure requirements, the SEC
previously sought comments more broadly
on the rules related to certain
financial disclosures, including on the
effectiveness of financial disclosures
about acquired businesses. The proposed
amendments, which take into consideration
comments received, are intended to
improve for investors the financial
information about acquired and disposed
businesses to facilitate more timely
access to capital and to reduce the
complexity and cost to prepare the
disclosure. Those changes would include,
among other things, revising the
significance tests used to determine
whether separate financial statements of
an acquired business are required and
conforming the significance thresholds
and tests for a disposed business,
amending the proform of financial
information requirements to improve the
content and relevance of such
information, no longer requiring separate
financial statements for acquired
businesses once they are included in the
company's post-acquisition, audited
financial statements for a complete
fiscal year, and generally aligning the
requirements for acquired real estate
operations with those for other
acquired businesses where no unique
industry considerations exist. Many small
businesses may think this is a role that
matters only for the larger public
companies; however, the proposal would
impact smaller public companies as well.
It could decrease the cost of disclosing
financial statements for acquired
businesses, which could improve capital
raising opportunities for small
businesses. The SEC is soliciting public
comment on the expected impact and
effect of these proposed changes,
including on small businesses, before
deciding whether to adopt the proposed
changes. We encourage small businesses
and their investors to submit comments
expressing their perspectives. The full
text of the proposing release is
available on sec.gov. Comments can be
submitted online at sec.gov, via email to
rule-comments@SEC.gov, or via mail
to our headquarters. The SEC considers
all comments that are submitted on its
proposed rulemakings,
and it is important that your views are
heard as the SEC considers finalizing
these amendments.
