Rule 3-5 Proposing Release-PRA Supporting Statement.Final.04-15-2020

SUPPORTING STATEMENT FOR PROPOSED AMENDMENTS TO FINANCIAL
DISCLOSURES ABOUT ACQUIRED BUSINESSES
A.

JUSTIFICATION
1. CIRCUMSTANCES MAKING THE COLLECTION OF INFORMATION
NECESSARY

In Release No. 33-10635,1 the Commission proposed amendments to the financial
statement requirements for acquired and disposed businesses in Rules 3-05, 3-14, and Article 11
of Regulation S-X to improve the financial information about acquired or disposed businesses,
facilitate more timely access to capital, and reduce the complexity and costs of preparing the
disclosure.2 The Commission further proposed related amendments in Rule 1-02(w), Rule 3-06,
and Article 8 of Regulation S-X, as well as amendments to Form 8-K, Form 10-K,3 and the
definitions in Rule 12b-2 under the Exchange Act and Rule 405 under the Securities Act.
The proposed amendments contain “collection of information” requirements within the
meaning of the Paperwork Reduction Act of 1995 (“PRA”). The titles of the collections of
information impacted by the amendments are:4


“Form 8-K” (OMB Control No. 3235-0060);



“Form 10” (OMB Control No. 3235-0064);



“Form S-1” (OMB Control No. 3235-0065);



“Form S-3” (OMB Control No. 3235-0073);



“Form F-3” (OMB Control No. 3235-0256);



“Form F-1” (OMB Control No. 3235-0258); and



“Form 1-A” (OMB Control No. 3235-0286).

1

See Release No. 33-10635 (May 3, 2019). A copy of the proposing release is attached.

2

The Commission also proposed new Rule 6-11 of Regulation S-X and amendments to Form N-14 to specifically
govern financial reporting for acquisitions involving investment companies. The Commission’s Division of
Investment Management will separately submit, pursuant to the Paperwork Reduction Act of 1995, supporting
statements and related attachments for Form N-1A, Form N-2, and Form N-14.

3

The amendment to Form 10-K would move an exception from compliance with Rule 3-14 from Rule 3-14 to the
Form 10-K consistent with the treatment and discussion of Rule 3-05 in Form 10-K. The proposed amendment
would not affect a registrant’s paperwork burden.

4

The paperwork burdens for Regulation S-X are imposed through the forms that are subject to the requirements
in these regulations and are reflected in the analysis of those forms. OMB has discontinued the OMB Control
Number for this regulation so that the PRA inventory would not reflect duplicative burdens.

2. PURPOSE AND USE OF THE INFORMATION COLLECTION
The regulations and forms listed above were adopted under the Securities Act or the
Exchange Act, and set forth the disclosure requirements for registration statements and current
reports filed by registrants to help investors make informed investment and voting decisions.
The Commission is proposing amendments to the financial statement requirements for
acquired and disposed businesses. The purpose of the proposed amendments to Rules 3-05, 314, and Article 11 of Regulation S-X, and to the related rules and forms, is to improve the
financial information about acquired or disposed businesses, facilitate more timely access to
capital, and reduce the complexity and costs of preparing the disclosure.
3. CONSIDERATION GIVEN TO INFORMATION TECHNOLOGY
The collection of information requirements of the amendments will be set forth in
Regulation S-X and the respective Forms. The information required by these rules is filed
electronically with the Commission using the Commission’s Electronic Data Gathering,
Analysis, and Retrieval (EDGAR) system.
4. DUPLICATION OF INFORMATION
We are not aware of any rules that conflict with or substantially duplicate the final rules.
5. REDUCING THE BURDEN ON SMALL ENTITIES
The proposed amendments would affect some companies that are small entities that have
a class of securities that are registered under Section 12 of the Exchange Act. The Commission
performed an Initial Regulatory Flexibility Act Analysis and estimated that there are
approximately 1,173 issuers, other than investment companies, that may be considered small
entities and are potentially subject to the proposed amendments.
The Commission considered a variety of alternatives to achieve our regulatory objective to

improve the financial information about acquired or disposed businesses, facilitate more timely
access to capital, and reduce the complexity and costs of preparing the disclosure. The
Commission did not propose additional alternative approaches in this rulemaking because we do not
believe they meet the regulatory objective as well as the proposed amendments.

6. CONSEQUENCES OF NOT CONDUCTING COLLECTION
The regulations and forms listed above set forth the disclosure requirements for
registration statements and current reports filed by registrants to help investors make informed
investment and voting decisions. Failure to conduct these collections of information would
reduce the information available to investors to make these decisions. We believe that the
proposed amendments will improve the usefulness and relevance of the financial information
provided by the collections of information.

2

7. SPECIAL CIRCUMSTANCES
There are no special circumstances in connection with these amendments.
8. CONSULTATIONS WITH PERSONS OUTSIDE THE AGENCY
In September 2015, the Commission issued a Request for Comment on the Effectiveness
of Financial Disclosures About Entities Other Than the Registran t; 5and on May 3, 2019, the
Commission issued a proposing release soliciting comment on the “collection of information”
requirements and associated paperwork burdens of the proposed amendments.6 Comments on
the Commission’s releases are generally received from registrants, investors, and other market
participants. In addition, the Commission and staff participate in an ongoing dialogue with
representatives of various market participants through public conferences, meetings, and
informal exchanges. The Commission considers all comments received.
9. PAYMENT OR GIFT TO RESPONDENTS
No payment or gift to respondents.
10. CONFIDENTIALITY
All documents submitted to the Commission are available to the public.
11. SENSITIVE QUESTIONS
No information of a sensitive nature will be required under the following collections of
information in connection with these rulemaking amendments: Form S-1, Form S-3, Form 10,
Form 8-K, Regulation A (Form 1-A), Form F-1, and Form F-3. These information collections
collect basic Personally Identifiable Information (PII) that may include a name and job title.
However, the agency has determined that the information collections do not constitute a system
of record for purposes of the Privacy Act. Information is not retrieved by a personal identifier.
In accordance with Section 208 of the E-Government Act of 2002, the agency has conducted a
privacy act assessment (“PIA”) of the EDGAR system, in connection with these collections of
information. The EDGAR PIA, published on February 5, 2020, is provided as a supplemental
document and is also available at https://www.sec.gov/privacy.

5

See Release No. 33-9929 (Sept. 25, 2015) [80 FR 59083 (Oct. 1, 2015)].

6

See supra note 1.

3

12./13. ESTIMATES OF HOUR AND COST BURDENS
The paperwork burden estimates associated with the proposed amendments include the
burdens attributable to collecting, preparing, reviewing, and retaining records.
i.

Rules 3-05 and 3-14 and Related Amendments

The proposed amendment to Rule 3-05 and related amendments (e.g., to Rule 1-02(w)),
among other things, would reduce a registrant’s paperwork burden by:


revising the significance tests and thresholds provided in Rule 1-02(w) and Rule 3-05 to
improve their application and to assist registrants in making more meaningful
significance determinations;



revising the scaling requirements to reduce from three to two the maximum number of
years of required Rule 3-05 Financial Statements;



permitting Rule 3-05 Financial Statements to be prepared in accordance with
International Financial Reporting Standards as issued by the International Accounting
Standards Board (“IFRS-IASB”) in appropriate circumstances, thus permitting
registrants to reconcile their financial statements to the basis of accounting they are
already using and not requiring additional one-time reconciliations to U.S. GAAP;



permitting the omission of Rule 3-05 Financial Statements from Securities Act
registration statements and proxy statements once the acquired business is reflected in
filed post-acquisition audited financial statements of the registrant for a complete fiscal
year; and



permitting registrants to use pro forma financial information for significance testing
under appropriate circumstances, thereby simplifying the application of the rules and
more accurately determining the significance of an acquired business. 7

Rule 3-14 provides similar requirements to Rule 3-05 for financial statements of real
estate operations acquired or to be acquired, but differs from Rule 3-05, in part, because unique
industry considerations warrant differentiated disclosure. The proposed amendments related to
Rule 3-14, among other things, would align the requirements under Rules 3-05 and 3-14 where
appropriate; clarify the determination of significance and the definition of “real estate operation”
under Rule 3-14; establish an explicit requirement for interim income statements; and provide

7

The proposed amendments would also: permit registrants to provide appropriately abbreviated financial
statements for significant acquisitions of certain acquired businesses that have not previously prepared separate
financial statements or maintained distinct and separate accounts and for registrants that acquire certain oil and
gas producing activities; and clarify and update the rules and timing related to the provision of financial
information. Because these proposed revisions are generally codifying existing disclosure practice or clarifying
our rules, we do not believe that these proposed amendments would affect the paperwork burden for registrants.

4

special provisions for blind pool offerings.
More specifically, where no unique industry considerations warrant differentiated
disclosure, the proposed Rule 3-14 amendments would:


conform significance thresholds at the higher Rule 3-05 thresholds for significance;



align the years of required financial statements for acquisitions from related parties;



permit the application of Rule 3-068 to Rule 3-14; and



include a conforming filing period for the filing of Rule 3-14 Financial Statements in
registration and proxy statements.

We believe that the proposed Rule 3-14 amendments would reduce the paperwork burden for the
affected forms for the same reasons as those discussed above for the related proposed changes to
Rule 3-05.
While the proposed amendments to Rule 1-02(w), Rule 3-05, and Rule 3-14 may
eliminate some disclosure required by the existing rule, they may also require other disclosure
not required by the existing rule. For example, if significance is more accurately determined, an
acquired business deemed significant under the existing tests would no longer be required to
provide Rule 3-05 Financial Statements. Alternatively, a more accurate test could identify some
acquired businesses as significant that were deemed insignificant under the existing rule.
Considering the various impacts to the existing collection of information requirements outlined
above, we estimate that the proposed amendments to Rule 1-02(w), Rule 3-05 and Rule 3-14
would reduce the overall paperwork burden for registrants, some aspects of which could reduce
the paperwork burden significantly for some registrants.
To determine the paperwork burden for a registrant to file a registration statement with
the proposed Rule 3-05 or Rule 3-14 Financial Statements, we estimated the number of burden
hours required for an issuer to provide the existing financial statements. In response to the 2015
Request for Comment, no commenter provided information that would assist us in deriving an
estimate for the cost of Rule 3-05 or Rule 3-14 Financial Statements. In order to develop an
estimate, the staff relied on its discussions with registrants and consultants and reviewed recent
waiver request letters that cited the cost of compliance.9 For PRA purposes, we estimate that
8

Rule 3-06 of Regulation S-X (17 CFR 210.3-06) permits the filing of financial statements covering a period of 9
to 12 months to satisfy a requirement to file financial statements for a period of one year in certain
circumstances.

9

Only two waiver request letters received in 2017 cited additional costs of complying with the Rule 3-05
Financial Statement requirements ranging from $43,000 to $200,000. Additionally, one consultant suggested a
typical range of audit fees as $100,000 to $250,000 and consulting fees of $40,000 to $100,000. Based on this
information, we estimated that Rule 3-05 or Rule 3-14 Financial Statements require on average approximately
an additional 500 burden hours for registrants to prepare. We believe that this estimate falls within the range of
costs suggested by the waiver requests and consultant’s estimate and would appropriately account for company
and professional hours required.

5

existing Rule 3-05 or Rule 3-14 Financial Statements require an average of 500 burden hours.
We further estimate that all of the proposed amendments to Rule 1-02(w), Rule 3-05, and
Rule 3-14 would reduce a registrant’s burden by 125 hours for each filing, as compared to the
registrant providing the existing Rule 3-05 and Rule 3-14 Financial Statements.
ii. Pro Forma Financial Information
Article 11 of Regulation S-X provides the pro forma financial information requirements
that must accompany Rule 3-05 Financial Statements and Rule 3-14 Financial Statements.
Under existing Article 11, registrants are required to provide pro forma financial information for
a business acquisition combining the historical financial statements of the registrant and the
acquired business adjusted as provided in the rules. The proposed amendments would revise the
pro forma financial information requirements to improve the content and relevance of the
information provided.
Existing Rule 11-01 requires registrants to provide pro forma financial information upon
the disposition or probable disposition of a significant portion of a business if that disposition is
not fully reflected in the financial statements of the registrant. Existing Rule 11-01 determines
significance for dispositions using a 10% significance threshold. The proposed amendments
would raise the significance threshold for the disposition of a business from 10% to 20%, to
conform to the threshold at which an acquired business is significant under Rule 3-05. These
changes would reduce a registrant’s paperwork burden by eliminating the requirement for pro
forma financial information for less significant dispositions.
Existing Rule 11-02 provides presentation requirements designed to elicit disclosures that
distinguish between the one-time impact and the on-going impact of a transaction on the
registrant. The proposed amendments would replace the existing pro forma adjustments with
simplified requirements to give effect to the accounting for the transaction and present the effects
of reasonably estimable synergies and other transaction effects that have occurred or are
reasonably expected to occur. These changes would reduce a registrant’s paperwork burden by
simplifying disclosure requirements, but may increase burdens by requiring certain forwardlooking information.
Existing Rule 8-05 requires smaller reporting companies to provide pro forma financial
information only if financial statements of a business acquired or to be acquired are presented.
Like Article 11, Rule 8-05(b) provides that pro forma statements must consist of a pro forma
balance sheet and a pro forma statement of comprehensive income for the most recent year and
interim period, but does not provide further preparation guidance, such as the types of pro forma
adjustments that can be made. The proposed amendments would require that the preparation,
presentation, and disclosure of pro forma financial information by smaller reporting companies
substantially comply with Article 11 in order to provide investors with more uniform information
upon which to make their investment decisions. These changes may increase a registrant’s
paperwork burden by requiring pro forma financial information in some additional circumstances

6

and requiring that the information be provided in a clearer and more robust manner. 10
To determine the paperwork burden for a registrant to file a registration statement with
the proposed pro forma financial information, we estimated the number of burden hours required
for an issuer to provide the existing pro forma financial information.11 No commenter provided
information in response to the 2015 Request for Comment that would assist us in deriving an
estimate for the cost of pro forma financial information. For PRA purposes, we estimate that
existing pro forma financial information requires an average of 100 burden hours.12 We further
estimate that the proposed amendments to the pro forma financial information requirements,
including the requirement to provide certain forward-looking information, would increase a
registrant’s burden by 25 hours, as compared to the registrant providing the existing pro forma
financial information.
iii. Estimate of the Number of Affected Filings
Although the proposed amendments would generally reduce the paperwork burden for
filings on an affected form that includes existing Rule 3-05 or Rule 3-14 Financial Statements,
not all filings on the affected forms include these disclosures because they are provided only in
certain instances. Therefore, to estimate the overall paperwork burden reduction from the
proposed amendments, we must estimate the number of filings that include Rule 3-05 and Rule
3-14 Financial Statements. To do so, Commission staff searched the various form types filed
from January 1, 2017 until October 1, 2018 for indications of acquisition or disposition
disclosure.13 Based on the staff’s findings, the table below sets forth our estimates of the number
of filings on these forms that included Rule 3-05 or Rule 3-14 Financial Statements in calendar
year 2017 and the first nine months of 2018.

10

The incremental conditions that would require a smaller reporting company to present pro forma financial
information under the proposed amendments would include: roll-up transactions as defined in 17 CFR
229.901(c); when such presentation is necessary to reflect the operations and financial position of the smaller
reporting company as an autonomous entity; and other events for which disclosure of pro forma financial
information would be material to investors. It is not clear whether smaller reporting companies generally meet
these conditions such that additional disclosure would be required.

11

Because pro forma financial information is most typically associated with acquisition and dispositions, we rely
on the same estimates of affected forms for pro forma burden estimates as those used for Rule 3-05 and Rule 314 burden estimates.

12

As we have estimated that Rule 3-05 or Rule 3-14 Financial Statements would require approximately 500 total
burden hours for a registrant, we estimate that the required pro forma financial information would re present
approximately 20% of that burden. While pro forma financial information is an important aspect of acquired
business financial information disclosure, it is only an incremental part of that disclosure, which also requires
the production of acquired business historical financial statements and audits of those statements.

13

To develop these estimates, Commission staff searched and analyzed filings for the calendar year 2017 and the
first nine months of 2018 on the Intelligize research platform. Commission staff then reviewed Forms S-1, S-3,
F-1, F-3, S-11, 10, and 8-K, using text and other searches for appropriate word combinations. The staff then
manually reviewed the filings to identify and more accurately determine which filings contained Rule 3-05 and
Rule 3-14 Financial Statements.

7

Table 1: Number of Filings on Affected Forms in the Reviewed 2017-2018 Period
Forms

10
S-1
S-3
F-1
F-3
8-K

Number of Filings
(A)

Number of Filings Including 305 or 3-14 Financial Statements
(B)

Percentage of Filings
Affected
(C)

198
1,369
1,415
169
321
118,195

18
118
164
4
8
949

9.1%
8.6%
11.6%
2.4%
2.5%
0.8%

We used this data to extrapolate the effect of these changes on the paperwork burden. In
order to appropriately adjust the current burden estimates, we applied these percentages to the
current estimates for the number of responses in the Commission’s current OMB PRA filing
inventory.14
Table 2: Calculation of the Number of Filings on Affected Forms For PRA
Purposes
Forms

Number of
Reponses in
Current PRA
Estimates
(A)

Estimated Percentage of
Filings Affected
(B)

Estimated Number of
Filings Including 3-05
or 3-14 Financial
Statements
(C)

10
1-A 15
S-1
S-3
F-1
F-3
8-K

216
179
901
1,657
63
112
118,387

9.1%
10.0%
8.6%
11.6%
2.4%
2.5%
0.8%

20
18
78
192
2
3
947

iv. Burden and Cost Estimates for the Proposed Amendments
Below we estimate the aggregate change in paperwork burden as a result of the proposed
amendments. These estimates represent the average burden for all registrants, both large and
small. In deriving our estimates, we recognize that the burdens will likely vary among individual
registrants based on a number of factors, including the nature of their business. The burden
estimates were calculated by multiplying the estimated number of responses by the estimated
average amount of time it would take a registrant to prepare and review disclosure required
under the proposed amendments. The portion of the burden carried by outside professionals is
14

The OMB PRA filing inventories represent a three-year average. Averages may not align with the actual
number of filings in any given year.

15

Based on data from domestic registration statements, we estimate that approximately 10% of Forms 1-A would
be affected.

8

reflected as a cost, while the portion of the burden carried by the registrant internally is reflected
in hours.
For purposes of the PRA, we estimate that 75% of the burden of preparation of Forms 8K and 1-A is carried by the registrant internally and 25% of the burden of preparation is carried
by outside professionals retained by the company at an average cost of $400 per hour. 16
Additionally, we estimate that 25% of the burden of preparation for Forms 10, S-1, S-3, F-1, and
F-3 is carried by the registrant internally and that 75% of the burden of preparation is carried by
outside professionals retained by the company at an average cost of $400 per hour.
The tables below illustrate the change to the total annual compliance burden of affected
forms, in hours and in costs, as a result of the proposed amendments. We determined the
incremental change in burden hours per current affected response for registrants that are not
investment companies by offsetting the estimated reduction of 125 burden hours due to the
proposed amendments to Rules 3-05 and 3-14 with the estimated increase of 25 burden hours
due to the proposed amendments to the pro forma financial information requirements. This
results in a burden hour reduction per current affected response from all of the proposed
amendments of 100 burden hours. 17 We performed a similar offsetting to derive the incremental
change of 100 burden hours per current affected response for investment company registrants. 18

16

We recognize that the costs of retaining outside professionals may vary depending on the nature of the
professional services, but for purposes of this PRA analysis, we estimate that such costs would be an average of
$400 per hour. This estimate is based on consultations with several registrants, law firms , and other persons
who regularly assist registrants in preparing and filing reports with the Commission.

17

See Table 5, Column B. We performed a similar offsetting to derive the incremental burden hour change per
current affected response for investment company registrants.

18

See Table 6, Column B.

9

Table 3: Calculation of the Reduction in Burden Estimates of Current Responses
Due to the Proposed Amendments to Rule 3-05 and Rule 3-14 and Pro
Forma Financial Information Requirements
Form
s

Burden Hour
Reduction
per Current
Affected
Response
(B)

Number of
Estimated
Affected
Reponses
(A) 19

Reduction in
Burden Hours for
Current Affected
Responses
(C)

Reduction in
Company Hours
for Current
Affected
Responses
(D)

Reduction in
Professional Hours
for Current
Affected
Responses
(E)

Reduction in
Professional Costs
for Current
Affected
Responses
(F)

= (A) x (B)

10
1-A
S-1
S-3
F-1
F-3
8-K
T otal

20
18
78
192
2
3
947
1,260

(100)
(100)
(100)
(100)
(100)
(100)
(100)

= (C) x 0.75 or
0.25

= (C) x 0.25 or
0.75

(500)
(1,350)
(1,950)
(4,800)
(50)
(75)
(71,025)
(79,750)

(1,500)
(450)
(5,850)
(14,400)
(150)
(225)
(23,675)
(46,250)

(2,000)
(1,800)
(7,800)
(19,200)
(200)
(300)
( 94,700)
(126,000)

= (E) x $400

($600,000)
($180,000)
($2,340,000)
($5,760,000)
($60,000)
($90,000)
($9,470,000)
($18,500,000)

Table 4: Requested Paperwork Burden under the Proposed Amendments
Current Burden
Forms

10
1-A
S-1
S-3
F-1
F-3
8-K
Total

Current
Annual
Responses
(A)
216
179
901
1,657
63
112
118,387
121,515

14.

Current
Burden
Hours
(B)
11,855
98,396
147,208
193,626
26,692
4,441
818,158
1,300,376

Current Cost
Burden
(C)

$14,091,488
$13,111,912
$180,319,975
$236,198,036
$32,275,375
$5,703,600
$108,674,430
$590,374,816

Program Change
Number
of
Affected
Responses
(D)20

Reduction
in
Company
Hours
(E)21

Reduction in
Professional
Costs
(F)22

20
18
78
192
2
3
947
1,260

(500)
(1,350)
(1,950)
(4,800)
(50)
(75)
(71,025)
(79,750)

($600,000)
($180,000)
($2,340,000)
($5,760,000)
($60,000)
($90,000)
($9,470,000)
($18,500,000)

Requested Change in Burden
Annual
Responses
(G)

Burden
Hours
(H)

= (A)

= (B) +
(E)
11,355
97,046
145,258
188,826
26,642
4,366
747,133
1,220,626

Cost Burden
(I)
= (C) + (F)

216
179
901
1,657
63
112
118,387
121,515

$13,491,488
$12,931,912
$177,979,975
$230,438,036
$32,215,375
$5,613,600
$99,204,430
$571,874,816

COSTS TO FEDERAL GOVERNMENT

The annual cost of reviewing and processing disclosure documents, including registration
statements, post-effective amendments, proxy statements, annual reports and other filings of
operating companies amounted to approximately $103,479,690 in fiscal year 2019, based on the
19

Derived from Table 2, Column C.

20

Derived from Table 3, Column A.

21

Derived from Table 3, Column D.

22

Derived from Table 3, Column F.

10

Commission’s computation of the value of staff time devoted to this activity and related
overhead.
15.

REASON FOR CHANGE IN BURDEN

As explained in further detail above, the proposed rule and form amendments would
implement changes to the disclosure regarding financial information about acquired or disposed
businesses. The Commission proposed these changes to improve the financial information about
acquired or disposed businesses, facilitate more timely access to capital, and reduce the
complexity and costs of preparing the disclosure. The changes in burdens relate to the incremental
burden for a registrant to prepare the amended disclosure in the affected forms. These changes
in burdens reflect, for each filing of an affected form:


a decrease of 125 burden hours for a registrant due to the proposed amendments to Rules
3-05 and 3-14 and other related rules and forms;



an increase of 25 burden hours for a registrant due to the proposed amendments to the pro
forma financial information requirements, including the requirement to provide certain
forward-looking information; and



an offsetting of the above 25 burden hour increase against the above 125 burden hour
reduction, which results in an incremental reduction of 100 burden hours per current
affected response for registrants.

As set forth in Table 6 above, the estimated total incremental burden due to the proposed
rule and form amendments is a reduction of 79,750 internal burden hours and a reduction of
$18,500,000.
16.

INFORMATION COLLECTIONS PLANNED FOR STATISTICAL PURPOSES
The information collections do not planned for statistical purposes.

17.

APPROVAL TO OMIT OMB EXPIRATION DATE

We request authorization to omit the expiration date on the electronic version of the
forms. Including the expiration date on the electronic version of the form will result in increased
costs, because the need to make changes to the form may not follow the application’s scheduled
version release dates. The OMB control number will be displayed.
18.

EXCEPTIONS TO CERTIFICATION FOR PAPERWORK REDUCTION ACT
SUBMISSIONS
There are no exceptions to certification for the Paperwork Reduction Act submissions.

11

B.

STATISTICAL METHODS
The information collections do not employ statistical methods.

12

Form 10 Short Statement
The proposed amendments to Rule 3-05 and related amendments (e.g., to Rule 1-02(w)),
among other things, would reduce a registrant’s paperwork burden by: revising the significance
tests and thresholds provided in Rule 1-02(w) and Rule 3-05 to improve their application and to
assist registrants in making more meaningful significance determinations; revising the scaling
requirements to reduce from three to two the maximum number of years of required Rule 3-05
Financial Statements; permitting Rule 3-05 Financial Statements to be prepared in accordance
with International Financial Reporting Standards as issued by the International Accounting
Standards Board (“IFRS-IASB”) in appropriate circumstances, thus permitting registrants to
reconcile their financial statements to the basis of accounting they are already using and not
requiring additional one-time reconciliations to U.S. GAAP; permitting the omission of Rule 305 Financial Statements from Securities Act registration statements and proxy statements once
the acquired business is reflected in filed post-acquisition audited financial statements of the
registrant for a complete fiscal year; and permitting registrants to use pro forma financial
information for significance testing under appropriate circumstances, thereby simplifying the
application of the rules and more accurately determining the significance of an acquired
business. The proposed amendments related to Rule 3-14, among other things, would align the
requirements under Rules 3-05 and 3-14 where appropriate; clarify the determination of
significance and the definition of “real estate operation” under Rule 3-14; establish an explicit
requirement for interim income statements; and provide special provisions for blind pool
offerings. As a result of these effects, we expect that the impact of the rule proposal would be a
reduction in the paperwork burden of affected entities. For purposes of the PRA, we estimate
that, for Form 10, the proposed amendments would result in a reduction of 500 burden hours and
a reduction in the cost burden of $600,000 for the services of outside professionals.

13

Form 1-A Short Statement
The proposed amendments to Rule 3-05 and related amendments (e.g., to Rule 1-02(w)),
among other things, would reduce a registrant’s paperwork burden by: revising the significance
tests and thresholds provided in Rule 1-02(w) and Rule 3-05 to improve their application and to
assist registrants in making more meaningful significance determinations; revising the scaling
requirements to reduce from three to two the maximum number of years of required Rule 3-05
Financial Statements; permitting Rule 3-05 Financial Statements to be prepared in accordance
with International Financial Reporting Standards as issued by the International Accounting
Standards Board (“IFRS-IASB”) in appropriate circumstances, thus permitting registrants to
reconcile their financial statements to the basis of accounting they are already using and not
requiring additional one-time reconciliations to U.S. GAAP; permitting the omission of Rule 305 Financial Statements from Securities Act registration statements and proxy statements once
the acquired business is reflected in filed post-acquisition audited financial statements of the
registrant for a complete fiscal year; and permitting registrants to use pro forma financial
information for significance testing under appropriate circumstances, thereby simplifying the
application of the rules and more accurately determining the significance of an acquired
business. The proposed amendments related to Rule 3-14, among other things, would align the
requirements under Rules 3-05 and 3-14 where appropriate; clarify the determination of
significance and the definition of “real estate operation” under Rule 3-14; establish an explicit
requirement for interim income statements; and provide special provisions for blind pool
offerings. As a result of these effects, we expect that the impact of the rule proposal would be a
reduction in the paperwork burden of affected entities. For purposes of the PRA, we estimate
that, for Form 1-A, the proposed amendments would result in a reduction of 1,350 burden hours
and a reduction in the cost burden of $180,000 for the services of outside professionals.

14

Form S-1 Short Statement
The proposed amendments to Rule 3-05 and related amendments (e.g., to Rule 1-02(w)),
among other things, would reduce a registrant’s paperwork burden by: revising the significance
tests and thresholds provided in Rule 1-02(w) and Rule 3-05 to improve their application and to
assist registrants in making more meaningful significance determinations; revising the scaling
requirements to reduce from three to two the maximum number of years of required Rule 3-05
Financial Statements; permitting Rule 3-05 Financial Statements to be prepared in accordance
with International Financial Reporting Standards as issued by the International Accounting
Standards Board (“IFRS-IASB”) in appropriate circumstances, thus permitting registrants to
reconcile their financial statements to the basis of accounting they are already using and not
requiring additional one-time reconciliations to U.S. GAAP; permitting the omission of Rule 305 Financial Statements from Securities Act registration statements and proxy statements once
the acquired business is reflected in filed post-acquisition audited financial statements of the
registrant for a complete fiscal year; and permitting registrants to use pro forma financial
information for significance testing under appropriate circumstances, thereby simplifying the
application of the rules and more accurately determining the significance of an acquired
business. The proposed amendments related to Rule 3-14, among other things, would align the
requirements under Rules 3-05 and 3-14 where appropriate; clarify the determination of
significance and the definition of “real estate operation” under Rule 3-14; establish an explicit
requirement for interim income statements; and provide special provisions for blind pool
offerings. As a result of these effects, we expect that the impact of the rule proposal would be a
reduction in the paperwork burden of affected entities. For purposes of the PRA, we estimate
that, for Form S-1, the proposed amendments would result in a reduction of 1,950 burden hours
and a reduction in the cost burden of $2,340,000 for the services of outside professionals.

15

Form S-3 Short Statement
The proposed amendments to Rule 3-05 and related amendments (e.g., to Rule 1-02(w)),
among other things, would reduce a registrant’s paperwork burden by: revising the significance
tests and thresholds provided in Rule 1-02(w) and Rule 3-05 to improve their application and to
assist registrants in making more meaningful significance determinations; revising the scaling
requirements to reduce from three to two the maximum number of years of required Rule 3-05
Financial Statements; permitting Rule 3-05 Financial Statements to be prepared in accordance
with International Financial Reporting Standards as issued by the International Accounting
Standards Board (“IFRS-IASB”) in appropriate circumstances, thus permitting registrants to
reconcile their financial statements to the basis of accounting they are already using and not
requiring additional one-time reconciliations to U.S. GAAP; permitting the omission of Rule 305 Financial Statements from Securities Act registration statements and proxy statements once
the acquired business is reflected in filed post-acquisition audited financial statements of the
registrant for a complete fiscal year; and permitting registrants to use pro forma financial
information for significance testing under appropriate circumstances, thereby simplifying the
application of the rules and more accurately determining the significance of an acquired
business. The proposed amendments related to Rule 3-14, among other things, would align the
requirements under Rules 3-05 and 3-14 where appropriate; clarify the determination of
significance and the definition of “real estate operation” under Rule 3-14; establish an explicit
requirement for interim income statements; and provide special provisions for blind pool
offerings. As a result of these effects, we expect that the impact of the rule proposal would be a
reduction in the paperwork burden of affected entities. For purposes of the PRA, we estimate
that, for Form S-3, the proposed amendments would result in a reduction of 4,800 burden hours
and a reduction in the cost burden of $5,760,000 for the services of outside professionals.

16

Form F-1 Short Statement
The proposed amendments to Rule 3-05 and related amendments (e.g., to Rule 1-02(w)),
among other things, would reduce a registrant’s paperwork burden by: revising the significance
tests and thresholds provided in Rule 1-02(w) and Rule 3-05 to improve their application and to
assist registrants in making more meaningful significance determinations; revising the scaling
requirements to reduce from three to two the maximum number of years of required Rule 3-05
Financial Statements; permitting Rule 3-05 Financial Statements to be prepared in accordance
with International Financial Reporting Standards as issued by the International Accounting
Standards Board (“IFRS-IASB”) in appropriate circumstances, thus permitting registrants to
reconcile their financial statements to the basis of accounting they are already using and not
requiring additional one-time reconciliations to U.S. GAAP; permitting the omission of Rule 305 Financial Statements from Securities Act registration statements and proxy statements once
the acquired business is reflected in filed post-acquisition audited financial statements of the
registrant for a complete fiscal year; and permitting registrants to use pro forma financial
information for significance testing under appropriate circumstances, thereby simplifying the
application of the rules and more accurately determining the significance of an acquired
business. The proposed amendments related to Rule 3-14, among other things, would align the
requirements under Rules 3-05 and 3-14 where appropriate; clarify the determination of
significance and the definition of “real estate operation” under Rule 3-14; establish an explicit
requirement for interim income statements; and provide special provisions for blind pool
offerings. As a result of these effects, we expect that the impact of the rule proposal would be a
reduction in the paperwork burden of affected entities. For purposes of the PRA, we estimate
that, for Form F-1, the proposed amendments would result in a reduction of 50 burden hours and
a reduction in the cost burden of $60,000 for the services of outside professionals.

17

Form F-3 Short Statement
The proposed amendments to Rule 3-05 and related amendments (e.g., to Rule 1-02(w)),
among other things, would reduce a registrant’s paperwork burden by: revising the significance
tests and thresholds provided in Rule 1-02(w) and Rule 3-05 to improve their application and to
assist registrants in making more meaningful significance determinations; revising the scaling
requirements to reduce from three to two the maximum number of years of required Rule 3-05
Financial Statements; permitting Rule 3-05 Financial Statements to be prepared in accordance
with International Financial Reporting Standards as issued by the International Accounting
Standards Board (“IFRS-IASB”) in appropriate circumstances, thus permitting registrants to
reconcile their financial statements to the basis of accounting they are already using and not
requiring additional one-time reconciliations to U.S. GAAP; permitting the omission of Rule 305 Financial Statements from Securities Act registration statements and proxy statements once
the acquired business is reflected in filed post-acquisition audited financial statements of the
registrant for a complete fiscal year; and permitting registrants to use pro forma financial
information for significance testing under appropriate circumstances, thereby simplifying the
application of the rules and more accurately determining the significance of an acquired
business. The proposed amendments related to Rule 3-14, among other things, would align the
requirements under Rules 3-05 and 3-14 where appropriate; clarify the determination of
significance and the definition of “real estate operation” under Rule 3-14; establish an explicit
requirement for interim income statements; and provide special provisions for blind pool
offerings. As a result of these effects, we expect that the impact of the rule proposal would be a
reduction in the paperwork burden of affected entities. For purposes of the PRA, we estimate
that, for Form F-3, the proposed amendments would result in a reduction of 75 burden hours and
a reduction in the cost burden of $90,000 for the services of outside professionals.

18

Form 8-K Short Statement
The proposed amendments to Rule 3-05 and related amendments (e.g., to Rule 1-02(w)),
among other things, would reduce a registrant’s paperwork burden by: revising the significance
tests and thresholds provided in Rule 1-02(w) and Rule 3-05 to improve their application and to
assist registrants in making more meaningful significance determinations; revising the scaling
requirements to reduce from three to two the maximum number of years of required Rule 3-05
Financial Statements; permitting Rule 3-05 Financial Statements to be prepared in accordance
with International Financial Reporting Standards as issued by the International Accounting
Standards Board (“IFRS-IASB”) in appropriate circumstances, thus permitting registrants to
reconcile their financial statements to the basis of accounting they are already using and not
requiring additional one-time reconciliations to U.S. GAAP; permitting the omission of Rule 305 Financial Statements from Securities Act registration statements and proxy statements once
the acquired business is reflected in filed post-acquisition audited financial statements of the
registrant for a complete fiscal year; and permitting registrants to use pro forma financial
information for significance testing under appropriate circumstances, thereby simplifying the
application of the rules and more accurately determining the significance of an acquired
business. The proposed amendments related to Rule 3-14, among other things, would align the
requirements under Rules 3-05 and 3-14 where appropriate; clarify the determination of
significance and the definition of “real estate operation” under Rule 3-14; establish an explicit
requirement for interim income statements; and provide special provisions for blind pool
offerings. As a result of these effects, we expect that the impact of the rule proposal would be a
reduction in the paperwork burden of affected entities. For purposes of the PRA, we estimate
that, for Form 8-K, the proposed amendments would result in a reduction of 71,025 burden hours
and a reduction in the cost burden of $9,470,000 for the services of outside professionals.

19