-------------------- BEGINNING OF PAGE #1 ------------------- SECURITIES AND EXCHANGE COMMISSION 17 CFR PARTS 210 and 249 RELEASE NOS. 33-7117; 34-35093; FR43 INTERNATIONAL SERIES RELEASE NO. 757 FILE NO. S7-11-94 RIN 3235-AD70 SELECTION OF REPORTING CURRENCY FOR FINANCIAL STATEMENTS OF FOREIGN PRIVATE ISSUERS AND RECONCILIATION TO U.S. GAAP FOR FOREIGN PRIVATE ISSUERS WITH OPERATIONS IN A HYPERINFLATIONARY ECONOMY. AGENCY: Securities and Exchange Commission ACTION: Final Rules SUMMARY: The Commission is announcing the adoption of amendments to Regulation S-X and Form 20-F to facilitate registration and reporting by foreign private issuers. The amendments allow foreign issuers flexibility in the selection of the reporting currency used in filings with the Commission, and streamline financial statement reconciliation requirements for foreign private issuers with operations in countries with hyperinflationary economies. EFFECTIVE DATE: [Insert date of publication in the FEDERAL REGISTER] FOR FURTHER INFORMATION CONTACT: Wayne E. Carnall, Deputy Chief Accountant, Division of Corporation Finance at (202) 942-2960, Mail Stop 3-13, U.S. Securities and Exchange Commission, 450 Fifth Street N.W., Washington, D.C. 20549. SUPPLEMENTARY INFORMATION: As described in detail below, the Commission is adopting amendments to Rule 3-20 -[1]- of Regulation S-X -[2]- and Form 20-F -[3]- under the Securities Exchange Act of 1934. -[4]- I. INTRODUCTION The Commission is adopting amendments to facilitate registration and reporting by foreign private issuers by allowing flexibility in the selection of the reporting currency used in filings with the Commission and by streamlining financial statement reconciliation requirements for foreign private issuers with operations in countries with hyperinflationary economies. Under the amended rules, a foreign private issuer can state amounts in its financial statements in any currency which it deems appropriate. In addition, a foreign private issuer that accounts in its primary financial statements for its operations in a hyperinflationary economy in accordance with International Accounting Standards No. 21, "The Effects of Changes in Foreign Exchange Rates," as amended in 1993 ("IAS 21"), using the historical cost/constant currency method would not need to reconcile the differences that would result from application of the U.S. standard, Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation" ("SFAS 52"). The amendments adopted today were proposed by the Commission on April -[1]- 17 CFR 210.3-20. -[2]- 17 CFR 210. -[3]- 17 CFR 249.220f. -[4]- 15 U.S.C. 78a et seq. -------------------- BEGINNING OF PAGE #2 ------------------- 19, 1994. -[5]- Most of the comment letters received regarding the proposals were supportive of the Commission's efforts to increase flexibility in the selection of the reporting currency and to streamline the reconciliation process for foreign private issuers. -[6]- The Commission believes that this flexibility can be provided to foreign private issuers with no loss of material information that is necessary for a U.S. investor to make an informed investment decision. The amendments are being adopted largely as proposed, with certain modifications and clarifications in response to public comments. II. REPORTING CURRENCY OF FOREIGN PRIVATE ISSUERS A. Selection of a Reporting Currency The amendments adopted today permit a foreign private issuer to state the amounts in its primary financial statements using any currency which it deems appropriate. The proposed requirement that the reporting currency also be used to report to a majority of the issuer's nonaffiliated securityholders has been deleted in response to comments, as discussed below. Commenters generally agreed with the Proposing Release on the need to increase flexibility in the selection of the reporting currency. Commenters agreed that rules regarding reporting currency have been troublesome for some foreign issuers that operate in various currencies. Compliance with the rule previously governing selection of the reporting currency was problematic for some issuers because no primary economic environment could be identified, and the country of incorporation had minimal significance to operations. In addition, several commenters cited the preference of U.S. investors for financial statements prepared using the U.S. dollar as the reporting currency. A number of commenters expressed the view that, as proposed, the rule was overly restrictive in requiring that the reporting currency used in filings with the Commission also be used in financial statements that are distributed to the majority of the issuer's nonaffiliated shareholders. Commenters believed that requirement would force some foreign issuers to distribute an additional set of financial statements, stated in the currency used for reporting to the Commission, to securityholders outside the U.S. who would find the additional material of no interest or benefit. Mandating delivery of financial statements in foreign countries is not appropriate or necessary for the protection of US investors. Accordingly, the restriction has been deleted from the rule as adopted. Several commenters favored increased flexibility but suggested various limiting criteria for determining the appropriate currency. A few commenters indicated a view that an issuer should use the same reporting currency for all external reporting. One commenter suggested that the Commission ask the Financial Accounting Standards Board ("FASB") to undertake a project on the selection of reporting currency. The Commission does not believe that a need for new restrictions on a registrant's choice of reporting currency has been demonstrated, and does not believe reporting currency is an issue that needs to -[5]- See Securities Act Release No. 7054 (April 19, 1994) [59 FR 21644] (the "Proposing Release"). -[6]- Fourteen comment letters on the proposal were received. Those letters and a summary of the comments are available for public inspection and copying in File No. S7-11-94 at the Commission's Public Reference Room in Washington, D.C. -------------------- BEGINNING OF PAGE #3 ------------------- be addressed by the FASB. Moreover, restricting an issuer that chooses to sell its securities in U.S. public markets to a single reporting currency in all external reports in any jurisdiction is not practical or necessarily helpful to U.S. investors. Foreign law or custom may require an issuer to publicly distribute financial statements in a currency that is not as meaningful and relevant to U.S. investors as another currency. The Commission believes management and its advisors should be free to select the reporting currency that is most useful for U.S. markets. Of course, reporting practices will continue to be monitored to assess the practiced application of today's amendments. One commenter that generally supported increased flexibility in the selection of the reporting currency indicated that issuers should not be permitted to report in U.S. dollars if the currency of its primary economic environment or the currency in which dividends are paid is a currency of a hyperinflationary economy or is subject to material exchange restrictions. That suggestion has not been followed. Domestic issuers that conduct substantial operations in countries whose currency is hyperinflationary consolidate those operations and present them in U.S. dollars. While translation from a currency of a hyperinflationary environment into a more stable currency presents some practical problems, the accounting profession has addressed these situations. SFAS 52 provides guidance on the translation of operations in hyperinflationary economies under U.S. GAAP, and IAS 21, as discussed in a separate section of this release, also prescribes a method of translation. The rule has not been revised, as suggested by one commenter, to address material foreign exchange restrictions and controls because the resolution of such issues typically is dependent on the particular facts and circumstances. Registrants are encouraged to discuss unique issues regarding exchange restrictions or controls involving the registrant and its subsidiaries and other affiliates with the Commission's staff prior to filing. The amended rule requires, as was proposed, specific disclosure in a note to the financial statements if the currency in which the issuer expects to declare dividends is different from the reporting currency, or there are material exchange restrictions affecting the reporting currency or the currency in which dividends are paid. Registrants are reminded that to the extent that depicted trends and reported results are affected by exchange rate fluctuations, explanatory disclosure should be provided in filings with the Commission as part of the explanation of the material changes from year to year required by management's discussion and analysis in Regulation S-K -[7]- as well as the comparable sections presented in Item 9 of Form 20- F. -[8]- The adopted rule applies to financial statements of the registrant. Financial statements furnished with respect to equity investees or acquired businesses may be prepared using the same reporting currency as the registrant's primary financial statements or the currency in which that entity normally prepares its financial statements. If the currency selected for the separate financial statements of acquisitions and investees differs from that of the registrant, pro forma information and condensed financial data of an investee should be prepared using -[7]- 17 CFR 229.303. -[8]- 17 CFR 249.220f. -------------------- BEGINNING OF PAGE #4 ------------------- the reporting currency of the registrant. -[9]- B. Measurement The Proposing Release requested comment on two alternative approaches to measuring transactions that would then be translated into the reporting currency. Commenters, with one exception, supported the method described as Approach A. Under that approach, the issuer would measure separately its own transactions, and those of each of its material operations (for example, branch, division, subsidiary, or joint venture) that are included in the issuer's consolidated financial statements and located in a non-hyperinflationary environment, using the particular currency of the primary economic environment in which the issuer or the operation conducts its business. -[10]- Financial statement amounts so determined would be translated to the reporting currency using the methodology that is prescribed by SFAS 52 for translation of financial statements from a functional currency to a reporting currency. Under that method, (a) all assets and liabilities are translated into the reporting currency at the exchange rate at the balance sheet date, (b) all revenues, expenses, gains, and losses are translated at the exchange rate existing at the time of the transaction or, if appropriate, a weighted average of the exchange rates during the period or year, and (c) all the translation effects of exchange rate changes are included as a separate component ("cumulative translation adjustment") of shareholders' equity. Commenters generally objected to Approach B because measurement of reported results of operations and financial position would be dependent on the issuer's particular reporting currency, rather than the economic environment in which the business operated. Pursuant to Approach B, all transactions of the issuer and its subsidiaries would be measured (or remeasured if not so measured initially) using the reporting currency, except that transactions of each of its material foreign operations (for example, branch, division, subsidiary, or joint venture) included in the consolidated financial statements and located in a non-hyperinflationary environment would be measured using the particular currency of the primary economic environment in which the foreign operation conducts its business. Financial statement amounts determined for the material foreign operations of the issuer would be translated using the methodology prescribed by SFAS 52 for translation of financial statements from a functional currency to a reporting currency, as described -[9]- In circumstances where a registrant furnishes separate financial statements of an equity investee pursuant to Rule 3-09 of Regulation S-X, the staff has not required the registrant to also furnish summarized financial data of the investee pursuant to Rule 4-08(g) of Regulation S-X (17 CFR 210.4-08(g)) (See Staff Accounting Bulletin No. 44, Topic 6:K (March 3, 1983) [47 FR 10789]. However, if the separate financial statements of an equity investee are not prepared in the same reporting currency as the issuer, the summarized financial data pursuant to Rule 4-08(g) of Regulation S-X should be provided in the primary financial statements. -[10]- An issuer with a material operation in a hyperinflationary environment would measure the transactions of the operation in the reporting currency pursuant to SFAS 52, except that no reconciliation to that method will be required in the circumstances discussed in Section III of this release. -------------------- BEGINNING OF PAGE #5 ------------------- above. Commenters also opposed Approach B because it could not be readily implemented by foreign issuers that report in several currencies due to the significant data and computational requirements of the remeasurement process. While the Commission has determined not to adopt Approach B in the amendment, issuers that have historically presented results using that method are encouraged to discuss with the staff possible resolutions of any particular problems that may be encountered by the issuer as a result of the Commission's adoption of Approach A. C. Changes of Reporting Currency As was proposed, the final amendments provide that changes in the reporting currency require the financial statements of periods prior to the change be comprehensively recast as if the new reporting currency had been used. -[11]- To comprehensively recast prior financial statements, a methodology consistent with SFAS 52 should be applied. That is, the income statement and statement of cash flows should be translated into the new reporting currency using an appropriately weighted average exchange rate for the applicable period, and assets and liabilities should be translated using the exchange rate at the end of the applicable period. Registrants that encounter unusual or complex problems in the implementation of a change in reporting are encouraged to discuss those issues with the staff prior to filing. While the number of periods for which retroactive recasting of results is computed generally does not affect relationships among balance sheet or income statement amounts, it may affect the allocation of amounts between the cumulative translation adjustment and other stockholder equity accounts. As proposed, the adopted rule specifies that financial statements of prior periods need be comprehensively recast as if the new reporting currency had been used only since the earliest period presented in the filing that initially reflects the change in reporting currency. In response to requests for views regarding the need to disclose the reasons for a registrant's change in its reporting currency, several commenters questioned the need for the disclosure or doubted that the information would be useful. Comments of financial analysts supported such a disclosure. The Commission agrees with those commenters that indicated that disclosure of the reason for the change would be informative, and accordingly, the adopted rule requires that disclosure. III. FOREIGN ISSUER OPERATIONS IN A HYPERINFLATIONARY ECONOMY As adopted, the rules eliminate the requirement that a foreign private issuer quantify the effects of a translation methodology for operations in a hyperinflationary environment which differs from SFAS 52 so long as the method used in the financial statements conforms with IAS 21, provided that the method is used consistently for all periods. IAS 21, as amended in 1993, requires that amounts in the financial statements of the -[11]- A change in the reporting currency may or may not be coincident with a change in the currency of the primary economic environment in which the operations exist. The U.S. accounting guidance applicable to a change in an entity's functional currency appears in paragraph 9 of SFAS 52. The effects of differences between the method of accounting in the primary financial statements for a change in functional currency and the method of accounting prescribed by U.S. GAAP should be explained and quantified where reconciliation is required pursuant to Item 17 or Item 18 of Form 20-F. -------------------- BEGINNING OF PAGE #6 ------------------- hyperinflationary operations be restated for the effects of changing prices using a methodology permitted by International Accounting Standard No. 29, "Financial Reporting in Hyperinflationary Economies" ("IAS 29"), and then translated to the reporting currency. The adopted rule differs from the proposal in that it limits the permissible method for restating for effects of changing prices to the historical cost/constant dollar method, as discussed below. Commenters supporting the Commission's proposal cited various reasons including the high cost of reconciliation for differences in accounting for hyperinflationary operations, support for harmonization of international accounting standards, and the view that IAS 21 is theoretically superior to SFAS 52. In addition, commenters observed that acceptance of IAS 21 without reconciliation is consistent with the Commission's existing rule that does not require the elimination of the effects of inflation in price level adjusted financial statements in the reconciliation to U.S. GAAP. One commenter opposed the proposal, suggesting that the Commission was abandoning the objective of providing the market with comparable information about issuers. The Commission's acceptance of IAS 21 for purposes of foreign issuers is based, in part, on the recognition that financial information reported about the hyperinflationary operations of a foreign issuer will not necessarily be comparable to a U.S. issuer or to another foreign issuer if that information is determined on a basis consistent with SFAS 52. Since SFAS 52 requires the use of the reporting currency as the currency of measurement for hyperinflationary operations, reported results are dependent on the reporting currency under SFAS 52. IAS 29 addresses that problem by adjusting measurements in the local currency for inflation before translation to the reporting currency. IAS 29 permits two methods of adjusting for the effects of changing prices: (a) restatement of historical cost amounts into units of currency that have the same general purchasing power (historical cost/constant currency method), or (b) measurement as current cost, with amounts for prior periods restated for changes in the general level of prices (current cost method). In response to a request for comments concerning the appropriateness of accepting either method under IAS 29, two commenters indicated that the flexibility permitted by IAS 29 would not promote consistency or an understanding of the financial statements. In recognition of this concern, the adopted rule does not allow the use of the current cost approach. The Commission believes that the historical cost/constant currency method is the preferable choice of the two because it is more likely to facilitate comparison among similarly situated companies. Under the historical cost/constant currency method, amounts in the financial statements of the hyperinflationary operation are restated for the effects of changing prices, and then translated to the reporting currency. The elimination of the alternative of using the current cost method is not expected to have a significant effect on many registrants. Issuers from several countries currently prepare financial statements filed with the Commission that are adjusted for inflation. With the exception of Mexico, it is the predominant practice in most of these countries to use a method consistent with the historical cost/constant currency method in IAS 29 -[12]-. The elimination of the availability of using the -[12]- The Commission has been advised that the Mexican Institute of Public Accountants recently approved an (continued...) -------------------- BEGINNING OF PAGE #7 ------------------- current cost method does not apply to situations in which the issuer's reporting currency comprehensively includes the effects of price level changes. Such entities can continue to use the current cost method. That is, the current cost method is eliminated only for those issuers whose reporting currency is not adjusted for inflation (stable reporting currency), but have operations in a hyperinflationary economy. Issuers that use the current cost method for operations in a hyperinflationary economy should discuss their particular circumstances with the staff. As proposed, a hyperinflationary environment is defined in the adopted rule as one experiencing cumulative inflation of approximately 100% or more over the most recent three year period, as measured using an appropriate inflation index which measures general price levels in the country. This definition is consistent with that used to define a hyperinflationary entity under SFAS 52. -[13]- Accordingly, foreign private issuers may omit reconciliation of accounting differences arising from the use of IAS 21 for hyperinflationary operations only when they would have been required to comply with the comparable provisions of SFAS 52. Consistent with the rule prior to amendment, foreign private issuers that prepare their financial statements in a reporting currency that comprehensively includes the effects of price level changes are not required to eliminate such effects in the reconciliation to US GAAP. Item 17(c)(2)(iv)(A) and Item 18(c)(2)(iv)(A) of Form 20-F does not require that the entity operate in a hyperinflationary environment. One commenter questioned whether the proposed rule only applies to a subsidiary that operates in a hyperinflationary environment, or if it would apply equally to a parent company that operated in a hyperinflationary environment. The adopted rules would apply equally to the parent company. It would also be acceptable for a parent company to apply the remeasurement principles of SFAS 52. The legal structure of an entity should not effect the financial statements. IV. COST-BENEFIT ANALYSIS No specific data were provided in response to the Commission' request regarding the costs and benefits of the amendment being adopted today. Several issuers did indicate, however, that if the Commission adopted the method to measure transactions described as Approach B in the Proposing Release that significant additional recordkeeping would be required. In addition, commenters supporting the proposal with respect to hyperinflationary accounting noted that the current reconciliation requirements did not meet the cost benefit test because of the complexities of preparation. The Commission believes that the amendments will reduce costs and that the adoption of these rules will be beneficial to U.S. investors, as it will encourage more foreign companies to list their securities and raise capital in the United States and will be consistent with investor protection. V. REGULATORY FLEXIBILITY ACT CERTIFICATION Pursuant to the Regulatory Flexibility Act [5 U.S.C. 605(b)], the Chairman of the Commission has certified that the proposed revisions to rules and forms will not have a significant impact on a substantial number of small entities. Members of the -[12]-(...continued) amendment to eliminate the use of the current cost method. -[13]- See paragraph 11 of SFAS 52. -------------------- BEGINNING OF PAGE #8 ------------------- public who wish to obtain a copy of the Regulatory Flexibility Certification should contact Wayne E. Carnall, (202) 942-2960, Deputy Chief Accountant, Division of Corporation Finance, Mail Stop 3-13, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington D.C. 20549. VI. STATUTORY BASES The Commission's rules and forms are amended pursuant to section 19 of the Securities Act of 1933 and sections 3(b), 4A, 12, 13, 14, 15, 16 and 23 of the Securities Exchange Act of 1934. VII. EFFECTIVE DATE The final rule and amendments to the Commission's rules and forms shall be effective immediately upon publication in the FEDERAL REGISTER, in accordance with the Administrative Procedure Act, which allows effectiveness in less than 30 days after publications for, inter alia, "a substantive rule which grants or recognizes an exemption or relieves a restriction." 5 U.S.C. 553(d)(1). List of Subjects in 17 CFR Parts 210 and 249 Accounting, Reporting and recordkeeping requirements, Securities. TEXT OF RULE AND FORM AMENDMENTS In accordance with the foregoing, Title 17, Chapter II of the Code of Federal Regulations is amended as follows: PART 210 -- FORM AND CONTENT OF AND REQUIREMENTS FOR FINANCIAL STATEMENTS, SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934, PUBLIC UTILITY HOLDING COMPANY ACT OF 1935, INVESTMENT COMPANY ACT OF 1940, AND ENERGY POLICY AND CONSERVATION ACT OF 1975. 1. The authority citation for Part 210 is revised to read as follows: AUTHORITY: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77aa(25), 77aa(26), 78l, 78m, 78n, 78o(d), 78w(a), 78ll(d), 79e(b), 79j(a), 79n, 79t(a), 80a-8, 80a-20, 80a-29, 80a-30, 80a-37a, unless otherwise noted. 2. By revising 210.3-20 to read as follows: 210.3-20 Currency for financial statements of foreign private issuers. (a) A foreign private issuer, as defined in 230.405 of this chapter, shall state amounts in its primary financial statements in the currency which it deems appropriate. (b) The currency in which amounts in the financial statements are stated shall be disclosed prominently on the face of the financial statements. If dividends on publicly-held equity securities will be declared in a currency other than the reporting currency, a note to the financial statements shall identify that currency. If there are material exchange restrictions or controls relating to the issuer's reporting currency, the currency of the issuer's domicile, or the currency in which the issuer will pay dividends, prominent disclosure of this fact shall be made in the financial statements. If the reporting currency is not the U.S. dollar, dollar-equivalent financial statements or convenience translations shall not be presented, except a translation may be presented of the most recent fiscal year and any subsequent interim period presented using the exchange rate as of the most recent balance sheet included in the filing, except that a rate as of the most recent practicable date shall be used if materially different. (c) If the financial statements of a foreign private issuer are stated in a currency of a country that has experienced cumulative inflationary effects exceeding a total of 100 percent -------------------- BEGINNING OF PAGE #9 ------------------- over the most recent three year period, and have not been recast or otherwise supplemented to include information on a historical cost/constant currency or current cost basis prescribed or permitted by appropriate authoritative standards, the issuer shall present supplementary information to quantify the effects of changing prices upon its financial position and results of operations. (d) Notwithstanding the currency selected for reporting purposes, the issuer shall measure separately its own transactions, and those of each of its material operations (e.g., branches, divisions, subsidiaries, joint ventures, and similar entities) that is included in the issuer's consolidated financial statements and not located in a hyperinflationary environment, using the particular currency of the primary economic environment in which the issuer or the operation conducts its business. Assets and liabilities so determined shall be translated into the reporting currency at the exchange rate at the balance sheet date; all revenues, expenses, gains, and losses shall be translated at the exchange rate existing at the time of the transaction or, if appropriate, a weighted average of the exchange rates during the period; and all translation effects of exchange rate changes shall be included as a separate component ("cumulative translation adjustment") of shareholders' equity. For purposes of this paragraph, the currency of an operation's primary economic environment is normally the currency in which cash is primarily generated and expended; a hyperinflationary environment is one that has cumulative inflation of approximately 100% or more over the most recent three year period. Departures from the methodology presented in this paragraph shall be quantified pursuant to Items 17(c)(2) or 18(c)(2) of Form 20-F ( 249.220f of this chapter). (e) The issuer shall state its primary financial statements in the same currency for all periods for which financial information is presented. If the financial statements are stated in a currency that is different from that used in financial statements previously filed with the Commission, the issuer shall recast its financial statements as if the newly adopted currency had been used since at least the earliest period presented in the filing. The decision to change and the reason for the change in the reporting currency shall be disclosed in a note to the financial statements in the period in which the change occurs. PART 249 - FORMS, SECURITIES EXCHANGE ACT OF 1934 3. The authority citation for part 249 continues to read in part as follows: AUTHORITY: 15 U.S.C. 78a, et seq., unless otherwise noted; * * * * * 4. By amending Form 20-F (referenced in 249.220f) by revising paragraph (c)(2)(iv) of Item 17 and adding Instruction (5) to Item 17, by revising paragraph (c)(2)(iv) of Item 18 and adding Instruction (4) to Item 18 to read as follows: NOTE: THE FORM 20-F DOES NOT AND THE AMENDMENTS WILL NOT APPEAR IN THE CODE OF FEDERAL REGULATIONS. Form 20-F * * * * * Item 17. Financial Statements * * * * * (c) * * * (2) * * * (iv) (A) Issuers that prepare their financial statements on a basis of accounting other than U.S. generally accepted -------------------- BEGINNING OF PAGE #10 ------------------- accounting principles in a reporting currency that comprehensively includes the effects of price level changes in its primary financial statements using the historical cost/constant currency or current cost approach, may omit the disclosures specified by paragraphs (c)(2)(i), (c)(2)(ii), and (c)(2)(iii) of this Item relating to effects of price level changes. The financial statements should describe the basis of presentation, and that such effects have not been included in the reconciliation. (B) Issuers that prepare their financial statements on a basis of accounting other than U.S. generally accepted accounting principles that translates amounts in financial statements stated in a currency of a hyperinflationary economy into the issuer's reporting currency in accordance with International Accounting Standards No. 21, "The Effects of Changes in Foreign Exchange Rates," as amended in 1993, using the historical cost/constant currency approach, may omit the disclosures specified by paragraphs (c)(2)(i), (c)(2)(ii), and (c)(2)(iii) of this Item relating to the effects of the different method of accounting for an entity in a hyperinflationary environment. (C) If the method of accounting for an operation in a hyperinflationary economy complies with IAS 21, a statement to that effect must be included in the financial statements. The reconciliation shall state that such amounts presented comply with Item 17 of Form 20-F and are different from that required by U.S. GAAP. * * * * * Instructions * * * * * (5) For purposes of this Item, a hyperinflationary economy is one that has cumulative inflation of approximately 100% or more over the most recent three year period. * * * * * Item 18. Financial Statements * * * * * (c) * * * (2) * * * (iv) (A) Issuers that prepare their financial statements on a basis of accounting other than U.S. generally accepted accounting principles in a reporting currency that comprehensively includes the effects of price level changes in its primary financial statements using the historical cost/constant currency or current cost approach, may omit the disclosures specified by paragraphs (c)(2)(i), (c)(2)(ii), and (c)(2)(iii) of this Item relating to effects of price level changes. The financial statements should describe the basis of presentation, and that such effects have not been included in the reconciliation. (B) Issuers that prepare their financial statements on a basis of accounting other than U.S. generally accepted accounting principles that translates amounts in financial statements stated in a currency of a hyperinflationary economy into the issuer's reporting currency in accordance with International Accounting Standards No. 21, "The Effects of Changes in Foreign Exchange Rates," as amended in 1993, using the historical cost/constant currency approach, may omit the disclosures specified by paragraphs (c)(2)(i), (c)(2)(ii), and (c)(2)(iii) of this Item relating to the effects of the different method of accounting for an entity in a hyperinflationary environment. (C) If the method of accounting for an operation in a hyperinflationary economy complies with IAS 21, a statement to -------------------- BEGINNING OF PAGE #11 ------------------- that effect must be included in the financial statements. The reconciliation shall state that such amounts presented comply with Item 18 of Form 20-F and are different from that required by U.S. GAAP. * * * * * Instructions * * * * * (4) For purposes of this Item, a hyperinflationary economy is one that has cumulative inflation of approximately 100% or more over the most recent three year period. * * * * * By the Commission. Jonathan G. Katz Secretary Dated: December 13, 1994