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U.S. Securities and Exchange Commission

Speech by SEC Staff:
Opening Remarks before the Commission Open Meeting


Felicia H. Kung

Senior Special Counsel
Office of International Corporation Finance, Division of Corporation Finance
U.S. Securities and Exchange Commission

Washington, D.C.
August 27, 2008

The Division of Corporation Finance and the Office of the Chief Accountant recommend that you adopt rule and form amendments that would enhance the disclosures that foreign private issuers provide to U.S. investors. These amendments are part of a series of initiatives that seek to effect changes in the Commission's disclosure requirements in light of market developments, new technologies and other matters. We recommend that you adopt most of the amendments that you proposed last February, substantially as you proposed them.

Our recommendations are as follows. First, we recommend that you adopt amendments that would permit foreign issuers to assess their eligibility to use the special forms and rules available to foreign private issuers once a year, rather than on a continuous basis, which is currently required. To provide greater certainty to both issuers and investors as to the status of these foreign issuers within a given period, we recommend permitting foreign issuers to test their status on the last business day of their second fiscal quarter. This is the same date used to determine accelerated filer and smaller reporting company status.

We are also recommending that if a foreign issuer determines that it no longer qualifies as a foreign private issuer on the last business day of its second fiscal quarter, it should be required to comply with the reporting requirements and use the forms prescribed for domestic issuers beginning on the first day of the fiscal year following the determination date. For example, a foreign issuer that did not qualify as a foreign private issuer as of the end of its second fiscal quarter in 2009 would file a Form 10-K in 2010 for its 2009 fiscal year. The issuer would also begin complying with the proxy rules and Section 16, and begin filing reports on Forms 8-K and 10-Q on the first day of its 2010 fiscal year. This would give such issuers six months' advance notice that they will need to transition to the domestic reporting regime.

Second, we recommend that you adopt amendments to accelerate the reporting deadline for annual reports filed on Form 20-F by foreign private issuers from six months to four months after the issuer's fiscal year-end. The Commission received many comments on this proposal. We believe that requiring a four-month due date for all issuers filing on Form 20-F is appropriate because many foreign private issuers registered with the Commission have a three- or four-month due date for filing annual reports in their home country. The new deadline would thus be consistent with home country requirements. In addition, in the next several years a majority of the foreign private issuers who file annual reports with the Commission will have incentives to use IFRS as more countries adopt IFRS as their basis of accounting, or permit companies to use IFRS as their basis of accounting. Recent rule amendments that exempt foreign private issuers from the reconciliation requirement if they prepare their financial statements according to IFRS, as issued by the IASB, should make it easier for many foreign private issuers to prepare their annual reports on Form 20-F. We also note that a number of foreign private issuers already file their Form 20-F annual reports with the SEC well before the current six-month deadline. If the Commission decides to adopt an accelerated deadline, we recommend providing a three-year transition period so that the amendments would apply for fiscal years ending on or after December 15, 2011. This should ease the burden on many issuers that will be required to adopt IFRS for home country reporting purposes in 2011.

Third, we recommend that you adopt an amendment to Item 17 of Form 20-F that would eliminate an instruction that permits certain foreign private issuers to omit segment data from their U.S. GAAP financial statements, and to have a qualified U.S. GAAP audit report. This narrow accommodation has been used by approximately five foreign private issuers in the past few years. We believe that an accommodation that permits a foreign private issuer to present incomplete and non-compliant U.S. GAAP financial statements is no longer necessary or appropriate.

We are also recommending that you adopt technical amendments to Exchange Act Rule 13e-3, which pertains to going private transactions by reporting issuers or their affiliates. Rule 13e-3 would be amended to reference the recently adopted deregistration and termination of reporting rules applicable to foreign private issuers.

Another amendment that we are recommending relates to the elimination of the limited U.S. GAAP reconciliation option that is contained in Item 17 of Form 20-F. Item 17 is available for foreign private issuers that are only listing a class of securities on a U.S. securities exchange, or only registering a class of equity securities under Section 12(g) of the Exchange Act, and not conducting a public offering. Item 17 is also available for certain non-capital raising transactions, such as offerings pursuant to reinvestment plans, offerings upon the conversion of securities, or offerings of investment grade securities. We recommend that you eliminate this limited reconciliation option. This would eliminate the distinction between the disclosure provided to the primary and secondary markets, and also ensure that the same type of financial information is provided regardless of the type of offering that is being made. As a result, all foreign private issuers that are required to provide a U.S. GAAP reconciliation would be required to do so pursuant to Item 18 of Form 20-F, although required third-party financial statements could continue to be prepared pursuant to Item 17. We also recommend establishing a delayed compliance date so that foreign private issuers would be required to comply with this amendment for their fiscal years ending on or after December 15, 2011.

We also recommend that you adopt amendments to Form 20-F that would require foreign private issuers to provide certain new disclosures in their annual reports. Comments received on these amendments were generally supportive. These amendments would require foreign private issuers to disclose any changes in and disagreements with their certifying accountant; fees, payments and other charges relating to American Depositary Receipts; and disclosures about significant differences in corporate governance practices. Many U.S. securities exchanges exempt listed foreign private issuers from many of their corporate governance requirements, but require these issuers to disclose the significant ways in which their corporate governance practices differ from those followed by domestic companies under the relevant exchange's listing standards. This disclosure can be provided in the issuer's annual report or on its website. We recommend adopting amendments to require the disclosure of these differences in the Form 20-F annual report to consolidate all of the relevant corporate governance disclosure about a listed company in one central location.

The Commission solicited public comment on proposed amendments to require foreign private issuers to provide financial information in their annual reports for completed acquisitions that are significant at the 50% or greater level. However, we do not recommend that you adopt the proposed amendments at this time given commenters' concerns about the timeliness of the information, as well as the usefulness of some of the historical financial information that would have been required.

Thank you. Tina will now present the next set of amendments.


Modified: 08/27/2008