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Mr Jonathan G. Katz 19 April 2004 Dear Mr. Katz, British Sky Broadcasting Group plc ("BSkyB" or "the Group"), as a UK Listed group, will be required to prepare its financial statements in accordance with International Financial Reporting Standards ("IFRS") for accounting periods beginning on or after 1 January 2005. The Group is therefore interested in the SEC's proposed rule on the First-Time Application of International Financial Reporting Standards ("the Proposal") and welcomes the opportunity to comment on the Proposal. The Group's responses to the questions posed by the SEC are detailed below. II. Discussion of Proposed Accommodation to Permit Omission of IFRS Financial Statements for the Third Financial Year A. Eligibility Requirements Questions
We believe that the proposal to file one year rather than two years of comparative information in the first year of IFRS reporting will significantly decrease both the burden and complexity of conversion to IFRS for foreign registrants and will increase the clarity and relevance of any information provided. We therefore support the SEC's proposal. IFRS 1 requires each entity to select a "date of transition", as the opening date for a restated IFRS balance sheet. In order to report a second period of comparatives for SEC reporting, companies would be obliged to set the "date of transition" one year earlier than for local reporting purposes. In requiring the earlier transition date, the SEC would increase the reporting burden on companies considerably, as their ability to restate results under IFRS accurately for a second comparative period is restricted, principally due to a lack of clarity about the standards that will ultimately apply to that period. This uncertainty has meant that Companies will have been unable to collect all the information required for a second comparative period. The proposed requirement to include one year's comparative results in the Form 20-F would be consistent with United Kingdom reporting requirements, and would allow businesses converting to IFRS to obtain all relevant quantitative and qualitative information on a current basis, rather than reconstructing the information retrospectively. We believe that the extra cost and time required to identify and collect the appropriate information needed to restate an additional comparative year is high compared to the additional value that the information would bring to investors. We also note that readers of the Form 20-F will have 5 years of US GAAP information available, which should be sufficient for business trend analysis.
UK companies are not required to publish financial statements prepared in accordance with IFRS for the third year back. Even if companies are required to publish the third year back information under local country regulations, we continue to believe it is of little benefit to investors for the reasons stated above.
We believe that the preferred accommodation should be available indefinitely for all entities adopting IFRS for the first time.
We believe that the preferred accommodation should be available indefinitely for all entities adopting IFRS for the first time.
We believe that extending the proposed accommodation beyond 2007 would broaden the use of IFRS as the requirement to provide two years of IFRS financial information is less onerous than providing three and may therefore encourage voluntary transition to IFRS.
If first-time adopters of IFRS were not able to avail themselves of the proposed accommodation, presenting a third year of IFRS information would be more useful to an investor than previous GAAP on the grounds of relevance and comparability. Presenting UK GAAP financial statements could cause confusion amongst users. However, the expense, complexity and difficulty in obtaining reliable information in order to prepare a second year of comparatives under IFRS would outweigh the marginal benefit to investors that it would provide. We believe that a second year of comparatives under IFRS is not relevant to most users of the 20-F as they already have Previous GAAP and US GAAP financial information available for that year and the first IFRS financial statements will also provide trend information based on US GAAP results within the filing. We would therefore reiterate that we believe including only one year of IFRS comparatives is the most appropriate and acceptable solution for the first year of reporting under IFRS. B. Primary Financial Statements Questions
We believe that the proposed amendment to permit two years of IFRS financial information, coupled with the permitted exclusion of Previous GAAP financial statements, would be consistent with the best interest of investors. This is based on our belief that investors are primarily concerned with current and forward looking information when making investment decisions. This information will be available in the same level of detail as it has been historically, and a second year of comparable information would be of limited value to investors. In addition, should investors wish to look at historical trends, we believe that the required GAAP reconciliations (Previous GAAP to U.S. GAAP, IFRS to U.S. GAAP, and IFRS to Previous GAAP) and the supplemental financial data provided within the five year results summary include sufficient detail to enable investors to derive key financial measures on a consistent basis over previous years (when reviewed in conjunction with prior filings).
We agree with the proposal to include one year of comparatives and do not consider there to be any other options that would be more appropriate for the needs of our investors.
We do not believe that the presentation of three years of condensed U.S. GAAP financial information in a level of detail consistent with interim financial statements prepared under Article 10 of Regulation S-X should be required to be disclosed in addition to the US GAAP information already provided. The underlying information is already available to investors through the U.S. GAAP reconciliations provided within the financial statements and for previous years within earlier filings. Hence we believe that the significant cost of preparing these separate disclosures will far outweigh any limited benefits to investors of disclosing this information in this form. We also believe that it would be unduly burdensome and inconsistent with foreign registrants not subject to EU regulation to require adopters of IFRS to disclose additional U.S. GAAP information that would not require disclosure otherwise. The difficulties and costs of providing this information would result from the time required to apply U.S. GAAP adjustments to individual line items within the income statement and the balance sheet, which has not been done historically due to the existing requirements under the Securities Exchange Act of 1934, which require reconciliation of net income, shareholders' equity and cash flow statements only. Furthermore, we believe that the level of information currently provided is sufficient for investors to be able to make informed investment decisions.
We believe that any issues relating to the different starting points and reconciling items used in the reconciliation from Previous GAAP to U.S. GAAP and from IFRS to U.S. GAAP would be adequately covered by the reconciliation from Previous GAAP to IFRS (as required by IFRS 1). We are therefore of the opinion that no additional information should be required.
As noted above, we do not believe that condensed U.S. GAAP information in the level of detail as required by Article 10 should be required in addition to the US GAAP information already required in Form 20-F.
As noted above, we do not believe that condensed U.S. GAAP information in the level of detail as required by Article 10 should be required in addition to the US GAAP information already required in Form 20-F.
We do not believe it is appropriate to prohibit the inclusion of Previous GAAP information, as this may constitute the least burdensome method of providing relevant information. However, where such information is included, regardless of type of presentation, it should be subject to explicit statements highlighting the accounting basis under which the relevant information has been prepared. It should also be noted that IFRS 1 does require Previous GAAP information to be included as part of the reconciliation from Previous GAAP to IFRS and therefore, to prohibit the inclusion of Previous GAAP information would contravene the requirements of IFRS 1. In this situation, non-compliance with IFRS 1 would also mean a company would be unable to state that their accounts had been prepared in accordance with IFRS as a whole, which is unacceptable to both the reporting companies and their investors.
We believe it would be appropriate to permit an issuer to make reference to other SEC filings or other documents that include Previous GAAP financial statements and financial information as this information does not cease to be useful in investment decisions. We support the inclusion of cautionary statements highlighting the different basis of preparation of Previous GAAP financial information wherever it is included.
We believe that it is appropriate to permit the inclusion, incorporation or reference to Previous GAAP financial information within the entire Form 20-F for all relevant periods for the reasons and with the cautions noted above. We do not consider that disclosure of Previous GAAP financial information within Item 5 should be mandatory; rather, it should be included only where this is useful and is consistent with the other financial information disclosures within Form 20-F. If the financial statements only include one year of comparative information, we believe that the OFR within Item 5 should be prepared on a consistent basis, and again only cover one year of comparative information. Despite this, it may still be necessary to refer to Previous GAAP financial information within Item 5 where this aids a reader's understanding of past performance, and on this basis, we believe that it is appropriate to allow its inclusion within Item 5.
Previous GAAP financial statements may be of use to investors looking at background information and historical trends, and we are of the opinion that previously filed annual reports would be sufficient in this regard. Investors may find that comparison between IFRS financial statements and Previous GAAP is only of limited use because the information will not be directly comparable either in terms of accounting standards used to prepare the information, or in terms of its classification and presentation, particularly given that information on the differences between the Previous GAAP and IFRS will already be available to investors within the reconciliations required by IFRS 1. As stated previously, we consider that it is necessary for the SEC to allow the inclusion of Previous GAAP financial information within all sections of the Form 20-F, but we do consider that it should be clearly identified as having a different basis of preparation, with appropriate cautionary language.
The inclusion of Previous GAAP financial information could cause confusion if it is not made clear what accounting basis respective information has been prepared. It is therefore important that all information prepared under Previous GAAP is clearly labelled. This should include a general cautionary statement at the beginning of the filing as well as disclosure notes to all relevant information.
We consider that the financial statements, including the notes, should only include the Previous GAAP information as permitted and as required by IFRS, specifically the reconciliation between Previous GAAP and IFRS as required by IFRS 1, otherwise we anticipate difficulties in relation to the audit report.
We reiterate the importance of clearly labelling all Previous GAAP information included, incorporated or referred to in order to prevent confusion. As noted above, we believe this would be best achieved through a general cautionary statement at the beginning of the filing as well as disclosure notes to all relevant information. C. Selected Financial Data Questions
We believe that the disclosure of selected financial data should be made within Item 3 on Form 20-F and should include two years of IFRS selected financial data, and five years of US GAAP selected financial data. In this way, we would balance the need to provide long-term trend information about our Group with the need to limit reader confusion and unduly onerous burden to the Group from the excessive restatement of information. Therefore, we do not believe a separate section of the document is required.
We believe that selected financial data based on Previous GAAP would be of little use to users of the Form 20-F if two years of detailed IFRS information, and five years of condensed US GAAP information has already been presented in the Form 20-F. There is no clear value in presenting this additional information which would require the use of strong caveats to indicate that its basis of preparation differs from the rest of the statement. A "side-by-side" format would not be appropriate because the format of our balance sheet and income statement will be different under IFRS. However, provided the information is clearly labelled with suitable cautionary language, this approach may be the most effective way of communicating certain financial information. For this reason we believe that giving the user the choice of presenting this information in a separate section or through reference to other publicly available documents would be more appropriate. D. Operating and Financial Review and Prospects Questions
We are of the opinion that the information required under the proposal is appropriate and have no further comments.
As noted above, we do not consider the inclusion of disclosure of operating and financial review and prospects based on Previous GAAP financial information to be of benefit to investors, and believe that it would create an undue burden for issuers. E. Other Disclosures Questions
We are of the opinion that the proposed requirement is sufficient on the basis that this is similar to current requirements and hence is unlikely to create an undue burden on issuers or to provide a lower level of information to investors than previously. F. Financial Statements and Information for Interim Periods for the Transition Year We have assumed that the questions in this section relate to filing obligations for initial registration statements and prospectuses in the transition year, and not the ongoing obligations to file interim financial statements on Form 6-K. III. Disclosures About First-Time Adoption of IFRS A. Disclosure about Exceptions to IFRS Questions
We believe it would be useful to disclose a qualitative description of which exceptions have been taken in preparing our opening position under IFRS, but we do not believe that detailed discussion on the use of the exceptions would be desirable as we would simply be restating IFRS rules and would only be providing limited additional disclosure on the impact of the exceptions. We do not support the disclosure of the quantitative impact of exceptions, as this would require substantial additional work and cost because of the need to consider transactions that may have taken place a number of years ago, and recreate, or access information relating to them. The transition exemptions allow scope for companies to choose between various different options and not merely between two different options, and therefore a quantitative impact of exceptions taken may not be meaningful. In addition, it potentially may not be possible to quantify the impact where access to historical information is limited, for example where a business was acquired 10 years ago, and disposed of in the comparative period presented in the first IFRS financial statements, i.e. before the new IFRS on business combinations was issued in March 2004. Even if a quantitative impact could be calculated, we feel its disclosure would be of limited value to investors, as it would provide historical information only, and such detail may lead to a lack of clarity within the financial statements.
As noted above, we do not believe additional disclosure in this area would be helpful to users, and would be extremely onerous to produce.
We believe that flexibility rather than specific guidance would be most appropriate. The effect and significance of each exemption will differ broadly between different entities. We feel that it would be most appropriate to allow each entity to consider how best to communicate this information. B. Reconciliation from Previous GAAP Questions
The example provided in IG63 is one form of disclosure that would meet the requirements under IFRS 1 to reconcile the balance sheet, income statement and cash flow from Previous GAAP to IFRS. The example will be followed where this is the most appropriate way to disclose this reconciliation, with adaptation if the example is not sufficient for an individual entity's purposes. We do not believe that the SEC needs to give additional guidance on the form and content of the reconciliation over and above that given in IFRS 1.
We are required to follow IG63 in our disclosure requirements for local reporting. However, the example included in IG63 is intended to be just one example of how to satisfy IFRS 1's requirements. We believe the framework offered by IFRS 1 allows entities to consider how best to reconcile their accounts given their specific circumstances. A requirement to directly follow the example in IG63 for Form 20-F purposes may not be appropriate in all cases. We believe that meeting the requirements of IFRS 1 should be sufficient without setting out an additional specific reporting format.
For the reasons stated above, we believe the reconciliation information required by IFRS 1 would provide useful information to investors and that additional information should not be required. IV. General Request for Comments
We are particularly interested in commenter views on whether all or part of these rules should "sunset" after a particular period of time. Specifically, will General Instruction G be useful or relevant three years after the year 2007 transition to IFRS is complete? If we were to automatically delete the provision, should the time period be longer or shorter? In order to encourage the adoption of IFRS, we believe that the provisions should be extended indefinitely, to allow any entities registered with the SEC to transition to IFRS when it is appropriate for them. We also note that, currently, the amendments proposed apply to entities that fully adopt IFRS. Under the EU Regulation, entities within the EU are required to adopt IFRS standards as endorsed by the European Commission, and currently not all IFRS standards have been endorsed. This may lead to a situation where companies falling within the EU Regulation are reporting under "IFRS as endorsed by the European Commission" rather than simply "IFRS". As such we would ask the SEC to ensure that the scope of the amendments explicitly refer to entities in this position i.e. entities reporting under IFRS, as endorsed by the European Commission. If you have any questions regarding our comments, please do not hesitate to contact me. Yours sincerely,
Kayte Herrity
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