The term “carve-out financial statements” is used to describe the separate financial statements of a business that are derived from a larger parent company. Layers of legal entities, shared services, shared assets/liabilities, and variations in buyers or potential buyers’ needs can grind some “carve-out” projects to a virtual halt.
This article outlines ways that the process can be streamlined.
First, the author advises that the parties define the parameters of the carve-out. The size of the acquisition, the potential buyer, and the decision to spin off can all affect the form of the financial statements.
Next, the carve-out business should be defined and the historical financial information to be included should be determined by considering operating and financial reporting structure, legal structure, practical aspects, and past performance.
The thorniest accounting issues need to be addressed early including allocations to the stand-alone business related to; shared services and assets, working capital, debt, pension and post-retirement benefit plans, tax losses and reserves for uncertain tax positions, deferred taxes and statutory tax rates, goodwill and other intangible asset impairment can be addressed.
Early involvement from SEC counsel, external auditors, and senior management can streamline the process of preparing carve-out financial statements.
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