A financial statement that is prepared to provide information about a certain component of a business such as a segment, business unit, or product line. Carving out may involve the net assets and results of operations of an entity (the carved-out), isolated from those of a larger entity for the purpose of financial reporting specific to the carved-out entity.

Carve-out financial statements usually reflect the separate financial results and financial position of a subsidiary, an operating unit, a product line, or a brand. The financial statements prepared and presented for that particular purpose may or may not be of a legal entity, but rather a virtual entity. Preparing financial statements for a virtual entity can involve certain complexities relating to the basis of presentation of the distinct financial statements.

Carving out of financial statements is a decision reflecting certain practicalities of a planned divestiture. When determining the need for carve-out financial statements, a reporting entity should consider the nature of any prospective divestiture, including any contractual or regulators-imposed reporting requirements. At times, transactions or any related deal financing cannot be considered completed until carve-out financial statements are provided.

When the carve-out financial statements are to be included in a stock exchange filing, the process is subject to the form of the filing, the annual and interim financial statements required, the duration of the financial statements, among others.

Carve-out statements are derived from the financial statements of a larger parent entity. The need for such statements is determined or assessed as per a certain transaction (known as a carve-out transaction) such as a sale, spin-off, initial public offering (IPO), or special-purpose acquisition company transaction involving a portion of a parent entity. Moreover, such statements are necessary to account for specific types of transactions as a means of clearly presenting or showcasing the portion of a parent entity’s balances and activities that are being emphasized (i.e., carved out).