This Insight provides a reference to help make sense of the financial statement requirements under the US federal securities laws. We focus primarily on the registration statement requirements for “foreign private issuers” (a term that covers most non-US issuers other than foreign governments) in public offerings, including initial public offerings of emerging growth companies (EGCs).
Foreign Private Issuer Definition
Foreign private issuer is defined as an issuer organized outside the United States, excluding foreign governments, and does not include non-US issuers that have 50% or more us ownership residents and strong ties to the United States in terms of its executive officers, assets, or business administration.
Key Differences for Foreign Private Issuers
Foreign private issuers have certain benefits not available to US issuers, like the choice of using the US Generally Accepted Accounting Principles (US GAAP), International Financing Reporting Standards (IFRS) established by the International Accounting Standards Board (IASB), or local GAAP.
Emerging Growth Companies
An EGC may conduct its initial public equity offering using two years, rather than three years, of audited financial statements. In order to qualify as an EGC, a company must have annual gross revenue of less than $1.235 billion for its most recent completed fiscal year. An EGC may also limit its management discussion and analysis (MD&A) to cover the periods presented in the financial statements included in its registration statements filed or submitted for its initial public offering.
Registration statements for public offerings require specific financial statements and information about the issuer's financial status and operations as per Items 8, 17, and 18 of Form 20-F and Regulation S-X (S-X).
The Basic Requirements for Public Offerings
The financial statement requirements include consolidated annual audited financial statements of the issuer, which should include
The audited financial statements included in a registration statement or annual report should be prepared in accordance with
Interim Unaudited Financial Statements
These financial statements
Depending on the size of an acquisition and its significance to the issuer (which is measured in various ways—not all of them intuitive), audited financial statements for the most recent one or two fiscal years of the acquired business must be included, plus relevant unaudited interim financial statements.
Registration statements typically mandate audited financial statements for a significant acquisition occurring 75 days before the offering, following S-X Rule 3-05 and S-X Rule 3-14. If an acquisition surpasses the 50% threshold on any significance test, its audited financial statements must be included once the acquisition is deemed “probable.” Pro forma financial information complying with S-X Article 11 is generally necessary for recent or probable material acquisitions in the registration statement.
Defining ‘Business’
The US Securities and Exchange Commission (SEC) defines “business” to include an operating entity or business unit, excluding assets that do not generate distinct profit or loss.
Determining What Is ‘Probable’
Determining if a transaction is probable involves assessing circumstances. The SEC Staff generally considers an acquisition probable at the signing of a letter of intent or when financial statements alone are inadequate for investment decisions.
Significance Tests
Whether financial statements for recent and probable acquisitions must be included in the filing also depends upon the “significance” of the acquisition. Significance of an acquired business is evaluated under S-X Rule 3-05 or S-X Rule 3-14, based upon three tests that are in turn derived from S-X Rule 1-02(w):
In general:
Statement of Capitalization and Indebtedness
A registration statement must feature a statement of capitalization and indebtedness. While the rules specify the capitalization table to be dated no earlier than 60 days before the registration statement, the SEC staff allows foreign private issuers to present it as of the same date as the most recent required balance sheet. Any significant changes in capitalization, such as securities issuances like the proposed initial public offering, should be shown in “as adjusted” columns or notes within the table.
Normally, a registration statement must include—as of the date of filing—all of the financial statements listed above. However, according to guidance issued by the SEC’s Division of Corporation Finance, a foreign private issuer that is an EGC may omit from its nonpublic submissions the annual and interim financial data it “reasonably believes” will not be required at “the time of the contemplated offering.” The guidance further extends to cover a foreign private issuer that is not an EGC, which may also omit from its nonpublic submissions the annual and interim financial data it “reasonably believes” will not be required at the time when its registration statement is “publicly filed.”
Examples
For a calendar year-end EGC that submits a preliminary registration statement in November 2024 and plans to launch its offering in April 2025, where 2024 annual financial data is required, it can omit its 2022 annual financial details and interim financial data for 2023 and 2024 from the preliminary registration statement. If this company were to make its initial public filing in April 2025, when the 2024 annual information is needed, it does not need to separately prepare or present interim data for 2023 and 2024.
In the case of a calendar year-end issuer that is not an EGC and submits a preliminary registration statement in November 2024, expecting to file publicly for the first time in April 2025, when 2024 annual financial data is required, it can exclude its 2021 annual financial data and interim financial data for 2023 and 2024 from the preliminary registration statements. This exclusion is permissible because this information would not be mandated at the time of its initial public filing in April 2025.
In addition, a foreign private issuer that is an EGC may also omit from its confidential or non-public submissions the financial statements of an acquired business required by S-X Rule 3-05 or S-X Rule 3-14 that the issuer reasonably believes will not be required at the time of the offering.
If a registration statement becomes effective more than nine months after the last audited fiscal year, the issuer should provide consolidated interim financial statements. For instance, if a company's fiscal year concludes on December 31 and the registration statement becomes effective after September 30, the company must furnish unaudited interim financial statements complying with or reconciled to US GAAP, or in accordance with the IASB IFRS, covering at least the initial six months of the year.
Furthermore, if a company releases more current interim financial statements than what is required, it must incorporate the latest information in its registration statement. For example, if a company with a fiscal year ending on December 31 publishes first-quarter details and conducts a securities offering in July, it must include the first-quarter data in the registration statement. Similarly, if a company has already included six months' worth of information for an offering in November and subsequently publishes third-quarter information, it must include the third-quarter data as well.