SEC votes in favour of overhauling disclosures on business acquisitions

Earlier in the week, The Securities and Exchange Commission voted in favor of proposing a set of amendments to its rules governing the type of information provided to investors regarding the disposition and acquisition of businesses.

According to the SEC, the changes will reduce complexity and compliance costs as well as facilitate more timely access to capital.

As per reports, the changes include updates to significance tests under the existing rules by revising the investment test and the income test, confirming the significance threshold and tests for a disposed business as well as expanding the use of pro forma financial information in measuring significance.

Furthermore, the updates set of amendments would also require the financial statements of the acquired business to cover up to the two most recent fiscal years instead of up to the three most recent fiscal years. The proposal would clarify when pro forma financial information and financial statements are required and also allow disclosure of financial statements that omit certain expenses for certain acquisitions of a component of the firm.

In a statement, Jay Clayton, Chairman of the SEC said, “The proposed rules are, first and foremost, intended to ensure that investors receive the financial information necessary to understand the potential effects of significant acquisitions or dispositions.”

Additionally, the proposal shall also permit the use in certain circumstances of, or reconciliation to, International Financial Reporting Standards as issued by the International Accounting Standards Board. Thus completing eliminating the need for financial statements of separate acquired business once the business has been included in the registrant’s post-acquisition financial statements for a complete fiscal year.

As per reports, following the publication of the proposal in the Federal Register there will be a 60-day public comment period.

 

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