4 Preparation of pro forma financial information
Pro forma financial information | 17
In addition, any income statement caption that is less than 15% of average net income attributable to the
registrant for the most recent three fiscal years can be combined with others. When calculating average net
income attributable to the registrant, a registrant excludes losses, unless it incurred losses in each of the
most recent three years, in which case the average loss recorded in those years is used.
A registrant also must disclose, on the face of the pro forma income statement, basic and diluted
earnings per share (EPS) from continuing operations attributable to the registrant and the number of
shares used in the computation, on both a historical and pro forma basis, giving effect only to the
transaction accounting adjustments and autonomous entity adjustments discussed in more detail below.
The weighted average number of shares outstanding during the period should be adjusted to give effect
to any shares that have been or will be issued to consummate the transaction as if the shares were
outstanding as of the beginning of the period presented. The potential dilutive effect of any convertible
securities issued or to be issued as part of the transaction should also be considered.
4.2.2.1 Pro forma income statement required for all fiscal years presented
As noted above, a registrant is prohibited from presenting more than one annual period in its pro forma
income statements unless the transaction requiring the pro formas is accounted for as:
• A reorganization of entities under common control (ASC 805, Business Combinations)
• Discontinued operations (ASC 205, Presentation of Financial Statements) not yet reflected in the
historical financial statements
In these cases, pro forma income statements must include all annual historical financial statement
periods presented in a registrant’s filing.
Common control transactions include a transfer of net assets or an exchange of equity interests between
entities under common control. An example would be the contribution of a business by a parent company
to its consolidated subsidiary that reports separately as a registrant. In this example, the subsidiary
would account for the receipt of the business as a common control transaction. See our FRD publication,
Business combinations, for more information about accounting for common control transactions.
If a transaction that will be accounted for as a reorganization of entities under common control occurs
after the date of the registrant’s latest balance sheet included in a registration statement or proxy
statement and post-transaction financial statements reflecting the reorganization have not been issued,
pro forma income statements included in the registration statement or proxy statement are required for
each fiscal year (and any subsequent interim period, as applicable) for which the registrant’s historical
financial statements are presented in the filing and in which the entities were under common control.
Refer to section 5.5.1 for a discussion of the pro forma adjustments and presentation of EPS when there
is a reorganization of entities under common control.
A new registration or proxy statement filed before any financial statements of a registrant reflecting
discontinued operations must include pro forma income statements for all fiscal years for which financial
statements are presented and any subsequent interim period, as applicable. Likewise, a Form 8-K reporting
a significant disposal that has occurred, and that has not yet been but ultimately will be reflected in the
registrant’s historical annual financial statements as a discontinued operation, also needs to include pro forma
income statements for all fiscal years included in the registrant’s prior-year annual report. Refer to our FRD
publication, Discontinued operations, for the criteria that must be met for reporting discontinued operations.
4.2.2.2 Pro forma information reflects common control (or discontinued operations) and other
transactions
The SEC staff believes that the periods for which pro forma income statements should be presented generally
should be based on the transaction that triggers the pro forma reporting requirements.