The SEC’s Significant Subsidiary Test and Acquisition and Equity Method Investee Reporting

Applying the SEC’s significant subsidiary test to a business acquisition and reporting and filing the resulting Form 8-K presents tactical and computational challenges. In addition, companies with equity method investees must annually apply the significant subsidiary test to determine if separate audited financial statements or footnote disclosure is required for these investments. This Briefing begins with a detailed review of the mechanics and application of the significant subsidiary test. Discussion will then apply this test to the acquisition Form 8-K requirements, including separate audited financial statements of an acquired company and pro-forma financial information. The requirements for separate audited financial statements and footnote information about equity method investees in Forms 10-K, 20-F, and 10-Q will also be reviewed.

Please join our discussion leaders Cheryl L. Linthicum and George M. Wilson of PLI’s SEC Institute for this deep dive into SEC’s significant subsidiary test and its various applications.

In this Briefing faculty will:

• Review the definition of and quantitative testing for a “significant subsidiary” – 15 minutes
  • The significant subsidiary definition in Regulation S-X - Article 1-02 (w)
    • The investment test
    • The asset test
    • The income and revenue test
  • Variations based on available information
  • Quantitative examples
  • Selected guidance in the SEC’s Financial Reporting Manual and SEC Compliance and Disclosure Interpretations
  • Possible waiver requests under Regulation S-X Article 3-13
• Apply the significant subsidiary test to acquisitions of a business – 25 minutes
  • Reporting requirements of Form 8-K Item 2.01
  • Focus on closing date
  • When to test significance
  • Computational issues, including contingent consideration in purchase price amounts
  • Example significance determination
  • Separate audited financial statement requirements for acquired businesses in Regulation S-X Article 3.05
    • Deadlines for audited financial statements
  • Pro-forma financial information requirements
    • Types of pro-form adjustments
  • Application to acquisitions of equity method investments
• Apply the requirements for equity method investee reporting in Forms 10-K, 20-F, and 10-Q – 20 minutes
  • The significant subsidiary test as applied to equity method investees
    • Which parts apply to equity method investees
    • Considerations for subsidiaries not consolidated
  • Separate financial statement requirements for equity method investees and non-consolidated subsidiaries in Regulation S-X Article 3.09
  • Regulation S-X - Article 4.08 - Footnote disclosures in certain cases where separate financial statements are not required
    • Form of the footnote disclosures
    • Grouping of multiple investees
  • Examples

Program Level: Update 

Intended Audience: Accountants and attorneys who deal with SEC reporting and disclosure and related accounting issues, including CFOs, controllers and their staff, internal auditors, partners of public accounting firms and their staff, in-house counsel, and outside attorneys

Prerequisites: None 

Advanced Preparation: None