Question 1

Which financial statements must an IPO registration statement contain, and what rules prescribe them?

Accepted Answer

The financial statements in a Securities Act registration statement — the form, content, and periods they cover — are governed by Regulation S-X (17 CFR part 210). For a company registering an IPO on Form S-1, Item 11(e) calls for the financial statements meeting the requirements of Regulation S-X, and Article 3 of Regulation S-X sets the core package: audited balance sheets, audited statements of comprehensive income and of cash flows, an analysis of changes in stockholders' equity, and the related notes. Regulation S-X states its purpose is to govern the form and content of and requirements for financial statements filed as part of registration statements under the Securities Act of 1933 and other filings. Form S-1 Item 11(e) directs the registrant to furnish the financial statements required by Regulation S-X; the specific balance-sheet and income/cash-flow periods are prescribed by 17 CFR 210.3-01 and 210.3-02, changes in equity by 210.3-04, and interim periods by 210.3-01, 210.3-02, and 210.10-01. Article 8 (17 CFR 210.8-01 through 210.8-08) provides scaled requirements for smaller reporting companies.

Question 2

How many years of audited balance sheets are required?

Accepted Answer

Regulation S-X 3-01(a) requires audited balance sheets, for the registrant and its subsidiaries consolidated and for its predecessors, as of the end of each of the two most recent fiscal years. A registrant that has been in existence for less than one fiscal year must instead file an audited balance sheet as of a date within 135 days of the date of filing the registration statement. 17 CFR 210.3-01(a) sets the two-fiscal-year audited balance-sheet requirement. Under 210.3-01(f), any interim balance sheet provided may be unaudited, and the most recent interim balance sheet included in a filing must be at least as current as the most recent balance sheet filed with the Commission on Form 10-Q. The two-year audited balance-sheet requirement is the same for standard registrants and for smaller reporting companies under Article 8.

Question 3

How many years of audited income and cash-flow statements are required?

Accepted Answer

Regulation S-X 3-02(a) requires audited statements of comprehensive income and of cash flows, for the registrant and its subsidiaries consolidated and for its predecessors, for each of the three fiscal years preceding the date of the most recent audited balance sheet being filed — or such shorter period as the registrant (including predecessors) has been in existence. 17 CFR 210.3-02(a) sets the three-fiscal-year requirement for statements of comprehensive income and cash flows. Because 3-01(a) requires two years of balance sheets and 3-02(a) requires three years of income and cash-flow statements, the standard package is often summarized as two years of audited balance sheets and three years of audited income and cash-flow statements. The two exceptions that reduce the income/cash-flow requirement to two years — an emerging growth company's IPO and a smaller reporting company — are addressed separately.

Question 4

How does emerging-growth-company status scale the number of years of audited statements?

Accepted Answer

An emerging growth company (EGC) may, in a Securities Act registration statement for the IPO of its common equity securities, present audited statements of comprehensive income and of cash flows for two fiscal years instead of three. This accommodation appears both in the statute (Securities Act Section 7(a)(2)(A), added by the JOBS Act of 2012) and in Regulation S-X 3-02(a). Section 7(a)(2)(A) of the Securities Act of 1933 provides that an emerging growth company 'need not present more than 2 years of audited financial statements in order for the registration statement of such emerging growth company with respect to an initial public offering of its common equity securities to be effective.' Regulation S-X 3-02(a) mirrors this, stating that an EGC (as defined in Rule 405 of the Securities Act, 17 CFR 230.405, or Rule 12b-2 of the Exchange Act, 17 CFR 240.12b-2) may in an IPO registration statement provide audited income and cash-flow statements for the two fiscal years preceding the most recent audited balance sheet. The two-year audited balance-sheet requirement under 3-01(a) is unchanged.

Question 5

What financial statements does a smaller reporting company present in its IPO?

Accepted Answer

A smaller reporting company may prepare its financial statements under Article 8 of Regulation S-X (17 CFR 210.8-01 through 210.8-08). Under 210.8-02, it must file an audited balance sheet as of the end of each of the two most recent fiscal years and audited statements of comprehensive income, cash flows, and changes in stockholders' equity for the two fiscal years preceding the most recent audited balance sheet. 17 CFR 210.8-01 makes Article 8 applicable to financial statements filed for smaller reporting companies, whose financial statements are prepared in accordance with U.S. generally accepted accounting principles. 17 CFR 210.8-02 (as amended at 89 FR 14314, Feb. 26, 2024) sets the two-year audited requirement for the balance sheet and for income, cash-flow, and changes-in-equity statements — one fewer income/cash-flow year than the three years required of standard registrants under 3-02(a). A smaller reporting company is defined in Item 10(f)(1) of Regulation S-K (17 CFR 229.10(f)(1)).

Question 6

Is a statement of changes in stockholders' equity required?

Accepted Answer

Yes. Regulation S-X 3-04 requires an analysis of the changes in each caption of stockholders' equity and noncontrolling interests presented in the balance sheets, given in a note or a separate statement. It takes the form of a reconciliation of the beginning balance to the ending balance for each period for which a statement of comprehensive income is required. 17 CFR 210.3-04 requires that significant reconciling items be described by appropriate captions, with contributions from and distributions to owners shown separately, and that dividends be stated per share and in the aggregate for each class of shares. For smaller reporting companies, 17 CFR 210.8-02 requires audited statements of changes in stockholders' equity for the two fiscal years preceding the most recent audited balance sheet.

Question 7

What interim (unaudited) financial statements must an IPO registration statement include?

Accepted Answer

When a registration statement is filed after the most recent audited fiscal year-end, Regulation S-X requires interim financial statements: an interim balance sheet under 3-01, and statements of comprehensive income and of cash flows for the interim period between the latest audited balance sheet and the most recent interim balance sheet, and for the corresponding period of the preceding fiscal year, under 3-02(b). These interim statements may be unaudited. 17 CFR 210.3-02(b) requires the interim income and cash-flow statements and the prior-year comparable period, and provides that such interim statements may be unaudited and need not be presented in greater detail than 17 CFR 210.10-01 requires. 17 CFR 210.10-01(c) confirms that the periods for which interim financial statements are provided in registration statements are prescribed by 210.3-01 and 210.3-02. For smaller reporting companies, interim requirements are set by 17 CFR 210.8-03.

Question 8

Do the interim financial statements have to be audited or reviewed?

Accepted Answer

Interim financial statements included in a registration statement may be unaudited (17 CFR 210.3-01(f) and 210.3-02(b)). Separately, interim financial statements included in a quarterly report on Form 10-Q must, before filing, be reviewed by an independent public accountant using applicable professional review standards, under 17 CFR 210.10-01(d) (and 210.8-03 for smaller reporting companies). 17 CFR 210.10-01(d) provides that prior to filing, interim financial statements included in quarterly reports on Form 10-Q must be reviewed by an independent public accountant, and that if a filing states the interim statements have been reviewed, the accountant's review report must be filed with them. 17 CFR 210.8-03 states the same review requirement for smaller reporting companies' Form 10-Q interim statements. A 'review' is a lower level of assurance than an 'audit'; only the annual statements required by 3-01(a) and 3-02(a) (or 8-02) must be audited.

Question 9

How current must the financial statements be at the time the registration statement becomes effective?

Accepted Answer

Regulation S-X 3-12 sets 'age of financial statements' rules measured at the effective date. If the financial statements in the filing are as of a date 130 days (large accelerated and accelerated filers) or 135 days (all other registrants) or more before the expected effective date, they must be updated with an interim balance sheet within that window and corresponding interim income and cash-flow statements. In addition, 3-12(d) provides that for an issuer not already subject to Exchange Act reporting — the typical IPO issuer — the most recent audited financial statements may be no more than one year and 45 days old at the effective date. 17 CFR 210.3-12(a) requires updating with an interim balance sheet within the number of days specified in 3-12(g), and 3-12(g)(1) sets that number at 130 days for large accelerated and accelerated filers and 135 days for all other registrants. 17 CFR 210.3-12(d) sets the outer limit — one year and 45 days — for the age of the most recent audited financial statements of an issuer that was not, immediately before filing, subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934.

Question 10

When must pro forma financial information be included?

Accepted Answer

Pro forma financial information must be filed when any of the conditions in Regulation S-X 11-01 exist — most commonly when a significant business acquisition or disposition has occurred or is probable, or when the registrant was previously part of another entity and pro forma presentation is necessary to reflect it as an autonomous entity. A business acquisition or disposition is 'significant' if it meets the significant-subsidiary test of 17 CFR 210.1-02(w)(1), substituting 20 percent for 10 percent. 17 CFR 210.11-01(a) lists the triggering conditions, including a significant business acquisition during the most recent fiscal year or subsequent interim period, a consummated or probable significant acquisition or common-control combination after the most recent balance-sheet date, a disposition of a significant portion of the business, and cases where the registrant previously was part of another entity. 17 CFR 210.11-01(b) sets the 20-percent significance thresholds by reference to the significant-subsidiary definition in 210.1-02(w)(1). For smaller reporting companies, 17 CFR 210.8-05 requires pro forma information under the same conditions, prepared under Article 11.

Question 11

What do pro forma financial statements consist of?

Accepted Answer

Under Regulation S-X 11-02(a), pro forma financial information consists of a pro forma condensed balance sheet, pro forma condensed statements of comprehensive income, and accompanying explanatory notes, introduced by a paragraph describing each transaction, the entities involved, the periods presented, and what the presentation shows. 17 CFR 210.11-02(a) requires the pro forma condensed statements to be limited to specified pro forma adjustments: 'Transaction Accounting Adjustments' that depict the accounting for the transaction under U.S. GAAP (or IFRS as issued by the IASB, as applicable), and, when the registrant was previously part of another entity, 'Autonomous Entity Adjustments.' The rule also permits the registrant to present optional 'Management's Adjustments' reflecting reasonably estimable synergies and dis-synergies. The pro forma condensed statement of comprehensive income must disclose income (loss) from continuing operations. These Article 11 requirements were amended by SEC Release No. 33-10786 (85 FR 54002, effective January 1, 2021).

Question 12

Are separate audited financial statements of an acquired business required?

Accepted Answer

Yes, when an acquisition is significant. Regulation S-X 3-05 requires separate audited financial statements of a business that has been acquired, or whose acquisition is probable, for periods that depend on the acquired business's significance measured under the significant-subsidiary tests. These are in addition to, and distinct from, the registrant's own financial statements. 17 CFR 210.3-05(a) requires audited financial statements of an acquired or to-be-acquired business when an acquisition has occurred during the most recent fiscal year or subsequent interim period, or is probable, with the periods presented (up to two years) driven by the level of significance under 210.11-01(b) and the tests in 210.1-02(w). For smaller reporting companies, the parallel requirement is in 17 CFR 210.8-04. The 2020 amendments in SEC Release No. 33-10786 (85 FR 54002) revised these acquired-business rules, effective January 1, 2021.

Financial statement	Standard registrant (Reg S-X Art. 3)	Emerging growth company IPO	Smaller reporting company (Art. 8)	Governing rule
Audited balance sheets	2 most recent fiscal years	2 most recent fiscal years	2 most recent fiscal years	S-X 3-01(a); 8-02 · source
Audited statements of comprehensive income	3 fiscal years	2 fiscal years	2 fiscal years	S-X 3-02(a); Securities Act 7(a)(2)(A); 8-02 · source
Audited statements of cash flows	3 fiscal years	2 fiscal years	2 fiscal years	S-X 3-02(a); Securities Act 7(a)(2)(A); 8-02 · source
Changes in stockholders' equity	Each period an income statement is required	Each period an income statement is required (2 years)	2 fiscal years	S-X 3-04; 8-02 · source
Interim (unaudited) statements	Interim balance sheet + income/cash-flow statements for the interim period and prior-year comparable	Same	Same (Art. 8-03)	S-X 3-01(f), 3-02(b), 10-01; 8-03 · source
Pro forma financial information	When Article 11 (11-01) conditions exist	When Article 11 (11-01) conditions exist	When conditions exist (8-05, per Art. 11)	S-X 11-01, 11-02; 8-05 · source
Acquired-business statements	When acquisition is significant (up to 2 years, by significance)	Same	Per Art. 8-04	S-X 3-05; 8-04 · source

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IPO Financial Statements