Financial Statements
Proposed Rules for Financial Statements
372 See General Instruction III to Form 1-A. Since, as proposed, the financial statements required by Part F/S would apply to those following the Form S-1 format, rather than Item 11(e), we have removed the reference to that item in General Instruction III for clarity. Although, as proposed, Items 11(f) and (g) are also not required for those following the Form S-1 format, we continue to specifically allow for cross-referencing and incorporation by reference in those items for those voluntarily choosing to provide such disclosure. As with Model B, the item numbers in the Offering Circular format of Part II of Form 1-A and Part I of Form S-1 do not align.
373 Id. Issuers may, for example, add a cross-reference to disclosure found in the financial statements. However, they may not incorporate by reference or add a cross-reference within the financial statements to disclosures found elsewhere. See General Instruction III to Form 1-A, which does not allow for incorporation by reference in Part F/S.
374 Cf. Securities Act Rule 411(c) and Exchange Act Rule 12b-32 (providing a similar requirement when incorporating exhibits by reference in filings under the Securities Act and Exchange Act).
Part F/S of Form 1-A currently requires issuers375 in Regulation A offerings to provide the following financial statements prepared in accordance with U.S. GAAP:376
a balance sheet as of a date within 90 days before filing the offering statement (or as of an earlier date, not more than six months before filing, if the Commission approves upon a showing of good cause) but, for filings made more than 90 days after the end of the issuer’s most recent fiscal year, the balance sheet must be dated as of the end of the fiscal year;
statements of income, cash flows, and stockholders’ equity for each of the two fiscal years preceding the date of the most recent balance sheet, and for any interim period between the end of the most recent fiscal year and the date of the most recent balance sheet;
financial statements of significant acquired or to be acquired businesses; and
pro forma information relating to significant business combinations.
The required financial statements may be unaudited unless the issuer has already obtained an audit for another purpose.377
We proposed to generally maintain the existing financial statement requirements of current Part F/S of Form 1-A for Tier 1 offerings, while requiring Tier 2 issuers to file audited financial statements.378 We proposed to require all issuers to file balance sheets
375 The requirements also apply to the issuer’s predecessors or any business to which the issuer is a successor.
376 See Form 1-A, Part F/S (2014).
377 The issuer would be considered to have audited financial statements if the qualifications and reports of the auditor meet the requirements of Article 2 of Regulation S-X (17 CFR 210.1 et seq.) and the audit was conducted in accordance with U.S. GAAS or the standards of the PCAOB. The auditor is not required to be registered with the PCAOB.
378 See paragraph (c) of Part F/S of proposed Form 1-A.
as of the two most recently completed fiscal year ends (or for such shorter time that they have been in existence), instead of the current requirement to file a balance sheet as of only the most recently completed fiscal year end. As proposed, financial statements for U.S.-domiciled issuers would be required to be prepared in accordance with U.S. GAAP. Additionally, however, we proposed to permit Canadian issuers to prepare financial statements in accordance with either U.S. GAAP or International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standards Board (IASB).379
As proposed, issuers conducting Tier 1 offerings would be required to follow the requirements for the form and content of their financial statements set out in Part F/S, rather than the requirements in Regulation S-X. In certain less common circumstances, however, such as for an acquired business or subsidiary guarantors, Part F/S would direct issuers conducting Tier 1 offerings to comply with certain portions of Regulation S-X, which provides guidance on the financial statements required for entities other than the issuer.380
For all Tier 2 offerings, the proposed rules would require issuers to follow the financial statement requirements of Article 8 of Regulation S-X, as if the issuer
379 If the proposed financial statements comply with IFRS as issued by the IASB, such compliance must be unreservedly and explicitly stated in the notes to the financial statements and the auditor’s report must include an opinion on whether the financial statements comply with IFRS as issued by the IASB. See General Rule (a)(2) to Part F/S of proposed Form 1-A. Cf. Item 17(c) of
Form 20-F.
380 We proposed to update the requirements for financial statements of businesses acquired or to be acquired in Part F/S to refer to the requirements of Rule 8-04 of Regulation S-X. We also proposed to provide specific references to the relevant provisions of Regulation S-X regarding the requirements for financial statements of guarantors and the issuers of guaranteed securities
(Rule 3-10 of Regulation S-X), financial statements of affiliates whose securities collateralize an issuance of securities (Rule 3-16 of Regulation S-X), and financial statements provided in connection with oil and gas producing activities (Rule 4-10 of Regulation S-X). As proposed, the financial statements provided in these circumstances would only be required to be audited to the extent the issuer had already obtained an audit of its financial statements for other purposes.
conducting a Tier 2 offering were a smaller reporting company, unless otherwise noted in Part F/S. This requirement would include any financial information with respect to acquired businesses required by Rule 8-04 and 8-05 of Regulation S-X.381
As proposed, issuers conducting Tier 2 offerings would be required to have their financial statements audited. As with Tier 1 offerings, the auditor of financial statements would need to be independent under Rule 2-01 of Regulation S-X and must comply with the other requirements of Article 2 of Regulation S-X, but need not be
PCAOB-registered.382 Unlike Tier 1 issuers, issuers conducting Tier 2 offerings would
be required to provide financial statements that are audited in accordance with the standards issued by the PCAOB.
Additionally, we proposed to update the Form 1-A financial statement requirements to be consistent with the proposed timetable for ongoing reporting.383 Under existing Regulation A, issuers are required to prepare a balance sheet as of a date not more than 90 days before filing the offering statement, or not more than six months before filing if approved by the Commission upon a showing of good cause.384 In practice, issuers often receive a six-month accommodation. If the financial statements
381 Tier 2 issuers would, however, follow paragraph (a)(3) of Part F/S of proposed Form 1-A with respect to the age of the financial statements and the periods to be presented. In Tier 2 offerings, the form and contents of financial statements for other entities follow the requirements of Article 8 of Regulation S-X.
382 See Part F/S of proposed Form 1-A (referencing Article 2 of Regulation S-X, 17 CFR 210.2-01 et seq.).
383 The rules for ongoing reporting are discussed in Section II.E. below.
384 See Form 1-A, Part F/S (2014).
are filed more than 90 days after the end of the issuer’s most recently completed fiscal year, the financial statements must include that fiscal year.385
We proposed to extend the permissible age of financial statements in Form 1-A to nine months, in order to permit the provision of financial statements that are updated on a timetable consistent with our proposed requirement for semiannual interim reporting.386 We also proposed to add a new limitation on the age of financial statements at qualification, under which an offering statement could not be qualified if the date of the balance sheet included under Part F/S were more than nine months before the date of qualification.387 For filings made more than three months after the end of the issuer’s most recent fiscal year, the balance sheet would be required to be dated as of the end of the most recent fiscal year.388 For filings made more than nine months after the end of the issuer’s most recent fiscal year, the balance sheet would be required to be dated no earlier than as of six months after the end of the most recent fiscal year.389 If interim financial statements are required, they would be required to cover a period of at least six months.390 In the Proposing Release, we noted that requiring issuers to file interim financial statements no older than nine months and covering a minimum of six months
385 Id.
386 This age of financial statements requirement is also consistent with the treatment of foreign private issuers in the context of registered offerings. See Division of Corporation Finance’s Financial Reporting Manual, at 6620, available at: http://www.sec.gov/divisions/corpfin/cffinancialreportingmanual.pdf#topic6.
387 Form 1-A currently does not expressly limit the age of financial statements at qualification. In practice, however, Commission staff requires issuers to update financial statements before qualification to the extent such financial statements no longer satisfy Form 1-A’s requirements for the age of financial statements at the time of filing.
388 See paragraph (a)(3)(i) to Part F/S of proposed Form 1-A.
389 Id.
390 See paragraph (a)(3)(iv) to Part F/S of proposed Form 1-A.
would have the beneficial effect of eliminating what could otherwise be a requirement for certain issuers to provide quarterly interim financial statements during the qualification process and would be consistent with the timing of our proposed ongoing reporting requirements.391 We proposed to generally maintain the timing requirement of existing Form 1-A concerning the date after which an issuer must provide financial statements dated as of the most recently completed fiscal year, but to change the interval from
90 calendar days to three months.392 While not proposed, we additionally solicited comment on whether Tier 2 issuers should be required to submit financial statements in interactive data format using the eXtensible