[Federal Register Volume 59, Number 80 (Tuesday, April 26, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-9891]


[[Page Unknown]]

[Federal Register: April 26, 1994]


_______________________________________________________________________

Part III





Securities and Exchange Commission





_______________________________________________________________________



17 CFR Parts 210, 229, and 249




Selection of Reporting Currency for Financial Statements of Foreign 
Private Issuers and Reconciliation to U.S. GAAP for Foreign Private 
Issuers With Operations in a Hyperinflationary Economy et al.; Proposed 
Rules
SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 210 and 249

[Release Nos. 33-7054; 34-33919; International Series Release No. 654; 
File No. S7-11-94]
RIN 3235-AD70

 
Selection of Reporting Currency for Financial Statements of 
Foreign Private Issuers and Reconciliation to U.S. GAAP for Foreign 
Private Issuers With Operations in a Hyperinflationary Economy

AGENCY: Securities and Exchange Commission.

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: The Commission is proposing to amend Regulation S-X and Form 
20-F to facilitate the registration and reporting by foreign private 
issuers. The changes proposed today allow foreign issuers flexibility 
in the selection of the reporting currency used in filings with the 
Commission and streamline financial statement reconciliation 
requirements for foreign private issuers with operations in countries 
with hyperinflationary economies.

DATES: Comments should be received on or before July 25, 1994.

ADDRESSES: Comment letters should refer to File Number S7-11-94 and 
should be submitted in triplicate to Jonathan G. Katz, Secretary, U.S. 
Securities and Exchange Commission, 450 Fifth Street NW., Washington, 
DC 20549. The Commission will make all comments available for public 
inspection and copying in its Public Reference Room at the same 
address.

FOR FURTHER INFORMATION CONTACT: Wayne E. Carnall, Office of the Chief 
Accountant, Division of Corporation Finance at (202) 272-2553 U.S. 
Securities and Exchange Commission, Washington, DC 20549.

SUPPLEMENTARY INFORMATION: As described in detail below, the Commission 
is proposing to revise Rule 3-201 of Regulation S-X2 and to 
amend Form 20-F3 under the Securities Exchange Act of 1934.4
---------------------------------------------------------------------------

    \1\17 CFR 210.3.20
    \2\17 CFR 210.
    \3\17 CFR 249.220f.
    \4\15 U.S.C. 78a et seq.
---------------------------------------------------------------------------

I. Introduction

    The Commission is proposing today to facilitate registration and 
reporting by foreign private issuers, by allowing flexibility in the 
selection of the reporting currency used in filings with the Commission 
and by streamlining financial statement reconciliation requirements for 
foreign private issuers with operations in countries with 
hyperinflationary economies. As proposed, a foreign private issuer 
could state amounts in its financial statements in any currency which 
it deemed appropriate so long as it reports to a majority of its 
nonaffiliated securityholders using that currency. In addition, a 
foreign private issuer that accounts for its operations in 
hyperinflationary environments in accordance with International 
Accounting Standard No. 21, ``The Effects of Changes in Foreign 
Exchange Rates,'' as amended in 1993 (``IAS 21''), would not need to 
reconcile the differences that would have resulted from application of 
the U.S. standard, Statement of Financial Accounting Standards No. 52, 
``Foreign Currency Translation'' (``SFAS 52'').

II. Reporting Currency of Foreign Private Issuers

A. Selection of a Reporting Currency

    Currently, the Commission's rules require a foreign issuer to 
present its financial statements in the currency of either its country 
of incorporation or of its primary economic environment. This 
requirement has been increasingly troublesome for foreign companies 
entering the U.S. market, and the staff has received a number of 
requests for accommodation. Some foreign issuers that have historically 
reported in their domestic market using the U.S. dollar seek to report 
on that basis in the U.S., but current rules would not permit them to 
do so in filings with the Commission. In addition, the issue of 
reporting currency is particularly troublesome for foreign private 
issuers that operate in several countries or have securities traded in 
a number of markets. For such companies, the country of incorporation 
may be a matter of convenience or may account only for a limited part 
of its business activity; no single economic environment may be 
dominant to its operations or shareholder base. In these circumstances, 
management may wish to select a reporting currency chiefly on the basis 
of its familiarity to and acceptance by the international markets. Some 
multinational companies state amounts in their financial statements in 
different currencies in different trading markets, either by choice or 
by mandate of the various jurisdictions.
    To address these difficulties, the Commission is proposing to 
revise Rule 3-20 of Regulation S-X to permit a foreign issuer to state 
the amounts in its primary financial statements using any currency in 
which it reports to a majority of its nonaffiliated 
securityholders.5 The amendment would require specific disclosure 
in a note to the financial statements if the currency in which the 
issuer expects to declare any dividends is different from the reporting 
currency, or there are material exchange restrictions affecting the 
reporting currency or the currency in which dividends are paid. The 
rule as proposed to be amended would not limit a foreign issuer's 
choice of reporting currency. Management should be in the best position 
to determine which reporting currency is most relevant to the issuer's 
investors, taking into consideration the effects of that choice on the 
measurement of operations in the hyperinflationary environments in 
which the issuer does business.
---------------------------------------------------------------------------

    \5\An issuer could furnish to some or all of its securityholders 
financial statements with amounts in currencies other than the one 
selected as its reporting currency for purposes of filings with the 
Commission so long as it also delivered to a majority of its 
unaffiliated securityholders financial statements with amounts 
stated in the reporting currency used in its Commission filings.
---------------------------------------------------------------------------

    The Commission recognizes that the choice of reporting currency can 
affect trends in sales, net income, working capital, and similar items 
depicted in the financial statements. Also, depending on the reporting 
currency, measurement differences arise if the issuer has material 
operations in a hyperinflationary environment.6 Such consequences 
of the reporting currency selection arise for domestic and foreign 
companies alike, particularly if they have substantive operations in 
more than one country. To the extent that depicted trends and reported 
results are affected by exchange rate fluctuations, explanatory 
disclosure should be provided in filings with the Commission as part of 
the explanation of the material changes from year to year required in 
management's discussion and analysis.7
---------------------------------------------------------------------------

    \6\SFAS 52 requires that the underlying transactions of 
operations in hyperinflationary environments be measured in the 
reporting currency, which may differ from company to company, rather 
than in the currency of the operation's primary economic 
environment. Differences may also arise because some issuers, which 
prepare their primary financial statements in accordance with 
accounting principles of other jurisdictions, measure transactions 
using the functional currency of that business, with the results 
restated for changes in price-level and then translated to the 
reporting currency. An accommodation to issuers that account for 
operations in hyperinflationary environments using a method that 
differs from that required by U.S. GAAP is discussed in a later 
section of this release.
    \7\17 CFR 229.303.
---------------------------------------------------------------------------

    The Commission has previously addressed accounting for transactions 
in multiple currencies, noting the significant differences in economic 
substance that may exist among subsidiaries, divisions, and similar 
operations that operate in different economic environments.8 At 
that time, the Commission noted the need for registrants to provide 
more information about the material functional currencies of foreign 
operations, and observed that disaggregated disclosure about particular 
operations may be necessary in some circumstances. Also, in response to 
the requirements of Item 303 of Regulation S-K (``Management's 
Discussion and Analysis'') of Regulation S-K,9 as well as the 
comparable sections presented in Item 9 of Form 20-F,10 
registrants are expected to quantify and discuss material financial 
statement effects attributable solely to variations in currency 
exchange rates, as well as any material consequences of exchange rate 
changes on operations and business strategies.
---------------------------------------------------------------------------

    \8\See Financial Reporting Policy 501.09, ``Disclosure 
Considerations Related to Foreign Operations and Foreign Currency 
Translation Effects.''
    \9\17 CFR 229.303.
    \1\017 CFR 249.220f.
---------------------------------------------------------------------------

    Comment is requested on the need for accommodation with respect to 
reporting currency, and whether the proposed revisions adequately 
address these needs. Comment is also requested as to whether the 
financial statements, taken together with the disclosures described 
above, will provide investors with adequate and meaningful information. 
What additional quantitative or other disclosures may be necessary to 
fully inform investors regarding operations and transactions conducted 
in currencies other than the reporting currency? Comment is also 
requested as to whether the rule should be amended to allow only the 
additional latitude of use of the currency of the country in which a 
majority of the issuer's shareholders reside, or simply to allow the 
additional alternative of reporting in U.S. dollars even if it is not 
the issuer's primary economic environment. Are there circumstances in 
which the reporting currency should be limited to the currency of the 
issuer's country of incorporation, or whether the selection of a 
reporting currency should be affected by (a) the existence of 
hyperinflation in a predominant or significant currency used by the 
issuer, (b) a high proportion of operating cash flows denominated in a 
single currency, (c) exchange restrictions on the reporting currency or 
underlying currencies, or (d) other factors? Commenters recommending 
restriction of an issuer's choice of reporting currency should indicate 
the appropriate criteria or other measures that would identify 
situations warranting restriction of the reporting currency. Comment is 
also requested regarding whether the issuer should be required to 
furnish financial statements in the selected reporting currency to all 
unaffiliated shareholders, rather than to only a majority; whether the 
issuer should not be permitted to select a reporting currency for 
purposes of filings with the Commission which differs from that used in 
reports distributed to investors in other major trading markets; and 
whether a requirement limiting the issuer to a single currency in all 
distributions of its primary financial statements would be desirable or 
feasible.
    Increased flexibility in the selection of a reporting currency may 
raise significant issues with respect to how the foreign private 
issuer's underlying transactions should be measured. The Commission 
invites comment on two measurement approaches, which are described 
below.
    Under Approach A, the issuer would measure separately its own 
transactions, and those of each of its material operations (for 
example, branch, division, subsidiary, or joint venture) that is 
included in the issuer's consolidated financial statements and located 
in a non-hyperinflationary environment, using the particular currency 
of the primary economic environment in which the issuer or the 
operation conducts its business.\11\ Financial statement amounts so 
determined would be translated to the reporting currency using the 
methodology that is prescribed by SFAS 52 for translation of financial 
statements from a functional currency to a reporting currency. Under 
that method, (a) all balance sheet amounts are translated into the 
reporting currency at the exchange rate at the balance sheet date, (b) 
all revenues, expenses, gains, and losses are translated at the 
exchange rate existing at the time of the transaction or, if 
appropriate, a weighted average of the exchange rates during the period 
or year, and (c) all the translation effects of exchange rate changes 
are included as a separate component (``cumulative translation 
adjustment'') of shareholders' equity.
---------------------------------------------------------------------------

    \11\An issuer with a material operation in a hyperinflationary 
environment would measure the transactions of the operation in the 
reporting currency pursuant to SFAS 52, except that no 
reconciliation to that method would be required in some 
circumstances if the proposal relating to issuers with operations in 
hyperinflationary environments, discussed in Section III of this 
release, is adopted.
---------------------------------------------------------------------------

    Under Approach B, all transactions of the issuer and its 
subsidiaries would be measured (or remeasured if not so measured 
initially) using the reporting currency, except that transactions of 
each of its material foreign operations (for example, branch, division, 
subsidiary, or joint venture) included in the consolidated financial 
statements and located in a non-hyperinflationary environment would be 
measured using the particular currency of the primary economic 
environment in which the foreign operation conducts its business. 
Financial statement amounts determined for the material foreign 
operations of the issuer would be translated using the methodology 
prescribed by SFAS 52 for translation of financial statements from a 
functional currency to a reporting currency, as described above.
    Under both approaches, the effects of exchange rate changes between 
transaction date and settlement date of transactions denominated in a 
currency other than the currency of measurement would be included in 
income. Monetary assets and liabilities of the issuer and its 
operations that are not denominated in the currency of measurement 
would be translated at the exchange rate at the balance sheet date with 
the effects of exchange rate changes included in income.\12\
---------------------------------------------------------------------------

    \12\Neither approach A nor B affects accounting for foreign 
currency transactions as defined in SFAS 52. The Commission is not 
proposing to revise, and is not considering revision of the 
requirements with respect to, accounting for foreign currency 
transactions under SFAS 52.
---------------------------------------------------------------------------

    Under Approach A, the reporting currency is treated as a currency 
of display, with no currency exchange gains or losses recognized in 
income solely as a result of the selection of a particular reporting 
currency. A hypothetical issuer with operations in each of three (non-
hyperinflationary) countries would depict the same relationships (e.g., 
return on assets or equity, debt to equity ratio, gross profit margin, 
turnover ratios) in its annual financial statements, regardless of 
where its parent company is domiciled or which reporting currency that 
it selects. Determinations of ``lower of cost or market'' and ``net 
realizable value'' which are necessary under GAAP with respect to 
assets of the issuer and its component operations will be made in the 
currency of that operation's primary economic environment.
    Under Approach B, the effects of changing exchange rates between 
the reporting currency and any other currency in which monetary assets 
and liabilities of the issuer's parent company and of its similarly 
domiciled subsidiaries are denominated would be reflected as a 
component of income (``transaction gain or loss''). Determinations of 
``lower of cost or market'' and ``net realizable value'' which are 
necessary under GAAP with respect to assets of the issuer's parent 
company and similarly domiciled subsidiaries will be made in the 
reporting currency, while these determinations with respect to foreign 
operations will be made in the currency of that operation's primary 
economic environment. A hypothetical issuer with operations in each of 
three countries could depict different financial statement 
relationships (e.g., return on assets or equity, debt to equity ratio, 
gross profit margin, turnover ratios), depending on both factors--the 
country in which its parent company is domiciled and the reporting 
currency that it selects, unless the issuer has an immaterial amount of 
nonmonetary assets.
    Comment is requested as to which approach would better meet the 
needs of issuers and investors. Commenters should indicate whether one 
approach or the other should be mandated or prohibited under particular 
circumstances; and whether particular disclosures, in addition to an 
explanation of the accounting policy followed, should be required. 
Commenters should consider whether an issuer that distributes financial 
statements stated in more than one currency in different markets, 
either by election or mandate of particular jurisdictions, should be 
required to use one method or the other in those financial statements; 
or whether additional disclosures should be required. Commenters should 
consider whether additional guidance concerning translation to the 
selected reporting currency is necessary.

B. Changes of Reporting Currency

    The proposed revisions to Rule 3-20 also codify staff practice 
regarding changes in reporting currency. The staff has addressed 
situations in which an issuer proposes to change its reporting currency 
because of a change of its place of incorporation or of its primary 
economic environment, as well as when characteristics of its 
shareholder base have changed. The proposed revisions specify that the 
financial statements for all periods presented should be stated in the 
same reporting currency. In the event that an issuer elects to change 
its reporting currency, the proposed revisions require that the 
financial statements of periods prior to the change be comprehensively 
recast as if the new reporting currency had been used since at least 
the earliest period presented in the filing.\13\ Under this method, the 
income statement and statement of cash flows would be translated into 
the new reporting currency using an appropriately weighted average 
exchange rate for the applicable period, and the balance sheet would be 
translated using the exchange rate at the end of the applicable period. 
Comprehensive translation into a single reporting currency for all 
periods presented appears necessary to depict trends consistently and 
maintain other relationships within the financial statements.\14\
---------------------------------------------------------------------------

    \13\A change in the reporting currency may or may not be 
coincident with a change in the currency of the primary economic 
environment in which the operations exist. The U.S. accounting 
guidance applicable to a change in an entity's functional currency 
appears in paragraph 9 of SFAS 52. The effects of differences 
between the method of accounting in the primary financial statements 
for a change in functional currency and the method of accounting 
prescribed by U.S. GAAP should be explained and quantified where 
reconciliation is required pursuant to Item 17 or Item 18 of Form 
20-F.
    \14\At least one other jurisdiction permits issuers to 
recalculate the prior years' data by means of a ``convenience 
translation'' of the former reporting currency to the new currency 
using the exchange rate prevailing when the change of reporting 
currency is implemented. See Emerging Issues Committee of the 
Canadian Institute of Chartered Accountants, Issue No. 11 (December 
15, 1989), ``Changes in Reporting Currency''.
---------------------------------------------------------------------------

    Comment is requested as to whether the financial statements should 
be recast for all periods, rather than only for all periods presented, 
in order to allocate more exactly the effect of the change in reporting 
currency between retained earnings and the cumulative translation 
adjustment. Comment is also requested as to whether other methods of 
adjusting prior periods should be acceptable alternatives when a change 
in reporting currency is adopted. Commenters are asked to address 
whether the selection of either Approach A or Approach B described 
above with respect to measurement of the issuer's underlying 
transactions should affect the presentation of periods prior to a 
change in reporting currency. Comment is also requested if the proposed 
rule should require disclosure of the reason why the issuer changed its 
reporting currency.

III. Foreign Issuer Operations in a Hyperinflationary Economy

    A foreign issuer that has material operations in a currency of a 
country with a hyperinflationary economy must, for purposes of 
reconciliation to U.S. GAAP, measure those operations in the issuer's 
reporting currency.\15\ However, the accounting principles of most 
other countries require or permit the foreign issuer to measure 
operations in hyperinflationary environments in the local currency, 
restated for the effects of changing prices, and then translated to the 
reporting currency.
---------------------------------------------------------------------------

    \15\SFAS 52 governs the accounting for operations in 
hyperinflationary environments. Paragraph 11 of that standard 
defines a hyperinflationary environment as ``one that has cumulative 
inflation of approximately 100 percent or more over a 3-year 
period.''
---------------------------------------------------------------------------

    Because devaluation of a currency is usually not equivalent to the 
effect of inflation on that currency's purchasing power, the 
remeasurement process required by U.S. GAAP will not produce the same 
results as the restate-translate method often followed by foreign 
issuers. The staff has addressed a number of requests by foreign 
issuers for accommodation with respect to the requirement to quantify 
effects of differences between the methods of accounting for 
hyperinflationary operations. Foreign issuers cite the cost and 
complexity involved in such a reconciliation, as it effectively may 
require duplicate recordkeeping in both the reporting currency and the 
local currency of the operation. Foreign issuers have observed that 
amounts which would be produced by application of SFAS 52 will, 
nevertheless, not be comparable to an identically situated U.S. company 
if the reporting currency of the foreign issuer is not U.S. 
dollars.\16\
---------------------------------------------------------------------------

    \16\SFAS 52 would require measurement of the operation's 
transactions in the foreign issuer's reporting currency, while the 
U.S. company would measure the operation's transactions in U.S 
dollars.
---------------------------------------------------------------------------

    To address these concerns, the Commission is proposing to eliminate 
the requirement of Items 17 and 18 of Form 20-F that an issuer quantify 
the effects on financial statements of its use of a translation 
methodology for operations in a hyperinflationary environment which 
differs from SFAS 52 so long as it conforms with IAS 21, provided that 
the method used is consistently applied in all periods. IAS 21, as 
amended in 1993, requires that amounts in the financial statements of 
the hyperinflationary operation be restated for the effects of changing 
prices in accordance with International Accounting Standard No. 29, 
``Financial Reporting in Hyperinflationary Economies'' (``IAS 29''), 
and then translated to the reporting currency.\17\
---------------------------------------------------------------------------

    \17\Issuers may elect either of two methods described by IAS 29: 
(a) Restatement of historical cost amounts into units of currency 
that have the same general purchasing power (historical cost/
constant currency method), or (b) measurement at current cost, with 
amounts for prior periods restated for changes in the general level 
of prices (current cost method).
---------------------------------------------------------------------------

    Comment is requested on the need for accommodation with respect to 
the accounting for hyperinflationary operations, and whether the 
proposed revisions adequately address those needs. Comment is also 
requested as to whether financial statements and accompanying 
reconciliation produced on the basis permitted by the proposal would 
provide investors with adequate and meaningful information. Comment is 
requested regarding whether IAS 29 provides sufficient guidance to 
ensure appropriate application of both the current cost method and the 
historical cost/constant currency method, or whether only one or the 
other of the two methods should be permitted without reconciliation.

IV. Cost-Benefit Analysis

    To evaluate fully the costs and benefits associated with the 
proposed amendment to Rule 3-20 of Regulation S-X and Form 20-F under 
the Exchange Act, the Commission requests commenters to provide views 
and empirical data as to the costs and benefits associated with such 
proposals.

V. Regulatory Flexibility Act Certification

    Pursuant to the Regulatory Flexibility Act [5 U.S.C. 605(b)], the 
Chairman of the Commission has certified that the proposed revisions to 
rules and forms will not have a significant impact on a substantial 
number of small entities. Members of the public who wish to obtain a 
copy of the Regulatory Flexibility Certification should contact Wayne 
E. Carnall, (202) 272-2553, Office of Chief Accountant, Division of 
Corporation Finance, Securities and Exchange Commission, 450 Fifth 
Street NW., Washington DC 20549.

VI. General Requests for Comments

    Any interested person wishing to submit comments on any aspect of 
the amendments to forms and rules that are subject to this release are 
requested to do so. Comments should be submitted in triplicate to 
Jonathan G. Katz, Secretary, U.S. Securities and Exchange Commission, 
450 Fifth Street NW., Washington, DC 20549 and should refer to file 
number S7-11-94.

VII. Statutory Bases

    The amendments to the Commission's rules and forms are being 
proposed pursuant to sections 3(b), 4A, 12, 13, 14, 15, 16 and 23 of 
the Securities Exchange Act of 1934.

List of Subjects in 17 CFR Parts 210 and 249

    Accounting, Reporting and recordkeeping requirements, Securities.

Text of Rule and Form Amendments

    In accordance with the foregoing, title 17, chapter II of the Code 
of Federal Regulations is proposed to be amended as follows:

PART 210--FORM AND CONTENT OF AND REQUIREMENTS FOR FINANCIAL 
STATEMENTS, SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF 
1934, PUBLIC UTILITY HOLDING COMPANY ACT OF 1935, INVESTMENT 
COMPANY ACT OF 1940, AND ENERGY POLICY AND CONSERVATION ACT OF 1975

    1. The authority citation for part 210 is revised to read as 
follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77aa(25), 
77aa(26), 78l, 78m, 78n, 78o(d), 78w(a), 78ll(d), 79e(b), 79j(a), 
79n, 79t(a), 80a-8, 80a-20, 80a-29, 80a-30, 80a-37a, unless 
otherwise noted.

    2. By revising Sec. 210.3-20 to read as follows:


Sec. 210.3-20  Currency for financial statements of foreign private 
issuers.

    (a) A foreign private issuer, as defined in Sec. 230.405 of this 
chapter, shall state amounts in its primary financial statements in the 
currency in which it reports in its financial statements that are 
distributed to the majority of its nonaffiliated shareholders.
    (b) The currency in which amounts in the financial statements are 
stated shall be disclosed prominently on the face of the financial 
statements. If dividends on publicly-held equity securities will be 
declared in a currency other than the reporting currency, a note to the 
financial statements shall identify that currency. If there are 
material exchange restrictions or controls relating to the issuer's 
reporting currency, the currency of the issuer's domicile, or the 
currency in which the issuer will pay dividends, prominent disclosure 
of this fact shall be made in the financial statements. If the 
reporting currency is not the U.S. dollar, dollar-equivalent financial 
statements or convenience translations shall not be presented, except a 
translation may be presented of the most recent fiscal year and any 
subsequent interim period presented using the exchange rate as of the 
most recent balance sheet included in the filing, except that a rate as 
of the most recent practicable date shall be used if materially 
different.
    (c) If the financial statements of a foreign private issuer are 
stated in a currency of a country that has experienced cumulative 
inflationary effects exceeding a total of 100 percent over the most 
recent three year period, and have not been recast or otherwise 
supplemented to include information on a historical cost/constant 
currency or current cost basis prescribed or permitted by appropriate 
authoritative standards, the issuer shall present supplementary 
information to quantify the effects of changing prices upon its 
financial position and results of operations.
    (d) Either.
    (1) Approach A Notwithstanding the currency selected for reporting 
purposes, the issuer shall measure separately its own transactions, and 
those of each of its material operations (e.g., branches, divisions, 
subsidiaries, joint ventures, and similar entities) that is included in 
the issuer's consolidated financial statements and not located in a 
hyperinflationary environment, using the particular currency of the 
primary economic environment in which the issuer or the operation 
conducts its business. Balance sheet amounts so determined shall be 
translated into the reporting currency at the exchange rate at the 
balance sheet date; all revenues, expenses, gains, and losses shall be 
translated at the exchange rate existing at the time of the transaction 
or, if appropriate, a weighted average of the exchange rates during the 
period; and all translation effects of exchange rate changes shall be 
included as a separate component (``cumulative translation 
adjustment'') of shareholders' equity. For purposes of this paragraph, 
the currency of an operation's primary economic environment is normally 
the currency in which cash is primarily generated and expended; a 
hyperinflationary environment is one that has cumulative inflation of 
approximately 100% or more over the most recent three year period. 
Departures from the methodology presented in this paragraph shall be 
quantified pursuant to Items 17 and 18(c)(2) of Form 20-F 
(Sec. 249.220f of this chapter).
    (2) Approach B All transactions of the issuer and its subsidiaries 
shall be measured (or remeasured if not so measured initially) using 
the reporting currency and the effects of exchange rate changes on 
monetary assets and liabilities of the issuer and its subsidiaries 
shall be included in income, except that transactions of its material 
foreign operations (e.g., branch, division, subsidiary, joint venture, 
or similar entity) included in the consolidated financial statements 
and not located in a hyperinflationary environment shall be measured 
using the particular currency of the primary economic environment in 
which the foreign operation conducts its business. With respect to 
financial statement amounts of foreign operations so determined: 
Balance sheet amounts shall be translated into the reporting currency 
at the exchange rate at the balance sheet date; all revenues, expenses, 
gains, and losses shall be translated at the exchange rate existing at 
the time of the transaction or, if appropriate, a weighted average of 
the exchange rates during the period; and all effects of exchange rate 
changes shall be included as a separate component (``cumulative 
translation adjustment'') of shareholders' equity. For purposes of this 
paragraph, the currency of an operation's primary economic environment 
is normally the currency in which cash is primarily generated and 
expended; a hyperinflationary environment is one that has cumulative 
inflation of approximately 100% or more over the most recent three year 
period. Departures from the methodology presented in this paragraph 
shall be quantified pursuant to Items 17 and 18(c)(2) of Form 20-F 
(Sec. 249.220f of this chapter).
    (e) The issuer shall state its primary financial statements in the 
same currency for all periods for which financial information is 
presented. If the financial statements are stated in a currency that is 
different from that used in financial statements previously filed with 
the Commission, the issuer shall recast its financial statements as if 
the newly adopted currency had been used since at least the earliest 
period presented in the filing. The decision to change the reporting 
currency shall be disclosed in a note to the financial statements in 
the period in which the change occurs.

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

    3. The authority citation for part 249 continues to read in part as 
follows:

    Authority: 15 U.S.C. 78a, et seq., unless otherwise noted;
* * * * *
    4. By amending Form 20-F (referenced in Sec. 249.220f) by revising 
paragraph (c)(2)(iv) of Item 17 and adding Instruction (5) to Item 17, 
by revising paragraph (c)(2)(iv) of Item 18 and adding Instruction (4) 
to Item 18 to read as follows:

    Note: The Form 20-F Does Not and the Amendments Will Not Appear 
in the Code of Federal Regulations.
Form 20-F
* * * * *
Item 17. Financial Statements
* * * * *
    (c) * * *
    (2) * * *
    (iv)(A) Issuers that prepare their financial statements on a basis 
of accounting other than U.S. generally accepted accounting principles 
that comprehensively includes the effects of price level changes in its 
primary financial statements either on a historical cost/constant 
currency or current cost approach, may omit the disclosures specified 
by paragraphs (c)(2)(i), (c)(2)(ii), and (c)(2)(iii) of this Item 
relating to effects of price level changes. The financial statements 
should describe the basis of presentation, and that such effects have 
not been included in the reconciliation.
    (B) Issuers that prepare their financial statements on a basis of 
accounting other than U.S. generally accepted accounting principles 
that translates amounts in financial statements stated in a currency of 
a hyperinflationary economy into the issuer's reporting currency in 
accordance with International Accounting Standards No. 21, ``The 
Effects of Changes in Foreign Exchange Rates,'' as amended in 1993, may 
omit the disclosures specified by paragraphs (c)(2)(i), (c)(2)(ii), and 
(c)(2)(iii) of this Item relating to the effects of the different 
method of accounting for an entity in a hyperinflationary environment.

Instructions

* * * * *
    (5) For purposes of this Item, a hyperinflationary economy is one 
that has cumulative inflation of approximately 100% or more over the 
most recent three year period.
* * * * *
Item 18. Financial Statements
* * * * *
    (c) * * *
    (2) * * *
    (iv)(A) Issuers that prepare their financial statements on a basis 
of accounting other than U.S. generally accepted accounting principles 
that comprehensively includes the effects of price level changes in its 
primary financial statements either on a historical cost/constant 
currency or current cost approach, may omit the disclosures specified 
by paragraphs (c)(2)(i), (c)(2)(ii), and (c)(2)(iii) of this Item 
relating to effects of price level changes. The financial statements 
should describe the basis of presentation, and that such effects have 
not been included in the reconciliation.
    (B) Issuers that prepare their financial statements on a basis of 
accounting other than U.S. generally accepted accounting principles 
that translates amounts in financial statements stated in a currency of 
a hyperinflationary economy into the issuer's reporting currency in 
accordance with International Accounting Standards No. 21, ``The 
Effects of Changes in Foreign Exchange Rates,'' as amended in 1993, may 
omit the disclosures specified by paragraphs (c)(2)(i), (c)(2)(ii), and 
(c)(2)(iii) of this Item relating to the effects of the different 
method of accounting for an entity in a hyperinflationary environment.

Instructions

* * * * *
    (4) For purposes of this Item, a hyperinflationary economy is one 
that has cumulative inflation of approximately 100% or more over the 
most recent three year period.
* * * * *
    Dated: April 19, 1994.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-9891 Filed 4-25-94; 8:45 am]
BILLING CODE 8010-01-P