This document contains comments on proposed changes to SEC regulations regarding financial statement disclosures required for business acquisitions and other transactions. It discusses proposed modifications to significance tests used to determine disclosure requirements for acquired businesses, equity method investments, and collateralized securities. The commenter recommends replacing existing tests with simpler tests based on revenue and fair value to improve the reliability and understandability of disclosures for average investors. The commenter also provides feedback on changing requirements for pro forma financial statements, consolidated financial statements of guarantors, and scaled disclosures for smaller reporting companies.

1. CONCEPT RELEASE-BUSINESSAND FINANCIALDISCLOSUREREQUIRED BY REGULATION S-X
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Rule 3-05, Financial Statementsof BusinessAcquiredor to be Acquired
1 The accountingstandardsrequire disclosure toenableinvestorstounderstandthe nature andfinancial
effectof a businesscombination. Some of disclosuresrequirementsbythe accountingstandardsare the
same as those requiredbyRule 3-05 and the relatedrequirements. Others,suchaspro formafinancial
informationare similaralthoughthe proformainformationREQUIREDBY Article 11 of RegS-X ismore
detailedandrequiresthe filingof Form8-Kregistrationstatement. Reg3-05 requireshistorical financial
statementsof acquiredentityandthe accountingstandardsdonot
2 There are changesto these requirementsthe SECshouldconsiderinordertoaddqualityandutilityof this
disclosure byaverage investors. Forinstance,there are suggestionsof changingthe requirementsof Article
11 in orderfor proforma information tohelpreadersinvestorsunderstandthe targetperformance of the
combinedcompany post-merger. Inmyview,synergyisthe mostimportantinformationinvestorneedsto
evaluate the mergerbutthe challenge istominimize the gapbetweenthe targetsynergyandthe actual
synergy. The problemisthatregistranttendstooverestimate thisinformationjusttowinavote from
shareholders. The secondproblemisthe issue of asymmetricof informationputtingthe registrantina
difficultpositiontoestimate the rightvalue of the acquiree andthe difficultroadtowardthe merger. The
thirdproblem isthe difficultyof predictinganyregulatoryoutcome andexternal factors(customers,
community,union,…)
3 The lack of reliabledata(private companyandforeigncompanies)affectthe significance testitiswhyI
recommendthe SECto revise thisrule andaddthe quality,attractivenessandreliabilitytothe S-XRule 1-02
(w). Aswe knowtestswe now use can be affectedbyjusta little manipulationof impairmentvaluation
change. It is whyitmakessense toaccept revenue testandfairvalue investmenttest asnewtoolstotest
companyfor significance. Ibelieve the incomingrevenuerecognition rule will notimpactthisposition. It
doesnotmatter that companiesleadersmustworkveryhardto winon the marketshare price competition
(maximizationof shareholdervalue)forthistest. Investors mustunderstandwhythese companies did
choose or are notchoosingto ‘marry’[merge] eachotherbasedonhow othersare valuingthem.(external
valuators,customersbythe revenuesandmarketplace bymarketshare price) Investorsvotingonthis
mergerwill evaluatethisinformationbased onexternal assessments(bothare notunderpressure orhave
not incentive tolie orinflateanyvalue)
4 Pretax income testcanbe manipulatedandwillresultintoquestionable positive /negative tests. Fairvalue
investmenttestcanincrease utilityof thisinformationbecause itissimpletounderstandbyaverage
investor. Inshort,thistestisnot ‘ora-quick’testtokeep,SECmusteliminate these testswithchainsof
questionable andaggressive resultsandreplace itwiththe reliable tests.
5 SEC can improve the utilityof the proformainformationbyincreasingitsfrequency(quarterlyand
annually). SECshouldnotchange itsmethodologies,addanycomparative proformincome statementsor
modifythe requirementsthe restrictions forproformaincome adjustments. Aggregate small acquisitions
requirementsmustprovide proformainformationif theytestpositiveforsignificance inannual basis after
updatingitregularly. Whenregistrantcannotprovide aproforma disclosure becauseof lackof data or
reliable data(private and/orforeignacquire),itshouldbe requiredtoprovide abbreviatednarrative
disclosure if the auditordeterminesthisfact
6 Yes,SEC shouldmodifythe requirementtoprovide Rule 3-05financial statements byfilingproforma
informationforimpendingacquisitionsthatare individuallysignificantorinsignificantbutsignificantas
aggregate;all underSA 1933 and SEA 1934. SEC shouldallow companiestocure noncompliance withS-X3-
05 witha reductionof the ‘blackout’ periodtoa yearand provide relieffromcomplyingwithUSGAAPand

2. US GAAS incertaincross bordertransactionswhere financialstatementsof the targetmusteitherbe
preparedinaccordance withUS GAAPor reconcile underitem18of Form20-F.
7 No,I didread no complaintrelatedtothisamountof time,71 daysto file form8-K/A toinclude proforma
disclosure orcomplywithRule S-X3-05 issufficienttime tocollect,assess,disclose.
8 Certainregistrationstatementsshouldcontinue torequire acceleratedandadditional disclosuresas
comparedto the Form 8-K requirements
9 The proposedsignificance testswill determine the nature andextentof disclosure underRule 3-05
10 These proposedchangesinsignificance testswilladdqualityandreliabilitytothisinformation. Atthe same
token,Ibelieve itwill addthe utilityof thisinformationbyaverage reasonableinvestors. These revenue
testand fairvalue investmenttestare easytoassess,collectandprovide tothe investingpublic
11 The proposedchangesIdid describe ontopwill improve the readabilityof thisdisclosure andits
understandingbyshareholderswhowill make aninformed decisionduringthe mergervote andapproval.
12 I recommendafull replacementof the actual testsof significance withjust2tests –revenue testandfair
value investmenttestbutIdo notfavor risingany percentage threshold atthistime
13 Merger istiedto the top executive compensationpackage. Itistiedtotheirreputationandmegalomaniac
goal and vision. Thatsaidexecutiveshave incentivestolie forfinancial andnon-financial incentives. Itis
whyI will notrecommendthe SECto shiftcontrol fromthe prescriptive disclosurestothe principle
disclosure orientedgivingtopexecutivesopportunitiestomerge justtoincrease theircompensation
package or/andgoal of leadingabig company. In sum, letregistrantscomplytoprescriptiverulesaleastto
empowerconsistencyamongregistrants.
14 Foreignprivate issuersmustprovide similardisclosureonForm6-K because itwill alignthe disclosure
philosophy. Itwill be issue aboutdataanddata sharingbut if the acquiree isa US registrantitwill be easy.
It will be some kindof reconciliationoruse of IFRSand negotiationwithlocal regulators
15 Scaleddisclosure mustapplytoEGC withabbreviateddisclosure requiringlessdata(mostlyhistorical data)
16 InvestmentcompaniesdeservedifferentRule 3-5appliedtothe size of investmentfiledonFormN2. That
said,itwill make sense forthe SECto revisitinvestmentcompaniesrulesandaddrequirementof proforma
schedule of investmentsafterfairvalue investment test.
17 At thistime, FASBisworkingonwhatit callsclarifyingthe definitionof business. There isanexposure draft
whichisstill underre-deliberation. Thatsaid,we can not say at thistime whatwill be the final rule of the
definitionof business. Inthe meantime,Ibelievewe mustkeeprelyingonthe definitionof businessunder
S-XArticle 11-01 (d)
Rule 3-09, Separate Financial Statementsof SubsidiariesNot Consolidatedand50 Percent or Less OwnedPersons
18 Rule S-X3-09 dictated the financial informationneededtodiscloseequitymethodinvestees. Thisrule
requiressummarizedfinancial informationforannual disclosure onForm10-K or N6 and interimdisclosure
on Form10-Q for the aggregate of all equitymethodinvesteesif significance tests,ruledby1-02 (w),
exceeds 10%. There are costs andoperational challengestoobtainstubfinancialstatementsforonlya
portionor quarterof the year.
19 SEC shouldrevise the rule andapplythe proposedS-Xrule 1-03(w) fortests. Registrantsneedreliabledata
inorder to prepare a gooddisclosure tohelpinvestorsmake aninformedinvestmentandvotingdecisions.
20 Beside reliable data,the costof the disclosure anditslow utility,SECshouldlimitthe scope of s-x rule 3-09
to equitymethodinvesteesthatare notcarriedat fair value. Noauditedfinancialdisclosure shouldbe
requiredfordisposedequityinvestment. Changestothe requirementsinthe yearof acquisitioncan
facilitate compliance andreduce pre-filingrequestsforexemptionandwaiverstothe SECstaff. This will
give more opportunitiesforregistranttoaddquality,transparencyandreliabilitytotheirdisclosure butit
may notdirectlyincrease the utilityof the information byaverage reasonable investorsandsophisticated
investorsmayfinditmore useful
21 Investorsmaynotneedinterimfinancial informationaboutequitymethodinvesteesunderArticle10and S-

3. X Rule 8-03, withoutanyadverse change since precedentyearendorquarterend
22 Summarizedfinancial informationwillbe more usefultoinvestors(mostlysophisticatedinvestors) if itis
disclosedseparately forindividuallymaterial investees. SECshouldconsideraddingdisclosure of the
respective ownershipinteresttothisrequirement. If thisdisclosurecancause any competitive harmtothe
registrant,itwill be omittedandthe reasonof thisomission mustbe disclosed.
23 Yes,it will be appropriate forthe SECto revisitRule 3-09 andcorrect it because itisone of itssubsets
24 It islessuseful thatmeanswithalittle trustfrominvestorsbutitdoesnotmake any financial sense to
spendthatmuch for an insignificantinformation.
25 Yes,significance testsif performedwell,canappropriatelydetermine the nature,timingand extentof
disclosure underRule 3-09and the relatedrequirements
26 I didalreadyindicate proposedchangestoRule 1-02 (w) withjust2 tests,revenue testsandfairvalue
investmenttestsforsignificance tests. The onlychallengetothisproposedtestisthe reliabilityof the data
of the company
27 Withthe proposedchangestothe test,itwill addreliance andreadabilitytothe disclosure helpinginvestors
to make an informedinvestmentandvotingdecisions.
28 No,SEC shouldnotshiftcontrol of the significance testtothe managementof the registrant. The first
concernis a lack of consistencyandthe second isthe lack of incentive formanagementtoprovide areliable
test.
29 Othersare recommendedthe use of greaterthan10% forindividual significance test,greaterthan20%for
the aggregate of individuallyinsignificantequityinvesteesandgreaterthan80% for auditedfinancial
statements,Iamnot sure theywill testbetter
30 I do notbelieve thatinterimdisclosure shouldbecomeoptional. The interimfinancial informationshould
be basedon material adverse changessince previousyearendandquarterend. SEC mustdetermine what
to omit,whenandhow
31 SRC and EGC must provide ascaleddisclosure because of lackof reliable dataandthe size of their
investment
32 Investmentcompaniesshould follow adifferentstandardof S-XRule 3-09. For instance,theirtestof
significance shouldbe basedonfairvalue investmenttest. Inaddition,we cancreate 2 groupsof
investmentcompanies,investmentinanoperatingportfoliobusiness(withsummarizedfinancial
information) andinvestmentinanentityaccountedforasan investmentcompany(withschedule of
investments)
Rule 3-10- Financial Statementsof Guarantors and Issuersof GuaranteedSECURITIES Registeredor BeingRegistered
33 Thisinformationallowsinvestorstoevaluate the capacityof paymentof debtsatthe due date. The
challenge forinvestorsistounderstandhow ratinganalystsandothersdidassessthisissuer’scapacity.
34 Expertspreparersare complainingaboutcondensedconsolidatingfinancialinformation,itscostsand
complexityleadingtorestatementaftererrorsandreputational costs. If the condensedconsolidating
financial informationiscomplex toprepare,isitcomplex tounderstand?Whotoblame?A poortrainingor
complex requirementstocomply with? If investorscanunderstandthisinformationcoupledwithrating
analystassessment,itcanbe forthemto make an informed investmentandvotingdecision.
35 Preparershave saidthatit isdifficultandcomplex toprepare it. If the SEC cannotsimplyitsrequirements,it
can substitute itwithanauditedsummarizedfinancialinformationboththe issuersandguarantors. One of
these changescanadd clarity,attractivenessandutilityof thisinformationbyinvestorsinmakingan
informedinvestmentandvotingdecisions
36 Thisinformationisuseful byinstitutionalprofessional investorsbutfora disclosure tobe effective,itmust
be addressedtoaverage reasonable investors
37 To increase the utilityof aconsolidatinginformation,SECmustrevisititscontentrequirementsandadd
clarity,that meanssimplifyitwithoutjeopardizingthe qualityof thisinformationreliedbyinvestorstomake

4. an investmentandvotingdecision
38 SEC shouldnotshiftcontrol of the contentof interimof consolidatinginformationfromthe regulatorsto
the Top managementof the registrant. Inaddition,itwill make sense foracompanyto disclose this
selectedfinancial informationinitsinterimperiodonlyif therehasbeenmaterial adverse changesinthe
financial conditionof the obligatedgroupsince the mostrecentlyreportedannual orinteriminformation
report
39 Yes,S-Xrule 3-10 (g) shouldrequire separate auditedfinancial statementforrecentlyacquiredsubsidiary
guarantor/issuersforthe mostrecentfiscal yearorinterimperiodonlyif the subsidiaryguarantor/issuers
are significant
40 AlternativeDisclosure doesinfluencethe structure of guarantee relationship,guarantormustbe able to
affordthe full andunconditional guarantee oritwill be reputationalandratingcoststo the parentand
subsidiaryandtheirshareholders
41 If the parentowns forexample 90% of the subsidiaryandmanagesitthissubsidiarylikeitownsitinfull,I
believeitwill make sense forthisparenttoassume all responsibilities regardlessof NCI asa guarantor of
thissubsidiary.
42 It mustmeetthe definitionof full andunconditional guarantee tobecome legallyenforceable tothe parent.
Aftera defaultbutwithoutenforcementproceeding,thisincludeddelayedenforceability;itwillmake sense
to allowthe continuityof the Alternativedisclosure forthe guarantee becausethere are still alotof
windows fornegotiationandmodificationtoavoidthisactual legal default.
43 Recentlyacquiredguarantorscanprovide anabbreviatednarrativedisclosure.
44 No parentcompanyshouldcontinue toprovide Alternativedisclosure duringthe periodwhichthe securities
are outstanding;But, if the subsidiarydidfileforform15, itsshareswill nottrade and it will be noreason
to continue the Alternative Disclosurebutthe parentcan start makinganabbreviatednarrative disclosure
until the extinguishmentof thisdefaultdebt. Itwill be like dealingwithsubsidiary/parentthathave no
independentassetsalthoughitwasjusta conversionfrompublictoprivate.
45 SRC and EGC must be subjecttoscaleddisclosure
Rule 3-16, Financial Statementsof AffiliatesWhose SecuritiesCOLLATERALIZEan Issue Registered or Being
Registered
46 Yes,Rule 3-16 requirementsinfluence the structure of collateral arrangements. Itshouldbe notedthatRule
3-16 requiresseparate financial statementsof affiliate thatcollateralize anissuance if theirsecurities
constitute asubstantial portionof collateral. Securitiesconstitute asubstantialportionof collateralunder
S-Xrule 3-16 if the aggregate principal account,parvalue,bookvalue ormarketvalue of the securities
pledgedascollateral,whicheveristhe greatestequals20% or more of the principal accountof the
collateralizedsecurities. If thisagreementisstructuredtoavoidS-Xrule 3-16, investorswillneverknow
that pledgesof subsidiarystockhadbeenusedascapital raisingoption inthistransaction. Wasthisissuer
able to paythisdebtwhenit wasdue?Was it a gooddeal for the companyand itsshareholder?If investors
cannot answerthese questionswithouthuge effort,theydidnotunderstandthistransactiontherefore they
will notmake an informedinvestmentandvotingdecision.
47 Rule 3-16 and Rule 4-08 (b) are usedseparately. Separately,Rule 4-08(b) of Regulation S-Xrequires
disclosuresinthe notestoa registrant’sannual financial statements of amountsof assetsof pledged,
mortgagedor otherwise subjecttolien.Firstchallengeisthat4.08 (b) rulesdoesnotrequire anythreshold
limitation. AnotherchallengeisthatRule 3-16 is limitedtopledgedsecurities. Onlythe pledge feature can
trigger3-16 disclosure.
48 Investorsshouldbe informedaboutthe amountof collateralizedsecuritiesoriginallyissued. There are no
real challenge inprovidingthisinformation. Butthe waythe testis performedischallengingtoothers,may
be there isan easyway out withoutunderminingthe qualityof informationprovidedtoinvestors
49 The difference betweenRules3-16and 4-08 can be confusinganduse toconfuse investors,Ibelievethat

5. focuson summarizedandauditedfinancial informationcanaddclarityand attractiveness tothe disclosure
for investorsintheirresponsibilitiestomake investmentandvotingdecision.
50 The problemisnot the substantial portionof collateral testatthe endof eachfiscal year,investordoesnot
needa separate auditedfinancial statementsforthe subsequentyeareventhoughitstestwaspositive
(20% or more of the original amountof securitiesoffered). Forsubsequentannual report,whenitis
significant,registrantcanjustprovide asummarizedauditedfinancial report
51 To improve the utilityof Rule 4-08footnote disclosure,SECmustrevisitthisrule toexpandittothe FPIand
othercreditenhancements,thiswillbringanew crowdwhowill readitand relyon itin makinganinformed
investmentandvotingdecision. Anotherway isto require subsequentinterimfinancial reportfor
significantaffiliates.
52 It will be appropriatedtorevisitthe requirementstoprovide Rule 3-16financial statementandprovide to
investorsthe numberof instancesinwhichthe collateral pledge of securitiesisinvolvedinconnectionwith
registeredsecuritiessubjecttoS-X3-16
53 Yes,we can revisitthe testusedinapplyingRule 3-16and add more comparabilitytoit
54 SRC and EGC must be subjecttoscaleddisclosure
55 SEC should revisititsrulesandacton:
 Rule 3-06 of RegulationS-X( periodsof 8 to 12 monthsmustsatisfyone fiscal year)
 Use of auditedpre-acquisitionperiodstocomplywithdisclosure requirements
 Requirementspertainingtoindividuallyinsignificantacquisitions
56 I am not a good promoterof extensive businessrelatedlanguagebecause of itslow utilitylevelanderrors,
that said,if we cannot fix itor eliminateit,we must keepthingswheretheyare now
57 A goodtechnologysystemmustprovideuswithinformationatlow cost,highspeed,errorfree withless
humaneffort(manual),itiswhywe mustsearchthe way to adaptto the proliferationof the technologybut
we must make sure that thisinformationissecuredfromhackersandhightechcriminals. Inshort, these
adoptednewrulesrelatedtonewtechnologyshouldnotbe above ourFederal Securitiesregulationand
laws.
58 Disclosure Effectivenessinitiative wasimplementedtoreduce informationoverload,we mustkeepinmind
that no everyinvestorwill readandunderstandanaverage disclosure. Itiswhywe mustjustwrite the
disclosure tothe average reasonable investor asourtarget audience.