[Federal Register Volume 72, Number 132 (Wednesday, July 11, 2007)]
[Proposed Rules]
[Pages 37962-37989]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-13163]



[[Page 37961]]

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Part IV





Securities and Exchange Commission





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17 CFR Parts 210, 230, 239, and 249



 Acceptance From Foreign Private Issuers of Financial Statements 
Prepared in Accordance With International Financial Reporting Standards 
Without Reconciliation to U.S. GAAP; Proposed Rule

  Federal Register / Vol. 72, No. 132 / Wednesday, July 11, 2007 / 
Proposed Rules  

[[Page 37962]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 210, 230, 239 and 249

[Release Nos. 33-8818; 34-55998; International Series Release No. 1302; 
File No. S7-13-07]
RIN 3235-AJ90


Acceptance From Foreign Private Issuers of Financial Statements 
Prepared in Accordance With International Financial Reporting Standards 
Without Reconciliation to U.S. GAAP

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The Commission is proposing to accept from foreign private 
issuers their financial statements prepared in accordance with 
International Financial Reporting Standards (``IFRS'') as published by 
the International Accounting Standards Board (``IASB'') without 
reconciliation to generally accepted accounting principles (``GAAP'') 
as used in the United States. To implement this, we propose amendments 
to Form 20-F and conforming changes to Regulation S-X to accept 
financial statements prepared in accordance with the English language 
version of IFRS as published by the IASB without reconciliation to U.S. 
GAAP when contained in the filings of foreign private issuers with the 
Commission.
    We also are proposing conforming amendments to other regulations, 
forms and rules under the Securities Act and the Exchange Act. Current 
requirements regarding the reconciliation to U.S. GAAP will not change 
for a foreign private issuer that uses a basis of accounting other than 
the English language version of IFRS as published by the IASB.

DATES: Comments should be received on or before September 24, 2007.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number S7-13-07 on the subject line; or
     Use the Federal Rulemaking ePortal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number S7-13-07. The file number 
should be included on the subject line if e-mail is used. To help us 
process and review your comments more efficiently, please use only one 
method. The Commission will post all comments on the Commission's 
Internet Web site (http://www.sec.gov/rules/proposed/shtml). Comments 
also are available for public inspection and copying in the 
Commission's Public Reference Room, 100 F Street, NE., Washington, DC 
20549, on official business days between the hours of 10 a.m. and 3 
p.m. All comments received will be posted without change; we do not 
edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly.

FOR FURTHER INFORMATION CONTACT: Questions about this release should be 
directed to Michael D. Coco, Special Counsel, Office of International 
Corporate Finance, Division of Corporation Finance, at (202) 551-3450, 
or to Katrina A. Kimpel, Professional Accounting Fellow, Office of the 
Chief Accountant, at (202) 551-5300, U.S. Securities and Exchange 
Commission, 100 F Street, NE., Washington, DC 20549-3628.

SUPPLEMENTARY INFORMATION: The Commission is publishing for comment 
proposed amendments to Form 20-F \1\ under the Securities Exchange Act 
of 1934 (the ``Exchange Act''),\2\ Rules 3-10 and 4-01 of Regulation S-
X,\3\ Forms F-4 and S-4 under the Securities Act,\4\ and Rule 701 under 
the Securities Act.\5\
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    \1\ 17 CFR 249.220f.
    \2\ 15 U.S.C. 78a et seq. Form 20-F is the combined registration 
statement and annual report form for foreign private issuers 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''). 15 U.S.C. 77a et 
seq.
    The term ``foreign private issuer'' is defined in Exchange Act 
Rule 3b-4(c) [17 CFR 240.3b-4(c)]. A foreign private issuer means 
any foreign issuer other than a foreign government except an issuer 
that meets the following conditions: (1) More than 50 percent of the 
issuer's outstanding voting securities are directly or indirectly 
held of record by residents of the United States; and (2) any of the 
following: (i) The majority of the executive officers or directors 
are United States citizens or residents; (ii) more than 50 percent 
of the assets of the issuer are located in the United States; or 
(iii) the business of the issuer is administered principally in the 
United States.
    \3\ 17 CFR 210.3-10 and 17 CFR 210.4-01. Regulation S-X sets 
forth the form and content of requirements for financial statements.
    \4\ 17 CFR 239.34 and 17 CFR 239.13.
    \5\ 17 CFR 230.701.
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Table of Contents

I. Overview and History
    A. History of the U.S. GAAP Reconciliation Requirement
    B. The International Accounting Standards Board and IFRS
    C. The Financial Accounting Standards Board
    D. The Commission's Past Consideration of a Single Set of 
Globally Accepted Accounting Standards and Facilitation of the Use 
of IFRS by Registrants
    E. FASB and IASB Efforts To Develop a Work Plan To Achieve High 
Quality, Compatible Accounting Standards
II. Acceptance of IFRS Financial Statements From Foreign Private 
Issuers Without a U.S. GAAP Reconciliation as a Step Towards a 
Single Set of Globally Accepted Accounting Standards
    A. A Robust Process for Convergence
    B. Consistent and Faithful Application of IFRS
    1. Staff Review of IFRS Financial Statements Filed in 2006
    2. Market Participants' Views Regarding IFRS Application in 
Practice
    3. Processes and Infrastructure To Promote Consistent and 
Faithful Application of IFRS 
    C. The IASB as Standard Setter
    D. Summary
III. Discussion of the Proposed Amendments To Allow the Use of IFRS 
Financial Statements Without Reconciliation To U.S. GAAP
    A. Eligibility Requirements
    B. U.S. GAAP Reconciliation
    1. General
    2. Interim Period Financial Statements
    a. 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
    b. 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
    3. IFRS Treatment of Certain Areas
    a. Accounting for Insurance Contracts and Extractive Activities
    b. Accounting Treatment for Common Control Mergers, 
Recapitalization Transactions, Reorganizations, Acquisitions of 
Minority Shares Not Resulting in a Change of Control, and Similar 
Transactions
    c. Income Statements and Per Share Amounts
    C. Accounting and Disclosure Issues
    1. Selected Financial Data
    2. Other Form 20-F Disclosure
    a. Reference to U.S. GAAP Pronouncements in Form 20-F
    b. Disclosure From Oil and Gas Companies Under FAS 69

[[Page 37963]]

    c. Market Risk Disclosure and the Safe Harbor Provisions
    3. Other Considerations Relating to IFRS and U.S. GAAP Guidance
    4. First Time Adopters of IFRS 
    5. Check Boxes on the Cover Page of Form 20-F 
    D. Regulation S-X
    1. Application of the Proposed Amendments to Rules 3-05, 3-09, 
and 3-16
    a. Significance Testing
    b. Separate Historical Financial Statements of Another Entity 
Provided Under Rules 3-05 or 3-09
    2. Pro Forma Financial Statements Provided Under Article 11
    3. Financial Statements Provided Under Rule 3-10
    4. Conforming Amendment to Rule 4-01
    E. Application of the Proposed Amendments to Other Forms, Rules 
and Schedules
    1. Conforming Amendments to Securities Act Forms F-4 and S-4
    2. Conforming Amendment to Rule 701
    3. Small Business Issuers 
    4. Schedule TO and Schedule 13E-3
    F. Quality Control Issues
    G. Application to Filings Under the Multijurisdictional 
Disclosure System
IV. General Request for Comments
V. Paperwork Reduction Act
    A. Background
    B. Burden and Cost Estimates Related to the Proposed 
Accommodation
    1. Form 20-F
    2. Form F-1
    3. Form F-4
    4. Form S-4
    5. Rule 701
    C. Request for Comment
VI. Cost-Benefit Analysis
    A. Expected Benefits
    B. Expected Costs
VII. Regulatory Flexibility Act Certification
VIII. Consideration of Impact on the Economy, Burden on Competition 
and Promotion of Efficiency, Competition and Capital Formation 
Analysis
IX. Statutory Basis and Text of Proposed Amendments

I. Overview and History

    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,\6\ are currently required to present audited 
statements of income, financial position, changes in shareholders' 
equity and cash flows for each of the past three financial years,\7\ 
prepared on a consistent basis of accounting.\8\ All foreign private 
issuers are currently required to reconcile to U.S. GAAP the financial 
statements that they file with the Commission if the financial 
statements are prepared using any basis of accounting other than U.S. 
GAAP.\9\
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    \6\ 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. 781] to file with the 
Commission such annual reports and such 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 supplementary 
and periodic information, documents and 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.
    \7\ Consistent with Form 20-F, IFRS and general usage outside 
the United States, we use the term ``financial year'' to refer to a 
fiscal year. See Instruction 2 to Item 3 of Form 20-F. Foreign 
private issuers that are first-time adopters of IFRS published by 
the IASB are permitted to provide financial statements for the most 
recent two financial years. See General Instruction G for Form 20-F.
    \8\ See Item 8.A.2 of Form 20-F. Instructions to this item 
permit a foreign private issuer to omit a balance sheet for the 
earliest of the three years if that balance sheet is not required by 
a foreign jurisdiction.
    \9\ See Items 17 and 18 of Form 20-F; see also Article 4 of 
Regulation S-X.
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    The Commission is proposing for comment revisions to Form 20-F and 
Regulation S-X under which it would accept financial statements of 
foreign private issuers that are prepared on the basis of the English 
language version of IFRS as published by the IASB without a 
reconciliation to U.S. GAAP.\10\ The revisions would allow a foreign 
private issuer to file financial statements prepared in accordance with 
IFRS as published by the IASB without reconciliation to U.S. GAAP. We 
are not proposing to change existing reconciliation requirements for 
foreign private issuers that file their financial statements under 
other sets of accounting standards, or that are not in full compliance 
with IFRS as published by the IASB.
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    \10\ All references in this release to IFRS as published by the 
IASB refer to the English language version of IFRS. The IASB 
approves the English language text of any IFRS standard, although 
the International Accounting Standards Committee Foundation (``IASC 
Foundation'') may issue translations into other languages. See 
``International Financial Reporting Standards (IFRSs), including 
International Accounting Standards (IASs) and Interpretations as at 
1 January 2005,'' International Accounting Standards Board Preface 
to IFRS, at 27.
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A. History of the U.S. GAAP Reconciliation Requirement

    In a reconciliation, a foreign private issuer that files its 
financial statements prepared in accordance with a basis of accounting 
other than U.S. GAAP must identify and quantify the material 
differences from the requirements of U.S. GAAP and Regulation S-X. The 
reconciliation to U.S. GAAP may be presented pursuant to either Item 17 
or Item 18 of Form 20-F. Under Item 17, an issuer is required to 
provide a narrative description of differences and a quantitative 
reconciliation of specific financial statement line items from non-U.S. 
GAAP to U.S. GAAP, but without all U.S. GAAP and Regulation S-X 
disclosures. An issuer may use Item 17 when filing its financial 
statements in an Exchange Act registration statement or annual report 
filed on Form 20-F, or as part of a Securities Act registration 
statement for investment grade, non-convertible securities or certain 
rights offerings. Under Item 18, an issuer is required to provide the 
reconciling information specified in Item 17 as well as all disclosures 
required by Regulation S-X and U.S. GAAP. An issuer must comply with 
Item 18 when filing financial statements in a Securities Act 
registration statement for offerings of equity, convertible and other 
securities.
    The Commission first addressed discrepancies in financial 
information provided under a foreign basis of accounting and U.S. GAAP 
through amendments to Forms 20 and 20-K adopted in 1967.\11\ Although a 
reconciliation to U.S. GAAP was not explicitly required, the amended 
instructions to Form 20 required that ``every issuer registering 
securities on this form shall file as a part of its registration 
statement the financial statements, schedules and accountants' 
certificates which would be required to be filed if the registration 
statement were filed on Form 10.\12\ Any material variation in 
accounting principles or practices from the form and content of 
financial statements prescribed in Regulation S-X shall be disclosed 
and, to the extent practicable, the effect of each such variation 
given.'' \13\ The financial statement instructions for the annual 
report on Form 20-K contained a similar requirement.\14\
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    \11\ See Securities Exchange Act Release Nos. 8067 and 8068 
(April 28, 1967). Form 20 was the registration statement under 
Section 12 of the Securities Act and Form 20-K was the annual report 
form for foreign private issuers.
    \12\ Form 10 is the registration statement under Section 12 of 
the Exchange Act for domestic issuers.
    \13\ Although the Commission adopted Regulation S-X in 1940 as 
an instruction booklet to be followed in the preparation of 
financial statements to be included in filings, application of the 
Regulation did not extend to foreign private issuers.
    \14\ Prior to 1967, foreign private issuers were required only 
to present financial statements consisting of a balance sheet as of 
the close of the most recent fiscal year and a profit and loss 
statement for the fiscal year preceding the date of the balance 
sheet. The financial statements were not required to be certified.
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    In 1979, the Commission adopted significant amendments to the 
disclosure requirements applicable to foreign private issuers.\15\ 
These amendments were based on the Commission's belief that ``providing 
more meaningful disclosure to investors

[[Page 37964]]

in foreign securities not only would promote the protection of 
investors but may encourage the free flow of capital between nations 
and tend to reduce any competitive disadvantage with which United 
States issuers must contend vis-a-vis foreign issuers of securities.'' 
\16\
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    \15\ Securities Exchange Act Release No. 34-16371 (November 29, 
1979).
    \16\ Securities Exchange Act Release No. 34-14128 (November 2, 
1977).
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    The Commission adopted the current reconciliation requirements in 
1982 when adopting new Securities Act registration statements for 
foreign private issuers as part of its comprehensive efforts to develop 
an integrated disclosure system.\17\ Prior to 1982, offering documents 
of foreign private issuers contained a full reconciliation, while 
annual reports required only a narrative description of differences 
between a foreign basis of accounting and U.S. GAAP.\18\
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    \17\ Securities Act Release No. 33-6437 (November 19, 1982).
    \18\ Until 1980 the only guidance with respect to accounting 
principles and financial statements of foreign issuers were form-
based requirements and the continued applicability of Accounting 
Series Release 4, which, since 1935, required only that the 
accounting principles used by foreign private issuers have 
authoritative support. In 1980, the Commission amended Regulation S-
X adding language to Rule 4-01 to require foreign issuers' financial 
statements prepared in accordance with a comprehensive basis of 
accounting other than U.S. GAAP to be reconciled to U.S. GAAP.
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    The Commission's approach has developed in the context of 
integrated disclosure. In designing the integrated disclosure regime 
for foreign private issuers, the Commission endeavored to ``design a 
system that parallels the system for domestic issuers but also takes 
into account the different circumstances of foreign registrants.'' \19\
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    \19\ Securities Act Release No. 33-6360 (November 20, 1981) (the 
``1981 Proposing Release'').
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    Given the dual considerations of investor protection and even-
handedness towards foreign private issuers, the Commission has framed 
its consideration of the reconciliation requirement as a balancing of 
two policy concerns: Investors' need for the same type of basic 
information when making an investment decision regardless of whether 
the issuer is foreign or domestic, and the public interest served by an 
opportunity to invest in a variety of securities, including foreign 
securities.\20\ Investors' need for the same type of basic information 
implies that foreign and domestic registrants should be subject to the 
same disclosure requirements. However, the burden on foreign issuers of 
meeting the identical disclosure standards as domestic issuers might 
discourage them from offering their securities on the U.S. market. If 
foreign issuers chose not to offer their securities in the United 
States, it would deprive U.S. investors of investment opportunities and 
potentially compel them to purchase foreign securities on foreign 
markets, where disclosure may be less than that required in filings 
with the Commission.\21\
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    \20\ Id.
    \21\Id.
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B. The International Accounting Standards Board and IFRS

    The IASB is a stand-alone, privately funded accounting standard-
setting body established to develop global standards for financial 
reporting.\22\ It is the successor to the International Accounting 
Standards Committee (``IASC''), which was created in 1973 to develop 
International Accounting Standards (``IAS''). Based in London, the IASB 
assumed accounting standard-setting responsibilities from the IASC in 
2001.\23\ Since that time, the standards that the IASB develops and 
approves have been known as IFRS.\24\
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    \22\ For more information on the structure and operation of the 
IASB, see http://www.iasb.org/Home.htm.
    \23\ This was the culmination of a reorganization in 2000 based 
on the recommendations to the IASC Board contained in a 1999 report 
by the IASC's Strategic Working Party entitled ``Recommendations on 
Shaping the IASC for the Future.'' (Full text available at http://www.iasplus.com/restruct/1999swpfinal.pdf). From 1973 until that 
restructuring, the entity for setting International Accounting 
Standards had been known as the IASC. The IASC issued 41 standards 
on major topical areas through December 2000, which are entitled 
International Accounting Standards. The predecessor standard-setting 
board was known as the IASC Board.
    \24\ The IASB continues to recognize the IAS issued by the IASC, 
as modified or superseded by the IASB. Those IAS now form part of 
the body of IFRS. See IAS 1, paragraph 11. Standards that are newly 
developed by the IASB or are extensive revisions of earlier IAS are 
entitled International Financial Reporting Standards.
    In general usage, and in this release, the term IFRS will be 
used to encompass both IAS and IFRS. The term IFRS is used to refer 
both to the body of IASB pronouncements generally and to individual 
standards and interpretations applicable in specific circumstances. 
For purposes of this release, financial statements ``prepared in 
accordance with IFRS'' refer to financial statements that an issuer 
can unreservedly and explicitly state are in compliance with IFRS as 
published by the IASB and that are not subject to any qualification 
relating to the application of IFRS as published by the IASB.
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    The IASB is overseen by the IASC Foundation, a stand-alone 
organization responsible for, among other things, the activities of the 
IASB.\25\ The 22 trustees of the IASC Foundation appoint IASB members, 
oversee its activities, and raise necessary funding for the IASB, the 
IASC Foundation, the International Financial Reporting Interpretations 
Committee (``IFRIC''), and the Standards Advisory Council 
(``SAC'').\26\
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    \25\ The IASC Foundation is comprised of twenty-two individuals 
each serving a term of three years subject to one re-appointment. 
Its staff works directly with the IASB and project resource groups, 
conducts research, participates in roundtable meetings, analyzes 
public comments, and prepares recommendations and drafts for 
consideration by the IASB.
    \26\ IFRIC interprets IFRS and reviews accounting issues that 
are likely to receive divergent or unacceptable treatment in the 
absence of authoritative guidance, with a view to reaching consensus 
on the appropriate accounting treatment. The IFRIC is comprised of 
twelve voting members, appointed by the IASC Foundation Trustees for 
renewable terms of three years. IFRIC Interpretations are ratified 
by the IASB prior to becoming effective.
    The SAC supports the IASB and provides a forum where the IASB 
consults individuals and representatives of organizations affected 
by its work that are committed to the development of high-quality 
IFRS. The Commission is an observer of the SAC.
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    The IASC Foundation Trustees select members of the IASB to comprise 
``within that group, the best available combination of technical skills 
and background experience of relevant international business and market 
conditions in order to contribute to the development of high-quality, 
global accounting standards.'' \27\ The fourteen members of the IASB, 
twelve full-time and two part-time, serve a five-year term subject to 
one re-appointment. They are required to sever all employment 
relationships and positions that may give rise to economic incentives 
which might compromise a member's independent judgment in setting 
accounting standards. The current IASB members come from nine countries 
and have a variety of backgrounds. In selecting IASB members, the IASC 
Foundation Trustees ensure that the IASB is not dominated by any 
particular constituency. Member selection is not based on geographic 
representation.
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    \27\ IASC Foundation Constitution, Paragraph 20; see http://www.iasb.org/About+Us/About+IASB/About+IASB.htm.
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    To date, the IASC Foundation has financed IASB operations largely 
through voluntary contributions from companies, accounting firms, 
international organizations and central banks. Original commitments 
were made for the period 2001-2005 and have been extended for an 
additional two years through 2007. In June 2006, the IASC Foundation 
Trustees agreed on four elements that should govern the establishment 
of a funding approach that would enable the IASC Foundation to remain a 
stand-alone, private sector organization with the necessary resources 
to conduct its work in a timely fashion.\28\ The Trustees continue

[[Page 37965]]

to make progress in obtaining stable funding that satisfies those 
elements.
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    \28\ The Trustees determined that ``characteristics of the new 
scheme for 2008 would be:
     Broad-based: Fewer than 200 companies and organizations 
participate in the current financing system. A sustainable long-term 
financing system must expand the base of support to include major 
participants in the world's capital markets, including official 
institutions, in order to ensure diversification of sources.
     Compelling: Any system must carry with it enough 
pressure to make free riding very difficult. This could be 
accomplished through a variety of means, including official support 
from the relevant regulatory authorities and formal approval by the 
collecting organizations.
     Open-ended: The financial commitments should be open-
ended and not contingent on any particular action that would 
infringe on the independence of the IASC Foundation and the 
International Accounting Standards Board.
     Country-specific: The funding burden should be shared 
by the major economies of the world on a proportionate basis, using 
Gross Domestic Product as the determining factor of measurement. 
Each country should meet its designated target in a manner 
consistent with the principles above.''
    See http://www.iasb.org/About+Us/About+the+Foundation/Future+Funding.htm.
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    The IASB has stated that it is committed to ``developing, in the 
public interest, a single set of high-quality, understandable and 
enforceable global accounting standards that require transparent and 
comparable information in general purpose financial statements.'' \29\ 
In addition, the IASC Foundation has committed to the continued 
development of IFRS to achieve high-quality solutions through the 
convergence of national accounting standards.
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    \29\ See www.iasb.org/About+Us/About+IASB/About+IASB.htm. See 
also the IASCF Foundation Constitution.
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    The use of IFRS is increasingly widespread throughout the world. 
Almost 100 countries now require or allow the use of IFRS, and many 
other countries are replacing their national standards with IFRS. The 
European Union (``EU''), for example, has, under a regulation adopted 
in 2002, required companies incorporated in one of its Member States 
and whose securities are listed on an EU regulated market to report 
their consolidated financial statements using endorsed IFRS beginning 
with the 2005 financial year.\30\ It has been estimated that these 
requirements affect approximately 7,000 companies in the EU.\31\ In 
addition to issuers in the 27 EU Member States, these IFRS requirements 
also apply in the three European Economic Area countries of Iceland, 
Lichtenstein and Norway.\32\ Other countries, including Australia and 
New Zealand, have adopted similar requirements mandating the use of 
IFRS by public companies.\33\ More countries have plans to adopt IFRS 
as their national accounting standards in the future, including 
Canada\34\ and Israel.\35\
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    \30\ 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''). EU regulations have the 
force of law within EU Member States without further implementing 
legislation at the national level.
    \31\ Committee of European Securities Regulators (``CESR''), 
``European Regulation on the Application of IFRS in 2005: 
Recommendation for Additional Guidance Regarding the Transition to 
IFRS,'' (December 2003).
    \32\ The current EU Member States are: Austria, Belgium, 
Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, 
Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, 
Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovenia, 
Slovakia, Spain, Sweden, and the United Kingdom.
    \33\ Some countries, such as Australia, have adopted IFRS by 
incorporating them into their national standards.
    \34\ See ``Implementation Plan for Incorporating International 
Financial Reporting Standards into Canadian GAAP,'' available at 
http://www.acsbcanada.org/client_asset/document/3/2/7/3/5/document_8B452E12-FAF5-7113-C4CB8F89B38BC6F8.pdf?sfgdata=4.
    \35\ See Israel Accounting Standard No. 29 ``Adoption of 
International Financial Reporting Standards,'' stipulating that 
Israeli public companies that prepare their primary financial 
statements in accordance with Israeli GAAP are obliged to adopt IFRS 
unreservedly for years starting on January 1, 2008. See also http://www.iasplus.com/country/israel.htm.
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C. The Financial Accounting Standards Board

    The FASB is the independent, private-sector body whose 
pronouncements establishing and amending accounting principles the 
Commission has, since 1973, recognized as ``authoritative'' and 
``generally accepted'' for purposes of the federal securities laws, 
absent any contrary determination by the Commission.\36\ The FASB is 
overseen by the Financial Accounting Foundation (``FAF''), which is 
responsible for funding the activities of the FASB and selecting the 
seven full-time FASB members.\37\ The FAF is an independent, non-profit 
organization that is run by a sixteen-member Board of Trustees. The 
FASB has oversight of the Emerging Issues Task Force, which is the 
interpretative entity of U.S. GAAP. The FASB also is supported by the 
Financial Accounting Standards Advisory Council, which is responsible 
for consulting with the FASB as to technical issues on the FASB's 
agenda and project priorities.
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    \36\ See ``Statement of Policy on the Establishment and 
Improvement of Accounting Principles and Standards,'' Accounting 
Series Release No. 150 (December 20, 1973) (expressing the 
Commission's intent to continue to look to the private sector for 
leadership in establishing and improving accounting principles and 
standards through the FASB) and ``Policy Statement: Reaffirming the 
Status of the FASB as a Designated Private-Sector Standard Setter,'' 
Release No. 33-8221 (April 25, 2003) (the ``2003 Policy 
Statement''). More information about the FASB is available on their 
Web site at http://www.fasb.org.
    \37\ See http://www.fasb.org/facts/bd_members.shtml.
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    Consistent with the FASB's objective to increase international 
comparability and the quality of standards used in the United States, 
the FASB participates in international accounting standard setter 
activities. This objective is consistent with the FASB's obligation to 
its domestic constituents, who benefit from comparability of 
information across national borders. The FASB pursues this objective in 
cooperation with the IASB, as discussed in more detail below, and with 
national accounting standard setters.
    The Commission oversees the activities of the FASB as part of its 
responsibilities under the securities laws. While the Commission 
consistently has looked to the private sector to set accounting 
standards, the securities laws provide the Commission with the 
authority to set accounting standards for public companies and other 
entities that file financial statements with the Commission.\38\ As 
part of its oversight responsibilities, the Commission provides views 
regarding the selection of FASB members, and, in certain circumstances, 
refers issues relating to accounting standards to the FASB or one of 
its affiliated organizations. The Commission and its staff do not, 
however, prohibit the FASB from addressing topics of its choosing and 
do not dictate the outcome of specific FASB projects, so long as the 
FASB's conclusions are in the interest of investor protection.\39\
---------------------------------------------------------------------------

    \38\ This authority was reaffirmed in the Sarbanes-Oxley Act, 
Section 108(c) of which states, ``Nothing in this Act, including 
this section * * * shall be construed to impair or limit the 
authority of the Commission to establish accounting principles or 
standards for purposes of enforcement of the securities laws.''
    \39\ See the 2003 Policy Statement.
---------------------------------------------------------------------------

D. The Commission's Past Consideration of a Single Set of Globally 
Accepted Accounting Standards and Facilitation of the Use of IFRS by 
Registrants

    The Commission has long advocated reducing disparity between the 
accounting and disclosure practices of the United States and other 
countries as a means to facilitate cross-border capital formation while 
ensuring adequate disclosure for the protection of investors and the 
promotion of fair, orderly and efficient markets. The Commission also 
has encouraged the efforts of standard setters and other market 
participants to do the same. In a 1981 release proposing revisions to 
Form 20-F, the Commission expressed its support for the work of the 
IASC in formulating guidelines and

[[Page 37966]]

international disclosure standards.\40\ As part of a 1988 Policy 
Statement, the Commission explicitly supported the establishment of 
mutually acceptable international accounting standards as a critical 
goal to reduce regulatory impediments that result from disparate 
national accounting standards without compromising investor 
protection.\41\ Accordingly, it urged ``securities regulators and 
members of the accounting profession throughout the world [to] continue 
efforts to revise and adjust international accounting standards with 
the aim of increasing comparability and reducing cost'' and reaffirmed 
its commitment to working with securities regulators around the world 
to achieve the goal of an efficient international securities market 
system.\42\
---------------------------------------------------------------------------

    \40\ See the 1981 Proposing Release.
    \41\ See Release No. 33-6807 (November 14, 1988) (the ``1998 
Policy Statement'').
    \42\ Id.42
---------------------------------------------------------------------------

    In encouraging the acceptance of mutually agreeable global 
accounting principles and reducing regulatory burdens while protecting 
investors, the Commission has recognized that information required by 
an international accounting standard may be adequate for investors even 
if that information is not the same as information required under U.S. 
GAAP. One example of this approach is the 1994 amendment to Form 20-F 
to accept without reconciliation to U.S. GAAP a cash flow statement 
prepared in accordance with IAS No. 7, ``Cash Flow Statements,'' which 
the IASC amended in 1992. In proposing that amendment, the Commission 
noted that ``while there are differences between a cash flow statement 
prepared in accordance with IAS 7 and one prepared in accordance with 
U.S. GAAP. * * * the Commission believes statements prepared in 
accordance with IAS 7 should provide an investor with adequate 
information regarding cash flows without the need for additional 
information or modification.'' \43\ In adopting this and other 
revisions to Item 17 of Form 20-F, the Commission expressed its belief 
that streamlined reconciliation requirements will facilitate foreign 
companies' entry into the United States public securities markets in a 
manner consistent with investor protection.\44\
---------------------------------------------------------------------------

    \43\ The Commission proposed these amendments in Release No. 33-
7029 (November 3, 1993) and adopted them in Release No. 33-7053 
(April 19, 1994) (the ``1994 Adopting Release''). Other examples in 
which the Commission amended its requirements for financial 
statements of foreign issuers to permit the use of certain IASC 
standards without reconciliation to U.S. GAAP are described in the 
SEC Concept Release ``International Accounting Standards,'' Release 
No. 33-7801 (February 16, 2000) (the ``2000 Concept Release'').
    \44\ See the 1994 Adopting Release.
---------------------------------------------------------------------------

    The Commission more closely examined efforts to develop high-
quality, comprehensive global accounting standards in its 1997 report 
undertaken at the direction of Congress.\45\ In that study, the 
Commission noted that for issuers wishing to raise capital in more than 
one country, compliance with differing accounting requirements to be 
used in the preparation of financial statements increased compliance 
costs and created inefficiencies. As a step towards addressing these 
concerns and to increase the access of U.S. investors to foreign 
investments in the U.S. public capital market, the Commission 
encouraged the IASC's efforts to develop a core set of accounting 
standards that could serve as a framework for financial reporting in 
cross-border offerings, and indicated an intent to remain active in the 
development of those standards. In that report, the Commission 
indicated that its evaluation of IASC core standards would involve an 
assessment of whether they constituted a comprehensive body of 
transparent, high-quality standards that could be rigorously 
interpreted and applied.\46\
---------------------------------------------------------------------------

    \45\ Pursuant to Section 509(5) of the National Securities 
Markets Improvement Act of 1996, ``Report on Promoting Global 
Preeminance of American Securities Markets'' (October 1997).
    \46\ Id.
---------------------------------------------------------------------------

    In February 2000, the Commission issued a Concept Release on 
International Accounting Standards, seeking public comment on the 
elements necessary to encourage convergence towards a high quality 
global financial reporting framework while upholding the quality of 
financial reporting domestically.\47\ In that release, the Commission 
described high-quality standards as consisting of a ``comprehensive set 
of neutral principles that require consistent, comparable, relevant and 
reliable information that is useful for investors, lenders and 
creditors, and others who make capital allocation decisions.'' \48\ The 
Commission also expressed the view that high-quality accounting 
standards ``must be supported by an infrastructure that ensures that 
the standards are rigorously interpreted and applied.'' \49\ The 
release sought comments as to the conditions under which the Commission 
should accept financial statements of foreign private issuers that are 
prepared using IFRS, and considered the issue of the U.S. GAAP 
reconciliation of IFRS financial statements. The Commission has 
continued to monitor international developments in the subject areas 
that are discussed in the release.
---------------------------------------------------------------------------

    \47\ See Concept Release No. 34-42430 ``International Accounting 
Standards'' (February 16, 2000).
    \48\ Id.
    \49\ Id.
---------------------------------------------------------------------------

    In 2003, the Commission staff prepared a study on the adoption of a 
principles-based accounting system, as mandated by Congress in the 
Sarbanes-Oxley Act.\50\ The conclusion of that study was that an 
optimal approach to accounting standard-setting would be based on a 
consistently applied conceptual framework and clearly stated objectives 
rather than solely on either rules or principles, one benefit of which 
would be the facilitation of greater convergence between U.S. GAAP and 
international standards. By taking an objectives-based approach to 
convergence, the study noted, standard setters would be able to arrive 
at an agreement on a principle more quickly than would be possible for 
a detailed rule. The staff's report to Congress interpreted convergence 
as a ``process of continuing discovery and opportunity to learn by both 
U.S. and international standard setters,'' the benefits of which 
include greater comparability and improved capital formation 
globally.\51\
---------------------------------------------------------------------------

    \50\ Study Pursuant to Section 108(d) of the Sarbanes-Oxley Act 
of 2002 on the Adoption by the United States Financial Reporting 
System of a Principles-Based Accounting System (July 25, 2003).
    \51\ Id.
---------------------------------------------------------------------------

    In February 2006, Chairman Cox reaffirmed his commitment to the 
``Roadmap'' that was first described by a former Chief Accountant of 
the Commission in April 2005.\52\ The Roadmap sets forth the goal of 
achieving one set of high-quality, globally accepted accounting 
standards and suggested several considerations that could affect the 
achievement of that goal.
---------------------------------------------------------------------------

    \52\ SEC Press Release No. 2006-17, Accounting Standards: SEC 
Chairman Cox and EU Commissioner McCreevy Affirm Commitment to 
Elimination of the Need for Reconciliation Requirements (Feb. 8, 
2006).
---------------------------------------------------------------------------

    The Commission also has taken steps to facilitate the use of IFRS 
by registrants. When the European Union adopted a regulation in 2002 to 
require the use of IFRS by all European issuers with publicly traded 
securities beginning with their 2005 financial year, the Commission 
adopted an accommodation to allow first-time adopters of IFRS to file 
two years rather than three years of financial statements in their 
Commission filings.\53\ In so doing, the Commission sought to 
facilitate the transition to IFRS of the

[[Page 37967]]

foreign registrants that were using it for the first time. The 
Commission recognized that this accommodation would reduce costs to 
foreign issuers and encourage their continued participation in the U.S. 
public capital market, which would benefit investors by increasing 
investment possibilities and furthering the efficient allocation of 
capital. Acknowledging the significant efforts expended by many foreign 
private issuers in their transition to IFRS, the Commission also 
extended compliance dates for management's report on internal control 
over financial reporting.\54\
---------------------------------------------------------------------------

    \53\ Release No. 33-8567 (April 12, 2005).
    \54\ Release No. 33-8545 (March 2, 2005).
---------------------------------------------------------------------------

E. FASB and IASB Efforts to Develop a Work Plan To Achieve High 
Quality, Compatible Accounting Standards

    In October 2002, the FASB and the IASB announced the issuance of a 
memorandum of understanding, called the Norwalk Agreement, which marked 
a significant step towards formalizing their commitment to the 
convergence of U.S. and international accounting standards. The two 
bodies acknowledged their joint commitment to the development, ``as 
soon as practicable,'' of high quality, compatible accounting standards 
that could be used for both domestic and cross-border financial 
reporting. At that time, the FASB and the IASB pledged to use their 
best efforts to make their existing financial reporting standards fully 
compatible as soon as is practicable and to co-ordinate their future 
work programs to ensure that once achieved, compatibility is 
maintained. In a 2006 Memorandum of Understanding, the FASB and the 
IASB indicated that a common set of high quality global standards 
remains the long-term strategic priority of both the FASB and the IASB 
and set out a work plan covering the next two years for convergence 
with specific long- and short-term projects.\55\
---------------------------------------------------------------------------

    \55\ ``A Roadmap for Convergence between IFRS and U.S. GAAP--
2006-2008,'' Memorandum of Understanding between the FASB and the 
IASB, February 27, 2006 (the ``2006 Memorandum of Understanding'').
---------------------------------------------------------------------------

II. Acceptance of IFRS Financial Statements From Foreign Private 
Issuers Without a U.S. GAAP Reconciliation as a Step Towards a Single 
Set of Globally Accepted Accounting Standards

    The Commission has encouraged movement towards a single set of 
high-quality globally accepted accounting standards as an important 
goal both for the protection of investors and the efficiency of capital 
markets.\56\ The work towards acceptance of financial statements from 
foreign private issuers prepared in accordance with IFRS as published 
by the IASB without reconciliation to U.S. GAAP seeks to foster the 
continued movement to a single set of high-quality, globally accepted 
accounting standards. As a long-term objective, the use of a common set 
of high-quality standards for the preparation of financial statements 
will help investors to understand investment opportunities more clearly 
and with greater comparability than if they had to gain familiarity 
with a multiplicity of national accounting standards.
---------------------------------------------------------------------------

    \56\ See the 1988 Policy Statement.
---------------------------------------------------------------------------

A. A Robust Process for Convergence

    Continued progress towards convergence between U.S. GAAP and IFRS 
as published by the IASB is one consideration in the elimination of the 
U.S. GAAP reconciliation. As noted in this release, both the IASB and 
the FASB have established processes for selecting board members and 
developing standards to support the development by each board of high-
quality accounting standards. Additionally, the FASB and the IASB have 
established a work plan that seeks the convergence of U.S. GAAP and 
IFRS. In so doing, both bodies have pledged to use their best efforts 
to make existing standards fully compatible as soon as practicable, and 
to coordinate their future work programs to ensure that compatibility, 
once achieved, is maintained.\57\ This work is expected to continue for 
many years, and both bodies have expressed a commitment to it. We fully 
support continued progress on convergence towards the optimal standard, 
whether that standard may be based on U.S. GAAP, IFRS, or a jointly 
developed new approach.
---------------------------------------------------------------------------

    \57\ See the 2006 Memorandum of Understanding.
---------------------------------------------------------------------------

    As part of this commitment, both the IASB and the FASB are working 
together on several major projects, and have coordinated agendas so 
that major projects that one board takes up may also be taken up by the 
other board.\58\ Also, both boards have been working on ``short-term 
convergence,'' under which convergence will occur quickly in certain 
areas. This process allows for incremental improvements and the 
opportunity to eliminate differences without rethinking an issue 
entirely. If the IASB and the FASB conclude that neither of their 
models in a particular area is sufficient, they consider a broader 
standard-setting project.
---------------------------------------------------------------------------

    \58\ The joint projects of the FASB and IASB constitute part of 
the IASB's broader goal to work with national standard setters to 
develop high quality solutions.
---------------------------------------------------------------------------

    We do not believe that a particular degree of convergence should be 
a prerequisite for our acceptance of financial statements prepared 
under IFRS as published by the IASB without reconciliation. Our 
proposal to do so is based on, among other considerations, the 
robustness of a process that lends itself to continued progress of the 
IASB and the FASB towards convergence over time through, among other 
things, the joint development of future standards. As noted elsewhere, 
we recognize that there remain specific accounting subjects and other 
matters in IFRS that have not been fully addressed. There is a risk 
that constituents of the two boards may not continue to support 
convergence if IFRS financial statements are accepted by the Commission 
without reconciliation to U.S. GAAP. The future work of the IASB and 
the FASB may result in standards that are significantly different or 
that are not timely in their development. Nonetheless, we believe that 
if robust processes for the joint development of high quality standards 
by the IASB and the FASB are in place, we need not delay considering 
the acceptance of financial statements that comply with IFRS as 
published by the IASB without reconciliation to U.S. GAAP.
    We will continue to consider the convergence process and the 
continued progress of the IASB and the FASB in their work plan. We also 
will consider whether interested parties will continue to have an 
incentive to support this convergence work should the Commission accept 
IFRS financial statements from foreign private issuers without 
reconciliation to U.S. GAAP.

Questions

    1. Do investors, issuers and other commenters agree that IFRS are 
widely used and have been issued through a robust process by a stand-
alone standard setter, resulting in high-quality accounting standards?
    2. Should convergence between U.S. GAAP and IFRS as published by 
the IASB be a consideration in our acceptance in foreign private issuer 
filings of financial statements prepared in accordance with IFRS as 
published by the IASB without a U.S. GAAP reconciliation? If so, has 
such convergence been adequate? What are commenters' views on the 
processes of the IASB and the FASB for convergence? Are investors and 
other market participants comfortable with the convergence to date, and 
the ongoing process for convergence? How will this global process, and,

[[Page 37968]]

particularly, the work of the IASB and FASB, be impacted, if at all, if 
we accept financial statements prepared in accordance with IFRS as 
published by the IASB without a U.S. GAAP reconciliation? Should our 
amended rules contemplate that the IASB and the FASB may in the future 
publish substantially different final accounting standards, principles 
or approaches in certain areas?

B. Consistent and Faithful Application of IFRS

    The consistent and faithful application of IFRS as published by the 
IASB is an important consideration both to accepting financial 
statements prepared on that basis without a U.S. GAAP reconciliation 
and to demonstrating that IFRS as published by the IASB represent a 
single set of high-quality accounting standards, and not a multiplicity 
of standards under the same name. Over the years, the Commission staff 
has acquired a broad understanding of the standards comprising IFRS. 
For over ten years, a limited number of foreign private issuers have 
included in their filings under the Securities Act and the Exchange Act 
financial statements prepared in accordance with IAS or IFRS, and over 
the past year, many more companies have done so. These filings have 
been subject to the staff's review process, through which the staff has 
gained experience with the standards.
1. Staff Review of IFRS Financial Statements Filed in 2006
    Over the course of 2006, many foreign private issuers filed annual 
reports on Form 20-F that contained IFRS financial statements following 
their switch to IFRS for the 2005 financial year. The Commission staff 
has conducted reviews of those IFRS financial statements as part of its 
function of reviewing the periodic reports of publicly registered 
companies, consistent with its normal practice in reviewing filings 
from U.S. companies and from foreign issuers with financial statements 
other than those prepared in accordance with IFRS reconciled to U.S. 
GAAP.\59\ These ongoing reviews are an important part of the 
Commission's effort to gain familiarity with IFRS. In conducting its 
reviews of IFRS financial statements, the staff made a number of 
comments regarding the application of IFRS, which have been brought to 
the attention of issuers through the comment process.\60\ Consistent 
with practice in the staff review program, many issuers indicated that 
they will address the matters that the staff has raised in future 
filings, most commonly through improved presentations or enhanced 
disclosures. The staff has been, and, following the issuance of this 
Proposing Release, will continue to consider whether issuers address 
those matters adequately in their Forms 20-F for the 2006 financial 
year which will help inform the Commission's view as to the quality of 
the application of IFRS in practice. The staff will continue its 
regular review function with regard to issuer and auditor practice in 
applying IFRS. Information obtained from this work will assist in our 
evaluation of the quality of the application of IFRS in practice.
---------------------------------------------------------------------------

    \59\ Section 408 of the Sarbanes-Oxley Act of 2002 mandates that 
the Commission shall review disclosures made by reporting companies 
on a regular and systematic basis.
    \60\ Staff comment letters are available, 45 days or longer 
after completion of the staff review, through the SEC Web site at 
http://www.sec.gov. See SEC Press Release dated June 24, 2004.
---------------------------------------------------------------------------

    At present, in filings with the Commission, IFRS (either as 
published by the IASB or a jurisdictional variation) is used 
principally by issuers from Europe and Australia. The number of 
companies from these areas that are registered under the Exchange Act 
has decreased over the last several years.\61\ Thus, although our staff 
has reviewed the annual reports of first-time adopters of IFRS, its 
level of experience is not as great as with U.S. GAAP. In addition, the 
staff has not undertaken any review of financial statements prepared in 
accordance with IFRS by foreign companies that are not registered under 
the Exchange Act. Therefore, the staff's review of IFRS financial 
statements is limited to a small portion of the total universe of 
companies that use IFRS.
---------------------------------------------------------------------------

    \61\ The number of registered companies from Europe and 
Australia has declined from over 400 at the end of 2002 to less than 
250 at the end of 2006. Not all companies from these jurisdictions 
switched to IFRS for their filings in 2006. The number of foreign 
private issuers that filed annual reports on Form 20-F that 
contained IFRS financial statements during 2006 was less than 200.
---------------------------------------------------------------------------

    We recognize the first-year effort undertaken by preparers, 
auditors, and others in changing the basis of accounting to IFRS. Our 
staff will continue to identify the areas for improvement to IFRS 
filers in order to promote increased disclosure and clearer 
presentation in subsequent financial statements filed with the 
Commission.
2. Market Participants' Views Regarding IFRS Application in Practice
    Market participants from whom the Commission has heard at a March 
2007 roundtable held by the Commission staff have indicated their 
support for the use of IFRS by foreign issuers. Although we have heard 
from a limited group of representatives from the investor community, 
those participants, which included representatives of mutual funds, 
pension funds, rating agencies and other institutional investors, 
expressed their acceptance of IFRS financial statements for foreign 
private issuers.\62\
---------------------------------------------------------------------------

    \62\ Information regarding the Roundtable held on March 6, 2007, 
including a transcript, is available on the SEC Web site at http://www.sec.gov/spotlight/ifrsroadmap.htm.
---------------------------------------------------------------------------

    Based on information that we have gathered through the Roundtable 
and from other commenters, we believe that the auditor community has 
embraced IFRS as a workable set of standards that can generally be 
applied across industries and countries. The global auditing profession 
has been able to audit and report on many thousands of financial 
statements prepared using either IFRS as published by the IASB or a 
jurisdictional variation of IFRS.
    Some foreign regulators have published reports relating to the 
implementation of IFRS in their country. For example, the U.K. 
Financial Reporting Review Panel and the Autorit[eacute] des 
March[eacute]s Financiers (the ``AMF'') of France have both published 
such reports making observations on IFRS as applied in their 
jurisdictions.\63\
---------------------------------------------------------------------------

    \63\ For the report of the U.K Financial Reporting Review Panel, 
see ``Preliminary Report: IFRS Implementation'' available at http://www.frc.org.uk/images/uploaded/ documents/IFRS%20Implementation%20- 
%20preliminary.pdf. For the report of the AMF, see ``Recommendations 
on accounting information reported in financial statements for 
2006,'' dated December 19, 2006, available at http://www.amf-france.org/documents/general/7565_1.pdf.
---------------------------------------------------------------------------

    Although a small number of companies have prepared IFRS financial 
statements for several years, it was not until the first half of 2006 
that a large number of companies published audited annual IFRS 
financial statements for the first time. Also, as discussed below, 
audit firms have not been required to opine on IFRS as published by the 
IASB but have limited their opinions to jurisdictional variations of 
IFRS, consistent with a company's basis of presentation. In light of 
this wide-scale use of IFRS being less than two years old, the degree 
of experience, familiarity and understanding among companies, audit 
firms, investors, analysts, brokers, regulators, and others is 
continuing to develop. As experience with IFRS continues to grow, the 
Commission will monitor for any possible flaws in the standards and any 
issues associated

[[Page 37969]]

with the faithful and consistent application of those standards.
3. Processes and Infrastructure To Promote Consistent and Faithful 
Application of IFRS
    As discussed in Part I.B. above, the IASB has stated it is 
committed to developing a single set of high-quality, understandable 
and enforceable global accounting standards. In working towards this 
goal, both the IASB and IFRIC have demonstrated their commitment to 
resolving significant accounting issues as expediently as possible. 
However, developing high-quality standards and issuing high-quality 
interpretations of IFRS may take some time.
    A question arises as to what should be done, if anything, in 
circumstances where neither the IASB nor IFRIC has addressed a 
particular accounting issue that causes significant difficulties in 
practice. A securities regulator or its staff, including the 
Commission, may find it necessary as an interim measure to state a view 
on such an accounting issue.\64\ If it were to do so, the regulator 
subsequently could consider referring the accounting issue to the IASB 
or the IFRIC for resolution of the issue for all constituencies. Any 
view expressed by the regulator may be rescinded upon the IASB or the 
IFRIC establishing authoritative literature addressing the issue. The 
Commission and the staff would not expect to issue guidance that is 
inconsistent with IFRS as published by the IASB, the interpretations 
provided by IFRIC, or the definitions, recognition criteria and 
measurement concepts in the IASB's Framework.
---------------------------------------------------------------------------

    \64\ This is not new, as securities regulators have long been 
involved in resolving issues related to national accounting 
standards.
---------------------------------------------------------------------------

    Regulators have put in place infrastructure to identify and address 
the inconsistent and inaccurate application of IFRS globally. This 
infrastructure will foster the consistent and faithful application of 
IFRS around the world. The International Organization of Securities 
Commissions (``IOSCO''), in which the Commission participates, 
continues to support the implementation and consistent application of 
IFRS in the global financial markets. In January 2007, IOSCO's database 
for cataloguing IFRS interpretations and sharing decisions on 
application by regulators around the world became operational.\65\
---------------------------------------------------------------------------

    \65\ See IOSCO's press release regarding its IFRS database at 
http://www.iosco.org/news/pdf/IOSCONEWS92.pdf.
---------------------------------------------------------------------------

    Further, the Commission and the European Commission (the ``EC'') 
have agreed that regulators should endeavor to avoid conflicting 
conclusions regarding the application and enforcement of IFRS. To this 
end, the Commission and CESR, which the EC has charged with evaluating 
the implementation of IFRS in the EU, published a work plan in August 
2006.\66\ That work plan covers information-sharing regarding IFRS 
implementation in regular meetings of the Commission staff and CESR-
Fin, the group within CESR focused on financial reporting. The SEC-CESR 
work plan also contemplates the confidential exchange of issuer-
specific information between CESR members and the Commission, with 
implementing protocols. In addition, CESR has established among its 
members a forum and a confidential database for participants to 
exchange views and share experiences with IFRS.\67\
---------------------------------------------------------------------------

    \66\ The press release announcing the SEC-CESR work plan, and 
the text of the work plan, are available at http://www.sec.gov/news/press/2006/2006-130.htm.
    \67\ See CESR Press Release 07-163 (April 2007), available at 
http://www.cesr-eu.org/index.php?page=groups&mac=0&id=13.
---------------------------------------------------------------------------

    Having noted the areas for improvement identified in the Commission 
staff's review to date of the application of IFRS in filings with the 
Commission, as well as the potential for other areas requiring 
standard-setting action, we believe that the approach proposed by the 
Commission and the information-sharing infrastructure which the 
international regulatory community is building should contribute to 
increasing consistency and faithfulness in the application of IFRS 
across jurisdictions.

Questions

    3. Is there sufficient comparability among companies using IFRS as 
published by the IASB to allow investors and others to use and 
understand the financial statements of foreign private issuers prepared 
in accordance with IFRS as published by the IASB without a U.S. GAAP 
reconciliation?
    4. Do you agree that the information-sharing infrastructure being 
built in which the Commission participates through both multilateral 
and bilateral platforms will lead to an improved ability to identify 
and address inconsistent and inaccurate applications of IFRS? Why or 
why not?
    5. What are commenters' views on the faithful application and 
consistent application of IFRS by foreign companies that are registered 
under the Exchange Act and those that are not so registered?
    6. Should the timing of our acceptance of IFRS as published by the 
IASB without a U.S. GAAP reconciliation depend upon foreign issuers, 
audit firms and other constituencies having more experience with 
preparing IFRS financial statements?
    7. Should the timing of any adoption of these proposed rules be 
affected by the number of foreign companies registered under the 
Exchange Act that use IFRS?

C. The IASB as Standard Setter

    Our consideration of acceptance of financial statements prepared 
using IFRS as published by the IASB is also premised on the IASB's 
sustainability, governance and continued operation in a stand-alone 
manner as a standard setter, which is a factor in the development of a 
set of high-quality globally accepted accounting standards. As 
described in more detail in Part I.B., oversight by the IASC Foundation 
Trustees through the governance reforms that have been implemented, as 
well as the due process mechanisms established for the consideration 
and adoption of new IFRSs, contribute to the IASB's role as a standard 
setter dedicated to developing accounting standards in the public 
interest. The IASB is free to choose and conduct projects necessary to 
promote convergence and develop high-quality standards. The IASB 
solicits views and seeks input from the public throughout the standard-
setting process from selecting items for its agenda to developing and 
publishing an exposure draft and issuing a final standard. The IASB's 
meetings are open to public observers and summaries of comments 
received on discussion papers and exposure drafts are made public on 
the IASB Web site.\68\ This transparent process enables the IASB to 
obtain relevant views from interested parties, and at the same time to 
conclude final standards based on its own deliberations, and without 
undue external pressure.
---------------------------------------------------------------------------

    \68\ See the IASC Foundation Due Process Handbook for the IASB 
approved by the Trustees March 2006. For additional information, see 
http://www.iasb.org/NR/rdonlyres/7D97095E-96FD-4F1F-B7F2-366527CB4FA7/0/DueProcessHandbook.pdf.
---------------------------------------------------------------------------

    Since the late 1980s, the Commission staff has participated in the 
development of IAS and IFRS primarily through IOSCO, taking an active 
role in the standard-setting process undertaken by the IASC and the 
IASB. In this regard, the Commission staff has reviewed and contributed 
to comments on many exposure drafts of standards published by the IASC 
and the IASB.

[[Page 37970]]

Additionally, the Commission staff as an IOSCO representative serves as 
a non-voting observer at IFRIC meetings. The Commission also is an 
observer of the IASB Standards Advisory Council.\69\
---------------------------------------------------------------------------

    \69\ See http://www.iasb.org/About+Us/About+SAC/SAC+Members.htm.
---------------------------------------------------------------------------

Questions

    8. The IASB Framework establishes channels for the communication of 
regulators' and others' views in the IFRS standard-setting and 
interpretive processes. How should the Commission and its staff further 
support the IFRS standard-setting and interpretive processes?
    9. How should the Commission consider the implication of its role 
with regard to the IASB, which is different and less direct than our 
oversight role with the FASB?

D. Summary

    Fostering the use of a single set of high-quality, globally 
accepted accounting principles, would, in our view, serve to protect 
investors and promote capital formation by enhancing comparability 
across companies and increasing access to foreign issuer investment 
opportunities for investors in the U.S. public capital markets while 
reducing regulatory burdens and costs for issuers. As noted earlier, 
the Commission has for over 20 years sought to promote the development 
of a global, high-quality set of accounting principles. The acceptance 
of financial statements prepared in accordance with IFRS as published 
by the IASB without a U.S. GAAP reconciliation will further promote 
this goal. By such acceptance, the Commission will demonstrate its 
commitment to both investors and to the global capital markets.
    Achieving a single set of globally accepted accounting standards 
will require the contributions of many parties, including standard 
setters, regulators, auditors, issuers, and investors themselves. The 
IASB and the FASB have established procedures for their ongoing joint 
efforts to achieve convergence. The infrastructure is being developed 
to lead to the consistent and faithful application of IFRS by issuers. 
We will continue to evaluate the progress towards convergence, the 
application of IFRS, and the work of the IASB.
    We believe it is an appropriate time to propose and solicit comment 
on acceptance, in the filings of foreign private issuers, of financial 
statements prepared in accordance with IFRS as published by the IASB 
without reconciliation to U.S. GAAP.

Questions

    10. The Commission has gathered certain information from 
representatives of issuers, investors, underwriters, exchanges and 
other market participants at its public roundtable on IFRS. We are 
interested in receiving information from a broader audience. Is the 
development of a single set of high-quality globally accepted standards 
important to investors? To what degree are investors and other market 
participants able to understand and use financial statements prepared 
in accordance with IFRS as published by the IASB without a U.S. GAAP 
reconciliation? We also encourage commenters to discuss ways in which 
the Commission may be able to assist investors and other market 
participants in improving their ability to understand and use financial 
statements prepared in accordance with IFRS. How familiar are investors 
with financial statements prepared in accordance with IFRS as published 
by the IASB? Will the ability of an investor to understand and use 
financial statements that comply with IFRS as published by the IASB 
vary with the size and nature of the investor, the value of the 
investment, the market capitalization of the issuer, the industry to 
which the issuer in question belongs, the trading volume of its 
securities, the foreign markets on which those securities are traded 
and the regulation to which they may be subjected, or any other 
factors? If so, should any removal of the reconciliation requirement be 
sensitive to one or more of these matters, and, if so, how?

III. Discussion of the Proposed Amendments To Allow the Use of IFRS 
Financial Statements Without Reconciliation to U.S. GAAP

A. Eligibility Requirements

    The proposed amendments to allow a foreign private issuer to file 
financial statements without reconciliation to U.S. GAAP as currently 
required under Item 17 or 18 of Form 20-F, as appropriate, would apply 
only to a foreign private issuer that files its financial statements in 
full compliance with the English language version of IFRS as published 
by the IASB.\70\ The proposed amendments will apply to an eligible 
issuer regardless of whether it complies with IFRS as published by the 
IASB voluntarily or in accordance with any requirements of its home 
country regulator or an exchange on which its securities are listed.
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    \70\ These proposed amendments would not encompass use, if 
finalized, of the IASB's proposed IFRS for Small and Medium-sized 
Entities.
---------------------------------------------------------------------------

    Under the proposals, in order to be eligible to omit the 
reconciliation, an issuer would be required, in a prominent footnote to 
its financial statements, to state unreservedly and explicitly that its 
financial statements are in compliance with IFRS as published by the 
IASB.\71\ In addition, in its report, the independent auditor must 
opine similarly on whether those financial statements comply with IFRS 
as published by the IASB.\72\
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    \71\ This statement is consistent with the language requirements 
of IAS 1 ``Presentation of Financial Statements,'' paragraph 14.
    \72\ This language could be provided in addition to any 
representation about compliance with standards required by the home 
country.
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    The proposed amendments would not be available to an issuer that 
files financial statements that include deviations from IFRS as 
published by the IASB. A foreign private issuer that does not state 
unreservedly and explicitly that its financial statements are in 
compliance with IFRS as published by the IASB, or for which the 
auditor's report contains any qualification relating to the application 
of IFRS as published by the IASB, would continue to be required to 
provide the U.S. GAAP reconciliation under current rules. Similarly, an 
issuer that files its financial statements using a set of generally 
accepted accounting principles of another jurisdiction also would 
continue to reconcile to U.S. GAAP as under current rules when 
preparing its financial statements for inclusion in a registration 
statement or annual report.\73\
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    \73\ An issuer that is eligible to rely on the proposed rules, 
if adopted, would be permitted to continue to reconcile its IFRS 
financial statements to U.S. GAAP. An issuer that elects to do so 
would follow all current requirements with regard to the preparation 
of that U.S. GAAP reconciliation contained in Item 17 or 18 of Form 
20-F, as applicable.
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    The proposed amendments will not apply to issuers using a 
jurisdictional or other variation of IFRS. It would be acceptable for 
an issuer to state compliance with both IFRS as published by the IASB 
and a jurisdictional variation of IFRS, and an audit firm to opine that 
financial statements comply with IFRS as published by the IASB and a 
jurisdictional variation of IFRS, so long as the statement relating to 
the former was unreserved and explicit.
    In their filings with the SEC, the majority of foreign private 
issuers that have referenced IFRS have stated that their financial 
statements are in compliance with IFRS as published by the IASB (in 
addition to stating compliance with a jurisdictional variation of 
IFRS). In contrast, few audit reports contained an opinion on IFRS as

[[Page 37971]]

published by the IASB (in addition to opining on a jurisdictional 
variation of IFRS).
    We believe that the benefits of moving towards a single set of 
globally accepted standards as a long-term objective, including 
increased transparency and comparability of financial statements, are 
attainable only if IFRS represents a single set of high-quality 
accounting standards and not a multiplicity of divergent standards 
using the same name. Thus, we believe that it is appropriate to 
condition our acceptance of IFRS without reconciliation on the 
financial statements being in full compliance with IFRS as published by 
the IASB.
    Our acceptance of a set of financial statements without 
reconciliation to U.S. GAAP would mark a significant change in our 
requirements. We are proposing that the amendments apply if an issuer 
follows the approved English language version of the standards to 
assist U.S. investors to understand IFRS, to assist in achieving 
comparability and consistency across jurisdictions, and, as a practical 
matter, because the Commission's work is conducted in English.

Questions

    11. Without a reconciliation, will investors be able to understand 
and use financial statements prepared using IFRS as published by the 
IASB in their evaluation of the financial condition and performance of 
a foreign private issuer? How useful is the reconciliation to U.S. GAAP 
from IFRS as published by the IASB as a basis of comparison between 
companies using different bases of accounting? Is there an alternative 
way to elicit important information without a reconciliation?
    12. In addition to reconciling certain specific financial statement 
line items, issuers presenting an Item 18 reconciliation provide 
additional information in accordance with U.S. GAAP. What uses do 
investors and other market participants make of these additional 
disclosures?
    13. Should we put any limitations on the eligibility of a foreign 
private issuer that uses IFRS as published by the IASB to file 
financial statements without a U.S. GAAP reconciliation? If so, what 
type of limitations? For example, should the option of allowing IFRS 
financial statements without reconciliation be phased in? If so, what 
should be the criteria for the phase-in? Should only foreign private 
issuers that are well-known seasoned issuers, or large accelerated 
filers, or accelerated filers,\74\ and that file IFRS financial 
statements be permitted to omit the U.S. GAAP reconciliation?
---------------------------------------------------------------------------

    \74\ The terms ``accelerated filer'' and ``large accelerated 
filer'' are defined in Rule 12b-2 under the Exchange Act [17 CFR 
240.12b-2]. ``Well-known seasoned issuer'' is defined in Rule 405 
under the Securities Act [17 CFR 230.405].
---------------------------------------------------------------------------

    14. At the March 2007 Roundtable on IFRS, some investor 
representatives commented that IFRS financial statements would be more 
useful if issuers filed their Form 20-F annual reports earlier than the 
existing six-month deadline. We are considering shortening the deadline 
for annual reports on Form 20-F. Should the filing deadline for annual 
reports on Form 20-F be accelerated to five, four or three months, or 
another date, after the end of the financial year? Should the deadline 
for Form 20-F be the same as the deadline for an issuer's annual report 
in its home market? Should we adopt the same deadlines as for annual 
reports on Form 10-K? Why or why not? Would the appropriateness of a 
shorter deadline for a Form 20-F annual report depend on whether U.S. 
GAAP information is included? If a shorter deadline is appropriate for 
foreign private issuers that would not provide a U.S. GAAP 
reconciliation under the proposed amendments, should other foreign 
private issuers also have a shorter deadline? Should it depend on the 
public float of the issuer?
    15. Although reconciliation to U.S. GAAP of interim periods is not 
ordinarily required under the Exchange Act, foreign private issuers 
that conduct continuous offerings on a shelf registration statement 
under the Securities Act may face black-out periods that prevent them 
from accessing the U.S. public capital market at various times during 
the year if their interim financial information is not reconciled. Even 
if commenters believe we should continue the U.S. GAAP reconciliation 
requirement for annual reports that include IFRS financial statements, 
to address this issue should we at least eliminate the need for the 
U.S. GAAP reconciliation requirement with respect to required interim 
period financial statements prepared using IFRS as published by the 
IASB for use in continuous offerings? \75\ Should we extend this 
approach to all required interim financial statements?
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    \75\ See Item 8.A.4 of Form 20-F, which requires interim period 
financial statements in certain circumstances.
---------------------------------------------------------------------------

    16. Is there any reason why an issuer should not be able to 
unreservedly and explicitly state its compliance with IFRS as published 
by the IASB? Is there any reason why an audit firm should not be able 
to unreservedly and explicitly opine that the financial statements 
comply with IFRS as published by the IASB? What factors may have 
resulted in issuers and, in particular, auditors refraining from 
expressing compliance with IFRS as published by the IASB?
    17. If the proposed amendments are adopted, should eligible issuers 
be able to file financial statements prepared using IFRS as published 
by the IASB without a U.S. GAAP reconciliation for their first filing 
containing audited annual financial statements? If the amendments are 
adopted, what factors should we consider in deciding when issuers can 
use them? For example, should we consider factors such as the issuer's 
public float (either in the United States or worldwide), whether the 
issuer has issued only public debt, or the nature of the filing to 
which the amendments would be applied? Will investors be prepared to 
analyze and interpret IFRS financial statements without the 
reconciliation by 2009? If not, what further steps, including investor 
education, may be necessary?

B. U.S. GAAP Reconciliation

1. General
    The basic requirements for financial statements filed by foreign 
private issuers are described in Items 17 and 18 of Form 20-F. Under 
Item 17(c), a foreign private issuer currently has two options: Either 
to prepare its financial statements and schedules according to U.S. 
GAAP; or, alternatively, to prepare them under the generally accepted 
accounting principles of another jurisdiction with a reconciliation of 
specific line items to U.S. GAAP as enumerated under Item 17(c)(2). 
This reconciliation includes a narrative discussion of reconciling 
differences,\76\ a reconciliation of net income for each year and any 
interim periods presented,\77\ a reconciliation of major balance sheet 
captions for each year and any interim periods,\78\ and a 
reconciliation of cash flows for each year and any interim periods.\79\ 
We are proposing to revise Item 17(c)(2) so that reconciliation will no 
longer be required from issuers using IFRS as published by the 
IASB.\80\
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    \76\ See Item 17(c)(1) of Form 20-F.
    \77\ See Item 17(c)(2)(i) of Form 20-F.
    \78\ See Item 17(c)(2)(ii) of Form 20-F.
    \79\ See Item 17(c)(2)(iii) of Form 20-F, containing the 
exception relating to IAS 7 ``Cash Flow Statements.''
    \80\ We are not proposing to amend Item 17(b), which we do not 
read as imposing U.S. GAAP requirements on financial statements 
prepared using IFRS as published by the IASB.

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[[Page 37972]]

    As discussed in Section III.D., portions of Regulation S-X that do 
not relate to the form and content of an issuer's financial statements, 
including, for example, auditor qualification and report requirements 
and financial statement requirements for entities other than the 
issuer, would still continue to apply to foreign private issuers that 
prepare their financial statements using IFRS as published by the IASB 
without a U.S. GAAP reconciliation.
    Several sub-paragraphs of Item 17(c)(2) relate to reconciling 
disclosure required of issuers that rely on certain IAS. The partial 
accommodations contained in these sub-paragraphs were available to 
issuers using home country GAAP or IFRS. They are rarely relied upon in 
practice and appear no longer needed by issuers that use IFRS as 
published by the IASB.\81\ We are therefore proposing to eliminate 
these sub-paragraphs for purposes of all foreign private issuer 
filings. Specifically, we are proposing to delete Items 17(c)(2)(iv)(B) 
and (C), which relate to reconciling disclosures to be provided by 
issuers that rely on IAS 21 ``The Effects of Changes in Foreign 
Exchange Rates.'' We also are proposing to delete Item 17(c)(2)(viii) 
relating to reconciling disclosures to be provided by issuers using IAS 
22 ``Business Combinations,'' with respect to the period of 
amortization of goodwill and negative goodwill, as IAS 22 has been 
superseded by IFRS 3 ``Business Combinations'' and may no longer be 
used by an issuer preparing financial statements under IFRS. For this 
reason, we also are proposing to eliminate the related Instruction 6 to 
Item 17. However, we are retaining the IAS 7 ``Cash Flow Statements'' 
accommodation contained in Item 17(c)(2)(iii).
---------------------------------------------------------------------------

    \81\ As noted above, the IASB has incorporated IAS developed by 
the IASC into IFRS. In addition, the sub-paragraphs were added at a 
time when IFRS was undergoing substantial development and it was 
appropriate to permit compliance with selected international 
standards. Such partial compliance with IFRS is not consistent with 
these proposals, which are based on full compliance with IFRS as 
published by the IASB.
---------------------------------------------------------------------------

    Item 17(c)(2)(vii) relates to disclosures that issuers using 
proportionate consolidation may omit from their U.S. GAAP 
reconciliation. We are not proposing any revision to this paragraph, 
which continues to apply to issuers using home country GAAP (if 
permitted by that GAAP). An issuer using IFRS as published by the IASB 
would satisfy the requirements of this paragraph by providing IAS 31 
``Interests in Joint Ventures'' disclosures.
    A U.S. GAAP reconciliation under Item 18 builds on the information 
content of Item 17. In addition to providing reconciling information 
for the line items specified in Item 17(c), Item 18(b) requires that an 
issuer also provide in its financial statements all information 
required by U.S. GAAP and Regulation S-X.\82\ The proposed elimination 
of the reconciliation requirement for IFRS financial statements also 
applies in situations in which the issuer currently would be required 
to prepare a reconciliation under Item 18. Accordingly, we propose 
revising Item 18(b) to indicate that disclosures required by U.S. GAAP 
and Regulation S-X would not be required if a registrant files its 
financial statements using IFRS as published by the IASB.
---------------------------------------------------------------------------

    \82\ U.S. GAAP and Regulation S-X information need not be 
provided for a period in which net income has not been reconciled to 
U.S. GAAP, or for financial statements for an entity or subsidiary 
covered by Rules 3-05 or 3-09 of Regulation S-X.
---------------------------------------------------------------------------

Questions

    18. Do we need to make any other changes to Items 17 or 18 or 
elsewhere to implement fully the proposed elimination of the 
reconciliation requirement for issuers using IFRS as published by the 
IASB?
    19. Is any revision necessary to clarify that the provisions 
relating to issuers that use proportionate consolidation contained in 
Item 17(c)(2)(vii) would not apply to IFRS financial statements that 
are not reconciled to U.S. GAAP under the proposed amendments? If so, 
what changes would be appropriate?
    20. Is the IAS 21 accommodation still useful for non-IFRS issuers? 
Is it clear that an issuer using IFRS would not need to provide 
disclosure under Item 17(c)(2)(iv)? If not, what changes would be 
necessary to make it clear?
2. Interim Period Financial Statements
    Under the proposal, foreign private issuers that are eligible to 
omit the U.S. GAAP reconciliation in their audited annual financial 
statements would likewise be able to omit a reconciliation from their 
unaudited interim period financial statements. To the extent a foreign 
private issuer is required to provide interim period financial 
statements, the financial statements would have to be prepared in 
accordance with IFRS as published by the IASB.\83\
---------------------------------------------------------------------------

    \83\ The discussion in this section relates solely to 
registration statements and prospectuses under the Securities Act 
and initial registration statements under the Exchange Act. There 
are currently no requirements under our rules relating to the form 
or content requirements of a foreign private issuer's reports on 
Form 6-K under the Exchange Act. See Form 6-K [17 CFR 249.306].
---------------------------------------------------------------------------

Questions

    21. Would issuers have any difficulty in preparing interim period 
financial statements that are in accordance with IFRS as published by 
the IASB?
    22. Do foreign private issuers that have changed to IFRS generally 
prepare interim financial statements that are in accordance with IFRS, 
and do they make express statements to that effect?
a. 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.\84\ The intent of this 
requirement is to make information available in U.S. offering documents 
as current as information that is available elsewhere.
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    \84\ Under Item 512(a)(4) of Regulation S-K [17 CFR 
22.512(a)(4)], 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.
---------------------------------------------------------------------------

    The instructions to Item 8.A.5 require that an issuer providing 
interim financial information describe any material variations between 
the accounting principles, practices and methods used and U.S. GAAP, 
and quantify any material variations that are not already quantified in 
the financial statements. We are adding an instruction to Item 8.A.5 of 
Form 20-F with regard to interim period financial information that is 
made public by a foreign private issuer to clarify that interim period 
information does not need to be reconciled to U.S. GAAP when the 
interim information is prepared in accordance with IFRS as published by 
the IASB.

[[Page 37973]]

b. 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.\85\ These unaudited interim period financial 
statements must be prepared using the same basis 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.\86\ The instruction that we are proposing to add to Item 
8.A.5 would clarify that an issuer does not need to provide that 
reconciliation if it prepares its interim financial statements using 
IFRS as published by the IASB.
---------------------------------------------------------------------------

    \85\ See Item 8.A.5 of Form 20-F and Item 512(a)(4) of 
Regulation S-K.
    \86\ See Items 17(c) and 18 of Form 20-F.
---------------------------------------------------------------------------

    Under the proposed rules, although an eligible issuer may provide 
IFRS financial statements for an interim period without reconciliation, 
that issuer would continue to be required to comply with Article 10 of 
Regulation S-X with regard to financial statements for interim periods, 
when that information is required under Item 8.A.5 of Form 20-F. There 
are several differences between IAS 34 ``Interim Financial Reporting,'' 
which prescribes the minimum content of an interim financial report and 
the principles for recognition and measurement in financial statements 
presented for an interim period, and Article 10 of Regulation S-X. 
First, because IAS 34 permits more condensed balance sheet, income 
statement and cash flow information detail than does Article 10, 
financial statements prepared under IAS 34 can be limited to major 
headings and subtotals. Second, unlike IAS 34, Article 10 contains an 
explicit statement that interim disclosures must be sufficient to make 
interim period information presented not misleading. Third, Article 10 
requires contingent liability disclosures even if no change has 
occurred since the year end, whereas IAS 34 requires disclosure of any 
changes in contingent liabilities since the year end. Fourth, Article 
10 requires footnote disclosure of summarized data for equity investees 
that is not required under IAS 34.

Questions

    23. How significant are the differences between IAS 34 and Article 
10? Is the information required by IAS 34 adequate for investors? If 
not, what would be the best approach to bridge any discrepancy between 
IAS 34 and Article 10? Should issuers be required to comply with 
Article 10 if their interim period financial statements comply with IAS 
34? Should we consider any revision to existing rules as they apply to 
an issuer that would not be required to provide a U.S. GAAP 
reconciliation under the proposed rules?
3. IFRS Treatment of Certain Areas
    As noted, IFRS as published by the IASB constitute a comprehensive 
basis of accounting that may be used by foreign private issuers in the 
preparation of their financial statements that are contained in 
Commission filings. There are certain limited areas in which the IASB 
has yet to develop standards or in which IFRS permits disparate 
options. These areas are not new, and existed at the time the IASB and 
the FASB were developing their 2006-2008 work plan.\87\ However, based 
on our staff's review of IFRS filings with the Commission to date, we 
have a number of observations regarding the application in practice in 
these areas, in which we also ask for public feedback.
---------------------------------------------------------------------------

    \87\ See ``SEC Welcomes Plans of U.S., International Standard 
Setters for Convergence of Accounting Systems,'' SEC Press Release 
dated February 27, 2007.
---------------------------------------------------------------------------

a. Accounting for Insurance Contracts and Extractive Activities
    There are two industry areas that have been identified by the IASB 
as lacking standards: Insurance contracts and extractive activities.
    IFRS 4 ``Insurance Contracts'' provides limited guidance on the 
accounting to be followed by companies that issue insurance contracts 
or hold reinsurance contracts. Except in some areas, IFRS 4 permits a 
company to continue to apply its pre-existing home country accounting 
principles for insurance contracts. Insurance company accounting and 
practices vary greatly throughout the world in areas such as revenue 
recognition, claim expense recognition, policy benefit recognition, and 
policy acquisition costs, resulting in substantial variation in 
reporting practices.
    The IASB has noted that it is in the process of developing a 
standard for insurance contracts because ``there was no IFRS on 
insurance contracts, and insurance contracts were excluded from the 
scope of existing IFRSs that would have been relevant (e.g., IFRSs on 
provisions, financial instruments, intangible assets); and accounting 
practices for insurance contracts were diverse, and also often differed 
from practices in other sectors.'' \88\
---------------------------------------------------------------------------

    \88\ Excerpt from the IASB Web site at http://www.iasb.org/Current+Projects/IASB+Projects/Insurance+Contracts/Insurance+Contracts.htm.
---------------------------------------------------------------------------

    IFRS 6 ``Exploration for and Evaluation of Mineral Resources'' 
provides limited guidance with respect to the accounting for 
exploration and evaluation activities undertaken by oil and gas and 
mining companies. Except in certain areas, companies are permitted to 
look to other sources for guidance. Items not addressed by IFRS 6 
include, for example, thresholds for capitalizing or expensing a 
variety of costs, and the manner in which capitalized costs are 
subsequently depreciated or amortized.
    The IASB adopted IFRS 6 in December 2004 as a first step in light 
of the need to develop a standard in time for it to be applied by 
companies that were adopting IFRS in 2005.\89\ The IASB acknowledged 
that its complete consultation in this area could not be completed in 
that time frame, and that developing a global consensus on a rigorous 
and comprehensive approach would require extensive consultation.
---------------------------------------------------------------------------

    \89\ See IASB Press Release dated December 9, 2004.
---------------------------------------------------------------------------

    On both of these projects, the IASB continues to make progress 
towards developing standards under IFRS. Nonetheless, we do not believe 
that the lack of comprehensive standards in IFRS in these areas alone 
should delay our consideration of fully accepting IFRS as published by 
the IASB without a U.S. GAAP reconciliation.
b. Accounting Treatment for Common Control Mergers, Recapitalization 
Transactions, Reorganizations, Acquisitions of Minority Shares Not 
Resulting in a Change of Control, and Similar Transactions
    There are certain areas, for example, accounting treatment for 
common control mergers, recapitalizations, reorganizations, 
acquisitions of minority interests, and similar transactions, for which 
IFRS does not have a specific standard or interpretation. When a 
standard or interpretation of IFRS does not address a matter, IAS 8 
``Accounting Policies, Changes in Accounting Estimates and Errors,'' 
provides guidance, including looking to the most recent pronouncements 
of other standard-setting bodies. With a lack of

[[Page 37974]]

specific guidance, companies can look to various (and differing) 
recognition, measurement and presentation practices, including their 
home country accounting principles, in establishing their accounting 
policies.\90\ IFRS, however, does not require the disclosure of the 
impact if an alternative accounting treatment had been used.
---------------------------------------------------------------------------

    \90\ IAS 1 requires an entity to disclose the measurement basis 
used in preparing financial statements and the other accounting 
policies used that are relevant to an understanding of the financial 
statements.
---------------------------------------------------------------------------

    The IASB and the FASB have a joint project underway entitled 
``Business Combinations: Applying the Acquisition Method.'' \91\ This 
project is the second phase of an overall project on business 
combinations. In this phase of the business combinations project, the 
IASB and the FASB are reconsidering their existing guidance for 
applying the purchase method of accounting for business combinations 
(now called the acquisition method). This project will converge 
numerous areas of application and reduce alternative treatments but 
will not address all of the transactions discussed above. Final 
standards by the IASB and the FASB are expected to be issued in the 
third quarter of 2007.
---------------------------------------------------------------------------

    \91\ For more information on this joint project, see http://www.fasb.org/project/bc_acquisition_method.shtml and http://www.iasb.org/Current+Projects/IASB+Projects/Business+Combinations/Business+Combinations+II.htm.
---------------------------------------------------------------------------

c. Income Statements and Per Share Amounts
    IFRS does not provide specific conventions as to the format or 
content of the income statement.\92\ In addition, IFRS permits a 
company to present on the face of its income statement or elsewhere in 
its financial statements any measure on a per share basis so long as 
the figure is reconciled to a line item on the income statement.\93\ 
Companies preparing IFRS financial statements are thus permitted to use 
numerous different income statement formats and to characterize 
subtotals and amounts using multiple and varied caption headings. In 
addition, companies using IFRS are permitted to present on the income 
statement and in footnotes measures that would be otherwise considered 
non-GAAP measures that would not be permitted under our rules.\94\
---------------------------------------------------------------------------

    \92\ IAS 1 provides guidance regarding minimum required line 
items and provides examples to which issuers may refer.
    \93\ See IAS 33 ``Earnings per Share.''
    \94\ See Item 10(e) of Regulation S-K [17 C.F.R. 229.20(E)].
---------------------------------------------------------------------------

    The IASB and FASB have a joint project underway entitled 
``Financial Statement Presentation'' to establish a common, high-
quality standard for the presentation of information in the financial 
statements, including the classification and display of line items and 
the aggregation of line items into subtotals and totals. A discussion 
paper which addresses the more fundamental issues related to the 
presentation of information on the face of the financial statements is 
expected to be published in the fourth quarter of 2007.

Questions

    24. Are there accounting subject matter areas that should be 
addressed by the IASB before we should accept IFRS financial statements 
without a U.S. GAAP reconciliation?
    25. Can investors understand and use financial statements prepared 
using IFRS as published by the IASB in those specific areas or other 
areas that IFRS does not address? If IFRS do not require comparability 
between companies in these areas, how should we address those areas, if 
at all? Would it be appropriate for the Commission to require other 
disclosures in these areas not inconsistent with IFRS published by the 
IASB?

C. Accounting and Disclosure Issues

1. Selected Financial Data
    Under Item 3.A of Form 20-F, issuers must provide five years of 
selected financial data. As part of this proposal to accept financial 
statements prepared using IFRS as published by the IASB without 
reconciliation to U.S. GAAP, we are proposing to revise the instruction 
to Item 3.A to clarify that selected financial data based on the U.S. 
GAAP reconciliation is required only if the issuer prepares its primary 
financial statements using a basis of accounting other than IFRS as 
published by the IASB.

Question

    26. Should issuers that are permitted to omit a U.S. GAAP 
reconciliation for their current financial year or current interim 
period be required to disclose in their selected financial data 
previously published information based on the U.S. GAAP reconciliation 
with respect to previous financial years or interim periods?
2. Other Form 20-F Disclosure
a. Reference to U.S. GAAP Pronouncements in Form 20-F
    Several non-financial statement disclosure items of Form 20-F make 
reference to specific U.S. GAAP pronouncements, including Financial 
Accounting Standards (``FASs'') and interpretations of the FASB. For 
example, issuers are required to provide disclosure of off-balance 
sheet arrangements under Item 5 (``Operating and Financial Review and 
Prospects''), which expressly refers to FASB Interpretations No. 45 
``Guarantor's Accounting and Disclosure Requirements for Guarantees, 
Including Indirect Guarantees of Indebtedness of Others,'' and No. 46 
``Consolidation of Variable Interest Entities.'' \95\ Also, Item 11 of 
Form 20-F (``Quantitative and Qualitative Disclosures About Market 
Risk'') sets out the requirements for certain summary disclosures about 
market risk which refer to FAS 52 ``Foreign Currency Translation,'' FAS 
5 ``Accounting for Contingencies,'' as well as to other FASs.
---------------------------------------------------------------------------

    \95\ See Item 5.E of Form 20-F.
---------------------------------------------------------------------------

    An IFRS filer that would not be required to provide a U.S. GAAP 
reconciliation under the proposed amendments would continue to be 
required to respond to those items of Form 20-F that make reference to 
FASs, FASB interpretations, or other specific pronouncements of U.S. 
GAAP for definitional purposes. In providing that disclosure, however, 
the issuer should apply the corresponding IFRS notion of the principles 
embodied in the referenced U.S. GAAP pronouncement.
    In order to convey this view, we are proposing to add an 
instruction to Item 5 and Item 11 indicating that issuers preparing 
their financial statements in accordance with IFRS as published by the 
IASB should, in responding to paragraphs of those items that refer to 
specific pronouncements of U.S. GAAP, look to the appropriate 
corresponding standards and interpretations of IFRS that contain 
similar definitions. If information called for by the non-financial 
statement requirements of Form 20-F duplicates information that is 
contained in the IFRS financial statements, an issuer need not repeat 
such information but may cross-reference to the appropriate footnote in 
the audited financial statements.
b. Disclosure From Oil and Gas Companies Under FAS 69
    Pursuant to either earlier Commission rules or more recent FASB 
standards, public companies with significant oil and gas activities 
have been required to disclose reserve and other information relating 
to those activities. In November 1982, the FASB adopted FAS 69 
``Disclosures about Oil and Gas Producing Activities,'' which 
establishes a comprehensive set of disclosures for oil and gas 
producing activities. Under this standard, public companies with such 
significant

[[Page 37975]]

activities are required to disclose unaudited supplementary information 
relating to proved oil and gas reserves, and capitalized costs relating 
to oil and gas producing activities. As a result of the FASB's adoption 
of FAS 69, the Commission at first suspended the effectiveness of a 
rule under Regulation S-X calling for substantially similar 
information,\96\ and then deleted the rule altogether.\97\ The 
Commission noted that, in light of the FASB standard, its own earlier 
rule requiring this disclosure was no longer necessary.
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    \96\ The requirement was found in former Rule 4-10(k) of 
Regulation S-X. The application of this rule was suspended in 
Release 33-6444 (December 15, 1982).
    \97\ Release 33-6818 (February 17, 1989) proposed the deletion 
which was adopted in Release 33-6959 (September 17, 1992).
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    We are proposing to amend Item 18 of Form 20-F to expressly require 
that any company that provides disclosure under FAS 69 continue to 
provide the information called for under that statement even though the 
company is preparing financial statements in accordance with IFRS as 
published by the IASB without a reconciliation to U.S. GAAP. The nature 
of the information provided under FAS 69 is not in the nature of a U.S. 
GAAP reconciliation but rather is supplementary information included as 
an unaudited footnote to the audited financial statements. We believe 
that FAS 69 requires the disclosure of important information that is 
useful to investors and that would not otherwise be required to be 
disclosed under IFRS.
c. Market Risk Disclosure and the Safe Harbor Provisions
    Pursuant to Item 11 of Form 20-F, foreign private issuers are 
required to provide disclosure of qualitative and quantitative 
information about market risk inherent in derivative financial 
instruments, other financial instruments, and derivative commodity 
instruments. This information, which is not included as part of the 
financial statements in a filing, is expressly subject to the safe 
harbor provided under Section 27A of the Securities Act \98\ and 
Section 21E of the Exchange Act \99\ to the extent it constitutes 
``forward looking statements.'' \100\
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    \98\ 15 U.S.C. 77z-2.
    \99\ 15 U.S.C. 78u-5.
    \100\ See Release 33-7386 (Jan. 31, 1997) for the release 
adopting the derivatives disclosure requirement and the related 
express safe harbor.
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    IFRS 7 ``Financial Instruments: Disclosure'' as recently amended, 
requires market risk disclosure that is similar to that required under 
Item 11.\101\ In this respect, the sensitivity analysis provided under 
IFRS will be based on forward-looking information. This information 
will appear in the footnotes to audited IFRS financial statements.
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    \101\ IFRS 7 will require this information beginning with the 
2007 financial year.
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    Section 27A of the Securities Act and Section 21E of the Exchange 
Act expressly exclude from the safe harbor any information ``included 
in a financial statement prepared in accordance with generally accepted 
accounting principles.'' \102\ The safe harbor may not be available to 
the forward looking information included in IFRS financial statements. 
When we adopted the market risk disclosure requirements, the Commission 
considered whether the market risk disclosure could be included in a 
registrant's financial statements and, if so, whether the safe harbor 
should apply to that disclosure. The Commission decided to require that 
the information required under Item 11 be disclosed outside the 
financial statements.\103\
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    \102\ See Securities Act Section 27A(b)(2)(A) and Exchange Act 
Section 21E(b)(2)(A).
    \103\ U.S. companies are subject to the same disclosure 
requirement. See Item 305 of Regulation S-K [17 CFR 229.3-05].
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    The apparent non-availability of the safe harbor provisions to 
information included in financial statements, including information 
called for by IFRS 7, is separate and distinct from our proposed 
acceptance of IFRS as published by the IASB without a U.S. GAAP 
reconciliation. Regardless of whether we eliminate the U.S. GAAP 
reconciliation for IFRS filers, the financial statements filed by a 
registrant must comply fully with a comprehensive body of accounting 
principles, which includes IFRS 7 for those companies that use IFRS.

Questions

    27. With regard to references to U.S. GAAP in non-financial 
statement disclosure requirements, should we amend the references to 
U.S. GAAP pronouncements that are made in Form 20-F to also reference 
appropriate IFRS guidance, and, if so, what should the references refer 
to? Would issuers be able to apply the proposed broad approach to U.S. 
GAAP pronouncements and would this approach elicit appropriate 
information for investors? Should we retain the U.S. GAAP references 
for definitional purposes?
    28. Should foreign private issuers that prepare financial 
statements in accordance with IFRS as published by the IASB be required 
to continue to comply with the disclosure requirements of FAS 69? What 
alternatives may be available to elicit the same or substantially the 
same disclosure?
    29. Should the Commission address the implications of forward-
looking disclosure contained in a footnote to the financial statements 
in accordance with IFRS 7? For example, would some kind of safe harbor 
provision or other relief or statement be appropriate?
3. Other Considerations Relating to IFRS and U.S. GAAP Guidance
    The Commission recognizes that an issuer that would not be required 
to reconcile its IFRS financial statements to U.S. GAAP may 
nevertheless pursuant to the application of IAS 8 look for guidance 
from Commission sources other than rules and regulations, including 
Accounting Series Releases (``ASRs'') and Financial Reporting Releases 
(``FRRs'').\104\ In addition, such an issuer may look to the guidance 
that the Commission staff provides in Staff Accounting Bulletins 
(``SABs''), and, if the company is engaged in certain lines of 
business, various Industry Guides.\105\ No changes to such guidance are 
planned. We believe that a company that would no longer be required to 
reconcile its IFRS financial statements to U.S. GAAP under the proposed 
amendments, and its auditor, would continue to be required to follow 
any Commission guidance that relates to auditing issues.\106\ An issuer 
using IFRS as published by the IASB, although not required to follow 
U.S. GAAP guidance,

[[Page 37976]]

may find reference to FRRs, ASRs, SABs, and Industry Guides and other 
forms of U.S. GAAP guidance useful in the application of IAS 8.\107\
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    \104\ FRRs contain the Commission's views and interpretations 
relating to financial reporting. Prior to 1982, the Commission 
published its views and interpretations relating to financial 
reporting in Accounting Series Releases (ASRs). In FRR 1, Adoption 
of the Financial Reporting Release Series and Codification of 
Currently Relevant ASRs, the Commission codified certain previously 
issued ASRs on financial reporting matters.
    \105\ Staff Accounting Bulletins reflect the Commission staff's 
views regarding accounting-related disclosure practices. They 
represent interpretations and policies followed by the Division of 
Corporation Finance and the Office of the Chief Accountant in 
administering the disclosure requirements of the federal securities 
laws. 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. SABs and Industry Guides are not rules, regulations, or 
statements of the Commission. They have not been issued pursuant to 
notice and comment rulemaking, and the Commission has neither 
approved nor disapproved these interpretations.
    \106\ In addition, foreign private issuers are required to have 
audits conducted in accordance with the Standards of the PCAOB 
(U.S.)/U.S. Generally Accepted Audit Standards regardless of the 
comprehensive basis of accounting they use to prepare their 
financial statements.
    \107\ Under IAS 8, in the absence of an IFRS standard or 
interpretation that specifically applies to a transaction or event, 
management should use its judgment in developing and applying a 
relevant and reliable accounting policy and look to other 
pronouncements in applying that judgment.
---------------------------------------------------------------------------

Questions

    30. Are there issues on which further guidance for IFRS users that 
do not reconcile to U.S. GAAP would be necessary and appropriate? 
Should issuers and auditors consider guidance related to materiality 
and quantification of financial misstatements?
4. First Time Adopters of IFRS
    In 2005 the Commission adopted amendments to Form 20-F to permit 
foreign private issuers, for their first year of reporting under IFRS 
as adopted by the IASB, 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.\108\ These amendments are contained in General Instruction 
G to Form 20-F. The proposed amendments do not affect the applicability 
of General Instruction G to issuers that are first-time adopters of 
IFRS. If adopted, however, the proposed amendments to eliminate the 
U.S. GAAP reconciliation will apply to eligible issuers that also may 
be eligible to rely on General Instruction G, which currently contains 
a number of references to a reconciliation to U.S. GAAP from IFRS. We 
therefore are proposing to amend General Instruction G to ensure 
consistency with the proposed elimination of the U.S. GAAP 
reconciliation requirement for users of IFRS as published by the IASB.
---------------------------------------------------------------------------

    \108\ See the 2005 Adopting Release.
---------------------------------------------------------------------------

    Paragraph (d) of General Instruction G, ``Information on the 
Company,'' currently refers to the basis of accounting that an issuer 
uses to prepare ``the U.S. GAAP reconciliation.'' As the U.S. GAAP 
reconciliation would no longer be required of an issuer to which 
General Instruction G applies, we propose to change to reference to ``a 
U.S. GAAP reconciliation.'' This change is intended to eliminate any 
potential inference that the U.S. GAAP reconciliation would still be 
required, and to clarify that the body of accounting principles 
referenced in the paragraph does not refer to a basis that the issuer 
used to prepare financial statements for which a U.S. GAAP 
reconciliation was required. Paragraph (e) of General Instruction G 
directs an issuer to refer to the U.S. GAAP reconciliation for the 
years for which financial statements were prepared in accordance with 
IFRS and to discuss any 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. Because an 
issuer would no longer be required to prepare a reconciliation to U.S. 
GAAP under the proposed rules, we are proposing to eliminate the 
reference to the reconciliation in this instruction.
    Paragraph (f) of General Instruction G stipulates the financial 
information that a first-time IFRS user must provide in a registration 
statement filed during the year in which it makes the change, including 
interim information. Sub-paragraphs (f)(2)(B)(i), (ii) and (iii) set 
forth three options by which the requirements of Item 8.A.5 for interim 
financial statements may be satisfied.\109\ The first option allows for 
three years of financial statements prepared in accordance with 
Previous GAAP (as defined in Form 20-F) and reconciled to U.S. GAAP. As 
the proposed amendments would continue to require a reconciliation to 
U.S. GAAP from financial statements prepared using any basis of 
accounting other than IFRS as published by the IASB, we are not 
proposing to amend this requirement. The second option allows for two 
financial years of audited financial statements and interim financial 
statements prepared in accordance with IFRS as published by the IASB 
and reconciled to U.S. GAAP as required by Item 17(c) or 18. Consistent 
with the proposed amendments to Items 17 and 18, we also are proposing 
to eliminate the reconciliation requirement from this option. Under the 
third option, a first-time IFRS adopter may provide three years of 
audited financial statements prepared in accordance with the issuer's 
Previous GAAP, reconciled to U.S. GAAP, and two years of interim 
financial statements prepared in accordance with IFRS and reconciled to 
U.S. GAAP. We are not proposing to amend this option, which was 
provided as a bridge between an issuer's Previous GAAP and IFRS. 
Because an issuer eligible to rely on that option would not yet have 
provided audited IFRS financial statements in a filing with the 
Commission, we believe it is appropriate to continue to require the 
U.S. GAAP reconciliation of the interim financial statements prepared 
under IFRS.
---------------------------------------------------------------------------

    \109\ Item 8.A.5 of Form 20-F describes the financial 
information for interim periods to be included in a registration 
statement.
---------------------------------------------------------------------------

    Paragraph (h) of General Instruction G currently requires that 
financial statements prepared in accordance with IFRS for the most 
recent two financial years be reconciled to U.S. GAAP under Item 17 or 
18. Because first-time filers of financial statements using IFRS as 
published by the IASB are a subset of the IFRS filers that would be 
subject to the amendments we are proposing in this release, we also 
propose to eliminate that requirement from General Instruction G(h) in 
a manner consistent with the other proposed revisions to Form 20-F. As 
a conforming amendment we also are proposing to revise Instruction 2.b 
of General Instruction G(h) to specify that disclosure on operating and 
financial review and prospects provided in response to Item 5 of Form 
20-F need not refer to a reconciliation to U.S. GAAP. That revision is 
intended to eliminate ambiguity as to whether the disclosure should 
refer to any U.S. GAAP reconciling information prepared for previous 
years.
    Currently, the accommodation to first-time adopters of IFRS 
contained in General Instruction G expires after the first financial 
year starting on or after January 1, 2007. That timing was intended to 
comport with the requirements of the EU Regulation relating to the 
transition to IFRS of European companies, although the accommodation is 
available to an eligible first-time adopter of IFRS issuer from any 
jurisdiction. The Commission is aware that several countries will be 
changing their national accounting standards to IFRS, and is therefore 
proposing to extend the accommodation contained in General Instruction 
G to Form 20-F for five years, to cover financial statements for the 
2012 financial year or earlier that are included in annual reports or 
registration statements.
    Paragraph (i) of General Instruction G contains a special 
instruction that requires European issuers that prepare their financial 
statements using IFRS as adopted by the EU to reconcile their financial 
statements to IFRS as published by the IASB. A U.S. GAAP reconciliation 
also is required. This paragraph presently applies only to issuers 
incorporated in an EU Member State, and would cease to be applicable 
after the 2007 financial year, at which time the mandatory switch to 
IFRS under the EU Regulation will be complete. Because the provisions 
would no longer be applicable after that time, we are considering 
whether or not to

[[Page 37977]]

delete General Instruction G(i) as part of this rulemaking.

Questions

    31. If a first-time IFRS adopter provides, in a registration 
statement filed during the year in which it changes to IFRS, three 
years of annual financial statements under a Previous GAAP and two 
years of interim financial statements prepared under IFRS as published 
by the IASB, should we continue to require that the interim financial 
statements be reconciled to U.S. GAAP?
    32. Would a U.S. GAAP reconciliation be a useful bridge from 
Previous GAAP financial statements to annual financial statements 
prepared under IFRS as published by the IASB that are not reconciled to 
U.S. GAAP?
    33. Should the Commission extend the duration of the accommodation 
contained in General Instruction G for a period longer or shorter than 
the proposed five years? Would seven years, ten years or an indefinite 
period be appropriate? If so, why?
    34. Should any extension of the accommodation to first-time 
adopters be tied in any way to U.S. GAAP reconciliation? If so, how?
5. Check Boxes on the Cover Page of Form 20-F
    Currently, an issuer filing a registration statement or annual 
report on Form 20-F is required to identify, on the cover page of its 
filing, whether it prepares its financial statements in accordance with 
Item 17 or 18. The purpose of this information is to allow the reader 
to identify at a glance the type of U.S. GAAP reconciliation that the 
filing contains. If the proposed amendments are adopted, the 
reconciliation requirements contained in Items 17 and 18 will not apply 
to a Form 20-F filer that files its financial statements using IFRS as 
published by the IASB. To eliminate possible confusion as to the 
information that an issuer would provide on the cover page of Form 20-F 
in response to the current check box, we are proposing to add a check 
box in which a Form 20-F filer would indicate whether the financial 
statements included in the filing have been prepared using U.S. GAAP, 
IFRS as published by the IASB, or another basis of accounting. If, in 
response to this check box, an issuer has indicated that it uses a 
basis of accounting other than U.S. GAAP or IFRS as published by the 
IASB, the issuer would then indicate in response to a subsequent check 
box whether it follows Item 17 or 18.
    It is often difficult for the staff to communicate with foreign 
private issuers or their counsel, who may be located overseas. As a 
means of facilitating communication with foreign private issuers by the 
Commission staff, we also are proposing to revise the cover page of 
Form 20-F to require that issuers provide contact information for a 
person to whom enquiries may be directed.\110\ This information would 
include the name of an individual at the company or its legal counsel 
and the telephone, e-mail, and/or facsimile number, or other means by 
which that person can be contacted. Information provided on the Form 
20-F in response to the proposed check boxes and the company contact 
information will constitute required disclosure that is subject to all 
applicable federal securities laws.
---------------------------------------------------------------------------

    \110\ An example of this enquiry would be a staff comment 
letter. Identifying the person on the cover page would not make that 
person an agent for service of process.
---------------------------------------------------------------------------

D. Regulation S-X

    Regulation S-X contains, among other things, the form and content 
requirements for financial statements included in filings made with the 
Commission. It also includes many provisions that do not relate to U.S. 
GAAP, for example, requirements for auditor qualifications and reports. 
If the proposed rules are adopted, Regulation S-X, other than its form 
and content requirements, will continue to apply to the filings of all 
foreign private issuers, including those who file financial statements 
prepared using IFRS as published by the IASB without reconciliation to 
U.S. GAAP.
1. Application of the Proposed Amendments to Rules 3-05, 3-09, and 3-16
    Under Rules 3-05, 3-09 and 3-16 of Regulation S-X, an issuer, in 
certain circumstances, must include the financial statements of another 
entity in its filings.\111\ Although we are not proposing any specific 
amendments to those sections as part of this rulemaking initiative, the 
amendments that we are proposing in this release will apply equally in 
the application of Rules 3-05, 3-09 and 3-16.
---------------------------------------------------------------------------

    \111\ Rule 3-05 specifies the requirements for financial 
statements of businesses acquired or to be acquired. Rule 3-09 
specifies the requirements for financial statements of 
unconsolidated majority-owned subsidiaries and 50 percent or less 
owned investments accounted for by the equity method. Both Rule 3-05 
and 3-09 require financial statements when the applicable entity is 
significant to the issuer.
    Rule 3-16 specifies the requirement for financial statements of 
affiliates whose securities collateralize an issue registered or 
being registered. The requirement to provide separate financial 
statements under Rule 3-16 is based upon whether or not the 
securities are a substantial portion (as defined) of the collateral 
for the class of securities registered or being registered.
---------------------------------------------------------------------------

a. Significance Testing
    Under Rules 3-05, 3-09 and 3-16, an issuer is required to include 
the financial statements of another entity if the entity meets certain 
significance tests.\112\ Requirements for significance testing are 
governed by the financial statements of the issuer. Generally, if a 
foreign private issuer prepares its own financial statements using IFRS 
as published by the IASB, that issuer would perform the significance 
tests under Rules 3-05, 3-09 and 3-16 using IFRS as published by the 
IASB, regardless of the basis of accounting used by the other entity. 
If the significance thresholds under Rule 3-05, 3-09 or 3-16 are met, 
then the issuer must provide on a separate basis audited annual 
financial statements of the subject entity.
---------------------------------------------------------------------------

    \112\ An entity is significant to the issuer if the issuer's 
investment in the entity exceeds 20% of the issuer's total assets, 
the entity's income (as defined) exceeds 20% of the issuer's 
corresponding income, or (for Rule 3-05 only) the entity's total 
assets exceed 20% of the issuer's total assets.
---------------------------------------------------------------------------

b. Separate Historical Financial Statements of Another Entity Provided 
Under Rules 3-05 or 3-09
    Generally, the historical financial statement requirements for a 
foreign acquired business or investee under Rules 3-05 or 3-09 are 
governed by the status of that entity, and the burden of reconciling 
the financial statements of a non-issuer entity would be no higher than 
if it were the issuer. In applying the proposed amendments, if the 
entity's audited financial statements are in accordance with IFRS as 
published by the IASB, those financial statements would not be required 
to be reconciled to U.S. GAAP. For example, under Rule 3-05 both 
foreign private issuers and U.S. companies that acquire a 
``significant'' foreign business would be permitted, under the proposed 
rules, to include the acquiree's financial statements prepared in 
accordance with IFRS as published by the IASB without reconciliation, 
U.S. GAAP, or another comprehensive basis of accounting reconciled to 
U.S. GAAP. The same would be true for the financial statements of a 
``significant'' foreign investee under Rule 3-09.
    An issuer that includes financial statements for a foreign entity 
under Rule 3-05 or Rule 3-09 currently is permitted to omit the 
reconciliation to U.S. GAAP for that entity, regardless of the 
comprehensive basis of accounting in which that entity's financial 
statements are presented, if the

[[Page 37978]]

significance of that entity, as defined in Rule 1-02(w) of Regulation 
S-X, does not exceed 30 percent of the registrant.\113\ Although we are 
not proposing to amend Rules 3-05 or 3-09, we are proposing to revise 
Items 17(c)(2)(v) and (vi) of Form 20-F to clarify, respectively, that 
an issuer that uses IFRS as published by the IASB to prepare the 
financial statements of the foreign entity under Rule 3-05 or 3-09 may 
omit the reconciling information specified under Item 17(c)(2)(i)-(iii) 
regardless of the significance of the entity.
---------------------------------------------------------------------------

    \113\ See Item 17(c)(2)(v) and (vi) of Form 20-F.
---------------------------------------------------------------------------

2. Pro Forma Financial Statements Provided Under Article 11
    Under Article 11 of Regulation S-X, issuers are required to prepare 
unaudited pro forma financial information that is intended to give 
effect as if a particular transaction, such as a significant recent or 
probable business combination, had occurred at the beginning of the 
financial period. Requirements for pro forma financial information 
under Article 11 continue to be governed by the financial statements of 
the issuer rather than of the acquiree or other entity, as the pro 
forma results must be presented using the same basis of accounting as 
the issuer. Similarly, these rules do not impose a higher presentation 
burden on pro forma financial information than would be imposed on the 
historical financial statements of the issuer. We are not proposing to 
amend Article 11, but the proposed amendments will apply in the 
application of Article 11. Accordingly, if the proposed amendments are 
adopted, a foreign private issuer using IFRS as published by the IASB 
as its basis of accounting would not be required to reconcile to U.S. 
GAAP its pro forma financial information. Therefore, an issuer using 
IFRS as published by the IASB would prepare the pro forma financial 
information by presenting its IFRS results and converting the financial 
statements of the business acquired (or to be acquired) into IFRS as 
published by the IASB.
3. Financial Statements Provided under Rule 3-10
    Rule 3-10 of Regulation S-X specifies financial statement 
requirements for issuers of guaranteed securities and guarantors.\114\ 
Generally, under this rule both the issuer of the guaranteed security 
and the guarantor must follow the financial statement requirements of a 
registrant. If both entities are reporting foreign private issuers 
filing on Form 20-F, we would accept the financial statements prepared 
in accordance with IFRS as published by the IASB without reconciliation 
from each one under the proposed rules.\115\
---------------------------------------------------------------------------

    \114\ A guarantee of a registered security is itself a security, 
so a guarantor of a registered security is itself considered an 
issuer of a security. See Securities Act Section 2(a)(1).
    \115\ In this situation, when an issuer of a guaranteed security 
and a guarantor each file complete audited financial statements, the 
separate financial statements of each entity also may be on a 
different basis of accounting and, if not prepared under U.S. GAAP 
or IFRS as published by the IASB, must be reconciled to U.S. GAAP.
---------------------------------------------------------------------------

    However, Rule 3-10 permits modified reporting by subsidiary issuers 
of guaranteed securities and subsidiary guarantors. Separate financial 
statements need not be filed for subsidiaries meeting the applicable 
conditions contained in Rules 3-10(b) through 3-10(f). Instead, 
condensed consolidating financial information is presented in the 
parent company's reports in an additional audited footnote to the 
financial statements. In applying modified reporting under Rule 3-10, 
however, the reconciliation requirement would be based on the 
consolidated financial statements of the parent company, as under 
current rules. A parent issuer or guarantor that presents consolidated 
financial statements under IFRS as published by the IASB would present 
the condensed consolidating financial information on the basis of IFRS 
as published by the IASB, without reconciliation to U.S. GAAP. We do 
not believe that any substantive revision to Rule 3-10 is necessary to 
implement the acceptance of financial statements prepared using IFRS as 
published by the IASB without reconciliation as proposed.
    The instructions for preparation of condensed consolidating 
financial information required by certain paragraphs of Rule 3-10 
contain a reference to a reconciliation of the condensed consolidating 
financial information to U.S. GAAP. As a conforming amendment, we are 
proposing to revise this reference to clarify that we would accept the 
condensed consolidating financial information without a U.S. GAAP 
reconciliation if it is prepared using IFRS as published by the IASB.
4. Conforming Amendment to Rule 4-01
    Rule 4-01 of Regulation S-X sets out the general requirements for 
financial statements included in Commission filings and requires that 
foreign private issuers include an Item 18 reconciliation if they use a 
basis of accounting other than U.S. GAAP, except as otherwise stated in 
the applicable form.\116\ In order to implement fully the proposed 
acceptance of financial statements prepared using IFRS as published by 
the IASB and to avoid ambiguity for issuers, we propose to revise Rule 
4-01 to clarify that financial statements of foreign private issuers 
may be prepared using IFRS as published by the IASB without 
reconciliation to U.S. GAAP.
---------------------------------------------------------------------------

    \116\ As noted above, Item 17 reconciliation is permitted in 
various circumstances.
---------------------------------------------------------------------------

Questions

    35. Are the proposed changes to Rules 3-10 and 4-01 sufficient to 
avoid any ambiguity about our acceptance of IFRS financial statements 
without reconciliation? If not, what other revisions would be 
necessary?
    36. Are there other rules in Regulation S-X that should be 
specifically amended to permit the filing of financial statements 
prepared in accordance with IFRS as published by the IASB without a 
reconciliation to U.S. GAAP? If so, how would the application of those 
rules be unclear if there were no changes to those rules, and what 
changes would be suggested in order to make them clear?
    37. Is the application of the proposed rules to the preparation of 
financial statements provided under Rules 3-05, 3-09, 3-10 and 3-16 
sufficiently clear? If not, what areas need to be clarified? Are any 
further changes needed for issuers that prepare their financial 
statements using IFRS as published by the IASB?

E. Application of the Proposed Amendments to Other Forms, Rules and 
Schedules

1. Conforming Amendments to Securities Act Forms F-4 and S-4
    In addition to being the combined registration statement and annual 
report for foreign private issuers under the Exchange Act, Form 20-F 
also sets forth the disclosure requirements for registration statements 
filed by foreign private issuers under the Securities Act. Because the 
Securities Act registration statements applicable to foreign private 
issuers reference the disclosure and financial statement item 
requirements of Form 20-F, the proposed amendments to Form 20-F to 
eliminate the U.S. GAAP reconciliation requirement for IFRS issuers 
also will serve to eliminate the reconciliation requirement from most 
Securities Act forms without direct revision of those forms. In order 
to implement fully our acceptance of financial statements prepared in 
accordance with IFRS as published by the IASB and to eliminate 
potential

[[Page 37979]]

ambiguity, we are proposing to make conforming amendments to references 
to the U.S. GAAP reconciliation contained in Securities Act Forms F-4 
and S-4.
    Form F-4, the registration statement for securities of foreign 
private issuers issued in certain business combinations, contains 
specific references to the U.S. GAAP reconciliation.\117\ We are 
proposing to revise these references to the U.S. GAAP reconciliation 
contained in Items 10, 12 and 17 of this form to make them consistent 
with the proposed revisions to Item 17(c) and 18(b) of Form 20-F to 
indicate that the referenced U.S. GAAP reconciliation would apply only 
to financial statements prepared using a basis of accounting other than 
U.S. GAAP or IFRS as published by the IASB. Form S-4, the registration 
statement for securities of domestic issuers issued in business 
combination transactions, also contains reference to the U.S. GAAP 
reconciliation in the instruction to Item 17 which we propose to revise 
in the same manner.
---------------------------------------------------------------------------

    \117\ See Form F-4, Items 10(c), 12(b) and 17(b).
---------------------------------------------------------------------------

2. Conforming Amendment to Rule 701
    Rule 701 under the Securities Act provides an exemption from 
registration for offers and sales made under certain compensatory 
benefit plans. The rule is generally not available to an issuer that 
has a reporting obligation under the Exchange Act. An issuer that 
offers securities in reliance on Rule 701 does not file any information 
with the Commission, but is required to deliver to investors certain 
information, including financial statements, if more than $5 million in 
securities are sold over a 12-month period. For foreign private issuers 
relying on Rule 701, these financial statements must include a 
reconciliation under Item 17 of Form 20-F if they are not prepared in 
accordance with U.S. GAAP.
    To implement the proposed rules fully, we believe that a foreign 
private issuer that conducts an offering under Rule 701 and that uses 
in its financial statements IFRS as published by the IASB should not be 
required to present a U.S. GAAP reconciliation. We propose to amend 
Rule 701 to clarify that a U.S. GAAP reconciliation will not be 
required in that circumstance.
3. Small Business Issuers
    A Canadian foreign private issuer that qualifies as a small 
business issuer under Regulation S-B may elect to provide disclosure in 
its registration statements and annual reports, in compliance with 
forms based on Regulation S-B rather than on Form 20-F.\118\ Regulation 
S-B describes the financial statement requirements for a small business 
issuer, which must be prepared in accordance with U.S. GAAP or, if 
filed by a foreign private issuer that also is a small business issuer, 
reconciled to U.S. GAAP in accordance with the requirements of Items 17 
or 18 of Form 20-F, as appropriate.\119\ At a recent meeting,\120\ the 
Commission approved a proposal to integrate most of the substantive 
provisions of Regulation S-B into Regulation S-K and to eliminate 
current Regulation S-B as a separate disclosure system for smaller 
companies. If we do not adopt those proposals, we would consider making 
conforming changes to Regulation S-B and to small business forms to 
implement fully the amendments we are proposing in this release.
---------------------------------------------------------------------------

    \118\ 17 CFR 228. A ``small business issuer'' is defined in Item 
10 of Regulation S-B (17 CFR 228.10) as a company that (i) has 
revenues of less than $25,000,000, (ii) is a U.S. or Canadian 
issuer; and (iii) is not an investment company and is not an asset-
backed issuer; and (iv) if a majority owned subsidiary, the parent 
corporation is also a small business issuer. An entity that meets 
all of these criteria is not a small business issuer if it has a 
public float (defined as the aggregate market value of the issuer's 
outstanding voting and non-voting common equity held by non-
affiliates) of $25,000,000 or greater.
    \119\ See Notes 1 and 2 to Item 310 of Regulation S-B.
    \120\ The proposal that the Commission made in its meeting held 
May 23, 2007 is described at http://www.sec.gov/news/press/2007/2007-102.htm.
---------------------------------------------------------------------------

    If the new small business rules are adopted as proposed, a foreign 
private issuer that also is eligible to rely on those rules would have 
a choice as to the accounting standards used to prepare its financial 
statements. If we adopt the proposed amendments, a small business 
issuer that files annual reports on Form 20-F or a Securities Act 
registration statement based on Form 20-F would be able to file 
financial statements prepared using U.S. GAAP, IFRS as published by the 
IASB without a U.S. GAAP reconciliation, or another comprehensive basis 
of accounting with a U.S. GAAP reconciliation. If that issuer chose to 
file annual reports on Form 10-K or a Securities Act form based on 
Regulation S-K, financial statements prepared using U.S. GAAP would be 
required.

Questions

    38. Are the proposed changes in Forms F-4 and S-4, and in Rule 701, 
sufficient to avoid any ambiguity about our acceptance of IFRS 
financial statements without reconciliation? If not, how should we 
revise those forms or rule?
    39. Under Part F/S of Form 1-A relating to offerings conducted 
under Regulation A, Canadian issuers may use unaudited financial 
statements that are reconciled to U.S. GAAP. Should we amend Form 1-A 
to permit the use by Canadian companies of financial statements 
prepared in accordance with IFRS as published by the IASB without a 
reconciliation? Does the fact that financial statements under Form 1-A 
are not required to be audited militate in favor of retaining a U.S. 
GAAP reconciliation whenever a Canadian issuer uses a GAAP other than 
U.S. GAAP?
    40. Are there other rules or forms under the Securities Act that 
should be specifically amended to permit the filing of financial 
statements prepared in accordance with IFRS as published by the IASB 
without a reconciliation to U.S. GAAP? If so, how would the rules or 
forms be unclear if there were no changes to those forms, and what 
changes would be suggested in order to make them clear?
4. Schedule TO and Schedule 13E-3
    Instruction 8 to Item 10 of Schedule TO, the tender offer statement 
under the Exchange Act,\121\ contains a reference to reconciliation to 
U.S. GAAP in accordance with Item 17 of Form 20-F. Instruction 2 to 
Item 13 of Schedule 13E-3,\122\ the transaction statement under Section 
13(e) of the Exchange Act, also contains a reference to U.S. GAAP 
reconciliation under Item 17. Because reconciliation requirements for 
Schedule TO and Schedule 13E-3 are provided in Item 17 of 20-F, which 
we are proposing to amend, we do not believe any amendment to Schedule 
TO or Schedule 13E-3 is necessary to fully implement our proposed 
acceptance of financial statements prepared in accordance with IFRS as 
published by the IASB when contained without reconciliation to U.S. 
GAAP.
---------------------------------------------------------------------------

    \121\ 17 CFR 240.14d-100.
    \122\ 17 CFR 240.13e-100.
---------------------------------------------------------------------------

Question

    41. Should Schedule TO and Schedule 13E-3 be specifically amended 
to permit the filing of financial statements prepared in accordance 
with IFRS as published by the IASB without a reconciliation to U.S. 
GAAP? If so, how would the rules or forms be unclear if there were no 
changes to those Schedules, and what changes would be suggested in 
order to make them clear?

F. Quality Control Issues

    On April 16, 2003, the PCAOB adopted certain pre-existing standards

[[Page 37980]]

of the American Institute of Certified Public Accountants (``AICPA'') 
as interim standards to be used on an initial transition basis.\123\ 
Among these interim standards was PCAOB Rule 3400T, Interim Quality 
Control Standards, which consist of the AICPA's Auditing Standard 
Board's Statements on Quality Control Standards and the AICPA SEC 
Practice Section's membership requirements, in each case as in 
existence on April 16, 2003 and to the extent not superseded or amended 
by the PCAOB.
---------------------------------------------------------------------------

    \123\ See ``Interim Standards'' at http://www.pcaobus.org/Standards/Interim_Standards/index.aspx.
---------------------------------------------------------------------------

    One of these membership requirements related to compliance with 
Appendix K, which was applicable to member firms that were members of, 
correspondents with, or similarly associated with international firms 
or international associations of firms. Appendix K provides that member 
firms seek adoption of policies and procedures by their international 
organizations or individual foreign associated firms that address the 
review of SEC filings by persons knowledgeable in accounting, auditing 
and independence standards generally accepted in the United States. 
This requirement seeks to enhance the quality of SEC filings by SEC 
registrants whose financial statements are audited by foreign 
associated audit firms.\124\
---------------------------------------------------------------------------

    \124\ See Appendix K at http://www.pcaob.org/Standards/Interim_Standards/Quality_Control_Standards/SECPS_1000.08_Appendicies_bookmarks.pdf#nameddest=k.
---------------------------------------------------------------------------

    We are not proposing amendments to our rules that relate to the 
continued need for compliance with PCAOB Auditing Standards, including 
Appendix K. However, we believe that commenters may wish to address 
this area in light of our proposed acceptance of IFRS as published by 
the IASB without a reconciliation to U.S. GAAP.

Questions

    42. Without the reconciliation to U.S. GAAP, should we be concerned 
about member firm requirements to have persons knowledgeable in 
accounting, auditing and independence standards generally accepted in 
the United States review IFRS financial statements filed with the 
Commission? Are there alternative ways in which concerns may be 
addressed?

G. Application to Filings Under the Multijurisdictional Disclosure 
System

    Certain Canadian foreign private issuers file registration 
statements and annual reports under the Multijurisdictional Disclosure 
System (``MJDS''), which permits eligible Canadian companies to use 
their disclosure documents prepared in accordance with Canadian 
requirements in filings with the Commission. Certain filings under the 
MJDS are not required to contain a reconciliation to U.S. GAAP.\125\ 
However, a U.S. GAAP reconciliation is required in registration 
statements and annual reports on Form 40-F,\126\ and registration 
statements on Form F-10,\127\ each when used for common equity 
securities, securities convertible into common equity securities and 
other securities not rated investment grade.
---------------------------------------------------------------------------

    \125\ A U.S. GAAP reconciliation is not required under Form F-7 
relating to rights offers, Forms F-8 and F-80 for exchange offers 
and business combinations, Form F-9 relating to investment grade 
securities, and Form 40-F when used as an annual report relating to 
an issuer's Section 15(d) reporting obligations for any of the these 
offerings or a Section 13(a) reporting obligation relating to 
investment grade securities.
    \126\ 17 CFR 249.240f.
    \127\ 17 CFR 239.40.
---------------------------------------------------------------------------

    At present, Canadian companies filing under the MJDS generally use 
either Canadian GAAP (with a U.S. GAAP reconciliation when called for) 
or U.S. GAAP in filings with the Commission. As discussed above, 
officials in Canada are considering permitting the use of IFRS as 
published by the IASB as the basis of accounting for all Canadian 
public companies. To implement the proposed rules fully, we believe 
that a Canadian company that uses the MJDS forms and that changes its 
basis of accounting to IFRS as published by the IASB should not be 
required to present a U.S. GAAP reconciliation. However, we do not 
believe any amendments to Forms 40-F and F-10 are necessary to 
accomplish this. Forms 40-F and F-10 already contain a cross-reference 
to the U.S. GAAP reconciliation requirement under Items 17 and 18 of 
Form 20-F, which will be amended as described above to allow the filing 
of IFRS financial statements without a U.S. GAAP reconciliation.

Questions

    43. Should Form 40-F or F-10 be specifically amended to permit the 
filing of financial statements prepared in accordance with IFRS as 
published by the IASB without a reconciliation to U.S. GAAP? If so, how 
would the forms be unclear if there were no changes to those forms, and 
what changes would be suggested in order to make them clear?

IV. General Request for Comments

    We request and encourage any interested persons to submit comments 
regarding:
     The proposed changes that are the subject of this release,
     Additional or different changes, or
     Other matters that may have an effect on the proposals 
contained in this release.
    In addition to providing comments on these matters, we encourage 
interested parties to provide comment on broader matters related to the 
development of a single set of globally accepted accounting standards, 
for example:
    44. If progress does not continue towards implementing a single set 
of high-quality globally accepted accounting standards, will investors 
and issuers be served by the absence of a U.S. GAAP reconciliation for 
financial statements prepared using IFRS as published by the IASB?
    45. Where will the incentives for continued convergence lie for 
standard setters, issuers, investors and other users of financial 
statements if the reconciliation to U.S. GAAP is eliminated for issuers 
whose financial statements are prepared using IFRS as published by the 
IASB?
    46. Are there additional interim measures, beyond the proposed 
elimination of the U.S. GAAP reconciliation from IFRS financial 
statements, that would advance the adoption of a single set of high-
quality globally accepted accounting standards? If so, what are they? 
Who should undertake them?
    We request comment from the point of view of registrants, 
investors, accountants, accounting standard setters, users of financial 
statements and other market participants. With regard to any comments, 
we note that such comments are of greatest assistance to our rulemaking 
initiative if accompanied by supporting data and analysis of the issues 
addressed in those comments.

V. Paperwork Reduction Act

A. Background

    The proposed amendments contain ``collection of information'' 
requirements within the meaning of the Paperwork Reduction Act of 1995 
(``PRA'').\128\ We are submitting the proposed amendments to the Office 
of Management and Budget (``OMB'') for review in accordance with the 
PRA.\129\ The titles for the affected collections of information are:
---------------------------------------------------------------------------

    \128\ 44 U.S.C. 3501 et seq.
    \129\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------

    (1) ``Form 20-F'' (OMB Control No. 3235-0288);
    (2) ``Form F-1'' (OMB Control No. 3235-0258);

[[Page 37981]]

    (3) ``Form F-4'' (OMB Control No. 3235-0325);
    (4) ``Form S-4'' (OMB Control No. 3235-0324); and
    (5) ``Rule 701'' (OMB Control No. 3235-0522).
    These forms were adopted pursuant to the Exchange Act and the 
Securities Act and set forth the disclosure requirements for annual 
reports and registration statements filed by foreign private issuers. 
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 proposed amendments, if adopted, would allow a foreign private 
issuer that prepares its consolidated financial statements in 
accordance with IFRS as published by the IASB, and meets the other 
eligibility requirements, to file those financial statements in its 
registration statements and periodic reports filed with the Commission 
without reconciliation to U.S. GAAP. These amendments would be 
collections of information for purposes of the Paperwork Reduction Act. 
For purposes of this Paperwork Reduction Analysis, these proposed 
amendments, if adopted, would result in a decrease in the hour and cost 
burden calculations. We believe this proposed amendment would eliminate 
potential burdens and costs for foreign issuers that use IFRS. The 
disclosure will be mandatory. There would be no mandatory retention 
period for the information disclosed, and responses to the disclosure 
requirements would not be kept confidential.
    For purposes of the Paperwork Reduction Act, we estimate that the 
incremental decrease in the paperwork burden for all foreign private 
issuers that use IFRS and issuers that acquire foreign private issuers 
that use IFRS would be approximately 3,861 hours of company time and 
approximately $4,600,720 for the services of outside professionals. We 
estimated the average number of hours each entity spends completing the 
forms and the average hourly rate for outside professionals. 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.\130\ Our estimates of the 
number of impacted foreign private issuers are based on the number of 
recent filings received from issuers that we believe may be immediately 
eligible to rely on the proposals, if adopted.
---------------------------------------------------------------------------

    \130\ In connection with other recent rulemakings, we have had 
discussions with several private law firms to estimate an hourly 
rate of $400 as the cost to companies for the services of outside 
professionals retained to assist in the preparation of these 
disclosures. For Securities Act registration statements, we also 
consider additional reviews of the disclosure by underwriter's 
counsel and underwriters.
---------------------------------------------------------------------------

B. Burden and Cost Estimates Related to the Proposed Accommodation

1. Form 20-F
    We estimate that currently foreign private issuers file 942 Form 
20-Fs each year. We assume that 25% of the burden required to produce 
the Form 20-Fs is borne internally by foreign private issuers, 
resulting in 619,601 annual burden hours borne by foreign private 
issuers out of a total of 2,478,404 annual burden hours. Thus, we 
estimate that 2,631 total burden hours per response are currently 
required to prepare the Form 20-F. We further assume that 75% of the 
burden to produce the Form 20-Fs is carried by outside professionals 
retained by foreign private issuers at an average cost of $400 per 
hour, for a total cost of $743,520,600.
    We estimate that approximately 110 companies that file Form 20-F 
will be currently impacted by the proposal.\131\ We expect that, if 
adopted, the proposed amendment would cause those foreign private 
issuers to have fewer burden hours. We estimate that for each of the 
companies affected by the proposal, there would occur a decrease of 5% 
(131.55 hours) in the number of burden hours required to prepare their 
Form 20-F, for a total decrease of 14,471 hours. We expect that 25% of 
these decreased burden hours (3,618 hours) will be saved by foreign 
private issuers. We further expect that 75% of these decreased burden 
hours (10,853 hours) will be saved by outside firms, at an average cost 
of $400 per hour, for a total of $4,341,120 in decreased costs to the 
respondents of the information collection.
---------------------------------------------------------------------------

    \131\ We are using this figure for purposes of the Paperwork 
Reduction Analysis based on the number of Form 20-Fs that were filed 
with IFRS financial statements during the 2006 calendar year. As 
additional jurisdictions adopt IFRS as their basis of accounting in 
the future, the number of issuers that use IFRS is expected to 
increase.
---------------------------------------------------------------------------

    Thus, we estimate that the proposed amendment to Form 20-F would 
decrease the annual burden borne by foreign private issuers in the 
preparation of Form 20-F from 619,601 hours to 615,983 hours. We 
further estimate that the proposed amendment would decrease the total 
annual burden associated with Form 20-F preparation to 2,463,932 burden 
hours, which would decrease the average number of burden hours per 
response to 2,616. We further estimate that the proposed amendment 
would decrease the total annual costs attributed to the preparation of 
Form 20-F by outside firms to $739,179,600.
2. Form F-1
    We estimate that currently foreign private issuers file 42 
registration statements on Form F-1 each year. We assume that 25% of 
the burden required to produce a Form F-1 is borne by foreign private 
issuers, resulting in 18,999 annual burden hours incurred by foreign 
private issuers out of a total of 75,996 annual burden hours. Thus, we 
estimate that 1,809 total burden hours per response are currently 
required to prepare a registration statement on Form F-1. We further 
assume that 75% of the burden to produce a Form F-1 is carried by 
outside professionals retained by foreign private issuers at an average 
cost of $400 per hour, for a total cost of $22,798,800.
    We estimate that currently approximately five companies that file 
registration statements on Form F-1 will be impacted by the 
proposal.\132\ We expect that, if adopted, the proposed amendment would 
cause those foreign private issuers to have fewer burden hours. We 
estimate that each company affected by the proposal would have a 5% 
decrease (90.45 hours) in the number of burden hours required to 
prepare their registration statements on Form F-1, for a total decrease 
of 452 hours. We expect that 25% of these decreased burden hours (113 
hours) will be saved by foreign private issuers. We further expect that 
75% of the decreased burden hours (339 hours) will be saved by outside 
firms, at an average cost of $400 per hour, for a total of $135,600 in 
decreased costs to the respondents of the information collection.
---------------------------------------------------------------------------

    \132\ This figure is based on our estimate of the number of Form 
F-1s that were filed with IFRS financial statements during the 2006 
calendar year.
---------------------------------------------------------------------------

    Thus, we estimate that the proposed amendment to Form 20-F would 
decrease the annual burden incurred by foreign private issuers in the 
preparation of Form F-1 from 18,999 hours to 18,886 hours. We further 
estimate that the proposed amendment would decrease the total annual 
burden associated with Form F-1 preparation to 75,544 burden hours, 
which would decrease the average number of burden hours per response to 
1,799. We further estimate that the proposed amendment would decrease 
the total annual costs

[[Page 37982]]

attributed to the preparation of Form F-1 by outside firms to 
$22,663,200.
3. Form F-4
    We estimate that currently foreign private issuers file 68 
registration statements on Form F-4 each year. We assume that 25% of 
the burden required to produce a Form F-4 is borne internally by 
foreign private issuers, resulting in 24,503 annual burden hours 
incurred by foreign private issuers out of a total of 98,012 annual 
burden hours. Thus, we estimate that 1,441 total burden hours per 
response are currently required to prepare a registration statement on 
Form F-4. We further assume that 75% of the burden to produce a Form F-
4 is carried by outside professionals retained by foreign private 
issuers at an average cost of $400 per hour, for a total cost of 
$29,403,600.
    We estimate that currently approximately 5 companies that file 
registration statements on Form F-4 will be impacted by the 
proposal.\133\ We expect that, if adopted, the proposed amendment would 
cause those foreign private issuers to have fewer burden hours. We 
estimate that each of the affected companies would have a decrease of 
5% (72 hours) in the number of burden hours required to prepare their 
registration statements on Form F-4, for a total decrease of 360 hours. 
We expect that 25% of these decreased burden hours (90 hours) will be 
saved by foreign private issuers. We further expect that 75% of the 
decreased burden hours (270 hours) would be saved by outside firms at 
an average cost of $400 per hour, for a total of $108,000 in decreased 
costs to the respondents of the information collection.
---------------------------------------------------------------------------

    \133\ This figure is based on our estimate of the number of Form 
F-4s that were filed with IFRS financial statements during the 2006 
calendar year.
---------------------------------------------------------------------------

    Thus, we estimate that the proposed amendment to Form 20-F would 
decrease the annual burden incurred by foreign private issuers in the 
preparation of Form F-4 from 24,503 hours to 24,413 hours. We further 
estimate that the proposed amendment would decrease the total annual 
burden associated with Form F-4 preparation to 97,652 burden hours, 
which would decrease the average number of burden hours per response to 
1,436. We further estimate that the proposed amendment would decrease 
the total annual costs attributed to the preparation of Form F-4 by 
outside firms to $29,295,600.
4. Form S-4
    When a domestic issuer files a registration statement on Form S-4 
for the acquisition of a foreign private issuer, the domestic issuer 
must include the financial statements of the acquired company in the 
Form S-4. If those financial statements are prepared using a basis of 
accounting other than U.S. GAAP, the domestic issuer must provide a 
reconciliation to U.S. GAAP, unless a reconciliation is unavailable or 
not obtainable without unreasonable cost or expense.
    We estimate that issuers file 619 registration statements on Form 
S-4 each year. We estimate that 1,355 total burden hours per response 
are currently required to prepare a registration statement on Form S-4. 
We assume that 75% of the burden required to produce a Form S-4 is 
borne by the domestic issuer, resulting in 629,059 annual burden hours 
incurred by issuers out of a total of 838,745 annual burden hours. We 
further assume that 25% of the burden to produce a Form S-4 is carried 
by outside professionals retained by the issuer at an average cost of 
$400 per hour for a total cost of $83,874,500.
    We estimate that currently approximately 6 registration statements 
filed on Form S-4 will contain the financial statements of a foreign 
target that will be impacted by the proposal.\134\ We expect that, if 
adopted, the proposed amendment would cause the domestic issuers that 
file the Form S-4 registration statements to have fewer burden hours. 
We estimate that for each of these domestic registrants, there would be 
a decrease of 2% (27 hours) in the number of burden hours required to 
prepare their registration statements on Form S-4, for a total decrease 
of 162 hours.\135\ We expect that 75% of these decreased burden hours 
(122 hours) would be saved by issuers. We further expect that 75% of 
the decreased burden hours (40 hours) would be saved by outside 
professionals at an average cost of $400 per hour for a total of 
$16,000 in decreased costs to the respondents of the information 
collection.
---------------------------------------------------------------------------

    \134\ This figure is based on our estimate of the number of Form 
S-4s that were filed during the 2006 calendar year that contained 
IFRS financial statements.
    \135\ We estimate the burden decrease for purposes of this 
Paperwork Reduction Analysis would be less for Form S-4 than for 
other forms described in this section because, in the case of Form 
S-4, the registrant is obtaining the U.S. GAAP reconciliation from 
the foreign private issuer. Further, the registrant is not required 
to provide the reconciliation if it is unavailable or unobtainable 
without unreasonable cost or expense.
---------------------------------------------------------------------------

    Thus, we estimate that the proposed amendment would decrease the 
annual burden incurred by issuers in the preparation of Form S-4 from 
629,059 hours to 628,937 hours. We further estimate that the proposed 
amendment would decrease the total annual burden associated with Form 
S-4 preparation to 838,584 burden hours, which would decrease the 
average number of burden hours per response to 1,354.7. We further 
estimate that the proposed amendment would decrease the total annual 
costs attributed to the preparation of Form S-4 by outside firms to 
$83,858,500.
5. Rule 701
    Rule 701 provides an exemption from registration for offers and 
sales of securities pursuant to certain compensatory benefit plans and 
contracts relating to compensation. Issuers conducting employee benefit 
plan offerings in excess of $5 million in reliance on Rule 701 are 
required to provide employees covered by the plan with certain 
disclosures, including financial statement disclosures. This disclosure 
is a collection of information.
    We estimate that currently 300 issuers provide information under 
Rule 701, and that the estimated number of burden hours per respondent 
is two. Therefore, we estimate an aggregate of 600 burden hours per 
year. We believe that the reduction in burden hours caused by the 
proposed rules will be insignificant. Therefore, we do not believe the 
proposed rules will alter current burden estimates associated with Rule 
701.

C. Request for Comment

    Pursuant to 44 U.S.C. 3506(c)(2)(B), we request comment in order 
to:
     Evaluate whether the proposed collections of information 
are necessary for the proper performance of the functions of the 
Commission, including whether the information will have practical 
utility;
     Evaluate the accuracy of our estimates of the burden of 
the proposed collections of information;
     Determine whether there are ways to enhance the quality, 
utility, and clarity of the information to be collected;
     Evaluate whether there are ways to minimize the burden of 
the collections of information on those who respond, including through 
the use of automated collection techniques or other forms of 
information technology; and
     Evaluate whether the proposed amendments will have any 
effects on any other collections of information not previously 
identified in this section.

    Any member of the public may direct to us any comments concerning 
the accuracy of these burden estimates and any suggestions for reducing 
the burdens. Persons who desire to submit comments on the collection of

[[Page 37983]]

information requirements should direct their comments to the OMB, 
Attention: Desk Officer for the Securities and Exchange Commission, 
Office of Information and Regulatory Affairs, Washington, DC 20503, and 
send a copy of the comments to Nancy M. Morris, Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090, 
with reference to File No. S7-13-07. Requests for materials submitted 
to the OMB by us with regard to these collections of information should 
be in writing, refer to File No. S7-13-07 and be submitted to the 
Securities and Exchange Commission, Records Management, Office of 
Filings and Information Services, 100 F Street, NE., Washington DC 
20549. Because the OMB is required to make a decision concerning the 
collections of information between 30 and 60 days after publication, 
your comments are best assured of having their full effect if the OMB 
receives them within 30 days of publication.

VI. Cost-Benefit Analysis

    We are proposing amendments to existing rules and forms to accept 
financial statements from foreign private issuers prepared using IFRS 
as published by the IASB without reconciliation to U.S. GAAP. 
Currently, financial statements that foreign private issuers file with 
the Commission must be prepared either in accordance with U.S. GAAP, or 
in accordance with another GAAP with a reconciliation to U.S. GAAP. The 
amendments, if adopted, would therefore provide foreign private issuers 
with a third method of preparing financial statements filed with the 
Commission. We are not proposing to amend the current reconciliation 
requirements for foreign private issuers that prepare their financial 
statements using a basis of accounting other than IFRS as published by 
the IASB.
    The amendments would apply to a registrant's financial statements 
contained in annual reports and registration statements on Form 20-F as 
well as to financial statements included in the Securities Act 
registration statements filed by foreign private issuers or, when 
applicable, included in a registration statement or reported pursuant 
to Rules 3-05, 3-09 or 3-16 of Regulation S-X. We also are proposing a 
conforming amendment to Rule 701, which provides an exemption from 
Securities Act registration for securities offered in certain employee 
benefit plans, to clarify that a foreign private issuer conducting an 
offering in excess of $5 million in reliance on that rule may furnish 
investors with financial statements prepared using IFRS as published by 
the IASB without reconciliation.
    Currently, there are between 1,000 and 1,200 foreign private 
issuers registered with the Commission. The proposed amendments would 
be available to any of those foreign private issuers that comply with 
IFRS as published by the IASB, whether voluntarily or pursuant to a 
requirement. Some foreign companies that are registered under the 
Exchange Act already include in their filings with the Commission 
financial statements that comply with IFRS as published by the IASB. We 
estimate that there are approximately 110 foreign private issuers that 
represent in the footnotes to their financial statements that the 
financial statements comply with IFRS as published by the IASB. This 
representation may be in addition to a representation that the 
financial statements comply with a jurisdictional variation of IFRS. If 
a registrant's auditors are able to opine that those financial 
statements are in compliance with IFRS as published by the IASB, then 
those registrants would be in a position to immediately file their 
existing financial statements under the proposed approach. Another 
approximately 70 foreign private issuers already include in their 
filings financial statements that they state are prepared in accordance 
with solely a jurisdictional variation of IFRS. If these companies are 
also able to state (and their auditors are able to opine) that their 
financial statements comply with IFRS as published by the IASB, the 
companies would be in a similar position. Lastly, approximately 50 
additional foreign private issuers that are incorporated in 
jurisdictions that have moved to IFRS include in their filings with the 
Commission financial statements prepared using U.S. GAAP. Some of these 
issuers also may be in a position to file financial statements under 
the proposed approach.\136\
---------------------------------------------------------------------------

    \136\ The figures contained in this paragraph are per staff 
estimates based on the jurisdiction of the filers.
---------------------------------------------------------------------------

    We recognize that other registered foreign companies include 
financial statements in accordance with a home country GAAP. We believe 
that there would be different incentives for these companies to change 
their basis of accounting to IFRS as published by the IASB and thus be 
able to omit the U.S. GAAP reconciliation under the proposed approach. 
Some foreign companies are required under home country law or stock 
exchange rule to use a home country GAAP and are not permitted for home 
country purposes to use IFRS. At present, these companies generally 
include in their SEC filings financial statements prepared under home 
country GAAP with a U.S. GAAP reconciliation. These companies would be 
able to take advantage of the proposed amendments by preparing for the 
purpose of Commission filings (but not for home country purposes) 
financial statements in accordance with IFRS as published by the IASB. 
While these companies would incur the costs of preparing a separate set 
of financial statements, companies may elect to do so in light of 
benefits they may derive from preparing a set of IFRS financial 
statements as well as the costs of preparing the U.S. GAAP 
reconciliation.
    Lastly, in coming years, as more countries adopt IFRS as their 
basis of accounting or permit companies to use IFRS as their basis of 
accounting, we believe that the number of foreign private issuers that 
would be eligible to rely on the proposed amendments will increase, 
although it is difficult to quantify that increase at this point in 
time.
    In summary, while all foreign private issuers would receive a 
potential benefit from the third option for preparing financial 
statements described in this proposal, this option will not be 
immediately equally attractive to all such issuers. We recognize that 
the proposed acceptance of financial statements prepared using IFRS as 
published by the IASB without reconciliation does not confer an equal 
benefit on all foreign private issuers, as there are some issuers that 
will continue to find it more attractive to reconcile their financial 
statements to U.S. GAAP. For some foreign private issuers the proposed 
amendments are immediately attractive. For other foreign private 
issuers the option may become attractive at a later date when their 
situational constraints or opportunities change. For still other such 
issuers, the option may not become attractive or applicable at any time 
in the foreseeable future. The cost of preparing (or not having to 
additionally prepare) the relevant IFRS financial statements is one 
factor that may influence whether a foreign private issuer will use the 
option proposed, be it immediately or at some time in the future. The 
proposed option may be most attractive for issuers whose home 
jurisdiction or other capital markets in which the issuer lists 
securities allow financial statements prepared in accordance with IFRS. 
Foreign private issuers also may be concerned about public perception 
costs, as they may be perceived as being the outlier if companies with 
which

[[Page 37984]]

they compete for capital commonly report using another basis of 
accounting. Such an effect is likely to be smaller if a critical mass 
of issuers with whom the issuer competes for capital (such as those in 
its industry sector) also report in IFRS. In such situations, by 
reporting in IFRS, the foreign private issuer has made it more 
efficient for investors to analyze its financial results in comparison 
with the results of others with whom it competes for capital.

A. Expected Benefits

    Our proposed acceptance of financial statements prepared using IFRS 
as published by the IASB is expected to help foster the preparation of 
financial statements in accordance with IFRS as a way of moving to a 
single set of globally accepted accounting standards, which we believe 
will have positive effects on investors and also issuers. Financial 
statements prepared using a common set of accounting standards help 
investors better understand investment opportunities as compared to 
financial statements prepared under differing sets of national 
accounting standards. Without a common standard and without a required 
reconciliation, global investors must incur the time and effort to 
understand financial statements reported using different bases of 
accounting so that they can compare opportunities.
    The proposals are expected to increase the likelihood of realizing 
the net benefits of a single set of globally accepted accounting 
standards. This benefit is due to potential network effects of the 
proposed amendments: The more issuers that use IFRS as published by the 
IASB and file without a U.S. GAAP reconciliation, the more benefits 
there may be for other issuers to do so since the utility for investors 
of a set of accounting standards increases as the number of issuers 
using it increases.
    The resulting reduction of the multiplicity of accounting standards 
that presently exist is expected to benefit investors by allowing them 
to spend less time and allocate fewer resources to learning, or keeping 
up with developments in, myriad GAAPs of varying quality in favor of a 
single, high-quality set of globally accepted standards. In addition to 
these benefits of moving away from a multiplicity of accounting 
standards towards a single set of standards, investors will further 
benefit from better information if the single set of standards that 
issuers use results in higher disclosure quality.
    We believe that issuers would be affected by the proposal in a 
number of ways, including needing fewer resources to prepare U.S. 
filings.\137\ To the extent that an issuer relying on the proposed 
amendments can reallocate its cost savings from not preparing a 
reconciliation to U.S. GAAP or possibly a second set of financial 
statements in U.S. GAAP to higher earning opportunities, and not suffer 
a relatively greater increase in the cost of its capital as a result, 
then the issuer also will realize a better rate of return on its 
capital which will benefit investors. Issuers also may enjoy greater 
timing flexibility in accessing the U.S. market if they can prepare 
IFRS financial statements more quickly without reconciliation, 
particularly with regard to the use of automatic shelf registration 
statements.
---------------------------------------------------------------------------

    \137\ For purposes of the Paperwork Reduction Analysis, as 
described above, we have estimated that the incremental decrease in 
the paperwork burden for all foreign private issuers that use IFRS 
and issuers that acquire foreign private issuers that use IFRS would 
be approximately 3,861 hours of company time and approximately 
$4,600,720 for the services of outside professionals. For purposes 
of these calculations, we estimated the average number of hours each 
entity spends completing the forms and the average hourly rate for 
outside professionals, including 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. 
The impact on an individual issuer may vary, based on its specific 
circumstances.
---------------------------------------------------------------------------

    The proposed amendments are expected to benefit investors and 
issuers alike to the extent that they facilitate capital formation by 
foreign companies in the United States capital markets. Our proposed 
amendments to accept IFRS financial statements without reconciliation 
would reduce regulatory burdens for foreign private issuers that rely 
on them, thereby lowering the information disclosure preparation cost 
of raising capital in the United States for those issuers. We believe 
that foreign private issuers may therefore be more likely to enter the 
U.S. capital markets. If they do, investors would, in turn, benefit 
from having more investment opportunities in the United States and 
generally would incur lower transaction costs when trading a foreign 
company's securities in the United States relative to a foreign market. 
To the extent our acceptance of IFRS financial statements without 
reconciliation encourages foreign private issuers to enter or remain in 
the U.S. capital market, investors also will benefit from the 
protections of the U.S. regulatory and disclosure system relative to 
the protections they may receive if purchasing those securities 
overseas. Investors also are expected to benefit from the potential 
reduction in the cost of capital to issuers, as discussed above.

B. Expected Costs

    This proposal has no cost upon either a foreign private issuer or 
its investors until the issuer uses the proposed IFRS option. In so 
doing, the minimum required financial information the investors in the 
U.S. capital markets receive from any such issuer would differ from 
what it was previously. The extent to which this yields a different 
required information set will depend upon how the foreign issuer 
previously reported its financial statements. For instance, if the 
foreign issuer currently files its financial statements using U.S. GAAP 
and transitions to reporting in IFRS, then this may or may not 
represent a loss of required information in absolute terms. Whether 
there is an absolute loss of information would depend upon whether IFRS 
financial statements yielded more or less information about a 
particular issuer than do U.S. GAAP financial statements. On the other 
hand, if the foreign private issuer currently prepares its statements 
in IFRS and reconciles to U.S. GAAP, then a loss of information would 
result as U.S. GAAP information is omitted.
    The proposed amendments may lead to some costs to both investors 
and to issuers. If the investor community prefers the information 
communicated by a U.S. GAAP reconciliation, a foreign private issuer 
that uses IFRS as published by the IASB without a reconciliation may 
face a reduced following in the marketplace. Investors may prefer a 
U.S. GAAP reconciliation, if investors are not sufficiently familiar 
with IFRS accounting standards. In addition, unfamiliarity with IFRS as 
published by the IASB may have an adverse effect on investors' 
confidence in what they would be investing in and thus lead them to 
insist on a risk premium for an investment in the company.
    The proposed amendments also would entail some costs to investors. 
If an issuer provides IFRS financial statements without reconciliation 
as permitted under the proposed amendments, investors would not have 
the benefit of the reconciling information that previously would have 
been available to them as they evaluate the financial performance of 
that issuer. The usefulness of this information may depend on the 
nature of the investor and other considerations, as discussed below. 
Also, to the extent that an investor is not accustomed to working with 
IFRS financial statements, that investor also may be required to 
dedicate more time and resources to gaining familiarity with IFRS and

[[Page 37985]]

financial statements prepared using them.
    Based in part on comments we received from participants at the 
Commission's IFRS roundtable held in March 2007, however, we believe 
that some investors are familiar with IFRS as a basis of accounting and 
therefore may make limited use of the reconciliation from IFRS to U.S. 
GAAP. However, because various investors may be differently situated in 
the market and have varying levels of familiarity with IFRS--for 
example, institutional investors may be more familiar with IFRS than 
retail investors--they may not all bear the cost from the proposed 
amendments equally. We are aware that investor familiarity with IFRS 
and the use that a particular investor may make of the reconciliation 
will depend on many factors. We believe that these factors may include, 
among other things, the size and nature of the investor, the size of 
the investment, the size of the issuer, the industry to which the 
issuer in question belongs. We also believe that the costs to investors 
of working without the reconciliation would be reduced over time as the 
use of IFRS as published by the IASB becomes even more widespread and 
investors gain increasing familiarity in working with IFRS financial 
statements.
    Given these considerations, in this proposal we are soliciting 
comment on how familiar investors are with IFRS, the use they make of 
the U.S. GAAP reconciliation of IFRS financial statements, and how 
their ability to assess and compare investment opportunities would be 
impacted by the proposed amendment to permit the filing of financial 
statements prepared using IFRS as published by the IASB without 
reconciliation to U.S. GAAP.

Questions

    47. Do you agree with our assessment of the costs and benefits as 
discussed in this section? Are there costs or benefits that we have not 
considered? Are you aware of data and/or estimation techniques for 
attempting to quantify these costs and/or benefits? If so, what are 
they and how might the information be obtained?
    48. Which foreign private issuers would have the incentive to avail 
themselves of the proposed amendments, if adopted? Are there any 
reasons for which an issuer that is eligible to file IFRS financial 
statements without reconciliation under the proposed amendments would 
elect to file a reconciliation? If so, what are they?
    49. Are there particular industry sectors for which a critical mass 
of the issuers who raise capital globally already report in IFRS? If 
so, which industries are they and why?

VII. Regulatory Flexibility Act Certification

    The Commission hereby certifies pursuant to 5 U.S.C. 605(b), that 
the amendments to Form 20-F under the Exchange Act, Forms F-4 and S-4 
and Rule 701 under the Securities Act and Regulation S-X contained in 
this release, if adopted, would not have a significant economic impact 
on a substantial number of small entities. The proposal would amend 
Form 20-F, Form F-4, Form S-4, Rule 701 and Regulation S-X to allow 
foreign private issuers that use as their basis of accounting IFRS as 
published by the IASB to file their financial statements without 
reconciliation to U.S. GAAP as described under Items 17 and 18 of Form 
20-F. Based on an analysis of the language and legislative history of 
the Act, Congress does not appear to have intended the Regulatory 
Flexibility Act to apply to foreign issuers. For this reason, the 
proposed amendment should not have a significant economic impact on a 
substantial number of small entities.
    We solicit written comments regarding this certification. We 
request that commenters describe the nature of any impact on small 
entities and provide empirical data to support the extent of the 
impact.

VIII. Consideration of Impact on the Economy, Burden on Competition and 
Promotion of Efficiency, Competition and Capital Formation Analysis

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (``SBREFA''),\138\ we solicit data to determine whether the 
proposals constitute a ``major'' rule. Under SBREFA, a rule is 
considered ``major'' where, if adopted, it results or is likely to 
result in:
---------------------------------------------------------------------------

    \138\ Pub. L. No. 104-121, Title II, 110 Stat. 857 (1996) 
(codified in various sections of 5 U.S.C., 15 U.S.C. and as a note 
to 5 U.S.C. 601).
---------------------------------------------------------------------------

     An annual effect on the economy of $100 million or more 
(either in the form of an increase or a decrease);
     A major increase in costs or prices for consumers or 
individual industries; or
     Significant adverse effects on competition, investment or 
innovation.
    We request comment on the potential impact of the proposals on the 
economy on an annual basis. Commenters are requested to provide 
empirical data and other factual support for their views if possible.
    Section 2(b) of the Securities Act \139\ and Section 3(f) of the 
Exchange Act \140\ require us, when engaging in rulemaking that 
requires us 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. When adopting 
rules under the Exchange Act, Section 23(a)(2) of the Exchange Act 
\141\ requires us to consider the impact that any new rule would have 
on competition. In addition, Section 23(a)(2) prohibits us from 
adopting any rule that would impose a burden on competition not 
necessary or appropriate in furtherance of the purposes of the Exchange 
Act.
---------------------------------------------------------------------------

    \139\ 15 U.S.C. 77b(b).
    \140\ 15 U.S.C. 78c(f).
    \141\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    The purpose of the proposed amendments to Form 20-F under the 
Exchange Act, Forms F-4 and S-4 and Rule 701 under the Securities Act, 
and Regulation S-X is to allow foreign private issuers that use as 
their basis of accounting IFRS as published by the IASB to include 
those financial statements in their annual reports and registration 
statements filed with the Commission without reconciliation to U.S. 
GAAP. This proposal is designed to increase efficiency, competition and 
capital formation by helping to move towards a single set of globally 
accepted accounting standards, as well as by alleviating the burden and 
cost that eligible companies would face if required to prepare a U.S. 
GAAP reconciliation for inclusion in annual reports and registration 
statements filed with us. Due to the cost to issuers of preparing the 
reconciliation to U.S. GAAP from IFRS, we believe that the proposed 
amendment would be likely to promote efficiency by eliminating 
financial disclosure that is costly to produce. We believe that 
investors would have adequate information on which to base their 
investment decisions and that capital may be allocated on a more 
efficient basis.
    The proposed amendments are expected to facilitate capital 
formation by foreign companies in the U.S. capital markets by reducing 
regulatory compliance burdens for foreign private issuers that rely on 
the proposed amendments. Reduced compliance burdens are expected to 
lower the cost of preparing disclosure for purposes of raising capital 
in the United States for those issuers.
    The proposed amendments also may have other impacts on efficiency 
and capital formation, which may not be felt equally by all market 
participants. For

[[Page 37986]]

example, the amendments may have a more favorable competitive impact on 
foreign private issuers from jurisdictions in which the use of IFRS is 
already required or permitted. Issuers from such jurisdictions may be 
able to benefit from the amendments more quickly than issuers from 
jurisdictions that do not permit the use of IFRS. Also, some foreign 
private issuers may be concerned about the public perception costs of 
not including a U.S. GAAP reconciliation, particularly if they compete 
for capital with other foreign companies that provide a reconciliation 
or that prepare financial statements that comply with U.S. GAAP.
    The proposed amendments also may have effects on efficiency and 
capital formation to the extent that investors need to increase their 
familiarity with IFRS in order to compare investment opportunities 
without reference to a U.S. GAAP reconciliation. If investors prefer 
the information provided in a U.S. GAAP reconciliation, a foreign 
private issuer that uses IFRS as published by the IASB without 
reconciliation may face adverse competitive effects in the capital 
markets. For example, investor unfamiliarity with IFRS may adversely 
affect investor confidence in issuers that prepare IFRS financial 
statements without reconciliation to U.S. GAAP. This may lead investors 
to insist on a risk premium in those companies, which would affect 
their competitiveness in the capital markets. Also, if investors must 
incur costs in order to understand IFRS financial statements without a 
U.S. GAAP reconciliation, there may be an incentive for intermediary 
parties to provide U.S. GAAP reconciliation services.
    We solicit comment on whether the proposed rules would impose a 
burden on competition or whether they would promote efficiency, 
competition and capital formation. For example, would the proposals 
have an adverse effect on competition that is neither necessary nor 
appropriate in furtherance of the purposes of the Exchange Act? Would 
the proposals create an adverse competitive effect on U.S. issuers or 
on foreign issuers that are not in a position to rely immediately on 
the accommodation? Would the proposed amendments, if adopted, promote 
efficiency, competition and capital formation? Commenters are requested 
to provide empirical data and other factual support for their views if 
possible.

IX. Statutory Basis and Text of Proposed Amendments

    We propose the amendment to Exchange Act Form 20-F pursuant to 
Sections 6, 7, 10, and 19 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 Proposed Amendments

List of Subjects in 17 CFR Parts 210, 230, 239 and 249

    Accounting, Reporting and recordkeeping requirements, Securities.
    In accordance with the foregoing, the Commission proposes to amend 
Title 17, Chapter II of the Code of Federal Regulations as follows:

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

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

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3, 
77aa(25), 77aa(26), 78c, 78j-1, 78l, 78m, 78n, 78o(d), 78q, 78u-5, 
78w(a), 78ll, 78mm, 80a-8, 80a-20, 80a-29, 80a-30, 80a-31, 80a-
37(a), 80b-3, 80b-11, 7202 and 7262, unless otherwise noted.
    2. Section 210.3-10 is amended by:
    a. Revising the introductory text of paragraph (i), and
    b. Revising paragraph (i)(12).
    The revisions read as follows.


Sec.  210.3-10  Financial statements of guarantors and issuers of 
guaranteed securities registered or being registered.

* * * * *
    (i) Instructions for preparation of condensed consolidating 
financial information required by paragraphs (c), (d), (e) and (f) of 
this section. 
* * * * *
    (12) Where the parent company's consolidated financial statements 
are prepared on a comprehensive basis other than U.S. Generally 
Accepted Accounting Principles or the English language version of 
International Financial Reporting Standards as published by the 
International Accounting Standards Board, reconcile the information in 
each column to U.S. Generally Accepted Accounting Principles to the 
extent necessary to allow investors to evaluate the sufficiency of the 
guarantees. The reconciliation may be limited to the information 
specified by Item 17 of Form 20-F (Sec.  249.220f of this chapter). The 
reconciling information need not duplicate information included 
elsewhere in the reconciliation of the consolidated financial 
statements.
    3. Amend Sec.  210.4-01 by revising paragraph (a)(2) to read as 
follows:


Sec.  210.4-01  Form, order and terminology.

    (a) * * *
    (2) In all filings of foreign private issuers (see Sec.  230.405 of 
this chapter), except as stated otherwise in the applicable form, the 
financial statements may be prepared according to a comprehensive set 
of accounting principles, other than those generally accepted in the 
United States or the English language version of International 
Financial Reporting Standards as published by the International 
Accounting Standards Board, if a reconciliation to United States 
generally accepted accounting principles and the provisions of 
Regulation S-X of the type specified in Item 18 of Form 20-F (Sec.  
249.220f of this chapter) is also filed as part of the financial 
statements. Alternatively, the financial statements may be prepared 
according to United States generally accepted accounting principles or 
the English language version of International Financial Reporting 
Standards as published by the International Accounting Standards Board.
* * * * *

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

    4. The authority citation for Part 230 continues to read as 
follows:

    Authority: 15 U.S.C. 77b, 77c, 77d, 77f, 77g, 77h, 77j, 77r, 
77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78t, 78w, 
78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-30, and 80a-37, 
unless otherwise noted.
    5. Amend Sec.  230.701 by revising the introductory text of 
paragraph (e) and revising paragraph (e)(4) to read as follows:


Sec.  230.701  Exemption for offers and sales of securities pursuant to 
certain compensatory benefit plans and contracts relating to 
compensation.

* * * * *
    (e) Disclosure that must be provided. The issuer must deliver to 
investors a copy of the compensatory benefit plan or the contract, as 
applicable. In addition, if the aggregate sales price or amount of 
securities sold during any consecutive 12-month period exceeds $5 
million, the issuer must deliver the following disclosure to investors 
a

[[Page 37987]]

reasonable period of time before the date of sale:
* * * * *
    (4) Financial statements required to be furnished by Part F/S of 
Form 1-A (Regulation A Offering Statement) (Sec.  239.90 of this 
chapter) under Regulation A (Sec. Sec.  230.251--230.263). Foreign 
private issuers as defined in Rule 405 must provide a reconciliation to 
generally accepted accounting principles in the United States (U.S. 
GAAP) if their financial statements are not prepared in accordance with 
U.S. GAAP or the English language version of IFRS as published by the 
IASB (Item 17 of Form 20-F (Sec.  249.220f of this chapter)). The 
financial statements required by this section must be as of a date no 
more than 180 days before the sale of securities in reliance on this 
exemption.
* * * * *

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

    6. The authority citation for part 239 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3, 
77sss, 78c, 78l, 78m, 78n, 78o(d), 78u-5, 78w, 78ll(d), 78mm, 80a-
2(a), 80a-3, 80a-8, 80a-9, 80a-10, 80a-13, 80a-24, 80a-26, 80a-29, 
80a-30, and 80a-37, unless otherwise noted.
* * * * *
    7. Amend Form S-4 (referenced in Sec.  239.25) by revising the 
instruction to Item 17 to read as follows:

    Note: The text of Form S-4 does not and this amendment will not 
appear in the Code of Federal Regulations.

Form S-4

* * * * *
    Item 17. Information with Respect to Companies other than S-3 
Companies.
* * * * *
    Instructions:
    1. * * *
    2. If the financial statements required by this paragraph are 
prepared on the basis of a comprehensive body of accounting principles 
other than U.S. GAAP or the English language version of IFRS as 
published by the IASB, provide a reconciliation to U.S. GAAP in 
accordance with Item 17 of Form 20-F (Sec.  249.220f of this chapter) 
unless a reconciliation is unavailable or not obtainable without 
unreasonable cost or expense. At a minimum, provide a narrative 
description of all material variations in accounting principles, 
practices and methods used in preparing the non-U.S. GAAP financial 
statements from those accepted in the U.S. when the financial 
statements are prepared on a basis other than U.S. GAAP. 
* * * * *
    8. Amend Form F-4 (referenced in Sec.  239.34) by:
    a. Revising Item 10(c)(2);
    b. Revising Item 10(c)(3);
    c. Revising Item 12(b)(2)(iii) and (iv);
    d. Revising the Instruction to Item 17(b)(5) and (b)(6).
    The revisions read as follows.

    Note: The text of Form F-4 does not and this amendment will not 
appear in the Code of Federal Regulations.

Form F-4

* * * * *
    Item 10. Information With Respect to F-3 Companies.
* * * * *
    (c) * * *
    (1) * * *
    (2) Restated financial statements prepared in accordance with or, 
if prepared using a basis of accounting other than the English language 
version of IFRS as published by the IASB, reconciled to U.S. GAAP and 
Regulation S-X if there has been a change in accounting principles or a 
correction of an error where such change or correction requires a 
material retroactive restatement of financial statements;
    (3) Restated financial statements prepared in accordance with or, 
if prepared using a basis of accounting other than the English language 
version of IFRS as published by the IASB, reconciled to U.S. GAAP and 
Regulation S-X where one or more business combinations accounted for by 
the pooling of interest method of accounting have been consummated 
subsequent to the most recent fiscal year and the acquired businesses, 
considered in the aggregate, are significant pursuant to Rule 11-01(b) 
of Regulation S-X (Sec.  210.11-01(b) of this chapter); or
* * * * *
    Item 12. Information With Respect to F-3 Registrants.
* * * * *
    (b) * * *
    (2) * * *
    (iii) Restated financial statements prepared in accordance with or, 
if prepared using a basis of accounting other than the English language 
version of IFRS as published by the IASB, reconciled to U.S. GAAP and 
Regulation S-X if there has been a change in accounting principles or a 
correction of an error where such change or correction requires a 
material retroactive restatement of financial statements;
    (iv) Restated financial statements prepared in accordance with or, 
if prepared using a basis of accounting other than the English language 
version of IFRS as published by the IASB, reconciled to U.S. GAAP and 
Regulation S-X where one or more business combinations accounted for by 
the pooling of interest method of accounting have been consummated 
subsequent to the most recent fiscal year and the acquired businesses, 
considered in the aggregate, are significant pursuant to Rule 11-01(b) 
of Regulation S-X; and
* * * * *
    Item 17. Information With Respect to Foreign Companies Other Than 
F-3 Companies.
* * * * *
    Instructions to paragraph (b)(5) and (b)(6): If the financial 
statements required by paragraphs (b)(5) and (b)(6) are prepared on the 
basis of a comprehensive body of accounting principles other than U.S. 
GAAP or the English language version of IFRS as published by the IASB, 
provide a reconciliation to U.S. GAAP in accordance with Item 17 of 
Form 20-F (Sec.  249.220f of this chapter) unless a reconciliation is 
unavailable or not obtainable without unreasonable cost or expense. At 
a minimum, provide a narrative description of all material variations 
in accounting principles, practices and methods used in preparing the 
non-U.S. GAAP financial statements from those accepted in the U.S. when 
the financial statements are prepared on a basis other than U.S. GAAP.
* * * * *

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

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

    Authority: 15 U.S.C. 78a et seq., 7202, 7233, 7241, 7262, 7264, 
and 7265; and 18 U.S.C. 1350, unless otherwise noted.
* * * * *
    10. Amend Form 20-F (referenced in Sec.  249.220f) as follows:
    a. Add a check box to the cover page indicating the basis of 
accounting used to prepare the financial statements;
    b. Revise the check box on the cover page indicating whether Item 
17 or Item 18 was used;
    c. Revise the cover page to require contact information for the 
issuer;
    d. Revise General Instruction G(b)(1)(A) and G(b)(2)(A);
    e. Revise General Instruction G(d);
    f. Revise General Instruction G(e);
    g. Revise General Instruction G(f)(2)(B)(ii);
    h. Revise General Instruction G(f)(2)(B)(iii);

[[Page 37988]]

    i. Revise General Instruction G(h)(2);
    j. Revise Instruction 2.b to General Instruction G(h);
    k. Revise Item 3.A, Instruction 2;
    l. Add an Instruction to Item 5;
    m. In Item 8.A.5, add a sentence to the end of Instruction 3;
    n. Add an Instruction to Item 11;
    o. Revise Item 17(c);
    p. Remove Item 17(c)(2)(iv)(B);
    q. Remove Item 17(c)(2)(iv)(C);
    r. Add text at the end of Item 17(c)(2)(v);
    s. Add text at the end of Item 17(c)(2)(vi);
    t. Remove Item 17(c)(2)(viii);
    u. Remove Item 17, Instruction 6; and
    v. Revise Item 18(b).
    The additions and revisions 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

* * * * *
(Exact name of Registrant as specified in its charter)
(Translation of Registrant's name into English)
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
(Name, Telephone and Address of Company Contact Person)

Large accelerated filer----------------Accelerated filer--------------
--Non-accelerated filer----------------

    Indicate by check which basis of accounting the registrant has used 
to prepare the financial statements included in this filing:
U.S. GAAP------------International Financial Reporting Standards as 
published by the International Accounting Standards Board (in 
English)------------Other------------
    If ``Other'' has been checked in response to the previous question, 
indicate by check mark which financial statement item the registrant 
has elected to follow.
Item 17------ Item 18------
* * * * *
General Instructions
* * * * *
    G. First-Time Application of International Financial Reporting 
Standards.
* * * * *
    (b) * * *
    (1) * * *
    (A) the issuer's most recent audited financial statements required 
by Item 8.A.2 are for the 2012 financial year or an earlier financial 
year;
* * * * *
    (2) * * *
    (A) the annual report relates to the 2012 financial year or an 
earlier financial year;
* * * * *
    (d) Information on the Company. The reference in Item 4.B to the 
``body of accounting principles used in preparing the financial 
statements,'' means IFRS and not the basis of accounting that was 
previously used (``Previous GAAP'') or accounting principles used only 
to prepare a U.S. GAAP reconciliation.
    (e) Operating and Financial Review and Prospects. The issuer shall 
present the information provided pursuant to Item 5. The discussion 
should focus on the financial statements for the two most recent 
financial years prepared in accordance with IFRS. No part of the 
discussion should relate to financial statements prepared in accordance 
with Previous GAAP.
    (f) Financial Information.
* * * * *
    (2)(B)(i) * * *
    (ii) 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;
    (iii) 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 statements 
(which may be unaudited) for the current and comparable prior year 
period prepared in accordance with IFRS; 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.
* * * * *
    (h) Financial Statements.
* * * * *
    (2) U.S. GAAP Information. The U.S. GAAP reconciliation referenced 
in Item 17(c) or 18 shall not be required for periods presented in 
accordance with the English language version of IFRS as published by 
the IASB.
    Instructions:
* * * * *
    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 should not refer to a reconciliation to 
U.S. GAAP. No part of the discussion should relate to financial 
statements prepared in accordance with IFRS.
* * * * *
Item 3. Key Information
* * * * *
    Instructions to Item 3.A:
* * * * *
    2. You may present the selected financial data on the basis of the 
accounting principles used in your primary financial statements. If you 
use a basis of accounting other than the English language version of 
IFRS as published by the IASB (``IFRS''), however, you also must 
include in this summary any reconciliations of the data to U.S. 
generally accepted accounting principles and Regulation S-X, pursuant 
to Item 17 or 18 of this Form. For financial statements prepared using 
a basis of accounting other than IFRS, you only have to provide 
selected financial data on a basis reconciled to U.S. generally 
accepted accounting principles for (i) those periods for which you were 
required to reconcile the primary annual financial statements in a 
filing under the Securities Act or the Exchange Act, and (ii) any 
interim periods.
* * * * *
Item 5. Operating and Financial Review and Prospects
* * * * *
    Instructions to Item 5:
* * * * *
    5. Issuers preparing their financial statements in accordance with 
the English language version of IFRS as published by the IASB 
(``IFRS'') should, in providing information in response to paragraphs 
of this Item 5 that refer to specific provisions of U.S. GAAP, refer to 
appropriate provisions of IFRS that contain the definitional principles 
embodied in the referenced U.S. GAAP items. In responding to this Item 
5, issuers need not repeat information contained in financial 
statements prepared in accordance with IFRS.
* * * * *
Item 8. Financial Information
* * * * *
    Instructions to Item 8.A.5:
* * * * *
    3. * * * * *
    A registrant using the English language version of IFRS as 
published by the IASB as its basis of accounting is not required to 
provide the information described in paragraphs

[[Page 37989]]

3(a) and (b) to this Instruction to Item 8.A.5.
* * * * *
Item 11. Quantitative and Qualitative Disclosures About Market Risk
* * * * *
    Instruction: Issuers preparing their financial statements in 
accordance with the English language version of IFRS as published by 
the IASB should, in providing information in response to paragraphs of 
this Item that refer to specific provisions of U.S. GAAP, follow the 
appropriate provisions of IFRS that contain the principles embodied in 
the referenced U.S. GAAP items. In responding to this Item, issuers 
need not repeat information contained in financial statements prepared 
in accordance with the English language version of IFRS as published by 
the IASB.
* * * * *
Item 17. Financial Statements
* * * * *
    (c): The financial statements and schedules required by paragraph 
(a) above may be prepared according to U.S. generally accepted 
accounting principles or the English language version of IFRS as 
published by the IASB. If the financial statements comply with the 
English language version of IFRS as published by the IASB, (i) it must 
be clearly stated in the notes to the financial statements and (ii) the 
auditor's report must include an opinion on whether the financial 
statements comply with the English language version of IFRS as 
published by the IASB. If the notes and auditor's report of an issuer 
do not contain the information in the preceding sentence, then the U.S. 
GAAP reconciliation information described in paragraphs (c)(1) and 
(c)(2) must be provided. Alternatively, such financial statements and 
schedules may be prepared according to a comprehensive body of 
accounting principles other than those generally accepted in the United 
States or the English language version of IFRS as published by the IASB 
if the following are disclosed:
* * * * *
    (c)(2)(v): * * * Issuers that prepare financial statements using 
the English language version of IFRS as published by the IASB that are 
furnished pursuant to Sec.  210.3.05 may omit the disclosures specified 
by paragraphs (c)(2)(i), (c)(2)(ii), and (c)(2)(iii) of this Item 
regardless of the size of the business acquired or to be acquired.
    (c)(2)(vi): * * * Issuers that prepare financial statements using 
the English language version of IFRS as published by the IASB that are 
furnished pursuant to Sec.  210.3.09 may omit the disclosures specified 
by paragraphs (c)(2)(i), (c)(2)(ii), and (c)(2)(iii) of this Item 
regardless of the size of the investee.
    (c)(2)(vii):
* * * * *
    Instructions to Item 17(C)(2):
* * * * *
Item 18. Financial Statements
* * * * *
    (b) If the financial statements are prepared using a basis of 
accounting other than the English language version of IFRS as published 
by the IASB, all other information required by U.S. generally accepted 
accounting principles and Regulation S-X unless such requirements 
specifically do not apply to the registrant as a foreign issuer. 
However, information may be omitted (i) for any period in which net 
income has not been presented on a basis reconciled to United States 
generally accepted accounting principles, or (ii) if the financial 
statements are furnished pursuant to Sec.  210.3.05 or less-than-
majority owned investee pursuant to Sec.  210.3.09 of this chapter.
    Instructions to Item 18:
    1. All of the instructions to Item 17 also apply to this Item, 
except Instruction 3 to Item 17, which does not apply.
    2. An issuer that is required to provide disclosure under FASB, 
Statement of Accounting Standards No. 69, ``Disclosures about Oil and 
Gas Producing Activities,'' shall do so regardless of the basis of 
accounting on which it prepares its financial statements.
* * * * *

    Dated: July 2, 2007.

    By the Commission.
Nancy M. Morris,
Secretary.
 [FR Doc. E7-13163 Filed 7-10-07; 8:45 am]
BILLING CODE 8010-01-P