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The SEC's \Change the Sign\ Rule
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Trade Publication Article
The SEC's \Change the Sign\ Rule
2011
Overview
The author's choice for the SEC's worst accounting rule is not a rule at all but an interpretation of a rule contained in the Financial Reporting Manual, colloquially called the \"change the sign\" rule and designated by the SEC as the \"absolute value\" rule. The \"change the sign\" rule requires the losses of target acquirees to be treated the same as profits for purposes of computing whether audited financial statements of the target are required under Regulation S-X 3-05. The effect of the \"change the sign\" rule is that even if a target loss company is available for acquisition at a nominal price, a small public company will not be able to take advantage of this bargain opportunity. Thus, even if all the assets of the target can be purchased for $1.00, thereby easily satisfying both the asset and investment test, the \"change the sign\" rule will preclude the acquisition under the income test.
Publisher
Aspen Publishers, Inc
