Preparation of ‘carve-out’ financial statements

A “carve-out” is a depiction of the historical assets, liabilities, and operations of a component of a larger reporting entity. A carve-out may comprise a legal entity (or a group of legal entities) of a larger reporting entity that did not previously prepare standalone financial statements, or it may be only a portion of a legal entity (or several legal entities), such as a division, product line, or segment. The need for carve-out financial statements generally arises in connection with a transaction involving a component of a larger entity. But there is only limited authoritative guidance on when it is appropriate to present and how to prepare carve-out financial statements, forcing entities to use significant judgment in their preparation.

This Viewpoint highlights some of the complex areas of guidance for entities to consider when preparing carve-out financial statements. It provides excerpts of relevant authoritative and interpretive guidance, primarily from U.S. GAAP and from SEC Staff Accounting Bulletins as well as the Financial Reporting Manual, published by the staff of the SEC’s Division of Corporation Finance. Although the SEC staff guidance primarily applies to financial statements filed with the SEC, it is also relevant for private companies in preparing carve-out financial statements as well.

Download our publication to read through the relevant guidance along with examples and insights provided by Grant Thornton professionals.