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Financial Reporting Manual

Dec. 11, 2017

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TOPIC 6 - Foreign Private Issuers & Foreign Businesses

Title I of the JOBS Act, which was effective as of April 5, 2012, created a new category of issuers called “emerging growth companies,” whose financial reporting and disclosure requirements in certain areas differ from other categories of issuers. A Foreign Private Issuer can also be eligible to be an EGC. See Topic 10. (Last updated: 6/30/2013)

6000[RESERVED]

(Last updated: 9/30/2011)

6100DEFINITIONS AND BASIC RULES

(Last updated: 9/30/2008)

6110Definitions

6110.1Foreign Issuer [Regulation C, Rule 405 and Exchange Act Rule 3b-4]: An issuer which is a foreign government, a foreign national or a corporation or other organization that is incorporated or organized under the laws of any foreign country.

6110.2Foreign Private Issuer [Regulation C, Rule 405 and Exchange Act Rule 3b-4]: The term foreign private issuer means any foreign issuer other than a foreign government except an issuer meeting the following conditions:

  1. More than 50% of the outstanding voting securities of such issuer are directly or indirectly owned of record by residents of the United States; and
  2. Any of the following:
    1. The majority of the executive officers or directors are United States citizens or residents;
    2. More than 50% of the assets of the issuer are located in the United States; or
    3. The business of the issuer is administered principally in the United States. (Last updated: 9/30/2011)

6110.3Registrants may test for compliance with the foreign private issuer definition once per year. The test is required to be performed as of the last business day of the registrant’s most recently completed second fiscal quarter. [Release No. 33-8959] Consequences of failing to meet the foreign private issuer definition are described in Section 6120.2. (Last updated: 9/30/2011)

6110.4Foreign Business [S-X 1-02(l)]: A foreign business is not organized under the laws of the U.S. or any state thereof, is majority owned by persons who are not U.S. citizens or residents and:

  1. More than 50% of its assets are located outside the U.S. or
  2. A majority of its executive officers and directors are not U.S. citizens or residents.

NOTE: In its determination of the majority ownership of a business, the staff will consider the ultimate parent entity that would consolidate the business under U.S. GAAP (IFRS for IFRS-IASB issuers) and that parent’s controlling shareholders.

6120Basic Rules

(Last updated: 3/31/2009)

6120.1Foreign private issuers are eligible to use Form 20-F and Forms F-1, F-3, and F-4 which provide certain financial statement and disclosure accommodations.

Question: Can a foreign private issuer elect to use the registration and reporting forms that domestic companies use?

Answer: Yes. However, if it elects to do so, it must comply with all of the requirements of the “domestic company” forms.

6120.2A foreign issuer - other than a foreign government - that does not meet the definition of a foreign private issuer must use the same registration and reporting forms as a domestic registrant. A foreign issuer that ceases to meet the foreign private issuer definition becomes subject to the reporting requirements for a domestic registrant. The test for compliance with the foreign private issuer definition is required to be performed as of the last business day of the registrant’s most recently completed second fiscal quarter (the determination date). Reports filed or furnished during the remainder of the fiscal year in which the registrant ceased to meet the definition may continue to be made using forms and requirements applicable to foreign private issuers. Beginning on the first day of the fiscal year following the determination date, the registrant must use the forms and follow the requirements prescribed for domestic registrants. [Release No. 33-8959] For example, if a calendar fiscal year registrant determines on June 30, 2009 that it is no longer a foreign private issuer, it would become subject to domestic reporting requirements on January 1, 2010. It would not be required to file Forms 8-K or 10-Q during the period from June 30, 2009 through December 31, 2009. However, it would be required to file reports on Form 8-K for events occurring on or after January 1, 2010, file quarterly reports on Form 10-Q for quarters ended after January 1, 2010, and file its annual report for the year ended December 31, 2009 on Form 10-K rather than Form 20-F. The financial statements in the Forms 10-Q and 10-K would need to be presented in conformity with U.S. GAAP for all required periods. The due dates of the Forms 10-Q and 10-K would be based on the issuer’s status as a large accelerated filer, accelerated filer, or non-accelerated filer, tested as of the determination date described above. See Section 1330 for the due dates applicable to each category of filer.

6120.3[Reserved]

6120.4If the registrant is no longer eligible to file as a foreign private issuer, the financial statements and selected financial data should be recast into U.S. GAAP for all periods presented in the financial statements. Consideration should be given as to the appropriate currency in which the registrant should report. These registrants must use the U.S. dollar as their reporting currency, unless another reporting currency is more appropriate (e.g., where substantially all of the registrant’s operations are conducted in a single foreign currency).

6120.5With respect to Canadian registrants, IFRS has been incorporated into Canadian GAAP for publicly accountable enterprises for fiscal years beginning on or after January 1, 2011. (Last updated: 9/30/2010)

  1. As with all foreign private issuers, Canadian foreign private issuers that prepare their financial statements in accordance with IFRS as issued by the IASB need not reconcile to U.S. GAAP. Similarly, as with all foreign private issuers, compliance with IFRS as issued by the IASB must be unreservedly and explicitly stated in the notes to the financial statements and in the auditor’s report. [Item 17(c) of Form 20-F] (Last updated: 9/30/2011)
  2. A Canadian company that is not a foreign private issuer that has historically used Canadian GAAP and Canadian dollars in filings with the SEC may continue to do so for fiscal years prior to 2011. It must file on domestic forms and provide a reconciliation to U.S. GAAP under Item 18 of Form 20-F.
  3. Beginning with fiscal year 2011, a Canadian company that is not a foreign private issuer must use U.S. GAAP in filings with the SEC. The financial statements and selected financial data should be recast into U.S. GAAP for all periods presented in the financial statements. (Last updated: 9/30/2009)

6120.6Foreign private issuers that voluntarily file on domestic forms may file financial statements prepared under home-country GAAP and provide a reconciliation to U.S. GAAP under Item 18 of Form 20-F. Foreign private issuers that voluntarily file on domestic forms may file financial statements prepared under IFRS as issued by the IASB without reconciliation to U.S. GAAP. [S-X 4-01(a)(2)] In both cases the filings should prominently disclose that the company meets the foreign private issuer definition but is voluntarily filing on domestic forms. (Last updated: 9/30/2009)

6120.7Canadian and other foreign private issuers must provide financial statements prepared according to U.S. GAAP in order to use scaled rules available to smaller reporting companies. [S-X 8-01] Note that scaled disclosure rules may be used only if the issuers file on a form available to U.S. domestic companies (e.g., Form 10-K). [S-X 8-01, Note 1]

6120.8Reincorporation of a foreign private issuer as a U.S. entity generally will require a Securities Act registration statement on a domestic form (S-4) for the exchange of shares with the new domestic issuer. All periods must be restated to U.S. GAAP and U.S. dollars.

6120.9Deregistration rules differ for foreign private issuers versus domestic issuers. Generally, foreign private issuers are permitted to deregister when trading volume in the U.S., rather than number of U.S. shareholders, falls below specified levels. Refer to Exchange Act Rule 12h-6.

6120.10Foreign private issuers that file on Form 20-F and foreign private issuers who voluntarily file on Form 10-K are not subject to executive compensation disclosures required by S-K 402, and may, instead, follow Form 20-F executive compensation disclosures. However, a foreign-domiciled registrant that does not meet the foreign private issuer definition must file on 10-K and is required to comply with S-K 402.

6200General financial statement requirements for foreign private issuers

(Last updated: 9/30/2008)

6210Periods for which Financial Statements are Required [Item 8 of Form 20-F]

(Last updated: 6/30/2011)

6210.1Audited Financial Statements Required in a Registration Statement or Annual Report:

Balance Sheet Income Statement Comprehensive Income Shareholders' Equity Cash Flow Statement
2 years 3 years 3 years 3 years 3 years

NOTE: See Section 6410.2(c) and 10220 regarding audited periods required for foreign issuers who have elected to provide U.S. GAAP financial statements in their initial registration statement.

See Section 6300, 10220, and 10320 regarding audited periods required for IFRS issuers. (Last updated: 6/30/2013)

6210.2Unaudited Interim Financial Statements Required:

(Last updated: 12/31/2011)

  1. Registration statement

    General Rule - Interim financial statements are required in a registration statement if the effective date of the registration statement is more than nine months after the end of the last audited financial year. In this circumstance the registration statement should contain consolidated interim financial statements, which may be unaudited (in which case that fact should be stated), covering at least the first six months of the financial year. See exceptions to this general rule in Section 6220.

    Financial Statement Period Required
    Balance Sheet As of an interim date that complies with the requirements described in the paragraph preceding this table.
    Income Statement, Statement of Comprehensive Income, and Cash Flow Statement For the period from the latest fiscal year end to the interim balance sheet date and corresponding period in the prior year.
    Shareholders’ Equity For the period from the latest fiscal year end to the interim balance sheet. Presentation of the corresponding period in the prior year is not required.
  2. Periodic Interim Reports: Foreign private issuers are not subject to the quarterly reporting requirements of Exchange Act Rules 13a-13 and 15d-13. Foreign private issuers that file annual reports on Form 20-F are required only to furnish promptly, in a Form 6-K, material information:
    1. Distributed to stockholders or to a national exchange, if made public by that exchange, or
    2. Required to be made public by its domestic laws. [Exchange Act Rules 15d-13(b) and 13a-13(b)]

6220Age of Financial Statements in a Registration Statement [Item 8 of Form 20-F]

6220.1Financial statements of a foreign private issuer must be as of a date within nine months of the effective date of a registration statement. Audited financial statements for the most recently completed fiscal year must be included in registration statements declared effective three months or more after fiscal year-end. Under the rule, a registration statement of a foreign private issuer may become effective with audited financial statements as old as 15 months, with the most recent interim statements as old as nine months. If interim statements are required, they must cover a period of at least six months.

NOTE: Foreign private issuers use Form 20-F as both an Exchange Act registration statement and an annual report form. The age of financial statement requirements under Item 8 of Form 20-F applies when Form 20-F is used as a registration statement.

6220.2The 15-month period for audited statements is extended to 18 months, and the nine month period for interim statements is extended to 12 months, for the following offerings:

  1. Exercise of outstanding rights granted pro rata to all existing security holders;
  2. Dividend or interest reinvestment plan; or
  3. Conversion of outstanding convertible securities or exercise of outstanding transferable warrants. [Item 8 of Form 20-F]

6220.3Special Rule for Foreign Private Issuer IPOs - Audited financial statements in initial public offerings must be no more than 12 months old at the time of filing and upon the effectiveness of the registration statement. However, this rule applies only where the registrant is not public in any jurisdiction. The registrant may request a waiver from CF-OCA of the 12-month requirement where the registrant is able to represent adequately that compliance is not required in any other jurisdiction and it is impracticable or involves undue hardship. [Item 8 of Form 20-F]

If the 12-month audit is waived in a filed registration statement, the representation must be filed as an exhibit per Instruction 2 to Item 8.A.4. The staff will consider a request for waiver of the 12-month audit at the time of filing the initial registration statement or, if applicable, at the time of submitting an initial confidential draft when the registrant knows that a waiver will be necessary prior to effectiveness of the registration statement.
(Last updated: 12/31/2012)

6220.4The age requirements in Item 8 of Form 20-F also apply to financial statements of:

  1. Foreign businesses acquired by both foreign and domestic registrants under S-X 3-05, including filings by domestic registrants under Items 2.01 and 9.01 of Form 8-K (see Sections 2045.14 and 2045.15);
  2. Foreign target businesses required in Form S-4 or Form F-4;
  3. Foreign equity investees of both foreign and domestic registrants under S-X 3-09;
  4. Foreign businesses that are acquired real estate operations under S-X 3-14; and
  5. Financial statements of affiliates whose securities collateralize a security being registered as required by S-X 3-16.

6220.5A foreign private issuer that has been in existence less than a year must include an audited balance sheet that is no more than nine months old. If the foreign private issuer has commenced operations, audited statements of income, stockholders’ equity and cash flows for the period from the date of inception to the date of the audited balance sheet also are required.

6220.6More Current Published Information

  1. If financial information reporting revenues and income for an annual or interim period more current than otherwise required by Item 8 of Form 20-F is made available to shareholders, exchanges, or others in any jurisdiction, that information should be included in the registration statement. The more current information is not required to be reconciled to U.S. GAAP. However, a narrative explanation of differences in accounting principles should be provided, and material new reconciling items should be quantified. Differences between foreign and U.S. GAAP can be identified by cross-reference to U.S. GAAP reconciliation footnotes elsewhere in the filing. Note that the reconciliation requirements do not apply to issuers filing audited financial statements prepared under IFRS as issued by the IASB. See Section 6300.
  2. Occasionally, the interim information that is publicly distributed in the issuer’s home country will be prepared using accounting standards that are different from those used in the U.S. registration statement. For example, a foreign issuer may use U.S. GAAP in its primary financial statements in filings with the SEC, but reports in a foreign GAAP in its home country. The company releases more recent earnings information in its home country in foreign GAAP. Item 8.A.5 requires that information to be included in the prospectus. In this instance, the U.S. investor has not had the benefit of knowing the reconciling items between home-country GAAP and U.S. GAAP. Therefore, the information disclosed pursuant to Item 8.A.5 would need to be supplemented with a description and quantification of differences in accounting principles. In this situation, an issuer may either (a) reconcile the Item 8.A.5 information to U.S. GAAP or (b) provide a reconciliation from U.S. GAAP to foreign GAAP (reverse reconciliation) for at least the most recent fiscal year required in the registration statement. (Last updated: 9/30/2009)
  3. Inclusion of published information under Item 8.A.5 does not ordinarily trigger a requirement to include full interim financial statements more recent than otherwise required. For example, if complete financial statements related to the most recent quarter (but not the comparative period) are distributed in a foreign issuer’s home country, that information must be included in the U.S. registration statement. Comparative prior period information is not required because the information provided is included only because of Item 8.A.5. In order to avoid confusing U.S. readers, the registrant should include disclosure explaining why the information is provided particularly when the information is placed with other financial statements and may look incomplete. (Last updated 12/31/2009)
  4. However, if the information provided contains a reconciliation to U.S. GAAP, the staff believes that inclusion of reconciled information for the comparative prior periods generally will also be necessary to prevent the current period information from being misleading. A foreign private issuer is not ordinarily required to provide U.S. GAAP information in its home jurisdiction. Accordingly, when a foreign private issuer presents more current U.S. GAAP information, it effectively has decided to present interim financial statements, and is also required to present comparatives as required by Item 8.A.5 of Form 20-F. In these circumstances, the current and comparative interim period would need to be covered by MD&A and pro forma information would need to be updated to that date. (Last updated 12/31/2009)

6220.7Acquired and to be Acquired Foreign Businesses under S-X 3-05

  1. Financial statements of acquired and to be acquired foreign businesses required under S-X 3-05 must comply with the age of financial statement requirements at the time the registration statement is declared effective. For a calendar year-end entity, this means that if a registration statement were to become effective prior to October 1, 20XX, financial statements for any interim period would not be required under S-X 3-05 for a foreign business.
  2. However, interim financial statements for the period preceding the acquisition date may not be omitted solely on the basis that the acquisition occurred during the first nine months of the current year; consideration must be given to the requirements of Item 8.A.5. of Form 20-F. The financial statements generally need not be updated if the omitted period is less than six months, and the acquired business does not prepare quarterly financial statements under its home-country reporting requirements.

6220.8Age of Pro Formas in Cross-border Business Combinations

NOTE: See Section 6360 for additional guidance on preparation of pro forma financial information.

  1. The age of the pro forma financial information included in a registration statement is based on the age of financial statements requirement applicable to the registrant. If a foreign private issuer files a Form F-4 and the target company is a U.S. domestic registrant, the age of the pro forma information may be determined by reference to Item 8 of Form 20-F. By contrast, if a U.S. domestic registrant files a Form S-4 and the target company is a foreign private issuer, the age of the pro forma information must be determined by reference to S-X 3-12.
  2. Application of the age of financial statement rules may require the foreign target company to include in a Form S-4 a period in the pro forma information that would be more current than its separate historical financial statements. However, S-X Article 11 permits the ending date of the periods included for the target company to differ from those of the registrant by up to 93 days. Registrants are permitted to use combinations of periods that involve overlaps or gaps in the information of the target company of up to 93 days, provided that the resulting annual and interim periods are of the same length required for the registrant, and there are no overlaps or gaps in the registrant’s information. However, registrants are not permitted to omit an interim pro forma presentation because of different fiscal periods.

6220.9In certain circumstances, the staff will consider special processing needs for cross-border offerings which involve special problems of coordination among several national jurisdictions. Foreign issuers should direct requests for special processing to the Division’s Office of International Corporate Finance in advance of filing.

6230Updating of Financial Statements in Delayed or Continuous Offerings

6230.1Foreign private issuers must file a post-effective amendment to registration statements to include any financial statements required by Item 8.A of Form 20-F at the start of a delayed offering or throughout a continuous offering under Regulation C, Rule 415. [S-K 512(a)(4)] For this purpose, delayed or continuous offerings include business combination transactions registered on Form F-4, and takedowns from effective shelf registration statements. For these types of offerings, Item 8.A. of Form 20-F ordinarily requires the annual audited financial statements to be not more than 15 months old, and the unaudited interim financial statements to be not more than nine months old. Takedowns from existing shelf registration statements may not be commenced, and continuous offerings must be suspended, during periods when the financial statements are not current. This means, for example, that the financial statements must remain current throughout the entire time that an exchange offer is outstanding. It also means that the financial statements must remain current in a merger or acquisition transaction until shareholder approval has occurred. However, this provision does not apply to a registration statement for a typical firm commitment underwritten offering priced under Regulation C, Rule 430A or for listing on an exchange.

6230.2The requirement for current financial statements includes all required financial statements, including those required under S-X 3-05, 3-09, 3-10, 3-14 and 3-16 as well as target company financial statements on a Form F-4. However, the staff may consider requests for relief in circumstances where this would result in the need to provide financial statements of other entities more current than those that would be provided by a similarly-situated domestic registrant.

6230.3S-K 512(a)(4) does not require in a post-effective amendment the inclusion of financial statements of entities that were not required in the original effective registration statement (for example, subsequently acquired businesses).However, the “fundamental change” provisions of S-K 512(a)(1) may require such financial statements.

6230.4F-3 eligible issuers filing on Form F-3 or F-4 may incorporate by reference reports filed or furnished to the SEC that contain the updated financial statements rather than file a post-effective amendment. [S-K 512(a)(4)]

6240Due Date for Annual Reports on Form 20-F

(Last updated: 3/31/2009)

6240.1General Rule:

(Last updated: 9/30/2011)

  1. An annual report on Form 20-F is required to be filed within four months after the foreign private issuer’s fiscal year-end.
  2. If the audited financial statements for the most recently completed fiscal year have been included in a registration statement before the four month due date of the annual report on Form 20-F, the due date of the Form 20-F remains at four months. While many companies in this situation file the Form 20-F early, there is no requirement to do so.

NOTE: Registrants with fiscal years ending prior to December 15, 2011 are required to file their annual reports on Form 20-F within six months after fiscal year end. (Last updated: 9/30/2011)

6240.2Special Report on Form 20-F Triggered by an Initial Registration Statement

(Last updated: 9/30/2011)

When a registration statement is declared effective or becomes effective by operation of law within 3 months after a foreign private issuer’s fiscal year-end and the audited financial statements of the just recently completed year are not included, the following reporting requirements apply:

If the registrant is subject only to the Exchange Act reporting requirements of Section 15(d): A Special Report on Form 20-F must be filed by the later of 90 days after the registration statement is declared effective or four months after fiscal year-end. A complete annual report on Form 20-F is not required until the following fiscal year. [Exchange Act Rule 15d-2]
If the registrant has registered a class of securities under Section 12: An annual report on Form 20-F must be filed within four months after the most recent fiscal year end for which the registrant filed financial statements. [Exchange Act Rule 13a-1; Form 20-F]

6250Changes in Fiscal Year [Exchange Act Rule 15d-10(g) & 13a-10(g)]

(Last updated: 3/31/2009)

6250.1Transition reporting is described in Sections 1360 and 1365. Transition reports for foreign private issuers are filed on Form 20-F as follows: (Last updated: 9/30/2011)

Transition period is: In a transition report on Form 20-F, include: File the transition report within:
More than 6 months
  • Audited financial statements
  • All information required to be filed when Form 20-F is used as an annual report.

Later of four months after either the end of the transition period or the date the issuer elected to change its fiscal year-end.

6 months or less, but more than one month
  • Unaudited financial statements
  • Information required by Items 5, 8.A.7, 13, 14, and 17 or 18 of Form 20-F. (1)

Later of 3 months after either the end of the transition period or the date the issuer elected to change its fiscal year-end.

One month or less
  • No separate filing is required. The one-month or less transition period must be audited and included in the next annual report on Form 20-F.

No separate filing is required.

6250.2The staff may consider requests for a transition period of more than 12 months if a longer period is accepted by the issuer's home-country regulator. Issuers that receive an accommodation are required to provide complete unaudited financial statements with all of the applicable (i.e., Article 5 level) disclosures for both the 12-month period and the remaining portion of the transition period.

6250.3Foreign private issuers filing a registration statement after electing to change their fiscal year end may need to provide more current audited financial statements than are required under the Exchange Act transition reporting rules in order to comply with the age of financial statement requirements in the registration statement. A foreign private issuer's most recently audited financial statements cannot exceed the age specified by Item 8 of Form 20-F (generally 15 months) at the registration statement's date of effectiveness.

6260Ratio of Earnings to Fixed Charges

Instructions as to Exhibits in Form 20-F requires the presentation of a statement showing how the ratio of earnings to fixed charges was calculated if such a ratio is presented. This instruction should not be interpreted to mean that this ratio should be included in all Form 20-Fs; it merely requires that to the extent presentation of the ratio is required, the calculation of the ratio should be set forth in Exhibit 7. Requirements to present the ratio are set forth in the requirements for Securities Act registration statements (for example, Item 3 of Form F-1), not the Form 20-F itself. A Form 20-F filed as a periodic report is not required to include the ratio of earnings to fixed charges.

6270Capitalization Table

(Last updated: 9/30/2009)

Item 3.B of Form 20-F literally requires a capitalization table prepared as of a date within 60 days of the effectiveness of a registration statement. However, Item 8 permits the most recent balance sheet (from which a capitalization table is ordinarily derived) to be as much as 9 months old. As written, the Item 3.B age requirement for the capitalization table would be considerably more stringent than the 135-day window customarily used by U.S. issuers in their registration statements. The staff will not object if a foreign private issuer presents its capitalization table as of the same date as the most recent balance sheet required in its registration statement.

6300IFRS

(Last updated: 9/30/2008)

6310Acceptance of IFRS as Issued by the IASB without Reconciliation to U.S. GAAP

6310.1A foreign private issuer that files using IFRS as issued by the IASB is not required to reconcile to U.S. GAAP. [Release No. 33-8879]

6310.2Eligibility to omit reconciliation: The accounting policy footnote must state compliance with IFRS as issued by the IASB and the auditor's report must opine on compliance with IFRS as issued by the IASB. The foreign private issuer may state, and the auditor may opine on, compliance with both IFRS as issued by the IASB and home-country accounting standards (e.g., IFRS as endorsed in the EU) if there is no difference. [Item 17c of Form 20-F]

6310.3Foreign private issuers that comply with another basis of reporting (e.g., home- country GAAP) are not eligible to omit the U.S. GAAP reconciliation. In addition, foreign issuers that are not foreign private issuers or domestic subsidiary issuers of foreign companies must continue to provide the U.S. GAAP reconciliation.

6320Implementation Issues – IFRS Filers

6320.1IFRS financial statements must be presented for all periods required to be presented.

6320.2Reconciliation to IFRS as issued by the IASB in lieu of full compliance with IFRS as issued by the IASB is not permitted. (Last updated: 9/30/2011)

6320.3[Reserved] (Last updated: 9/30/2011)

6320.4Certain transactions and industry-specific issues, for example, insurance contracts, extractive activities, common control mergers, reorganizations, and recapitalizations are not addressed by specific IASB standards. Consistent with IAS 1 and IAS 8, the registrant must provide full and transparent disclosure about the accounting policies selected and the effects of those policies on the IFRS financial statements.

6320.5IFRS filers need not apply SABs that related specifically to U.S. GAAP (e.g., SAB 104). However, in selecting accounting policies under IAS 8, a registrant may apply SABs that relate to U.S. GAAP and otherwise meet the IAS 8 requirements. Note that SABs related to filing requirements and auditing continue to apply. [Release No. 33-8879]

6320.6Applicability of Regulation S-X Form and Content Requirements - Foreign private issuers that file financial statements prepared in accordance with IFRS as issued by the IASB must comply with IASB requirements for form and content within the financial statements, rather than with the specific presentation and disclosure provisions in Articles 4, 5, 6, 7, 9, and 10 of Regulation S-X. However, foreign private issuers must comply with all other applicable S-X requirements including, but not limited to, the applicable Article 12 schedule requirements and the Article 3 requirements of financial statements of other entities. (See Release No. 33‐8879, footnote 136) (Last updated: 12/31/2012)

6330Interim Financial Statements Presented by IFRS Filers

6330.1For pre-effective registration statements and post-effective amendments with annual financial statements less than nine months old, published interim information need not be reconciled to U.S. GAAP if the basis of the annual financial statements and published interim information is IFRS as issued by the IASB. Note: The annual statements must also be prepared using IFRS as issued by the IASB. [Instruction 3 to Item 8.A.5 of Form 20-F]

6330.2For pre-effective registration statements and post-effective amendments with annual financial statements more than nine months old, reconciliation is not required for an interim period where the issuer complies with and explicitly states compliance with IAS 34. Note: The annual statements must also be prepared using IFRS as issued by the IASB. [Instruction 4 to Item 8.A.5 of Form 20-F]

6340First-time Adopters of IFRS

6340.1One Time Accommodation:

In a foreign private issuer's first year of reporting in IFRS, the registrant may file two years rather than three years of statements of income, changes in shareholders equity and cash flows prepared in accordance with IFRS as issued by the IASB, with appropriate related disclosure. As a reminder, IFRS 1 requires an entity's first IFRS financial statements to include at least three statements of financial position. [General Instruction G(a) to Form 20-F] (Last updated: 12/31/2010)

6340.2The one-time accommodation available for first-time IFRS implementers and the guidance found in Instruction G to Form 20-F apply not only to registrants, but also to foreign businesses whose financial statements are required under S-X 3-05, 3-09, 3-10, 3-14 and 3-16.

6340.3All first-time adopters of IFRS are required to provide certain expanded disclosures about their use of elective transitional treatments under IFRS 1, as well as meet certain presentation requirements with respect to their transitional reconciliation from previous (home-country) GAAP to IFRS under the disclosure requirements of IFRS 1, First-time Adoption of International Financial Reporting Standards. [Instruction 4 to Item 5 of Form 20-F]

6340.4 During the period an issuer is changing the body of accounting standards used to prepare its financial statements from previous GAAP to IFRS, a situation may arise in which the most recent annual financial statements are prepared under previous GAAP and any interim financial statements might be prepared under IFRS. Because the most recent annual and interim periods may not be comparable, financial statements in transitional registration statements for first-time adopters may be prepared under one of three options:

  1. 3 years of previous GAAP annual financial statements, and previous GAAP interim statements for the current and comparable prior period, all with reconciliation to U.S. GAAP;
  2. 2 years of IFRS annual financial statements and IFRS interim statements for the current and comparable prior period; or
  3. 3 years of previous GAAP financial statements, including reconciliations to U.S. GAAP, IFRS interim statements for the current and comparable prior period, and U.S. GAAP condensed information for the most recent year, current interim period, and the comparable prior interim period.

        [General Instruction G. (f)(2) to Form 20-F] (Last updated: 6/30/2011)

NOTE: Under the IFRS alternative described in b. above, the U.S. GAAP reconciliation is not required if all other conditions for eligibility have been met (see Section 6310).

6340.5A first-time adopter that is unable to provide information that complies with one of the three options noted above should contact the Office of International Corporate Finance in the Division of Corporation Finance if it has comparable financial information based on a combination of previous GAAP, IFRS as issued by the IASB and U.S. GAAP available. [Instruction to General Instruction G.(f)(2) to Form 20-F] The first-time adopter should develop an approach specific to its facts and circumstances that provides a bridge between the annual previous GAAP financial information reconciled to U.S. GAAP and the IFRS financial information. First-time adopters should clearly set forth their proposed approach when consulting the staff. While not considered inclusive of all acceptable alternatives, the following are examples of approaches that could provide an appropriate level of information to achieve a bridge between these annual and interim periods.

  1. Bridging forward to IFRS:
    • Previous GAAP annual financial statements with a U.S. GAAP reconciliation for the three most recent fiscal year ends.
    • IFRS interim financial statements (including comparative periods and cumulative year to date periods), compliant with IAS 34 and enhanced with IFRS 1 reconciliations and disclosures typically included in an annual set of IFRS first-time adoption financial statements.
  2. Bridging back to U.S. GAAP:
    • Previous GAAP annual financial statements with a U.S. GAAP reconciliation for the three most recent fiscal year ends.
    • IFRS interim financial statements compliant with IAS 34 reconciled to U.S. GAAP (including comparative periods and cumulative year to date periods). (Last updated: 6/30/2011)

6345First-time Adopters that Previously Used U.S. GAAP for the Primary Financial Statements in SEC Filings

(Last updated: 9/30/2009)

6345.1Some registrants have presented financial statements in more than one GAAP prior to their first-time adoption of IFRS as issued by the IASB; for example, in home-country GAAP in their local market and in U.S. GAAP in their SEC filings. These registrants need to determine whether home-country GAAP or U.S. GAAP is their "previous GAAP" for purposes of applying IFRS 1. If they determine that U.S. GAAP is the previous GAAP, their IFRS 1 reconciliation of previous GAAP to IFRS as issued by the IASB will be U.S. GAAP. If they determine that home-country GAAP is the previous GAAP, however, the staff does not believe the IFRS 1 reconciliation of previous GAAP (home-country GAAP) to IFRS as issued by the IASB is sufficient for SEC filings that have previously only presented U.S. GAAP information. In this instance, the staff believes an additional reconciliation from U.S. GAAP to IFRS as issued by the IASB should be provided to reasonably inform U.S. investors about the changes in the basis of presentation. This reconciliation could be presented directly from U.S. GAAP to IFRS as issued by the IASB in a note to the audited financial statements, or if impracticable in an audited financial statement schedule, for the same dates and periods that the IFRS 1 reconciliation is presented. The reconciliation would be presented in a level of detail consistent with Item 17 of Form 20-F. Alternatively, the reconciliation could be presented in the notes to the audited financial statements as part of a two-step reconciliation that includes the IFRS 1 reconciliation – from U.S. GAAP to previous GAAP, and then from previous GAAP to IFRS as issued by the IASB.

6345.2Some registrants have adopted IFRS as issued by the IASB in the past in the financial statements presented in their local market, while continuing to present U.S. GAAP in their SEC filings. These registrants would have included the IFRS 1 reconciliation from previous GAAP (home-country GAAP) to IFRS as issued by the IASB in their local market financial statements in the past, but not in the U.S. GAAP financial statements included in SEC filings. If the registrant subsequently decides to present IFRS as issued by the IASB financial statements in its SEC filings, it is not required to present the reconciliation from previous GAAP specified by IFRS 1 because it is no longer a first-time adopter subject to IFRS 1. However, since the historical SEC filings have presented only U.S. GAAP information, bridging disclosures in the form of reconciliation from U.S. GAAP to IFRS as issued by the IASB are generally necessary to inform U.S. investors about the changes in the basis of presentation. This bridging can best be presented by providing a reconciliation directly from U.S. GAAP to IFRS as issued by the IASB in a note to the audited financial statements, or if impracticable, in an audited financial statement schedule, for the comparative balance sheet date and comparative income statement periods preceding the most recent fiscal year. Generally, this reconciliation would be presented in a level of detail consistent with Item 17 of Form 20-F and included as part of the audited financial statements.

6350IFRS Filers - Financial Statements of Other Entities

6350.1S-X 3-05, 3-09, 3-10, and 3-16 permit the inclusion of financial statements of foreign businesses presented in accordance with IFRS as issued by the IASB without reconciliation to U.S. GAAP, regardless of significance.

6350.2Significance testing is based on the accounting used by the issuer. This means that the amounts used in the tests for the acquiree or investee (the numerator) must be based on the same basis of accounting as that of the issuer. For example, if the issuer presents its financial statements in home-country GAAP with reconciliation to U.S. GAAP, then the amounts for the acquiree or investee in the numerator of the tests must be based on U.S. GAAP. In some cases, amounts from the acquiree's or investee's historical financial statements will need to be converted to the issuer's basis of accounting. The following table illustrates the basis of accounting on which the tests are based under typical scenarios.

Significance Testing for S-X 3-05 and 3-09
Foreign Acquiree Foreign Acquiree Foreign Acquiree US Acquiree
Issuer Home w/ Reconciliation US GAAP IFRS - no Reconciliation US GAAP
FPI - Home w/ US GAAP Reconciliation US GAAP US GAAP US GAAP US GAAP
FPI – US GAAP US GAAP US GAAP US GAAP US GAAP
FPI – IFRS no Reconciliation IFRS IFRS IFRS IFRS
US US GAAP US GAAP US GAAP US GAAP

6350.3Separate Financial Statements of Other Entities: Is Reconciliation to U.S. GAAP Required?

By contrast, the basis of accounting permitted or required in the acquiree's or investee's historical financial statements is based on whether that entity meets the definition of a foreign business. A foreign business may present its financial statements using the requirements applicable to a foreign private issuer. The following table illustrates whether an acquiree or investee must reconcile its financial statements to U.S. GAAP under typical scenarios.

Separate F/S of Other Entities: Is Reconciliation to US GAAP Required?
Foreign Acquiree Foreign Acquiree Foreign Acquiree US Acquiree
Issuer Home US GAAP IFRS / IASB US GAAP
FPI - Home w/ US GAAP Reconciliation Yes N/A No N/A
FPI - US GAAP Yes N/A No N/A
FPI – IFRS / IASB Yes N/A No N/A
US Yes N/A No N/A

6360IFRS Filers – S-X Article 11 Pro Forma Information

6360.1As with significance testing, S-X Article 11 pro formas are based on the accounting used by the issuer. Amounts from the acquiree's or investee's historical financial statements presented in accordance with home-country GAAP or U.S. GAAP will need to be converted to the issuer’s basis of accounting. This may be true even if the acquiree's or investee's historical financial statements are not required to be reconciled to U.S. GAAP because its significance falls below the 30% level specified in Item 17 of Form 20-F. The following table illustrates the basis of accounting on which the pro formas are presented under typical scenarios.

IFRS Filers
S-X Article 11 Pro Forma Information
Foreign Acquiree Foreign Acquiree Foreign Acquiree US Acquiree
Issuer Home w/ Reconciliation US GAAP IFRS/IASB US GAAP
FPI - Home w/ US GAAP Reconciliation Home w/ Reconciliation Home w/ Reconciliation Home w/ Reconciliation Home w/ Reconciliation
FPI - US GAAP US GAAP US GAAP US GAAP US GAAP
FPI – IFRS / IASB IFRS / IASB IFRS / IASB IFRS / IASB IFRS / IASB
US US GAAP US GAAP US GAAP US GAAP

6360.2The staff generally has not objected if an issuer, that otherwise would present its pro formas based on home-country GAAP with a reconciliation to U.S. GAAP, elects to present the pro formas directly in U.S. GAAP.

6400REQUIREMENT FOR RECONCILIATION TO U.S. GAAP

(Last updated: 9/30/2008)

NOTE: Foreign private issuers are allowed to prepare the primary financial statements filed with the SEC in accordance with a comprehensive body of GAAP other than U.S. GAAP. To assist U.S. investors in understanding the nature of the accounting differences and their effects on financial statements, foreign issuers that do not prepare statements in accordance with IFRS as issued by the IASB (see Section 6300) are required to provide a reconciliation to U.S. GAAP.

6410Requirement for Reconciliation

6410.1General

(Last updated: 9/30/2011)

  1. A reconciliation is required for each annual and interim period required to be included in a registration statement or annual report. [Item 17(c) of Form 20-F]
  2. Form 20-F provides two levels of reconciliation to U.S. GAAP - Item 17 and Item 18. Item 18 requires the same information as Item 17 plus all of the disclosures required by U.S. GAAP and Regulation S-X.
  3. Compliance with Item 18 rather than Item 17 is required for all issuer financial statements in all Securities Act registration statements, Exchange Act registration statements on Form 20-F, and annual reports on Form 20-F.
  4. Item 17 is permitted for pro forma information pursuant to S-X Article 11.
  5. Item 17 compliance is permitted for non-issuer financial statements such as those pursuant to S-X 3-05, 3-09, and 3-10(i), as well as non-issuer target company financial statements included in Forms S-4, F-4 and proxy statements. [Release No. 33-8959] The staff also permits Item 17 for acquired real estate operations under S-X 3-14 and S-X 8-04 for smaller reporting companies. (Last updated: 3/31/2009)
  6. Non-issuers using Item 17 that are required to provide MD&A (e.g., target companies in Forms S-4, F-4, and proxy statements) should consider the need to provide certain additional information in the MD&A to assist the U.S. investor in understanding the financial statements. [SAB Topic 1D]

6410.2First-time Entrants to U.S. Reporting System

  1. If a foreign registrant has not previously filed financial statements with the SEC on a reconciled basis, it is only required to provide reconciliations of the financial statements and selected financial data to U.S. GAAP for the two most recently completed fiscal years and for any interim periods required in the registration statement. In each subsequent year, on a prospective basis, an additional year of the reconciliation is required. This also applies to any other required financial statements where the entity is a foreign business such as those filed pursuant to S-X 3-05, 3-09, 3-10, 3-14 and 3-16, as well as target company financial statements in Forms F-4, Forms S-4, and proxy statements. Published financial information that is included because it is more current (see Section 6220.6) is ordinarily not required to be reconciled.
  2. The U.S. GAAP reconciliation (compliant with Item 17 of Form 20-F) must be included for non-reporting foreign target companies in Forms F-4, Forms S-4 and proxy statements unless a reconciliation is unavailable or not obtainable without unreasonable cost or expense. In these cases, a narrative description must be provided of all material variations in accounting principles, practices and methods used in preparing the non-U.S. GAAP financial statements from those accepted in the U.S. [See Instruction 2 to Item 17 of Form S-4, Instruction to paragraphs (b)(5) and (b)(6) of Item 17 of Form F-4, Item 14 of Schedule 14A]

    NOTE: While reconciliations to U.S. GAAP initially are required only for two years, the registrant's financial statements still need to be presented in the registration statement for all of the periods required by Item 8 of Form 20-F (see Section 10220.1 for EGCs). Similarly, non-EGCs must present selected financial data for five years, even though the oldest three years need not be reconciled to U.S. GAAP. (See Section 10220.2 for exception for EGCs.)

  3. First-time registrants that elect to prepare the financial statements in accordance with U.S. GAAP may provide income statements and statements of cash flows for only their two most recent fiscal years. However, selected financial data still needs to be presented for five years under home-country GAAP if U.S. GAAP financial data is not available for the oldest three years, unless the registrant qualifies as an EGC (see Section 10220.2). MD&A need only discuss the two years presented in the financial statements. [Item 8 of Form 20-F]
  4. Predecessor financial statements and selected financial data must be presented in the same comprehensive body of accounting as the registrant. A foreign entity that is a predecessor of a U.S. domestic company must present financial statements in U.S. GAAP and U.S. dollars. (Last updated: 6/30/2013)

6410.3[Reserved]

(Last updated: 9/30/2011)

6410.4"Backdoor" Listings by Foreign Companies

  1. Foreign companies sometimes obtain a "backdoor"listing through a reverse recapitalization with a U.S. public shell. Even though substantially all of the operations are conducted outside of the U.S., the registrant would not be considered a foreign private issuer.
  2. In this situation, the transaction, including financial statements of the foreign company, must be reported on a Form 8-K within four business days of the completion of the transaction. The Form 8-K that is filed must include the same information as a registration of securities on Form 10. For example, the accommodations in Form 20-F that in certain circumstances permit two years of financial statements rather than three years are not applicable. [Item 2.01 of Form 8-K and Item 5.06 of Form 8-K] Refer to Topic 12. (Last updated: 9/30/2010)
  3. The financial statements included in the Form 8-K must be prepared using U.S. GAAP for all periods presented, including those prior to the reverse recapitalization. Financial statements prepared using IFRS as issued by the IASB or in a home-country GAAP reconciled to U.S. GAAP would not be acceptable. (Last updated: 10/20/2014)

6410.5Transactions that Result in a Foreign Private Issuer Ceasing to be a Shell Company

  1. A foreign private issuer may cease to be a shell company as a result of a reverse acquisition or merger. In this situation, the transaction, including financial statements of the other party to the transaction, must be reported on a Form 20-F within four business days of the completion of the transaction. The Form 20-F that is filed must include the same information as a registration of securities on Form 20-F. For example, the accommodations in Form 20-F that in certain circumstances permit two years of financial statements rather than three years are applicable. Refer to Topic 12. [Exchange Act Rules 13a-19 and 15d-19, and Instruction A(d) to Form 20-F]
  2. If the foreign private issuer shell company engages in a transaction that causes it to lose its status as a foreign private issuer at the same time it ceases to be a shell company, reports filed or furnished during the remainder of the fiscal year may continue to be made using forms and requirements applicable to foreign private issuers. See Sections 6110.3 and 6120.2. (Last updated: 10/20/2014)

6410.6Financial Statements of Foreign Acquired Businesses or Foreign Equity Investees in Filings by Domestic Issuers or Foreign Private Issuers

  1. The reporting requirements of Form 8-K do not apply to foreign private issuers. However, foreign private issuers must comply with S-X 3-05 in registration statements.
  2. If financial statements are required to be filed for foreign acquirees or foreign equity investees, these statements may be prepared on a comprehensive basis other than U.S. GAAP or IFRS as issued by the IASB. Reconciliations to U.S. GAAP must be provided when the significance of the foreign acquiree or foreign equity investee to the registrant exceeds 30%. Refer to Topic 2 for the tests of significance. [Item 17(c)(2)(v) and (vi) of Form 20-F]

    When determining whether a reconciliation to U.S. GAAP is required, if the foreign equity investee is significant to the registrant at the 30% level or greater in any of the years being tested, a reconciliation is required for all periods. Whether the U.S. GAAP reconciliation is required to be audited is based upon the audit requirements applicable to the underlying financial statements of the foreign acquiree or equity investee.

    For example, take a foreign equity investee that had previously been significant at a 30% level in prior periods, was significant at the 20% level in 2005, was not significant in 2006, and is significant at the 30% level in 2007. The financial statements provided for the foreign equity investee in the registrant's 2007 filing must include a U.S. GAAP reconciliation for all years. The financial statements, including the reconciliation, must be audited for 2005 and 2007, but not for 2006.

    Note that if this had been the first time the financial statements of the foreign equity investee were significant at a 30% level, the reconciliation of the financial statements could be provided only for the two most recent years.
  3. The 30% significance test does not apply to non-reporting foreign target companies provided in Forms S-4, Forms F-4 and proxy statements.
  4. Financial statements of acquired businesses or equity investees that meet the definition of a foreign business may be prepared under International Financial Reporting Standard for Small and Medium‐sized Entities("IFRS for SMEs"), published by the IASB in July 2009, with reconciliation to U.S. GAAP as described in b and c above. The staff would not accept financial statements prepared under IFRS for SMEs for issuers, predecessors of issuers, domestic acquired businesses, or domestic equity method investees. (Last updated: 6/30/2010)

NOTE: The accommodation to not reconcile separate financial statements of less than 30% significant equity investees does not affect a domestic issuer's measurement of earnings or disclosures under Regulation S-X. APB Opinion 18 [ASC 323] requires equity investees to be accounted for using U.S. GAAP. Further, summarized data under S-X 4-08(g) must be presented in accordance with U.S. GAAP. [Release No. 33-7118] (Last updated 9/30/2009)

6410.7If reconciliation is required, the financial statements of foreign acquirees or foreign investees need only comply with the reconciliation requirements of Item 17 of Form 20-F, rather than Item 18. Even though the significance level of an acquisition may require the presentation of three years of audited financial statements in a registration statement or other transactional filing, if the acquiree or investee's financial statements have not previously been required in a SEC filing, the U.S. GAAP reconciliation only needs to be provided for the most recent two years and any required interim period.

6410.8If three years of audited financial statements of an acquired foreign business would be required based on the level of significance, a registrant may elect to present the acquired business'; statements for only two years if they are prepared using U.S. GAAP, rather than home-country GAAP with a reconciliation. The registrant's primary financial statements must also be prepared in accordance with U.S. GAAP if post-acquisition periods are considered in determining the years presented.

6410.9If a foreign incorporated acquiree or investee does not qualify as a foreign business and financial statements are required under S-X 3-05 or 3-09, those financial statements must be presented in conformity with U.S. GAAP, or:

  • home-country GAAP reconciled to U.S. GAAP in accordance with Item 18 of Form 20-F; or
  • IFRS as issued by the IASB reconciled to U.S. GAAP in accordance with Item 18 of Form 20-F. If the acquiree or investee does not qualify as a foreign business, but does meet the definition of a foreign private issuer, CF-OCA will consider requests for relief from the reconciliation requirement.

NOTE to SECTION 6410.9

For the financial statements referenced in the bullets above, the 30% test discussed in 6410.6(b) does not apply. See footnote 31 to Release No. 33-7118. (Last updated: 12/31/2012)

6410.10A foreign or domestic registrant may apply SAB 80 in determining the periods for which audited financial statements of acquired foreign businesses are required in an IPO. Assuming that the businesses acquired are reporting in the U.S. for the first time, financial statements of foreign businesses required to be presented under the SAB for three years need only be reconciled to U.S. GAAP for the two most recent fiscal years. Financial statements required to be presented under the SAB for two years must be reconciled to U.S. GAAP for both years. Most recent interim period and corresponding prior year financial statements also would be reconciled to U.S. GAAP.

6410.11If pro forma financial statements are required, they should be prepared in accordance with U.S. GAAP or reconciled to U.S. GAAP.

6410.12Financial Statements Required by S-X 3-16

When financial statements are required pursuant to S-X 3-16, the financial statements to be provided for the affiliate are based on the financial statements the affiliate would be required to provide if it were a registrant. Typically, the financial statements of an affiliate would be prepared using the same GAAP as the registrant (which is usually the parent). In certain limited circumstances, if the affiliate as a separate registrant would not qualify as a foreign private issuer, the affiliate could file home-country GAAP financial statements reconciled to U.S. GAAP in accordance with Item 18 of Form 20-F, based upon footnote 31 to Release No. 33-7118.

6420Selected Financial Data [Item 3A of Form 20-F]

(Last updated: 6/30/2013)

6420.1Selected financial data should also include amounts under U.S. GAAP, if the primary financial statements are presented using home-country GAAP. Non-EGCs should provide the selected data for 5 years. See Section 10220.2 for exception for EGCs.

6420.2A non-EGC's selected data for the earliest two years of the five-year period may be omitted if the registrant represents that the information cannot be provided without unreasonable effort or expense, and states the reasons for the omission in the filing. [Item 3.A of Form 20-F and Instruction 2 to Item 3.A] See Section 10220.2 for guidance regarding selected financial data disclosure for EGCs.

6500CONTENT OF RECONCILIATION TO U.S. GAAP

(Last updated: 9/30/2008)

NOTE: Form 20-F provides two levels of reconciliation from a comprehensive basis of accounting other than U.S. GAAP to U.S. GAAP- Item 17 and Item 18. Item 17 requires quantification of the material differences in the principles, practices and methods of accounting. Item 18 requires satisfaction of the requirements of Item 17, as well as provision of all other information required by U.S. GAAP and Regulation S-X. (Last updated: 9/30/2011)

NOTE: Compliance with Item 18 rather than Item 17 is required for all issuer financial statements in all Securities Act registration statements, Exchange Act registration statements on Form 20-F, and annual reports on Form 20-F.

Item 17 is permitted for pro forma information pursuant to S-X Article 11.

Item 17 compliance is permitted for non-issuer financial statements such as those pursuant to S-X 3-05, 3-09, and 3-10(i), as well as non-issuer target company financial statements included in Forms S-4, F-4 and proxy statements. [Release No. 33-8959]

Non-issuers using Item 17 that are required to provide MD&A (e.g., target companies in Forms S-4, F-4 and proxy statements) should consider the need to provide certain additional information in the MD&A to assist the U.S. investor in understanding the financial statements. [SAB Topic 1D]

(Last updated: 9/30/2011)

6510Item 17(c) of Form 20-F - Basic Requirements

6510.1A discussion of material variations in accounting principles, practices and methods used in preparing the financial statements between home-country GAAP and U.S. GAAP

6510.2A quantified description of balance sheet differences under home-country GAAP in comparison to U.S. GAAP. Most companies elect to present this information in the form of a reconciliation of shareholder' equity, but they may also provide restated balances of individual balance sheet line items, or describe, in numerical terms, how balance sheet line items would specifically change under U.S. GAAP.

NOTE: The reconciliation of shareholders' equity should be in sufficient detail to allow an investor to determine the differences between a balance sheet prepared using home-country GAAP and one prepared using U.S. GAAP.

6510.3Common deficiencies include:

a. Recording reconciling items net of taxes. All reconciling items should be presented gross with a separate adjustment for taxes.
b. Presenting adjustments that impact several balance sheet captions as one reconciling item. Disclose the impact on each caption for adjustments that impact several captions, such as purchase accounting.
c. Presenting different items that impact the same caption as one adjustment. Disclose the impact for each difference, even if it impacts the same caption.
d. Not reflecting adjustments at the subsidiary level. Each GAAP adjustment should be made at the appropriate subsidiary level to determine the impact on items such as minority interest, taxes and the currency translation adjustment.
e. Recording adjustments for items such as property & equipment or intangible assets net of depreciation and amortization expenses. These adjustments should be presented gross with separate disclosure of the amounts of accumulated depreciation and amortization.

NOTE: Registrants should consider preparing supplemental statements of changes in shareholders' equity using amounts determined under U.S. GAAP to confirm that the reconciliation balances and that it provides appropriate disclosure on changes in the equity accounts on a U.S. GAAP basis. Many registrants elect to include these statements, prepared using U.S. GAAP amounts, as part of their U.S. GAAP reconciliation.

6510.4A reconciliation of net income from home-country GAAP to U.S. GAAP that quantifies and describes each significant difference.

6510.5Disclosure of basic and diluted EPS calculated in accordance with U.S. GAAP, if materially different from home-country GAAP. (Last updated: 9/30/2011)

6510.6A cash flow statement prepared under U.S. GAAP or IAS 7, or a reconciliation of a cash flow statement or statement of changes in financial position that quantifies the material differences in the statement presented as compared to U.S. GAAP. Some of the more common deficiencies in this disclosure include:

  1. Failure to identify noncash investing and financing activities;
  2. Presentation of items on a net rather than gross basis;
  3. Inadequate discussion of the differences in the definitions of "cash" and "cash equivalents"; and
  4. Differences in classification.

6510.7Issuers are encouraged to prepare a supplemental statement of cash flows prepared in accordance with U.S. GAAP to confirm the adequacy of the disclosure of the reconciling items.

6510.8Information required by supplemental schedule may be presented in accordance with either home-country GAAP or U.S. GAAP. A reconciliation from the home-country GAAP to U.S. GAAP is not required.

6510.9S-X Article 11 pro forma financial statements either should be prepared on a U.S. GAAP basis or be accompanied by reconciliations to U.S. GAAP prepared in a manner consistent with Item 17. Reconciliations of pro forma information to U.S. GAAP are required even if the historical financial statements of the acquired business are not required to be reconciled. See Section 6220.8 for guidance concerning age of pro forma information. A method consistent with SFAS 52 [ASC 830] should be used to translate currencies.

6510.10Disclosure of the accounting method used in the reconciliation to U.S. GAAP for stock-based compensation given to employees and to non-employees. Other than this information, non-issuer financial statements under Item 17 are not required to provide the disclosures set forth in SFAS 123(R) [ASC 718].

(Last updated: 9/30/2011)

6510.11[Reserved]

(Last updated: 6/30/2011)

6510.12[Reserved]

(Last updated: 10/20/2014)

6510.13Certain GAAPs do not require the restatement of previously issued financial statements upon discovery of an error that relates to prior periods. For example, some GAAPs permit or require cumulative adjustment in the current period income statement, which would ordinarily cause comparative periods to continue to be materially misstated. That treatment would not be acceptable in SEC filings. (Last updated: 12/31/2010)

6520Item 18 of Form 20-F – Basic Requirements

6520.1Certain information is required to be disclosed under Item 18, but not Item 17. For example (list not all inclusive):

  1. Reconciliations of the numerators and denominators used in computing basic and diluted EPS, and other EPS-related disclosures (SFAS 128 [ASC 260])
  2. Segment information (SFAS 131 [ASC 280])
  3. Fair value information (SFAS 107 [ASC 825])
  4. Concentrations of credit risk (SFAS 133 [ASC 825-10-50-20])
  5. Information about investment securities (SFAS 115 [ASC 320])
  6. Information about off-balance sheet financial instruments (SFAS 133 [ASC 815])
  7. Disclosures about stock-based compensation to employees and non-employees (SFAS123(R) [ASC 718], as appropriate)
  8. Components of pensions and benefits other than pensions (SFAS 87, SFAS 106, SFAS 132(R) [ASC 715])
  9. Components of tax expense and deferred tax liability/asset (SFAS 109 [ASC 740])
  10. Income statement classification differences
  11. Information about equity method investments (APB 18 [ASC 323] and S-X 4-08(g))

6520.2Pervasive Impact of Differences Between Home-Country and U.S. GAAP

  1. If differences between home-country and U.S. GAAP have such a pervasive impact on the financial statements that they render a normal reconciliation (as described above) confusing to investors, full or condensed financial statements prepared in accordance with U.S. GAAP may be necessary in order for the reader to fully understand the impact of the differences in accounting.
    For example: A business combination accounted for as a purchase of another company by the registrant under home-country GAAP but as a reverse acquisition under U.S. GAAP (the registrant is acquired by another company) would most easily be understood if the registrant included, in addition to a description of the differences in accounting, audited financial statements prepared under U.S. GAAP. Those financial statements would reflect the change in basis of the registrant on the acquisition date and present the financial statements of the accounting acquirer prior to the date of acquisition as the financial statements of the registrant. See Topic 12 for additional guidance related to reverse acquisitions.
  2. Similarly, expanded presentation formats and disclosures may be necessary in other circumstances, such as differences between home-country and U.S. GAAP in the application of pooling versus purchase accounting, in the non-consolidation versus consolidation of an entity, or in the classification of a business as continuing operations versus discontinued operations. (Last updated 9/30/2009)

6530Statements of Comprehensive Income

(Last updated: 6/30/2011)

6530.1Statements of comprehensive income prepared using either U.S. GAAP or home-country GAAP are required under both Item 17 and Item 18. These statements may be presented in either format permitted by ASC 220. Reconciliation to U.S. GAAP is encouraged, but not required.

6530.2ASC 220-10-45-14A requires the presentation of the changes in the accumulated balance for each of the components of other comprehensive income either on the face of the financial statements or in the footnotes. This requirement does not apply to financial statements under Item 17.

(Last updated: 9/30/2011)

6530.3In certain countries, equity components under home-country GAAP are included in retained earnings and are not separately tracked. Reconstruction of these amounts may not be practical. Depending on the facts and circumstances, the staff will generally not object if an issuer concludes, and discloses in its filings, that it is not practical to present the changes in the accumulated balance for each of the components of its other comprehensive income specified by ASC 220-10-45-14A.

6540Accommodations Permitted by Form 20-F

6540.1Cash Flow Statement

The SEC will allow without reconciliation to U.S. GAAP a foreign issuer's cash flow statement that is prepared in accordance with IAS 7, "Cash Flow Statements," as amended. [Item 17(c)(2)(iii) of Form 20-F] A reconciliation of home-country cash flow presentation to IAS 7 does not meet the requirements of the form.

6540.2Accounting for Effects of Hyperinflation

  1. A foreign private issuer that accounts in its primary financial statements for its operations in a hyperinflationary economy in accordance with IAS 21, The Effects of Changes in Foreign Exchange Rates, as amended, may omit quantification of any differences that would have resulted from application of the U.S. standard, SFAS 52 [ASC 830]. [Item 17(c)(2)(iv)(B) of Form 20-F]
  2. IAS 21 requires that amounts in the financial statements of the hyperinflationary operation be restated for the effects of changing prices in accordance with IAS 29, Financial Reporting in Hyperinflationary Economies, and then translated to the reporting currency. The accommodation is only available if the issuer uses the historical cost/constant currency method of IAS 29. This accommodation relates to financial statements prepared in a stable reporting currency, not to financial statements price-level adjusted for inflation.

6540.3[Reserved]

(Last updated: 9/30/2011)

6540.4Effects of Proportional (Pro Rata) Consolidation

  1. Foreign private issuers that use proportional consolidation under home-country GAAP for investments in joint ventures that would be equity method investees under U.S. GAAP may omit reconciling differences related to classification or display and instead provide summarized footnote disclosure of the amounts proportionately consolidated, such as:
    1. Current assets/liabilities;
    2. Noncurrent assets/liabilities;
    3. Net sales;
    4. Gross profit;
    5. Net income; and
    6. Cash flow information resulting from operating, financing, and investing activities.
      [Item 17(c)(2)(vii) of Form 20-F]
  2. The disclosure should allow a reader to reconstruct a U.S. GAAP balance sheet. Summarized totals from the investee financial statements (rather than the amounts proportionally consolidated by the registrant) do not satisfy this condition.

    NOTE: This accommodation for proportionately consolidated joint ventures only applies if 1) the joint venture is an operating entity, and 2) its significant financial operating policies are, by contractual arrangement, jointly controlled by all parties having an equity interest in the entity.

  3. Separate financial statements of a joint venture being proportionally consolidated are not required.

6600SELECTION OF A REPORTING CURRENCY

(Last updated: 9/30/2008)

NOTE: S-X 3-20 allows a foreign private issuer to file financial statements prepared in any currency that management believes is appropriate.

6610Currency of Measurement

6610.1While there is free choice in the selection of the reporting currency, there is not free choice in the selection of the currency used for measurement. All operations, including those of the parent company, that do not operate in a hyperinflationary environment should be measured using the currency of the primary economic environment to measure transactions. While not specifically referring to SFAS 52 [ASC 830], S-X 3-20 is designed to be conceptually consistent with that standard. Assets and liabilities are translated at the period end exchange rate and the income statement is translated at the weighted average annual exchange rate. The translation effects of exchange rate changes are included as a separate component of equity.

6620Disclosures, if the U.S. Dollar is Not the Reporting Currency [S-X 3-20]

6620.1The currency used to prepare financial statements must be displayed prominently on the face of the financial statements.

6620.2The currency in which dividends are declared, if different from the reporting currency, must be disclosed.

6620.3A description of material exchange restrictions or controls relating to the reporting currency, and the currency of the issuer's domicile or the currency in which the issuer will pay dividends, if different, must be provided.

6620.4A five-year history of exchange rates setting forth rates at period end, average, highs and lows, must be disclosed. [Item 3.A of Form 20-F] The noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank in New York can be obtained via the internet at: http://www.newyorkfed.org/markets/fxrates/historical/home.cfm.

See the Division of Corporation Finance's C&DIs for Exchange Act Forms, Question 110.01.

6620.5Dollar equivalent or convenience translations are generally not permitted, except that a convenience translation may be presented only for the most recent fiscal year and interim period. Translation should be made at the exchange rate on the balance sheet date or most recent date practicable, if materially different. The rate used for the convenience translation should generally be the rate that the issuer would use if dividends were to be paid in U.S. dollars.

6620.6An issuer filing a registration statement on Form F-3 that incorporates financial statements previously filed on Form 20-F does not need to amend or otherwise modify these statements to reflect a more current exchange rate in presenting the convenience translation.

6620.7While S-X 3-20 allows foreign private issuers to prepare financial statements in the currency it believes is appropriate, it does not address financial statements of acquirees or equity investees. However, these financial statements can be prepared either in the same currency as the issuer or in the currency that normally is used for preparation of such entities' financial statements. Accordingly, a domestic issuer can prepare financial statements of an acquiree or investee in U.S. dollars. (Last updated: 12/31/2010)

NOTE: Amendment or other modification is not necessary even if the company has presented a convenience translation on interim data in the registration statement or by reference to Form 6-K. In this situation, the issuer should disclose in the interim data provided on the Form 6-K that different exchange rates have been used for the convenience translation.

6630Change in Reporting Currency

6630.1Financial information for all periods presented in the filing should be recast into the new reporting currency using a methodology consistent with SFAS 52 [ASC 830] (IAS 21 for IFRS filers). Income statements should be translated from the old reporting currency into the new reporting currency using a weighted average exchange rate for the applicable period. The balance sheet should be translated using the applicable period end exchange rate. The objective of this procedure is to present financial statements as if the issuer had always used the new reporting currency.

6630.2If the reporting currency used in a registrant's financial statements is different from that of its predecessor, the predecessor's financial statements should be recast using the registrant's reporting currency.

6640Reporting Currency for Domestic Registrants and Non-Foreign Private Issuers

(Last updated: 9/30/2009)

S-X 3-20 requires that a U.S.-incorporated registrant will present its financial statements in U.S. dollars. In limited instances, the staff has not objected to the use of a different reporting currency. Those instances have been limited to situations where the U.S.-incorporated registrant had little or no assets and operations in the U.S., substantially all the operations were conducted in a single functional currency other than the U.S. dollar, and the reporting currency selected was the same as the functional currency. The staff has also not objected when a foreign issuer who does not meet the definition of a foreign private issuer applies this approach in similar circumstances.

6700PRICE-LEVEL ADJUSTED FINANCIAL STATEMENTS AND EFFECTS OF HYPERINFLATIONARY ENVIRONMENTS

(Last updated: 9/30/2008)

6710Requirements

6710.1An issuer in a hyperinflationary economy must either comprehensively include the effects of price-level changes in the primary statements or, alternatively, present supplemental information to quantify the effects of changing prices using the historical cost/constant currency or current cost/replacement cost approach. [S-X 3-20 and Form 20-F Item 17(c)(2)(iv)]

6710.2The quantified effects of applying price-level accounting are not eliminated in the reconciliation to U.S. GAAP. In other words, registrants that apply price-level accounting are not required to quantify and remove the effects of inflation as part of the reconciliation to U.S. GAAP. This accommodation applies to all issuers who price-level adjust in conformity with their home-country GAAP even if the currency of the primary economic environment is not hyperinflationary as defined under U.S. GAAP. [Form 20-F Item 17(c)(2)(iv)]

Question: What is a hyperinflationary environment?

Answer: A hyperinflationary economy has cumulative inflation of approximately 100% or more over the most recent three-year period. See EITF D-55 [ASC 830] for further guidance.

NOTE: Inflation rates are multiplied in computing cumulative inflation. For example, 1.26 x 1.26 x 1.26 = 2.00. Inflation of at least 26% for three years would result in cumulative inflation of 100%.

6710.3Issuers in a hyperinflationary economy that elect to report in accordance with U.S. GAAP can report in either the hyperinflationary currency or a stable currency.

Reporting Currency Selected Requirement
Hyperinflationary currency Present general price-level financial statements. See SOP 93-3 [ASC 255-10-45].
Stable currency, such as the U.S. dollar Apply the remeasurement principles of SFAS 52 [ASC 830]. The stable currency's average annual rate should be used for purposes of the income statement. [S-X 3-20(c)]

6720Preparation of Price-level Adjusted Financial Statements

6720.1All price-level adjusted financial information in a foreign private issuer's registration statement should be presented in equivalent purchasing power units of the reporting currency. For each period presented, all measurements are retroactively restated to the purchasing power unit as of the date of the most recent balance sheet information in the filing.

6720.2If a company updates a registration statement to include interim financial information, the prior annual financial information must be recast in equivalent purchasing power units. A company that incorporates by reference a prior annual report on Form 20-F need not amend the prior filing, but must file restated financial statements in the registration statement or under cover of a Form 6-K that is incorporated by reference.

6720.3If the rate of inflation during the interim period is very low such that the effect of restatement does not materially affect apparent trends and is clearly immaterial, the staff has not insisted that prior period financial information be restated. If the information is not restated, the rate of inflation and the reason why restatement was not considered to be necessary should be disclosed.

6720.4The cash flow statements of issuers that prepare price-level adjusted financial statements should present the effects of inflation on cash flows separately from their operating, investing and financing activities. The presentation of a "fourth" cash flow statement category, which separately captures these effects, meets this objective. Price-level adjusted cash flow statements that include the effects of inflation in the line items comprising the three major categories may make the presentation less meaningful and possibly misleading.

Example of a Potentially Misleading Presentation: The financing activities section of the cash flows statement, if price-level adjusted for inflation, may depict reductions of foreign-currency denominated debt because of the recasting of prior balance sheet amounts, even though no cash repayments may have actually occurred.

6720.5If interim financial information more current than otherwise required by SEC rules is included in a registration statement solely to comply with Instruction 3 to Item 8.A.5 of Form 20-F, the staff encourages, but will not insist, that prior periods be restated. The staff expects companies to provide disclosure necessary to prevent the updated data from being misleading in relation to prior period financial information. For example, the registrant should provide supplemental selected financial data recast in equivalent purchasing power units, accompanied by disclosure of the rate of inflation that would be used to restate all prior financial information in equivalent purchasing power units.

6800FOREIGN AUDITOR MATTERS

(Last updated: 6/30/2009)

6810Qualifications and Independence

6810.1In certain instances where the independent accountant is not licensed in the U.S. and not familiar to the staff, OCA may request information about the accountant's qualifications to audit financial statements that are filed with the SEC.

6810.2Auditors licensed outside the U.S. must comply with all requirements of S-X 2-01, including SEC and PCAOB rules on auditor independence. S-X 2-01 permits a foreign auditor, solely for purposes of a foreign private issuer's initial registration statement, to be independent under SEC and PCAOB rules for at least the most recent audited fiscal year, provided that auditor is independent under local standards for all periods presented. The auditor must remain independent under SEC and PCAOB rules for all subsequent periods.

6810.3The staff may question the location from which the audit report was rendered if there does not appear to be a logical relationship between that location and the location of the registrant's corporate offices, its principal operations, its principal assets, or where the audit work was principally conducted. The staff will consider all relevant factors in questioning the location from which the audit report was rendered. (Last updated: 9/30/2011)

6810.4Auditors may be permitted or required by home-country regulations to render reports on the fairness or adequacy of consideration in an audit client’s planned merger or non-monetary transaction. The services performed to render these reports may violate U.S. independence rules.

6810.5Effective January 1, 2000, AICPA SEC Practice Section ("SECPS") rules established minimum requirements for the review of SEC filings by a designated "filing reviewer" within the independent accountant's U.S. firm or international organization knowledgeable about U.S. GAAP, U.S. GAAS, U.S. auditor independence and SEC reporting requirements. Although the SECPS no longer exists, the PCAOB has adopted the requirements of Appendix K, SECPS §1000.45 pursuant to PCAOB Rule 3400T, through its adoption of Interim Quality Control Standard 1000.08(n), which cross references SECPS § 1000.45. Prior to commencing review of initial registration statements, the staff may request confirmation that Appendix K was applied to the filing, as well as the name of the designated filing reviewer that the staff may contact with any questions concerning the application of those policies and procedures to the registration statement. The purpose of the procedure is to ensure that foreign auditors appropriately involve their designated filing reviewer prior to submission of registration statements. The staff will consider deferring the review of a registration statement where the application of the firm's established policies and procedures to that registration statement cannot be confirmed.

6810.6The Appendix K requirements also apply to annual reports.

6820Reports

6820.1The report of the independent accountant must comply with all requirements of S-X 2-02.

6820.2The report of the independent accountant, except for MJDS filers in Canada, should include a statement that the audit was conducted "in accordance with the standards of the Public Company Accounting Oversight Board (United States)." The staff will not object if the report also refers to compliance with home-country GAAS. [Instruction 2 to Item 8.A.2 of Form 20-F; Release No. 33-7745]

6820.3Reports of independent accountants issued for MJDS filers may still refer solely to Canadian GAAS when filed on MJDS forms. [Release No. 33-6902] However, if financial statements of an MJDS filer are included in a non-MJDS form, such as Rule 3-05 financial statements in a domestic registrant's Form 8-K or a foreign private issuer's Form F-3, then the audit must be conducted, at a minimum, in accordance with, and the audit report must refer to, U.S. GAAS.

6820.4The reconciliation to U.S. GAAP must be audited. The staff recommends that the report of the independent accountant refer explicitly to the reconciliation, but the absence of that reference does not relieve the auditor of its responsibility to examine the reconciliation. The reconciliation footnote may not be labeled "unaudited." Pursuant to SEC rules and auditing standards, omission of a material item that is required to reconcile the financial statements to U.S. GAAP pursuant to Item 17 or Item 18 of Form 20-F, or any otherwise inaccurate presentation of that reconciliation, would require a clear reference in the auditor's report identifying the omission or inaccuracy. [Release No. 33-7119]

6820.5The correction of a material misstatement in a previously filed U.S. GAAP reconciliation should be recognized in the auditor's report through the addition of an explanatory paragraph. [AS 6, paragraph 9] (Last updated: 12/31/2010)

6820.6The staff expects that there would be no material difference between net income and shareholders' equity amounts reported in a reconciliation to U.S. GAAP and the corresponding amounts that would be reported if the financial statements were presented directly in U.S. GAAP. Accordingly, neither the auditor's report nor the notes to the financial statements should characterize U.S. GAAP net income or shareholders' equity amounts as "estimated" or "approximated."

(Last updated: 12/31/2010)

6820.7If the report includes reference to another accountant, the separate audit report of that accountant must be included. Financial statements of subsidiaries or investees of a foreign private issuer are sometimes prepared in differing GAAPs than that of the registrant. The audit report should be clear as to which auditor is taking responsibility for auditing the conversion of the GAAP of the subsidiary or investee to the GAAP of the issuer, as well as auditing the U.S. GAAP reconciliation.

6820.8Some foreign private issuers or acquired foreign businesses are jointly audited by more than one firm. Both auditors sign the report and take full responsibility for the audit. Each auditor must comply with all requirements of S-X 2-01, including the U.S. independence requirements. In certain cases, one of the firms may be a U.S. firm.

6830Disclosure of Change in Accountants and Disagreements

(Last updated: 9/30/2011)

Foreign private issuers are required to provide disclosures in the event of a change in their independent accountants. The disclosure requirements are contained in Item 16F of Form 20-F. The required disclosures are substantially the same as those required for domestic issuers by S-K 304. However, the disclosures and related auditor's letter must be filed as part of the annual report on Form 20-F and any registration statements, rather than in a Form 8-K. [Release No. 33-8959]

6900[RESERVED]

(Last updated: 9/30/2010)

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[1] The next annual report on Form 20-F must include audited financial statements for this transition period.

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