Grant Thornton's Insights for CFOs on Navigating Carve-Outs

CHICAGO — As corporate strategies increasingly embrace divestitures and spin-offs, Chief Financial Officers (CFOs) face mounting pressure to deliver audit-ready carve-out financial statements that adhere to regulatory scrutiny and meet investor expectations. Grant Thornton's recently published guide, titled "Carve-out Financial Statements," elucidates the often-overlooked challenges associated with carve-outs, particularly within environments regulated by the Securities and Exchange Commission (SEC). This guide emphasizes the necessity of early planning and a comprehensive understanding of financial reporting requirements.

"Carve-outs are strategic inflection points that demand precision, foresight, and strong financial leadership," stated Greg Bryen, Director in the CFO Advisory Services practice at Grant Thornton Advisors LLC. "Understanding the nuances early can be the difference between a smooth transaction and a costly delay."

### Key Insights for CFOs According to the guide, there are five critical insights that CFOs should consider when preparing carve-out financials:

1. **Complexity Demands Expertise:** The preparation of carve-out financials involves significant judgment, encompassing the definition of the carve-out's scope, allocation of assets, liabilities, and expenses. The guide underscores the importance of having the right internal capabilities or engaging external specialists to navigate this complex process effectively.

2. **Regulatory Requirements Vary:** The purpose of the carve-out—be it for an Initial Public Offering (IPO), spin-off, or acquisition—influences the applicable reporting standards. Different categories such as SEC registrants, public business entities, and SEC filers face distinct accounting and disclosure standards. To ensure compliance and manage the intricacies involved in preparing audit-ready standalone financials, finance leaders often turn to external providers during the carve-out process.

3. **Correct Expense Allocation:** Carve-out financial statements must represent the full cost of operating the carved-out entity. This often necessitates the allocation of shared parent-company expenses using a reasonable, supportable, and auditable method. Poor documentation can jeopardize the credibility of the financials.

4. **Asset and Liability Attribution:** The assignment of assets and liabilities—especially those that have historically been shared or centrally managed—requires careful analysis and judgment based on factors like usage, legal ownership, and transferability. Missteps in this area can distort the carve-out's financial position and affect valuation.

5. **Shifting Materiality Thresholds:** Factors that may be considered immaterial at the parent-company level can become significant for the carve-out, necessitating detailed analysis, possible retrospective adjustments, and enhanced audit support. This shift impacts disclosures and internal controls, requiring a more granular approach to financial reporting.

"Our clients often navigate carve-outs with limited support, and this guide was developed to close that gap," reflected Shalin Pathak, Principal at Grant Thornton Advisors LLC. "We’re not just helping clients meet requirements—we’re helping them prepare early, avoid pitfalls, and make better strategic decisions."

For further insights, Grant Thornton's "Carve-out Financial Statements" guide is available for download at [Grant Thornton](https://www.grantthornton.com/insights/newsletters/audit/2025/viewpoint/preparation-of-carve-out-financial-statements). This resource aims to equip CFOs with the knowledge necessary to navigate the complexities of carve-outs effectively.

### About Grant Thornton Grant Thornton delivers professional services in the U.S. through two specialized entities: Grant Thornton LLP, a licensed certified public accounting (CPA) firm providing audit and assurance services, and Grant Thornton Advisors LLC, which offers non-attest services including tax and advisory services. In January 2025, Grant Thornton formed a multinational, multidisciplinary platform with Grant Thornton Ireland, which provides a premier advisory and tax practice, alongside independent audit practices. With revenues of $2.7 billion and nearly 60 offices worldwide, the firm fosters a unique client experience enhanced by advanced technologies and a workforce of approximately 13,000 professionals committed to exceptional service.

This guide is a timely reminder of the critical role CFOs play in the success of carve-outs and the importance of strategic financial leadership in today's dynamic corporate landscape.