The SEC Reduces Disclosure Requirements for Acquisitions

The SEC voted 3-1 to amend disclosure rules for companies acquiring or disposing of a business.  According to the amended rules, companies will only have to submit the financial statements for the two most recent fiscal years for an acquired business that is considered “significant” instead of the three years that used to be required under the rule.  Additionally, the SEC is amending the test that determines whether an acquisition or disposition is “significant” and increasing the circumstances in which companies may provide pro forma financial information.

Commissioner Allison Herren Lee dissented and issued a statement.  According to Commissioner Lee, “the rules create significant risks arising from reduced transparency for investors and potentially facilitating increased economic concentration, the latter risk being especially acute for small businesses in the current economic conditions.”  Commissioner Lee took issue with the rule requiring only two years of financial statements, “If one of those years is severely impacted by the COVID-19 crisis, will investors have sufficient information with respect to valuation? How much critical perspective may be lost because of the potentially anomalous period?”.

The rule changes take effect on Jan. 1, 2021, but the SEC is permitting early adoption of the amendments.