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Articles • 12/21/2021

Carve-out Financial Statements Help Move Along Sales of Company Sub-Entities

By Mike French, CPA, ABV, CFE, Managing Director

Carve-out financial statements are sometimes necessary when a company sells a division or some other sub-entity. But they require a certain level of judgment and the composition of such financial statements depends on the facts and circumstances of the transaction.

What Is a Carve-Out Financial Statement?

The term “carve-out financial statement” refers to a financial statement prepared for a division (or other component) of a larger company, which is derived from the existing consolidated financial statements of the parent entity.

A carve-out financial statement is necessary to move forward the sale of a division, product line or other component of the parent company. Like all financial statements, it presents the historical operations of the carve-out entity and reflects its costs of doing business.

When deciding whether a carve-out financial statement is needed, a company should consider the circumstances of the transaction, including the needs of the buyer and any SEC reporting requirements that may exist. The buyer’s needs, including any SEC filings, will determine which historical periods are included in the carve-out financial statements and whether they need to be audited.

The carve-out financial statement consists of a balance sheet, statement of operations, statement of changes in equity, statement of cash flows and footnotes. Buyers need this information to comply with accounting reporting rules for significant business acquisitions.


It’s important to note that neither U.S. GAAP nor the SEC staff provide comprehensive guidance on preparing carve-out financial statements and there are complexities in preparing a carve-out financial statement that requires the use of judgment:

  • Determining which assets and liabilities should be reported by the carve-out entity.
  • The carve-out entity will need to determine how to report intercompany transactions with its parent.
  • Costs shared with the parent entity, but partly related to the carve-out entity, will need to be allocated using a reasonable allocation method.

Contact Us

For more information about carve-out financial statements or assistance with preparing for a business sale, contact your PKF Advisory team member or:

Mike French, CPA, ABV, CFE
Managing Director
Tel: 949.860.9891

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