Formatting the system requires you to update i've read somewhere
Actually formatting requires an internet connection because it has to unlink the NNID first. If the console was never linked to an NNID account, then fake wifi access points can be used instead. (this is why you never see this issue on a 3DS on 4.5 firmware, because NNID linking did not exist when this version of firmware was released, so those users never needed an internet connection to format)
However it is IMPOSSIBLE to format without unlinking a NNID if one has been linked at any point while using the 3DS and this REQUIRES a proper wifi connection at the time of formatting.
As for firmware updating, I heard it was just a voluntary prompt and you can cancel the update prompt and still format the system. I don't know for sure yet, but using a DNS blocking service like OpenDNS to block the update servers should allow you to format without even seeing the update prompt. I can confirm that using OpenDNS to block the servers for eShop and updates prevents eShop use and blocks any update prompts and despite that I'm still able to use PokeBank which requires logging into to NNID account. If it's able to log into my NNID account despite most of the eShop services being blocked, then I don't see why I wouldn't be able to unlink the NNID during the format process.
I guess I won't really find out until I have a new 3DS console to do a system transfer to, because I will not be formatting my 3DS any time soon. Really do not want to lose my friendcode which I've heard will occur even if I had emunand setup. This is due to friendcodes being reset after unlinking the NNID account.
But someone is free to correct me if I'm wrong on that part.
