Friday, November 21, 2008

Part IV

Securities and Exchange Commission 17 CFR Parts 210, 229, 230, et al. Roadmap for the Potential Use of Financial Statements Prepared in Accordance With International Financial Reporting Standards by U.S. Issuers; Proposed Rule

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SECURITIES AND EXCHANGE Paper Comments add Article 13. We are proposing the COMMISSION • Send paper comments in triplicate new Article 13 to apply to U.S. issuers to Florence E. Harmon, Acting and, as a conforming change, to foreign 16 17 CFR Parts 210, 229, 230, 240, 244 Secretary, Securities and Exchange private issuers that file IFRS financial and 249 Commission, 100 F Street, NE., statements.17 In Regulation S–K, we 18 19 [Release Nos. 33–8982; 34–58960; File No. Washington, DC 20549–1090. propose to amend Items 10, 101, S7–27–08] 301,20 504,21 1100,22 1112,23 1114 24 All submissions should refer to File 25 Number S7–27–08. The file number and 1115. In Regulation C, we propose RIN 3235–AJ93 26 should be included on the subject line to amend Rule 405. In Regulation G, 27 Roadmap for the Potential Use of if e-mail is used. To help us process and we propose to amend Item 101. Financial Statements Prepared in review your comments more efficiently, Table of Contents Accordance With International please use only one method. The Commission will post all comments on I. Overview Financial Reporting Standards by U.S. II. The Role of IFRS in the U.S. Capital Issuers the Commission’s Internet Web site Markets (http://www.sec.gov/rules/proposed/ A. The Promise of Global Accounting AGENCY: Securities and Exchange shtml). Comments also are available for Standards Commission. public inspection and copying in the 1. The Global Nature of Today’s Capital ACTION: Proposed rule. Commission’s Public Reference Room, Markets 100 F Street, NE., Washington, DC 2. Potential for IFRS as the Global SUMMARY: The Securities and Exchange 20549, on official business days Accounting Standard Commission (‘‘Commission’’) is between the hours of 10 a.m. and 3 p.m. B. Past Policy Considerations Regarding proposing a Roadmap for the potential All comments received will be posted IFRS use of financial statements prepared in without change; we do not edit personal III. A Proposed Roadmap to IFRS Reporting accordance with International Financial by U.S. Issuers identifying information from A. Milestones To Be Achieved Leading to Reporting Standards (‘‘IFRS’’) as issued submissions. You should submit only by the International Accounting the Use of IFRS by U.S. Issuers information that you wish to make 1. Improvements in Accounting Standards Standards Board by U.S. issuers for available publicly. 2. Accountability and Funding of the IASC purposes of their filings with the FOR FURTHER INFORMATION CONTACT: Foundation Commission. This Roadmap sets forth Craig Olinger, Deputy Chief Accountant, 3. Improvement in the Ability To Use several milestones that, if achieved, Division of Corporation Finance, at Interactive Data for IFRS Reporting could lead to the required use of IFRS (202) 551–3400 or Michael D. Coco, 4. Education and Training 5. Limited Early Use of IFRS Where This by U.S. issuers in 2014 if the Special Counsel, Office of International Commission believes it to be in the Would Enhance Comparability for U.S. Corporate Finance, Division of Investors public interest and for the protection of Corporation Finance, at (202) 551–3450, investors. This Roadmap also includes 6. Anticipated Timing of Future or Liza McAndrew Moberg, Professional Rulemaking by the Commission discussion of various areas of Accounting Fellow, Office of the Chief 7. Implementation of the Mandatory Use of consideration for market participants Accountant, at (202) 551–5300, U.S. IFRS related to the eventual use of IFRS in Securities and Exchange Commission, B. Other Areas of Consideration the United States. As part of the 100 F Street, NE., Washington, DC 1. The Roles of Financial Information Roadmap, the Commission is proposing 20549–3628. 2. Accounting Systems, Controls and Procedures amendments to various regulations, SUPPLEMENTARY INFORMATION: The rules and forms that would permit early 3. Auditing Commission is publishing for comment 4. Considerations of IFRS and the IASB’s use of IFRS by a limited number of U.S. a proposed Roadmap and proposed issuers where this would enhance the Standard Setting Process amendments to Regulations S–X,1 S–K 2 a. State of IFRS comparability of financial information and C 3 under the Securities Act of 1933 to investors. Only an issuer whose (the ‘‘Securities Act’’),4 and Rule 12b– 16 A ‘‘foreign private issuer,’’ as defined in Rule industry uses IFRS as the basis of 2,5 Schedule 13E–3,6 Schedule TO,7 3b-4(c) [17 CFR 240.3b-4(c)], means any foreign financial reporting more than any other Regulation G,8 and Form 8–K,9 under issuer other than a foreign government except an set of standards would be eligible to issuer that meets the following conditions: (1) More the Securities Exchange Act of 1934 (the than 50 percent of the issuer’s outstanding voting elect to use IFRS, beginning with filings ‘‘Exchange Act’’).10 In Regulation S–X, securities are directly or indirectly held of record in 2010. we propose to amend Rules 1–01,11 1– by residents of the United States; and (2) any of the DATES: Comments should be received on 02,12 3–10,13 4–01 14 and 8–01,15 and to following: (i) the majority of the executive officers or directors are United States citizens or residents; or before February 19, 2009. (ii) more than 50 percent of the assets of the issuer ADDRESSES: Comments may be 1 17 CFR 210.1–01–210.12–29. Regulation S–X are located in the United States; or (iii) the business submitted by any of the following sets forth the form and content of requirements for of the issuer is administered principally in the financial statements. United States. methods: 2 17 CFR 229.10 et seq. 17 As explained in Section V.B. below, inclusion Electronic Comments 3 17 CFR 230.400 et seq. of foreign private issuers in Article 13 will not 4 15 U.S.C. 77a et seq. change the content of their financial statements • Use of the Commission’s Internet 5 17 CFR 240.12b–2. filed under Form 20–F. comment form (http://www.sec.gov/ 6 17 CFR 240.13e–100. 18 17 CFR 229.10. rules/proposed.shtml); or 7 17 CFR 240.14d–100. 19 17 CFR 229.101. • Send an e-mail to rule- 8 17 CFR 244 et seq. 20 17 CFR 229.301. 21 [email protected]. Please include File 9 17 CFR 249.308. 17 CFR 229.504. 10 22 17 CFR 229.1100. Number S7–27–08 on the subject line; 15 U.S.C. 78a et seq. 11 17 CFR 210.1–01. 23 17 CFR 229.1112. or 12 24 • 17 CFR 210.1–02. 17 CFR 229.1114. Use the Federal Rulemaking ePortal 13 17 CFR 210.3–10. 25 17 CFR 229.1115. (http://www.regulations.gov). Follow the 14 17 CFR 210.4–01. 26 17 CFR 230.405. instructions for submitting comments. 15 17 CFR 210.8–01. 27 17 CFR 244.101.

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b. Relationship to the Accounting Standard B. Proposal A: Reconciled Information has the potential to best provide the Setting Process Pursuant to IFRS 1 common platform on which companies IV. Proposal for the Limited Early Use of 1. Expected Benefits can report and investors can compare IFRS Where This Would Enhance 2. Expected Costs financial information. Comparability for U.S. Investors C. Proposal B: Supplemental U.S. GAAP This proposed Roadmap first A. Eligibility Requirements Information B. Staff Letter of No Objection to the Use 1. Expected Benefits addresses the basis for considering the of IFRS 2. Expected Costs mandatory use of IFRS by U.S. issuers. C. Transition IX. Regulatory Flexibility Act Certification It then sets forth seven milestones D. Alternative Proposals for U.S. GAAP X. Consideration of Impact on the Economy, which, if achieved, could lead to the use Information Burden on Competition and Promotion of IFRS by U.S. issuers in their filings 1. Proposal A—Reconciled Information of Efficiency, Competition and Capital with the Commission.31 The Pursuant to IFRS 1 Formation Commission in 2011 would determine 2. Proposal B—Supplemental U.S. GAAP XI. Proposed Amendments to the Codification of Financial Reporting whether to proceed with rulemaking to Information require that U.S. issuers use IFRS 3. Discussion of Proposals A and B Policies V. Discussion of Proposed Amendments XII. Statutory Basis and Text of Proposed beginning in 2014 if it is in the public A. The Use of IFRS Financial Statements Amendments interest and for the protection of investors to do so. These milestones in Commission Filings by Eligible Issuers I. Overview 1. Proposed Amendments to Rule 4–01 of relate to: Regulation S–X The Commission is proposing this • Improvements in accounting 2. Proposed Definition of ‘‘IFRS Issuer’’ Roadmap towards requiring the use of standards; B. Application International Financial Reporting • The accountability and funding of 1. Article 13 of Regulation S–X Standards (‘‘IFRS’’) as issued by the the IASC Foundation; 2. Proposed Clarifying Amendments With International Accounting Standards • The improvement in the ability to Respect to References to IFRS as Issued Board (‘‘IASB’’) 28 by U.S. issuers 29 as use interactive data for IFRS reporting; by the IASB • Education and training relating to C. Proposed Amendments to Item 10(e) of part of its consideration of the role a single set of high-quality accounting IFRS; Regulation S–K and Regulation G • Limited early use of IFRS where D. Related Disclosure and Financial standards plays in investor protection Reporting Issues and the efficiency and effectiveness of this would enhance comparability for capital formation and allocation. As U.S. investors; 1. Selected Financial Data • 2. Market-Risk and the Safe Harbor capital markets have become The anticipated timing of future Provisions rulemaking by the Commission; and increasingly global, U.S. investors have • 3. Disclosure of First-Time Adoption of a corresponding increase in The implementation of the IFRS in Form 10–K international investment opportunities. mandatory use of IFRS by U.S. issuers. 4. Other Considerations Relating to IFRS In this environment, we believe that After describing the milestones, this and U.S. GAAP Guidance U.S. investors would benefit from an proposed Roadmap also discusses how E. Financial Statements of Other Entities IFRS reporting by U.S. issuers may Under Regulation S–X enhanced ability to compare financial 1. Application of the Amendments to Rules information of U.S. companies with that affect other participants in the capital 3–05, 3–09 and 3–14 of non-U.S. companies. The markets. a. Significance Testing Commission has long expressed its As a step along this Roadmap, this b. Separate Historical Financial Statements support for a single set of high-quality release then describes proposed of Another Entity Provided Under Rule global accounting standards as an amendments to permit a U.S. issuer that 3–05, 3–09 or 3–14 important means of enhancing this is among the largest companies 2. Financial Statements Provided Under comparability.30 We believe that IFRS worldwide within its industry, and Rule 3–10 whose industry uses IFRS as the basis 3. Financial Statements Provided Under 28 As used in this release, the phrase ‘‘IFRS as of financial reporting more than any Rule 3–16 issued by the IASB’’ refers to the authoritative text other set of standards, to elect to use F. Pro Forma Financial Statements of IFRS, which, according to the Constitution of the IFRS beginning with filings for fiscal Provided Under Article 11 International Accounting Standards Committee G. Industry Specific Matters Foundation (‘‘IASC Foundation’’), is published in years ending on or after December 15, 1. Disclosure Pursuant to Industry Guides English. See ‘‘International Financial Reporting 2009. These amendments include a 2. Disclosure From Oil and Gas Companies Standards, including International Accounting process by which U.S. issuers would Under FAS 69 Standards and Interpretations as at 1 January 2007,’’ Preface to International Financial Reporting seek confirmation from Commission H. Application of the Proposed Standards, at paragraph 23. Unless otherwise noted, staff that they are eligible to use IFRS in Amendments to Other Forms, Rules and the phrase ‘‘IFRS’’ refers to IFRS as issued by the their Commission filings. This release Schedules IASB. also seeks comment on two alternative 29 1. Application of Proposed Amendments to The terms ‘‘U.S. issuer’’ and ‘‘domestic issuer’’ proposals under which U.S. issuers that Exempt Offerings are used interchangeably in this release. Although 2. References to FASB Pronouncements in there is no specific definition of those terms under 31 Form 8–K the Exchange Act or the Securities Act, they are This release does not address the method the 3. Application of IFRS to Tender Offer and used in this document to refer to any issuer that Commission would use to mandate IFRS for U.S. files annual reports pursuant to the Exchange Act issuers. One of the options would be for the Going-Private Rules on Form 10–K [17 CFR 249.310] or a registration Financial Accounting Standards Board (‘‘FASB’’) to VI. General Request for Comments statement under the Securities Act for which continue to be the designated standard setter for VII. Paperwork Reduction Act foreign private issuer status is not an eligibility purposes of establishing the financial reporting A. Background requirement. For purposes of this release, the terms standards in issuer filings with the Commission. In B. Burden and Cost Estimates Related to U.S. issuer and domestic issuer also include a this option our presumption would be that the the Proposed Amendments foreign issuer or foreign private issuer, as defined FASB would incorporate all provisions under IFRS, C. Request for Comment in Rule 3b–4 under the Exchange Act [17 CFR and all future changes to IFRS, directly into 240.3b–4(c)] and in Rule 405 under the Securities VIII. Cost-Benefit Analysis generally accepted accounting principles as used in Act [17 CFR 230.405], that elects to file on domestic the United States (‘‘U.S. GAAP’’). This type of A. Proposal for Early Use of IFRS by U.S. forms. approach has been adopted by a significant number Issuers 30 See, for example, Release No. 33–6807 of other jurisdictions when they adopted IFRS as 1. Expected Benefits (November 14, 1988) [53 FR 46963 (November 21, the basis of financial reporting in their capital 2. Expected Costs 1988)]. markets.

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elect to use IFRS would disclose U.S. efficiency of capital markets.33 Further, information. Approximately 113 GAAP information. while our recent Advisory Committee countries around the world currently on Improvements to Financial Reporting require or permit IFRS reporting for II. The Role of IFRS in the U.S. Capital (‘‘CIFiR’’) purposefully limited its scope domestic, listed companies.36 Markets relating to international matters due to Foreign jurisdictions have chosen to A. The Promise of Global Accounting ongoing efforts by the Commission and require or allow IFRS for many different Standards the FASB, it did similarly note the reasons. For example, in the European following in its final report to the Union (the ‘‘E.U.’’), prior to its 1. The Global Nature of Today’s Capital 34 Markets Commission. requirement relating to IFRS applicable We broadly support the continued move to to companies incorporated and publicly Today, investors, issuers and other a single set of high-quality global accounting traded in its Member States,37 standards, coupled with enhanced capital markets participants are able to accounting standards in each of the E.U. engage in financial transactions across international coordination to foster their consistent interpretation and to avoid Member States generally were national boundaries and to make established individually in each investment, capital allocation and jurisdictional variants. Further, we encourage the development of a roadmap to identify jurisdiction. Further, each Member State financing decisions on a global basis issues and milestones to transition to this would typically permit the use in its more readily than ever before. This is end state in the U.S., with sufficient time to capital markets of accounting standards due in large measure to today’s ever- minimize disruptions, resource constraints, set in other jurisdictions, in addition to faster communications, and ever-more- and the complexity arising from such a its own domestic accounting closely linked markets. Advances in significant change.35 standards.38 IFRS provided a common technology that facilitate securities The Commission recognizes that the set of accounting principles under transactions have reduced barriers that use of a single, widely accepted set of which all domestic listings in the E.U. previously existed and that may have high-quality accounting standards could report. In Canada, accounting impeded cross-border investment for would benefit both the global capital standard setters concluded that, given both retail and institutional investors. markets and U.S. investors by providing the increasing globalization of capital For instance, investors can more readily a common basis for investors, issuers markets and other recent developments, obtain information on a wide variety of and others to evaluate investment that it was timely for public Canadian international investment opportunities opportunities and prospects in different than in the past, largely due to the companies to adopt globally accepted, jurisdictions. U.S. investors would be high-quality accounting standards by availability of information over the able to make better-informed investment Internet. Further, it is now possible for converging Canadian GAAP with IFRS decisions if they were to obtain high- over a transitional period, after which a U.S. investors to have access to real- quality financial information from U.S. time securities transaction data from separate and distinct Canadian GAAP companies that is more comparable to would cease to exist as a basis of stock exchanges and other securities the presently available information from markets from around the world and to financial reporting for public non-U.S. companies operating in the 39 trade on global exchanges through companies. In Australia, the decision same industry or line of business. to adopt IFRS was part of a strategy to accounts they manage over the Internet. Capital formation and investor As trading and investment become more ensure consistency and comparability of understanding would be enhanced if the Australian financial reporting with global, investors face an increasing need world’s major capital markets all for full, fair and reliable disclosure that financial reporting across global operated under a single set of high- financial markets.40 More countries enables comparison of financial quality accounting standards that elicit information across investment comparable, high-quality financial alternatives that cross national 36 Some countries have enacted IFRS as national information from public companies. standards and require compliance to be stated with boundaries. those national standards. In some cases, these A large and increasing number of U.S. 2. Potential for IFRS as the Global national standards are identical to IFRS as issued investors hold securities of non-U.S. Accounting Standard by the IASB; in other cases, these national issuers. Further, U.S. investors have the standards have been more narrow, yet consistent The increasing acceptance and use of with IFRS as issued by the IASB; and, in yet other ability to make cross-border investments IFRS in major capital markets 32 cases, these national standards may permit readily. Thus, we believe it is throughout the world over the past additional options that are inconsistent with IFRS important for U.S. investors to have several years, and its anticipated use in as issued by the IASB, although companies may opt access to the tools to compare to apply standards so that they comply with IFRS other countries in the near future, as issued by the IASB. See http://www.iasplus.com/ effectively and efficiently their indicate that IFRS has the potential to investment opportunities in a global country/useias.htm. become the set of accounting standards 37 See Regulation (EC) No. 1606/2002 of the capital market. The Commission has that best provide a common platform on European Parliament and of the Council of the long considered a reduction in the which companies can report and European Union of 19 July 2002 on the application of international accounting standards, Official disparity between the accounting and investors can compare financial disclosure practices of the United States Journal L. 243, 11/09/2002 P. 0001–0004. 38 and those of other countries as an For example, U.S. GAAP was accepted by some 33 See, for example, Release No. 33–6360 E.U. Member States for domestic registrants and important objective for both the (November 20, 1981) [46 FR 58511 (December 2, still is accepted for foreign registrants. protection of investors and the 1981)]. For a further discussion of the Commission’s 39 For additional information, see http:// previous actions promoting development of a single www.cica.ca/index.cfm/ci_id/44036/la_id/1.htm. 32 Over the period from 1990 to 2006, estimated set of high-quality globally accepted accounting The staff of the Canadian Securitities investments in foreign equity securities held by standards, see Section III.C. of Release No. 33–8831 Administrators (‘‘CSA’’) has proposed retaining the U.S. residents has grown from approximately $200 (August 7, 2007) [72 FR 45600 (August 14, 2007)] existing option for a domestic Canadian issuer that billion to $4,300 billion, based on estimates (‘‘2007 Concept Release’’). is also an SEC issuer to use U.S. GAAP. See http:// published by the U.S. Bureau of Economic 34 See Final Report of the Advisory Committee on www.cica.ca/3/9/1/6/6/index1.shtml. for the link to Analysis, U.S. Treasury statistics. See http:// Improvements to Financial Reporting to the United ‘‘CSA Announcement re: IFRS in Canada’’ (CSA bea.gov/international/xls/intinv07_t2.xls. Included States Securities and Exchange Commission Staff Notice 52–321). in this category are investments in equities, whether (August 1, 2008) (‘‘CIFiR Final Report’’). 40 See http://www.asic.gov.au/asic/asic.nsf/ listed or unlisted, where the holding by the U.S. 35 CIFiR Final Report, at page 21 (footnotes byheadline/Your+questions+about+implementing resident is less than 10%. references omitted). +the+IFRS?openDocument#1.

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have adopted IFRS, including Israel,41 ‘‘generally accepted’’ for purposes of the of whether global developments support and others have plans to allow it, U.S. federal securities laws.46 the assertion of IFRS as the single set of including Brazil.42 The market Regardless of whether the high-quality globally accepted capitalization of exchange listed Commission decides to allow or require accounting standards that is applied companies in the E.U., Australia and IFRS for U.S. issuers in the future, the consistently across companies, Israel totals $11 trillion (or past and anticipated move towards the industries and countries. approximately 26% of global market use of IFRS in other jurisdictions may The Commission has identified capitalization), and the market have begun to affect U.S. investors’ certain considerations which may capitalization from those countries plus ability to evaluate investment influence the degree to which Brazil and Canada totals $13.4 trillion alternatives as their level of investment comparability may be achieved through (or approximately 31% of global market in non-U.S. companies has increased widespread adoption of IFRS. These capitalization).43 over time.47 The growing level of foreign considerations include the extent to The Commission is aware of the investment by U.S. residents in which IFRS is adopted and applied transitions made by other countries to international investment opportunities, globally, and whether IFRS is adopted IFRS. For example, the vast majority of including opportunities to invest in and applied in foreign jurisdictions as listed European companies, including issuers that do not file reports with the issued by the IASB or as jurisdictional banks and insurance companies, moved Commission, makes it likely that U.S. variants of IFRS.49 We believe that the to comply with the E.U. IFRS investors will increasingly need to use benefits of moving towards a single set requirement in 2005 with the remainder IFRS financial statements.48 Also, it is of globally accepted standards as a long- transitioning in 2007. Under these likely that large U.S. issuers that term objective for increased transition approaches, in essence all or compete for capital on a global basis comparability of financial statements almost all of the listed companies will increasingly need to use and are attainable through the use of IFRS transitioned to IFRS at the same time. understand IFRS financial statements in only if IFRS represents a single set of Some foreign regulators have published order to remain competitive. For these high-quality accounting standards, reports relating to the implementation of reasons, the Commission finds it which is best accomplished through the IFRS in their country. For example, the advisable to continue to pursue use of IFRS as issued by the IASB. As U.K. Financial Reporting Review Panel consideration of the use of IFRS in the stated previously, each jurisdiction’s and the Autorite´ des Marche´s Financiers U.S. markets in order to better equip considerations surrounding the use of of France (‘‘AMF’’) have both published U.S. investors to make comparisons of IFRS in its markets are unique to the reports making observations on IFRS as U.S. companies with certain non-U.S. jurisdiction’s circumstances. Therefore, applied in their jurisdictions.44 companies, while balancing this with the large number of countries allowing As with all countries that have the fact that U.S. investors should be or requiring IFRS in their markets does evaluated the potential use of IFRS in able to compare U.S. companies with not alone determine the Commission’s their own markets, the policy other U.S. companies. decision. However, in determining considerations in the United States must Promoting a single set of globally whether to proceed with requiring the factor in the individual circumstances of accepted accounting standards will use of IFRS by U.S. issuers, the its investors and capital markets. The benefit investors as more and more Commission will consider the extent to U.S. capital markets are among the companies prepare their financial which IFRS as issued by the IASB is largest and most liquid in the world. statements applying a single set of high- used globally, is applied consistently, U.S. GAAP is a well-established basis of quality accounting standards. With a and supports the assertion of IFRS as financial reporting and is applied by all single set of accounting standards, the single set of high-quality global 50 U.S. public companies, many foreign investors can more easily compare accounting standards. companies, and many U.S. private information and will be in a better B. Past Policy Considerations Regarding companies, as well as their auditors. position to make informed investment IFRS Today, U.S. GAAP is accepted in capital decisions. This benefit is dependent Over time, the Commission has markets around the world, and the upon use of a single set of high-quality standards globally and financial undertaken a series of initiatives to Commission requires its use by all promote a single set of high-quality domestic issuers.45 The accounting reporting that is, in fact, consistently applied across companies, industries globally accepted accounting standards principles established by the FASB have as a means of advancing the objective of been recognized by the Commission as and countries. Any decision we may take to expand the use of IFRS to U.S. reduced disparity in financial reporting 41 See Israel Accounting Standard No. 29 issuers would necessitate our evaluation 49 Different jurisdictions often have internal ‘‘Adoption of International Financial Reporting processes through which they adopt or incorporate Standards,’’ which describes the adoption of IFRS 46 See Release No. 33–8221, Financial Reporting IFRS into their national accounting standards. in Israel for years starting on January 1, 2008. Release (‘‘FR’’) 70 (April 25, 2003) [68 FR 23333 Decisions made during those processes may result 42 See http://www.cvm.gov.br/port/snc/inst457 (May 1, 2003)] (‘‘FR 70’’). in discrepancies from IFRS as issued by the IASB. .pdf. 47 As more companies move towards IFRS 50 In 2007, as part of our efforts to foster a single 43 All figures are from the World Federation of reporting, current and potential investors in U.S. set of globally accepted accounting standards, we Stock Exchanges, Domestic Market Capitalization as issuers may increasingly be comparing those U.S. adopted amendments to allow foreign private of September 30, 2008, in U.S. dollars. issuers’ financial information to IFRS-based issuers to file IFRS financial statements without 44 For the report of the U.K. Financial Reporting financial information of competing investment reconciliation to U.S. GAAP only if the financial Review Panel, see ‘‘Preliminary Report: IFRS opportunities. For example, approximately 120 statements were prepared in accordance with IFRS Implementation’’ available at http://www.frc.org.uk foreign private issuers currently report to the as issued by the IASB. See ‘‘Acceptance from /images/uploaded/documents/IFRS%20 Commission using IFRS financial statements. Foreign Private Issuers of Financial Statements Implementation%20-%20preliminary.pdf. For the 48 For example, U.S. investors may purchase Prepared in Accordance with International report of the AMF, see ‘‘Recommendations on securities issued by a non-reporting foreign Financial Reporting Standards Without accounting information reported in financial company directly on a foreign exchange, or they Reconciliation to U.S.,’’ Release No. 33–8879 statements for 2006,’’ dated December 19, 2006, may invest in American Depositary Receipts (December 21, 2007) [73 FR 986 (January 4, 2008)] available at http://www.amf-france.org/documents/ representing the securities of a foreign private (the ‘‘2007 Adopting Release’’). The Commission general/7565_1.pdf. issuer that is exempt from Exchange Act reporting proposed these rules in June 2007 [Release No. 33– 45 See Rule 4–01(a)(1) of Regulation S–X [17 CFR requirements pursuant to Rule 12g3–2(b) [17 CFR 8818 (July 3, 2007)] [72 FR 37962 (July 11, 2007)] 210.4–01(a)(1)]. 240.12g3–2(b)]. (the ‘‘2007 Proposing Release’’).

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between U.S. issuers and foreign issuers. Other commenters believed that parties of the related issues and issuers. Convergence of U.S. GAAP and U.S. issuers should continue to use U.S. preparedness that this Roadmap is IFRS as issued by the IASB, which GAAP, while supporting ongoing intended to foster. As we progress along involves the best efforts of the IASB and convergence. this initiative, we anticipate receiving the FASB (referred to jointly as ‘‘the extensive input from investors, issuers III. A Proposed Roadmap to IFRS Boards’’) to make their financial and other affected parties, which we Reporting by U.S. Issuers reporting standards fully compatible on will consider carefully. a standard-by-standard basis, has been A. Milestones To Be Achieved Leading This proposed Roadmap relates solely the predominant approach taken in the to the Use of IFRS by U.S. Issuers to U.S. issuers with respect to their United States to achieve that objective The Commission is proposing this periodic reporting requirements under 51 over the past six years. As discussed Roadmap to set forth milestones which, Sections 13 and 15(d) of the Exchange further below, the Commission if achieved, could lead to the eventual Act, proxy and information statements continues to support the joint efforts of use of IFRS by all U.S. issuers. Through under Section 14 of the Exchange Act the IASB and the FASB as an important this Roadmap, the Commission is and registration statements under means of increasing the quality of IFRS seeking to realize the objective of Section 12 of the Exchange Act and and U.S. GAAP and, at the same time, providing investors with financial Section 7 of the Securities Act. Our reducing disparity between the two. information from U.S. issuers under a considerations at this time with respect More recently, the Commission’s set of high-quality globally accepted to the possible use of IFRS do not consideration of the use of IFRS by U.S. accounting standards, which would include issuers that are investment issuers has included the issuance of a enable U.S. investors to better compare companies under the Investment Concept Release addressing whether financial information of U.S. issuers and Company Act of 1940. Likewise, at this U.S. issuers should be permitted, but competing international investment time, the Roadmap does not extend to not required, to use IFRS in their filings opportunities. This Roadmap is further other types of financial reports that are 52 with the Commission. Specifically, intended to encourage market filed or furnished to the Commission by the Commission sought input on the participants to consider the effect of regulated entities, such as registered nature and extent of the public’s interest IFRS in our capital markets and to broker-dealers. in giving U.S. issuers the option to file prepare for the use of IFRS financial 1. Improvements in Accounting with the Commission financial statements by U.S. issuers in their Standards statements prepared in accordance with filings with the Commission. In October 2002, the FASB and the IFRS as issued by the IASB. The In addition to the milestones, the IASB announced the issuance of a Commission received over 80 comment Commission also expects to consider, memorandum of understanding, called letters from a wide range of issuers, among other things, whether IFRS as the Norwalk Agreement. The two bodies investors, accounting firms and other issued by the IASB is a globally 53 acknowledged their joint commitment market participants. accepted set of accounting standards to the development, ‘‘as soon as The Commission also has held three and whether it is consistently applied. practicable,’’ of high-quality, compatible public roundtables consisting of The advantages to U.S. investors of accounting standards that could be used investors, issuers, accounting firms, increased comparability across for both domestic and cross-border educators, standard setters and other investment alternatives, as financial reporting. At that time, the capital market participants to receive contemplated under this Roadmap, are 54 FASB and the IASB pledged to use their further input about the use of IFRS. In dependent upon financial reporting best efforts to make their existing December 2007, the Commission held under IFRS that is, in fact, consistent financial reporting standards fully one roundtable on IFRS in U.S. markets across companies, industries and compatible as soon as is practicable and and a second on practical issues countries. surrounding the use of IFRS in recent The course of action described in this to coordinate their future work years and its potential expanded use in proposed Roadmap reflects the programs to ensure that once achieved, future years. The third roundtable, in deliberations of the Commission in light compatibility is maintained. In a 2006 August 2008, related to the performance of current circumstances. We intend to Memorandum of Understanding, the of U.S. GAAP and IFRS during the sub- publish the final Roadmap, if adopted, FASB and the IASB indicated that a prime crisis. in our Codification of Financial common set of high-quality global While many commenters on the 2007 Reporting Policies.55 We recognize, standards remains the long-term Concept Release and the participants at however, that as events occur, new strategic priority of both the FASB and the roundtables supported allowing U.S. circumstances may require us to update the IASB. As part of this commitment, issuers to use IFRS, certain commenters or revise the Roadmap. With the the IASB and the FASB set out a work expressed the belief that IFRS should be knowledge of the anticipated timetable plan covering several projects and mandated for all U.S. issuers and not for Commission rulemaking initiatives coordinated agendas so that major limited to a specific group of U.S. on this policy matter, investors, issuers projects that one board takes up may and other market participants may also be taken up by the other board. 51 The Norwalk Agreement, issued in 2002, and engage more concretely in discussions That plan covered specific long- and a Memorandum of Understanding entered into by about IFRS for U.S. issuers, both short-term projects for work into 2008. the FASB and the IASB in 2006 express the Boards’ through comments provided to the In November 2007, the Trustees of the intentions to, on a best efforts basis, converge U.S. IASC Foundation reiterated their GAAP and IFRS. See http://www.fasb.org/news/ Commission as well as in further memorandum.pdf and http://www.fasb.org/intl/ dialogue among parties potentially support for continuing the work mou_02-27-06.pdf for further details. affected. The Commission believes that program described in these memoranda, 52 See 2007 Concept Release. any future actions relating to the use of noting that future work is largely 53 These comments are available at http:// IFRS by U.S. issuers would benefit from focused on areas in which the objective www.sec.gov/comments/s7-20-07/s72007.shtml. is to develop new world-class 54 Information on these Roundtables, including the increased awareness by all affected transcripts, is available on the Commission’s Web international standards. The FASB and site at http://www.sec.gov/spotlight/ 55 See FR 1 (April 15, 1982), 7 Fed. Sec. L. Rep. the IASB have updated the timetable for ifrsroadmap.htm. (CCH) ¶ 72,401, at 62,021. their joint work under the 2006

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Memorandum of Understanding.56 The which may be replaced. Thus, in IASC Foundation Trustees continue to next phase of the joint work plan goes considering future action as set out in make progress in obtaining funding that through 2011. this Roadmap, the Commission would satisfies those elements.61 The current joint work plans of the also assess whether it believes that the The Commission will carefully two standard setters, as well as other IASB continues to develop its standards, consider the degree to which the IASC work undertaken by them, furthers the including converged standards, through Foundation has a secure, stable funding goal of comprehensive, high-quality a process that reflects these elements. mechanism that permits it to function standards. The Commission will independently and that enhances the continue to monitor the activities of 2. Accountability and Funding of the IASC Foundation IASB’s standard setting process. The both the FASB and the IASB and the IASC Foundation has developed progress of their efforts. In past The IASB is based in London and is targeted contribution levels from Commission releases, we have noted an accounting standard setting body individual jurisdictions. Realizing the areas where IFRS provides limited established to develop global standards IASC Foundation’s goal of receiving 59 guidance on a particular topic, such as for financial reporting. It is overseen open-ended funding commitments from accounting for insurance contracts and by the IASC Foundation. The IASC a broad base of constituents and that are for extractive activities.57 Further, the Foundation is based in London and is compulsory would encourage the current work plan of the FASB and the a stand-alone, not-for profit independent functioning of the IASB in IASB includes accounting standards, organization, incorporated in Delaware. its standard setting process. Otherwise, including (without emphasizing It is responsible for the activities of the the IASB may be subject to a perceived priority) revenue recognition and IASB and other work that centers on or, potentially, an actual connection financial statement presentation, that IFRS, such as initiatives related to between the availability of funding and when completed should improve translation of IFRS from the English the outcome of its standard setting financial reporting significantly. The language, education about IFRS and the process. We believe that our future Commission will consider the degree of development of interactive data determination regarding the required progress made by the FASB and the taxonomies for IFRS. The IASC use of IFRS for all U.S. issuers should IASB in any future evaluation of the Foundation is governed by 22 trustees only occur after the IASC Foundation potential expanded role of IFRS in the (‘‘IASC Foundation Trustees’’) whose reaches its goal of securing a stable reporting by U.S. issuers. When the backgrounds are geographically diverse. funding mechanism that supports the Commission considers mandating use of The IASC Foundation has financed independent functioning of the IASB. IFRS by U.S. issuers in 2011, it would IASB operations largely through National accounting standard setters consider whether those accounting voluntary contributions from a wide traditionally have been accountable to a standards are of high quality and range of market participants from across national securities regulator or other 58 sufficiently comprehensive. The the world’s capital markets, including government authority. In the United Commission urges the two Boards to from a number of firms in the States, the Financial Accounting continue working towards the accounting profession, companies, Foundation (‘‘FAF’’), the parent of the completion of their joint work plan international organizations, central FASB, is overseen by the Commission. estimated to be completed in 2011 and banks and governments. Funding The IASC Foundation has not other projects that are expected to commitments were made for the period historically had a similar link with any improve financial reporting. 2001–2005 and then were extended for national securities regulators. In addition, it is important that an additional two years through 2007. In Recognizing that such a relationship accounting standards be established June 2006, the IASC Foundation would enhance the public under a robust, independent process Trustees agreed on four elements that accountability of the IASC Foundation, that includes careful consideration of should govern the establishment of a possible alternative approaches and due its Trustees have proposed amendments funding approach designed to enable to its Constitution to establish a process, which allows for input from the IASC Foundation to remain a and consideration of views expressed by connection between the IASC private-sector organization with the Foundation and a Monitoring Group affected parties, including investors. It necessary resources to conduct its work is also important that accounting composed of securities authorities in a timely fashion. The IASC charged with the adoption or standards are promptly considered to Foundation Trustees determined that keep standards current and reflect recognition of accounting standards characteristics of the new scheme for used in their respective jurisdictions.62 emerging accounting issues and 2008 would be broad-based, compelling, changing business practices. Further, it 60 open-ended and country-specific. The • Open-ended: The financial commitments is important that the accounting should be open-ended and not contingent on any standards produced are capable of 59 For more information on the structure and particular action that would infringe on the improving the accuracy and operation of the IASB,see http://www.iasb.org. independence of the IASC Foundation and the effectiveness of financial reporting and 60 Further description of these elements can be IASB. This should include sustained support from the protection of investors, and of found on the IASB’s Web site at http:// official international organizations, central banks www.iasb.org/About+Us/ and the major accounting firms. resulting in a high quality of financial About+the+IASC+Foundation/Funding.htm. The • Country-specific: The funding burden should reporting relative to the standards IASC Foundation describes these principles as be shared by the major economies of the world on follows: a proportionate basis, using GDP as the key 56 See the update to the 2006 Memorandum of • Broad-based: A sustainable long-term financing determining factor of measurement. Each country Understanding at http://www.fasb.org/intl/ system must expand the base of support to include should meet its designated target in a manner MOU_09–11–08.pdf. major participants in the world’s capital markets, consistent with the principles above. Trustees 57 See the discussion in Section III.B.4, below. including official institutions, in order to ensure should be assigned to specific countries to assist in 58 High quality accounting standards consist of a diversification of sources. the development of the funding scheme. set of neutral principles that require consistent, • Compelling: A system must carry with it 61 See http://www.iasb.org/About+Us/ comparable, relevant and reliable information that enough pressure to make free riding very difficult. About+the+IASC+Foundation/ is useful for investors. See ‘‘SEC Concept Release: This could be accomplished through a variety of 2008+funding+commitments.htm. International Accounting Standards,’’ Release No. means, including official support from the relevant 62 See http://www.iasb.org/NR/rdonlyres/ 33–7801 (February 16, 2000) [65 FR 8896 (February regulatory authorities and formal approval by the 12CC476D-B88F-418A-826F-71A7465FC2E0/0/ 23, 2000)]. collecting organizations. Continued

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The Commission has been working with usefulness to investors.65 Under those 4. Education and Training other national securities authorities and proposed rules, financial statement Reporting in accordance with IFRS by the International Organization of information could be submitted by U.S. issuers would increase the need for Securities Commissions to establish the public companies in interactive data effective training and education about Monitoring Group to enable it to begin format, and that financial information IFRS for investors, accountants, auditors its work once the IASC Foundation could then be downloaded directly into and others involved in the preparation adopts the necessary changes to its spreadsheets, analyzed in a variety of and use of financial statements, as there Constitution.63 The securities ways using off-the-shelf commercial are differences between U.S. GAAP and authorities, including the Commission, software, or used within investment IFRS.66 Investor education is envision that the Monitoring Group will models in any of a number of other particularly important, so that users of participate in and approve nominations software formats. The rules proposed in financial statements can work with the for IASC Foundation Trustees, review May, if adopted, would apply to financial information issuers publish. the funding arrangements of the IASC domestic and foreign public companies The main benefits to investors of a Foundation for adequacy and that prepare their financial statements single set of high-quality globally appropriateness, and address matters in accordance with U.S. GAAP, and accepted accounting standards would be that the IASC Foundation Trustees are foreign private issuers that prepare their realized only if investors more fully responsible for, such as oversight of the financial statements using IFRS as understood the basis for the reported IASB and potential areas for issued by the IASB. Under the proposal, results. In addition to investors, other consideration by the IASB in its ongoing foreign private issuers that prepare their financial statement users may include 64 work. financial statements using IFRS as customers, vendors, rating agencies and The Commission believes that the issued by the IASB would be required analysts. accountability of the IASC Foundation to provide financial statements in The education and ongoing training of will be enhanced once the Monitoring interactive data format starting with most accountants in the United States is Group provides the forum for their fiscal periods ending on or after limited to or predominantly focused on the current provisions of U.S. GAAP. interaction between securities December 15, 2010. If the Commission Consequently, many parties would authorities and the IASC Foundation adopts its proposed rules relating to likely need to undertake comprehensive Trustees. The Commission believes that interactive data, it is anticipated that effective oversight is critical to education on IFRS. The need for IFRS they would apply to the limited number training would involve personnel of mandating that U.S. issuers prepare of U.S. issuers that could elect to file financial statements in accordance with issuers, their governing bodies, such as IFRS financial statements as proposed audit committees, and their auditors. IFRS. Based on the progress of the in this release. discussions among securities regulators, Such requirements for training also In order to realize the improvements extend to specialists, such as actuaries as well as the IASC Foundation’s in the usefulness and comparability of and valuation experts, since these timetable for adopting the relevant professionals are engaged by changes to its Constitution, the financial information anticipated upon management to assist in measuring Commission assumes that the the widespread use of interactive data, certain assets and liabilities, and likely Monitoring Group will have been U.S. issuers would have to be capable of are not currently proficient in IFRS. established and be functioning by the providing IFRS financial statements to Professional associations and industry time the Commission considers the Commission in interactive data groups would need to integrate IFRS mandating the use of IFRS for U.S. format at a greater level of detail than is into their training materials, issuers. We will evaluate the currently available. Therefore, the state of development of an IFRS list of tags publications, testing and certification effectiveness of the oversight programs. Colleges and universities mechanism (including the functioning for interactive data reporting will be a consideration in the Commission’s would need to include IFRS in their of the multilateral nature of the curricula.67 Furthermore, it would be Monitoring Group) in making the determination of whether to require the use of IFRS for all U.S. issuers. The appropriate to include IFRS in the determination whether mandating IFRS 68 IASC Foundation first published a Uniform CPA Examination. is in the public interest for the On the regulatory side, the complete list of tags for the IFRS protection of investors and our markets. Commission staff has continued to ‘‘Bound Volume’’ in 2004, and has develop its familiarity with IFRS, and 3. Improvement in the Ability To Use published annual updates since then to Interactive Data for IFRS Reporting such efforts would need to continue and reflect new pronouncements, changes in intensify if the Commission were to In May 2008, the Commission XBRL technical standards, and other proposed rules to require companies to improvements; the most recent such 66 See, as just one example, http://www.kpmgifr provide their financial statements to the update was published in July 2008. The sinstitute.com/documents/IFRS/721200810043IFRS %20compared%20to%20U.S.%20GAAP%20An Commission and on their corporate Web Commission staff is actively involved in the improvement and monitoring of the %20Overview%20(2008).pdf. sites in interactive data format using the 67 IFRS supplements to and IFRS content in eXtensible Business Reporting Language IFRS list of tags via participation in the accounting textbooks used in U.S. universities have (‘‘XBRL’’) in order to improve their IASC Foundation’s XBRL Advisory become increasingly available. Council. The Commission believes it is 68 The Board of Examiners of the AICPA has issued an exposure draft, ‘‘Proposed Content and _ _ _ _ _ appropriate to consider the IASC Proposal and issues for the Constitution.pdf for a Skill Specifications for the Uniform CPA full description of the proposed amendments to the Foundation’s progress in the Examination’’ which proposed, among other things, Constitution. development of IFRS taxonomies prior inclusion of certain aspects of the IFRS conceptual 63 See the Commission’s joint statement with to proceeding with rulemaking on IFRS framework and standard setting process in future other national securities regulators with respect to for all U.S. issuers. Uniform CPA Examinations. Further, the proposal the establishment of a Monitoring Group at states that if IFRS becomes generally accepted in http://www.sec.gov/news/press/2007/2007-226.htm. the United States, inclusion of those standards in 64 The proposed responsibilities of the 65 See ‘‘Interactive Data to Improve Financial the examination would expand. See http:// Monitoring Group do not extend to the standard Reporting,’’ Release No. 33–8924 (May 30, 2008) [73 www.cpa-exam.org/cpa/exposure_draft.html for the setting process. FR 32794 (June 10, 2008)]. full text of the exposure draft.

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require U.S. issuers to file financial awareness and attention given to IFRS statements among U.S. public statements prepared in accordance with as a single set of high-quality globally companies, this may create a need to IFRS. The Public Company Accounting accepted accounting standards. reach a final resolution on the Roadmap. Oversight Board (‘‘PCAOB’’), as part of The Commission acknowledges the In order to increase the likelihood that its inspection of registered public wide variety of opinion that has been the comparability between issuers accounting firms, regularly reviews the expressed on this subject, including would be enhanced, we therefore have audits of public companies. We through comment letters received on the limited the proposed option to use IFRS understand the PCAOB has already 2007 Concept Release and feedback to a group of larger U.S. companies in begun to implement training courses in received in the Commission’s industries in which IFRS is the most- IFRS to assist its staff in carrying out roundtables. Many commenters used set of standards globally.69 We inspections, but would need to expand expressed the view that the option to believe that U.S. investors would benefit these training programs. use IFRS should be extended to all U.S. from an enhanced ability to compare The strategies taken by those issuers. Others stated that we should investment opportunities. participants in markets where issuers require IFRS for all U.S. issuers. Several already report in accordance with IFRS of these commenters indicated that any 6. Anticipated Timing of Future may serve as examples of approaches to option to use IFRS should only be part Rulemaking by the Commission increasing education and awareness of of a transition to the mandatory use of After reviewing the status of the IFRS. The private sector may also IFRS. Others opposed the optional or milestones and the study discussed respond to any increase in demand for mandatory use of IFRS at this time, and below, the Commission would education about IFRS by making instead called for a continuation of the determine, in 2011, whether to proceed educational materials available. Since ongoing work to improve and converge with rules requiring U.S. public the Commission’s issuance of the U.S. GAAP and IFRS. Still others cited companies to file financial statements Concept Release in August 2007, several concerns in such areas as tax regimes, prepared in accordance with IFRS by of the largest accounting firms in the the stage of development of IFRS in 2014 if it is in the public interest and United States have increased the certain areas in comparison to U.S. promotes investor protection for us to material made available to the public GAAP, the U.S. legal environment, and do so. In order to assist the Commission about IFRS generally as well as about the ability of auditors to issue opinions in determining whether to proceed with the application of specific IFRS on IFRS financial statements, as bearing such a rulemaking, the staff has already standards. For example, several of the on the questions of whether and how begun a comprehensive review of all accounting firms have held web casts the use of IFRS should be extended to Commission rules relating to financial accessible free of charge to the general any U.S. issuers. We believe allowing reporting in order to recommend public discussing different aspects of the limited use of IFRS by U.S. issuers, amendments that would fully IFRS. The Commission would take into only in those cases where to do so implement IFRS reporting throughout account the then current status of the would enhance the comparability of an the regulatory framework for registration overall education, training and industry’s financial reporting for the and reporting under the Exchange Act readiness of investors, preparers, benefit of investors in making and the Securities Act.70 We believe that auditors and other parties involved in comparisons to non-U.S. issuers, may a Commission decision and action in the preparation of financial statements help inform the decision whether to 2011 would provide issuers with prior to proceeding with rulemaking on mandate the use of IFRS for U.S. public sufficient early notice of the transition IFRS for all U.S. issuers. issuers. We also believe that the ability to IFRS to permit them to begin their of capital market participants to 5. Limited Early Use of IFRS Where This internal accounting using IFRS in 2012, evaluate and comment on these Would Enhance Comparability for U.S. which would be the earliest fiscal year questions would be enhanced by Investors that would be covered under the earliest allowing this limited use of IFRS. We anticipated phase-in for IFRS reporting This Roadmap contemplates that the believe this is a prudent approach that in 2014, as described below in Section Commission would make a decision in will support and inform our III.A.7. 2011 with regard to the mandated use of consideration of the milestones in the We are proposing this Roadmap IFRS for U.S. issuers, as described proposed Roadmap as well as any future towards the mandatory, rather than below in Sections III.A.6. and 7. As part Commission action. elective, use of IFRS for U.S. issuers in of this Roadmap, we also are proposing We also are aware that the proposed order to promote fully a single set of amendments to our rules, regulations amendments would permit some U.S. high-quality globally accepted and forms which, if adopted, would issuers to use IFRS financial statements accounting standards to improve the allow a limited number of U.S. issuers while other U.S. issuers continue to use comparability of financial information to file IFRS financial statements prior to U.S. GAAP, thereby creating a dual prepared by U.S. public companies and any mandated use of IFRS in system of financial reporting that has foreign companies. As described in Commission filings. These proposed not existed previously for U.S. public Section I, IFRS is the basis of financial amendments are described later in this companies. This would reduce the reporting used in a large and increasing release. comparability among U.S. issuers and These proposed amendments would would require investor familiarity with 69 Mindful that all U.S. issuers currently use U.S. allow the limited early use of IFRS by both sets of accounting standards. If the GAAP in their Commission filings, we are also U.S. issuers where it would enhance the Commission did not act on further making alternative proposals for U.S. issuers that comparability of financial reporting to milestones in this Roadmap, this dual elect to use IFRS with respect to the disclosure of U.S. GAAP information, which should promote the U.S. investors for purposes of system could continue and could continued comparability among U.S. issuers comparing the largest U.S. issuers with increase if more issuers eligible to use whether they use IFRS or U.S. GAAP in their the largest non-U.S. companies in the IFRS elect to do so. To the extent a dual primary financial statements. same industry. Further, the Commission system of financial reporting develops 70 The Commission also would evaluate the role of a private sector accounting standard setter, anticipates that providing the in the United States for U.S. public including the role of the FASB and how IFRS alternative to U.S. issuers to file IFRS companies, and this development would be incorporated as mandatory accounting financial statements would broaden the affects the comparability of financial standards for U.S. issuers.

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number of countries worldwide. ending on or after December 15, 2014.73 We also recognize, however, that Because IFRS has the greatest potential Accelerated filers would begin IFRS sequencing the transition, while it to become the global standard of filings for years ending on or after would avoid some costs associated with accounting, we believe it is in the December 15, 2015. Non-accelerated all issuers transitioning at once, also interest of U.S. investors, U.S. issuers filers, including smaller reporting would result in some non-comparability and U.S. markets to consider mandating companies, would begin IFRS filings for of financial information due to reporting using IFRS in the United years ending on or after December 15, application of the IFRS transition States as well. Additionally, we believe 2016. In each instance, this would allow provisions at differing dates. Staging the that over the long term the existence of the filer to begin its books and records transition by an issuer’s size would dual accounting standards in the United and internal accounting controls with embed that non-comparability among States may create challenges in the U.S. respect to IFRS reporting for all three the issuers within an industry. Further, capital markets, such as comparability years of audited financial statements a staged transition would, temporarily, for investors and other users of financial that would be required in its first year create a dual system of reporting for information and professional of IFRS reporting (e.g., 2012 to 2014 for U.S. issuers that would require investor competence of auditors. We therefore large accelerated filers, 2013 to 2015 for familiarity with both IFRS and U.S. are proposing this Roadmap towards the accelerated filers, and 2014 to 2016 for GAAP, as described above in Section mandatory use of IFRS by U.S. issuers. non-accelerated filers). III.A.5. If we decide to move forward with We understand that a transition from As part of the Commission’s rulemaking for the use of IFRS by U.S. one set of accounting standards to evaluation, it also may consider issuers, we expect to continue to require another, including changing the controls transition rules to expand the eligibility that issuers provide three years of and systems relating to the production criteria of those U.S. issuers which audited annual IFRS financial of financial statements, would involve could elect to use IFRS in their statements. Currently, U.S. issuers are costs. The definitions of accelerated filer Commission filings, so that additional required to provide in their filings with and large accelerated filer under the U.S. issuers would be able to use IFRS the Commission three years of audited Exchange Act reference the size of an prior to a mandatory transition date. In U.S. GAAP financial statements.71 issuer based on its worldwide public proceeding along the Roadmap, the Because the initiative to require the use float of its equity securities. Our current Commission would consider the of IFRS by U.S. issuers relates to the set expectation that an issuer’s status as an circumstances in which the early use of of accounting principles that is used for accelerated filer could determine the IFRS would be most appropriate for investor protection and capital financial reporting and not to the date of a required transition to IFRS is formation. Another consideration would periods for which financial reporting is based on the premise that larger issuers be how to address the current choices required, the Commission expects that it would be better able to allocate available to foreign private issuers for would require three years of audited resources to the transition to IFRS more their financial reporting in filings with financial statements in the first year of quickly than smaller issuers, and a staged transition also may help manage the Commission. Currently, foreign IFRS reporting.72 resource demands on auditors, private issuers can choose to prepare To assist the Commission in its consultants and other market their financial statements in accordance decision to mandate the use of IFRS by participants. Reliance on the existing with U.S. GAAP, IFRS as issued by the U.S. issuers, the Commission directs the definitions of accelerated/large IASB, or another comprehensive set of Office of the Chief Accountant with accelerated filer also is expected to accounting principles with a appropriate consultation with other facilitate an orderly, predictable reconciliation to U.S. GAAP. Divisions and Offices to undertake a transition to IFRS because an issuer B. Other Areas of Consideration study and report to the Commission on would already need to ascertain its the implications for investors and other status as an accelerated filer for other The process of incorporating new market participants of the reporting purposes and allow it to accounting standards into any financial implementation of IFRS for U.S. issuers. predict when it would be required to reporting system naturally varies We anticipate that the report would be adopt IFRS.74 This predictability may between jurisdictions and is made public by the Commission. also encourage voluntary movement to accomplished gradually. Differences 7. Implementation of the Mandatory Use IFRS, as an issuer may have an between national accounting standards, of IFRS incentive to use IFRS prior to the date including the extent of similarities or the rules would require it to do so if its differences between financial reporting One means of implementing IFRS competitors were already using IFRS.75 frameworks and the degree of judgment reporting by U.S. issuers that we are they require, affect any given considering is a staged transition, as 73 The terms ‘‘large accelerated filer’’ and jurisdiction’s experience with transition opposed to all U.S. issuers transitioning ‘‘accelerated filer’’ are defined in Exchange Act to financial reporting that is in at once. Provisionally, under the Rule 12b–2 [17 CFR 240.12b–2]. Although the term accordance with IFRS. In addition, there transition, IFRS filings would begin for ‘‘non-accelerated filer’’ is not defined in our rules, are many elements forming the we use it in this release to refer to an Exchange Act large accelerated filers for fiscal years reporting company that does not meet the Rule infrastructure underpinning a set of 12b–2 definition of either an ‘‘accelerated filer’’ or accounting standards that keep it 71 See Rule 3–02(a) of Regulation S–X [17 CFR a ‘‘large accelerated filer.’’ current and functioning effectively in a 210.3–02(a)]. 74 Exchange Act Rule 12b–2 contains provisions given jurisdiction. Integration 72 To illustrate, if we require IFRS for the years for entering and exiting accelerated filer and large considerations related to the use of IFRS ending on or after December 15, 2014, a calendar accelerated filer status, including when an issuer year company would report for the year ending must determine its status. in different jurisdictions also are December 31, 2014 using IFRS for the years ending 75 In addition, we anticipate that newly public manifested in the different regulatory December 31, 2012, 2013 and 2014. Many such companies, which are non-accelerated filers until and legal environments. If the companies would want to start IFRS internal after their first year of reporting, would be able to Commission were to require U.S. issuers accounting on January 1, 2012. However, during use IFRS prior to a mandatory phase-in date for 2012, 2013 and the first three quarters of 2014, they non-accelerated filers if the Commission decided to to report in accordance with IFRS, a would continue to be publicly reporting under adopt a staged or sequenced transition to IFRS as number of considerations and actions existing U.S. GAAP. discussed. with a series of lead times may be

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required for investors, issuers, and other change in taxable income based on the accounted for under the equity method. parties that use financial statements or difference between inventory valued on In order for an issuer to properly record have a role in the capital markets or the a LIFO basis and on a FIFO basis. the equity method investment, the financial reporting infrastructure. Some Many U.S. companies have issued issuer would need IFRS-based of these considerations are discussed in debt securities under indentures or have information about the investee each the remainder of this section. entered into lending agreements that reporting period. If the investment were may contain various covenants based in equity of a company using U.S. 1. The Roles of Financial Information upon financial measurements, such as a GAAP for its own financial statement In addition to filing financial stated minimum net worth. Those preparation and reporting purposes, statements with the Commission, U.S. indentures and agreements, as well as obtaining the required IFRS-based issuers commonly provide financial other types of contractual agreements to information may prove difficult and information to other parties. While the which issuers may be subject, may costly. This would be similar to the federal securities laws provide the require periodic reporting of financial situation that exists today if an issuer Commission with the authority to information. These contractual using U.S. GAAP has an equity investee prescribe accounting principles and obligations may explicitly require the that uses a different basis of financial standards to be followed by public use of U.S. GAAP in connection with reporting. Further, an additional cost companies and other entities that file financial covenants or financial and complication would be added to the financial statements with the reporting. Other contractual obligations initial public offering process if a Commission, the provision and content may have an assumption about the private company whose financial of information to other parties may not nature of the accounting model under statements were not in accordance with be generally or directly regulated by the which such reporting will occur. For a IFRS were required to provide them for Commission. However, changes in the U.S. issuer, it is likely that such purposes of its initial registration accounting standards used for purposes requirements are based on how U.S. statement with the Commission. of preparing financial statements GAAP would report financial results. included in filings with the Commission Some market indices, such as the S&P 3. Auditing could have an effect on financial 500, currently only include issuers that Another affected party is the audit reporting by companies to other parties. report financial statements in firms that are engaged to audit a U.S. The following provides examples of accordance with U.S. GAAP. IFRS issuer’s financial statements and to circumstances or parties that may be reporting might affect an issuer’s ability report on the effectiveness of its internal affected. to be included in such indices or control over financial reporting. This Various federal and state regulators, financial instruments based on those may be particularly challenging for less including regulators of financial indices, exclusion from which may have globally oriented audit firms, which institutions, insurance companies and an adverse effect on these issuers, typically may have fewer resources public utilities, are provided with unless the instruments or indices make available through affiliated or network periodic financial information on an on- any necessary changes to include firms located in jurisdictions in which going basis. For example, U.S. GAAP issuers which report in IFRS. issuers already report in accordance financial statements frequently are used with IFRS. This could be a further factor 2. Accounting Systems, Controls and as the basis for determining capital affecting concentration in the auditing Procedures requirements for financial institutions. profession. Another example of the effect on Use of any new accounting standards Audit firms would need to consider reporting to others relates to federal and requires changes to financial reporting elements of their systems of quality state income taxes. As the Internal systems and procedures to identify, control, such as their practices related to Revenue Code has developed over an collect, analyze and report financial hiring, assigning personnel to extended period of time with existing information and the corresponding engagements, professional development U.S. GAAP as the predominant set of controls. Changing numerous and advancement activities. Some U.S. accounting standards used in the United accounting standards at the same time, audit firms already have some States, certain interactions exist regardless of the starting point, would experience with conducting audits of between certain provisions of U.S. require numerous changes in a financial information prepared in GAAP and income tax requirements. For company’s policies and procedures and accordance with IFRS, as they may be example, the Internal Revenue Code has system of internal controls. Some involved in the audit of the U.S. conformity provisions related to the changes may prove more complicated operations of a foreign company that method of accounting for inventory for than others. Systems changes would does so. But because U.S. auditors tax reporting purposes and the method apply not only to the issuers preparing generally have less experience with used for reporting to shareholders (and such statements, but also to various IFRS than with U.S. GAAP, in the short other owners or beneficiaries) or for other market participants such as users term, U.S. audit firms may encounter credit purposes.76 IFRS does not allow of financial information and regulators. challenges in establishing policies and for the use of the last-in, first-out, or Some companies that have significant procedures, and hiring and training LIFO, method of accounting for foreign operations may already have personnel, to provide themselves with inventory.77 As a result, a company that familiarity with IFRS. It may not be as reasonable assurance that their reports in accordance with IFRS would difficult for these companies to adopt personnel would possess knowledge be required to use a method of IFRS for all of their operations for U.S. appropriate to perform audits of U.S. accounting for inventory that is reporting purposes. issuers. Even with appropriate systems acceptable under IFRS, for example the There would be additional of quality control, however, additional first-in, first-out, or FIFO, method. U.S. implications on financial reporting. Two auditing guidance still may be issuers changing to FIFO for financial examples of the implications relate to an necessary. reporting purposes may experience a issuer’s equity method investment in Additionally, U.S. firms that are another company and initial public members of global audit networks may 76 See Section 472 of the Internal Revenue Code. offerings. Many issuers hold have already begun to consider systems 77 See IAS 2 ‘‘Inventories,’’ paragraph IN63. investments in other entities which are of quality control to foster the high

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quality and consistent application in rules to provide AICPA members with a particular accounting treatment. Less reporting under IFRS across national the option to use IFRS.81 prescriptive guidance also may make borders. If U.S. issuers were to report in litigation or enforcement outcomes more 4. Considerations of IFRS and the accordance with IFRS, the U.S. firms of difficult to predict. IASB’s Standard Setting Process these global audit networks could be On the other hand, less prescriptive affected more than they are presently by a. State of IFRS guidance may increase issuers’ ability to the reporting of audit clients of their As discussed in the 2007 Concept account for transactions or events in foreign affiliates and by U.S. Release, IFRS is not as developed as accordance with their underlying economics, which could improve subsidiaries of those clients. U.S. GAAP in certain areas.82 IFRS also comparability of economically similar One consideration for audit firms is not as prescriptive as U.S. GAAP in situations and highlight differences in relates to their ability to issue opinions certain areas and in certain areas dissimilar situations. As CIFiR noted in on IFRS financial statements in permits a greater amount of options than its final report: accordance with PCAOB standards. For in U.S. GAAP.83 The smaller volume of example, one of the conditions under IFRS literature as compared to U.S. Investors are likely to benefit from more IFRS for recognizing a provision for a GAAP may decrease the amount of emphasis on principles-based standards, legal contingency is that it is more likely authoritative guidance available in a since rules-based standards * * * may 78 provide a method, such as through than not that an obligation exists. This particular circumstance. This relatively recognition threshold is lower than the exceptions and bright-line tests, to avoid the lesser amount of guidance and, in some accounting objectives underlying the current recognition threshold in U.S. cases, greater optionality in IFRS could standards. In other words, without the GAAP, resulting in the potential for an reduce comparability of reported exercise of judgment, rules in the form of earlier income statement recognition of financial information, as different bright lines may result in a false 79 costs associated with litigation. issuers may account or provide consistency—that is, ostensibly uniform Concerns have been raised about an disclosure for similar transactions or accounting for differing fact patterns. If properly implemented, ‘‘principles-based’’ auditor’s ability to corroborate the events in different ways but this information furnished by management standards should improve the information flexibility also allows a financial provided to investors while reducing investor related to litigation, claims, and statement that may more closely reflect concerns about ‘‘financial engineering’’ by assessments by obtaining an audit the economics of transactions. As we companies using the rules to avoid 80 inquiry letter from a client’s attorney. noted in the 2007 Concept Release, in accounting for the substance of a We note that references to current certain limited areas in which the IASB transaction.84 U.S. GAAP literature exist in various has yet to develop guidance on The Commission and its staff also have standards issued by the PCAOB and particular industry activities in which supported the increased use of other accounting or auditing IFRS permits disparate options, we have objectives, outcomes and principles in organizations. If IFRS were required for noted that the level of diversity has accounting standards in contrast to all U.S. issuers, amendments to existing manifested itself in the reporting detailed prescriptive guidance.85 references to U.S. GAAP literature may practices of foreign private issuers. In addition, in cases where specific be appropriate. Certain changes have As U.S. GAAP has been used longer guidance is not available, IFRS already begun with respect to IFRS in and more extensively than IFRS, more encourages disclosure on the accounting the U.S. accounting profession. For U.S. GAAP implementation guidance policies that the preparer of the example, under AICPA rules, a member has developed over time. A variety of financial statements has elected and of the AICPA can only report on factors may have resulted in the applied.86 The same also is generally financial statements prepared in accounting profession in the United true where IFRS permits greater accordance with standards promulgated States becoming more accustomed to by standard setting bodies designated by relying on a greater degree of detailed 84See CIFiR Final Report, at 88. the AICPA Council. In May 2008, the accounting guidance, including factors 85 For example, the SEC issued ‘‘Policy Statement: AICPA’s Council voted to designate the such as seeking consistency and Reaffirming the Status of the FASB as a Designated IASB in London as an international Private-Sector Standard Setter’’ Release No. 33– reducing exposure to litigation and 8821 (April 25, 2003), which included numerous accounting standard setter for purposes liabilities. Such guidance also can affect recommendations for the FAF and FASB to of establishing international financial the outcomes of discussions between consider, including greater use of principles-based accounting and reporting principles, management and auditors on the use of accounting standards whenever reasonable to do so. and to make related amendments to its The SEC staff also issued ‘‘Study Pursuant to Section 108(d) of the Sarbanes-Oxley Act of 2002 81 See http://www.aicpa.org/download/info/ on the Adoption by the United States Financial 78 See IAS 37, paragraphs 15 and 16. AICPA_NewsUpdate_Vol.11_No.21.pdf. Reporting System of a Principles-Based Accounting 79 See FAS 5. 82 IFRS does not have a specific standard or System’’ (July 25, 2003), which further explained 80 Some believe that changes to the American Bar interpretation on accounting treatment for the benefits of objectives-oriented standards. Association Statement of Policy Regarding Lawyers’ insurance contracts, extractive activities, certain 86 In areas for which an IFRS does not exist, IAS Responses to Auditors’ Requests for Information common control transactions, recapitalization 8 ‘‘Accounting Policies, Changes in Accounting may be necessary. See AU § 337C. The Statement transactions, reorganizations, acquisitions of Estimates and Errors’’ requires preparers to use of Policy, commonly referred to as the ‘‘Treaty,’’ minority shares not resulting in a change of control judgment in developing accounting policies such recognizes the professional responsibilities of and similar transactions. However, there are areas that financial information is provided that, among attorneys and auditors and seeks to preserve where current U.S. GAAP also does not have a other things, is relevant to the needs of users and confidentiality while providing the necessary level single comprehensive standard or interpretations, the financial statements reliably reflect the of assurance for the audit. The Treaty recognizes such as for revenue recognition or property, plant economic substance of transactions. In applying that the confidentiality of communications between and equipment. such judgment, preparers must consider other an attorney and a client may be impaired by the 83 As noted by CIFiR in its Final Report: ‘‘From guidance found in IFRS and, if no analogous disclosure of the substance of such communications an international perspective, we note that IFRS guidance is found, the definitions, criteria and to third parties, including auditors. By describing currently permits numerous alternative accounting concepts in the IFRS conceptual framework. thresholds for disclosure and limitations on policies. While we acknowledge the IASB’s efforts Additionally, IAS 8 allows preparers to consider responses, the Treaty sets the scope of the attorney’s in reducing some of these alternative treatments, we pronouncements of other standard setting bodies if responses to audit requests for information on legal nonetheless believe the SEC should encourage the those pronouncements are drawn from a conceptual matters. Some believe that the thresholds and IASB to [...] seek to eliminate alternatives as part framework similar to that underlying IFRS, to the limitations described in the Treaty are inconsistent of its standards-setting projects.’’ CIFiR Final extent that such pronouncements do not conflict with certain provisions within IFRS. Report, at 51. with IFRS.

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optionality.87 In adopting IFRS, an lesser degree of input into the standard Request for Comment issuer may find it appropriate to setting process including fewer 1. Do commenters agree that U.S. evaluate its disclosure practices, such as members of the IASB and fewer investors, U.S. issuers and U.S. markets the disclosure provided in financial participants on roundtables and would benefit from the development statement footnotes and management’s advisory and other groups than they and use of a single set of globally discussion and analysis, to clearly currently have in the U.S. standard accepted accounting standards? Why or communicate these choices. Further, as setting process. Further, in the U.S. why not? What are commenters’ views we indicated when we adopted changes standard setting process, participants on the potential for IFRS as issued by to accept IFRS financial statements from from multiple constituencies but in the the IASB as the single set of globally foreign private issuers without a same geographic market (i.e., the United 88 accepted accounting standards? reconciliation to U.S. GAAP, our staff States) are involved. On the IASB, 2. Do commenters agree that the has indicated that the issues it has constituencies and geographic market milestones and considerations described observed in its review of IFRS financial (i.e., different countries) participation in Section III.A. of this release statements do not appear to be more are commingled. Also, constituents (‘‘Milestones to be Achieved Leading to pervasive or significant than those it has the Use of IFRS by U.S. Issuers’’) identified in U.S. GAAP financial involved in the IFRS standard setting comprise a framework through which statements. process may come from different financial reporting environments and the Commission can effectively evaluate b. Relationship to the Accounting may have objectives that are different whether IFRS financial statements Standard Setting Process from or not present in the standard should be used by U.S. issuers in their A change to commit U.S. reporting to setting process for U.S. GAAP. filings with the Commission? Are any of the proposed milestones not relevant to following IFRS would include a change In addition, individual jurisdictions’ in the relationship of the U.S. capital the Commission’s evaluation? Are there processes for incorporating IFRS into any other milestones that the markets to the accounting standard their markets may result in varying setting process. The IASB and its related Commission should consider? degrees of pressure placed on the IASB 3. Do commenters agree with the organizations include members from a in the development of individual number of countries. The IASB is timing presented by the milestones? standards. For example, some expected to be responsive to broad, Why or why not? In particular, do jurisdictions adopt or endorse IFRS on world-wide constituencies of investors, commenters agree that the Commission issuers, regulators and many others in a standard-by-standard basis unlike the should make a determination in 2011 all facets of its work, including the historical approach in the United States whether to require use of IFRS by U.S. establishment of its agenda and the to look to a standard setter to establish issuers? Should the Commission make a development of standards. These the body of accounting standards as a determination earlier or later than 2011? constituencies can be expected to whole. Further, the IASB’s need to Are there any other timing represent a wide range of interests, consider a greater number of considerations that the Commission reflecting varying economic, social and constituents in seeking consensus on a should take into account? political environments. new or revised standard, and the 4. What are commenters’ views on the These factors likely would mean that associated need to consider multiple mandated use of IFRS by U.S. issuers the interaction, and potentially the jurisdictions in scheduling beginning in 2014, on an either staged- relevance and influence, of U.S. capital implementation, could lead to a longer transition or non-staged transition basis? market participants, including the deliberative process in issuing Should the date for mandated use be Commission and its staff, would be accounting standards. Further, earlier or later? If the Commission reduced compared to the current individual jurisdictions, through their requires the use of IFRS, should it do so standard setting process in the United securities regulators, accounting on a staged or sequenced basis? If a States. The IASB is expected to consider standard setters or other bodies, could staged or sequenced basis would be its world-wide constituencies of adopt or provide for interpretations or appropriate, what are commenters’ investors, issuers, and regulators during applications of IFRS for companies in views on the types of U.S. issuers that the deliberative process for issuing new those jurisdictions which are different should first be subject to a requirement or revised accounting standards. from those in other jurisdictions. to file IFRS financial statements and those that should come later in time? Further, the IASB has entered into The Commission’s participation in the convergence agreements with other Should any sequenced transition be oversight of the IASB would principally based on the existing definitions of large national accounting standard setters, be through participation in the such as with the Accounting Standards accelerated filer and accelerated filer? Monitoring Group proposed by the Board of Japan.89 Due to the IASB’s Should the time period between stages IASB’s governing body, the IASC need to develop standards with a wider be longer than one year, such as two or Foundation. This would be a less direct variety of constituents in mind, U.S. three years? oversight relationship as to the capital market participants will have a 5. What do commenters believe would participation in board and trustee be the effect on convergence if the 87 See IAS 1 ‘‘Presentation of Financial appointments, review of finances, and Commission were to follow the Statements,’’ paragraph 119 for general guidance on interaction with the board than the proposed Roadmap or allow certain U.S. disclosure of accounting policies from among Commission and its staff has currently issuers to use IFRS as proposed? alternatives. Certain standards under IFRS with respect to the FASB and the 6. Is it appropriate to exclude specifically require disclosure of selected 90 accounting policies when choices are allowed. See Financial Accounting Foundation. investment companies and other for example IAS 16 ‘‘Property, Plant and regulated entities filing or furnishing Equipment,’’ paragraph 73. 90 See FR 70. As noted earlier, this release does reports with the Commission from the 88 See the 2007 Adopting Release. not address the method the Commission would use scope of this Roadmap? Should any 89 See http://www.iasb.org/News/Press+Releases/ to mandate IFRS for U.S. issuers. In addition, the The+ASBJ+and+the+IASB+announce+ Commission would retain the ability to take such Roadmap to move to IFRS include these Tokyo+Agreement+on+achieving+convergence+of action as may be appropriate to address financial entities within its scope? Should these +accounting+standards+by+2.htm. reporting issues in filings with the Commission. considerations be a part of the

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Roadmap? Are there other classes of 15. Where a standard is absent under used more than any other financial issuers that should be excluded from IFRS and management must develop reporting standard on a global basis. The present consideration and be addressed and apply an accounting policy (such as Commission recognizes that there are separately? described in IAS 8, for example) should many questions relating to permitting 7. Do commenters agree that these the Commission require issuers to some U.S. issuers to report under IFRS, matters would affect market participants provide supplemental disclosures of the particularly in light of the proposed in the United States as described above? accounting policies they have elected milestones, and encourages public What other matters may affect market and applied, to the extent such comment on the proposal and the participants? Are there other market disclosures have not been included in related alternative proposals concerning participants that would be affected by the financial statements? what, if any, additional U.S. GAAP the use by U.S. issuers of IFRS in their IV. Proposal for the Limited Early Use information should be provided by Commission filings? If so, who are they electing issuers. and how would they be affected? of IFRS Where This Would Enhance 8. Would a requirement that U.S. Comparability for U.S. Investors In deciding which issuers should be issuers file financial statements A. Eligibility Requirements proposed for inclusion in this group, the prepared in accordance with IFRS have objective of the Commission was to We are proposing amendments to our any affect on audit quality, the identify those categories of U.S. issuers rules that would allow certain U.S. availability of audit services, or for whom the use of IFRS would issuers that meet specific criteria to file concentration of market share among promote comparability with their financial statements in accordance with certain audit firms (such as firms with significant industry competitors. Since IFRS as issued by the IASB, rather than investors frequently make capital existing international networks)? Would U.S. GAAP, for use in their annual and such a requirement affect the allocation decisions among companies other reports made under Section 13(a) within a particular industry sector,94 the competitive position of some audit 91 or 15(d) of the Exchange Act, proxy first element of the eligibility criteria firms? If the competitiveness of some statements and information statements firms would be adversely affected, relates to the use of IFRS in the issuers’ under Schedules 14A and 14C under the industry. The second element is would these effects be 92 Exchange Act, as well as in intended to focus on significant disproportionately felt by firms other registration statements under the than the largest firms? 93 competitors within the industry group, Securities Act and the Exchange Act. and so requires an identification of the 9. What are commenters’ views on the The Commission is proposing these IASB’s and FASB’s joint work plan? accounting standards used by the largest amendments for several reasons. twenty companies by market Does the work plan serve to promote a Investors may find the financial single set of high-quality globally capitalization. We believe these are the information provided by eligible issuers competitors which are the most likely to accepted accounting standards? Why or who elect to report such information in be comparable among themselves and why not? accordance with IFRS to be more 10. How will the Commission’s most likely to be ready to make the comparable to the financial information expectation of progress on the IASB’s transition to IFRS. Both proposed of non-U.S. competitors. Permitting elements—the prevalence of the use of and FASB’s joint work plan impact U.S. some U.S. issuers to report under IFRS IFRS and the significance of the issuer investors, U.S. issuers, and U.S. may provide assistance in a transition to in a given industry—would need to be markets? What steps should be taken to mandatory financial reporting in met for a U.S. issuer to be eligible to file promote further progress by the two accordance with IFRS by creating its financial statements in accordance standard setters? additional, but manageable, demand for 11. The current phase of the IASB’s with IFRS with the Commission. IFRS-related services at this time. The and FASB’s joint work plan is Commission also could learn from The industry criterion identifies scheduled to end in 2011. How should investors and the U.S. public capital companies for which we preliminarily the Commission measure the IASB’s and market participants about their believe it would be overall beneficial to FASB’s progress on a going-forward consideration of IFRS financial investors for the U.S. issuer to be basis? What factors should the information from domestic issuers. eligible to use IFRS because financial Commission evaluate in assessing the Further, investors in the industry statement comparability with other IASB’s and the FASB’s work under the sectors for which the eligibility significant competitors in their industry joint work plan? requirements are met likely would have would be promoted and enhanced. 12. What are investors’, U.S. issuers’, familiarity with IFRS given that it is Under this test, an industry would be and other market participants’ views on eligible if IFRS is used as the basis of the resolution of the IASB governance 91 15 U.S.C. 78m(a) or 78o(d). Section 13(a) of the financial reporting more often than any and funding issues identified in this Exchange Act requires every issuer of a security other basis of financial reporting by the release? registered pursuant to Section 12 of the Exchange 20 largest listed companies worldwide 13. What steps should the Act [15 U.S.C. 781] to file with the Commission within that industry as measured by Commission and others take in order to such annual reports and such other reports as the Commission may prescribe. Section 15(d) of the market capitalization. The U.S. issuer determine whether U.S. investors, U.S. Exchange Act requires each issuer that has filed a would make that determination as issuers, and other market participants registration statement that has become effective follows: are ready to transition to IFRS? How pursuant to the Securities Act to file such should the Commission measure the supplementary and periodic information, (1) An issuer would ascertain its documents and reports as may be required pursuant industry group by using the North progress of U.S. investors, U.S. issuers, to Section 13 in respect of a security registered and other market participants in this pursuant to Section 12, unless the duty to file under American Industry Classification area? What specific factors should the Section 15(d) has been suspended for any financial Commission consider? year. 94 For example, at the end of 2007, there were 219 14. Are there any other significant 92 17 CFR 240.14a–101 and 17 CFR 240.14c–101. exchange-traded funds with an industry/sector- 93 As such, the proposed option would not apply based investment objective, with net assets of issues the Commission should evaluate to the filing requirements for other regulatory approximately $93 billion. 2008 Investment in assessing whether IFRS is sufficiently purposes, such as those of regulated entities such Company Factbook, published by the Investment comprehensive? as broker-dealers. Company Institute.

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System (NAICS) 95 code at the three- accordance with IFRS as issued by the decision on IFRS implementation under digit level, Standard Industrial IASB. the Roadmap.104 96 Classification (SIC) codes at the two- If the U.S. issuer were among the 20 To develop our estimate of the potentially eligible issuers, our staff digit level, or the International Standard largest companies globally in a 97 obtained data from publicly available Industrial Classification (ISIC) codes particular industry and IFRS is used as at the ‘‘Division’’ level. Alternatively, sources on the 20 largest listed the basis of financial reporting more companies measured by market the issuer could use a privately often than any other basis of financial provided, published, and widely capitalization in each industry, using reporting among the 20 largest listed two-digit SIC industry classification accepted industry classification scheme companies worldwide in that industry, at a similar level of detail, such as the codes as assigned by Standard and then the U.S. issuer would be eligible to 105 Industry Classification Benchmark Poors’ COMPUSTAT. We did not elect to use IFRS in its filings with the (ICB) 98 at the ‘‘Sector’’ level or the estimate what the population of eligible Commission. To illustrate, if among the Global Industry Classification Standard issuers would be under other industry top 20 companies in a given industry, (GICS) 99 at the ‘‘Industry’’ level. For classification methods available under there were 8 companies using IFRS, 7 classifications of individual companies, this proposed rule. Therefore, our the issuer must use a single published using U.S. GAAP and 5 using other estimate represents a lower bound on and widely accepted industry source. bases of financial reporting, the industry the number of U.S. issuers at present (The provider of the classification would be viewed as an ‘‘IFRS industry’’ that we believe may be eligible to adopt scheme may be the same entity as the and the 7 U.S. companies would be IFRS under this proposed rule. 102 To simplify the analysis, the staff source of classifications of individual eligible to change to IFRS. If among relied on a number of assumptions companies.) the top 20 companies there were 4 using IFRS, 3 using U.S. GAAP and 13 using (2) Then, the U.S. issuer would other bases of financial reporting but no 104 The number of eligible companies at the outset could be higher due to the fact that different determine whether IFRS is used as the single other basis accounted for more basis of financial reporting more than industry classification systems would be available then 3, the industry would be viewed as to determine eligibility. This could affect the any other basis of financial reporting by an IFRS industry. In contrast, if among number of U.S. issuers that would be ranked among the 20 largest listed companies the 20 largest in their industry by market the top 20 companies there were 7 using worldwide within its industry. capitalization, because companies may be eligible IFRS, 7 using U.S. GAAP and 6 using to use IFRS under one classification system, but not a. An issuer would do this by first other bases of financial reporting, the another. In addition, if companies in an industry identifying the 20 largest listed that is eligible under one classification system industry would not be considered an switch to IFRS, this action may result in IFRS being companies globally in its industry by IFRS industry. If there were 8 used more often than any other set of standards 100 market capitalization. For the companies using U.S. GAAP, 7 using within a separate industry, under a different purposes of this calculation, market IFRS and 5 using other bases of classification system. This effect could result in an capitalization should be determined as expansion of IFRS industries as U.S. companies financial reporting, then the industry switch to IFRS, and, in turn, an increase in eligible of the same day within the 180 days also would not be an IFRS industry and U.S. companies. In addition, under the proposed preceding the date on which the SEC the U.S. companies would not be eligibility criteria, as more countries change to staff receives a request for a letter of no eligible to use IFRS. IFRS, more industries may become ‘‘IFRS objection (as described below). Market industries,’’ and more U.S. companies would capitalization would need to be Using one of the industry become eligible to file IFRS financial statements. classification systems (SIC codes), we For example, assuming that Brazil, Canada, Chile determined from a widely accepted and South Korea follow IFRS, the number of IFRS source. estimate that at present a minimum of industries increases by 9 and total number of approximately 110 U.S. issuers in 34 eligible U.S. companies under our methodology b. Next, the U.S. issuer would ‘‘IFRS industries’’ would be eligible to would increase to approximately 160, representing ascertain which accounting standards approximately 23% of the market capitalization in receive a letter of no objection from the each of the 20 companies uses to report the United States. Also, to the extent the mix of staff using the proposed criteria.103 Our its financial results to the public capital competitors by market capitalization changes to estimate contains a number of include more competitors that report in IFRS, markets. Companies within the industry assumptions and may be impacted by additional industries may qualify as IFRS industries are considered to report under a over time. We estimate that, if all 74 industries specified set of accounting standards if some data not being readily available, as under our methodology were IFRS industries the they have published audited annual indicated below. Further, certain factors theoretical maximum number of U.S. issuers that could result in the number of eligible could be eligible given the present assumptions of financial statements under those companies in the top 20 by industry would be accounting standards.101 As described issuers becoming higher, although this approximately 380, representing 57% of the market below, a U.S. company that elects to availability is most likely to occur in capitalization in the United States. The potential report using IFRS would be required to periods beyond 2011 when the impact of this dynamic is limited, however, by the Commission would expect to make its fact that the Roadmap anticipates a decision by the file financial statements prepared in Commission on the use of IFRS by 2011. Eligibility would likely expand for other reasons. For example, 102 95 See http://www.census.gov/epcd/www/ The distribution of size among the top 20 relatively young foreign public equity markets, naics.html. companies would not matter. In other words, there particularly in emerging markets, are developing at would be no requirement that the group of a faster rate than the mature U.S. equity market, 96 See http://www.census.gov/epcd/www/ companies using a given set of accounting resulting in greater representation of large foreign sic.html. principles, such as IFRS, would constitute the companies on equity exchanges. This factor may 97 See http://unstats.un.org/unsd/class/family/ largest percentage by market capitalization within result in an increase in the number of IFRS-using family2.asp?Cl=27. the industry or in comparison to other groups of listed companies in the top 20 of each industry, by 98 See http://www.icbenchmark.com/. countries using other sets of accounting principles. market capitalization, and a corresponding increase 99 See http://www.mscibarra.com/products/gics/. The only criterion would be that the number of in eligible industries. 100 For these purposes, market capitalization companies using IFRS was more than the number 105 There are 74 industry groups under this refers to the worldwide market value of a of companies using any other basis of financial classification approach. For some industries, there company’s outstanding voting and non-voting reporting. were less than 20 companies available under the common equity securities. 103 For example, under the methodology data obtained. Our staff kept these industries in its 101 For purposes of the calculation, companies described in this section, metal mining under SIC population applying the test of whether IFRS was reporting under more than one set of standards can code 10 and conglomerates under SIC code 99 may used more than any other basis of reporting among be counted as using any of these standards. be eligible. the available list of companies in that industry.

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regarding the bases of accounting of the undertake the complex process of and the date the staff issued its letter of companies in the estimated population. converting their financial statements no objection. In evaluating what bases of financial from U.S. GAAP to IFRS. In addition, The proposed definition of ‘‘IFRS reporting were used by the companies through our postings of these letters on Issuer’’ in Rule 1–02(cc) of Regulation within this estimated population, our our Web site, we would provide S–X, which contains the eligibility staff assumed that all U.S. entities were information to investors and others criteria that must be demonstrated in registered with the Commission and about the possibility of the issuer filing the issuer’s request to the staff of the therefore reporting under U.S. GAAP. In reports using IFRS. Obtaining a staff no- Commission, specifically excludes addition, the staff assumed that any objection letter would not commit the investment companies; employee stock company from an E.U. country, issuer to use IFRS. As noted later, such purchase, savings and similar plans; and Australia, New Zealand, South Africa or a letter would provide an issuer with smaller reporting companies.110 We Switzerland was reporting under IFRS. the ability to commence filing reports have excluded smaller reporting For other companies, our staff attempted using IFRS for a period of three years companies from the proposed definition to obtain information on the set of from the date of the staff response. of IFRS issuer as a limitation on the accounting standards used. For To obtain such a letter, the issuer number of issuers that would be eligible purposes of this analysis, an assumption would make a submission to the staff of to file IFRS financial statements under was made that any assertion as to the the Division of Corporation Finance’s the proposed rules. Investment use of IFRS, such as on the issuer’s Web Office of Chief Accountant.107 In that companies are proposed to be excluded site, in the issuer’s financial statements submission, the issuer would describe because of the separate regulatory or in the audit report, was considered as its analysis in determining its eligibility requirements that exist for those reporting under IFRS. to use IFRS.108 In preparing a request for entities. Employee stock purchase, In some cases, our staff was not able a staff letter of no objection to the use savings and similar plans are proposed to obtain sufficient information about of IFRS, we would expect U.S. issuers to be excluded because they are special the basis of financial reporting used. For to undertake reasonable efforts to investment entities that are subject to example, published financial statements determine the sets of accounting tailored accounting practices. standards for all companies that could not be readily located for all Request for Comment companies and for others financial comprise the twenty largest in its statements were not readily available in industry group. If the staff has no 16. Do commenters agree that certain English. Because of this and other objections to the issuer’s conclusion that U.S. issuers should have the alternative limitations, the staff’s estimate is an it is eligible to file IFRS financial to report using IFRS prior to 2011? What approximate minimum number of statements, the staff would issue a letter circumstances should the Commission issuers that would currently be eligible of no objection. When issued, the staff evaluate in order to assess the effects of under the proposed rule, and the actual letter would be made publicly available early adoption on comparability of number could be significantly greater. on the Commission Web site, together industry financial reporting to Based on these assumptions, with the issuer’s incoming submission. investors? 17. Do commenters agree with the approximately 34 of the 74 industries The incoming submission from the proposed criteria by which the identified would be ‘‘IFRS industries.’’ issuer would not be made public on the comparability of an industry’s financial The minimum of approximately 110 Commission Web site if the staff did not reporting would be assessed? If not, U.S. issuers that we estimate presently issue a letter of no objection. A U.S. issuer could file IFRS financial what should the criteria be? would be eligible to file IFRS financial 18. Which eligible U.S. issuers have statements had as of December 2007 a statements only if it received a letter of no objection. Once the staff issued a the incentive to avail themselves of the total market capitalization of $2.5 proposed amendments, if adopted? Are trillion, which represented letter of no objection, the issuer could adopt IFRS at any time during the three- there reasons for which an issuer that is approximately 12% of the total U.S. in a position to file IFRS financial 106 year period following issuance of the market capitalization. The market statements under the proposed capitalization of these eligible letter without the criteria being recalculated with more current data.109 amendments would elect not to do so? companies range from approximately If so, what are they? $250 million to $300 billion, with a The company would also disclose in its first filing using IFRS the date that it 19. Is limiting the proposal to the mean of $23 billion and a median of largest 20 competitors by market $8.3 billion. Approximately 94% of submitted its request to the staff demonstrating that it met the criteria capitalization an appropriate criterion? these eligible issuers would have a Should it be higher or lower? Should worldwide market capitalization over 107 To the extent applicable, an applicant could additional U.S. issuers be eligible to $700 million. invoke Rule 83. elect to report in IFRS if some minimum B. Staff Letter of No Objection to the Use 108 To the extent an issuer’s analysis includes threshold of U.S. issuers (based on the companies whose financial statements are prepared of IFRS actual number or market capitalization under a jurisdictional version of IFRS or as to of U.S. issuers choosing to report in To be able to use IFRS financial which it is not clear whether the financial statements are prepared under IFRS as issued by the IFRS) elects to report in IFRS under the statements in filings with the IASB, the issuer should state that no information eligibility requirements proposed? To Commission, the U.S. issuer would need came to its attention from the content of the the extent additional U.S. issuers are not to obtain a letter of no objection from financial statements of the companies analyzed or otherwise that causes it to believe that the financial permitted to report in IFRS even if such the SEC staff. This process would assist statements are not in accordance with IFRS as a minimum threshold is met, are such U.S. issuers in determining whether issued by the IASB. non-eligible U.S. issuers placed at a they would be eligible to switch to IFRS 109 If we were to adopt the proposal, once a U.S. competitive disadvantage vis-a`-vis U.S. financial statements and provide them issuer commenced filing reports using IFRS under these rules, it would not have to recalculate its issuers reporting in IFRS? with greater certainty before they eligibility using more current data. A recalculation and a new staff letter of no objection would be 110 The term ‘‘smaller reporting company’’ is 106 Based on an estimated U.S. market necessary only if the issuer did not commence filing defined in Exchange Act Rule 12b–2 [17 CFR capitalization of $20 trillion. See http://www.world- reports using IFRS within three years of receipt of 240.12b–2] and in Securities Act Rule 405 [17 CFR exchanges.org/WFE/home.asp?menu=395. the letter. 230.405].

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20. Would the use of different whom, of extending the option to use first time in a quarterly report, industry classification schemes as IFRS to a limited number of U.S. Securities Act or Exchange Act proposed be unclear or create confusion companies based on the criterion of registration statement, or proxy or in determining whether an issuer is improving the comparability of financial information statement. We propose IFRS eligible? Should we require that all reporting for investors? limiting first time filing to annual issuers use a single industry 25. Do commenters agree that the reports to minimize the potential classification scheme? Why or why not? criterion of enhanced comparability is diversity of filings available, as a 21. What impact will the the correct one? Are there other criteria multitude of options may be difficult for Commission’s determination to allow an that should be used? For example, investors to track and some of the filings industry to qualify as an ‘‘IFRS should issuers be eligible based on their may be directed only to a subset of industry’’ without majority IFRS use size or their global activities? If a size investors. We also do not believe the have on the Commission’s objective of criterion were used to include the transition to IFRS requires amendments promoting comparability for U.S. largest U.S issuers, what should the cut- to our rules relating to the timing of investors? How will this impact U.S. off be? Should there be a criterion based filings with the Commission. investors, U.S. issuers, and U.S. on the absence of past violations of the An issuer that is eligible to file IFRS markets? Is the use of IFRS more than federal securities laws 111 or based on financial statements with the any other set of financial reporting shareholder approval? Commission and is a ‘‘first-time standards the right criterion? Should it 26. Do commenters agree that the adopter’’ of IFRS would provide the be higher or lower? proposed required disclosures are reconciliation and disclosure 22. Should the Commission permit appropriate? If not, what disclosures information required by IFRS 1 ‘‘First- additional industries to qualify as IFRS should be provided? Time Adoption of IFRS’’ (‘‘IFRS 1’’). industries, and thus additional U.S. 27. What are commenters’ views on If we adopt these amendments, we issuers to become early adopters, as the accounting principles that should be would continue to require that issuers more countries outside the U.S. adopt used by those U.S. issuers that elect to provide three years of audited annual IFRS? Alternatively, should the group of file IFRS financial statements if the financial statements. Currently, U.S. potential industries and early adopters Commission decides not to mandate or issuers are required to provide in their be limited to those that qualify at the permit other U.S. issuers to file IFRS filings with the Commission three years time the Commission determines to financial statements in 2011? Should of audited financial statements prepared permit early adoption? the Commission require these issuers to in accordance with U.S. GAAP. Because 23. Do commenters have any revert back to U.S. GAAP in that these proposals relate to the set of suggestions about the procedural situation? accounting principles that is used for aspects of the proposed eligibility 28. Is it appropriate to exclude preparing financial statements and not requirements, e.g., the procedure for investment companies, employee stock to the periods for which financial obtaining a letter of no objection from purchase, savings and similar plans and statements are required, we propose to the Commission staff or the minimum contents of the required submission? Is smaller reporting companies? Are there continue to require three years of such a procedure necessary? Do other classes of issuers or certain audited financial statements from U.S. commenters agree that such a procedure industries that should be excluded? issuers in the first year of IFRS reporting. We are not inclined to allow would assist both issuers and investors? C. Transition Should the procedural aspects of the U.S. issuers to present only two years of We believe that the option to move to proposed eligibility requirements be less IFRS financial statements, although we IFRS should be made available to formal? Should the procedure be similar request comment below on a potential eligible U.S. issuers upon adoption of to that in the no action letter process option for when a company would file rule amendments; thus we propose that regarding shareholder proposals under three years of U.S. GAAP and two years it be applicable for filings for fiscal Rule 14a–8 of the Exchange Act? Should of IFRS financial statements. the letter of no objection be advisory years ending on or after December 15, Under the proposal, an eligible issuer only? Should obtaining a letter of no 2009. We believe that the ease with that elects to file IFRS financial objection be optional? Is the method for which an eligible issuer could transition statements may begin to file financial calculating eligibility clear and to IFRS in filings with the Commission, statements prepared in accordance with appropriate or are there alternative and thus the actual transition timing for IFRS as issued by the IASB for fiscal suggestions that should be considered? an eligible issuer, would depend on the years ending on or after December 15, Should the Commission publish extent to which the issuer has 2009.112 As discussed in further detail standards or criteria to guide the staff’s experience with IFRS. An eligible issuer below in Section V.D.3., we also are determination? What do commenters that elects to file IFRS financial proposing that an issuer that elects to believe the respective role of the statements with the Commission under file IFRS financial statements with the Commission and its staff should be in the proposed amendments would be Commission disclose information making these eligibility determinations? required first to do so in an annual related to its decision to change to IFRS Should the Commission post on its Web report containing three years of audited in its first Form 10–K that contains IFRS site all submissions and responses, financial statements. Similarly, an IFRS financial statements. issuer changing from IFRS as issued by including those for which the staff does Request for Comment not issue a no-objection letter? the IASB to U.S. GAAP may only begin 24. Currently, some public companies reporting using U.S. GAAP in an annual 29. Should we limit the first filing in the U.S. public capital market report report on Form 10–K. An eligible issuer available to an annual report on Form in accordance with IFRS and others in would not be able to file IFRS financial 10–K, as proposed? If not, why not? Is accordance with U.S. GAAP. Today, statements with the Commission for the the proposed transition date of fiscal however, this ability to report using 111 An example of such a criterion is found under 112 A company filing an annual report for the year IFRS exists only for foreign companies. clauses (vi), (vii) and (viii) under the definition of ended December 31, 2009 would have to present What consequences, opportunities or ‘‘ineligible issuer’’ under Rule 405 under the IFRS financial statements for its fiscal years ended challenges would be created, and for Securities Act [17 CFR 230.405]. December 31, 2007, 2008 and 2009.

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years ending on or after December 15, IFRS financial statements.114 For This reconciliation called for under 2009 appropriate? Should it be earlier or example, a calendar-year issuer that IFRS 1 would be included as part of the later, and why? What factors should be began its IFRS accounting for the 2010 issuer’s audited financial statements in considered in setting the date? fiscal year would use U.S. GAAP to its first annual report that includes IFRS 30. Are there any considerations that prepare its Forms 10–Q and Forms 10– financial statements. IFRS 1 requires may make it difficult for an eligible U.S. K for the 2010 and 2011 fiscal years. In that entities explain how the transition issuer to file IFRS financial statements? 2012, that issuer would have the option from previous GAAP to IFRS affects its Are there considerations about filing of filing a Form 10–K or a Form 10–K/ reported financial position, financial IFRS financial statements that would A with IFRS financial statements for performance and cash flows. To comply weigh differently for an eligible U.S. 2010 and 2011, which would allow it to with this requirement, an entity’s first issuer than they would for a foreign use IFRS in its quarterly reports during IFRS financial statements must include private issuer that files IFRS financial 2012, or continuing to use U.S. GAAP. reconciliations of its equity reported statements? In either case, the Form 10–K covering under previous GAAP to its equity under IFRS for the date of transition to 31. What difficulties, if any, do U.S. the 2012 fiscal year would include three IFRS and the end of the latest period issuers anticipate in applying the years of IFRS financial statements. presented in the most recent annual requirements of IFRS 1 on first-time D. Alternative Proposals for U.S. GAAP financial statements prepared under adoption of IFRS, including the Information previous GAAP, and of its profit and requirements for restatement of and The Commission is proposing two loss, and cash flows, reported under reconciliation from previous years’ U.S. alternatives with respect to the previous GAAP for the latest period in GAAP financial statements? disclosure of U.S. GAAP information by the most recent annual financial 32. What would affect a company’s U.S. issuers that elect to use IFRS statements to its profit and loss under willingness to use IFRS if it were financial statements in their IFRS for the same period.115 Under eligible to do so? For example, some Commission filings. Under the first Proposal A, U.S. issuers would comply market indices, such as the S&P 500, proposal, U.S. issuers would provide a with these requirements under IFRS. We currently only include issuers that one-time reconciliation from certain are not proposing additional report in U.S. GAAP. Are there other U.S. GAAP financial statements to IFRS requirements, including specific form investment instruments or indices that in accordance with IFRS 1. Under the and content requirements for the would affect companies that would be second proposal, U.S. issuers also reconciliations presented under IFRS 1. eligible to use IFRS under the proposed would provide on an annual basis a This reconciling information from U.S. criteria? Would the ability to be reconciliation from IFRS financial GAAP to IFRS as of the dates and for the included in the S&P 500, or other statements to U.S. GAAP covering a annual period required under IFRS instrument or index affect whether an three-year period. The Commission is would provide investors with eligible U.S. issuer decides to use IFRS? soliciting comment on these alternative information relating to the financial Would these indices be prepared to proposals to assist it with assessing statement effects of the change from accept IFRS, and, if so, how long would whether a one-time reconciliation in U.S. GAAP to IFRS for these dates and it take for them to change their criteria? accordance with IFRS is sufficient or annual period. Would more issuers be likely to use whether it also should require the on- Under Proposal A, an eligible issuer IFRS after they do? Should these going disclosure of supplemental U.S. that elects to file IFRS financial considerations influence our decision GAAP financial information by U.S. statements may begin to file financial on whether or when to permit or require issuers that have elected to file IFRS statements prepared in accordance with U.S. issuers to use IFRS in their financial statements. IFRS for fiscal years ending on or after Commission filings? December 15, 2009. As an example, 33. To facilitate the transition to IFRS, 1. Proposal A—Reconciled Information under this alternative, a U.S. issuer should we add an instruction to Form Pursuant to IFRS 1 filing an annual report for the year 10–K and Form 10–Q under which an Under the first alternative, Proposal ending December 31, 2009 in issuer could file two years, rather than A, a U.S. issuer that elects to file IFRS accordance with IFRS for the first time three years, of IFRS financial statements financial statements would provide the would include a reconciliation of its in its first annual report containing IFRS reconciling information from U.S. reported equity from U.S. GAAP to IFRS financial statements as long as it also GAAP to IFRS called for under IFRS 1 as of January 1, 2007 and December 31, filed in that annual report three years of in a footnote to its audited financial 2008 and a reconciliation for the year U.S. GAAP financial statements? Under statements. IFRS 1 provides the ending December 31, 2008 of its such an approach, an issuer could, requirements for transition from a prior reported total comprehensive income. during its third year after beginning its basis of reporting, in this case U.S. After the initial reconciliation, the IFRS accounting, choose to file a GAAP, to IFRS as issued by the IASB. issuer would not be required to provide Form10–K/A with IFRS financial This information includes the any reconciliation in future filings with statements covering the previous two restatement of and reconciliation from the Commission. However, nothing fiscal years.113 For the current (third) prior year’s financial statements and the would prevent a U.S. issuer from fiscal year, the issuer could then file related disclosures. This information voluntarily disclosing such U.S. GAAP quarterly reports on Form 10–Q using helps investors and users of financial information to the market that it statements to understand the differences believes may be useful for investors. 113 The IFRS financial statements covering the between financial statements prepared 2. Proposal B—Supplemental U.S. two prior years could be included in the Form 10– in accordance with the prior basis of GAAP Information K if the issuer were prepared to do so as of the due financial reporting and IFRS as issued date. In that case, the Form 10–K would also by the IASB. Under the second alternative, contain three years of U.S. GAAP financial Proposal B, U.S. issuers that elect to file statements. Compliance with Exchange Act Rule 13a–14 [240.13a–14] would be required for both a 114 An issuer that did not choose to file two years IFRS financial statements would Form 10–K and a Form 10–K/A that contained IFRS of IFRS financial statements would file its quarterly financial statements. reports for the third year using U.S. GAAP. 115 See IFRS 1, paragraph 39.

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provide the reconciling information The reconciliations would cover all of issuers to revert back to U.S. GAAP, we from U.S. GAAP to IFRS required under the financial statements required to be anticipate eliminating any requirement IFRS 1, and would also disclose on an presented under IFRS: The balance to disclose supplemental U.S. GAAP annual basis certain unaudited sheets, statements of income (loss), financial information. supplemental U.S. GAAP financial statements of cash flow, statements of Under Proposal B, an eligible issuer information covering a three-year changes in shareholders’ equity, and that elects to file IFRS financial period. This unaudited supplemental statements of comprehensive income. statements may begin to file financial financial information would be in the Quarterly reports on Form 10–Q would statements prepared in accordance with form of a reconciliation from IFRS as not be required to provide disclosure IFRS for fiscal years ending on or after issued by the IASB to U.S. GAAP. For pursuant to Item 101(j). December 15, 2009. As an example, each period covered, the reconciliation Under proposed Item 101(j), the under this alternative, a U.S. issuer would be substantially similar to that reconciliations would be presented in a filing an annual report for the year required under IFRS 1, except that it form and level of information in ending December 31, 2009 in would reconcile from IFRS financial sufficient detail to explain all material accordance with IFRS for the first time statements to U.S. GAAP and it would adjustments to the relevant financial would include, in addition to the one- reconcile the financial statements statements.116 We are not proposing time reconciliation required under IFRS indicated below. Under Proposal B, the specific form and content requirements 1 (as described under Proposal A), the reconciliation would relate to all annual for the reconciliations presented under reconciliation from IFRS to U.S. GAAP periods covered by IFRS audited Item 101(j). While issuers could elect to as of December 31, 2008 and 2009 for financial statements, usually the most reconcile the statements of balance sheet information and for the recent three fiscal years. This unaudited comprehensive income and three years ending December 31, 2009 information would be disclosed on an shareholders’ equity from IFRS to U.S. for the statements of income (loss) and annual basis in the issuer’s annual GAAP, they may find it easier to prepare other annual period financial report on Form 10–K. these statements using U.S. GAAP statements. Thereafter, in each annual The supplemental U.S. GAAP amounts. report on Form 10–K, the issuer would information provided under Proposal B Under this alternative, the provide the IFRS to U.S. GAAP would incrementally increase information disclosed pursuant to reconciliation covering the same three- comparability in the following ways. In proposed Item 101(j) would be year period as the audited financial the annual report covering the year in contained under an appropriate caption statements included in the Form 10–K. which a U.S. issuer elected to report in in the body of the annual report on 3. Discussion of Proposals A and B accordance with IFRS, Proposal B Form 10–K. As such, consistent with would require U.S. GAAP information other non-financial statement We believe that U.S. GAAP financial concerning the three most recently information, it would be considered information, whether presented under completed fiscal years. It also would ‘‘filed’’ for purposes of Section 18 of the either Proposal, would be useful to require U.S. GAAP information in Exchange Act,117 would be subject to investors in order to facilitate their annual reports for periods after that in the certifications by the principal understanding of and education with which an issuer elected to report in executive and financial officers respect to IFRS during the early stages accordance with IFRS. In addition to pursuant to Sections 302 and 906 of the of the transition of U.S. issuers to IFRS. improved comparability, the additional Sarbanes-Oxley Act of 2002,118 and This reconciliation, under either periods of U.S. GAAP information would be subject to the disclosures and Proposal, would assist investors in their would incrementally aid investors in certifications relating to disclosure understanding and appreciation of the understanding the differences between controls and procedures.119 differences between U.S. GAAP and IFRS and U.S. GAAP, including trends. The preparation of the supplemental IFRS as issued by the IASB as such Proposal B also increases the likelihood U.S. GAAP information, the underlying differences relate to the issuer providing that U.S. issuers would maintain U.S. books and records on which that the disclosure. The Proposal B GAAP controls, procedures, and books information is based and the internal requirement to provide a U.S. GAAP and records, for periods after the accounting controls and procedures reconciliation on an annual and on- election to report in IFRS. used to prepare such information would going basis would provide U.S. GAAP Consequently, were the Commission to not be subject either to management’s information for additional and future determine not to continue to permit or assessment of, or to the independent periods beyond the one-time require U.S. issuers to use IFRS, those auditor’s report relating to, internal requirement under IFRS 1. Under issuers who had elected to report under controls and procedures over financial Proposal B, issuers would need to have IFRS could more easily return to reporting pursuant to Section 404 of the in place sufficient records and controls reporting in accordance with U.S. Sarbanes-Oxley Act.120 In addition, the to prepare this U.S GAAP information. GAAP. In addition, even if the supplemental U.S. GAAP information In addition, U.S. GAAP financial Commission did not require issuers to would not be required to be audited or information, whether presented under revert to U.S. GAAP, some issuers may reviewed by the issuer’s independent either Proposal, would facilitate the find it appropriate to do so. auditors. ability of investors to make comparisons To implement Proposal B, we would If we subsequently adopt rules to among U.S. issuers that prepare U.S. amend Item 101 ‘‘Business’’ of mandate the use of IFRS or GAAP financial statements and those Regulation S–K by adding a paragraph subsequently determine not to mandate that have elected the early use of IFRS. (j). Under proposed Item 101(j), an the use of IFRS and require ‘‘early use’’ As proposed, only a limited number of issuer that uses IFRS as issued by the U.S. issuers would be eligible to elect IASB as its basis of financial reporting 116 Item 101(j) is based on paragraph 40 of IFRS the early use of IFRS. While we believe 1. the early use of IFRS by these eligible would provide reconciliations from its 117 IFRS financial statements to U.S. GAAP 15 U.S.C. 78r. issuers may promote their comparability 118 15 U.S.C. 7241 and 18 U.S.C. 1349. for each of the three fiscal years covered 119 Exchange Act Rules 13a–15 and 15d–15 [17 to non-U.S. issuers in certain industries, by the audited IFRS financial statements CFR 240.13a–15 and 240.15d–15]. investors may also find it useful to make included elsewhere in the Form 10–K. 120 15 U.S.C. 7262. comparisons with other U.S. issuers, the

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majority of which would continue to information helpful in their education 42. Should we require supplemental prepare U.S. GAAP financial statements. about IFRS or in being able to continue U.S. GAAP information, such as that in The Proposal B requirement to provide to make financial statement Proposal B, for all quarterly periods a U.S. GAAP reconciliation on an comparisons with U.S. (and non-U.S.) covered by IFRS financial statements? annual and on-going basis could issuers that continue to prepare U.S. 43. Should the option to report under promote comparability with U.S. issuers GAAP financial statements? Would one IFRS, whether under Proposal A or that continue to use U.S. GAAP. alternative be more helpful to U.S. Proposal B, automatically terminate as Were the Commission to determine investors, regulators, or others in of a date certain? If so, should that date not to continue to permit or require understanding information prepared be a set period of time? For example, additional U.S. issuers to use IFRS, the under IFRS or to continue to make should it be three years following the Commission would determine whether comparisons with issuers who prepare effective date of an adopting release? to require U.S. issuers that had elected U.S. GAAP financial statements? Should it be a longer or shorter time the early use of IFRS to revert back to 38. Should we be concerned about the period? Should it be measured from U.S. GAAP. In addition, those issuers ability of U.S. issuers that elect the early another date (e.g., the first permissible may find it appropriate to revert back to use of IFRS to revert to U.S. GAAP? compliance date or the date of the first U.S. GAAP even if not required to do so. Would either Proposal be preferred to letter of no objection issued)? What Thus, it would appear important that facilitate such a reversion, should that considerations should be part of our U.S. issuers electing to file IFRS be appropriate or required as described decision as to the date or duration? financial statements maintain sufficient above? 44. Under Proposal B, does providing information, records and controls in 39. Under Proposal B, should the U.S. GAAP information require issuers place to be able to revert back to U.S. proposed U.S. GAAP financial electing to file IFRS financial statements GAAP. The Proposal A requirement to information be audited? Is the proposed to maintain sufficient information, provide only the reconciliation under role of the auditor appropriate? Should records and controls in order to revert IFRS 1 would not appear to promote the the proposed U.S. GAAP financial back to U.S. GAAP? If not, what ability of U.S. issuers to revert back to information be filed as an exhibit to the additional information, records or U.S. GAAP, since U.S. GAAP Form 10–K annual report, instead of as controls must be maintained? information would not have been part of the body of the report? Is the 45. Under Proposal A, what required to be accumulated or disclosed proposed treatment of the information additional information, records or beyond the last year that the issuer appropriate? For example, should the controls would be necessary for U.S. previously reported under U.S. GAAP. information be deemed ‘‘furnished’’ and issuers electing to file IFRS financial The Proposal B requirement to provide not ‘‘filed’’ for purposes of Section 18 of statements to maintain so that they a U.S. GAAP reconciliation on an the Exchange Act? Should we require could revert back to U.S. GAAP? annual and on-going basis may promote that the supplemental U.S. GAAP the ability of U.S. issuers to revert back information be contained in the annual V. Discussion of Proposed Amendments to U.S. GAAP. report that is prepared pursuant to Because we have not previously Exchange Act Rule 14a–3(b)? 121 Should permitted U.S. issuers to use financial Request for Comment the supplemental U.S. GAAP statements prepared in accordance with 34. What are commenters’ views on information appear as a note to the IFRS as issued by the IASB in their Proposals A and B relating to U.S. financial statements? Is the proposed Securities Act and Exchange Act filings, GAAP reconciling information? Which role of the auditor appropriate? our disclosure requirements and forms Proposal would be most useful for 40. Under either Proposal, should we have not been specifically adapted for investors? Is there a need for the provide more guidance as to the form IFRS. This section discusses the supplemental information provided by and content of the information called proposed amendments to our rules and Proposal B? Would the requirement for? Under either Proposal, should we forms designed to permit the limited under Proposal B have an effect on require that additional information be early use of IFRS as issued by the IASB whether eligible U.S. companies elect to provided, such as a ‘‘full reconciliation’’ as described in Section IV. The file IFRS financial statements? To what as is required under Item 18 of Form amendments also are designed to extent might market discipline (i.e. , 20–F? 122 Is there an intermediate provide further instruction as to how investor demand for reconciliation position between the reconciliation any issuer that prepares its financial information) encourage early adopters to under Proposal B and the reconciliation statements in accordance with IFRS as reconcile to U.S. GAAP even in the under Item 18 of Form 20–F? issued by the IASB for filings with the absence of a reconciliation requirement? 41. Under either Proposal, should we Commission, whether a U.S. issuer or a 35. What role does keeping a set of require that the issuer’s ‘‘Management’s foreign private issuer that elects to file books in accordance with U.S. GAAP Discussion and Analysis of Financial IFRS financial statements, should play in the transition of U.S. issuers to Condition and Results of Operations’’ respond to disclosure requirements.124 IFRS? What impact will keeping U.S. prepared under Item 303 of Regulation GAAP books have on U.S. investors, S–K contain a discussion of the A. The Use of IFRS Financial U.S. issuers, and market participants? reconciliation and the differences Statements in Commission Filings by 36. How valuable is reconciliation to between IFRS as issued by the IASB and Eligible Issuers 123 U.S. investors, U.S. issuers, and market U.S. GAAP? 1. Proposed Amendments to Rule 4–01 participants? How valuable is of Regulation S–X reconciliation to global market 121 17 CFR 240.14a–3(b). 122 Item 18 of Form 20–F requires that a foreign Regulation S–X contains, among other participants? Are there some financial private issuer provide as part of the U.S. GAAP statements (such as the statement of things, the form and content reconciliation ‘‘all other information required by requirements for financial statements comprehensive income) which should U.S. generally accepted accounting principles and not be required to be reconciled to U.S. Regulation S–X.’’ 123 Foreign private issuers that provide a U.S. 124 As discussed below in Section V.B., inclusion GAAP? GAAP reconciliation are required to provide such of foreign private issuers in Article 13 will not 37. Under either Proposal, would disclosure. See Instruction 2 to Item 5 of Form 20– change the content of their financial statements investors find the U.S. GAAP F. filed under Form 20–F.

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included in Securities Act registration propose to add a definition of ‘‘IFRS regard to both financial statements and statements, registration statements issuer’’ to the general definitions section issuers. Under proposed Rule 13–01(a), under Section 12 of the Exchange Act, of Rule 405 of Regulation C under the Article 13 applies to financial annual and other reports under Sections Securities Act and Rule 12b–2 of statements that are prepared in 13 and 15(d) of the Exchange Act, and Regulation 12B under the Exchange Act. accordance with IFRS as issued by the proxy and information statements under These proposed definitions would refer IASB filed by an IFRS issuer, by a Section 14 of the Exchange Act. Article to the definition contained in proposed foreign private issuer pursuant to Form 4 of Regulation S–X sets out the rules of Rule 1–02(cc) of Regulation S–X. We 20–F, or by an issuer with regard to non- general application for those financial propose defining ‘‘IFRS issuer’’ in the issuer financial statements pursuant to statements, and Rule 4–01 of Article 4 same way under Regulation S–X, the Rule 3–05, 3–09 or 3–14 of Regulation describes the form, order and Securities Act and the Exchange Act in S–X, as discussed further in Section terminology to be used for financial order to indicate clearly that the term is V.E.1. below. We do not include foreign statements included in filings under the to have the same meaning in the private issuers under the definition of Securities Act and the Exchange Act. application of all applicable rules, IFRS issuer, and consequently list Under current Regulation S–X, the regulations and forms under the foreign private issuers and IFRS issuers financial statements contained in the Securities Act and the Exchange Act. separately in proposed Rule 13–01(a), filings of any domestic issuer must be because financial statement and other prepared in accordance with U.S. Request for Comment disclosure requirements for foreign GAAP, unless the Commission has 46. Are the criteria for issuers eligible private issuers are contained separately otherwise provided.125 Although the to file financial statements in in Form 20–F. Because Form 20–F refers Commission has made such provisions accordance with IFRS as issued by the a foreign private issuer back to for foreign private issuers, which may IASB clear from the proposed definition Regulation S–X, we believe providing prepare their financial statements in of ‘‘IFRS issuer?’’ If not, in what way is for the application of Article 13 in this accordance with a comprehensive set of the definition unclear, and what manner will provide that our rules accounting principles other than U.S. revisions would be necessary to relating to the use of financial GAAP with a reconciliation to U.S. eliminate any lack of clarity? statements prepared in accordance with GAAP or in accordance with IFRS as 47. Is there any ambiguity in the IFRS as issued by the IASB will apply issued by the IASB without a proposed amendments regarding the equally to both domestic issuers and reconciliation to U.S. GAAP,126 issuers reasons for the distinction between foreign private issuers, while that are not foreign private issuers are ‘‘IFRS issuer’’ and foreign private issuer, recognizing that foreign private issuers permitted to use only U.S. GAAP. and the application of the rules to each? are subject to a separate disclosure and To accommodate the limited early use If so, what is the nature of the ambiguity reporting regime under Form 20–F. of IFRS proposed in this release, we are and what would be necessary to provide Proposed Rule 13–01(b) brings proposing to add a new paragraph (a)(3) clarity? together three basic requirements for to Rule 4–01 of Regulation S–X so that 48. Is the application of Regulation S– IFRS financial statements. First, such a new category of issuers (e.g., those X and Regulation S–K to financial financial statements must contain an meeting the proposed definition of statements prepared in accordance with appropriate captioned note in which the ‘‘IFRS issuer’’ discussed further below) IFRS as issued by the IASB clear from issuer unreservedly and explicitly states may prepare their financial statements the proposed amendments, or are there compliance with IFRS as issued by the in accordance with IFRS as issued by other items within those regulations that IASB. Second, the applicable the IASB. Under the proposed Rule 4– should be specifically amended to accountant’s report must include an 01(a)(3), financial statements prepared permit the filing of financial statements opinion on whether the financial in accordance with IFRS as issued by prepared in accordance with IFRS as statements comply with IFRS as issued the IASB would be subject to the issued by the IASB? If so, how would by the IASB. Finally, financial proposed new Article 13, as described the application of Regulation S–X and statements which are not prepared in in Section V.B., below. Neither Regulation S–K be unclear if there were accordance with IFRS as issued by the proposed Rule 4–01(a)(3) nor the no changes to those other than those IASB will be presumed to be misleading proposed definition of ‘‘IFRS issuer’’ proposed? What changes would be or inaccurate, despite footnote or other would affect the use of financial suggested in order to make them clear? disclosures, unless the Commission has statements prepared in accordance with otherwise provided. The first two IFRS as issued by the IASB by foreign B. Application requirements currently exist for foreign private issuers. 1. Article 13 of Regulation S–X private issuers that use IFRS as issued by the IASB, but exist outside of 2. Proposed Definition of ‘‘IFRS Issuer’’ We are proposing a new Article 13 to Regulation S–X. The third clarifies the We are proposing to include a Regulation S–X which relates to the use application of Rule 4–01(a) for IFRS definition of ‘‘IFRS Issuer’’ in the of IFRS and sets out requirements as to financial statements. definitions section of Regulation S–X as the application of Regulation S–X and The purpose of these requirements is new Rule 1–02(cc). The term ‘‘IFRS related rules and forms for any issuer, so that issuers that file IFRS financial issuer’’ would be defined as any issuer, be it an eligible U.S. issuer or a foreign statements with the Commission do not other than a foreign private issuer that private issuer, that prepares financial deviate from IFRS as issued by the files financial statements pursuant to statements in accordance with IFRS as IASB. Deviations would not foster the Item 17 or Item 18 of Form 20–F, that issued by the IASB for filings with the development and use of a single set of prepares its financial statements in Commission. We believe aggregating high-quality global accounting accordance with IFRS as issued by the provisions relating to the use of IFRS as standards and would undercut an IASB and meets the eligibility criteria issued by the IASB into a single new objective of the proposed option, which discussed in Section IV.A. We also article provides for the greatest as stated previously is intended to simplicity and ease of use at this time. enhance comparability in an industry 125 See Rule 4–01(a)(1) of Regulation S–X. Proposed Rule 13–01 relates to the where IFRS is used more often than any 126 See Rule 4–01(a)(2) of Regulation S–X. application of proposed Article 13 with other set of accounting standards. As we

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stated in the adopting release accepting choice under IAS 8, the provision is not apply, because the areas to which IFRS financial statements by foreign described as ‘‘need not apply’’.127 If the those rules relate are provided for in private issuers without reconciliation to particular provision of Regulation S–X IFRS as issued by the IASB.129 U.S. GAAP, we believe that the benefits is by its nature not applicable to IFRS Article 4 ‘‘Rules of General of moving towards a single set of financial statements, or would be in Application’’ would apply, except for globally accepted standards as a long- conflict with IFRS as issued by the Rules 4–07, 4–08, and certain term objective, including increased IASB, the provision is described as paragraphs of Rule 4–10. Rule 4–07 transparency and comparability of ‘‘shall not apply’’. Otherwise, the ‘‘Discount on shares’’ and Rule 4–08 financial statements, are attainable only provisions of Regulation S–X would ‘‘General notes to financial statements,’’ if IFRS represents a single set of high- apply. need not apply to IFRS financial quality accounting standards and not a Article 1 ‘‘Application of Regulation statements, because the areas to which multiplicity of divergent standards S–X’’ describes the application of those rules relate are provided for in using the same name. However, we Regulation S–X in setting forth the form IFRS as issued by the IASB.130 would retain the ability to take such and content requirements for financial Rule 4–10, ‘‘Financial Accounting and action as may be appropriate to address statements filed as part of Commission Reporting for Oil and Gas Producing financial reporting issues in filings with filings, and includes definitions of terms Activities Pursuant to the Federal the Commission. used throughout Regulation S–X. Except Securities Laws and the Energy Policy Proposed Rule 13–02 describes how as noted below regarding Rule 4–10, and Conservation Act of 1975’’ the other articles contained in Article 1 would apply. references energy-related statutes and Regulation S–X would apply to IFRS Article 2 ‘‘Qualifications and Reports contains references to specific financial statements. Regulation S–X of Accountants’’ describes the pronouncements under U.S. GAAP.131 has various provisions that specify the qualifications and reports of With respect to Commission filings, financial presentation, disclosure accountants and includes certain Rule 4–10 would apply, except as noted content, and in some cases, recognition requirements related thereto. Article 2 below.132 Specifically, Rule 4–10(a) and measurement of amounts, to be would apply. would apply to IFRS financial provided within an issuer’s financial Article 3 ‘‘General Instructions as to statements because the definitions it statements. Under the proposed rules, Financial Statements’’, which contains are used in the disclosure an eligible IFRS issuer would apply principally addresses the age, dates and requirements under Industry Guide 2 IFRS as issued by the IASB in its periods to be covered by financial and FAS 69, with which an issuer using entirety, and ordinarily would not be statements of the issuer and the IFRS would continue to comply.133 Rule required to comply with provisions of circumstances in which financial 4–10(b) ‘‘Successful Efforts Method,’’ Regulation S–X that specify financial statements of entities other than the which specifies compliance with FAS presentation, disclosure content, or issuer are required in the issuer’s filings, 19 ‘‘Financial Accounting and Reporting recognition and measurement of would apply. However, some of the by Oil and Gas Producing Companies,’’ amounts within the issuer’s financial individual rules contained in Article 3 need not be applied to IFRS financial statements. However, as described more specify certain disclosure content statements. Although FAS 19 may be fully in Section V.D.4., in many within an issuer’s financial statements, applied in IFRS financial statements in instances an eligible IFRS issuer may be and need not, or would not, apply to the absence of specific guidance on oil permitted to follow these types of IFRS financial statements. Specifically, and gas accounting under IFRS, IFRS provisions as acceptable accounting Rule 3–03 ‘‘Instructions to income does not require the application of FAS policy choices under IAS 8. Also, in statement requirements,’’ and Rule 3–04 19.134 Rule 4–10(c) ‘‘Full Cost Method’’ many instances disclosures of the types ‘‘Changes in other stockholders’ equity,’’ need not apply to IFRS financial specified by Regulation S–X may be need not apply to IFRS financial statements. Rule 4–10(d) ‘‘Income necessary in IFRS financial statements statements because the areas to which Taxes’’ need not apply to IFRS financial to fully comply with the general they relate are provided for in IFRS as statements because the areas to which requirement for fair presentation of IFRS issued by the IASB. Rule 3–15(a)(1) they relate are provided for in IFRS as financial statements under IAS 1 ‘‘Special provisions as to real estate issued by the IASB.135 ‘‘Presentation of Financial Statements.’’ investment trusts,’’ would not apply With respect to Article 5 ‘‘Commercial Regulation S–X also has various because its requirements with respect to and Industrial Companies,’’ Article 7 provisions that specify the age, dates income statement presentation are 129 and periods to be covered by financial incompatible with IFRS as issued by the See IAS 27 ‘‘Consolidated and Separate Financial Statements’’ and SIC 12 ‘‘Consolidation— statements of the issuer in Commission 128 IASB. Rules 3–15(b) and (c) need not Special Purpose Entities.’’ filings under various circumstances, the apply to IFRS financial statements but 130 Financial statement footnote disclosure qualifications of auditors and the the disclosures specified therein may be requirements on particular topical areas are found content of audit reports, and necessary for a fair presentation under throughout the standards and interpretations of IFRS. circumstances in which financial IAS 1. Rule 3–20 ‘‘Currency for financial statements of entities other than the 131 The Commission has recently issued a statements of foreign private issuers’’ by proposing release relating to oil and gas disclosure issuer are required in the issuer’s filings. its terms applies only to foreign private requirements contained in Regulation S–X and These provisions are relevant issuers. Regulation S–K. See Release No. 33–8935 [73 FR irrespective of any particular system of Article 3A ‘‘Consolidated and 39526 (July 9, 2008)]. accounting principles and would 132 We propose to clarify in Rule 1–01(c) of Combined Financial Statements’’ need Regulation S–X that the proposed application of continue to apply to IFRS issuers. Rule 4–10 in Rule 13–02 would apply only to A walkthrough of how proposed Rule 127 However, such a provision could not be used Commission filings. 13–02 would specify this application to the extent it would create a conflict with IFRS. 133 See Section V.G.2. below. follows. In those instances where an For example, certain provisions of Rule 4–10(c) 134 For discussion relating to IAS 8 ‘‘Accounting eligible IFRS issuer is not required to ‘‘Full Cost Method’’ may conflict with certain Policies, Changes in Accounting Estimates and requirements of particular IFRS standards or the Errors’’ and the use of guidance to areas for which comply with the particular provision of IFRS Framework. specific IFRS do not exist, see Section III.B.4., Regulation S–X, but may be permitted to 128 See IAS 1 ‘‘Presentation of Financial above, and Section V.C.4., below. do so as an acceptable accounting policy Statements.’’ 135 IAS 12 ‘‘Income Taxes.’’

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‘‘Insurance Companies,’’ and Article 9 quarterly reports on Form 10–Q.137 Rule provisions of U.S. GAAP. This may ‘‘Bank Holding Companies,’’ which 10–01(d), which requires that interim cause some doubt as to how such prescribe specific financial statement financial statements included in references should apply with respect to captions and certain footnote quarterly reports be reviewed by an financial statements prepared in disclosures for issuers in their independent accountant, would accordance with IFRS as issued by the respective industries, these articles need continue to apply. Rule 10–01(e) also IASB. In order to provide clarity as to not apply to IFRS financial statements. continues to apply to permit the filing application of our regulations, we are However, the schedules under Rules 5– of interim financial information to be proposing Rule 13–03 to address 04, 7–05, and 9–06, which specify waived in certain cases. application of both general references to supplemental parent company-only Finally, both Article 11 ‘‘Pro Forma GAAP as well as the references to information or separate supplemental Financial Information,’’ and Article 12 specific U.S. GAAP pronouncements for tabular disclosures, would still apply. ‘‘Form and Content of Schedules,’’ IFRS financial statements. Consistent As discussed in Section V.B.2., below, would apply in their entirety. with our proposed approach to Article in providing separate audited schedules Additional information on the proposed 13 of Regulation S–X overall, we pursuant to those rules, we propose that application of Article 11 is provided in propose an approach to address these an IFRS issuer or foreign private issuer Section V.E. matters on a consolidated basis rather may use amounts based on IFRS as Request for Comment than amending each of the specific issued by the IASB. references at this time. 49. Is there any reason why an issuer Article 6 ‘‘Registered Investment With regard to general references to would be unable to assert compliance GAAP, we are proposing an approach Companies,’’ Article 6A ‘‘Employee with IFRS as issued by the IASB and Stock Purchase, Savings and Similar consistent with the approach we used obtain the necessary opinion from its when we adopted rules pursuant to Plans,’’ and Article 8 ‘‘Financial independent auditor? Section 401(b) of the Sarbanes-Oxley Statements of Smaller Reporting 50. Is the application of Articles 1 Act of 2002 139 Companies’’ would not apply because, through 12 of Regulation S–X to IFRS with respect to the use as described in Section IV above, such of non-GAAP financial measures by financial statements clear from the 140 issuers would be excluded from the proposed Rule 13–02? If not, what foreign private issuers. In both definition of ‘‘IFRS issuer.’’ further clarification is necessary? Are Regulation G and Item 10(e)(3) of Regulation S–K, we specified that GAAP Article 10, ‘‘Interim Financial there other rules contained in Articles 1 refers to U.S. GAAP, but in the case of Statements,’’ would not generally apply through 12 that do not, or may not, foreign private issuers whose primarily to IFRS financial statements. This is apply to financial statements prepared financial statements are prepared in because interim financial statements in accordance with IFRS as issued by accordance with non-U.S. generally that comply with IFRS as issued by the the IASB and that are not addressed in accepted accounting principles, GAAP IASB must comply with IAS 34 ‘‘Interim proposed Rule 13–02? If so, what are refers to the principles under which Financial Reporting,’’ which prescribes they and how should they be addressed? those primary financial statements are the minimum content of an interim 51. A U.S. issuer engaged in oil and prepared.141 Similarly, we are proposing financial report and the principles for gas producing activities that has a similar approach for administrative recognition and measurement in interim followed the successful efforts method purposes only in Rule 13–03(a) that, period financial statements. and carries forward that practice under IFRS will have consistent reserves unless otherwise specifically However, several paragraphs of Rule 142 disclosure under FAS 19, FAS 69 and provided, references to ‘‘generally 10–01 would continue to apply to IFRS Industry Guide 2. If that issuer were to accepted accounting principles’’ in Parts financial statements. Rule 10–01(a)(1) apply another method of accounting 210, 229, 230, 239, 240 and 249, except would apply because it contains the permitted under IFRS, it may lead to for certain rules in Part 240 not relating general requirement for interim inconsistencies between Industry Guide to financial statements in Exchange Act financial statements that must be disclosure, FAS 69 disclosure, and the registration statements, periodic reports provided. Rule 10–01(a)(6) would 143 financial statements. Would such and proxy or information statements, continue to apply so as to allow the potential inconsistencies create should be construed by issuers to which omission of schedules for IFRS interim ambiguity for users of that information Article 13 applies to mean IFRS as financial statements. Rule 10–01(b)(6) 144 or otherwise be a cause for concern? If issued by the IASB. would continue to apply to require so, what would be an appropriate means disclosure relating to any material 139 of addressing the inconsistencies? 15 U.S.C. 7201 et seq. accounting changes and the filing of a 140 See Release No. 33–8176 (January 22, 2003) preferability letter from the issuer’s 2. Proposed Clarifying Amendments [68 FR 4820 (January 30, 2003)]. See also Rule independent auditor. For issuers that With Respect to References to IFRS as 407(d)(5) of Regulation S–K for a similar approach with respect to audit committee financial expert file IFRS financial statements, the Issued by the IASB disclosure. disclosure required by this paragraph The federal securities laws contain 141 See, e.g., Section 101(b) of Regulation G and should comply with the requirements of several references to ‘‘generally Item 10(e)(3)(i) of Regulation S–K. IAS 34. Rules 10–01(c)(1)–(3) 136 would accepted accounting principles.’’ 138 In 142 An example of specifically providing also continue to apply to IFRS financial otherwise is in Regulation G and Item 10(e)(3) of addition, our regulations contain Regulation S–K, where references to U.S. GAAP and statements for interim periods, as those numerous accounting references, which other comprehensive bases of accounting is paragraphs describe the periods for include both references to ‘‘generally intended to be specific. See also Rule 4–01 of which balance sheets, income accepted accounting principles’’, or Regulation S–X. 143 statements, and changes in financial ‘‘GAAP’’ and specific references to Specifically, Rules 11a–1h, 15c3–1g, 17a–5, position are required to be presented in 17g–3, 17h–1T, and 17i–6. 144 The staff has taken a similar approach in the 137 IAS 34 uses the term ‘‘changes in equity’’ application of internal control reporting 136 Rule 10–01(c)(4) would not apply to an IFRS rather than the term ‘‘changes in financial position’’ requirements by foreign private issuers without issuer. IAS 34 permits a highly seasonal entity to that is used in Regulation S–X. recognizing foreign bases of accounting as present a 12-month interim period in addition to, 138 See, e.g., Exchange Act Section 13(b)(2)(B)(ii) ‘‘generally accepted.’’ See http://www.sec.gov/info/ but not in lieu of, the year-to-date interim period. [15 U.S.C. 78m(b)(2)(B)(ii)]. accountants/controlfaq.htm.

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In addition to general references to 54. Is our proposed approach based on IFRS as issued by the IASB. GAAP, our regulations also contain sufficiently clear on how to address Accordingly, the proposed instruction numerous references to specific general caption data, segment data and to Item 301 allows an IFRS issuer that standards and interpretations included schedule information outside the prepares its financial statements in in U.S. GAAP.145 We are proposing an financial statements? If not, what accordance with IFRS as issued by the approach consistent with the approach changes should we make? Are there IASB for the first time to present we used for our amendments removing other places in our regulations that need selected historical financial data for the the reconciliation requirement for IFRS to be addressed? three most recent fiscal years. If this financial statements by foreign private instruction is adopted, in each of the C. Proposed Amendments to Item 10(e) issuers. Proposed Rule 13–03(b) would two subsequent fiscal years that IFRS of Regulation S–K and Regulation G indicate that, unless otherwise issuer would provide an additional year specifically provided, in providing In addition to the general references of selected financial data based on IFRS information in response to requirements to ‘‘generally accepted accounting as issued by the IASB, building up to in Parts 210, 229, 230, 239, 240 and 249 principles’’ described above, certain five years. rules relating to the use of non-GAAP that refer to pronouncements of U.S. Request for Comment GAAP, disclosure is to be provided that financial measures contain specific satisfies the objective of the relevant references to ‘‘U.S. generally accepted 55. Will three years of selected disclosure requirements. We are not accounting principles:’’ both Item financial data based on IFRS be proposing to revise the references to 10(e)(3) of Regulation S–K 147 and Rule sufficient for investors, or should IFRS U.S. GAAP standards and interpretation 101(b) of Regulation G 148 state that for issuers be required to disclose in their to include their analog under IFRS as purposes of those regulations, ‘‘GAAP selected financial data previously issued by the IASB. We believe that refers to generally accepted accounting published information based on U.S. issuers preparing IFRS financial principles in the United States.’’ In each GAAP with respect to previous financial statements would be able to determine case, there is an express provision years or interim periods? which, if any, IFRS standards would addressing the application of Item 10(e) 2. Market-Risk and the Safe Harbor provide useful reference in satisfying and Regulation G to foreign private Provisions issuers that prepare financial statements the relevant disclosure requirements Pursuant to Item 305 of Regulation without undue burden. in accordance with non-U.S. generally 150 accepted accounting principles.149 In S–K, an issuer is required to provide Finally, proposed Rule 13–03(c) quantitative and qualitative disclosure would clarify that in providing general order to similarly address the situation of U.S. issuers preparing their financial about market risk related to certain caption data, segment data or schedule financial instruments. This information, statements in accordance with IFRS as information in response to Regulation which is not included in the financial issued by the IASB, we are proposing to S–K item requirements, IFRS issuers statements of a filing, is expressly amend Item 10(e)(3) of Regulation S–K may present amounts based on IFRS as subject to the statutory safe harbors and Rule 101(b) of Regulation G to issued by the IASB. This proposed provided under Section 27A of the include IFRS issuers together with approach is consistent with the Securities Act 151 and Section 21E of the foreign private issuers in how to apply approach adopted for foreign private Exchange Act 152 to the extent it our rules relating to the use of non- issuers that file IFRS financial constitutes ‘‘forward looking GAAP financial measures when the statements without a reconciliation to statements.’’ 153 U.S. GAAP.146 It is also consistent with issuer’s primary financial statements are IFRS 7 ‘‘Financial Instruments: the proposed approach to schedule prepared on a basis other than U.S. Disclosure’’ as recently amended, information from IFRS issuers under GAAP. requires market risk disclosure that is Articles 5, 7 and 9 of Regulation S–X, D. Related Disclosure and Financial similar to that required under Item as discussed above. Reporting Issues 305.154 In this respect, the sensitivity analysis provided under IFRS will be Request for Comment 1. Selected Financial Data based on forward-looking information. 52. With regard to specific references Under Item 301(a) of Regulation S–K, This information will appear in the to U.S. GAAP in our regulations, should issuers must provide five years of footnotes to audited IFRS financial we amend the references to U.S. GAAP selected financial data. As part of our statements. pronouncements to also reference proposal to accept financial statements Section 27A of the Securities Act and appropriate IFRS guidance, and, if so, prepared using IFRS as issued by the Section 21E of the Exchange Act what should the references refer to? IASB from certain domestic issuers, we expressly exclude from the safe harbor Would issuers be able to apply the are proposing to add an instruction to any information ‘‘included in a financial proposed broad approach to U.S. GAAP Item 301 to clarify that an IFRS issuer statement prepared in accordance with pronouncements and would this shall present selected financial data on generally accepted accounting approach elicit appropriate information the basis of IFRS as issued by the IASB. principles.’’ 155 The safe harbor for investors? Should we retain the U.S. We recognize that, under the therefore is not available for any GAAP references for definitional amendments proposed in this release, purposes? many IFRS issuers will be adopting 150 17 CFR 229.3–05. IFRS as issued by the IASB for the first 151 15 U.S.C. 77z–2. 53. With regard to general references 152 time and therefore will not have 15 U.S.C. 78u–5. to U.S. GAAP, is our proposed approach 153 See Item 305(d) of Regulation S–K. See also appropriate and sufficiently clear? If available five years of financial data Release No. 33–7386 (January 31, 1997) [62 FR 6044 not, how should these matters be (February 10, 1997)] for the release adopting the 147 addressed differently and why? 17 CFR 229.10(e)(3). derivatives disclosure requirement and the related 148 17 CFR 244.101(b). express safe harbor. 149 See Item 10(e)(3)(i) and (ii) of Regulation 154 IFRS 7 requires this information beginning 145 See, e.g., Item 303(a)(4) of Regulation S–K [17 S–K [17 CFR 229.10(e)(3)(i) and 229.10(e)(3)(ii)] and with the 2007 fiscal year. CFR 229.303(a)(4)]. Rule 101(b)(1) and (2) of Regulation G [17 CFR 155 See Securities Act Section 27A(b)(2)(A) and 146 See Instruction 5 to Item 5 of Form 20–F. 244.101(b)(1) and 244.101(b)(2)]. Exchange Act Section 21E(b)(2)(A).

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forward looking information included in Under our integrated disclosure 4. Other Considerations Relating to IFRS IFRS financial statements. When we system, disclosure requirements for and U.S. GAAP Guidance adopted the market risk disclosure Form 10–K are contained in Regulation requirements, the Commission S–K. To implement these disclosure The Commission recognizes that a considered whether the market risk requirements in Form 10–K, we are U.S. issuer that files financial disclosure could be included in a proposing to amend Item 101 statements prepared in accordance with registrant’s financial statements and, if ‘‘Business’’ in Regulation S–K by adding IFRS as issued by the IASB may so, whether the safe harbor should a paragraph (i). Under the proposed nevertheless pursuant to the application apply to that disclosure. The Item 101(i), an issuer that changes the of IAS 8 look for guidance from Commission decided to require that the comprehensive set of accounting Commission sources other than rules information required under Item 305 be principles used in preparing its primary and regulations, including Accounting disclosed outside the financial financial statements to IFRS must Series Releases (‘‘ASRs’’) and Financial statements. prominently disclose the following in Reporting Releases (‘‘FRs’’).158 In As required by Article 4–01 of its first annual report on Form 10–K that addition, such an issuer may look to the Regulation S–X, the financial statements uses IFRS: guidance that the Commission staff filed by a registrant must comply fully • The financial statements are provides in Staff Accounting Bulletins with a comprehensive body of prepared using IFRS; (‘‘SABs’’), and, if the issuer is engaged accounting principles, which, under the • The reasons for the change; proposed amendments, includes IFRS 7 • The corporate governance processes in certain lines of business, various 159 for those companies that use IFRS as followed in electing to make the change Industry Guides. No changes to such issued by the IASB. (including whether a shareholder vote guidance are planned. We believe that We recognize that foreign private was held and whether the company’s an issuer that prepares its financial issuers that are IFRS filers have board of directors and audit committee statements in accordance with IFRS as expressed particular concerns related to considered the matter); and issued by the IASB, and its auditor, the applicability of the safe harbor for • The date the issuer submitted its would continue to be required to follow forward-looking statements.156 As we request to the staff demonstrating that it any Commission guidance that relates to did in connection with our approach to met the criteria to change to IFRS and auditing issues.160 An issuer using IFRS foreign private issuers, we are not the date the staff issued its letter of no as issued by the IASB, although not proposing any changes in this area for objection. required to follow U.S. GAAP guidance, U.S. issuers that elect to use IFRS, Under proposed Item 101(i), similar may find reference to FRs, ASRs, SABs, although we are soliciting comments disclosure relating to the first three and Industry Guides and other forms of items above would be required from any below. At this time, we believe the guidance useful in the application of IFRS issuer that subsequently chose to question warrants further consideration IAS 8.161 and, if appropriate, we may address revert back to U.S. GAAP. That through a separate rulemaking initiative. disclosure would be included in the Request for Comment annual report on Form 10–K for the year Request for Comment in which the issuer reverted to U.S. 59. Are there issues on which further 56. Should the Commission address GAAP. guidance for IFRS issuers would be necessary and appropriate? the implications of forward-looking Request for Comment disclosure contained in a footnote to the financial statements in accordance with 57. Is the proposed disclosure in Form 158 FRs contain the Commission’s views and IFRS 7? For example, would some kind 10–K sufficient in prominence and interpretations relating to financial reporting. Prior of safe harbor provision or other relief content to indicate to investors that the to 1982, the Commission published its views and interpretations relating to financial reporting in or statement be appropriate? issuer has changed its basis of financial reporting from that used in previous Accounting Series Releases (ASRs). In FR 1, 3. Disclosure of First-Time Adoption of Adoption of the Financial Reporting Release Series filings? If not, what further disclosure and Codification of Currently Relevant ASRs, the IFRS in Form 10–K should be provided, and where? Should Commission codified certain previously issued As referenced above in Section IV.C., we require that an issuer disclose the ASRs on financial reporting matters. we are proposing that an eligible U.S. criteria under which it is eligible to file 159 Staff Accounting Bulletins reflect the issuer that changes to IFRS disclose IFRS financial statements? Should Commission staff’s views regarding accounting- issuers be required to reference the related disclosure practices. They represent certain information related to that interpretations and policies followed by the change in its annual report on Form 10– letter of no objection in their first IFRS Division of Corporation Finance and the Office of K covering the fiscal year for which filing? the Chief Accountant in administering the IFRS financial statements are first filed. 58. Should we amend Form 8–K to disclosure requirements of the federal securities Because U.S. issuers have not require ‘‘forward-looking’’ disclosure laws. Industry Guides serve as expressions of the previously been permitted to use a basis relating to an issuer’s consideration of policies and practices of the Division of Corporation whether it will file IFRS financial Finance. They are of assistance to issuers, their of financial reporting other than U.S. counsel and others preparing registration GAAP, we believe it is appropriate that statements in the future? If so, what type statements and reports, as well as to the an issuer provide disclosure related to a of information should be disclosed, and Commission’s staff. SABs and Industry Guides are change in its basis of financial reporting at what point in time prior to the issuer not rules, regulations, or statements of the actually filing IFRS financial Commission. They have not been issued pursuant prominently in its Form 10–K, such as to notice and comment rulemaking, and the at the beginning of the Business statements? Would a requirement to make such forward-looking disclosure Commission has neither approved nor disapproved section.157 these interpretations. have any impact on an issuer’s decision 160 Issuers are required to have audits conducted 156 See the 2007 Adopting Release, discussion at to adopt IFRS? If so, what would the in accordance with the standards of the PCAOB Section III.C.2.c. effect be? regardless of the comprehensive basis of financial 157 We have not proposed amendments to Form reporting they use to prepare their financial 20–F to require similar disclosure from foreign been permitted to change their basis of financial statements. private issuers that adopt IFRS for the first time reporting and because a foreign private issuer’s 161 The provisions of IAS 8 are described above because foreign private issuers have previously change to IFRS in many cases will be mandatory. in footnote 76.

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E. Financial Statements of Other Requirements for significance testing guarantors.165 Generally, under this rule Entities Under Regulation S–X are governed by the financial statements both the issuer of the guaranteed Several rules under Regulation S–X of the issuer. Generally, if an issuer security and the guarantor must follow relate to financial statements of other prepares its own financial statements the financial statement requirements of entities that an issuer must include in using IFRS as issued by the IASB, that a registrant. If both entities were IFRS its filings. This section describes how issuer would perform the significance issuers, we would accept the financial these rules would apply to an issuer that tests under Rules 3–05, 3–09 and 3–14 statements prepared in accordance with files IFRS financial statements. using IFRS as issued by the IASB, IFRS as issued by the IASB. regardless of the basis of financial However, Rule 3–10 permits modified 1. Application of the Amendments to reporting used by the other entity. reporting by subsidiary issuers of Rules 3–05, 3–09 and 3–14 guaranteed securities and subsidiary Under Rules 3–05, 3–09 and 3–14 of b. Separate Historical Financial guarantors. Separate financial Regulation S–X, an issuer, in certain Statements of Another Entity Provided statements need not be filed for circumstances, must include the Under Rule 3–05, 3–09 or 3–14 subsidiaries meeting the applicable financial statements of another entity in conditions contained in Rules 3–10(b) Generally, the historical financial its filings.162 Although we are not through 3–10(f). Instead, condensed statement requirements for an acquired proposing specific amendments to those consolidating financial information is rules as part of this rulemaking business or investee under Rule 3–05, presented in the parent company’s initiative, as noted in proposed Rule 13– 3–09 or 3–14 are governed by the status reports in an additional audited footnote 03(a), the amendments we are proposing of that entity, and the burden of to the financial statements. A parent in this release will apply equally in the providing the financial statements of a issuer or guarantor that presents application of Rules 3–05, 3–09 and non-issuer entity would be no higher consolidated financial statements under 3–14. than if it were the issuer. Under the IFRS as issued by the IASB would adopting release accepting IFRS a. Significance Testing present the condensed consolidating financial statements by foreign private financial information on the basis of Under Rules 3–05, 3–09 and 3–14, an issuers without reconciliation to U.S. IFRS as issued by the IASB.166 We do issuer is required to include the GAAP, we permit foreign and domestic not believe that any revision to Rule 3– financial statements of another entity if issuers to file financial statements under 10 is necessary to implement the the entity meets certain significance Rules 3–05 and 3–09 for foreign acceptance of financial statements 163 tests. If the significance thresholds businesses under IFRS as issued by the prepared using IFRS as issued by the under Rule 3–05, 3–09 or 3–14 are met, IASB without reconciliation to U.S. IASB, other than extending the then the issuer must provide on a GAAP. In addition, in applying the reference to the articles of Regulation S– separate basis audited annual financial proposed amendments, if an IFRS issuer X to incorporate Article 13. statements of the subject entity. or foreign private issuer is required to Significance testing under Rule 1– file financial statements under Rule 3– 3. Financial Statements Provided Under 02(w) has historically been performed 05, 3–09, or 3–14 for any entity, whether Rule 3–16 using U.S. GAAP amounts. As part of domestic or foreign, whose audited Rule 3–16 specifies the requirement our adopting release accepting IFRS financial statements are in accordance for financial statements of affiliates of financial statements by foreign private with IFRS as issued by the IASB, those an issuer whose securities collateralize issuers without reconciliation to U.S. financial statements would be an issue registered or being registered. GAAP, we amended Rule 1–02(w) to acceptable in a Commission filing.164 The requirement to provide separate clarify that a foreign private issuer that For example, IFRS issuers and foreign financial statements under Rule 3–16 is prepares its financial statements in private issuers that acquire a based upon whether or not the accordance with IFRS as issued by the ‘‘significant’’ business, domestic or securities are a substantial portion (as IASB should conduct significance foreign, under Rule 3–05 would be defined) of the collateral for the class of testing using amounts determined under permitted, under the proposed rules, to securities registered or being IFRS as issued by the IASB. We are include the acquiree’s financial registered.167 Affiliates whose securities proposing to revise Rule 1–02(w) to statements prepared in accordance with collateralize a security registered or clarify that an IFRS issuer that prepares IFRS as issued by the IASB. The same being registered are not themselves its financial statements in accordance would be true for the financial issuers, but the issuer whose securities with IFRS as issued by the IASB also statements of a ‘‘significant’’ investee are collateralized (ordinarily the parent should perform significance testing under Rule 3–09 or acquired property company) must file the financial using amounts determined under IFRS under Rule 3–14. To clarify this ability statements of those affiliates under Rule as issued by the IASB. to use IFRS as issued by the IASB for 3–16 ‘‘that would be required if the any financial statements under Rule 3– affiliate were a registrant.’’ The affiliates 162 Rule 3–05 specifies the requirements for financial statements of businesses acquired or to be 05, 3–09 or 3–14, we are proposing to acquired. Rule 3–09 specifies the requirements for amend Rule 4–01(a) of Regulation S–X 165 A guarantee of a registered security is itself a financial statements of unconsolidated majority- to clarify that such an option is security, so a guarantor of a registered security is owned subsidiaries and 50% or less owned itself considered an issuer of a security. See investments accounted for by the equity method. available. Securities Act Section 2(a)(1). Rule 3–14 specifies requirements for financial 166 We took a similar approach in our adopting statements of real estate operations (properties) 2. Financial Statements Provided Under release accepting IFRS financial statements by acquired or to be acquired. Rule 3–10 foreign private issuers without reconciliation to 163 An entity is significant to the issuer under U.S. GAAP. Rules 3–05 and 3–09 if the issuer’s investment in Rule 3–10 of Regulation S–X specifies 167 Substantial portion of the collateral is defined the entity exceeds 20% of the issuer’s total assets, financial statement requirements for in Rule 3–16(b) as ‘‘the aggregate principal amount, the entity’s income (as defined) exceeds 20% of the issuers of guaranteed securities and par value, or book value of the [affiliate’s] securities issuer’s corresponding income, or (for Rule 3–05 as carried by the registrant, or the market value of only) the entity’s total assets exceed 20% of the such securities, whichever is the greatest, equals 20 issuer’s total assets. Rule 3–14 significance is based 164 The entity need not meet the proposed percent or more of the principal amount of the on the 10% level in Rule 1–02(w). definition of ‘‘IFRS issuer.’’ secured class of securities.’’

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will ordinarily be consolidated accordance with IFRS as issued by the property casualty loss reserve subsidiaries of the parent/issuer. If the IASB even though the entity does not development under Industry Guide 6. parent/issuer is an eligible IFRS issuer, meet the definition of ‘‘IFRS issuer.’’ The Commission recognizes that then we would accept financial Should we also accept financial transition to IFRS will impact the statements prepared in accordance with statements required under Rule 3–05, 3– Industry Guide disclosure of IFRS IFRS as issued by the IASB for both the 09 or 3–14 prepared in accordance with issuers for the first time, who may not parent/issuer and the Rule 3–16 IFRS as issued by the IASB without have available prior years of Industry affiliates. If the parent/issuer files U.S. regard to the status of the issuer as an Guide information prepared under IFRS GAAP financial statements, we would IFRS issuer or foreign private issuer? as issued by the IASB. Although the expect the Rule 3–16 financial Should our acceptance depend on staff does not intend to amend the statements to be U.S. GAAP as well. We characteristics of the entity whose Industry Guides, the staff believes and do not believe that any revision to Rule financial statements are being provided, intends to apply the Industry Guides 3–16 is necessary to implement the such as that the entity already prepares such that a first-time adopter of IFRS acceptance of financial statements IFRS financial statements or the entity who relies on the amendments, if prepared in accordance with IFRS as principally operates outside the United adopted, would be consistent with issued by the IASB. States? existing Industry Guides if it provides 62. Are there other rules in Regulation three years of Industry Guide F. Pro Forma Financial Statements S–X that should be specifically Provided Under Article 11 information under IFRS as issued by the amended to accommodate our proposal? IASB, with information provided under Under Article 11 of Regulation S–X, If so, how would the application of U.S. GAAP to cover earlier years as issuers are required to prepare those rules be unclear if there were no called for by the Industry Guides, as unaudited pro forma financial changes to those rules, and what applicable. information that is intended to give changes would be suggested in order to Under Industry Guide 5 ‘‘Preparation effect as if a particular transaction, such make them clear? of Financial Statements Relating to as a significant recent or probable Interest in Real Estate Limited business combination, had occurred at G. Industry Specific Matters Partnerships,’’ real estate limited the beginning of the financial period. 1. Disclosure Pursuant to Industry partnerships provide prior performance Requirements for pro forma financial Guides information of programs sponsored by information under Article 11 continue Companies that are engaged in certain the general partner and its affiliates in to be governed by the financial lines of business are subject to various tabular form. The tables containing this statements of the issuer rather than of Industry Guides.169 The Commission is information may encompass numerous the acquiree or other entity, as the pro not proposing any specific amendments affiliates of the General Partner, and forma results must be presented using with respect to information required to often are quite voluminous. For issuers the same basis of financial reporting as be disclosed pursuant to the Industry the issuer. Similarly, these rules do not that prepare their financial statements Guides by IFRS issuers and believes that in accordance with IFRS as issued by impose a higher presentation burden on IFRS issuers that transition to IFRS and pro forma financial information than the IASB, the staff would permit this to which these Guides apply do not prior performance information to would be imposed on the historical need a general accommodation. financial statements of the issuer. We continue to be presented in U.S. GAAP. Several of the Industry Guides contain The General Partner and affiliated are not proposing to amend Article 11, specific references to U.S. GAAP but the proposed amendments will partnerships need not convert their pronouncements. Although we are not prior performance information to IFRS if apply in the application of Article 11. proposing to amend the Industry Accordingly, if the proposed the partnership is otherwise eligible to Guides, IFRS issuers should respond to use IFRS under the proposed rules. amendments are adopted, an IFRS those provisions in a manner consistent issuer would prepare the pro forma with the approach taken in the proposed 2. Disclosure From Oil and Gas financial information by presenting its Rule 13–03 of Regulation S–K. Companies Under FAS 69 IFRS results and converting the Specifically, an IFRS issuer that is financial statements of the business Pursuant to either earlier Commission subject to the Industry Guides, in rules or more recent FASB standards, acquired (or to be acquired) into IFRS as responding to Industry Guide items that issued by the IASB.168 public companies with significant oil refer to U.S. GAAP pronouncements, and gas activities have been required to Request for Comment should provide disclosure that satisfies disclose reserve and other information the objective of the Industry Guide 60. Is the application of the proposed relating to those activities. In November disclosure requirements. In providing rules to the preparation of financial 1982, the FASB adopted FAS 69 such disclosure, an IFRS issuer would statements and financial information ‘‘Disclosures about Oil and Gas not need to repeat information described in Sections V.D and V.E above Producing Activities,’’ which contained in its IFRS financial sufficiently clear? If not, what areas establishes a comprehensive set of statements. disclosures for oil and gas producing need to be clarified? Are any further Industry Guide disclosure is intended activities. Under this standard, public changes needed for issuers that prepare to provide a ‘‘track-record’’ of trend companies with such significant their financial statements using IFRS as information such as loan quality activities are required to disclose issued by the IASB? information for banks providing 61. Under the proposed rules, an IFRS unaudited supplementary information disclosure under Industry Guide 3 or issuer or foreign private issuer may file relating to proved oil and gas reserves, financial statements of an entity under and capitalized costs relating to oil and 169 Industry Guides serve as expressions of the Rule 3–05, 3–09 or 3–14 prepared in policies and practices of the Division of Corporation gas producing activities. As a result of Finance. They are of assistance to issuers, their the FASB’s adoption of FAS 69, the 168 We took a similar approach in our adopting counsel and others preparing registration Commission initially suspended the release accepting IFRS financial statements by statements and reports, as well as to the effectiveness of a rule under Regulation foreign private issuers without reconciliation to Commission’s staff. See 17 CFR 229.801(a)–(g) and U.S. GAAP. 229.802(a)–(d) and (e). S–X calling for substantially similar

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information,170 and then deleted the IFRS under the proposed rules also and Contingent Assets,’’ as may be rule altogether.171 The Commission would be able to use those financial modified, supplemented or succeeded. noted that, in light of the FASB statements when conducting an offer or We also are proposing to add a new standard, its own earlier rule requiring sale of securities that is exempt from instruction to Item 2.05 to refer to IFRS this disclosure was duplicative and no registration under the Securities Act, 5, ‘‘Non-current Assets Held for Sale longer necessary. where the exemption relied upon and Discontinued Operations,’’ as may As we did with foreign private issuers requires that financial statements be be modified, supplemented or when we provided the option to provide furnished to investors.172 We believe succeeded. Finally, we are proposing to IFRS financial statements without a allowing an eligible IFRS issuer to use add a new instruction to Item 4.02 to reconciliation to U.S. GAAP, we are IFRS financial statements in its refer to IAS 8 ‘‘Accounting Policies, proposing to continue to require an Commission filings while disallowing Changes in Accounting Estimates and IFRS issuer to provide the information the use of those financial statements in Errors,’’ as may be modified, called for under FAS 69 even though the an exempt offering would be unduly supplemented or succeeded. company is preparing financial burdensome to issuers and inconsistent This proposed reference to specific statements in accordance with IFRS as with our proposed acceptance of the use IFRS standards in Form 8–K differs from issued by the IASB. See proposed Rule of IFRS as issued by the IASB in the the general approach in proposed Rule 13–03(d) of Regulation S–X. The nature United States capital market. However, 13–03(c), where we are not proposing to of the information provided under FAS an issuer to which proposed Article 13 identify specific IFRS standards that an 69 is not in the nature of U.S. GAAP of Regulation S–X would not apply IFRS issuer should look to when information but rather is supplementary would not be able to use financial responding to item requirements that information included as an unaudited statements prepared in accordance with make reference to specific U.S. GAAP footnote to the audited financial IFRS as issued by the IASB in exempt pronouncements.174 We believe that statements. We believe that the offers or sales of securities where the providing the specific IFRS standard is information required by FAS 69 is exemption relied upon requires that necessary as the occurrence of an event useful to investors and would not financial statements be furnished to specified in Items 2.04, 2.05 and 4.02 of otherwise be required to be disclosed investors (including if that issuer would Form 8–K requires the U.S. issuer to file under IFRS. have been permitted to file IFRS a Form 8–K in addition to disclosing Request for Comment financial statements solely for purposes these events. of Rules 3–05, 3–09 and 3–14 pursuant 63. Should an IFRS issuer be required to proposed Rule 4–01(a)(4)). 3. Application of IFRS to Tender Offer to continue to comply with the and Going-Private Rules disclosure requirements of FAS 69? 2. References to FASB Pronouncements Instructions 6 and 8 to Item 10 of What alternatives may be available to in Form 8–K Schedule TO, the tender offer statement elicit the same or substantially the same The proposed amendments, if under the Exchange Act,175 contain disclosure? Proposed Rule 13–03(d) of adopted, would apply to current reports references to a reconciliation to U.S. Regulation S–X is modeled on an on Form 8–K filed pursuant to Rule GAAP. Instructions 1 and 2 to Item 13 instruction relating to FAS 69 in Item 18 13a–11 or Rule 15d–11 under the of Schedule 13E–3,176 the transaction of Form 20–F. Does this proposed rule Exchange Act and for reports of statement under Section 13(e) of the need to be modified in any way to more nonpublic information required to be Exchange Act, also contain references to clearly require filers to provide disclosed by Regulation FD.173 The a reconciliation to U.S. GAAP. In order information required by FAS 69? proposed amendments also would apply to implement fully the proposed use of H. Application of the Proposed to filings made pursuant to Rule 425 IFRS by eligible U.S. issuers, we are Amendments to Other Forms, Rules and under the Securities Act, regarding proposing conforming amendments to Schedules written communications related to these instructions of Schedule TO and business combination transactions, or Schedule 13E–3 to clarify that issuers 1. Application of Proposed Rules 14a–12(b) or Rule 14d–2(b) under eligible to use IFRS financial statements Amendments to Exempt Offerings the Exchange Act relating to soliciting may use those financial statements in The proposed amendments, if materials and pre-commencement Schedule TO and Schedule 13E–3 adopted, would apply to financial communications pursuant to tender without a reconciliation to U.S. GAAP. statements filed with the Commission offers. by an eligible IFRS issuer that are Form 8–K contains several items that Request for Comment included in any registration statement contain references to specific standards 64. Is the guidance in this proposal filed under the Securities Act or the included in U.S. GAAP. We are sufficient to avoid any ambiguity about Exchange Act, periodic or other report proposing to add instructions to those the use of IFRS financial statements in filed under Section 13(a) or 15(d) of the items to provide references to specific exempt offerings? If not, what additional Exchange Act and any proxy or IFRS standards to which an IFRS issuer clarification is needed? Is any revision information statement pursuant to would refer instead of the U.S. GAAP to forms or rules necessary? Section 14 of the Exchange Act. An standard. Specifically, we are proposing 65. Are there other rules or forms IFRS issuer that would be eligible to file to add a new sentence at the end of under the Securities Act or the with the Commission financial instruction 4 to Item 2.04 to refer to IAS Exchange Act that should be specifically statements prepared in accordance with 37 ‘‘Provisions, Contingent Liabilities amended to permit the filing of financial statements prepared in accordance with 170 The requirement was found in former Rule 4– 172 For example, a reporting issuer that makes an IFRS as issued by the IASB? If so, how 10(k) of Regulation S–X. The application of this rule offering of over $7,500,000 under Regulation D of would the rules or forms be unclear if was suspended in Release No. 33–6444 (December the Securities Act (Sections 230.501–230–508) must there were no changes to those forms, 15, 1982) [47 FR 57911 (December 29, 1982)]. furnish purchasers with information contained in 171 Release No. 33–6818 (February 17, 1989) [54 any reports filed by the issuer under Sections 13(a), FR 8202 (February 27, 1989)] proposed the deletion 14(a), 14(c), and 15(d) of the Exchange Act. See 174 See Section V.B.2., above. which was adopted in Release No. 33–6959 Rule 502(b)(2)(ii)(C). 175 17 CFR 240.14d–100. (September 17, 1992). 173 17 CFR 243.100 and 243.101. 176 17 CFR 240.13e–100.

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and what changes would be suggested (1) ‘‘Form 10–K’’ (OMB Control No. accordance with IFRS 1. Under Proposal in order to make them clear? 3235–0063); B, eligible U.S. issuers would be (2) ‘‘Form 10–Q’’ (OMB Control No. allowed to file their financial statements VI. General Request for Comments 3235–0070); in accordance with IFRS but would be We request and encourage any (3) ‘‘Form 8–K’’ (OMB Control No. required to provide a reconciliation interested persons to submit comments 3235–0060); from IFRS financial statements to U.S. regarding: (4) ‘‘Form S–4’’ (OMB Control No. GAAP for each of the three years • The proposed changes that are the 3235–0324); presented. subject of this release; (5) ‘‘Schedule 14A’’ (OMB Control No. Under both Proposal A and Proposal • Additional or different changes; or 3235–0059); B, once an issuer determines that it is • Other matters that may have an (6) ‘‘Schedule 14C’’ (OMB Control No. eligible to use IFRS accounting and effect on the proposals contained in this 3235–0057); seeks to use IFRS accounting, it would release. (7) ‘‘Regulation S–X’’ (OMB Control first need to submit a Request for a In addition to providing comments on No. 3235–0009); Letter of No Objection to use IFRS these matters, we encourage interested (8) ‘‘Regulation S–K’’ (OMB Control describing its analysis in determining its parties to provide comment on broader No. 3235–0071); eligibility to use IFRS accounting. In matters related to the development of a (9) ‘‘Regulation C’’ (OMB Control No. addition, an eligible issuer would need single set of globally accepted 3235–0074); and to disclose in its first Form 10–K filing accounting standards, for example: (10) ‘‘Request for a Letter of No using IFRS accounting that its financial 66. Are there other considerations in Objection to use IFRS’’. statements are prepared using IFRS as The regulations, schedules and forms addition to those discussed in this issued by the IASB. As described in release that the Commission should were adopted under the Securities Act Section V.D.3., the issuer also must consider as part of the proposed and the Exchange Act and set forth the disclose the reasons for the change to amendments to permit the limited use disclosure requirements for annual, IFRS, the corporate governance of IFRS or its future decision regarding quarterly and current reports; processes by which the issuer decided the use of IFRS by U.S. issuers? registration statements; and proxy and to transition to IFRS, the date of the We request comment from the point information statements filed by U.S. issuer’s submission to the Commission of view of registrants, investors, issuers to help shareholders make staff requesting a letter of no objection accountants, accounting standard informed voting and investment and the date such a letter was issued by setters, users of financial statements and decisions. The hours and costs the Commission staff. other market participants. With regard associated with preparing, filing and to any comments, we note that such sending the form constitute reporting B. Burden and Cost Estimates Related to comments are of greatest assistance to and cost burdens imposed by each the Proposed Amendments our rulemaking initiative if collection of information. The Request We anticipate that the amendments accompanied by supporting data and for a Letter of No Objection to use IFRS would increase the burdens and costs analysis of the issues addressed in those would constitute a new collection of for U.S. issuers that switch from U.S. comments. information under the Exchange Act to GAAP to IFRS accounting. We estimated VII. Paperwork Reduction Act be used by issuers that would be eligible the average number of hours an issuer to switch to IFRS accounting. An agency would spend completing the forms and A. Background may not conduct or sponsor, and a the average hourly rate for outside Certain provisions of the proposed person is not required to respond to, a professionals. In deriving this estimate, amendments contain ‘‘collection of collection of information unless it we recognize that the burdens will information’’ requirements within the displays a currently valid OMB control likely vary among individual companies meaning of the Paperwork Reduction number. Compliance with the proposed based on a number of factors, including Act of 1995 (‘‘PRA’’).177 We are amendments by eligible U.S. issuers the complexity of their organizations, submitting the proposed amendments to opting to file their financial statements the nature of their current accounting the Office of Management and Budget in accordance with IFRS would be procedures, the types of transactions (‘‘OMB’’) for review in accordance with mandatory. Responses to the they enter into and the approach they the PRA.178 The titles for the collection information collections would not be take in adopting IFRS. We believe that of information are: 179 kept confidential and there would be no some issuers will experience costs in mandatory retention period for the excess of this average in the first year of 177 44 U.S.C. 3501 et seq. information disclosed. compliance with proposals and some 178 44 U.S.C. 3507(d) and 5 CFR 1320.11. As discussed in more detail above, we issuers may experience less than the 179 Certain provisions of the proposed are proposing two alternatives that average costs. As further discussed amendments to Regulation S–X could also affect collection of information requirements within the would allow certain U.S. issuers to file below, we also believe that costs will meaning of the PRA for Form S–1 under the financial statements in accordance with decrease after the first year of Securities Act and Form 10 under the Exchange IFRS, rather than U.S. GAAP, for use in compliance due to the extent of effort Act. However, all of the issuers that currently their periodic and current reports made required for first-time adoption of IFRS would be eligible to use IFRS accounting if these proposals were adopted are issuers that are eligible under Section 13(a) or 15(d) of the as compared to subsequent years. We to use alternative forms in lieu of Forms S–1 and Exchange Act; Schedules 14A and 14C have considered all of these factors in 10 that would allow an issuer to incorporate the under the Exchange Act, as well as in formulating our proposed estimates. Regulation S–X disclosures from the issuer’s registration statements under the We derived the burden hour estimates Exchange Act periodic reports. We reviewed the types of filings made by a sample of the issuers that Securities Act and Exchange Act. Under for the forms and schedules by we estimate are currently eligible over a three year Proposal A, eligible U.S. issuers would estimating the total amount of time that period, and none of the issuers filed a Form S–1 or be allowed to file their financial it would take an issuer to transition to Form 10 over this time. Accordingly, we do not statements in accordance with IFRS and presenting its financial statements in believe the proposed amendments would impose any new recordkeeping or information collection would need to include a one-time accordance with IFRS. The estimates requirements, or other collections of information reconciliation from certain U.S. GAAP include the time and the cost of in- requiring OMB’s approval for Forms S–1 and 10. financial statements to IFRS in house preparers, reviews by executive

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officers, in-house counsel, outside preparing the Request for a Letter of No associated with Forms 10–K and 10–Q counsel, independent auditors and Objection to use IFRS and implementing as these would be the primary forms for members of the audit committee.180 Our new processes. We reduced the second- which IFRS financial statements would estimates are based on the number of year estimates by 75% as compared to be prepared and presented, and that any filings, over the past three years, the first-year estimates to eliminate the IFRS financial statements that would be received from a selection of issuers with one-time costs and to account for the required in Form S–4 and Schedules characteristics similar to those that we fact that eligible issuers applying IFRS 14A and 14C would be incorporated currently anticipate may be eligible to should become more efficient at from Forms 10–K and 10–Q. rely on the proposals, if adopted. preparing their financial statements Table 1 below illustrates the total The estimate is based in part on data after the first year as the process annual compliance burden of the published in a report on IFRS becomes more routine. We adjusted the collection of information in hours and implementation in the E.U. prepared by third-year estimates by a 90% reduction in cost under Proposal A for annual the Institute of Chartered Accountants in costs as compared to the second-year reports; quarterly reports; proxy and of England and Wales.181 In this report, costs to reflect continuing information statements; Form S–4 under the ICAEW estimated that the typical improvements in efficiency with the Securities Act, the Request for a cost incurred by a publicly traded reporting under IFRS.183 This reflects Letter of No Objection to use IFRS; and company established in the E.U. to the assumption that the costs of Regulations S–X, S–K and C. Table 2 prepare its first IFRS consolidated transition would likely have been below illustrates the total annual financial statements was approximately largely reduced by the third year of compliance burdens under Proposal B 0.05% of the company’s revenue. We actual reporting. for the same collections. The burden estimated that the cost of IFRS Second, we assumed that 110 U.S. was calculated by multiplying the transition under Proposal A would be issuers, representing the approximate estimated number of responses by the 0.125% of revenue for the U.S. issuers minimum number of those presently estimated average number of hours each that would be eligible to use IFRS eligible to use IFRS accounting under entity would spend completing the accounting, and would be the proposals, would elect to switch different forms and schedules. For approximately 0.13% of revenue under from U.S. GAAP to IFRS. This Exchange Act reports, the proxy and Proposal B to reflect the additional U.S. assumption is conservative, in that it is information statements, and the Request GAAP reconciliation disclosure.182 We unlikely that all of those issuers would for a Letter of No Objection to use IFRS, used a higher percentage of revenue to elect to file their financial statements in we estimate that 75% of the burden of take into account our different filing accordance with IFRS. We do not know preparation is carried by the company obligations in the U.S., which require, the actual number of eligible issuers that internally and that 25% of the burden among other things, issuers to include would choose to switch to IFRS of preparation is carried by outside three years of audited financial accounting. We also acknowledge that professionals retained by the company statements, and our requirements eligibility extends beyond this estimated at an average cost of $400 per hour. For related to internal controls over group, which represents a minimum of Form S–4, we estimate that 25% of the financial reporting. eligible issuers under the proposals. We burden of preparation is carried by the Our annual burden estimates are also request comment and supporting company internally and that 75% of the based on several other assumptions. empirical data, for purposes of the PRA, burden of preparation is carried by First, we assumed that the transition on the number of eligible issuers, and outside professionals retained by the from U.S. GAAP to IFRS by eligible the number that would elect to switch company at an average cost of $400 per issuers would be a multi-year process. to IFRS accounting. hour. There is no change to the Therefore, our PRA estimates represent Third, we assumed that there would estimated burden of the collections of the average annual burden over a three- be a direct correlation between the information entitled ‘‘Regulation S–K,’’ year period. We estimated that the first- extent of the burden and the size of the ‘‘Regulation S–X,’’ and ‘‘Regulation C’’ year burden would be greater than that eligible issuer, with the burden because the burdens that these for subsequent years, as a portion of the increasing commensurate with the size regulations impose are reflected in our costs will reflect some one-time of the company. revised estimates for the forms. The expenditures associated with making Fourth, we assumed that substantially portion of the burden carried by outside the transition from U.S. GAAP to IFRS, all of the burdens associated with the professionals is reflected as a cost, while such as compiling documentation, proposed amendments would be the portion of the burden carried by the

180 Consistent with other recent rulemakings, we costs based on an on-line survey of approximately financial statements, implementing new accounting estimate an hourly rate of $400 based on our 100 companies drawn from across most E.U. systems and the associated changes to internal discussions with several private law firms as the member states. controls over financial reporting and disclosures, cost to companies for the services of outside The staff also used its own experience with IFRS and drafting financial statement disclosures under professionals retained to assist in the preparation of to estimate the burden. IFRS. Our estimates of the annual burden for years these disclosures. For Securities Act registration 182 The Commission staff estimated the cost based 2 and 3 represent the continuation of many of these statements, we also consider additional reviews of on revenues reported by a selection of U.S. issuers activities but at significantly lower levels, as the disclosure by underwriters and their counsel. with characteristics similar to those issuers that we refinements are made to IFRS reporting. These 181 See ‘‘EU Implementation of IFRS and Fair currently anticipate may be eligible to rely on the refinements include improvements in the Value Directive’’ by the Institute of Chartered proposals, if adopted. accounting and internal control systems and to Accountants of England and Wales (‘‘ICAEW’’), 183 In developing our annual burden estimates we financial statement disclosures. The decreases in available at http://www.icaew.com/index.cfm/route/ included many costs that will reflect one-time the annual burden estimates between years 1 and 145392/icaew_ga/en/Technical_amp expenditures associated with making the transition 2 (75%) and between years 2 and 3 (90%) were _Business_Topics/Topics/Accounting_and_ from U.S. GAAP to IFRS by large companies. based on the collective experience of the staff in corporate_reporting/em_IFRS_one_year_onICAEW_ Activities giving rise to these costs include, but are working with and at preparers and audit firms in assesses_implementation_em. The ICAEW not limited to, identifying differences between U.S. adopting new accounting standards, updating published the report for the European Commission GAAP and IFRS, determining accounting policies accounting policies, implementing new information on the first year of implementation IFRS in the E.U. under IFRS, maintaining systems for financial technology systems and complying with internal The report evaluates the implementation of IFRS reporting under both U.S. GAAP and IFRS for up control reporting requirements over multi-year across E.U. industries, market places and member to three years in order to present comparative IFRS periods. Comment on these and other PRA states, and includes an estimate of implementation information in the first Form 10–K including IFRS estimates are sought at the end of this PRA section.

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company internally is reflected in hours.

TABLE 1—INCREMENTAL PAPERWORK BURDEN UNDER PROPOSAL A184

Number of Burden hours/ Total burden 75% 25% Professional responses form hours Company Professional costs

(A) (B) (C)=(A)*(B) (D)=(C)*0.75 (E)=(C)*0.25 (F)=(E)*$400

10–K ...... 110 50,636 5,570,004 4,177,503 1,329,501 $557,000,400 10–Q ...... 330 4,134 1,364,098 1,023,073 341,024 136,409,780 8–K ...... 880 110 96,996 72,747 24,249 9,699,615 Sch. 14A ...... 108 1 108 81 27 10,800 Sch. 14C ...... 2 1 2 1.5 0.5 200 Form S–4 ...... 6 1 6 4.5 1.5 600 No Objection Request ...... 110 50 5,500 4,125 1,375 550,000 Reg. S–K ...... (1) 1 1 (1) (1) (1) Reg. S–X ...... (1) 1 1 (1) (1) (1) Reg. C ...... (1) 1 1 (1) (1) (1)

Total ...... 1,546 ...... 7,036,717 5,277,535 1,696,178 703,671,395 1 Not applicable.

TABLE 2—INCREMENTAL PAPERWORK BURDEN UNDER PROPOSAL B

Number of Burden hours/ Total burden 75% 25% Professional responses form hours Company Professional costs

(A) (B) (C)=(A)*(B) (D)=(C)*0.75 (E)=(C)*0.25 (F)=(E)*$400

10–K ...... 110 55,301 6,083,125 4,562,323 1,520,781 $608,312,454 10–Q ...... 330 4,134 1,364,098 1,023,073 341,024 136,409,780 8–K ...... 880 110 96,996 72,747 24,249 699,615 Sch. 14A ...... 108 1 108 81 27 10,800 Sch. 14C ...... 2 1 2 1.5 0.5 200 Form S–4 ...... 6 1 6 4.5 1.5 600 No Objection Request ...... 110 50 5,500 4,125 1,375 550,000 Reg. S–K ...... (1) 1 1 (1) (1) (1) Reg. S–X ...... (1) 1 1 (1) (1) (1) Reg. C ...... (1) 1 1 (1) (1) (1)

Total ...... 1,546 ...... 7,549,838 5,662,355 1,887,458 754,983,449 1 Not applicable.

C. Request for Comment • Determine whether there are ways of the comments to Florence E. Harmon, Pursuant to44 U.S.C. 3506(c)(2)(B), we to enhance the quality, utility, and Acting Secretary, Securities and request comment in order to: clarity of the information to be Exchange Commission, 100 F Street, • Evaluate whether the proposed collected; NE., Washington, DC 20549–1090, with • collections of information are necessary Evaluate whether there are ways to reference to File No. S7–27–08. for the proper performance of the minimize the burden of the collections Requests for materials submitted to the functions of the Commission, including of information on those who respond, OMB by us with regard to these whether the information will have including through the use of automated collections of information should be in practical utility; collection techniques or other forms of writing, refer to File No. S7–27–08 and • Evaluate the accuracy of our information technology; and be submitted to the Securities and estimates of the burden of the proposed • Evaluate whether the proposed Exchange Commission, Records collections of information; amendments will have any effects on Management, Office of Filings and any other collections of information not Information Services, 100 F Street, NE., 184 The number of responses was calculated by previously identified in this section. Washington, DC 20549. Because the examining the actual number of forms and Any member of the public may direct OMB is required to make a decision schedules filed over the last three fiscal years by a to us any comments concerning the sample of U.S. issuers with characteristics similar concerning the collections of to those of issuers that may be eligible to request accuracy of these burden estimates and information between 30 and 60 days IFRS accounting use under the rule proposals. Our any suggestions for reducing the after publication, your comments are PRA estimates also include an estimated 0.5 hour burdens. Persons who desire to submit best assured of having their full effect if burden in the forms and schedules to account for the filing by an eligible issuer of one-time comments on the collection of the OMB receives them within 30 days disclosure that an issuer would have to disclose, information requirements should direct of publication. such as, when the decision to file IFRS financial their comments to the OMB, Attention: VIII. Cost-Benefit Analysis statements was made, the reasons for the change, Desk Officer for the Securities and and the corporate governance processes by which the issuer decided to transition to IFRS. Figures in Exchange Commission, Office of We are proposing amendments to both Tables have been rounded to the nearest whole Information and Regulatory Affairs, existing regulations, rules and forms to number. Washington, DC 20503, and send a copy accept financial statements from U.S.

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issuers meeting specific criteria especially emerging markets, are effects of the proposed amendments: (‘‘eligible U.S. issuers’’) prepared in developing at a faster rate than the The more issuers that use IFRS as issued accordance with IFRS as issued by the mature U.S. equity market. Existing by the IASB, the greater the incentive IASB. Currently, financial statements large foreign companies are increasingly for other issuers to do so. that U.S. issuers file with the listing in these markets. The result is The cost-benefit analysis analyzes Commission must be prepared in that the number of foreign companies in separately three components of the accordance with U.S. GAAP. The an industry in the top 20 by market proposed rules. The first component is amendments, if adopted, would capitalization worldwide is growing the acceptance of IFRS financial therefore provide eligible U.S. issuers over time. These companies are more statements from U.S. issuers under the with an option to use IFRS in preparing likely to use IFRS than U.S. GAAP. proposed eligibility criteria. The second financial statements for filing with the These factors may result in an increase component is Proposal A, under which Commission. The amendments would in the number of IFRS-using listed U.S. issuers adopting IFRS would only apply to a registrant’s financial companies in the top 20 of each be required to provide the reconciling statements contained in annual reports industry, by market capitalization, and information from U.S. GAAP to IFRS on Form 10–K, its quarterly reports on a corresponding increase in eligible called for under IFRS 1. The third Form 10–Q, its proxy or information industries. Early adoption of IFRS by component is Proposal B, under which statements, and its financial statements eligible U.S. issuers would also increase U.S. issuers adopting IFRS would, in included in Securities Act and eligibility.185 For these reasons, both addition to providing the reconciling Securities Exchange Act registration current and future levels of eligibility information called for under IFRS 1, statements filed by U.S. issuers or, when are subject to substantial uncertainty. disclose on an annual basis certain applicable, included in a registration Only eligible U.S. issuers, which we unaudited supplemental U.S. GAAP statement or reported pursuant to Rule expect would be limited in number, financial information covering the 3–05, 3–09 or 3–14 of Regulation S–X. would be permitted to file financial financial statements included in an Currently, there are approximately statements with the Commission that annual report, including the current 12,000 U.S. issuers registered with the are prepared in accordance with IFRS. year. Commission. The proposed Of this limited number of eligible amendments would be available to only issuers, we believe few would be in a A. Proposal for Early Use of IFRS by a limited number of U.S. issuers that position to file IFRS financial U.S. Issuers operate in industry sectors in which statements with the Commission 1. Expected Benefits IFRS is used more than any other set of immediately upon adoption of the standards. Specifically, the eligible U.S. proposed rules. This is because we In industries with a large number of issuers are among the top 20 listed understand that there are few U.S. companies using IFRS, allowing U.S. companies worldwide, as measured by issuers that have already prepared IFRS issuers to move to IFRS could help market capitalization, in any industry in financial statements for any other eliminate the principal source of which IFRS is used more than any other purpose. In order to avail themselves of accounting differences within the basis of financial reporting to prepare the IFRS alternative, eligible U.S. industry and potentially enhance financial statements for the public issuers would need to (1) make a comparability within the industry, capital markets. For example, if 6 submission to the Commission and improving the ability of investors to companies among the top 20 by market obtain a letter of no objection as allocate capital. Thus, if a large capitalization in an industry reported in described in Section IV., (2) work percentage of companies use IFRS, IFRS, 4 reported in U.S. GAAP and the through the first time adoption allowing U.S. issuers to use IFRS could other 12 reported in 4 different bases of requirements of IFRS, (3) apply IFRS to potentially benefit investors by accounting among them (and no other the preparation of their financial improving the comparability of basis of financial reporting was used by statements for the entire period called companies within the industry. If more than 5 companies), then the 4 U.S. for in our filings,186 (4) make the investors prefer IFRS and we do allow issuers among the top 20 in market necessary disclosures proposed in a switch to IFRS, then a U.S. issuer may capitalization in this industry would Section V.D.3., and (5) provide the experience an increased following in the each be eligible to use IFRS. supplemental U.S. GAAP information marketplace. In contrast, if an industry We estimate that an approximate required under Proposal B, if adopted. consists primarily of companies using minimum of 110 issuers, accounting for Our proposed rules to allow for the other bases of accounting, particularly approximately 12 percent of total U.S. limited use of financial statements bases of accounting that produce results market capitalization as of December prepared using IFRS, if adopted, may more comparable to U.S. GAAP than to 2007, would be eligible to be an ‘‘IFRS foster the use of IFRS as issued by the IFRS, allowing U.S. issuers to move to issuer’’ as we propose to define it. For IASB as a way of moving to a single set IFRS would not improve reasons described in Section IV, these of globally accepted accounting comparability—investors would still amounts represent the estimated lower standards. This effect would be need to interpret multiple bases of bounds on current eligibility. strengthened by potential network accounting to perform within-industry Additionally, in the future, we expect comparisons. both the number of eligible issuers and 185 Under the proposed rules, issuers may choose Comparability within any set of the portion of total U.S. market from multiple industry classification systems. accounting standards depends on capitalization to increase. Several These systems classify companies differently, consistent interpretation and countries have announced plans to implying that companies may be eligible under one application across jurisdictions. In classification system, but not another. If companies require IFRS financial statements from in an industry that are eligible under one particular, potential benefits of the their listed companies, and others are classification system switch to IFRS, this action proposed rule relating to increased considering this step. Overall trends may result in IFRS then being used more often than within-industry comparability across point to the continuing increase in use any other set of standards within a separate jurisdictions depend on the consistent industry, under a different classification system. of IFRS in preference to other bases of This effect results in an expansion of eligibility interpretation and application of IFRS. financial reporting. Further, relatively across industries as U.S. companies switch to IFRS. Such benefits may be limited to the young foreign public equity markets, 186 As noted, this period is generally three years. extent that, for example, foreign

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companies use local variations of IFRS working with financial results reported issuer that avails itself of the option to as issued by the IASB. Transparent under IFRS. use IFRS will differ from what it was disclosure about the nature and effect of Over the longer term, if all other previously. This may or may not variations from IFRS as issued by the things are equal, the increased represent a loss or an increase of IASB may offset some of these worldwide demand for the securities of information in absolute terms. Whether limitations to benefits in comparability. U.S. issuers using IFRS could make there is an absolute loss or gain in In recognition of the benefits associated their capital more efficiently priced. information will depend upon whether with consistent application of IFRS, the This effect is contingent on the degree IFRS financial statements yield more or proposed rule makes eligibility to which foreign investors can use IFRS less information, or higher or lower contingent on use of IFRS as issued by more effectively than U.S. GAAP. While quality information, about a particular the IASB by a large number of U.S. GAAP is accepted worldwide, issuer than the U.S. GAAP financial companies in the industry. foreign investors may become statements yielded. The usefulness of The utility for investors of a set of increasingly familiar with IFRS and may any omitted U.S. GAAP information or accounting standards increases as the be more likely to make their decisions any additional IFRS information number of issuers using it increases. to invest in U.S. issuers contingent on depends on the extent to which the Investors reap a benefit from the use of IFRS by those issuers. Currently, investor used the U.S. GAAP network effects caused by numerous U.S. issuers, using exclusively U.S. information provided, if at all, relative individual issuers each deciding to use GAAP, comprise a large portion of to the extent to which the investor will IFRS. To the extent an issuer switching worldwide equity market capitalization, use the new IFRS information, if at all. to IFRS does not internalize the full and foreign investors likely have a Investors are differently situated in benefits of any such network effects, correspondingly thorough the market and have varying levels of such issuer is expected to be less likely understanding of U.S. GAAP. This familiarity with IFRS. Consequently, to switch even if eligible to do so. percentage may decrease as foreign investors may not all bear the costs or The benefits associated with a set of equity markets continue to develop, and obtain the benefits from the proposed accounting standards are dependent it may become less advantageous for amendments equally. The extent to upon the quality of the standards, foreign investors to maintain this level which a particular investor may use including how the standards are applied of understanding. IFRS financial information will depend in practice. Factors that could affect the Some U.S. issuers currently may use on many factors including the size and quality of IFRS are both institutional IFRS in addition to U.S. GAAP. For nature of the investor and the industry with respect to the IASC Foundation, example, some foreign subsidiaries of to which the issuer in question belongs. including its governance and funding, U.S. issuers may be required to use The proposed amendments, if as well as operational with respect to IFRS. Under the proposed rules, any adopted, may lead to some costs to both the actual standard setting process of such issuer who is eligible and elects to investors and U.S. issuers. If the the IASB. We recognize that our adopt IFRS may need fewer resources to investor community prefers the relationship with the IASB is currently prepare Commission filings. Investors information communicated by U.S. less direct than our relationship with may benefit from this to the extent that GAAP, then a U.S. issuer that uses IFRS the FASB. Further, constituents of the an issuer can realize cost savings from as issued by the IASB to prepare IASB are greater in number and more having the parent company and all its financial statements may face a reduced varied than the constituents of the subsidiaries use one basis of accounting. following in the marketplace. Investors FASB. The result is that our view— As discussed in the 2007 Proposing that are not sufficiently familiar with based on U.S. constituents—is one of Release and in Section III.B.4., above, IFRS accounting standards may prefer many views that the IASB receives from IFRS is not as developed as current U.S. U.S. GAAP. In addition, unfamiliarity around the world and considers when GAAP in certain areas. IFRS also is not with IFRS as issued by the IASB may developing future standards. As the as prescriptive as U.S. GAAP in certain have an adverse effect on investors’ IASB must prioritize the needs of its areas and in certain areas permits a confidence in the reported results. At a various constituents, including greater amount of allowable options minimum, for those investors who seek investors, the timeliness in which than currently in U.S. GAAP.187 This to understand accounting principles, improvements or development of relatively lesser amount of guidance and they will bear incremental transitional standards occur of particular relevance greater optionality may increase issuers’ learning costs to become familiar with or importance to our issuers and ability to account for transactions or IFRS. While many regard both U.S. GAAP and IFRS as high-quality sets of markets could be affected. events in accordance with their The use of IFRS by a limited number accounting standards, the relative underlying economics but may also of U.S. issuers in industries in which quality of the financial information result in the application of greater IFRS is used more often than any other provided under each set of standards judgment in applying the standards. set of standards would provide some may differ. Potential costs involved in empirical basis for evaluating, among 2. Expected Costs moving to or remaining on a set of other things, the cost of converting to Under the proposed amendments, if standards that provides relatively lower IFRS. Early adoption of IFRS will adopted, the required financial quality information may include generate information for regulators, information that investors in the U.S. reductions in liquidity and pricing including the Commission, to be used in capital markets receive from any U.S. efficiency of the issuers’ securities. further decision making. Using IFRS These effects are related to changes in would also give U.S. investors the 187 As noted by CIFiR in its Final Report: information asymmetry between opportunity to better understand and From an international perspective, we note that insiders and investors. Any potential compare the financial reports of U.S. IFRS currently permits numerous alternative changes in information asymmetry may and foreign issuers if all of their reports accounting policies. While we acknowledge the also affect transaction costs for issuers are prepared in accordance with IFRS. IASB’s efforts in reducing some of these alternative in raising capital. treatments, we nonetheless believe the SEC should This effect may not be immediate encourage the IASB to [***] seek to eliminate Companies may choose to adopt IFRS because it may take time for U.S. alternatives as part of its standards-setting projects. only after concluding the benefits justify investors to become familiar with CIFiR Final Report, at 51. the costs to their investors; alternatively,

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because of principal-agent problems will be more costly and less precise. In a future decision by the Commission inherent in corporate governance, eligible industries, it is likely that not regarding the ongoing role of IFRS in the companies may choose to adopt IFRS all companies will convert to IFRS U.S. capital markets. If, in the future, all after concluding that benefits to simultaneously, if at all. This may lead U.S. issuers were required to use U.S. management exceed costs to to enhanced comparability on an GAAP in filings with the Commission, management. In either calculation, costs industry-wide basis, but potential those eligible issuers that had elected to to the company of adopting IFRS play reductions in comparability for the adopt IFRS under these proposed rules a key role in the analysis. Costs to adopt subset of the industry represented by would incur costs of switching back to IFRS may include those associated with U.S. firms. In addition, if investors wish U.S. GAAP. These costs could be making a submission to the Commission to compare companies across different expected to be less than the estimated staff in order to obtain a no objection industries—for example, they may want costs of adoption of IFRS, due to the letter, as described in Section IV.B.; to compare companies sharing the same existing knowledge of U.S. GAAP by costs to transition to IFRS reporting, inputs, such as energy or labor—there accountants in the United States and including determining the effect of first- would be either improvements or a because issuers would have previous time adoption under IFRS 1 and systems diminution in comparability. If one U.S. GAAP policies and reported changes to support financial reporting industry is eligible to convert to IFRS, information available. However, if a in accordance with IFRS; costs to but another is not, comparability may be substantial number of issuers or prepare the disclosures proposed in diminished. If IFRS is used more percentage of total U.S. market Section V.D.3. upon initially reporting frequently than any other set of capitalization adopts IFRS under the under IFRS; and potentially higher costs accounting standards in the top 20 proposed ‘‘early use’’ option, the costs for accounting personnel, outside companies by market capitalization in of requiring these issuers to return to consultants and auditors who are each industry to be compared and if U.S. GAAP may be large enough that familiar with IFRS. Additionally, for U.S. issuers choose to adopt IFRS, on they may affect the Commission’s those issuers currently audited by an the other hand, comparability may be consideration of this decision, which accounting firm without extensive IFRS improved. In companies with multiple would be a cost to investors. experience, incremental costs may be business lines, switching to IFRS could Alternatively, if the Commission incurred in order to change to an audit potentially enhance the comparability of chooses to continue to allow both IFRS firm with a sufficient background in some business lines, but detract from and U.S. GAAP use by U.S. issuers, IFRS. For the companies we estimate to comparability of others. Any change in investors may continue to face the costs be eligible, based on the data used for comparability would potentially have of limited comparability across U.S. purposes of the Paperwork Reduction the greatest impact on less sophisticated companies, as described above, in Act we estimate the costs for issuers of investors. Because they are less able to perpetuity, or at least until convergence transitioning to IFRS to sum to compare financial results across reduces differences between bases of approximately $32 million per company different bases of accounting, changes in accounting. However, U.S. investors and relate to the first three years of comparability would disproportionately would continue to receive the benefit of filings on Form 10–K under IFRS. Total affect them. In all cases, the extent to increased comparability between U.S. estimated costs for the approximate which the comparability could be issuers reporting in IFRS and their minimum of 110 issuers estimated to be affected would in part depend on the foreign counterparts reporting in IFRS. eligible would therefore be degree to which companies across If the Commission chooses to require approximately $3.5 billion. We expect jurisdictions consistently apply IFRS as mandatory IFRS reporting, transition that the majority of these transition issued by the IASB. costs to IFRS could be similar, on a per- While improving the comparability of costs would be incurred primarily in company basis, to transition costs financial reporting across entire preparation of filings for the first year in described in the PRA analysis. industries is a benefit to investors, which an issuer reports with the assuming the information being Another consideration if the Commission using IFRS.188 These compared is not of lower quality than Commission were to adopt the estimates will continue to be re- the information produced under the amendments as proposed is the impact evaluated during the comment period as prior basis of financial reporting, a on the continued improvement of IFRS. more information is known. number of considerations limit the The Commission’s intention is to A further cost of allowing U.S. issuers extent of that benefit in the case of enhance the incentives for the to file IFRS financial statements is the international comparisons, relative to continued improvements to IFRS and potential change in the level of domestic comparisons. There are U.S. GAAP. We believe, moreover, that comparability among the reported reporting differences between U.S. the needs of the marketplace will results of U.S. issuers. This affects registrants and non-registrants that are continue to support the IASB and the investors to the extent they are seeking unrelated to the basis for accounting. FASB working together on their next to compare only U.S. companies rather These differences include language used phase of joint work to develop the best than companies in the top 20 by market in presenting financial statements, the international standards to be used in the capitalization within a worldwide level of information provided in non- United States and internationally. industry. If some U.S. issuers in an financial statement disclosures, and the Without prejudice as to priority, the industry in which IFRS is used more extent of interim disclosure. current joint work program includes than any other set of standards choose Additionally, other economic topics such as revenue recognition and to switch from U.S. GAAP, comparing differences, such as product markets financial statement presentation. These the financial results of any remaining and regulatory structures, may exist. To are topics on which both the IASB and U.S. issuers to those that have switched the extent these differences diminish the FASB seek to develop better the value of international comparisons standards (rather than one standard 188 Specifically, we assume that per-year costs for investors, the benefit of the proposed setter adopting the other standard decline by 75% in the second year and by 90% in the third year. See Section VII., Paperwork amendments is correspondingly limited. setter’s existing U.S. GAAP or IFRS Reduction Act. Costs do not include incremental The number of eligible U.S. issuers standard). We believe that investors and reconciliation requirements of Proposal B. that elect to adopt IFRS may influence issuers seek comparable information in

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global capital markets, thereby is a one-time disclosure related to equity as of the date of transition to providing an incentive for continued transition from a prior basis of IFRS, which is the first day of the fiscal improvements to U.S. GAAP and IFRS. reporting, in this case U.S. GAAP, to year for the earliest period presented. It is possible, though, that acceptance of IFRS. This information includes, among Additionally, a U.S. issuer would be IFRS for U.S. issuers could reduce the other things, reconciliation of the prior required under IFRS 1 to reconcile the incentive to converge standards under year’s total comprehensive income and previously reported U.S. GAAP equity IFRS and U.S. GAAP. ending equity under previous GAAP to to IFRS equity as of the end of the This proposed rulemaking, if adopted, IFRS and certain disclosures to assist second year presented, along with a may create costs to investors in eligible users’ understanding of the effect and reconciliation of total comprehensive issuers that choose to continue to implications of transitioning to IFRS. income for that second fiscal year. prepare their financial statements under Adoption of IFRS as issued by the IASB However, no reconciling information U.S. GAAP. The desire of potential requires implementation of IFRS 1 and would be required for the year-end investors for comparability of financial therefore Proposal A represents the equity or total comprehensive income information may create an incentive for minimum reconciliation disclosure that related to the first year presented. those that continue to use U.S. GAAP, would be required of an eligible U.S. Further, under the proposed rules, an where comparable companies have issuer electing to adopt IFRS under issuer would present and file with the these proposed rules. The following adopted IFRS, to provide additional Commission on Form 10–Q quarterly sections separately describe the benefits financial information prepared under information under U.S. GAAP during and costs of these IFRS 1-related IFRS as issued by the IASB in addition the first year of IFRS reporting, but to U.S. GAAP financial statements. If requirements, relative to a theoretical would report under IFRS in its annual those U.S. issuers make this choice benchmark in which these requirements report on Form 10–K. IFRS 1 would not voluntarily to provide their investors were excluded from IFRS. require reconciling information for the with additional information, their 1. Expected Benefits year in which IFRS financial statements investors would bear additional are first presented. preparation cost, while benefiting, along The IASB noted in the basis for with potential investors and regulators, conclusion discussion accompanying As an example, if a U.S. issuer with from additional information provided. IFRS 1 that the required reconciliations a December 31 fiscal year end were to U.S. issuers currently compete for and disclosures were necessary to help elect to report under IFRS beginning capital with companies who provide users understand the effect and with the year ending December 31, financial information prepared under implementation of the transition to 2012, the financial statements included IFRS. In spite of this international IFRS. Further, such information is in Form 10–K would present IFRS competition for capital, we do not expected to assist users in identifying financial statements for 2010, 2011 and believe it is currently a widespread changes needed to their analytical 2012.190 IFRS 1 would require a practice for U.S. issuers to provide models to make use of information reconciliation of equity from U.S. GAAP presented under IFRS. financial information under IFRS, to IFRS as of January 1, 2010. Further, perhaps because U.S. GAAP is accepted 2. Expected Costs IFRS 1 would require a reconciliation of by investors in foreign markets. Both Proposal A and Proposal B ending equity and total comprehensive As discussed above, IFRS is not as require an issuer that elects to adopt income for the year ending December developed as current U.S. GAAP in IFRS to prepare financial information 31, 2011. In this example, users of the certain areas. IFRS also is not as under both IFRS and U.S. GAAP for a financial statements who wish to prescriptive as U.S. GAAP in certain period of time. This could be evaluate trends for the three years areas and in certain areas permits a accomplished in a number of ways, presented would not have information greater amount of allowable options about the effects of IFRS adoption for 189 including maintaining systems for than currently in U.S. GAAP. This financial reporting under both IFRS and the year ending 2010 nor for the year relatively lesser amount of guidance and U.S. GAAP contemporaneously or ending December 31, 2012. greater optionality may reduce maintaining such systems under one set C. Proposal B: Supplemental U.S. GAAP comparability of reported financial of accounting standards and making Information information, as different issuers may adjustments to determine the account or provide disclosure for appropriate amounts and information Under Proposal B, in addition to the similar transactions or events in under the other set of accounting different ways. This increased level of reconciling information from U.S. standards. Regardless of the approach GAAP required under IFRS 1, U.S. managerial choice could affect taken, the preparation of financial comparability across companies. issuers adopting IFRS would annually information under two sets of disclose certain unaudited B. Proposal A: Reconciled Information accounting standards would impose supplemental U.S. GAAP financial Pursuant to IFRS 1 costs on issuers. information covering the period called Due to the requirement to present Under Proposal A, U.S. issuers for in our filings, generally three years, financial statements that generally adopting IFRS would only be required including the current year. The include three years of activity, the to publish the reconciling information following sections describe benefits and application of IFRS 1, as contemplated required under IFRS 1. This information costs of Proposal B as a whole, in Proposal A, would result in certain combining the benefits and costs of gaps in information provided to 189 As noted by CIFiR in its Final Report: IFRS 1 disclosures and the benefits and investors about the amounts and nature From an international perspective, we note that costs of the additional, continuing of differences between previously- IFRS currently permits numerous alternative reconciliation. accounting policies. While we acknowledge the reported U.S. GAAP information and IASB’s efforts in reducing some of these alternative IFRS comparative information included treatments, we nonetheless believe the SEC should 190 In addition, for purposes of this example, the encourage the IASB to [* * *] seek to eliminate in an issuer’s first annual report under Form 10–Q filed for the first three fiscal quarters of alternatives as part of its standards-setting projects. IFRS. Specifically, a U.S. issuer would 2012 would contain U.S. GAAP financial CIFiR Final Report, at 51. be required under IFRS 1 to reconcile statements.

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1. Expected Benefits by several factors. Not all items in cost estimates assume an annual, Because IFRS 1 disclosure financial statements are reconciled; recurring cost of $900,000 per company requirements are part of Proposals A investors seeking to compare details and reflect an assumption that issuers and B, the expected benefits of Proposal between IFRS and U.S. GAAP financial will choose to keep two sets of books B include the expected benefits of statements will be less able to do so, and records as a result of the proposed 194 Proposal A. Specifically, users of even with a reconciliation. Because the reconciliation requirement. The financial statements would be provided reconciliation would not be required to degree to which ongoing reconciliation the information to help them be audited, information contained imposes an incremental cost depends on understand the effect and therein would not be subject to external the manner in which a company would implementation of the transition to assurances by an independent auditor of implement adoption in the absence of IFRS. Such disclosure is expected to fair presentation. To the extent that an ongoing reconciliation requirement. assist users in identifying changes investors benefit from such scrutiny, Under the proposed rule, companies they may be affected. However, the needed to analytical models applied to adopting IFRS may keep two parallel possibility that U.S. GAAP books and sets of books and records, one in U.S. issuers’ reported financial information. Under the additional reconciliation records will be audited in the future, GAAP and one in IFRS, for a period of requirements of Proposal B, investors upon any potential return to reporting time, whether or not an ongoing by the issuer under U.S. GAAP, may reconciliation is required. Keeping benefit from the inclusion of a 192 continuing reconciliation to U.S. GAAP help to diminish any such effect. parallel books and records would help a company to ensure a smooth transition of certain items in the financial 2. Expected Costs between accounting systems and would statements. Ongoing reconciliation to Because IFRS 1 disclosure U.S. GAAP of certain items allows a allow flexibility to return to U.S. GAAP requirements are part of Proposals A reporting, were such an action degree of continued comparability and B, the expected costs of Proposal B between U.S. issuers adopting IFRS and necessary. If such a practice is the norm, include certain expected costs of we expect that the costs of required other U.S. issuers continuing to report Proposal A. Specifically, the costs under U.S. GAAP, and a degree of ongoing reconciliation would be small, related to the preparation of financial as U.S. GAAP results would be readily comparability between current and past information under both IFRS and U.S. financial results of issuers electing to available. Alternatively, some GAAP for a period of time would be companies adopting IFRS, in the adopt IFRS. Additionally, reconciliation imposed under either proposal. may help to highlight differences absence of the requirements in Proposal However, certain expected costs under B, may elect to switch to IFRS without between U.S. GAAP and IFRS, Proposal A relate to the absence of providing useful information for keeping two sets of books and records. certain reconciliation disclosures to If companies follow this practice, then regulators and for other U.S. issuers assist users of financial information to contemplating adoption. the incremental costs of a required understand the impact of reporting ongoing reconciliation would be larger. Reconciliation also reduces the costs under IFRS rather than U.S. GAAP. to issuers of returning to U.S. GAAP, In either case, some companies may Thus, the expected costs under Proposal continue to provide ongoing U.S. GAAP should the Commission require such an A associated with providing users with action.191 As previously described, such information voluntarily, in the absence less information would not be imposed of a requirement, based on market costs could affect the Commission’s under Proposal B. decision in 2011, representing a cost to demand. Shareholder efforts to require Because Proposal B would require consistent and high-quality disclosure investors; by reducing these costs, continued reconciliation between reconciliation creates a benefit for can be considered a public good, which certain U.S. GAAP and IFRS is expected to be underprovided in the investors. On the other hand, eligible information, the expected costs of U.S. issuers choosing to report in IFRS absence of regulation. Addressing this preparing information under two sets of underprovision of monitoring efforts may be able to assess for themselves the accounting standards would be greater possibility of a return to U.S. GAAP and through disclosure is one of the key under Proposal B. The additional purposes of regulatory disclosure have an incentive to take voluntary requirements of Proposal B to provide a steps as they see appropriate to enable requirements. In this case, the continuing reconciliation of certain incremental costs of required ongoing reporting in U.S. GAAP should we items to U.S. GAAP increase reporting require them to do so in the future. reconciliation for these companies costs and, potentially, record-keeping would be small. We are aware of very Reductions in comparability costs for issuers, which may be passed mentioned above as costs to investors few companies that publish financial through to their investors. Based on the results in accordance with more than are substantially mitigated by the data used for purposes of the Paperwork inclusion of a reconciliation to U.S. one set of accounting standards absent Reduction Act, we currently estimate a requirement to do so. GAAP. This effect is tempered by the the costs at this time to be unaudited and selective nature of the As noted, if some U.S. issuers elect to approximately $2.7 million per adopting adopt IFRS, regulators and investors reconciliation. company over three years, or an The benefits of the additional benefit from enhanced information aggregate of approximately $297 million about the use of IFRS in U.S. markets, reconciliation requirements of Proposal over three years, for the approximately B related to comparability are mitigated information useful for investment and 110 issuers estimated to be the regulatory decision making. This benefit approximate minimum eligible under 191 may be mitigated if, under Proposal B, Absent such future rulemaking, the 193 Commission may decide to propose rules requiring the proposed amendments. These some companies would be less likely to the use of U.S. GAAP for all U.S. issuers. adopt IFRS. Proposal B could have two 192 Alternatively, an issuer may decide to resume Moreover, if the reconciliation requirement potential effects affecting likelihood of reporting under U.S. GAAP only. In such cases, addressed these matters and thus became more associated costs would include audit fees and costly, it cold discourage eligible issues from internal labor costs associated with obtaining an switching to IFRS. assuming that all 110 of the approximate minimum audit of the U.S. GAAP information for the periods 193 These estimated amounts are based on an estimated eligible issuers would adopt IFRS and be during which the issuer was reporting with the estimated annual recurring cost of $900,000 per subject to the annual reconciliation requirement. Commission under IFRS. eligible issuer, over a three year period and 194 See Section VII., Paperwork Reduction Act.

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an eligible issuer adopting IFRS. First, a comments regarding this certification. accounting standards. In addition, reconciliation requirement involves We request that commenters describe presenting investors with financial some costs to the issuer, discussed in the nature of any impact on small information that varies substantially the previous paragraph; any increase in entities and provide empirical data to depending on which set of accounting adoption costs likely reduces issuers’ support the extent of the impact. standards is employed can cause willingness to adopt IFRS. Second, as confusion about the actual financial discussed in the benefits section of X. Consideration of Impact on the results of a company and result in a Proposal B, a reconciliation reduces the Economy, Burden on Competition and correspondingly adverse effect on costs of requiring a return to U.S. GAAP. Promotion of Efficiency, Competition investor confidence and cost of capital. These lowered costs may result in and Capital Formation The proposals are intended to issuers believing that the Commission For purposes of the Small Business increase efficiency by enabling investors will decide in 2011 not to require IFRS, Regulatory Enforcement Fairness Act of to better compare financial statements of and issuers may also then believe that 1996, or ‘‘SBREFA,’’ 195 we solicit data U.S. issuers that adopt IFRS with those there is a chance of a required return to to determine whether the proposals of non-U.S. issuers operating in the U.S. GAAP. This would lower their net constitute a ‘‘major’’ rule. Under same industry. Issuers with subsidiaries benefits from early adoption, and they SBREFA, a rule is considered ‘‘major’’ that already use IFRS also may be able may elect not to adopt IFRS. where, if adopted, it results or is likely to streamline their accounting systems to result in: and increase their efficiency if they Request for Comment • An annual effect on the economy of adopt IFRS across all of their operations. 67. Do you agree with our assessment $100 million or more (either in the form We also are aware that the proposed of the costs and benefits as discussed in of an increase or a decrease); amendments would permit some U.S. this section? Are there costs or benefits • A major increase in costs or prices issuers to use IFRS financial statements that we have not considered? Are you for consumers or individual industries; while other U.S. issuers continue to use aware of data and/or estimation or U.S. GAAP, thereby creating a dual techniques for attempting to quantify • Significant adverse effects on system of financial reporting that has these costs and/or benefits? If so, what competition, investment or innovation. not existed previously for U.S. public are they and how might the information We request comment on the potential companies. This could reduce the be obtained? impact of the proposals on the economy comparability among U.S. issuers and IX. Regulatory Flexibility Act on an annual basis. Commenters are would require investor familiarity with Certification requested to provide empirical data and both sets of accounting standards, other factual support for their views if which may adversely affect efficiency. The Commission hereby certifies possible. However, we anticipate any such dual pursuant to 5 U.S.C. 605(b), that the Section 23(a)(2) of the Exchange system may be transitional and not amendments contained in this release, if Act 196 also requires us, when adopting permanent. adopted, would not have a significant rules under the Exchange Act, to The proposed amendments are economic impact on a substantial consider the impact that any new rule designed to promote competition by number of small entities. The proposal would have on competition. Section enhancing the ability of eligible U.S. would amend those regulations, rules 23(a)(2) prohibits us from adopting any issuers that adopt IFRS to compete with and forms to allow eligible U.S. issuers rule that would impose a burden on non-U.S. issuers that use IFRS. The to use as their basis of financial competition not necessary or proposed rules would not enhance the reporting IFRS as issued by the IASB appropriate in furtherance of the competitiveness of U.S. issuers that and to file their financial statements purposes of the Exchange Act. In would not be eligible to adopt IFRS but prepared in that manner. The addition, Section 2(b) 197 of the that compete with issuers that do use Commission is not proposing that filing Securities Act and Section 3(f) 198 of the IFRS. in this manner be required, therefore if Exchange Act require us, when engaging The proposed amendments may these amendments were adopted small in rulemaking where we are required to facilitate capital formation for eligible entities need not take any action. We consider or determine whether an action U.S. issuers that adopt IFRS by allowing propose to exclude smaller reporting is necessary or appropriate in the public them greater access to global capital companies from the proposed definition interest, to also consider whether the raising opportunities. As more of ‘‘IFRS issuer’’ as a limitation on the action will promote efficiency, jurisdictions accept financial statements number of issuers that would be eligible competition, and capital formation. prepared in accordance with IFRS for to file IFRS financial statements under The proposed amendments would local regulatory or statutory filing the proposed rules. In addition, we allow eligible U.S. issuers to use IFRS purposes, companies accessing global believe that few small entities would rather than U.S. GAAP to prepare their capital markets would not incur any meet the eligibility test under the financial statements in filings with the additional costs to translate financial proposed rules, which would permit an Commission. This proposal is designed statements using different accounting issuer to use IFRS only if it is in the to increase efficiency, competition and standards to IFRS. However, U.S. largest 20 companies in its industry capital formation by helping to move issuers that would not be eligible to use worldwide as measured by market towards the use of a single set of IFRS under the proposed amendments capitalization. For these reasons, the globally accepted accounting standards. may be for a time at a comparative proposed amendments should not have The use of a single set of accounting disadvantage in this regard. a significant economic impact on a standards could help investors better It is possible that the amendments substantial number of small entities. understand investment opportunities would not confer comparative Additionally, in the event that we than the use of differing sets of advantages on those eligible issuers who decide in 2011 to mandate the use of transition to IFRS versus the companies IFRS for all U.S. issuers, any disparate 195 5 U.S.C. 603. that continue using U.S. GAAP. In impact on small entities caused by the 196 15 U.S.C. 78w(a). addition, the amendments could have a proposed amendments in this release 197 15 U.S.C. 77b(b). negative impact on capital formation if would be temporary. We solicit written 198 U.S.C. 78c(f). IFRS does not gain acceptance by U.S.

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investors. We solicit public comment In accordance with the foregoing, savings and similar plan, or a smaller that will assist us in assessing the Title 17, Chapter II of the Code of reporting company; impact that the proposed amendments Federal Regulations is proposed to be (2) The issuer has requested and could have on competition, efficiency amended as follows: received a letter from the staff of the and capital formation. Commission expressing no objection PART 210—FORM AND CONTENT OF that the issuer is eligible to file with the Request for Comment AND REQUIREMENTS FOR FINANCIAL Commission financial statements 68. We solicit comment on whether STATEMENTS, SECURITIES ACT OF prepared in accordance with IFRS as the proposed rules would impose a 1933, SECURITIES EXCHANGE ACT issued by the IASB; burden on competition or whether they OF 1934, PUBLIC UTILITY HOLDING (3) The issuer makes its first filing would promote efficiency, competition COMPANY ACT OF 1935, INVESTMENT preparing its required financial and capital formation. For example, COMPANY ACT OF 1940, INVESTMENT statements in accordance with IFRS as would the proposals have an adverse ADVISORS ACT OF 1940, AND issued by the IASB within 3 years effect on competition that is neither ENERGY POLICY AND following issuance of the most recently necessary nor appropriate in furtherance CONSERVATION ACT OF 1975 dated letter from the staff of the of the purposes of the Exchange Act? Commission described in paragraph 69. Would the proposals create an 1. The authority citation for Part 210 (cc)(2) of this section; and adverse competitive effect on U.S. continues to read as follows: (4) The issuer’s incoming request to issuers that are not in a position to rely Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, the staff of the Commission pursuant to on the alternative or on foreign private 77z–2, 77z–3, 77aa(25), 77aa(26), 78c, 78j–1, paragraph (cc)(2) of this section must be issuers that do not report in IFRS? 78l, 78m, 78n, 78o(d), 78q, 78u–5, 78w(a), sent to the attention of the Division of 70. Would the proposed amendments, 78ll, 78mm, 80a–8, 80a–20, 80a–29, 80a–30, Corporation Finance—Office of the if adopted, promote efficiency, 80a–31, 80a–37(a), 80b–3, 80b–11, 7202, and Chief Accountant and demonstrate the competition and capital formation? 7262, unless otherwise noted. following: Commenters are requested to provide 2. Section 210.1–01 is amended by (i) The issuer is in an industry in empirical data and other factual support adding a sentence at the end of which IFRS as issued by the IASB is for their views if possible. paragraph (c) to read as follows: used as the basis of financial reporting more than any other basis of financial XI. Proposed Amendments to the § 210.1–01 Application of Regulation S-X reporting by the 20 largest listed Codification of Financial Reporting (17 CFR part 210). companies worldwide by market Policies * * * * * capitalization within that industry; and We propose to update the (c) * * * In this regard, the (ii) The issuer is one of the 20 largest ‘‘Codification of Financial Reporting application of § 210.4–10 in Article 13 listed companies worldwide by market Policies’’ announced in Financial of this Part only applies to filings capitalization within that industry as of Reporting Release 1 (April 15, 1982) [47 pursuant to the federal securities laws. a date within 180 days prior to the FR 21028] as follows: 3. Section 210.1–02 is amended by request. By adding at the end of Section 101, a. Revising the last sentence to the Note 1 to paragraph (cc): An issuer, in under the Financial Reporting Number ‘‘Note to paragraph (w),’’ and determining its industry and the top 20 (FR–XX) assigned to this release, the b. Adding paragraph (cc). largest listed companies worldwide by text of Sections I through III of this The revision and addition read as market capitalization within that industry, release. follows: must use one of the following classification The Codification is a separate schemes: The North American Industry publication of the Commission. It will § 210.1–02 Definitions of terms used in Classification System (NAICS) codes at the not be published in the Code of Federal Regulation S-X (17 CFR part 210). three-digit level, the Standard Industrial Regulations System. * * * * * Classification (SIC) codes at the two-digit level, or the International Standard Industrial (w) * * * XII. Statutory Basis and Text of Classification (ISIC) codes at the ‘‘Division’’ Proposed Amendments Note to paragraph (w): * * * An IFRS level. In the alternative, an issuer could use issuer or a foreign private issuer that files its a private industry classification scheme We are proposing amendments to financial statements in accordance with provided that such classification scheme is Rules 1–01, 1–02, 3–10, 4–01, 8–01 and International Financial Reporting Standards published and is widely accepted as an Article 13 of Regulation S-X; Items 10, (‘‘IFRS’’) as issued by the International industry classification scheme, such as, for 101, 301, 504, 1100, 1112, 1114 and Accounting Standards Board (‘‘IASB’’) shall example, the Industry Classification 1115 of Regulation S-K and Rule 405 of make the prescribed tests using amounts Benchmark (ICB) at the ‘‘Sector’’ level or the Regulation C under the Securities Act; determined under IFRS as issued by the Global Industry Classification Standard IASB. (GICS) at the ‘‘Industry’’ level. For and Rule 12b–2 of Regulation 12B, classifications of individual companies, the Schedule 13E–3, Schedule TO, Rule * * * * * issuer must use a single published and 101(b) of Regulation G and Form 8–K (cc) IFRS issuer. The term IFRS issuer widely accepted industry source. The under the Exchange Act; pursuant to means any issuer, other than a foreign provider of the classification scheme may be Sections 6, 7, 10, and 19 of the private issuer that files financial the same entity as the source of classifications of individual companies. Securities Act, Sections 3, 12, 13, 15, 23 statements pursuant to Item 17 or Item and 36 of the Exchange Act , and 18 of Form 20–F (§ 249.220f of this Note 2 to paragraph (cc): Market Sections 3(c)(2) and 108(c) of the chapter), that meets the following capitalization for purposes of this section Sarbanes Oxley Act of 2002. criteria and files its financial statements means aggregate worldwide market value of Text of Amendments in accordance with IFRS as issued by voting and non-voting common equity. the IASB pursuant to Rule 4–01(a)(3) Market capitalization must be determined List of Subjects in 17 CFR Parts 210, and Article 13 of Regulation S-X from a widely accepted source as of the same day within 180 days prior to the request. 229, 230, 240, 244 and 249 (§§ 210.4–01(a)(3) and 210.13): Reporting and recordkeeping (1) The issuer is not an investment Note 3 to paragraph (cc): The basis of requirements, Securities. company, an employee stock purchase, financial reporting is to be determined based

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on a specified set of accounting principles. Article 13—Use of International (c) Article 3 ‘‘General Instructions as Companies in an industry are considered to Financial Reporting Standards to Financial Statements’’ shall apply, report under a specified set of accounting Sec. except for: principles if they have published audited (1) Section 210.3–03 which need not financial statements under those accounting 210.13–01 Application of Article 13. principles. Companies reporting under more 210.13–02 Application of Regulation S–X. apply; than one set of accounting principles can be 210.13–03 Application of references. (2) Section 210.3–04, which need not counted as using any of those sets of apply; accounting principles. In determining its Article 13—Use of International (3) Section 210.3–15(a), which shall eligibility to use IFRS as issued by the IASB, Financial Reporting Standards not apply; an issuer must undertake reasonable efforts § 210.13–01 Application of Article 13. (4) Section 210.3–15(b) and (c), which to determine the set of accounting standards need not apply; and used by the twenty largest companies in its (a) This article shall be applicable to (5) Section 210.3–20, which shall not industry group. To the extent an issuer’s financial statements that are to be apply to an IFRS issuer. analysis includes companies whose financial prepared in accordance with statements are prepared under a (d) Article 3A ‘‘Consolidated and International Financial Reporting Combined Financial Statements’’ need jurisdictional version of IFRS or as to which Standards (‘‘IFRS’’) as issued by the it is not clear whether the financial not apply. statements are prepared under IFRS as issued International Accounting Standards (e) Article 4 ‘‘Rules of General by the IASB, the issuer should state that no Board (‘‘IASB’’) filed: Application’’ shall apply, except for: information came to its attention from the (1) By an IFRS issuer as defined in (1) Section 210.4–07, which need not content of the financial statements of the § 210.1–02(cc); apply; companies analyzed or otherwise that causes (2) By a foreign private issuer (2) Section 210.4–08, which need not it to believe that the financial statements are pursuant to Item 17 or Item 18 of Form apply; and not in accordance with IFRS as issued by the 20–F (§ 249.220f of this chapter); or IASB. (3) The following paragraphs of (3) Pursuant to Rule 3–05, 3–09 or § 210.4–10: § 210.3–10 [Amended] 3–14 of Regulation S–X (§ 210.3–05, (i) Paragraph (b) of this section, which 210.3–09 or 210.3–14), where need not apply; 4. Section 210.3–10, paragraph applicable. (ii) Paragraph (c) of this section, (g)(2)(ii), is amended by revising the which need not apply; and reference ‘‘(§§ 210.1–01 through 12–29)’’ (b) With respect to the financial (iii) Paragraph (d) of this section, to read ‘‘(§§ 210.1–01 through 210.13– statements described in paragraph (a) of this section: which need not apply. 03).’’ (f) Article 5 ‘‘Commercial and 5. Section 210.4–01 is amended by: (1) Such financial statements must a. Redesignating paragraph (a)(3) as contain an appropriately captioned note Industrial Companies’’ need not apply, paragraph (a)(5), and in which the issuer unreservedly and except for § 210.5–04, which shall b. Adding new paragraphs (a)(3), explicitly states compliance with IFRS apply. (a)(4) and (d). as issued by the IASB; (g) Article 6 ‘‘Registered Investment The addition reads as follows. (2) The applicable accountant’s report Companies’’ shall not apply. must include an opinion on whether the (h) Article 6A ‘‘Employee Stock § 210.4–01 Form, order and terminology. financial statements comply with IFRS Purchase, Savings and Similar Plans’’ (a) * * * as issued by the IASB; and shall not apply. (3) In filings of IFRS issuers defined (i) Article 7 ‘‘Insurance Companies’’ (3) Financial statements which are not in § 210.1–02(cc) financial statements need not apply, except for § 210.7–05, prepared in accordance with IFRS as may be prepared according to which shall apply. issued by the IASB will be presumed to International Financial Reporting (j) Article 8 ‘‘Financial Statements of be misleading or inaccurate, despite Standards (‘‘IFRS’’) as issued by the Smaller Reporting Companies’’ shall not footnote or other disclosures, unless the International Accounting Standards apply. Commission has otherwise provided. Board (‘‘IASB’’). (k) Article 9 ‘‘Bank Holding (4) With respect to financial (c) Transition provisions for IFRS Companies’’ need not apply, except for statements required by Rule 3–05, 3–09 issuers. An IFRS issuer changing from § 210.9–06, which shall apply. or 3–14 of Regulation S–X (§§ 210.3–05, U.S. GAAP to IFRS as issued by the (l) Article 10 ‘‘Interim Financial 210.3–09 or 210.3–14) in the filings of IASB may only begin reporting using Statements’’ need not apply, except for IFRS issuers or foreign private issuers, IFRS as issued by the IASB in an annual the following, which shall apply: the financial statements may be report on Form 10–K (§ 249.310 of this (1) Sections 210.10–01(a)(1) and prepared in accordance with IFRS as chapter). Similarly, an IFRS issuer (a)(6); issued by the IASB. changing from IFRS as issued by the (2) Section 210.10–01(b)(6); IASB to U.S. GAAP may only begin * * * * * (3) Sections 210.10–01(c)(1) through (d) Financial statements prepared in reporting using U.S. GAAP in an annual (c)(3); accordance with IFRS as issued by the report on Form 10–K. (4) Section 210.10–01(d); and IASB are subject to Article 13 § 210.13–02 Application of Regulation S–X. (5) Section 210.10–01(e). (§§ 210.13–01 through 210.13–03). (m) Article 11 ‘‘Pro Forma Financial Unless a specific provision of Information’’ shall apply. § 210.8–01 [Amended] Regulation S–X does not otherwise (n) Article 12 ‘‘Form and Content of 6. Section 210.8–01, in Note 6 to apply, the provisions of Article 1 Schedules’’ shall apply. § 210.8, is amended by revising the through Article 12 of Regulation S–X reference ‘‘Section 210.4–01(a)(3)’’ to shall apply to financial statements § 210.13–03 Application of references. read ‘‘Section 210.4–01(a)(5)’’. described in § 210.13–01(a) as follows: (a) Unless otherwise specifically 7. Add an undesignated center (a) Article 1 ‘‘Application of provided, references in Parts 210, 229, heading following § 210.12–29 and Regulation S–X’’ shall apply; 230, 239, 240 (other than §§ 240.11a1– §§ 210.13–01, 210.13–02 and 210.13–03 (b) Article 2 ‘‘Qualifications and h, 240.15c3–1g, 240.17a–5, 240.17g–3, to read as follows: Reports of Accountants’’ shall apply; 240.17h–1T, and 240.17i–6 of this

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chapter) and 249 to ‘‘generally accepted accordance with non-U.S. generally (§ 249.310 of this chapter) in accordance accounting principles,’’ should be accepted accounting principles, GAAP with IFRS as issued by the IASB, construed solely for purposes of refers to the principles under which pursuant to Article 13 of Regulation application of the relevant requirement those primary financial statements are S–X (§§ 210.13–01 through 210.13–03 of to mean IFRS as issued by the IASB. prepared; and this chapter) shall provide in the annual (b) Unless otherwise specifically (ii) In the case of foreign private report a reconciliation of financial provided, in providing information in issuers or IFRS issuers that include a information from IFRS as issued by the response to requirements in Parts 210, non-GAAP financial measure derived IASB to U.S. generally accepted 229, 230, 239, 240 and 249 that refer to from a measure calculated in accounting principles. The specific pronouncements of U.S. GAAP, accordance with U.S. generally accepted reconciliation shall give sufficient disclosure is to be provided that accounting principles, GAAP refers to details to enable users to understand the satisfies the objective of the relevant U.S. generally accepted accounting material adjustments to the primary disclosure requirements. principles for purposes of the financial statements presented in (c) In providing general caption data, application of the requirements of this accordance with IFRS as issued by the segment data or schedule information in paragraph (e) to the disclosure of that IASB that would be necessary were the response to Regulation S–K item measure. primary financial statements presented requirements (§§ 229.10 through * * * * * in accordance with U.S. generally 229.915 of this chapter), amounts may 10. Section 229.101 is amended by accepted accounting principles. be presented based on IFRS as issued by adding paragraphs (i) and (j) before the * * * * * the IASB. In providing schedules Instructions to Item 101 to read as 11. Section 229.301 is amended pursuant to § 210.5–04 or 210.7–05, an follows: adding Instruction 8 to the Instructions IFRS issuer or foreign private issuer that to Item 301 to read as follows: prepares financial statements in § 229.101 (Item 101) Description of business. accordance with IFRS as issued by the § 229.301 (Item 301) Selected financial IASB may present amounts based on * * * * * data. IFRS as issued by the IASB. Financial (i) Change in comprehensive set of * * * * * accounting principles. An issuer that information presented pursuant to Instructions to Item 301: § 210–9.06 may be presented as a has elected to change the * * * * * separate audited schedule and may use comprehensive set of accounting amounts based on IFRS as issued by the principles used in preparing its primary 8. IFRS issuers shall present the IASB. financial statements to International selected financial data on the basis of (d) An issuer or entity that is required Financial Reporting Standards \ IFRS as issued by the IASB. An IFRS to provide disclosure under FASB (‘‘IFRS’’) as issued by the International issuer that prepares its primary financial Statement of Accounting Standards No. Accounting Standards Board (‘‘IASB’’), statements in accordance with IFRS as 69, ‘‘Disclosure about Oil and Gas or to U.S. GAAP from IFRS as issued by issued by the IASB for the first time may Producing Activities,’’ shall do so the IASB, for purposes of its filings with provide selected financial data based on regardless of whether its financial the Commission shall prominently IFRS as issued by the IASB for the three statements are prepared in accordance disclose the following in its first annual most recent years. with IFRS as issued by the IASB. report on Form 10–K (§ 249.310 of this § 229.504 [Amended] chapter) that contains financial PART 229—STANDARD statements prepared using such 12. Instruction 6 to § 229.504 is INSTRUCTIONS FOR FILING FORMS comprehensive set of accounting amended by revising the reference ‘‘(17 UNDER SECURITIES ACT OF 1933, principles: CFR 210.1–01 through 210.12–29)’’ to SECURITIES EXCHANGE ACT OF 1934 (1) The new comprehensive set of read ‘‘(17 CFR 210.1–01 through AND ENERGY POLICY AND accounting principles used to prepare 210.13–03)’’. CONSERVATION ACT OF 1975— the financial statements; 13. Section 229.1100(c)(2)(ii)(F), REGULATION S–K (2) The reasons for which the issuer § 229.1112(b)(2), first sentence, § 229. elected to make the change; 1114(b)(2)(ii), first sentence, and 8. The authority citation for part 229 (3) The corporate governance § 229.1115(b)(2), first sentence, are continues to read in part as follows: processes followed in electing to make amended by revising the reference Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, the change, including, for example, ‘‘(§§ 210.1–01 through 210.12–29 of this 77k, 77s, 77z–2, 77z–3, 77aa(25), 77aa(26), whether a shareholder vote was held chapter)’’ to read ‘‘(§§ 210.1–01 through 77ddd, 77eee, 77ggg, 77hhh, 777iii, 77jjj, and the extent to which the issuer’s 210.13.03 of this chapter)’’. 77nnn, 77sss, 78c, 78i, 78j, 78l, 78m, 78n, board of directors and audit committee 78o, 78u–5, 78w, 78ll, 78mm, 80a–8, 80a–9, PART 230—GENERAL RULES AND 80a–20, 80a–29, 80a–30, 80a–31(c), 80a–37, considered the matter; and 80a–38(a), 80a–39, 80b–11, and 7201 et seq.; (4) With respect to an election to IFRS REGULATIONS, SECURITIES ACT OF and 18 U.S.C. 1350, unless otherwise noted. as issued by the IASB, the date the 1933 issuer made its request to the staff of the * * * * * Commission demonstrating that the 14. The authority citation for Part 230 9. Section 229.10 is amended by continues to read in part as follows: revising paragraphs (e)(3)(i) and (ii) to issuer met the criteria in Rule 1–02(cc) read as follows: of Regulation S–X (§ 210.1–02(cc) of this Authority: 15 U.S.C. 77b, 77c, 77d, 77f, chapter) for being an ‘‘IFRS issuer,’’ and 77g, 77h, 77j, 77r, 77s, 77z–3, 77sss, 78c, 78d, § 229.10 (Item 10) General. the date the staff of the Commission 78j, 78l, 78m, 78n, 78o, 78t, 78w, 78ll(d), * * * * * issued its letter of no objection to such 78mm, 80a–8, 80a–24, 80a–28, 80a–29, 80a– (e) * * * request. 30, and 80a–37, unless otherwise noted. (3) * * * (j) Supplemental U.S. GAAP * * * * * (i) In the case of foreign private information. An issuer that prepares its 15. Amend § 230.405 to add the issuers or IFRS issuers whose primary primary financial statements included definition of ‘‘IFRS issuer’’ in financial statements are prepared in in an annual report on Form 10–K alphabetical order to read as follows.

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§ 230.405 Definition of terms. GAAP in accordance with Item 17 of financial statements are prepared in * * * * * Form 20–F (§ 249.220f of this chapter). accordance with non-U.S. generally IFRS issuer. The term IFRS issuer * * * * * accepted accounting principles, GAAP means any issuer that meets the 19. Amend § 240.14d-100, refers to the principles under which definition of ‘‘IFRS issuer’’ contained in Instructions to Item 10, by revising the those primary financial statements are Rule 1–02 of Regulation S–X (§ 210.1–02 last sentence of Instruction 6 and prepared; and of this chapter). revising Instruction 8 to read as follows: (2) In the case of foreign private issuers or IFRS issuers that include a * * * * * § 240.14d-100 Schedule TO. Tender offer non-GAAP financial measure derived statement under section 14(d)(1) or 13(e)(1) from a measure calculated in PART 240—GENERAL RULES AND of the Securities Exchange Act of 1934. REGULATIONS, SECURITIES accordance with U.S. generally accepted EXCHANGE ACT OF 1934 * * * * * accounting principles, GAAP refers to Instructions to Item 10: U.S. generally accepted accounting 16. The authority citation for Part 240 * * * * * principles for purposes of the continues to read in part as follows: 6. * * * If the summarized financial application of the requirements of Authority: 15 U.S.C. 77c, 77d, 77g, 77j, information is prepared on the basis of Regulation G to the disclosure of that 77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn, a comprehensive body of accounting measure. 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j, principles other than either U.S. GAAP, * * * * * 78j–1, 78k, 78k–1, 78l, 78m, 78n, 78o, 78p, or International Financial Reporting 78q, 78s, 78u–5, 78w, 78x, 78ll, 78mm, 80a– Standards (‘‘IFRS’’) as issued by the PART 249—FORMS, SECURITIES 20, 80a–23, 80a–29, 80a–37, 80b–3, 80b–4, International Accounting Standards EXCHANGE ACT OF 1934 80b–11, and 7201 et seq.; and 18 U.S.C. 1350, Board (‘‘IASB’’) if filed by a foreign 22. The authority citation for part 249 unless otherwise noted. private issuer or an IFRS issuer as continues to read in part as follows: * * * * * defined in Rule 1–02(cc) of Regulation 17. Amend § 240.12b–2 to add the S–X (§ 210.1–02(cc) of this chapter), the Authority: 15 U.S.C. 78a et seq., and 7201 definition ‘‘IFRS issuer’’ in alphabetical summarized financial information must et seq.; and 18 U.S.C. 1350, unless otherwise order to read as follows: be accompanied by a reconciliation as noted. described in Instruction 8 of this Item. * * * * * § 240.12b-2 Definitions. 23. Amend Form 8–K (referenced in * * * * * § 249.308) as follows: * * * * * 8. If the financial statements required a. In Item 2.04, add a sentence at the IFRS issuer. The term IFRS issuer by this Item are prepared on the basis end of Instruction 4; means any issuer that meets the of a comprehensive body of accounting definition of ‘‘IFRS issuer’’ contained in b. In Item 2.05, add an Instruction principles other than either U.S. GAAP, following paragraph (d); and Rule 1–02 of Regulation S–X (§ 210.1–02 or IFRS as issued by the IASB if filed of this chapter). c. In Item 4.02, add an Instruction by a foreign private issuer or an IFRS following paragraph (c)(3). * * * * * issuer, provide a reconciliation to U.S. The additions and revisions read as 18. Amend § 240.13e-100, Instructions GAAP in accordance with Item 17 of follows. to Item 13, by revising the last sentence Form 20–F (§ 249.220f of this chapter), of Instruction 1 and revising Instruction unless a reconciliation is unavailable or Note: The text of Form 8–K does not and this amendment will not appear in the Code 2 to read as follows: not obtainable without unreasonable of Federal Regulations. cost or expense. At a minimum, § 240.13e-100 Schedule 13E–3, however, when financial statements are Transaction statement under section 13(e) FORM 8–K prepared on a basis other than U.S. of the Securities Exchange Act of 1934 and * * * * * Rule 13e-3 (§ 240.13e-3) thereunder. GAAP, or IFRS as issued by the IASB if filed by a foreign private issuer or an * * * * * Item 2.04 Triggering Events That IFRS issuer, a narrative description of Accelerate or Increase a Direct Financial Instructions to Item 13: all material variations in accounting Obligation or an Obligation Under an Off- 1. * * * If the summarized financial principles, practices and methods used Balance Sheet Arrangement. information is prepared on the basis of in preparing the non-U.S. GAAP * * * * * a comprehensive body of accounting financial statements from those Instructions. principles other than either U.S. GAAP, accepted in the U.S. must be presented. * * * * * or International Financial Reporting * * * * * 4. * * * When providing disclosure Standards (‘‘IFRS’’) as issued by the in response to provisions of this Item International Accounting Standards PART 244—REGULATION G that refer to SFAS No. 5, an IFRS issuer Board (‘‘IASB’’) if filed by a foreign should refer instead to IAS 37 private issuer or an IFRS issuer as 20. The authority citation for part 244 continues to read as follows: ‘‘Provisions, Contingent Liabilities and defined in Rule 1–02(cc) of Regulation Contingent Assets,’’ as may be modified, S–X (§ 210.1–02(cc) of this chapter), the Authority: 15 U.S.C. 7261, 78c, 78i, 78j, supplemented or succeeded. summarized financial information must 78m, 78o, 78w, 78mm, and 80a–29. * * * * * be accompanied by a reconciliation as 21. Amend § 244.101 by revising described in Instruction 2 of this Item. paragraphs (b)(1) and (b)(2) to read as Item 2.05 Costs Associated with Exit or 2. If the financial statements required follows: Disposal Activities. by this Item are prepared on the basis * * * * * of a comprehensive body of accounting § 244.101 Definitions. (d) * * * principles other than U.S. GAAP, or * * * * * Instruction. IFRS as issued by the IASB if filed by (b) * * * When providing disclosure in a foreign private issuer or an IFRS (1) In the case of foreign private response to provisions of this Item that issuer, provide a reconciliation to U.S. issuers or IFRS issuers whose primary refer to SFAS No. 146, an IFRS issuer

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should refer instead to IFRS 5 ‘‘Non- (3) * * * may be modified, supplemented or current Assets Held for Sale and Instruction. succeeded. Discontinued Operations,’’ as may be * * * * * modified, supplemented or succeeded. When providing disclosure in response to provisions of this Item that * * * * * By the Commission. refer to Accounting Principles Board Dated: November 14, 2008. Opinion No. 20, as may be modified, Item 4.02 Non-Reliance on Previously Florence E. Harmon, Issued Financial Statements or a Related supplemented or succeeded, an IFRS Audit Report or Completed Interim Review. issuer should refer instead to IAS 8 Acting Secretary. * * * * * ‘‘Accounting Policies, Changes in [FR Doc. E8–27559 Filed 11–20–08; 8:45 am] (c) * * * Accounting Estimates and Errors,’’ as BILLING CODE 8011–01–P

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