Source: JD Supra | Re-Post SerenityAlts 7/17/19
The Securities and Exchange Commission (“SEC” or “Commission”) recently proposed a number of changes to Regulation S-X and related rules and forms that could significantly streamline the requirements for filing financial statements in connection with significant acquisitions. If adopted in their current form, these changes would directly impact real estate investment trusts (“REITs”), registered investment companies, and business development companies (“BDCs”) by substantially rewriting the rules that require reporting companies to file separate financial statements for acquired real estate operations and funds. The proposed amendments are intended to eliminate unnecessary costs to companies while improving the disclosure available to investors.
As proposed, Rule 3-14 of Regulation S-X (“Rule 3-14”) would be amended to align more closely with the disclosure requirements that apply to business acquisitions under Rule 3-05 of Regulation S-X (“Rule 3-05”). The amendments also would codify a number of SEC staff interpretations that have developed over the years to address ambiguities in Rule 3‑14. Additionally, the Commission proposed new, more tailored requirements relating to acquisitions by registered investment companies and BDCs (collectively, “investment companies”) to better address the specific attributes of these entities.
When a registrant acquires a business, Rule 3-05 generally requires separate pre-acquisition financial statements of that business to be filed if the acquisition is significant to the registrant. Similarly, Rule 3-14 requires a registrant to file pre-acquisition financial statements for an acquired real estate operation (“property”) that is significant. Article 6 of Regulation S-X, which provides specialized disclosure requirements for investment companies, does not prescribe specific disclosure for acquired funds. Instead, those entities must follow Rule 3-05 to determine when pre-acquisition financial statements are required.