[Federal Register Volume 70, Number 75 (Wednesday, April 20, 2005)]
[Rules and Regulations]
[Pages 20674-20689]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-7706]



[[Page 20673]]

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Part III





Securities and Exchange Commission





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17 CFR Part 249



First-Time Application of International Financial Reporting Standards; 
Final Rule

  Federal Register / Vol. 70, No. 75 / Wednesday, April 20, 2005 / 
Rules and Regulations  

[[Page 20674]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 249

[Release Nos. 33-8567; 34-51535; International Series Release No. 1285; 
File No. S7-15-04]
RIN 3235-AI92


First-Time Application of International Financial Reporting 
Standards

AGENCY: Securities and Exchange Commission.

ACTION: Final amendment to form.

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SUMMARY: The Commission is adopting amendments to Form 20-F to provide 
a one-time accommodation relating to financial statements prepared 
under International Financial Reporting Standards (``IFRS'') for 
foreign private issuers registered with the SEC. This accommodation 
applies to foreign private issuers that adopt IFRS prior to or for the 
first financial year starting on or after January 1, 2007.
    The accommodation permits eligible foreign private issuers for 
their first year of reporting under IFRS to file two years rather than 
three years of statements of income, changes in shareholders' equity 
and cash flows prepared in accordance with IFRS, with appropriate 
related disclosure. The accommodation retains current requirements 
regarding the reconciliation of financial statement items to generally 
accepted accounting principles as used in the United States (``U.S. 
GAAP'').
    In addition, the Commission is amending Form 20-F to require 
certain disclosures of all foreign private issuers that change their 
basis of accounting to IFRS.

DATES: Effective Date: May 20, 2005.

FOR FURTHER INFORMATION CONTACT: Michael D. Coco, Special Counsel, 
Office of International Corporate Finance, Division of Corporation 
Finance, at (202) 942-2990, U.S. Securities and Exchange Commission, 
450 Fifth Street, NW., Washington, DC 20549-0302, or Susan Koski-
Grafer, Office of the Chief Accountant, at (202) 942-4400, U.S. 
Securities and Exchange Commission, 450 Fifth Street, NW., Washington, 
DC 20549-1103.

SUPPLEMENTARY INFORMATION: The Commission is amending Form 20-F \1\ 
under the Securities Exchange Act of 1934 (the ``Exchange Act'').\2\ 
Form 20-F is the combined registration statement and annual report form 
for foreign private issuers \3\ under the Exchange Act. It also sets 
forth disclosure requirements for registration statements filed by 
foreign private issuers under the Securities Act of 1933 (the 
``Securities Act'').\4\ The Commission issued a proposing release 
relating to these amendments on March 11, 2004.\5\
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    \1\ 17 CFR 249.220f.
    \2\ 15 U.S.C. 78a et seq.
    \3\ The term ``foreign private issuer'' is defined in Exchange 
Act Rule 3b-4(c) [17 CFR 240.3b-4(c)]. A foreign private issuer is a 
non-government foreign issuer, except for a company that (1) has 
more than 50% of its outstanding voting securities owned by U.S. 
investors and (2) has either a majority of its officers and 
directors residing in or being citizens of the United States, a 
majority of its assets located in the United States, or its business 
principally administered in the United States.
    \4\ 15 U.S.C. 77a et seq.
    \5\ ``First-Time Application of International Financial 
Reporting Standards,'' Release No. 33-8397 (the ``Proposing 
Release'').
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I. Background

A. Increasing Use of International Financial Reporting Standards

    Under the leadership of the International Accounting Standards 
Board (``IASB''), over recent years IFRS has become widely recognized 
by preparers and users of financial statements. As a result, numerous 
non-U.S. companies, including many that are registered with the SEC, 
are voluntarily choosing to switch from their home country accounting 
principles to IFRS. In addition, an increasing number of jurisdictions 
around the world are adopting or incorporating IFRS as their basis of 
accounting, as a result of which a large number of issuers registered 
with the SEC will switch to IFRS from their Previous GAAP.\6\ For 
example, in June 2002, the European Union (``EU'') adopted a regulation 
requiring companies incorporated under the laws of one of its Member 
States and whose securities are publicly traded within the EU to 
prepare their consolidated financial statements for each financial year 
\7\ starting on or after January 1, 2005 on the basis of accounting 
standards issued by the IASB.\8\ In accordance with these requirements, 
listed EU companies not currently using IFRS must convert from the 
existing national accounting standards to IFRS, as endorsed by the 
European Union, no later than 2005.\9\ Other countries, including 
Australia, also have adopted similar requirements by incorporating IFRS 
as or into their own standards for periods beginning after January 1, 
2005.
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    \6\ This release and the adopted amendments use the term 
``Previous GAAP'' to refer to the basis of accounting that a first-
time adopter uses immediately before adopting IFRS. This usage is 
consistent with IFRS. See International Financial Reporting Standard 
1: ``First-time Adoption of International Financial Reporting 
Standards,'' as issued in June 2003 (``IFRS 1''), Appendix A.
    \7\ Consistent with Form 20-F, IFRS and general usage outside 
the United States, this release uses the term ``financial year'' to 
refer to a fiscal year. See Instruction 2 to Item 3 of Form 20-F.
    \8\ Regulation (EC) No. 1606/2002 of the European Parliament and 
of the Council of 19 July 2002 on the application of international 
accounting standards, Official Journal L. 243, 11/09/2002 P. 0001-
0004 (the ``EU Regulation''). The Commission commends the EU, as 
well as Australia and other jurisdictions, for their efforts 
relating to IFRS. The Commission believes broad acceptance of all of 
IFRS, and of the IASB standard setting process, would serve to 
promote high quality, transparent and comparable reporting of 
financial results on a global basis.
    \9\ Under the EU Regulation, companies meeting certain criteria 
will be permitted an extension until 2007.
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    Foreign private issuers that register securities with the SEC, and 
that report on a periodic basis thereafter under Section 13(a) or 15(d) 
of the Exchange Act,\10\ are generally required to present, in their 
annual reports and registration statements filed with the SEC, audited 
statements of income, changes in shareholders' equity and cash flows 
for each of the past three financial years, prepared on a consistent 
basis of accounting.\11\ These issuers also are generally required to 
present selected financial data covering each of the past five 
financial years.\12\
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    \10\ 15 U.S.C. 78m(a) or 78o(d). Section 13(a) of the Exchange 
Act requires every issuer of a security registered pursuant to 
Section 12 of the Exchange Act [15 U.S.C. 78l] to file with the 
Commission such annual reports and other reports as the Commission 
may prescribe. Section 15(d) of the Exchange Act requires each 
issuer that has filed a registration statement that has become 
effective pursuant to the Securities Act to file such reports as may 
be required pursuant to Section 13 in respect of a security 
registered pursuant to Section 12, unless the duty to file under 
Section 15(d) has been suspended for any financial year.
    \11\ See Item 8.A.2 for Form 20-F. Foreign private issuers are 
also required to present audited balance sheets as of the end of the 
past two financial years.
    \12\ See Item 3.A.1 of Form 20-F.
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B. Proposed Amendments to Form 20-F

    At the beginning of year 2003,\13\ the IASB had not finalized some 
of the IFRS that many foreign private issuers will be

[[Page 20675]]

required to apply retrospectively when they adopt IFRS for the first 
time for year 2005. The Commission recognized that compliance with SEC 
requirements could be difficult and burdensome for foreign issuers 
switching to IFRS, because these issuers would have to implement 
accounting standards that were not yet finalized during the reporting 
period to which they must be applied. In response to this concern, the 
Commission issued a proposal to amend Form 20-F to provide an 
accommodation to foreign private issuers that were switching to IFRS 
prior to 2007.\14\ The proposals were intended to facilitate the 
transition of foreign companies to IFRS and to improve the quality of 
their financial disclosure. The proposed amendments to Form 20-F also 
required certain disclosures from foreign private issuers that change 
their basis of accounting to IFRS during any year. This disclosure 
relates to certain mandatory and elective accounting treatments that an 
issuer may use in applying IFRS for the first time and the 
reconciliation from Previous GAAP to IFRS required by IFRS.
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    \13\ In several countries the presentation of financial 
statements in accordance with IFRS becomes mandatory for financial 
years starting on or after January 1, 2005. This release refers to 
that financial year as ``year 2005,'' regardless of the actual 
beginning date of a company's financial year, and the three prior 
financial years as ``year 2002,'' ``year 2003,'' and ``year 2004,'' 
respectively. Accordingly, the financial statements for those years 
are referred to as ``year 2002 financial statements,'' ``year 2003 
financial statements,'' and ``year 2004 financial statements.'' For 
issuers adopting IFRS for the first time during another financial 
year, the earliest of the three years for which financial statements 
are presently required under Form 20-F is referred to as the ``third 
financial year,'' the second financial year as the ``second 
financial year,'' and the financial year in which an issuer switches 
to IFRS as the ``most recent financial year.''
    \14\ See the Proposing Release.
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C. Comments Received

    In response to this proposal, the Commission received 33 comment 
letters from representatives of foreign issuers, accounting firms, 
professional associations, investor associations and regulators.\15\ 
While all of the commenters supported reducing the burden on foreign 
issuers that change their basis of accounting to IFRS, most commenters 
addressed to varying degrees the questions raised in the Proposing 
Release and suggested modification to the amendments as proposed. The 
issues that generated the most discussion were the following:
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    \15\ These comment letters are posted on the Commission's Web 
site at http://www.sec.gov/rules/proposed/s71504.shtml.
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     The proposed time frame during which the accommodation 
would be available to a first-time adopter of IFRS;
     The definition of ``first-time adopter'' for purposes of 
determining eligibility to rely on the accommodation;
     The need for an unqualified statement of compliance with 
IFRS by an issuer seeking to rely on the accommodation, particularly 
with regard to standards that had not been endorsed by the EU;
     The proposed inclusion of condensed U.S. GAAP information 
for three years;
     The need for guidance relating to disclosure under 
Industry Guide 3 or 6 from companies that rely on the proposed 
accommodation;
     The presentation of financial statements for interim 
periods during the Transition Year; \16\ and
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    \16\ The term ``Transition Year'' refers to the financial year 
in which an issuer first changes its basis of accounting from 
Previous GAAP to IFRS. For example, for foreign issuers with a 
calendar year-end that are subject to the EU Regulation, the 
Transition Year would be the financial year ended December 31, 2005.
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     The proposed disclosure about the use of exceptions to 
IFRS by a first-time adopter.

D. Summary of the Final Amendments to Form 20-F

    The Commission is adopting a new General Instruction G to Form 20-F 
to allow an eligible foreign private issuer to omit from SEC filings 
for its first year of reporting under IFRS the earliest of the three 
years of financial statements. In response to many of the commenters' 
concerns, the amendments as adopted differ in some respects from the 
amendments as proposed. In this release the Commission is:
     Making the accommodation available to companies that adopt 
IFRS as their basis of accounting prior to or for the first financial 
year starting on or after January 1, 2007;
     Clarifying that, except as discussed in the next point, 
the accommodation is available only to a foreign private issuer that 
states unreservedly and explicitly that its financial statements comply 
with IFRS and are not subject to any qualification relating to the 
application of IFRS as issued by the IASB;
     Permitting the accommodation to be available to a foreign 
private issuer that prepares its financial statements in accordance 
with IFRS as adopted by the EU if the issuer provides an audited 
reconciliation to IFRS as published by the IASB;
     Not requiring condensed U.S. GAAP information from 
companies that rely on the accommodation;
     Clarifying that companies subject to Industry Guide 3 or 6 
should provide Industry Guide Information under IFRS for periods 
covered by their IFRS financial statements, with U.S. GAAP or Previous 
GAAP information for earlier years;
     For purposes of complying with Item 8.A.5 of Form 20-F 
relating to interim period financial statements required to be included 
in registration statements and prospectuses during the Transition Year, 
permitting issuers to present IFRS financial statements covering 
interim periods, subject to certain conditions; and
     Clarifying that first-time adopters of IFRS need not 
provide quantified numerical information on the financial significance 
of any exceptions from IFRS on which they rely.
    In many areas, the Commission is giving first-time adopters 
significant flexibility by not prescribing specific formats, 
disclosures, legends, or language to be used in the presentation of 
IFRS financial statements. For example, companies are permitted (but 
not required) to include Previous GAAP financial information or 
financial statements, and are permitted to determine the appropriate 
information content and presentation format for the Previous GAAP-IFRS 
reconciliation required under IFRS 1. The Commission believes a 
flexible approach is appropriate because of the large number of foreign 
private issuers from several countries that will be first-time adopters 
and the wide variety of circumstances these issuers will encounter in 
making the transition from Previous GAAP to IFRS. Issuers should assess 
the information needs of their shareholders and the investment 
community at large and should provide meaningful, reliable and 
transparent information in connection with their implementation of 
IFRS.
    The Commission reminds issuers of their responsibilities under the 
federal securities laws to provide investors with information that is 
not misleading.\17\ In addition, as with all disclosure and accounting 
matters involving companies that make filings under the Securities Act 
or the Exchange Act, the SEC staff may comment on such matters.
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    \17\ For example, this responsibility can be found under 
Sections 11 and 12(a)(2) of the Securities Act and Section 10(b) of 
the Exchange Act and Rule 10b-5 thereunder.
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II. Discussion of the Amendments To Permit Omission of IFRS Financial 
Statements for the Third Financial Year

A. Eligibility Requirements

    The Commission is adopting an amendment to Form 20-F to allow an 
eligible foreign private issuer for its first year of reporting under 
IFRS to file two years rather than three years of statements of income, 
shareholders' equity and cash flows prepared in accordance with IFRS.
     Annual Reports. A foreign private issuer is eligible to 
exclude IFRS financial statements for the third financial year from an 
Annual Report on Form 20-F if (1) the annual report relates to the 
first financial year starting on or after January 1, 2007 or an earlier 
financial year, (2) the issuer adopts IFRS for the first time by an 
explicit and unreserved statement of compliance

[[Page 20676]]

with IFRS,\18\ and (3) the audited financial statements for the 
financial year to which the annual report relates are prepared in 
accordance with IFRS.
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    \18\ Under IFRS 1, an entity is a ``first-time adopter'' if the 
entity's first IFRS financial statements are the first annual 
financial statements in which the entity adopts IFRS, by an explicit 
and unreserved statement in those financial statements of compliance 
with IFRS. IFRS 1, paragraph 3.
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     Registration Statements. A foreign private issuer is 
eligible to exclude IFRS financial statements for the third financial 
year from a registration statement under the Securities Act or the 
Exchange Act if (1) the most recent audited financial statements 
required by Item 8.A.2 of Form 20-F are for the first financial year 
starting on or after January 1, 2007 or an earlier financial year, (2) 
the issuer adopts IFRS for the first time by an explicit and unreserved 
statement of compliance with IFRS, and (3) the audited financial 
statements for the most recent financial year are prepared in 
accordance with IFRS.
    These adopted eligibility requirements differ from the proposed 
requirements, which would have permitted a foreign private issuer that 
is a first-time adopter of IFRS to omit IFRS financial statements for 
the third-year back from an annual report for a financial year that 
begins no later than January 1, 2007 or from a registration statement 
for which the most recent financial statements are for a financial year 
that begins no later than January 1, 2007.
    Many commenters noted that under the amendments as proposed an 
issuer that was eligible to defer its adoption of IFRS until 2007 under 
the EU Regulation would not have been eligible to rely on the 
accommodation unless it had a financial calendar year-end.\19\ They 
also commented that the proposed deadline would create difficulties for 
companies with a 52/53 week financial year, which may start later than 
January 1.
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    \19\ Under the EU Regulation mandating the use of IFRS, EU 
Member States may allow companies to defer their adoption of IFRS 
until year 2007 if (1) a company is listed both in the EU and on a 
non-EU exchange and currently uses internationally accepted 
standards as its primary accounting standards, or (2) a company has 
only publicly traded debt securities.
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    The accommodation as adopted has been broadened and is available to 
a foreign private issuer that adopts IFRS prior to or for its first 
financial year starting on or after January 1, 2007. This approach 
matches the extended compliance period under the EU Regulation. Under 
this approach, an issuer that, for example, has a September 30 
financial year-end could switch to IFRS for its financial year from 
October 1, 2007 to September 30, 2008 and would be eligible to apply 
the accommodation when filing its Form 20-F Annual Report with the SEC 
by March 2009.\20\
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    \20\ Annual reports on Form 20-F are due six months after the 
end of the financial year.
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    Commenters also pointed out that an issuer that previously claimed 
compliance with IAS could be considered a first-time adopter under IFRS 
1 if it did not include an explicit and unreserved statement of 
compliance with IFRS in its most recent published annual financial 
statements. For example, an issuer that had prepared financial 
statements under IAS in prior years and then in later years switched 
back to home country GAAP would be considered a first-time adopter 
under IFRS 1 but would not have been eligible for the accommodation as 
proposed.
    The Commission has clarified that the accommodation as adopted is 
available to a foreign private issuer that is a ``first-time adopter.'' 
The adopted definition of first-time adopter in Form 20-F is consistent 
with that under IFRS 1. This approach is intended to avoid situations 
in which an issuer could be a first-time adopter under IFRS 1 but would 
be ineligible to rely on the accommodation because it had prepared its 
financial statements in accordance with IAS for an earlier financial 
year.
    Commenters also expressed concern over the ability of issuers to 
make an unreserved and unqualified statement of compliance with IFRS if 
the EU had not fully endorsed all of the IFRS standards by the time the 
issuer produced its financial statements. This concern related both to 
the EU endorsement of existing standards as well as to the endorsement 
of any future standards that the IASB may adopt for companies that 
adopt IFRS in later years. Other commenters pointed out that Australia 
is adopting IFRS into Australian GAAP which, they asserted, would fully 
encompass IFRS. As a result, the financial statements of Australian 
companies would refer to compliance with Australian GAAP and not 
necessarily to IFRS.
    As adopted, except as described in Section II.G for EU issuers, an 
issuer is eligible to rely on the accommodation only if it can state 
unreservedly and explicitly that its financial statements comply with 
IFRS as published by the IASB, and if its audited financial statements 
are not subject to any qualification, including qualification relating 
to the application of IFRS. In addition, the issuer's independent 
auditor would be required to opine without qualification on compliance 
with IFRS. A foreign private issuer that had not complied with all IFRS 
in effect as published by the IASB would not be able to make the 
required unreserved statement of compliance with IFRS and would not be 
eligible to rely on the accommodation the Commission has adopted.\21\
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    \21\ The circumstances under which an audit report containing a 
disclaimer or qualification would be accepted are extremely limited. 
See Instruction to Item 8.A.3 of Form 20-F.
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    Some countries may adopt IFRS by incorporating them into their home 
country standards. Australia, for example, has taken this approach. For 
purposes of eligibility to rely on the accommodation, an Australian 
issuer would need to assert its compliance with both IFRS and 
Australian GAAP.\22\
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    \22\ In making this assertion, an Australian issuer may rely on 
the view that Australian GAAP complies with IFRS. This approach of 
relying on the home country standard setter's compliance with IFRS 
does not apply to an issuer from another country that adopts IFRS as 
its home country GAAP within the time frame to which the 
accommodation applies, although such an issuer could assert its 
compliance with its home country GAAP, as well as its compliance 
with IFRS, if appropriate.
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    Some commenters noted that the proposal did not address whether an 
issuer that has published audited IFRS financial statements for the 
third financial year should include them in its SEC filings. If an 
issuer has voluntarily published audited IFRS financial statements for 
the third financial year, or has been required to do so pursuant to 
other regulations, then the burdens associated with including those 
financial statements in SEC filings would appear low. In addition, the 
Commission believes investors should have access to those financial 
statements in SEC filings. As a result, the adopted amendments require 
that an issuer that has published audited IFRS financial statements for 
three years include all three years of IFRS financial statements in its 
SEC filings.
    Some commenters recommended that, for the same reasons for which it 
applies to foreign private issuers that file securities documents under 
the Securities Act and Exchange Act, the accommodation should be 
extended to the financial statements of entities prepared under Rules 
3-05, 3-09, 3-10, and 3-16 of Regulation S-X.\23\ The Commission views 
the adopted amendments as applying to those

[[Page 20677]]

financial statements, provided that the entities meet the definition of 
foreign business in Rule 1.02(l) of Regulation S-X.\24\ The Commission 
similarly views the amendments as applying to the financial statements 
of a target company in a business combination transaction included in a 
Securities Act registration statement on Form S-4 \25\ or Form F-4 \26\ 
or a proxy or information statement under the Exchange Act.\27\
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    \23\ Rule 3-05 relates to financial statements of businesses 
acquired or to be acquired; Rule 3-09 relates to separate financial 
statements of non-consolidated subsidiaries and 50-percent or less 
owned persons; Rule 3-10 relates to financial statements of 
guarantors and issuers of guaranteed securities registered or being 
registered; and Rule 3-16 relates to the financial statements of 
affiliates whose securities collateralize an issue registered or 
being registered.
    \24\ That rule defines a foreign business as a business that is 
majority owned by persons who are not citizens or residents of the 
United States and is not organized under the laws of the United 
States or any state thereof, and either (1) more than 50 percent of 
its assets are located outside the United States; or (2) the 
majority of its executive officers and directors are not United 
States citizens or residents.
    \25\ 17 CFR 239.13.
    \26\ 17 CFR 239.34.
    \27\ Under the Exchange Act, proxy statements are filed on 
Schedule 14A (17 CFR 240.14a-101) and information statements are 
filed on Schedule 14C (17 CFR 240.14c-101).
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B. Primary Financial Statements

1. IFRS Financial Statements
    With respect to the consolidated financial statements and other 
financial information required by Item 8.A of Form 20-F, the Commission 
is adopting the amendments as proposed to allow eligible foreign 
private issuers for their first year of reporting under IFRS to present 
in their SEC filings during that year only two years of audited IFRS 
financial statements instead of three years. Eligible companies are 
permitted to omit audited financial statements for the earliest of the 
three years when providing the financial statements required by Item 
8.A.2. All instructions to Item 8, including instructions requiring 
audits in accordance with U.S. generally accepted auditing standards 
will continue to apply.\28\ Commenters did not raise concerns with 
these aspects of the amendments.
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    \28\ Although the instructions to Item 8 continue to refer to 
U.S. generally accepted auditing standards (``GAAS''), the 
Commission notes that under the Sarbanes-Oxley Act of 2002, the 
Public Company Accounting Oversight Board (``PCAOB'') now has broad 
authority to set standards for audits of U.S. public companies. In 
Audit Committee Standard No. 1, the PCAOB directed auditors to cease 
referring to GAAS in audit reports relating to financial statements 
of issuers and instead to refer to the ``standards of the Public 
Company Accounting Oversight Board (United States).'' See 
``Commission Guidance Regarding the Public Company Accounting 
Oversight Board's Auditing and Related Professional Practice 
Standard No. 1,'' Release No. 33-8422 (May 14, 2004).
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2. Condensed U.S. GAAP Financial Information
    The Commission proposed amending Form 20-F to require companies 
that present two years of IFRS financial statements in their SEC 
filings also to present, as part of their U.S. GAAP reconciliation, 
audited condensed U.S. GAAP information for three years in a level of 
detail consistent with that required by Article 10 of Regulation S-X 
for interim financial statements. Under the amendments as adopted, 
issuers relying on the accommodation will not be required to provide 
this condensed U.S. GAAP information.
    Commenters had diverging views on the proposal. Some commenters 
supported the proposal to require three years of condensed U.S. GAAP 
information in order to have three-year trend information that would be 
beneficial to investors without being unduly burdensome to issuers. 
Other commenters claimed that the cost and burden to issuers of 
preparing condensed U.S. GAAP information would outweigh the benefits 
to investors. One commenter noted that the preparation of condensed 
U.S. GAAP information would create an unnecessary burden to companies 
because investors would have available a reconciliation from Previous 
GAAP to U.S. GAAP and a reconciliation from IFRS to U.S. GAAP, which 
would allow them to sufficiently assess U.S. GAAP trend information on 
a three-year basis. After evaluating the benefits in relation to the 
expected costs, the Commission is not adopting the proposal to require 
the presentation of condensed U.S. GAAP information. Companies relying 
on the accommodation will continue to be required to provide an audited 
reconciliation to U.S. GAAP for the two years of financial statements 
prepared in accordance with IFRS.\29\
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    \29\ See Items 17(c) and 18 of Form 20-F.
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3. Previous GAAP Financial Statements
    The Commission is adopting amendments that will allow but not 
require any issuer that switches to IFRS to include, incorporate by 
reference, or refer to Previous GAAP financial information. These 
amendments are adopted as proposed. Issuers that elect to include or 
incorporate by reference financial information prepared in accordance 
with Previous GAAP must include or incorporate narrative disclosure of 
its operating and financial review and prospects under Item 5 of Form 
20-F for the reporting periods covered by Previous GAAP financial 
information.
    The proposing release solicited comment on the presentation of 
Previous GAAP information. The amendments as adopted do not prescribe 
the specific placement of any Previous GAAP information, although the 
adopted amendments prohibit its presentation in a side-by-side columnar 
format with IFRS information. The Commission believes this will help to 
avoid potential confusion and inappropriate comparisons between the 
two.
    An issuer that includes, incorporates by reference or refers to 
Previous GAAP selected financial data or financial information in an 
SEC disclosure document must also include appropriate cautionary 
language with respect to that data to avoid inappropriate comparison 
with information presented under IFRS. Issuers electing to include or 
incorporate Previous GAAP financial information must disclose, at an 
appropriate prominent location, that the filing contains financial 
information based on the issuer's Previous GAAP, which is not 
comparable to financial information based on IFRS. The amendments as 
adopted do not specify particular legends or language that should be 
used by issuers that include or incorporate Previous GAAP information. 
The Commission believes that appropriate language may vary depending on 
the use made of Previous GAAP information.
    Commenters expressed wide support for the proposal to permit but 
not require Previous GAAP information, with appropriate labels and 
legends. There was more divergence on the issue of its format and 
location. The Commission believes a flexible approach is best suited to 
allowing an issuer to determine the format and placement of Previous 
GAAP information based on its use.

C. Selected Financial Data

    The Commission is adopting the amendments as proposed to permit 
first-time adopters to provide, pursuant to Item 3.A of Form 20-F, 
selected financial data based on IFRS for the two most recent financial 
years. First-time adopters that present two years of IFRS selected 
financial data would continue to be required to provide five years of 
selected data based on U.S. GAAP, unless the instructions to Item 3.A 
permit the issuer to provide U.S. GAAP data for a shorter time.\30\ The 
amendments neither require nor

[[Page 20678]]

prohibit inclusion, incorporation by reference or reference to selected 
financial data presented on the basis of Previous GAAP, although as 
with the audited financial statements, Previous GAAP information should 
not be presented in a side-by-side columnar format with IFRS 
information.\31\
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    \30\ The instructions to Item 3.A of Form 20-F require a company 
to include selected financial data on a basis reconciled to U.S. 
GAAP for those periods for which the company was required to 
reconcile the primary annual financial statements in an SEC filing. 
Therefore, a foreign private issuer may be permitted to present 
fewer than five years of U.S. GAAP information under selected 
financial data in the years immediately after its initial SEC 
registration. This permits a company to build up a five-year history 
of U.S. GAAP information. This accommodation is not affected by 
these amendments.
    \31\ While issuers are not permitted to have a side-by-side 
columnar format that combines information based on two or more sets 
of accounting principles, a format that presents the same 
information on a single page or table would be permitted, assuming 
there are appropriate legends and explanations. For example, an 
issuer could present selected financial data in a single page as 
follows: IFRS for years 2004 and 2005; below that U.S. GAAP for 
years 2001 through 2005; and below that Previous GAAP for years 2001 
through 2004. Companies are generally free to choose the 
presentation of selected financial data that they feel is 
appropriate for their situation.
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    The Commission did not receive extensive comment on the proposal as 
it relates to selected financial data. One commenter noted that the 
proposal did not appear to reflect the Commission practice of allowing 
an issuer to build up to a five-year presentation of selected financial 
data, and could appear to suggest that a full five years of IFRS 
selected financial data would be required in the years following an 
issuer's first time adoption of IFRS. The Commission notes the 
amendments do not affect the ability of an issuer to rely on the 
Instruction to Item 3.A. in years subsequent to becoming a first-time 
adopter of IFRS, thereby allowing that issuer to build up to a five-
year history of selected financial data based on IFRS.

D. Operating and Financial Review and Prospects

    The Commission is adopting as proposed an instruction in new 
General Instruction G to Form 20-F to clarify how issuers should 
present their disclosure under Item 5 of Form 20-F relating to 
operating and financial review and prospects. The adopted instruction 
specifies that in providing that disclosure, management should focus on 
the IFRS financial statements from the past two financial years, as 
well as the reconciliation to U.S. GAAP for the same two financial 
years. The discussion also should explain any differences between IFRS 
and U.S. GAAP that are not otherwise discussed in the reconciliation 
and that the issuer believes are necessary for an understanding of the 
financial statements as a whole.\32\ Management should not include in 
this section any discussion relating to financial statements prepared 
in accordance with Previous GAAP.
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    \32\ This is the existing requirement under Form 20-F, 
Instruction 2 to Item 5.
---------------------------------------------------------------------------

E. Other Disclosures

1. Business and Derivatives Disclosure
    The Commission is adopting as proposed an instruction in new 
General Instruction G to Form 20-F to clarify that for companies 
preparing their financial statements under IFRS, the reference to 
accounting principles in Item 4, ``Information on the Company,'' refers 
to IFRS and not to either Previous GAAP or U.S. GAAP.\33\ The 
Commission is also adopting as proposed an instruction in General 
Instruction G to clarify that for companies preparing their financial 
statements under IFRS, derivatives and market risk disclosure provided 
in response to Item 11 would be based on IFRS.
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    \33\ Under Item 4 of Form 20-F, an issuer must provide 
information about its business operations, the products it makes and 
the services it provides, and the factors that affect its business. 
The financial information that is included in response to this 
requirement is generally based on the primary financial statements 
of the issuer.
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    Commenters widely concurred with the proposals to include 
instructions clarifying that both business operations disclosure 
pursuant to Item 4 and derivatives disclosure pursuant to Item 11 of 
Form 20-F should refer to the financial information prepared in 
accordance with IFRS.
2. Disclosure Pursuant to Industry Guides
    The Commission did not propose, nor is it adopting, any specific 
amendments with respect to information to be disclosed pursuant to 
Industry Guide 3 (Statistical Disclosure by Bank Holding Companies) or 
Industry Guide 6 (Disclosures Concerning Unpaid Claims and Claim 
Adjustment Expenses of Property-Casualty Insurance Underwriters).\34\ 
The Commission believes that foreign issuers that switch to IFRS and to 
which these Guides apply do not need a general accommodation.
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    \34\ Industry Guides serve as expressions of the policies and 
practices of the Division of Corporation Finance. They are of 
assistance to issuers, their counsel and others preparing 
registration statements and reports, as well as to the Commission's 
staff.
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    The Commission solicited comment on behalf of the staff on whether 
amendments would be appropriate to address the information required 
under Industry Guide 3 or Industry Guide 6 in the context of first-time 
adopters changing their basis of accounting to IFRS. The general view 
expressed in the comments submitted by issuers subject to Industry 
Guide 3 or 6 is that they should be permitted to present only two years 
of Industry Guide information under IFRS, consistent with the 
presentation of their primary financial statements. Commenters thought 
it an unreasonable burden to restate the earliest of three years of 
information under IFRS, and that there would be no significant benefit 
to investors from such a restatement.
    Industry Guide disclosure is intended to provide a ``track-record'' 
of trend information such as loan quality information for banks 
providing disclosure under Industry Guide 3 or property casualty loss 
reserve development under Industry Guide 6. The Commission recognizes 
that the switch to IFRS will impact the Industry Guide disclosure of 
first-time adopters, who may not have available prior years of Industry 
Guide information prepared under IFRS. Although the staff does not 
intend to amend the Industry Guides requirements, the staff believes 
and intends to apply the Industry Guides such that a first-time adopter 
of IFRS who relies on the adopted amendments to Form 20-F will be in 
compliance with existing Industry Guide standards if it provides two 
years of Industry Guide information under IFRS, with information 
provided under U.S. GAAP or Previous GAAP to cover earlier years as 
required by the Industry Guides, as applicable.

F. Financial Statements and Information for Interim Periods During the 
Transition Year in Registration Statements, Prospectuses and Other 
Filings

    As noted in the Proposing Release, there are many difficult and 
unique issues relating to the appropriate presentation of financial 
information during the Transition Year. Some commenters had useful 
suggestions in this area, which are reflected in the adopted amendments 
to Form 20-F. Because these issues affect foreign private issuers that 
are switching to IFRS and that will use the accommodation to omit 
financial statements for the third financial year, the Commission 
believes it is appropriate to provide specific guidance and relief with 
respect to the financial information included in SEC filings.
1. Exchange Act Reporting
    Foreign private issuers that are subject to the reporting 
requirements under Section 13(a) or 15(d) of the Exchange Act are 
required to furnish Reports on Form 6-K.\35\ These reports on Form 6-K 
generally consist of material information that a foreign private issuer 
publishes or makes public voluntarily or

[[Page 20679]]

in accordance with home market requirements. There is no requirement 
under Form 6-K to present any specific financial information, either 
reconciled to U.S. GAAP or otherwise.
---------------------------------------------------------------------------

    \35\ Rules 13a-16 and 15d-16.
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    The Commission is not imposing any additional requirements under 
Form 6-K for companies that are switching from Previous GAAP to IFRS. 
If a foreign private issuer is not filing a registration statement or 
using a prospectus under the Securities Act or filing an initial 
registration statement under the Exchange Act, the amendments the 
Commission is adopting will not affect the interim period financial 
information that is required to be filed with or furnished to the 
SEC.\36\ When a foreign private issuer publishes material financial 
information, whether fully or partly in accordance with IFRS,\37\ it 
should consider whether that information should be furnished on a Form 
6-K Report.
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    \36\ If a Form 6-K Report is incorporated by reference into a 
registration statement or prospectus, then the issuer should refer 
to the relief outlined below and in new General Instruction G to 
Form 20-F.
    \37\ The Committee of European Securities Regulators (``CESR''), 
for example, has encouraged European companies to provide investors 
with quantified information regarding the impact of the change to 
IFRS as soon as sufficiently reliable information is available. See 
CESR, ``European Regulation on the Application of IFRS in 2005: 
Recommendation for Additional Guidance Regarding the Transition to 
IFRS,'' (December 2003) (``CESR Recommendation'').
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2. Financial Information in Securities Act Registration Statements and 
Prospectuses and Initial Exchange Act Registration Statements Used Less 
Than Nine Months After the Financial Year End
    In registration statements and prospectuses under the Securities 
Act and initial registration statements under the Exchange Act, if the 
document is dated less than nine months after the end of the last 
audited financial year, foreign private issuers are not required to 
include interim period financial information. However, if a foreign 
private issuer has published interim period financial information, Item 
8.A.5 of Form 20-F requires these registration statements and 
prospectuses to include that information.\38\ The intent of this 
requirement is to ensure that the information available in U.S. 
offering documents is as current as information that is available 
elsewhere.
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    \38\ Under Item 512(a)(4) of Regulation S-K, a foreign private 
issuer that registers securities on a shelf registration statement 
basis is required to undertake to include any financial statements 
required by Item 8.A of Form 20-F at the start of any delayed 
offering or throughout a continuous offering.
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    Generally, this interim period financial information is not 
required to be reconciled to U.S. GAAP because (among other reasons) 
the U.S. GAAP reconciliation relating to the year-end audited financial 
statements provides investors with a roadmap for evaluating the extent 
to which U.S. GAAP adjustments might impact interim period financial 
information. To the extent there are new reconciling items or the 
issuer has made a change in its accounting principles with respect to 
the interim period, the issuer must quantify material reconciling items 
that have not previously been addressed in the audited financial 
statements, and must provide narrative disclosures about the 
differences in accounting principles used.\39\
---------------------------------------------------------------------------

    \39\ Instruction 3(a) and (b) to Item 8.A.5 of Form 20-F.
---------------------------------------------------------------------------

    On occasion, a foreign private issuer may publicly disclose interim 
financial information that is prepared using accounting standards 
different from those used in its SEC filings.\40\ In this instance, 
investors will not have the benefit of the roadmap and will not be able 
to evaluate the reconciling items between home country GAAP and U.S. 
GAAP. As a result, the interim financial information disclosed pursuant 
to Item 8.A.5 would have to be supplemented with a U.S. GAAP 
reconciliation.
---------------------------------------------------------------------------

    \40\ This may occur when an issuer whose audited financial 
statements included in its Annual Report on Form 20-F are prepared 
in accordance with U.S. GAAP publishes interim financial information 
prepared using home country GAAP.
---------------------------------------------------------------------------

    During the Transition Year, a foreign private issuer that is 
switching to IFRS may publish interim financial information either 
fully or partly in accordance with IFRS and will likely not have filed 
audited year-end IFRS financial statements in its most recent Form 20-F 
Annual Report. A strict interpretation of Item 8.A.5 would therefore 
normally require that the issuer provide a U.S. GAAP reconciliation 
relating to the IFRS interim financial information.
    The Commission recognizes the significant burdens associated with 
the changeover to a new basis of accounting and the benefits to 
investors of having companies publish financial information in 
accordance with IFRS during the Transition Year. As a result, the 
Commission does not believe a U.S. GAAP reconciliation is necessary in 
this circumstance, and is including within new Instruction G to Form 
20-F a provision that would permit a foreign private issuer to include 
IFRS financial information pursuant to the last three sentences of Item 
8.A.5 without either descriptive or quantified U.S. GAAP reconciling 
information. Because companies may publish interim financial 
information that does not fully comply with IFRS during the Transition 
Year, this relief extends to information that makes reference to IFRS 
but that may not be fully in accordance with IFRS.\41\ In addition, 
recognizing that foreign private issuers may present IFRS financial 
information covering a full financial year as well as interim periods, 
this relief also extends to annual year-end financial information that 
a foreign private issuer may publish during the Transition Year. 
Because such data may not be comparable to the issuer's historical or 
future data or to other issuers and not accompanied by a U.S. GAAP 
reconciliation, such published information should be accompanied by a 
statement that the information is not in compliance with IFRS and other 
appropriate cautionary language.
---------------------------------------------------------------------------

    \41\ An issuer may be unable to comply fully with IFRS for 
interim financial statements during the Transition Year due to 
subsequent changes that may be made to standards or the development 
of interpretive material. Because of the potential for such changes, 
the accounting policies that an issuer applies in preparing its 
preliminary opening balance sheet may not be the same as those to be 
applied to the final opening balance sheet when that issuer prepares 
it first complete IFRS financial statements.
    CESR, for example, has recommended that companies switching to 
IFRS in 2005 apply in their 2005 interim financial reports at least 
the IAS/IFRS recognition and measurement principles that will be 
applicable at year end. See CESR Press Release, ``Preparing for the 
Implementation of International Financial Reporting Standards 
(IFRS),'' CESR/03-514 (December 30, 2003).
---------------------------------------------------------------------------

    This relief only applies to documents described above that are used 
prior to nine months after the end of a foreign private issuer's 
financial year. Documents that are used subsequent to nine months after 
financial year end are addressed in the next section.
3. Financial Statements in Securities Act Registration Statements and 
Prospectuses and Initial Exchange Act Registration Statements Used More 
Than Nine Months After the Financial Year End
    In registration statements and prospectuses under the Securities 
Act and initial registration statements under the Exchange Act, if the 
document is dated more than nine months after the end of the last 
audited financial year, foreign private issuers must provide 
consolidated interim period financial statements covering at least the 
first six months of the financial year and the comparative period for 
the prior financial year.\42\ These unaudited interim period financial 
statements must be prepared using the same basis

[[Page 20680]]

of accounting as the audited financial statements contained or 
incorporated by reference in the document and include or incorporate by 
reference a reconciliation to U.S. GAAP.\43\
---------------------------------------------------------------------------

    \42\ Item 8.A.5 of Form 20-F and Item 512(a)(4) of Regulation S-
K
    \43\ Items 17(c) and 18 of Form 20-F.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission noted the difficulties 
faced by foreign private issuers in switching to IFRS during the 
Transition Year and solicited comment on various approaches to the 
presentation of interim period financial information. Because the 
Commission believes investors need a basis to compare interim period 
financial statements with annual financial statements, especially in 
connection with offerings or initial listings of securities that take 
place in the late months of the Transition Year or the early part of 
the year thereafter, the Commission does not believe it is appropriate 
to apply for situations after nine months the same approach described 
above for situations prior to nine months.
    The Commission received helpful suggestions from various commenters 
who noted that condensed U.S. GAAP financial information can be used as 
an information bridge between annual and interim periods to which 
different accounting standards are applied. The revisions incorporate 
this approach.
    In this area, the Commission is providing first-time adopters with 
a number of options to comply with its requirements. This is 
appropriate because the Commission wants to encourage foreign companies 
to continue to access the U.S. public capital markets during the 
Transition Year. In addition, this flexible approach balances the 
information needs of investors with the information resources that 
various companies may have available. The Commission is amending Form 
20-F to provide four options for foreign private issuers that are 
first-time adopters, that are or will be eligible to use the two-year 
financial statement accommodation and that are required to provide 
interim period financial statements in Securities Act or Exchange Act 
documents used after nine months from financial year end:
     The Previous GAAP Option
     The IFRS Option
     The U.S. GAAP Condensed Information Option, and
     The Case-by-Case Option.
    Each of these options is described below. In addition, the 
Commission reminds issuers that, regardless of the option selected, 
when interim period financial statements are required to be presented 
under Item 8.A.5, those financial statements must be accompanied by 
disclosure based on the accounting principles in the option used that 
is made pursuant to Item 5 of Form 20-F ``Operating and Financial 
Review and Prospects.''
(a) The Previous GAAP Option
    A foreign private issuer may present three years of audited 
Previous GAAP financial statements as well as Previous GAAP interim 
financial statements for the current year and comparable prior year 
period, all reconciled to U.S. GAAP. For example, a 2005 first time 
adopter would present audited financial statements for 2002, 2003 and 
2004 and unaudited financial statements for the six months (or nine 
months) of 2004 and 2005, all in accordance with Previous GAAP and 
reconciled to U.S. GAAP. This option generally reflects the application 
of the Commission's current rules, without any specific relief.
(b) The IFRS Option
    A foreign private issuer may present two years of audited financial 
statements as well as interim financial statements for the current year 
and comparable prior year period, all prepared in accordance with IFRS 
and reconciled to U.S. GAAP. For example, a 2005 first-time adopter 
would present audited financial statements for 2003 and 2004 and 
unaudited financial statements for the six months (or nine months) of 
2004 and 2005, all in accordance with IFRS and reconciled to U.S. GAAP. 
This option generally reflects the application of current rules, with 
the relief afforded through the amendments being adopted in this 
release that permit a first-time adopter to omit IFRS financial 
statements for the third financial year.
(c) The U.S. GAAP Condensed Information Option
    A foreign private issuer may present: (i) Audited Previous GAAP 
financial statements for the prior three years, reconciled to U.S. GAAP 
(e.g., 2002, 2003, and 2004); (ii) unaudited IFRS financial statements 
for the current and prior year comparable interim periods, reconciled 
to U.S. GAAP (e.g., six months or nine months of 2004 and 2005); and 
(iii) unaudited condensed U.S. GAAP balance sheets and income 
statements for the most recent prior financial year and the current and 
prior year comparable interim periods (e.g., full year 2004 and six 
months or nine months of 2004 and 2005).
    This option allows foreign companies to use condensed U.S. GAAP 
information to bridge the gap in interim information between Previous 
GAAP and IFRS. The condensed U.S. GAAP information should provide a 
level of detail consistent with that required by Article 10 of 
Regulation S-X for interim financial statements.
(d) The Case-by-Case Option
    Some first-time adopters may find that they are not able to comply 
fully with any of the options outlined above and yet have available 
comparable financial information based on a combination of Previous 
GAAP, IFRS and U.S. GAAP. The Commission does not believe these foreign 
private issuers should necessarily be foreclosed from publicly offering 
or listing their securities in the United States. Foreign companies in 
this situation are encouraged to contact the Office of International 
Corporate Finance in the Division in the Division of Corporation 
Finance, in writing and well in advance of any filing deadlines, for 
guidance relating to interim period financial statements.

G. Issuers Using IFRS as Adopted by the European Union

    While the EU has adopted, as published by the IASB, almost all 
international financial reporting standards, it has recently adopted a 
regulation endorsing IAS 39 ``Financial Instruments: Recognition and 
Measurement'' with the exception of certain provisions on the use of 
the full fair value option and on hedge accounting.\44\ EU listed 
companies are required only to comply with those accounting standards 
that have been adopted by the EU. As such, it is possible for an EU 
company to comply with EU accounting regulations but still produce 
financial statements that are not fully compliant with IFRS. Under EU 
guidance, companies that apply the EU-adopted version of IAS 39 should 
refer in their accounting policies to IFRS ``as adopted by the EU.'' 
\45\ The EU-adopted accounting standards are referred to in this 
release as ``EU GAAP.'' EU GAAP would appear to constitute a 
comprehensive body of accounting standards for purposes of Item 8.A.2 
and Item 17 and 18 of Form 20-F and would be accepted in SEC

[[Page 20681]]

filings by EU companies.\46\ As with other issuers relying on the 
accommodation, issuers that use EU GAAP would be required to include a 
reconciliation to U.S. GAAP.
---------------------------------------------------------------------------

    \44\ See European Commission Press Release ``Accounting 
standards: Commission endorses IAS 39,'' November 19, 2004; IP/04/
1385 available at http://europa.eu.int/comm/internal_market/accounting/index_en.htm.
    \45\ See ``IAS 39 Financial Instruments: Recognition and 
Measurement--Frequently Asked Questions (FAQ);'' European Commission 
Memo/04/265, Brussels, November 19, 2004. As noted in that release, 
while it is possible that the EU may not adopt other parts of IFRS 
as written by the IASB, the European Commission believes that full 
endorsement of standards published by the IASB is preferable.
    \46\ An issuer that uses EU GAAP may, in note 1 to its financial 
statements, describe that body of accounting principles using any 
term it deems appropriate to designate reliance on the IFRS 
standards that the EU has adopted.
---------------------------------------------------------------------------

    Some commenters raised the issue of whether the use of EU GAAP 
would have an impact on the eligibility requirements under the 
accommodation. An EU issuer that prepares financial statements for its 
local markets under EU GAAP could use those same financial statements 
in its SEC filings and still qualify for the accommodation if it also 
provides a reconciliation to IFRS as published by the IASB. This 
reconciliation would relate to the two financial years for which the 
issuer would provide EU GAAP financial statements under the 
accommodation. The reconciliation of EU GAAP to IFRS as published by 
the IASB should contain information relating to financial statement 
line items and footnote disclosure equivalent to that required under 
IFRS.\47\ The reconciliation would need to be audited by the issuer's 
independent auditor.
---------------------------------------------------------------------------

    \47\ For example, an issuer applying EU GAAP will include 
financial statement footnote disclosure that complies with IAS 32 
``Financial Instruments: Disclosure and Presentation'' even if the 
issuer does not fully apply IAS 39 relating to hedge accounting, as 
permitted under EU GAAP. The EU GAAP-IFRS reconciliation should 
disclose the financial statement effects and appropriate information 
in accordance with IAS 32, in respect of the full application of IAS 
39 if different from that under EU GAAP.
---------------------------------------------------------------------------

    An issuer that applies EU GAAP also would continue to be required 
to provide an audited reconciliation to U.S. GAAP.\48\ An issuer that 
applies EU GAAP may use the reconciliation to IFRS as published by the 
IASB as the basis for their reconciliation to U.S. GAAP, although using 
EU GAAP financial statements as the basis for the U.S. GAAP 
reconciliation also would be an acceptable approach.
---------------------------------------------------------------------------

    \48\ The U.S. GAAP reconciliation may be in accordance with Item 
17 or Item 18 of Form 20-F, as appropriate. See General Instruction 
E(c) to Form 20-F.
---------------------------------------------------------------------------

    The reconciliation to IFRS as published by the IASB would provide 
the basis for the following other disclosure required under the 
accommodation:
     Selected financial data provided pursuant to Item 3.A of 
Form 20-F would include relevant items based on the reconciliation to 
IFRS as published by the IASB as well as to U.S. GAAP; and
     The discussion under Item 5 of Form 20-F relating to the 
operating and financial review and prospects should focus on the 
financial statements prepared in accordance with EU GAAP. In the same 
manner as required for the U.S. GAAP reconciliation, this discussion 
should explain any differences between EU GAAP and IFRS as published by 
the IASB that are not otherwise discussed in the reconciliation and 
that the issuer believes are necessary for an understanding of the 
financial statements taken as a whole.
    With regard to interim financial statements in a registration 
statement or prospectus, the provision in new Instruction G to Form 20-
F that permits a foreign private issuer to include published IFRS 
financial information pursuant to the last three sentences of Item 
8.A.5 without either descriptive or quantified U.S. GAAP reconciling 
information also applies to information that is prepared in accordance 
with EU GAAP. Additionally, EU issuers that provide interim financial 
information under the IFRS Option should present two years of annual 
financial statements as well as current and comparable prior year 
interim financial statements prepared in accordance with EU GAAP, with 
the reconciliation to IFRS as published by the IASB and the 
reconciliation to U.S. GAAP as described above.

III. Disclosures About First-Time Adoption of IFRS

    The Commission is adopting amendments to Form 20-F to require 
certain disclosures by all first-time adopters of IFRS regardless of 
the year in which they change their basis of accounting. These 
requirements relate to the issuer's reliance on any of the exceptions 
to the general restatement and measurement principles allowed under 
IFRS 1 and to the reconciliation of Previous GAAP financial statements 
to IFRS.

A. Disclosure About Exceptions to IFRS

    The Commission is adopting largely as proposed amendments to Item 5 
of Form 20-F requiring an issuer to provide disclosure relating to its 
application of any of the mandatory or elective exceptions under IFRS 
1. Under these amendments, an issuer must identify the items to which 
an exception was applied, describe which accounting principle it used, 
and explain how it applied that principle. When relying on an elective 
exception, an issuer must include, where material, qualitative 
disclosure of the impact on the issuer's financial condition, changes 
in financial condition and results of operations. When relying on a 
mandatory exception, an issuer must describe the exception as provided 
for in IFRS 1 and state that it complied. This disclosure would be 
contained in an issuer's disclosure pursuant to Item 5, which provides 
information on the issuer's financial and operating review and 
prospects. First-time adopters must provide this type of information 
under paragraph 38 of IFRS 1, which generally requires an explanation 
of how the transition to IFRS would affect an issuer's financial 
position. However, because paragraph 38 does not specifically reference 
disclosure related to the use of exceptions, the Commission believes 
more guidance through the amendments to Form 20-F to be appropriate.
    Some commenters opposed these amendments, noting that the cost of 
providing the disclosures in relation to elective exceptions would 
likely outweigh the benefit to investors. Because issuers would 
generally apply elective exceptions where the information could not be 
assembled without undue cost, some commenters thought it unreasonable 
to require those companies to try to determine the significance of the 
exception and the impact that the application of the alternative 
accounting policies would have had on the issuer's reported financial 
condition. Some commenters indicated that issuers should determine for 
themselves what information, if any, they should provide in response to 
Item 5 of Form 20-F with regard to their use of the elective and 
mandatory exceptions, and that separate disclosure requirements would 
be duplicative.
    Some commenters said information provided under the proposed 
requirements would be useful to investors and would complement 
disclosure provided under Item 5. Another commenter favored the 
proposals because discussion of the IFRS 1 exemptions would already be 
required under paragraph 38 of IFRS 1. Other commenters supported the 
proposed qualitative disclosures, but opposed any requirement to 
provide quantitative disclosures not already required by IFRS 1 as such 
information would be burdensome for issuers to obtain.
    In the proposal, the Commission did not intend to require companies 
to provide a quantification of the financial statement effects of using 
a specific exception. As a result, there should not be significant 
costs associated with providing the required disclosure. In addition, 
when companies provide information as to the use of an exception, it 
does not have to appear in the notes to the audited financial

[[Page 20682]]

statements, although there would be no objection to including such 
information in the notes.
    The Commission has revised the amendment to clarify that companies 
are not required to provide quantified numerical information in their 
explanation of the financial significance of an exception. Rather, the 
qualitative disclosure required by these amendments is intended to give 
investors some information as to the magnitude of the effect of an 
exception on an issuer's financial statements in qualitative terms. 
This information will permit investors to better understand the 
significant items that impact the consistency and comparability between 
companies for past and future periods.
    For example, a substantial portion of the issuer's assets or 
operations may have been obtained in a prior business combination 
transaction accounted for as a pooling of interests under both Previous 
GAAP and in the first IFRS financial statements based on an elective 
exception in IFRS 1. If that election had not been used, the 
transaction would have been accounted for as a purchase under IFRS 3. 
Under the adopted amendments, the issuer would describe that, absent 
the exception:
     The business combination would have been accounted for as 
a purchase under IFRS 3;
     The [applicable entity] would have been identified as the 
acquirer;
     The fair value of the entire purchase consideration of 
[dollar amount] would have been recognized in the financial statements 
at that time;
     The purchase consideration would have been allocated to 
the following major categories of acquired tangible and intangible 
assets and liabilities based on their fair values: [naming the 
categories];
     Goodwill would have been recognized, if applicable;
     The fair values of the acquired assets would have been 
amortized to expense over their respective useful lives; and
     The approximate amount of the acquiree's revenues and 
assets (or percentage of the issuer's corresponding totals) at the time 
of the business combination, to illustrate the magnitude of the use of 
the exemption [stating the amounts or percentages].
    If the accounting treatment that would have been applied under IFRS 
3 is consistent with the treatment under U.S. GAAP, the issuer may 
satisfy the adopted disclosure requirement by cross-referencing the 
applicable portions of the U.S. GAAP reconciliation.
    Similar broad disclosure should be provided for the use of other 
exceptions under IFRS 1.

B. Reconciliation From Previous GAAP

    The Commission is adopting as proposed a new instruction 3 to Item 
8 of Form 20-F to require that the mandatory reconciliation from 
Previous GAAP to IFRS give ``sufficient data to enable users to 
understand the material adjustments to the balance sheet and income 
statement,'' and, if presented under Previous GAAP, the cash flow 
statement. The Commission did not propose, and is not adopting, 
specific form or content requirements. It notes, however, that a 
reconciliation following example 11 under Implementation Guidance 63 
(``IG 63'') of IFRS 1 will meet the requirement that it is adopting. 
Similarly, a reconciliation based on the form and content provisions of 
Item 17 of Form 20-F would meet the requirement.
    Most commenters did not oppose the proposal and did not feel that 
following the example given in IG 63 would be unduly burdensome. Many 
commenters shared the view that the Commission should not specify form 
and content requirements for the reconciliation from Previous GAAP to 
IFRS, because companies will develop formats based on IFRS 1 in ways 
suitable to their individual circumstances. Other commenters indicated 
that IFRS's requirements regarding the presentation of differences 
between IFRS and Previous GAAP were sufficient. Because each issuer's 
situation will be different, the Commission does not believe a 
prescriptive approach to the information to be included in the 
reconciliation would be practicable or desirable.

IV. Paperwork Reduction Act Analysis

A. Background

    The final rule amendment contains ``collection of information'' 
requirements within the meaning of the Paperwork Reduction Act of 1995 
(``PRA'').\49\ The titles of the affected collections of information 
are:
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    \49\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    (1) ``Form 20-F'' (OMB Control No. 3235-0288);
    (2) ``Form F-1'' (OMB Control No. 3235-0258);
    (3) ``Form F-2'' (OMB Control No. 3235-0257);
    (4) ``Form F-3'' (OMB Control No. 3235-0256); and
    (5) ``Form F-4'' (OMB Control No. 3235-0325).
    These forms were adopted pursuant to the Securities Act and 
Exchange Act and set forth the disclosure requirements for annual 
reports and registration statements filed by foreign private issuers to 
provide material information to investors. The hours and costs 
associated with preparing, filing and sending these forms constitute 
reporting and cost burdens imposed by each collection of information. 
An agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless it displays a currently 
valid OMB control number. The disclosure is mandatory. There would be 
no mandatory retention period for the information disclosed, and 
responses to the disclosure requirements would not be kept 
confidential. The Commission published a notice requesting comment on 
the collection of information requirements in the Proposing Release and 
submitted these requirements to the Office of Management and Budget 
(``OMB'') for review in accordance with the PRA.\50\ The OMB approved 
those estimates.
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    \50\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
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    The Commission received several comment letters on the proposals, 
and has revised the final amendments in response to these comments. 
Some of the revisions have impacted the assumptions and estimates used 
in the analysis made under the Paperwork Reduction Act. The Commission 
is revising its previous burden estimates because of these revisions.
    The Commission is adopting the new General Instruction G to Form 
20-F to allow an eligible foreign private issuer to omit from SEC 
filings for its first year of reporting under IFRS the earliest of the 
three years of financial statements. The adopted amendments make the 
accommodation available to companies that adopt IFRS as their basis of 
accounting prior to or for the financial year starting on or after 
January 1, 2007. This is different from the proposal, which would have 
granted the accommodation to a foreign private issuer that adopted IFRS 
for the first time for a fiscal year that begins no later than January 
1, 2007. This change was made in response to comments indicating that 
the amendments as proposed may have lead to situations in which an 
issuer that met the IFRS 1 definition of first-time adopter would be 
ineligible to rely on the accommodation. Because this change to the 
period during which the accommodation applies will affect only timing, 
the Commission assumes that it will have no impact on the burden 
estimates. Because the provision of the third year of financial 
statements under a

[[Page 20683]]

comprehensive body of accounting standards is not calculated as a 
burden for PRA purposes, eliminating the third year of IFRS financial 
statements is not a burden reduction.
    In response to comments that the proposed amendments regarding 
condensed U.S. GAAP financial information would be excessively 
burdensome to issuers, the final amendments do not require an issuer 
that relies on the accommodation to provide condensed U.S. GAAP 
information. Although the proposals relating to condensed U.S. GAAP 
financial information would have increased in the burden estimates, not 
requiring that information in the final amendments will have a neutral 
effect on the PRA burden.\51\
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    \51\ In the Proposing Release the Commission estimated that the 
accommodation would represent an overall PRA burden increase of 2 
percent, the majority of which would have been attributable to the 
proposed requirement for condensed U.S. GAAP financial information.
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    The amendments relating to Previous GAAP financial information are 
adopted as proposed, for which commenters expressed wide support. The 
Commission estimates that the requirement for appropriate cautionary 
language from any issuer that includes, incorporates by reference or 
refers to Previous GAAP financial information in an SEC disclosure 
document will result in a two hour burden increase.
    The Commission is adopting a flexible approach with regard to the 
presentation of interim financial statements, under which an issuer 
that provides interim financial statements may elect to provide 
disclosure under one of four options described in Section II.F.3.\52\ 
This approach differs from the proposal, which was consistent with 
current requirements before the amendment. Commenters cited the 
potential burden of maintaining financial statements under both 
Previous GAAP and IFRS in their opposition to the proposed approach, to 
which they suggested alternatives. The Commission believes that the 
amendments regarding interim financial statements will lead to a two 
hour increase in the burden estimates related to the accommodation.
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    \52\ It is estimated that approximately 10 percent of the 
roughly 400 issuers that will rely on the accommodation will be 
subject to the provisions regarding interim financial statements. Of 
these, it is assumed that 10 percent (or four issuers), will select 
the Previous GAAP Option, 60 percent (or 24 issuers) will use the 
IFRS Option, 20 percent (or 8 issuers) will use the Condensed U.S. 
GAAP Information Option, and 10 percent (or 4 issuers) will use the 
Case-by-Case Option. The Previous GAAP Option does not represent a 
change from existing rules and therefore would not cause a burden 
increase. The IFRS Option avoids a future increase but does not 
increase the burden, and the U.S. GAAP Option and the Case-by-Case 
Option represent slight increases because they would call for 
information that had not been previously required.
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    To rely on the accommodation as adopted, issuers that comply with 
EU GAAP must provide a reconciliation to IFRS as published by the IASB, 
while all others must provide an explicit and unreserved statement of 
compliance with IFRS.\53\ Because developments related to EU GAAP 
occurred subsequent to the issuance of the Proposing Release, the 
amendments as proposed did not include these conditions. The Commission 
believes the reconciliation to IFRS as published by the IASB for 
issuers using EU GAAP will lead to a one hour increase in the burden 
estimates related to the accommodation.
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    \53\ It is estimated that 10 of the 400 issuers that are 
expected to rely on the accommodation will use EU GAAP.
---------------------------------------------------------------------------

    In total, the Commission estimates that the amendments related to 
the accommodation described in Section II will account for a one-time 
increase of five hours to the PRA burden associated with Forms 20-F, F-
1, F-2, F-3 and F-4, respectively. The Commission also estimates that, 
of the amendments described in Section III that affect all first-time 
IFRS adopters, the disclosure about IFRS exceptions will cause a one-
time increase of 1.5 per cent in the number of burden hours required to 
prepare each form while the amendments regarding the reconciliation 
from Previous GAAP would not cause any increase in the burden 
estimates. Accordingly, an issuer that adopts IFRS prior to or for its 
2007 financial year will accrue both the five hour burden and the 1.5 
percent burden increase. An issuer that adopts IFRS later than its 2007 
financial year will accrue only the 1.5 percent increase.
    For purposes of the Paperwork Reduction Act, the Commission 
estimates that the one-time incremental increase in the paperwork 
burden for all first-time adopters of IFRS relying on the accommodation 
and providing the disclosure related to first-time adoption of IFRS 
would be approximately 4,273 hours of company time and approximately 
$3,845,700 for the services of outside professionals. The Commission 
estimates that the incremental increase in the paperwork burden for all 
first-time adopters of IFRS after that period would be approximately 
3,727 hours of company time and approximately $3,354,300 for the 
services of outside professionals. It estimated the average number of 
hours each entity spends completing the forms and the average hourly 
rate for outside professionals.\54\ That estimate includes the time and 
the cost of in-house preparers, reviews by executive officers, in-house 
counsel, outside counsel, independent auditors and members of the audit 
committee.\55\
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    \54\ For convenience, the estimated PRA hour burdens have been 
rounded to the nearest whole number.
    \55\ In connection with other recent rulemakings, Commission 
staff has had discussions with several private law firms and 
accounting firms to estimate an hourly rate of $300 as the cost of 
outside professionals that assist companies in preparing these 
disclosures. For Securities Act registration statements, the staff 
also considers additional reviews of the disclosure by underwriter's 
counsel and underwriters.
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B. Burden and Cost Estimates Related to the Accommodation

1. Form 20-F
    Form 20-F is the combined registration statement and annual report 
for foreign private issuers under the Exchange Act. It also presents 
the disclosure requirements for registration statements filed by 
foreign private issuers under the Securities Act. The Commission 
estimates that currently 1,036 issuers file Form 20-Fs each year. It 
also estimates that these issuers incur 25% of the burden required to 
produce the Form 20-Fs, resulting in 677,298 annual burden hours 
incurred by issuers out of a total of 2,709,192 annual burden hours. 
Thus, the Commission estimates that 2,615 total burden hours per 
response are currently required to prepare the Form 20-F. The 
Commission further estimates that outside professionals account for 75% 
of the burden at an average cost of $300 per hour for a total cost of 
$609,568,200.
    The Commission estimates that the accommodation will affect 
approximately 35% of the 1,036 issuers that file on Form 20-F.\56\ The 
Commission therefore expects that each of 363 issuers will have an 
increase of 5 hours in the number of hours required to prepare their 
Form 20-F, for a total increase of 1,815 hours. It expects that these 
issuers will bear 25% of these

[[Page 20684]]

increased burden hours (454 hours). It further expects that outside 
firms will bear 75% of the increased burden hours (1,362 hours) at an 
average cost of $300 per hour for a total of $408,600 in increased 
costs.
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    \56\ This figure is based on the estimate of the ratio of the 
actual number of foreign private issuers that (1) Are incorporated 
in countries that will require or permit the use of IFRS beginning 
in year 2005; (2) are incorporated in countries that presently 
permit but do not require the use of IFRS; (3) have filed either an 
annual report and/or a registration statement on Form 20-F between 
January 1 and December 31, 2003; and (4) appear current with their 
reporting obligations under the Exchange Act as of December 31, 
2003, to the actual number of the applicable forms that were filed 
between January 1 and December 1, 2003. For purposes of this 
estimate the approximate number of foreign private issuers that 
currently provide IFRS financial statements in their SEC filings 
(50) has been excluded.
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    Thus, the Commission estimates that the amendments to Form 20-F 
will increase the annual burden incurred by foreign private issuers in 
the preparation of Form 20-F to 677,752 burden hours. The Commission 
further estimates that the amendments will increase the total annual 
burden associated with Form 20-F preparation to 2,711,008 burden hours, 
which will increase the average number of burden hours per response to 
2,617. It also estimates that the amendments will increase the total 
annual costs attributed to the preparation of Form 20-F by outside 
firms to $609,976,800.
2. Form F-1
    The Commission estimates that currently 42 foreign private issuers 
file registration statements on Form F-1 each year. It also estimates 
that these issuers bear 25% of the burden required to produce a Form F-
1, resulting in 18,895 annual burden hours incurred by issuers out of a 
total of 75,580 annual burden hours. Thus, the Commission estimates 
that 1,800 total burden hours per response are currently required to 
prepare a registration statement on Form F-1. It further estimates that 
outside professionals account for 75% of the burden to produce a Form 
F-1 at an average cost of $300 per hour for a total cost of 
$17,005,500.
    The Commission estimates that the accommodation will affect 
approximately 30% of the 42 issuers that file registration statements 
on Form F-1.\57\ It therefore expects that each of 13 issuers will have 
a five hour increase in the number of hours required to prepare a 
registration statement on Form F-1, for a total increase of 65 hours. 
The Commission expects that these issuers will bear 25% of these 
increased burden hours (16 hours). It further expects that outside 
firms will bear 75% of the increased burden hours (48 hours) at an 
average cost of $300 per hour for a total of $14,400 in increased 
costs.
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    \57\ This figure is based on the estimate of the ratio of the 
number of foreign private issuers that (1) are incorporated in 
countries that will require or permit the use of IFRS beginning in 
year 2005; (2) are incorporated in countries that presently permit 
but do not require the use of IFRS; (3) have filed a Form F-1 
between January 1 and December 31, 2003; and (4) appear current with 
their reporting obligations under the Exchange Act as of December 
31, 2003, to the actual number of registration statements on Form F-
1 that were filed between January 1 and December 1, 2003.
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    Thus, the Commission estimates that the amendments to Form 20-F 
will increase the annual burden incurred by foreign private issuers in 
the preparation of Form F-1 to 18,911 burden hours. It also estimates 
that the amendments will increase the total annual burden associated 
with Form F-1 preparation to 75,644 burden hours, which will increase 
the average number of burden hours per response to 1,801. It further 
estimates that the amendments will increase the total annual costs 
attributed to the preparation of Form F-1 by outside firms to 
$17,019,900.
3. Form F-2
    The Commission estimates that currently one foreign private issuer 
files a registration statement on Form F-2 each year. It also estimates 
that the issuer incurs 25% of the burden required to produce a Form F-2 
resulting in 710 annual burden hours incurred by that issuer out of a 
total of 2,840 annual burden hours. Thus, the Commission estimates that 
2,840 total burden hours per response are currently required to prepare 
a registration statement on Form F-2. It further estimates that outside 
professionals account for 75% of the burden to produce a Form F-2 at an 
average cost of $300 per hour for a total cost of $639,000.
    Because the Commission does not expect that the accommodation will 
affect the one issuer that files a registration statement on Form F-2, 
it is not revising the burden estimates for that form.\58\
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    \58\ The Commission has proposed to eliminate Form F-2. See 
``Securities Offering Reform,'' Release No. 33-8501 (November 3, 
2004).
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4. Form F-3
    The Commission estimates that 102 foreign private issuers file 
registration statements on Form F-3 each year. It also estimates that 
issuers incur 25% of the burden required to produce a Form F-3 
resulting in 4,159 annual burden hours incurred by issuers out of a 
total of 16,636 annual burden hours. Thus, it estimates that 163 total 
burden hours per response are currently required to prepare a 
registration statement on Form F-3. It further estimates that outside 
professionals account for 75% of the burden to produce a Form F-3 at an 
average cost of $300 per hour for a total cost of $3,743,100.
    The Commission estimates that the accommodation will affect 
approximately 45% of the 102 issuers that file registration statements 
on Form F-3.\59\ It therefore expects that each of 46 issuers will have 
a burden increase of five hours, for a total increase of 230 hours. It 
expects that these issuers will bear 25% of this increased burden (58 
hours). It further expects that outside firms will bear 75% of the 
increased burden hours (174 hours) at an average cost of $300 per hour 
for a total of $52,200 in increased costs.
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    \59\ This figure is based on the estimate of the ratio of the 
number of foreign private issuers that (1) Are incorporated in 
countries that will require or permit the use of IFRS beginning in 
year 2005; (2) are incorporated in countries that presently permit 
but do not require the use of IFRS; (3) have filed a Form F-3 
between January 1 and December 31, 2003; and (4) appear current with 
their reporting obligations under the Exchange Act as of December 
31, 2003, to the actual number of registration statements on Form F-
3 that were filed between January 1 and December 1, 2003.
---------------------------------------------------------------------------

    Thus, the Commission estimates that the amendments to Form 20-F 
will increase the annual burden incurred by foreign private issuers in 
the preparation of Form F-3 to 4,217 burden hours. It further estimates 
that the amendments will increase the total annual burden associated 
with Form F-3 preparation to 16,868 burden hours, which will increase 
the average number of burden hours per response to 165. It also 
estimates that the amendments will increase the total annual costs 
attributed to the preparation of Form F-3 by outside firms to 
$3,795,300.
5. Form F-4
    The Commission estimates that 68 foreign private issuers file 
registration statements on Form F-4 each year. It also estimates that 
these issuers incur 25% of the burden required to produce a Form F-4 
resulting in 24,503 annual burden hours incurred by foreign private 
issuers out of a total of 98,012 annual burden hours. Thus, it 
estimates that 1,441 total burden hours per response are currently 
required to prepare a registration statement on Form F-4. It further 
estimates that outside professionals account for 75% of the burden to 
produce a Form F-4 at an average cost of $300 per hour for a total cost 
of $22,052,700.
    The Commission estimates that the accommodation will affect 
approximately 20% of the 68 issuers that file registration statements 
on Form F-4.\60\ It therefore expects that each of 14 foreign private 
issuers will have a burden increase of five hours, for a total

[[Page 20685]]

increase of 70 hours. It expects that issuers will bear 25% of these 
increased burden hours (18 hours). It further expects that outside 
firms will bear 75% of the increased burden hours (54 hours) at an 
average cost of $300 per hour for a total of $16,200 in increased 
costs.
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    \60\ This figure is based on the estimate of the ratio of the 
number of foreign private issuers that (1) are incorporated in 
countries that will require or permit the use of IFRS beginning in 
year 2005; (2) are incorporated in countries that presently permit 
but do not require the use of IFRS; (3) have filed a Form F-4 
between January 1 and December 31, 2003; and (4) appear current with 
their reporting obligations under the Exchange Act as of December 
31, 2003, to the actual number of registration statements on Form F-
4 that were filed between January 1 and December 1, 2003.
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    Thus, the Commission estimates that the amendments to Form 20-F 
will increase the annual burden incurred by foreign private issuers in 
the preparation of Form F-4 to 24,521 burden hours. It further 
estimates that the amendments will increase the total annual burden 
associated with Form F-4 preparation to 98,084 burden hours, which will 
increase the average number of burden hours per response to 1,442. It 
further estimates that the amendments will increase the total annual 
costs attributed to the preparation of Form F-4 by outside firms to 
$22,068,900.

C. Burden and Cost Estimates Related to the Disclosure About First-Time 
Adoption of IFRS

1. Form 20-F
    The Commission estimates that currently foreign private issuers 
file 1,036 Form 20-Fs each year, approximately 35% of which will be 
impacted by the amendments.\61\ The Commission therefore expects that 
each of 363 issuers will have a burden increase of 1.5 per cent (39 
hours) in the number of hours required to prepare their Form 20-F, for 
a total increase of 14,157 hours. It also expects that issuers will 
bear 25% of these increased burden hours (3,539 hours), and that 
outside firms will bear 75% of the increased burden hours (10,617 
hours) at an average cost of $300 per hour for a total of $3,185,100 in 
increased costs.
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    \61\ This figure is based on the estimate of the ratio of the 
actual number of foreign private issuers that (1) are incorporated 
in countries that will require or permit the use of IFRS beginning 
in year 2005; (2) are incorporated in countries that presently 
permit but do not require the use of IFRS; (3) have filed either an 
annual report and/or a registration statement on Form 20-F between 
January 1 and December 31, 2003; and (4) appear current with their 
reporting obligations under the Exchange Act as of December 31, 
2003, to the actual number of the applicable forms that were filed 
between January 1 and December 1, 2003. For purposes of this 
estimate the approximate number of foreign private issuers that 
currently provide IFRS financial statements in their SEC filings 
(50) has been excluded.
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    Thus, the Commission estimates that the amendments to Form 20-F 
will increase the annual burden incurred by foreign private issuers in 
the preparation of Form 20-F to 680,837 burden hours. The Commission 
further estimates that the amendments will increase the total annual 
burden associated with Form 20-F preparation to 2,723,348 burden hours, 
which will increase the average number of burden hours per response to 
2,629. It also estimates that the amendments will increase the total 
annual costs attributed to the preparation of Form 20-F by outside 
firms to $612,753,300.
2. Form F-1
    The Commission estimates that 42 foreign private issuers file 
registration statements on Form F-1 each year, approximately 30% of 
which will be impacted by the amendments.\62\ It therefore expects that 
each of 13 issuers will have an increase of 1.5 per cent (27 hours) in 
the number of burden hours required to prepare their registration 
statements on Form F-1, for a total increase of 351 hours. The 
Commission expects that issuers will bear 25% of these increased burden 
hours (88 hours), and that outside firms will bear 75% of the reduced 
burden hours (264 hours) at an average cost of $300 per hour for a 
total of $79,200 in increased costs.
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    \62\ This figure is based on the estimate of the ratio of the 
number of foreign private issuers that (1) are incorporated in 
countries that will require or permit the use of IFRS beginning in 
year 2005; (2) are incorporated in countries that presently permit 
but do not require the use of IFRS; (3) have filed a Form F-1 
between January 1 and December 31, 2003; and (4) appear current with 
their reporting obligations under the Exchange Act as of December 
31, 2003, to the actual number of registration statements on Form F-
1 that were filed between January 1 and December 1, 2003.
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    Thus, the Commission estimates that the amendments to Form 20-F 
will increase the annual burden incurred by foreign private issuers in 
the preparation of Form F-1 to 18,983 burden hours. It also estimates 
that the amendments will increase the total annual burden associated 
with Form F-1 preparation to 75,932 burden hours, which will increase 
the average number of burden hours per response to 1,808. It further 
estimates that the amendments will increase the total annual costs 
attributed to the preparation of Form F-1 by outside firms to 
$17,084,700.
3. Form F-2
    Because the Commission does not expect that the amendments affect 
the one issuer that files a registration statement on Form F-2, it is 
not revising the burden estimates for that form.\63\
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    \63\ The Commission has proposed to eliminate Form F-2. See 
``Securities Offering Reform,'' Release No. 33-8501 (November 3, 
2004).
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4. Form F-3
    The Commission estimates that approximately 102 foreign private 
issuers file registration statements on Form F-3 each year, 45% of 
which will be impacted by the amendments.\64\ It therefore expects that 
each of 46 issuers will have an increase of 1.5 per cent (2 hours) in 
the number of burden hours required to prepare their registration 
statements on Form F-3, for a total increase of 92 hours. It expects 
that issuers will bear 25% of this increased burden hours (23 hours), 
and that outside firms will bear 75% of the increased burden hours (69 
hours) at an average cost of $300 per hour for a total of $20,700 in 
increased costs.
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    \64\ This figure is based on the estimate of the ratio of the 
number of foreign private issuers that (1) are incorporated in 
countries that will require or permit the use of IFRS beginning in 
year 2005; (2) are incorporated in countries that presently permit 
but do not require the use of IFRS; (3) have filed a Form F-3 
between January 1 and December 31, 2003; and (4) appear current with 
their reporting obligations under the Exchange Act as of December 
31, 2003, to the actual number of registration statements on Form F-
3 that were filed between January 1 and December 1, 2003.
---------------------------------------------------------------------------

    Thus, the Commission estimates that the amendments to Form 20-F 
will increase the annual burden incurred by issuers in the preparation 
of Form F-3 to 4,182 burden hours. It further estimates that the 
amendments will increase the total annual burden associated with Form 
F-3 preparation to 16,728 burden hours, which will increase the average 
number of burden hours per response to 164. It also estimates that the 
amendments will increase the total annual costs attributed to the 
preparation of Form F-3 by outside firms to $3,763,800.
5. Form F-4
    The Commission estimates 68 foreign private issuers file 
registration statements on Form F-4 each year, approximately 20% of 
which will be impacted by the amendments.\65\ It therefore expects that 
each of 14 issuers will have an increase of 1.5 per cent (22 hours) in 
the number of burden hours required to prepare their registration 
statements on Form F-4, for a total increase of 308 hours. It expects 
that issuers will bear 25% of these increased burden hours (77 hours), 
and that outside firms will bear 75% of the increased burden hours (23 
hours) at an average cost of $300 per hour for a total of $69,300 in 
increased costs.
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    \65\ This figure is based on the estimate of the ratio of the 
number of foreign private issuers that (1) are incorporated in 
countries that will require or permit the use of IFRS beginning in 
year 2005; (2) are incorporated in countries that presently permit 
but do not require the use of IFRS; (3) have filed a Form F-4 
between January 1 and December 31, 2003; and (4) appear current with 
their reporting obligations under the Exchange Act as of December 
31, 2003, to the actual number of registration statements on Form F-
4 that were filed between January 1 and December 1, 2003.
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    Thus, the Commission estimates that the amendments to Form 20-F 
will

[[Page 20686]]

increase the annual burden incurred by issuers in the preparation of 
Form F-4 to 24,580 burden hours. It further estimates that the 
amendments will increase the total annual burden associated with Form 
F-4 preparation to 98,320 burden hours, which will increase the average 
number of burden hours per response to 1,446. It further estimates that 
the amendments will increase the total annual costs attributed to the 
preparation of Form F-4 by outside firms to $22,122,000.

D. New Burden Estimates

    Based on the preceding analysis and assuming that the number of 
respondents for each of the affected forms remains unchanged, the five 
hour burden increase due to the proposed accommodation and the further 
1.5 per cent increase due to the proposed disclosure requirements for 
all first-time IFRS adopters will, together, increase the total burden 
estimates for companies from 677,298 hours to 681,291 for Form 20-F (an 
increase from 2,615 hours to 2,631 hours per form), from 18,895 hours 
to 18,999 hours for Form F-1 (an increase from 1,800 hours to 1,809 
hours per form), from 4,159 hours to 4,240 for Form F-3 (an increase 
from 163 hours to 166 hours per form), and from 24,503 hours to 24,598 
hours for Form F-4 (an increase from 1,441 hours to 1,447 hours per 
form). As discussed above, after year 2007 the five hour burden 
increase from the proposed accommodation will no longer apply and only 
the 1.5 per cent increase due to the proposed disclosure requirements 
for all first-time IFRS adopters will remain.

V. Cost-Benefit Analysis

    In the Proposing Release, the Commission solicited comments on the 
expected costs and benefits of the proposed amendments to Form 20-F, as 
well as on any other costs and benefits that could result from the 
adoption of those proposed amendments. In response, commenters 
expressed widespread support for the relief that the proposal would 
provide to eligible issuers by permitting them to file two rather than 
three years of financial information for the financial year they switch 
to IFRS. However, several commenters maintained that the proposals 
regarding condensed U.S. GAAP financial information and financial 
statements for interim periods during the Transition Year would impose 
costs on foreign private issuers that were unnecessary to achieve the 
rule's purpose and that outweighed the potential benefits to investors. 
The Commission has modified the final amendments in response to these 
concerns, thereby eliminating some of the potential costs that issuers 
may have incurred under the amendments as proposed.
    Although none of the commenters provided quantitative data to 
support their views, the Commission has revised the amendments to Form 
20-F in response to the concerns that the commenters expressed. The 
Commission expects that the adopted amendments to Form 20-F will result 
in the following benefits and costs.\66\
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    \66\ It is estimated these amendments will affect approximately 
400 foreign private issuers.
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A. Expected Benefits

    The amendments to Form 20-F will benefit foreign private issuers 
that adopt IFRS, either voluntarily or by mandate, by facilitating 
their compliance with SEC disclosure requirements as those issuers 
transition from their Previous GAAP to IFRS. By permitting eligible 
issuers to provide two rather than three years of financial statements 
prepared in accordance with IFRS, the amendments will allow those 
issuers to avoid the retroactive application of accounting standards 
that may not have been finalized during the earliest reporting period 
to which they would have to be applied in order to provide financial 
statements that were in compliance with SEC filing requirements.
    By eliminating the third year of IFRS financial statements, the 
accommodation also benefits issuers by aligning SEC requirements with 
the IFRS 1 standard, which requires only one year of comparative 
information for the year IFRS is adopted. Through the amendments to 
Form 20-F, the Commission is eliminating the need for financial 
statements that would have been required by SEC rules but not 
otherwise. In years after their Transition Year, when the accommodation 
will no longer apply, issuers will have available IFRS financial 
statements for the financial year that they were permitted to exclude 
under the accommodation.
    The amendments also will benefit investors in several ways. First, 
the accommodation will improve the clarity and quality of the financial 
disclosure that first-time adopters of IFRS provide in their SEC 
filings, thereby enhancing investor understanding. By clarifying the 
level of information required in the reconciliation of Previous GAAP 
information to IFRS, for example, the amendments will provide investors 
with a comparable level of reconciliation information between companies 
that will enable them to understand the material impact of the switch 
to IFRS on each issuer's financial statements.
    The accommodation also is expected to benefit investors by 
encouraging the use of IFRS as a high quality body of accounting 
principles designed to accurately reflect the issuer's financial 
position. By reducing the burden of financial reporting in registration 
statements filed by first-time adopters of IFRS, the accommodation will 
encourage those issuers either to enter or to continue their 
participation in the U.S. capital market, which will further benefit 
investors by increasing their investment possibilities. These benefits 
will likely lead to a more efficient allocation of capital.

B. Expected Costs

    The amendments to Form 20-F could result in some costs to issuers 
relying on the accommodation, although those costs should be minimal as 
they relate principally to how information required under rules 
existing prior to these amendments should be presented when based on 
primary financial statements based on IFRS.
    One area in which issuers relying on the accommodation may face 
increased cost relates to the provision of interim financial 
statements. The Commission has adopted a flexible approach that 
provides an isuer with a number of options as to how to comply with the 
requirements. Although the costs of providing disclosure under the 
different options may vary, issuers providing interim financial 
information may select the approach that they deem most suitable to 
mitigate these potential burdens.
    The elements of the adopted amendments that apply to all first-time 
adopters of IFRS will also lead to some increased costs to issuers. The 
amendments that clarify the level of information that the 
reconciliation from Previous GAAP to IFRS should contain are not 
expected to result in increased costs to issuers, because they do not 
require additional disclosure beyond what first-time adopters of IFRS 
must provide to comply with IFRS 1. The amendments relating to the use 
of any exceptions to IFRS will require additional disclosure, and 
consequently are expected to result in some increased costs for 
companies that are required to provide that disclosure.

VI. Regulatory Flexibility Act Certification

    Under Section 605(b) of the Regulatory Flexibility Act,\67\ the 
Commission certified that, when

[[Page 20687]]

adopted, the proposed amendment to Form 20-F under the Exchange Act 
would not have a significant impact on a substantial number of small 
entities. It included this certification in Part VII of the Proposing 
Release. While the Commission encouraged written comments regarding 
this certification, none of the commenters responded to this request.
---------------------------------------------------------------------------

    \67\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------

VII. Promotion of Efficiency, Competition and Capital Formation 
Analysis

    Section 23(a)(2) of the Exchange Act \68\ requires the Commission, 
when adopting rules under the Exchange Act, to consider the anti-
competitive effects of any rule it adopts. Furthermore, Section 2(b) of 
the Securities Act \69\ and Section 3(f) of the Exchange Act \70\ 
require the Commission, when engaging in a rulemaking that requires it 
to consider or determine whether an action is necessary or appropriate 
in the public interest, to consider whether the action will promote 
efficiency, competition and capital formation.
---------------------------------------------------------------------------

    \68\ 15 U.S.C. 78w(a)(2).
    \69\ 15 U.S.C. 77b(b).
    \70\ 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    In the Proposing Release, the Commission considered the proposed 
amendment to Form 20-F in light of the standards set forth in the above 
statutory sections. It requested comment on whether, if adopted, the 
proposed Form 20-F amendment would result in any anti-competitive 
effects or promote efficiency, competition and capital formation. The 
Commission further encouraged commenters to provide empirical data or 
other facts to support their views on any anti-competitive effects or 
any burdens on efficiency, competition or capital formation that might 
result from adoption of the proposed Form 20-F amendments. It received 
no comments in response to these requests.
    The adopted amendments allowing first-time adopters of IFRS to file 
two rather than three years of IFRS financial statements in their SEC 
filings are designed to increase efficiency, competition and capital 
formation by alleviating the burden and cost that eligible companies 
would face if required to recast under IFRS their results for the third 
year back for inclusion in annual reports and registration statements 
filed with the SEC. The amendments are intended to promote market 
efficiency by eliminating financial disclosure that would be costly to 
produce and would be of questionable value to investors. As a result of 
the more reliable disclosure that companies will provide under the 
amendments, investors will be able to make more informed investment 
decisions and capital may be allocated on a more efficient basis.
    The amendments adopted to require all foreign companies that change 
their basis of accounting to IFRS to provide information relating to 
IFRS exceptions on which they relied and to satisfy a required level of 
information in their reconciliation from Previous GAAP to IFRS should 
increase efficiency, competition and capital formation by enabling 
investors to base their investment decisions on a better understanding 
of the financial information of those companies. This should lead to a 
more efficient allocation of capital.

VIII. Statutory Basis

    The Commission is adopting amendments to Exchange Act Form 20-F 
pursuant to Sections 6, 7, 10, and 19(a) of the Securities Act of 1933 
as amended, and Sections 3, 12, 13, 15, 23 and 36 of the Securities 
Exchange Act of 1934.

Text of Amendments

List of Subjects in 17 CFR Part 249

    Reporting and recordkeeping requirements, Securities.

0
In accordance with the foregoing, the Commission is amending Title 17, 
Chapter II of the Code of Federal Regulations as follows:

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

0
1. The authority citation for part 249 continues to read, in part, as 
follows:

    Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; and 18 U.S.C. 
1350, unless otherwise noted.
* * * * *

0
2. Amend Form 20-F (referenced in Sec.  249.220f) by adding General 
Instruction G, Instruction 4 to Item 5, and Instruction 3 to Item 8 to 
read as follows:

    Note: The text of Form 20-F does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 20-F

Registration Statement Pursuant to Section 12(b) or (g) of the 
Securities Exchange Act of 1934

* * * * *
General Instructions
* * * * *

G. First-Time Application of International Financial Reporting 
Standards.

    (a) Omission of Certain Required Financial Statements. An issuer 
that changes the body of accounting principles used in preparing its 
financial statements presented pursuant to Item 8.A.2 (``Item 8.A.2'') 
to International Financial Reporting Standards (``IFRS'') published by 
the International Accounting Standards Board (``IASB'') may omit the 
earliest of the three years of audited financial statements required by 
Item 8.A.2 if the issuer satisfies the conditions set forth in this 
Instruction G. For purposes of this instruction, the term ``financial 
year'' refers to the first financial year beginning on or after January 
1 of the same calendar year.
    (b) Applicable Documents. This General Instruction G shall be 
available only for the following registration statements and annual 
reports:
    (1) Registration Statements. This instruction shall be available 
for registration statements if:
    (A) The issuer's most recent audited financial statements required 
by Item 8.A.2 are for the 2007 financial year or an earlier financial 
year;
    (B) The issuer adopts IFRS for the first time by an explicit and 
unreserved statement of compliance with IFRS; and
    (C) The audited financial statements for the issuer's most recent 
financial year for which audited financial statements are required by 
Item 8.A.2 are prepared in accordance with IFRS.
    (2) Annual Reports. This instruction shall be available for annual 
reports if:
    (A) The annual report relates to the 2007 financial year or an 
earlier financial year;
    (B) The issuer adopts IFRS for the first time by an explicit and 
unreserved statement of compliance with IFRS; and
    (C) The audited financial statements for the issuer's financial 
year to which the annual report relates are prepared in accordance with 
IFRS.
    (c) Selected Financial Data. The selected historical financial data 
required pursuant to Item 3.A shall be based on financial statements 
prepared in accordance with IFRS and shall be presented for the two 
most recent financial years. The issuer shall present selected 
historical financial data in accordance with U.S. GAAP for the five 
most recent financial years, except as the issuer is otherwise 
permitted to omit U.S. GAAP information for any of the earliest of the 
five years pursuant to Item 3.A.1.
    (d) Information on the Company. The reference in Item 4.B to ``the 
body of

[[Page 20688]]

accounting principles used in preparing the financial statements'' 
means IFRS and not the basis of accounting that the issuer previously 
used (``Previous GAAP'') or accounting principles used only to prepare 
the U.S. GAAP reconciliation.
    (e) Operating and Financial Review and Prospects. The issuer shall 
present the information required pursuant to Item 5. The discussion 
should focus on the financial statements for the two most recent 
financial years prepared in accordance with IFRS. The issuer should 
refer to the reconciliation to U.S. GAAP for those years and discuss 
any aspects of the differences between IFRS and U.S. GAAP, not 
otherwise discussed in the reconciliation, that the issuer believes are 
necessary for an understanding of the financial statements as a whole. 
No part of the discussion should relate to financial statements 
prepared in accordance with Previous GAAP.
    (f) Financial Information.
    (1) General. With respect to the financial information required by 
Item 8.A, all instructions contained in Item 8, including the 
instruction requiring audits in accordance with U.S. generally accepted 
auditing standards, shall apply.
    (2) Interim Period Financial Information in a Registration 
Statement or Prospectus. This instruction shall apply when an issuer is 
changing the body of accounting principles used in preparing its 
financial statements presented pursuant to Item 8.A.2 to IFRS. This 
instruction shall be available during the financial year in which the 
issuer is changing its accounting principles to IFRS and during the 
financial year thereafter until the date as of which the issuer is 
required to comply with Item 8.A.4.
    (A) Instruction 3 of the Instructions to Item 8.A.5 shall not apply 
to published financial information that is prepared with reference to 
IFRS. This General Instruction G(f)(2)(A) shall be available for any 
financial information for any interim or annual financial period that 
the issuer publishes that is prepared with reference to IFRS.
    (B) An issuer that is required to provide interim financial 
statements under the first sentence of Item 8.A.5 may satisfy the 
requirements of that item by providing one of the following:
    (1) Three financial years of audited financial statements and 
interim financial statements (which may be unaudited) for the current 
and comparable prior year period, prepared in accordance with Previous 
GAAP and reconciled to U.S. GAAP as required by Item 17(c) or 18, as 
applicable;
    (2) Two financial years of audited financial statements and interim 
financial statements (which may be unaudited) for the current and 
comparable prior year period, prepared in accordance with IFRS and 
reconciled to U.S. GAAP as required by Item 17(c) or 18, as applicable; 
or
    (3) Three financial years of audited financial statements prepared 
in accordance with Previous GAAP and reconciled to U.S. GAAP as 
required by Item 17(c) or 18, as applicable; interim financial 
statements (which may be unaudited) for the current and comparable 
prior year period prepared in accordance with IFRS and reconciled to 
U.S. GAAP as required by Item 17(c) or 18, as applicable; and condensed 
financial information prepared in accordance with U.S. GAAP for the 
most recent financial year and the current and comparable prior year 
interim period (the form and content of this financial information 
shall be in a level of detail substantially similar to that required by 
Article 10 of Regulation S-X).
    Instruction: An issuer that is unable to provide information that 
complies with Instruction G.(f)(2)(B) but has available comparable 
financial information based on a combination of Previous GAAP, IFRS and 
U.S. GAAP should contact the Office of International Corporate Finance 
in the Division of Corporation Finance, in writing and well in advance 
of any filing deadlines, to discuss its interim period financial 
information.
    (g) Quantitative and Qualitative Disclosures about Market Risk. 
Information in the document that responds to Item 11 shall be presented 
on the basis of IFRS.
    (h) Financial Statements. A document to which this Instruction G 
applies shall include financial statements that comply with Item 17 or 
18 as follows:
    (1) Financial Statements in Accordance with IFRS. The issuer may 
omit the earliest of the three years of financial statements required 
by Item 8.A.2.
    (2) U.S. GAAP Information. The U.S. GAAP reconciliation required by 
Item 17(c) or 18 shall relate to the same periods covered by the 
financial statements prepared in accordance with IFRS.
    Instructions: 1. An eligible issuer relying on this General 
Instruction G may elect to include, refer to, or incorporate by 
reference financial data prepared in accordance with Previous GAAP. An 
issuer electing to include, refer to, or incorporate by reference 
Previous GAAP financial information shall prominently disclose, at an 
appropriate location in the document, that the document includes, 
refers to, or incorporates by reference, as applicable, financial 
statements and other financial information based on both IFRS and 
Previous GAAP, and that the information based on Previous GAAP is not 
comparable to information prepared in accordance with IFRS.
    2. Companies electing to include or incorporate by reference 
Previous GAAP financial information shall:
    a. Present or incorporate by reference selected historical 
financial data prepared in accordance with Previous GAAP for the four 
financial years prior to the most recent financial year.
    b. Present or incorporate by reference operating and financial 
review and prospects information pursuant to Item 5 that focuses on the 
financial statements for the two most recent financial years prior to 
the most recent financial year that were prepared in accordance with 
Previous GAAP. The discussion need not refer to the reconciliation to 
U.S. GAAP. No part of the discussion should relate to financial 
statements prepared in accordance with IFRS.
    c. Include or incorporate by reference comparative financial 
statements prepared in accordance with Previous GAAP that cover the two 
financial years prior to the most recent financial year.
    3. Companies electing to include or incorporate by reference 
Previous GAAP financial information shall not present that information 
side-by-side with IFRS financial information.
    4. An issuer that has published audited financial statements 
prepared in accordance with IFRS for each of the three latest financial 
years shall include all three years of audited IFRS financial 
statements in its SEC filings.
    (i) Special Instruction for Certain European Issuers. An issuer 
that changes the body of accounting principles used in preparing its 
financial statements presented pursuant to Item 8.A.2 to IFRS as 
adopted by the European Union (``EU GAAP''), and is otherwise eligible, 
is permitted to rely on this General Instruction G if it also provides 
the following information, which shall relate to the same financial 
years for which the issuer provides audited financial statements:
    (1) An audited reconciliation to IFRS as published by the IASB that 
contains information relating to financial statement line items and 
footnote disclosure equivalent to that required under IFRS as published 
by the IASB.
    (2) The audited reconciliation to U.S. GAAP specified by Item 17 or 
18, as appropriate, that must begin either with IFRS as published by 
the IASB or with EU GAAP.

[[Page 20689]]

    (3) Selected financial data pursuant to Item 3.A shall include 
information based on the reconciliation to IFRS as published by the 
IASB.
    (4) Information required pursuant to Item 5 that refers to the 
reconciliation to IFRS as published by the IASB and to the 
reconciliation to U.S. GAAP and discusses any aspects of the 
differences between EU GAAP, IFRS as published by the IASB and U.S. 
GAAP not otherwise discussed in the reconciliation that the issuer 
believes are necessary for an understanding of the financial statements 
as a whole.
* * * * *

Item 5. Operating and Financial Review and Prospects

* * * * *

Instructions to Item 5:

* * * * *
    4. To the extent the primary financial statements reflect the use 
of exceptions permitted or required by IFRS 1, the issuer shall:
    a. Provide detailed information as to the exceptions used, 
including:
    i. An indication of the items or class of items to which the 
exception was applied; and
    ii. A description of what accounting principle was used and how it 
was applied;
    b. Include, where material, qualitative disclosure of the impact on 
financial condition, changes in financial condition and results of 
operations that the treatment specified by IFRS would have had absent 
the election to rely on the exception.
* * * * *

Item 8. Financial Information

* * * * *

Instructions to Item 8:

* * * * *
    3. If the primary financial statements included in the document 
represent the first filing by the issuer with the SEC of consolidated 
financial statements prepared in accordance with IFRS, the notes to the 
financial statements prepared in accordance with IFRS shall disclose 
the following:
    a. The reconciliation from Previous GAAP to IFRS required by IFRS 1 
shall be presented in a form and level of information sufficient to 
explain all material adjustments to the balance sheet and income 
statement and, if presented under Previous GAAP, to the cash flow 
statement; and
    b. To the extent the primary financial statements reflect the use 
of exceptions permitted or required by IFRS 1, the issuer shall 
identify each exception used, including:
    i. An indication of the items or class of items to which the 
exception was applied; and
    ii. A description of what accounting principle was used and how it 
was applied.
* * * * *

    By the Commission.

    Dated: April 12, 2005.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 05-7706 Filed 4-19-05; 8:45 am]
BILLING CODE 8010-01-P