Roadmap for the Potential Use of Financial Statements Prepared in Accordance With International Financial Reporting Standards by U.S. Issuers, 70816-70856 [E8-27559]
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Federal Register / Vol. 73, No. 226 / Friday, November 21, 2008 / Proposed Rules
SECURITIES AND EXCHANGE
COMMISSION
17 CFR Parts 210, 229, 230, 240, 244
and 249
[Release Nos. 33–8982; 34–58960; File No.
S7–27–08]
RIN 3235–AJ93
Roadmap for the Potential Use of
Financial Statements Prepared in
Accordance With International
Financial Reporting Standards by U.S.
Issuers
Securities and Exchange
Commission.
ACTION: Proposed rule.
AGENCY:
SUMMARY: The Securities and Exchange
Commission (‘‘Commission’’) is
proposing a Roadmap for the potential
use of financial statements prepared in
accordance with International Financial
Reporting Standards (‘‘IFRS’’) as issued
by the International Accounting
Standards Board by U.S. issuers for
purposes of their filings with the
Commission. This Roadmap sets forth
several milestones that, if achieved,
could lead to the required use of IFRS
by U.S. issuers in 2014 if the
Commission believes it to be in the
public interest and for the protection of
investors. This Roadmap also includes
discussion of various areas of
consideration for market participants
related to the eventual use of IFRS in
the United States. As part of the
Roadmap, the Commission is proposing
amendments to various regulations,
rules and forms that would permit early
use of IFRS by a limited number of U.S.
issuers where this would enhance the
comparability of financial information
to investors. Only an issuer whose
industry uses IFRS as the basis of
financial reporting more than any other
set of standards would be eligible to
elect to use IFRS, beginning with filings
in 2010.
DATES: Comments should be received on
or before February 19, 2009.
ADDRESSES: Comments may be
submitted by any of the following
methods:
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Electronic Comments
• Use of the Commission’s Internet
comment form (https://www.sec.gov/
rules/proposed.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number S7–27–08 on the subject line;
or
• Use the Federal Rulemaking ePortal
(https://www.regulations.gov). Follow the
instructions for submitting comments.
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Paper Comments
• Send paper comments in triplicate
to Florence E. Harmon, Acting
Secretary, Securities and Exchange
Commission, 100 F Street, NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number S7–27–08. The file number
should be included on the subject line
if e-mail is used. To help us process and
review your comments more efficiently,
please use only one method. The
Commission will post all comments on
the Commission’s Internet Web site
(https://www.sec.gov/rules/proposed/
shtml). Comments also are available for
public inspection and copying in the
Commission’s Public Reference Room,
100 F Street, NE., Washington, DC
20549, on official business days
between the hours of 10 a.m. and 3 p.m.
All comments received will be posted
without change; we do not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly.
FOR FURTHER INFORMATION CONTACT:
Craig Olinger, Deputy Chief Accountant,
Division of Corporation Finance, at
(202) 551–3400 or Michael D. Coco,
Special Counsel, Office of International
Corporate Finance, Division of
Corporation Finance, at (202) 551–3450,
or Liza McAndrew Moberg, Professional
Accounting Fellow, Office of the Chief
Accountant, at (202) 551–5300, U.S.
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–3628.
SUPPLEMENTARY INFORMATION: The
Commission is publishing for comment
a proposed Roadmap and proposed
amendments to Regulations S–X,1 S–K 2
and C 3 under the Securities Act of 1933
(the ‘‘Securities Act’’),4 and Rule 12b–
2,5 Schedule 13E–3,6 Schedule TO,7
Regulation G,8 and Form 8–K,9 under
the Securities Exchange Act of 1934 (the
‘‘Exchange Act’’).10 In Regulation S–X,
we propose to amend Rules 1–01,11 1–
02,12 3–10,13 4–01 14 and 8–01,15 and to
1 17 CFR 210.1–01–210.12–29. Regulation S–X
sets forth the form and content of requirements for
financial statements.
2 17 CFR 229.10 et seq.
3 17 CFR 230.400 et seq.
4 15 U.S.C. 77a et seq.
5 17 CFR 240.12b–2.
6 17 CFR 240.13e–100.
7 17 CFR 240.14d–100.
8 17 CFR 244 et seq.
9 17 CFR 249.308.
10 15 U.S.C. 78a et seq.
11 17 CFR 210.1–01.
12 17 CFR 210.1–02.
13 17 CFR 210.3–10.
14 17 CFR 210.4–01.
15 17 CFR 210.8–01.
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add Article 13. We are proposing the
new Article 13 to apply to U.S. issuers
and, as a conforming change, to foreign
private issuers 16 that file IFRS financial
statements.17 In Regulation S–K, we
propose to amend Items 10,18 101,19
301,20 504,21 1100,22 1112,23 1114 24
and 1115.25 In Regulation C, we propose
to amend Rule 405.26 In Regulation G,
we propose to amend Item 101.27
Table of Contents
I. Overview
II. The Role of IFRS in the U.S. Capital
Markets
A. The Promise of Global Accounting
Standards
1. The Global Nature of Today’s Capital
Markets
2. Potential for IFRS as the Global
Accounting Standard
B. Past Policy Considerations Regarding
IFRS
III. A Proposed Roadmap to IFRS Reporting
by U.S. Issuers
A. Milestones To Be Achieved Leading to
the Use of IFRS by U.S. Issuers
1. Improvements in Accounting Standards
2. Accountability and Funding of the IASC
Foundation
3. Improvement in the Ability To Use
Interactive Data for IFRS Reporting
4. Education and Training
5. Limited Early Use of IFRS Where This
Would Enhance Comparability for U.S.
Investors
6. Anticipated Timing of Future
Rulemaking by the Commission
7. Implementation of the Mandatory Use of
IFRS
B. Other Areas of Consideration
1. The Roles of Financial Information
2. Accounting Systems, Controls and
Procedures
3. Auditing
4. Considerations of IFRS and the IASB’s
Standard Setting Process
a. State of IFRS
16 A ‘‘foreign private issuer,’’ as defined in Rule
3b-4(c) [17 CFR 240.3b-4(c)], means any foreign
issuer other than a foreign government except an
issuer that meets the following conditions: (1) More
than 50 percent of the issuer’s outstanding voting
securities are directly or indirectly held of record
by residents of the United States; and (2) any of the
following: (i) the majority of the executive officers
or directors are United States citizens or residents;
(ii) more than 50 percent of the assets of the issuer
are located in the United States; or (iii) the business
of the issuer is administered principally in the
United States.
17 As explained in Section V.B. below, inclusion
of foreign private issuers in Article 13 will not
change the content of their financial statements
filed under Form 20–F.
18 17 CFR 229.10.
19 17 CFR 229.101.
20 17 CFR 229.301.
21 17 CFR 229.504.
22 17 CFR 229.1100.
23 17 CFR 229.1112.
24 17 CFR 229.1114.
25 17 CFR 229.1115.
26 17 CFR 230.405.
27 17 CFR 244.101.
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Federal Register / Vol. 73, No. 226 / Friday, November 21, 2008 / Proposed Rules
b. Relationship to the Accounting Standard
Setting Process
IV. Proposal for the Limited Early Use of
IFRS Where This Would Enhance
Comparability for U.S. Investors
A. Eligibility Requirements
B. Staff Letter of No Objection to the Use
of IFRS
C. Transition
D. Alternative Proposals for U.S. GAAP
Information
1. Proposal A—Reconciled Information
Pursuant to IFRS 1
2. Proposal B—Supplemental U.S. GAAP
Information
3. Discussion of Proposals A and B
V. Discussion of Proposed Amendments
A. The Use of IFRS Financial Statements
in Commission Filings by Eligible Issuers
1. Proposed Amendments to Rule 4–01 of
Regulation S–X
2. Proposed Definition of ‘‘IFRS Issuer’’
B. Application
1. Article 13 of Regulation S–X
2. Proposed Clarifying Amendments With
Respect to References to IFRS as Issued
by the IASB
C. Proposed Amendments to Item 10(e) of
Regulation S–K and Regulation G
D. Related Disclosure and Financial
Reporting Issues
1. Selected Financial Data
2. Market-Risk and the Safe Harbor
Provisions
3. Disclosure of First-Time Adoption of
IFRS in Form 10–K
4. Other Considerations Relating to IFRS
and U.S. GAAP Guidance
E. Financial Statements of Other Entities
Under Regulation S–X
1. Application of the Amendments to Rules
3–05, 3–09 and 3–14
a. Significance Testing
b. Separate Historical Financial Statements
of Another Entity Provided Under Rule
3–05, 3–09 or 3–14
2. Financial Statements Provided Under
Rule 3–10
3. Financial Statements Provided Under
Rule 3–16
F. Pro Forma Financial Statements
Provided Under Article 11
G. Industry Specific Matters
1. Disclosure Pursuant to Industry Guides
2. Disclosure From Oil and Gas Companies
Under FAS 69
H. Application of the Proposed
Amendments to Other Forms, Rules and
Schedules
1. Application of Proposed Amendments to
Exempt Offerings
2. References to FASB Pronouncements in
Form 8–K
3. Application of IFRS to Tender Offer and
Going-Private Rules
VI. General Request for Comments
VII. Paperwork Reduction Act
A. Background
B. Burden and Cost Estimates Related to
the Proposed Amendments
C. Request for Comment
VIII. Cost-Benefit Analysis
A. Proposal for Early Use of IFRS by U.S.
Issuers
1. Expected Benefits
2. Expected Costs
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B. Proposal A: Reconciled Information
Pursuant to IFRS 1
1. Expected Benefits
2. Expected Costs
C. Proposal B: Supplemental U.S. GAAP
Information
1. Expected Benefits
2. Expected Costs
IX. Regulatory Flexibility Act Certification
X. Consideration of Impact on the Economy,
Burden on Competition and Promotion
of Efficiency, Competition and Capital
Formation
XI. Proposed Amendments to the
Codification of Financial Reporting
Policies
XII. Statutory Basis and Text of Proposed
Amendments
I. Overview
The Commission is proposing this
Roadmap towards requiring the use of
International Financial Reporting
Standards (‘‘IFRS’’) as issued by the
International Accounting Standards
Board (‘‘IASB’’) 28 by U.S. issuers 29 as
part of its consideration of the role a
single set of high-quality accounting
standards plays in investor protection
and the efficiency and effectiveness of
capital formation and allocation. As
capital markets have become
increasingly global, U.S. investors have
a corresponding increase in
international investment opportunities.
In this environment, we believe that
U.S. investors would benefit from an
enhanced ability to compare financial
information of U.S. companies with that
of non-U.S. companies. The
Commission has long expressed its
support for a single set of high-quality
global accounting standards as an
important means of enhancing this
comparability.30 We believe that IFRS
28 As used in this release, the phrase ‘‘IFRS as
issued by the IASB’’ refers to the authoritative text
of IFRS, which, according to the Constitution of the
International Accounting Standards Committee
Foundation (‘‘IASC Foundation’’), is published in
English. See ‘‘International Financial Reporting
Standards, including International Accounting
Standards and Interpretations as at 1 January 2007,’’
Preface to International Financial Reporting
Standards, at paragraph 23. Unless otherwise noted,
the phrase ‘‘IFRS’’ refers to IFRS as issued by the
IASB.
29 The terms ‘‘U.S. issuer’’ and ‘‘domestic issuer’’
are used interchangeably in this release. Although
there is no specific definition of those terms under
the Exchange Act or the Securities Act, they are
used in this document to refer to any issuer that
files annual reports pursuant to the Exchange Act
on Form 10–K [17 CFR 249.310] or a registration
statement under the Securities Act for which
foreign private issuer status is not an eligibility
requirement. For purposes of this release, the terms
U.S. issuer and domestic issuer also include a
foreign issuer or foreign private issuer, as defined
in Rule 3b–4 under the Exchange Act [17 CFR
240.3b–4(c)] and in Rule 405 under the Securities
Act [17 CFR 230.405], that elects to file on domestic
forms.
30 See, for example, Release No. 33–6807
(November 14, 1988) [53 FR 46963 (November 21,
1988)].
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has the potential to best provide the
common platform on which companies
can report and investors can compare
financial information.
This proposed Roadmap first
addresses the basis for considering the
mandatory use of IFRS by U.S. issuers.
It then sets forth seven milestones
which, if achieved, could lead to the use
of IFRS by U.S. issuers in their filings
with the Commission.31 The
Commission in 2011 would determine
whether to proceed with rulemaking to
require that U.S. issuers use IFRS
beginning in 2014 if it is in the public
interest and for the protection of
investors to do so. These milestones
relate to:
• Improvements in accounting
standards;
• The accountability and funding of
the IASC Foundation;
• The improvement in the ability to
use interactive data for IFRS reporting;
• Education and training relating to
IFRS;
• Limited early use of IFRS where
this would enhance comparability for
U.S. investors;
• The anticipated timing of future
rulemaking by the Commission; and
• The implementation of the
mandatory use of IFRS by U.S. issuers.
After describing the milestones, this
proposed Roadmap also discusses how
IFRS reporting by U.S. issuers may
affect other participants in the capital
markets.
As a step along this Roadmap, this
release then describes proposed
amendments to permit a U.S. issuer that
is among the largest companies
worldwide within its industry, and
whose industry uses IFRS as the basis
of financial reporting more than any
other set of standards, to elect to use
IFRS beginning with filings for fiscal
years ending on or after December 15,
2009. These amendments include a
process by which U.S. issuers would
seek confirmation from Commission
staff that they are eligible to use IFRS in
their Commission filings. This release
also seeks comment on two alternative
proposals under which U.S. issuers that
31 This release does not address the method the
Commission would use to mandate IFRS for U.S.
issuers. One of the options would be for the
Financial Accounting Standards Board (‘‘FASB’’) to
continue to be the designated standard setter for
purposes of establishing the financial reporting
standards in issuer filings with the Commission. In
this option our presumption would be that the
FASB would incorporate all provisions under IFRS,
and all future changes to IFRS, directly into
generally accepted accounting principles as used in
the United States (‘‘U.S. GAAP’’). This type of
approach has been adopted by a significant number
of other jurisdictions when they adopted IFRS as
the basis of financial reporting in their capital
markets.
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elect to use IFRS would disclose U.S.
GAAP information.
II. The Role of IFRS in the U.S. Capital
Markets
A. The Promise of Global Accounting
Standards
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1. The Global Nature of Today’s Capital
Markets
Today, investors, issuers and other
capital markets participants are able to
engage in financial transactions across
national boundaries and to make
investment, capital allocation and
financing decisions on a global basis
more readily than ever before. This is
due in large measure to today’s everfaster communications, and ever-moreclosely linked markets. Advances in
technology that facilitate securities
transactions have reduced barriers that
previously existed and that may have
impeded cross-border investment for
both retail and institutional investors.
For instance, investors can more readily
obtain information on a wide variety of
international investment opportunities
than in the past, largely due to the
availability of information over the
Internet. Further, it is now possible for
U.S. investors to have access to realtime securities transaction data from
stock exchanges and other securities
markets from around the world and to
trade on global exchanges through
accounts they manage over the Internet.
As trading and investment become more
global, investors face an increasing need
for full, fair and reliable disclosure that
enables comparison of financial
information across investment
alternatives that cross national
boundaries.
A large and increasing number of U.S.
investors hold securities of non-U.S.
issuers. Further, U.S. investors have the
ability to make cross-border investments
readily.32 Thus, we believe it is
important for U.S. investors to have
access to the tools to compare
effectively and efficiently their
investment opportunities in a global
capital market. The Commission has
long considered a reduction in the
disparity between the accounting and
disclosure practices of the United States
and those of other countries as an
important objective for both the
protection of investors and the
32 Over the period from 1990 to 2006, estimated
investments in foreign equity securities held by
U.S. residents has grown from approximately $200
billion to $4,300 billion, based on estimates
published by the U.S. Bureau of Economic
Analysis, U.S. Treasury statistics. See https://
bea.gov/international/xls/intinv07_t2.xls. Included
in this category are investments in equities, whether
listed or unlisted, where the holding by the U.S.
resident is less than 10%.
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efficiency of capital markets.33 Further,
while our recent Advisory Committee
on Improvements to Financial Reporting
(‘‘CIFiR’’) purposefully limited its scope
relating to international matters due to
ongoing efforts by the Commission and
the FASB, it did similarly note the
following in its final report to the
Commission.34
We broadly support the continued move to
a single set of high-quality global accounting
standards, coupled with enhanced
international coordination to foster their
consistent interpretation and to avoid
jurisdictional variants. Further, we encourage
the development of a roadmap to identify
issues and milestones to transition to this
end state in the U.S., with sufficient time to
minimize disruptions, resource constraints,
and the complexity arising from such a
significant change.35
The Commission recognizes that the
use of a single, widely accepted set of
high-quality accounting standards
would benefit both the global capital
markets and U.S. investors by providing
a common basis for investors, issuers
and others to evaluate investment
opportunities and prospects in different
jurisdictions. U.S. investors would be
able to make better-informed investment
decisions if they were to obtain highquality financial information from U.S.
companies that is more comparable to
the presently available information from
non-U.S. companies operating in the
same industry or line of business.
Capital formation and investor
understanding would be enhanced if the
world’s major capital markets all
operated under a single set of highquality accounting standards that elicit
comparable, high-quality financial
information from public companies.
2. Potential for IFRS as the Global
Accounting Standard
The increasing acceptance and use of
IFRS in major capital markets
throughout the world over the past
several years, and its anticipated use in
other countries in the near future,
indicate that IFRS has the potential to
become the set of accounting standards
that best provide a common platform on
which companies can report and
investors can compare financial
33 See, for example, Release No. 33–6360
(November 20, 1981) [46 FR 58511 (December 2,
1981)]. For a further discussion of the Commission’s
previous actions promoting development of a single
set of high-quality globally accepted accounting
standards, see Section III.C. of Release No. 33–8831
(August 7, 2007) [72 FR 45600 (August 14, 2007)]
(‘‘2007 Concept Release’’).
34 See Final Report of the Advisory Committee on
Improvements to Financial Reporting to the United
States Securities and Exchange Commission
(August 1, 2008) (‘‘CIFiR Final Report’’).
35 CIFiR Final Report, at page 21 (footnotes
references omitted).
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information. Approximately 113
countries around the world currently
require or permit IFRS reporting for
domestic, listed companies.36
Foreign jurisdictions have chosen to
require or allow IFRS for many different
reasons. For example, in the European
Union (the ‘‘E.U.’’), prior to its
requirement relating to IFRS applicable
to companies incorporated and publicly
traded in its Member States,37
accounting standards in each of the E.U.
Member States generally were
established individually in each
jurisdiction. Further, each Member State
would typically permit the use in its
capital markets of accounting standards
set in other jurisdictions, in addition to
its own domestic accounting
standards.38 IFRS provided a common
set of accounting principles under
which all domestic listings in the E.U.
could report. In Canada, accounting
standard setters concluded that, given
the increasing globalization of capital
markets and other recent developments,
that it was timely for public Canadian
companies to adopt globally accepted,
high-quality accounting standards by
converging Canadian GAAP with IFRS
over a transitional period, after which a
separate and distinct Canadian GAAP
would cease to exist as a basis of
financial reporting for public
companies.39 In Australia, the decision
to adopt IFRS was part of a strategy to
ensure consistency and comparability of
Australian financial reporting with
financial reporting across global
financial markets.40 More countries
36 Some countries have enacted IFRS as national
standards and require compliance to be stated with
those national standards. In some cases, these
national standards are identical to IFRS as issued
by the IASB; in other cases, these national
standards have been more narrow, yet consistent
with IFRS as issued by the IASB; and, in yet other
cases, these national standards may permit
additional options that are inconsistent with IFRS
as issued by the IASB, although companies may opt
to apply standards so that they comply with IFRS
as issued by the IASB. See https://www.iasplus.com/
country/useias.htm.
37 See Regulation (EC) No. 1606/2002 of the
European Parliament and of the Council of the
European Union of 19 July 2002 on the application
of international accounting standards, Official
Journal L. 243, 11/09/2002 P. 0001–0004.
38 For example, U.S. GAAP was accepted by some
E.U. Member States for domestic registrants and
still is accepted for foreign registrants.
39 For additional information, see https://
www.cica.ca/index.cfm/ci_id/44036/la_id/1.htm.
The staff of the Canadian Securitities
Administrators (‘‘CSA’’) has proposed retaining the
existing option for a domestic Canadian issuer that
is also an SEC issuer to use U.S. GAAP. See https://
www.cica.ca/3/9/1/6/6/index1.shtml. for the link to
‘‘CSA Announcement re: IFRS in Canada’’ (CSA
Staff Notice 52–321).
40 See https://www.asic.gov.au/asic/asic.nsf/
byheadline/Your+questions+about+implementing
+the+IFRS?openDocument#1.
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have adopted IFRS, including Israel,41
and others have plans to allow it,
including Brazil.42 The market
capitalization of exchange listed
companies in the E.U., Australia and
Israel totals $11 trillion (or
approximately 26% of global market
capitalization), and the market
capitalization from those countries plus
Brazil and Canada totals $13.4 trillion
(or approximately 31% of global market
capitalization).43
The Commission is aware of the
transitions made by other countries to
IFRS. For example, the vast majority of
listed European companies, including
banks and insurance companies, moved
to comply with the E.U. IFRS
requirement in 2005 with the remainder
transitioning in 2007. Under these
transition approaches, in essence all or
almost all of the listed companies
transitioned to IFRS at the same time.
Some foreign regulators have published
reports relating to the implementation of
IFRS in their country. For example, the
U.K. Financial Reporting Review Panel
´
´
and the Autorite des Marches Financiers
of France (‘‘AMF’’) have both published
reports making observations on IFRS as
applied in their jurisdictions.44
As with all countries that have
evaluated the potential use of IFRS in
their own markets, the policy
considerations in the United States must
factor in the individual circumstances of
its investors and capital markets. The
U.S. capital markets are among the
largest and most liquid in the world.
U.S. GAAP is a well-established basis of
financial reporting and is applied by all
U.S. public companies, many foreign
companies, and many U.S. private
companies, as well as their auditors.
Today, U.S. GAAP is accepted in capital
markets around the world, and the
Commission requires its use by all
domestic issuers.45 The accounting
principles established by the FASB have
been recognized by the Commission as
41 See Israel Accounting Standard No. 29
‘‘Adoption of International Financial Reporting
Standards,’’ which describes the adoption of IFRS
in Israel for years starting on January 1, 2008.
42 See https://www.cvm.gov.br/port/snc/inst457
.pdf.
43 All figures are from the World Federation of
Stock Exchanges, Domestic Market Capitalization as
of September 30, 2008, in U.S. dollars.
44 For the report of the U.K. Financial Reporting
Review Panel, see ‘‘Preliminary Report: IFRS
Implementation’’ available at https://www.frc.org.uk
/images/uploaded/documents/IFRS%20
Implementation%20-%20preliminary.pdf. For the
report of the AMF, see ‘‘Recommendations on
accounting information reported in financial
statements for 2006,’’ dated December 19, 2006,
available at https://www.amf-france.org/documents/
general/7565_1.pdf.
45 See Rule 4–01(a)(1) of Regulation S–X [17 CFR
210.4–01(a)(1)].
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‘‘generally accepted’’ for purposes of the
U.S. federal securities laws.46
Regardless of whether the
Commission decides to allow or require
IFRS for U.S. issuers in the future, the
past and anticipated move towards the
use of IFRS in other jurisdictions may
have begun to affect U.S. investors’
ability to evaluate investment
alternatives as their level of investment
in non-U.S. companies has increased
over time.47 The growing level of foreign
investment by U.S. residents in
international investment opportunities,
including opportunities to invest in
issuers that do not file reports with the
Commission, makes it likely that U.S.
investors will increasingly need to use
IFRS financial statements.48 Also, it is
likely that large U.S. issuers that
compete for capital on a global basis
will increasingly need to use and
understand IFRS financial statements in
order to remain competitive. For these
reasons, the Commission finds it
advisable to continue to pursue
consideration of the use of IFRS in the
U.S. markets in order to better equip
U.S. investors to make comparisons of
U.S. companies with certain non-U.S.
companies, while balancing this with
the fact that U.S. investors should be
able to compare U.S. companies with
other U.S. companies.
Promoting a single set of globally
accepted accounting standards will
benefit investors as more and more
companies prepare their financial
statements applying a single set of highquality accounting standards. With a
single set of accounting standards,
investors can more easily compare
information and will be in a better
position to make informed investment
decisions. This benefit is dependent
upon use of a single set of high-quality
standards globally and financial
reporting that is, in fact, consistently
applied across companies, industries
and countries. Any decision we may
take to expand the use of IFRS to U.S.
issuers would necessitate our evaluation
46 See
Release No. 33–8221, Financial Reporting
Release (‘‘FR’’) 70 (April 25, 2003) [68 FR 23333
(May 1, 2003)] (‘‘FR 70’’).
47 As more companies move towards IFRS
reporting, current and potential investors in U.S.
issuers may increasingly be comparing those U.S.
issuers’ financial information to IFRS-based
financial information of competing investment
opportunities. For example, approximately 120
foreign private issuers currently report to the
Commission using IFRS financial statements.
48 For example, U.S. investors may purchase
securities issued by a non-reporting foreign
company directly on a foreign exchange, or they
may invest in American Depositary Receipts
representing the securities of a foreign private
issuer that is exempt from Exchange Act reporting
requirements pursuant to Rule 12g3–2(b) [17 CFR
240.12g3–2(b)].
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of whether global developments support
the assertion of IFRS as the single set of
high-quality globally accepted
accounting standards that is applied
consistently across companies,
industries and countries.
The Commission has identified
certain considerations which may
influence the degree to which
comparability may be achieved through
widespread adoption of IFRS. These
considerations include the extent to
which IFRS is adopted and applied
globally, and whether IFRS is adopted
and applied in foreign jurisdictions as
issued by the IASB or as jurisdictional
variants of IFRS.49 We believe that the
benefits of moving towards a single set
of globally accepted standards as a longterm objective for increased
comparability of financial statements
are attainable through the use of IFRS
only if IFRS represents a single set of
high-quality accounting standards,
which is best accomplished through the
use of IFRS as issued by the IASB. As
stated previously, each jurisdiction’s
considerations surrounding the use of
IFRS in its markets are unique to the
jurisdiction’s circumstances. Therefore,
the large number of countries allowing
or requiring IFRS in their markets does
not alone determine the Commission’s
decision. However, in determining
whether to proceed with requiring the
use of IFRS by U.S. issuers, the
Commission will consider the extent to
which IFRS as issued by the IASB is
used globally, is applied consistently,
and supports the assertion of IFRS as
the single set of high-quality global
accounting standards.50
B. Past Policy Considerations Regarding
IFRS
Over time, the Commission has
undertaken a series of initiatives to
promote a single set of high-quality
globally accepted accounting standards
as a means of advancing the objective of
reduced disparity in financial reporting
49 Different jurisdictions often have internal
processes through which they adopt or incorporate
IFRS into their national accounting standards.
Decisions made during those processes may result
in discrepancies from IFRS as issued by the IASB.
50 In 2007, as part of our efforts to foster a single
set of globally accepted accounting standards, we
adopted amendments to allow foreign private
issuers to file IFRS financial statements without
reconciliation to U.S. GAAP only if the financial
statements were prepared in accordance with IFRS
as issued by the IASB. See ‘‘Acceptance from
Foreign Private Issuers of Financial Statements
Prepared in Accordance with International
Financial Reporting Standards Without
Reconciliation to U.S.,’’ Release No. 33–8879
(December 21, 2007) [73 FR 986 (January 4, 2008)]
(the ‘‘2007 Adopting Release’’). The Commission
proposed these rules in June 2007 [Release No. 33–
8818 (July 3, 2007)] [72 FR 37962 (July 11, 2007)]
(the ‘‘2007 Proposing Release’’).
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between U.S. issuers and foreign
issuers. Convergence of U.S. GAAP and
IFRS as issued by the IASB, which
involves the best efforts of the IASB and
the FASB (referred to jointly as ‘‘the
Boards’’) to make their financial
reporting standards fully compatible on
a standard-by-standard basis, has been
the predominant approach taken in the
United States to achieve that objective
over the past six years.51 As discussed
further below, the Commission
continues to support the joint efforts of
the IASB and the FASB as an important
means of increasing the quality of IFRS
and U.S. GAAP and, at the same time,
reducing disparity between the two.
More recently, the Commission’s
consideration of the use of IFRS by U.S.
issuers has included the issuance of a
Concept Release addressing whether
U.S. issuers should be permitted, but
not required, to use IFRS in their filings
with the Commission.52 Specifically,
the Commission sought input on the
nature and extent of the public’s interest
in giving U.S. issuers the option to file
with the Commission financial
statements prepared in accordance with
IFRS as issued by the IASB. The
Commission received over 80 comment
letters from a wide range of issuers,
investors, accounting firms and other
market participants.53
The Commission also has held three
public roundtables consisting of
investors, issuers, accounting firms,
educators, standard setters and other
capital market participants to receive
further input about the use of IFRS.54 In
December 2007, the Commission held
one roundtable on IFRS in U.S. markets
and a second on practical issues
surrounding the use of IFRS in recent
years and its potential expanded use in
future years. The third roundtable, in
August 2008, related to the performance
of U.S. GAAP and IFRS during the subprime crisis.
While many commenters on the 2007
Concept Release and the participants at
the roundtables supported allowing U.S.
issuers to use IFRS, certain commenters
expressed the belief that IFRS should be
mandated for all U.S. issuers and not
limited to a specific group of U.S.
51 The Norwalk Agreement, issued in 2002, and
a Memorandum of Understanding entered into by
the FASB and the IASB in 2006 express the Boards’
intentions to, on a best efforts basis, converge U.S.
GAAP and IFRS. See https://www.fasb.org/news/
memorandum.pdf and https://www.fasb.org/intl/
mou_02-27-06.pdf for further details.
52 See 2007 Concept Release.
53 These comments are available at https://
www.sec.gov/comments/s7-20-07/s72007.shtml.
54 Information on these Roundtables, including
transcripts, is available on the Commission’s Web
site at https://www.sec.gov/spotlight/
ifrsroadmap.htm.
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issuers. Other commenters believed that
U.S. issuers should continue to use U.S.
GAAP, while supporting ongoing
convergence.
III. A Proposed Roadmap to IFRS
Reporting by U.S. Issuers
A. Milestones To Be Achieved Leading
to the Use of IFRS by U.S. Issuers
The Commission is proposing this
Roadmap to set forth milestones which,
if achieved, could lead to the eventual
use of IFRS by all U.S. issuers. Through
this Roadmap, the Commission is
seeking to realize the objective of
providing investors with financial
information from U.S. issuers under a
set of high-quality globally accepted
accounting standards, which would
enable U.S. investors to better compare
financial information of U.S. issuers and
competing international investment
opportunities. This Roadmap is further
intended to encourage market
participants to consider the effect of
IFRS in our capital markets and to
prepare for the use of IFRS financial
statements by U.S. issuers in their
filings with the Commission.
In addition to the milestones, the
Commission also expects to consider,
among other things, whether IFRS as
issued by the IASB is a globally
accepted set of accounting standards
and whether it is consistently applied.
The advantages to U.S. investors of
increased comparability across
investment alternatives, as
contemplated under this Roadmap, are
dependent upon financial reporting
under IFRS that is, in fact, consistent
across companies, industries and
countries.
The course of action described in this
proposed Roadmap reflects the
deliberations of the Commission in light
of current circumstances. We intend to
publish the final Roadmap, if adopted,
in our Codification of Financial
Reporting Policies.55 We recognize,
however, that as events occur, new
circumstances may require us to update
or revise the Roadmap. With the
knowledge of the anticipated timetable
for Commission rulemaking initiatives
on this policy matter, investors, issuers
and other market participants may
engage more concretely in discussions
about IFRS for U.S. issuers, both
through comments provided to the
Commission as well as in further
dialogue among parties potentially
affected. The Commission believes that
any future actions relating to the use of
IFRS by U.S. issuers would benefit from
the increased awareness by all affected
55 See FR 1 (April 15, 1982), 7 Fed. Sec. L. Rep.
(CCH) ¶ 72,401, at 62,021.
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parties of the related issues and
preparedness that this Roadmap is
intended to foster. As we progress along
this initiative, we anticipate receiving
extensive input from investors, issuers
and other affected parties, which we
will consider carefully.
This proposed Roadmap relates solely
to U.S. issuers with respect to their
periodic reporting requirements under
Sections 13 and 15(d) of the Exchange
Act, proxy and information statements
under Section 14 of the Exchange Act
and registration statements under
Section 12 of the Exchange Act and
Section 7 of the Securities Act. Our
considerations at this time with respect
to the possible use of IFRS do not
include issuers that are investment
companies under the Investment
Company Act of 1940. Likewise, at this
time, the Roadmap does not extend to
other types of financial reports that are
filed or furnished to the Commission by
regulated entities, such as registered
broker-dealers.
1. Improvements in Accounting
Standards
In October 2002, the FASB and the
IASB announced the issuance of a
memorandum of understanding, called
the Norwalk Agreement. The two bodies
acknowledged their joint commitment
to the development, ‘‘as soon as
practicable,’’ of high-quality, compatible
accounting standards that could be used
for both domestic and cross-border
financial reporting. At that time, the
FASB and the IASB pledged to use their
best efforts to make their existing
financial reporting standards fully
compatible as soon as is practicable and
to coordinate their future work
programs to ensure that once achieved,
compatibility is maintained. In a 2006
Memorandum of Understanding, the
FASB and the IASB indicated that a
common set of high-quality global
standards remains the long-term
strategic priority of both the FASB and
the IASB. As part of this commitment,
the IASB and the FASB set out a work
plan covering several projects and
coordinated agendas so that major
projects that one board takes up may
also be taken up by the other board.
That plan covered specific long- and
short-term projects for work into 2008.
In November 2007, the Trustees of the
IASC Foundation reiterated their
support for continuing the work
program described in these memoranda,
noting that future work is largely
focused on areas in which the objective
is to develop new world-class
international standards. The FASB and
the IASB have updated the timetable for
their joint work under the 2006
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Memorandum of Understanding.56 The
next phase of the joint work plan goes
through 2011.
The current joint work plans of the
two standard setters, as well as other
work undertaken by them, furthers the
goal of comprehensive, high-quality
standards. The Commission will
continue to monitor the activities of
both the FASB and the IASB and the
progress of their efforts. In past
Commission releases, we have noted
areas where IFRS provides limited
guidance on a particular topic, such as
accounting for insurance contracts and
for extractive activities.57 Further, the
current work plan of the FASB and the
IASB includes accounting standards,
including (without emphasizing
priority) revenue recognition and
financial statement presentation, that
when completed should improve
financial reporting significantly. The
Commission will consider the degree of
progress made by the FASB and the
IASB in any future evaluation of the
potential expanded role of IFRS in the
reporting by U.S. issuers. When the
Commission considers mandating use of
IFRS by U.S. issuers in 2011, it would
consider whether those accounting
standards are of high quality and
sufficiently comprehensive.58 The
Commission urges the two Boards to
continue working towards the
completion of their joint work plan
estimated to be completed in 2011 and
other projects that are expected to
improve financial reporting.
In addition, it is important that
accounting standards be established
under a robust, independent process
that includes careful consideration of
possible alternative approaches and due
process, which allows for input from
and consideration of views expressed by
affected parties, including investors. It
is also important that accounting
standards are promptly considered to
keep standards current and reflect
emerging accounting issues and
changing business practices. Further, it
is important that the accounting
standards produced are capable of
improving the accuracy and
effectiveness of financial reporting and
the protection of investors, and of
resulting in a high quality of financial
reporting relative to the standards
56 See the update to the 2006 Memorandum of
Understanding at https://www.fasb.org/intl/
MOU_09–11–08.pdf.
57 See the discussion in Section III.B.4, below.
58 High quality accounting standards consist of a
set of neutral principles that require consistent,
comparable, relevant and reliable information that
is useful for investors. See ‘‘SEC Concept Release:
International Accounting Standards,’’ Release No.
33–7801 (February 16, 2000) [65 FR 8896 (February
23, 2000)].
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which may be replaced. Thus, in
considering future action as set out in
this Roadmap, the Commission would
also assess whether it believes that the
IASB continues to develop its standards,
including converged standards, through
a process that reflects these elements.
2. Accountability and Funding of the
IASC Foundation
The IASB is based in London and is
an accounting standard setting body
established to develop global standards
for financial reporting.59 It is overseen
by the IASC Foundation. The IASC
Foundation is based in London and is
a stand-alone, not-for profit
organization, incorporated in Delaware.
It is responsible for the activities of the
IASB and other work that centers on
IFRS, such as initiatives related to
translation of IFRS from the English
language, education about IFRS and the
development of interactive data
taxonomies for IFRS. The IASC
Foundation is governed by 22 trustees
(‘‘IASC Foundation Trustees’’) whose
backgrounds are geographically diverse.
The IASC Foundation has financed
IASB operations largely through
voluntary contributions from a wide
range of market participants from across
the world’s capital markets, including
from a number of firms in the
accounting profession, companies,
international organizations, central
banks and governments. Funding
commitments were made for the period
2001–2005 and then were extended for
an additional two years through 2007. In
June 2006, the IASC Foundation
Trustees agreed on four elements that
should govern the establishment of a
funding approach designed to enable
the IASC Foundation to remain a
private-sector organization with the
necessary resources to conduct its work
in a timely fashion. The IASC
Foundation Trustees determined that
characteristics of the new scheme for
2008 would be broad-based, compelling,
open-ended and country-specific.60 The
59 For more information on the structure and
operation of the IASB,see https://www.iasb.org.
60 Further description of these elements can be
found on the IASB’s Web site at https://
www.iasb.org/About+Us/
About+the+IASC+Foundation/Funding.htm. The
IASC Foundation describes these principles as
follows:
• Broad-based: A sustainable long-term financing
system must expand the base of support to include
major participants in the world’s capital markets,
including official institutions, in order to ensure
diversification of sources.
• Compelling: A system must carry with it
enough pressure to make free riding very difficult.
This could be accomplished through a variety of
means, including official support from the relevant
regulatory authorities and formal approval by the
collecting organizations.
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IASC Foundation Trustees continue to
make progress in obtaining funding that
satisfies those elements.61
The Commission will carefully
consider the degree to which the IASC
Foundation has a secure, stable funding
mechanism that permits it to function
independently and that enhances the
IASB’s standard setting process. The
IASC Foundation has developed
targeted contribution levels from
individual jurisdictions. Realizing the
IASC Foundation’s goal of receiving
open-ended funding commitments from
a broad base of constituents and that are
compulsory would encourage the
independent functioning of the IASB in
its standard setting process. Otherwise,
the IASB may be subject to a perceived
or, potentially, an actual connection
between the availability of funding and
the outcome of its standard setting
process. We believe that our future
determination regarding the required
use of IFRS for all U.S. issuers should
only occur after the IASC Foundation
reaches its goal of securing a stable
funding mechanism that supports the
independent functioning of the IASB.
National accounting standard setters
traditionally have been accountable to a
national securities regulator or other
government authority. In the United
States, the Financial Accounting
Foundation (‘‘FAF’’), the parent of the
FASB, is overseen by the Commission.
The IASC Foundation has not
historically had a similar link with any
national securities regulators.
Recognizing that such a relationship
would enhance the public
accountability of the IASC Foundation,
its Trustees have proposed amendments
to its Constitution to establish a
connection between the IASC
Foundation and a Monitoring Group
composed of securities authorities
charged with the adoption or
recognition of accounting standards
used in their respective jurisdictions.62
• Open-ended: The financial commitments
should be open-ended and not contingent on any
particular action that would infringe on the
independence of the IASC Foundation and the
IASB. This should include sustained support from
official international organizations, central banks
and the major accounting firms.
• Country-specific: The funding burden should
be shared by the major economies of the world on
a proportionate basis, using GDP as the key
determining factor of measurement. Each country
should meet its designated target in a manner
consistent with the principles above. Trustees
should be assigned to specific countries to assist in
the development of the funding scheme.
61 See https://www.iasb.org/About+Us/
About+the+IASC+Foundation/
2008+funding+commitments.htm.
62 See https://www.iasb.org/NR/rdonlyres/
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The Commission has been working with
other national securities authorities and
the International Organization of
Securities Commissions to establish the
Monitoring Group to enable it to begin
its work once the IASC Foundation
adopts the necessary changes to its
Constitution.63 The securities
authorities, including the Commission,
envision that the Monitoring Group will
participate in and approve nominations
for IASC Foundation Trustees, review
the funding arrangements of the IASC
Foundation for adequacy and
appropriateness, and address matters
that the IASC Foundation Trustees are
responsible for, such as oversight of the
IASB and potential areas for
consideration by the IASB in its ongoing
work.64
The Commission believes that the
accountability of the IASC Foundation
will be enhanced once the Monitoring
Group provides the forum for
interaction between securities
authorities and the IASC Foundation
Trustees. The Commission believes that
effective oversight is critical to
mandating that U.S. issuers prepare
financial statements in accordance with
IFRS. Based on the progress of the
discussions among securities regulators,
as well as the IASC Foundation’s
timetable for adopting the relevant
changes to its Constitution, the
Commission assumes that the
Monitoring Group will have been
established and be functioning by the
time the Commission considers
mandating the use of IFRS for U.S.
issuers. We will evaluate the
effectiveness of the oversight
mechanism (including the functioning
of the multilateral nature of the
Monitoring Group) in making the
determination whether mandating IFRS
is in the public interest for the
protection of investors and our markets.
3. Improvement in the Ability To Use
Interactive Data for IFRS Reporting
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In May 2008, the Commission
proposed rules to require companies to
provide their financial statements to the
Commission and on their corporate Web
sites in interactive data format using the
eXtensible Business Reporting Language
(‘‘XBRL’’) in order to improve their
Proposal_and_issues_for_the_Constitution.pdf for a
full description of the proposed amendments to the
Constitution.
63 See the Commission’s joint statement with
other national securities regulators with respect to
the establishment of a Monitoring Group at
https://www.sec.gov/news/press/2007/2007-226.htm.
64 The proposed responsibilities of the
Monitoring Group do not extend to the standard
setting process.
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usefulness to investors.65 Under those
proposed rules, financial statement
information could be submitted by
public companies in interactive data
format, and that financial information
could then be downloaded directly into
spreadsheets, analyzed in a variety of
ways using off-the-shelf commercial
software, or used within investment
models in any of a number of other
software formats. The rules proposed in
May, if adopted, would apply to
domestic and foreign public companies
that prepare their financial statements
in accordance with U.S. GAAP, and
foreign private issuers that prepare their
financial statements using IFRS as
issued by the IASB. Under the proposal,
foreign private issuers that prepare their
financial statements using IFRS as
issued by the IASB would be required
to provide financial statements in
interactive data format starting with
their fiscal periods ending on or after
December 15, 2010. If the Commission
adopts its proposed rules relating to
interactive data, it is anticipated that
they would apply to the limited number
of U.S. issuers that could elect to file
IFRS financial statements as proposed
in this release.
In order to realize the improvements
in the usefulness and comparability of
financial information anticipated upon
the widespread use of interactive data,
U.S. issuers would have to be capable of
providing IFRS financial statements to
the Commission in interactive data
format at a greater level of detail than is
currently available. Therefore, the state
of development of an IFRS list of tags
for interactive data reporting will be a
consideration in the Commission’s
determination of whether to require the
use of IFRS for all U.S. issuers. The
IASC Foundation first published a
complete list of tags for the IFRS
‘‘Bound Volume’’ in 2004, and has
published annual updates since then to
reflect new pronouncements, changes in
XBRL technical standards, and other
improvements; the most recent such
update was published in July 2008. The
Commission staff is actively involved in
the improvement and monitoring of the
IFRS list of tags via participation in the
IASC Foundation’s XBRL Advisory
Council. The Commission believes it is
appropriate to consider the IASC
Foundation’s progress in the
development of IFRS taxonomies prior
to proceeding with rulemaking on IFRS
for all U.S. issuers.
65 See ‘‘Interactive Data to Improve Financial
Reporting,’’ Release No. 33–8924 (May 30, 2008) [73
FR 32794 (June 10, 2008)].
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4. Education and Training
Reporting in accordance with IFRS by
U.S. issuers would increase the need for
effective training and education about
IFRS for investors, accountants, auditors
and others involved in the preparation
and use of financial statements, as there
are differences between U.S. GAAP and
IFRS.66 Investor education is
particularly important, so that users of
financial statements can work with the
financial information issuers publish.
The main benefits to investors of a
single set of high-quality globally
accepted accounting standards would be
realized only if investors more fully
understood the basis for the reported
results. In addition to investors, other
financial statement users may include
customers, vendors, rating agencies and
analysts.
The education and ongoing training of
most accountants in the United States is
limited to or predominantly focused on
the current provisions of U.S. GAAP.
Consequently, many parties would
likely need to undertake comprehensive
education on IFRS. The need for IFRS
training would involve personnel of
issuers, their governing bodies, such as
audit committees, and their auditors.
Such requirements for training also
extend to specialists, such as actuaries
and valuation experts, since these
professionals are engaged by
management to assist in measuring
certain assets and liabilities, and likely
are not currently proficient in IFRS.
Professional associations and industry
groups would need to integrate IFRS
into their training materials,
publications, testing and certification
programs. Colleges and universities
would need to include IFRS in their
curricula.67 Furthermore, it would be
appropriate to include IFRS in the
Uniform CPA Examination.68
On the regulatory side, the
Commission staff has continued to
develop its familiarity with IFRS, and
such efforts would need to continue and
intensify if the Commission were to
66 See, as just one example, https://www.kpmgifr
sinstitute.com/documents/IFRS/721200810043IFRS
%20compared%20to%20U.S.%20GAAP%20An
%20Overview%20(2008).pdf.
67 IFRS supplements to and IFRS content in
accounting textbooks used in U.S. universities have
become increasingly available.
68 The Board of Examiners of the AICPA has
issued an exposure draft, ‘‘Proposed Content and
Skill Specifications for the Uniform CPA
Examination’’ which proposed, among other things,
inclusion of certain aspects of the IFRS conceptual
framework and standard setting process in future
Uniform CPA Examinations. Further, the proposal
states that if IFRS becomes generally accepted in
the United States, inclusion of those standards in
the examination would expand. See https://
www.cpa-exam.org/cpa/exposure_draft.html for the
full text of the exposure draft.
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require U.S. issuers to file financial
statements prepared in accordance with
IFRS. The Public Company Accounting
Oversight Board (‘‘PCAOB’’), as part of
its inspection of registered public
accounting firms, regularly reviews the
audits of public companies. We
understand the PCAOB has already
begun to implement training courses in
IFRS to assist its staff in carrying out
inspections, but would need to expand
these training programs.
The strategies taken by those
participants in markets where issuers
already report in accordance with IFRS
may serve as examples of approaches to
increasing education and awareness of
IFRS. The private sector may also
respond to any increase in demand for
education about IFRS by making
educational materials available. Since
the Commission’s issuance of the
Concept Release in August 2007, several
of the largest accounting firms in the
United States have increased the
material made available to the public
about IFRS generally as well as about
the application of specific IFRS
standards. For example, several of the
accounting firms have held web casts
accessible free of charge to the general
public discussing different aspects of
IFRS. The Commission would take into
account the then current status of the
overall education, training and
readiness of investors, preparers,
auditors and other parties involved in
the preparation of financial statements
prior to proceeding with rulemaking on
IFRS for all U.S. issuers.
5. Limited Early Use of IFRS Where This
Would Enhance Comparability for U.S.
Investors
This Roadmap contemplates that the
Commission would make a decision in
2011 with regard to the mandated use of
IFRS for U.S. issuers, as described
below in Sections III.A.6. and 7. As part
of this Roadmap, we also are proposing
amendments to our rules, regulations
and forms which, if adopted, would
allow a limited number of U.S. issuers
to file IFRS financial statements prior to
any mandated use of IFRS in
Commission filings. These proposed
amendments are described later in this
release.
These proposed amendments would
allow the limited early use of IFRS by
U.S. issuers where it would enhance the
comparability of financial reporting to
U.S. investors for purposes of
comparing the largest U.S. issuers with
the largest non-U.S. companies in the
same industry. Further, the Commission
anticipates that providing the
alternative to U.S. issuers to file IFRS
financial statements would broaden the
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awareness and attention given to IFRS
as a single set of high-quality globally
accepted accounting standards.
The Commission acknowledges the
wide variety of opinion that has been
expressed on this subject, including
through comment letters received on the
2007 Concept Release and feedback
received in the Commission’s
roundtables. Many commenters
expressed the view that the option to
use IFRS should be extended to all U.S.
issuers. Others stated that we should
require IFRS for all U.S. issuers. Several
of these commenters indicated that any
option to use IFRS should only be part
of a transition to the mandatory use of
IFRS. Others opposed the optional or
mandatory use of IFRS at this time, and
instead called for a continuation of the
ongoing work to improve and converge
U.S. GAAP and IFRS. Still others cited
concerns in such areas as tax regimes,
the stage of development of IFRS in
certain areas in comparison to U.S.
GAAP, the U.S. legal environment, and
the ability of auditors to issue opinions
on IFRS financial statements, as bearing
on the questions of whether and how
the use of IFRS should be extended to
any U.S. issuers. We believe allowing
the limited use of IFRS by U.S. issuers,
only in those cases where to do so
would enhance the comparability of an
industry’s financial reporting for the
benefit of investors in making
comparisons to non-U.S. issuers, may
help inform the decision whether to
mandate the use of IFRS for U.S. public
issuers. We also believe that the ability
of capital market participants to
evaluate and comment on these
questions would be enhanced by
allowing this limited use of IFRS. We
believe this is a prudent approach that
will support and inform our
consideration of the milestones in the
proposed Roadmap as well as any future
Commission action.
We also are aware that the proposed
amendments would permit some U.S.
issuers to use IFRS financial statements
while other U.S. issuers continue to use
U.S. GAAP, thereby creating a dual
system of financial reporting that has
not existed previously for U.S. public
companies. This would reduce the
comparability among U.S. issuers and
would require investor familiarity with
both sets of accounting standards. If the
Commission did not act on further
milestones in this Roadmap, this dual
system could continue and could
increase if more issuers eligible to use
IFRS elect to do so. To the extent a dual
system of financial reporting develops
in the United States for U.S. public
companies, and this development
affects the comparability of financial
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statements among U.S. public
companies, this may create a need to
reach a final resolution on the Roadmap.
In order to increase the likelihood that
the comparability between issuers
would be enhanced, we therefore have
limited the proposed option to use IFRS
to a group of larger U.S. companies in
industries in which IFRS is the mostused set of standards globally.69 We
believe that U.S. investors would benefit
from an enhanced ability to compare
investment opportunities.
6. Anticipated Timing of Future
Rulemaking by the Commission
After reviewing the status of the
milestones and the study discussed
below, the Commission would
determine, in 2011, whether to proceed
with rules requiring U.S. public
companies to file financial statements
prepared in accordance with IFRS by
2014 if it is in the public interest and
promotes investor protection for us to
do so. In order to assist the Commission
in determining whether to proceed with
such a rulemaking, the staff has already
begun a comprehensive review of all
Commission rules relating to financial
reporting in order to recommend
amendments that would fully
implement IFRS reporting throughout
the regulatory framework for registration
and reporting under the Exchange Act
and the Securities Act.70 We believe that
a Commission decision and action in
2011 would provide issuers with
sufficient early notice of the transition
to IFRS to permit them to begin their
internal accounting using IFRS in 2012,
which would be the earliest fiscal year
that would be covered under the earliest
anticipated phase-in for IFRS reporting
in 2014, as described below in Section
III.A.7.
We are proposing this Roadmap
towards the mandatory, rather than
elective, use of IFRS for U.S. issuers in
order to promote fully a single set of
high-quality globally accepted
accounting standards to improve the
comparability of financial information
prepared by U.S. public companies and
foreign companies. As described in
Section I, IFRS is the basis of financial
reporting used in a large and increasing
69 Mindful that all U.S. issuers currently use U.S.
GAAP in their Commission filings, we are also
making alternative proposals for U.S. issuers that
elect to use IFRS with respect to the disclosure of
U.S. GAAP information, which should promote the
continued comparability among U.S. issuers
whether they use IFRS or U.S. GAAP in their
primary financial statements.
70 The Commission also would evaluate the role
of a private sector accounting standard setter,
including the role of the FASB and how IFRS
would be incorporated as mandatory accounting
standards for U.S. issuers.
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number of countries worldwide.
Because IFRS has the greatest potential
to become the global standard of
accounting, we believe it is in the
interest of U.S. investors, U.S. issuers
and U.S. markets to consider mandating
reporting using IFRS in the United
States as well. Additionally, we believe
that over the long term the existence of
dual accounting standards in the United
States may create challenges in the U.S.
capital markets, such as comparability
for investors and other users of financial
information and professional
competence of auditors. We therefore
are proposing this Roadmap towards the
mandatory use of IFRS by U.S. issuers.
If we decide to move forward with
rulemaking for the use of IFRS by U.S.
issuers, we expect to continue to require
that issuers provide three years of
audited annual IFRS financial
statements. Currently, U.S. issuers are
required to provide in their filings with
the Commission three years of audited
U.S. GAAP financial statements.71
Because the initiative to require the use
of IFRS by U.S. issuers relates to the set
of accounting principles that is used for
financial reporting and not to the
periods for which financial reporting is
required, the Commission expects that it
would require three years of audited
financial statements in the first year of
IFRS reporting.72
To assist the Commission in its
decision to mandate the use of IFRS by
U.S. issuers, the Commission directs the
Office of the Chief Accountant with
appropriate consultation with other
Divisions and Offices to undertake a
study and report to the Commission on
the implications for investors and other
market participants of the
implementation of IFRS for U.S. issuers.
We anticipate that the report would be
made public by the Commission.
7. Implementation of the Mandatory Use
of IFRS
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One means of implementing IFRS
reporting by U.S. issuers that we are
considering is a staged transition, as
opposed to all U.S. issuers transitioning
at once. Provisionally, under the
transition, IFRS filings would begin for
large accelerated filers for fiscal years
71 See Rule 3–02(a) of Regulation S–X [17 CFR
210.3–02(a)].
72 To illustrate, if we require IFRS for the years
ending on or after December 15, 2014, a calendar
year company would report for the year ending
December 31, 2014 using IFRS for the years ending
December 31, 2012, 2013 and 2014. Many such
companies would want to start IFRS internal
accounting on January 1, 2012. However, during
2012, 2013 and the first three quarters of 2014, they
would continue to be publicly reporting under
existing U.S. GAAP.
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ending on or after December 15, 2014.73
Accelerated filers would begin IFRS
filings for years ending on or after
December 15, 2015. Non-accelerated
filers, including smaller reporting
companies, would begin IFRS filings for
years ending on or after December 15,
2016. In each instance, this would allow
the filer to begin its books and records
and internal accounting controls with
respect to IFRS reporting for all three
years of audited financial statements
that would be required in its first year
of IFRS reporting (e.g., 2012 to 2014 for
large accelerated filers, 2013 to 2015 for
accelerated filers, and 2014 to 2016 for
non-accelerated filers).
We understand that a transition from
one set of accounting standards to
another, including changing the controls
and systems relating to the production
of financial statements, would involve
costs. The definitions of accelerated filer
and large accelerated filer under the
Exchange Act reference the size of an
issuer based on its worldwide public
float of its equity securities. Our current
expectation that an issuer’s status as an
accelerated filer could determine the
date of a required transition to IFRS is
based on the premise that larger issuers
would be better able to allocate
resources to the transition to IFRS more
quickly than smaller issuers, and a
staged transition also may help manage
resource demands on auditors,
consultants and other market
participants. Reliance on the existing
definitions of accelerated/large
accelerated filer also is expected to
facilitate an orderly, predictable
transition to IFRS because an issuer
would already need to ascertain its
status as an accelerated filer for other
reporting purposes and allow it to
predict when it would be required to
adopt IFRS.74 This predictability may
also encourage voluntary movement to
IFRS, as an issuer may have an
incentive to use IFRS prior to the date
the rules would require it to do so if its
competitors were already using IFRS.75
73 The terms ‘‘large accelerated filer’’ and
‘‘accelerated filer’’ are defined in Exchange Act
Rule 12b–2 [17 CFR 240.12b–2]. Although the term
‘‘non-accelerated filer’’ is not defined in our rules,
we use it in this release to refer to an Exchange Act
reporting company that does not meet the Rule
12b–2 definition of either an ‘‘accelerated filer’’ or
a ‘‘large accelerated filer.’’
74 Exchange Act Rule 12b–2 contains provisions
for entering and exiting accelerated filer and large
accelerated filer status, including when an issuer
must determine its status.
75 In addition, we anticipate that newly public
companies, which are non-accelerated filers until
after their first year of reporting, would be able to
use IFRS prior to a mandatory phase-in date for
non-accelerated filers if the Commission decided to
adopt a staged or sequenced transition to IFRS as
discussed.
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We also recognize, however, that
sequencing the transition, while it
would avoid some costs associated with
all issuers transitioning at once, also
would result in some non-comparability
of financial information due to
application of the IFRS transition
provisions at differing dates. Staging the
transition by an issuer’s size would
embed that non-comparability among
the issuers within an industry. Further,
a staged transition would, temporarily,
create a dual system of reporting for
U.S. issuers that would require investor
familiarity with both IFRS and U.S.
GAAP, as described above in Section
III.A.5.
As part of the Commission’s
evaluation, it also may consider
transition rules to expand the eligibility
criteria of those U.S. issuers which
could elect to use IFRS in their
Commission filings, so that additional
U.S. issuers would be able to use IFRS
prior to a mandatory transition date. In
proceeding along the Roadmap, the
Commission would consider the
circumstances in which the early use of
IFRS would be most appropriate for
investor protection and capital
formation. Another consideration would
be how to address the current choices
available to foreign private issuers for
their financial reporting in filings with
the Commission. Currently, foreign
private issuers can choose to prepare
their financial statements in accordance
with U.S. GAAP, IFRS as issued by the
IASB, or another comprehensive set of
accounting principles with a
reconciliation to U.S. GAAP.
B. Other Areas of Consideration
The process of incorporating new
accounting standards into any financial
reporting system naturally varies
between jurisdictions and is
accomplished gradually. Differences
between national accounting standards,
including the extent of similarities or
differences between financial reporting
frameworks and the degree of judgment
they require, affect any given
jurisdiction’s experience with transition
to financial reporting that is in
accordance with IFRS. In addition, there
are many elements forming the
infrastructure underpinning a set of
accounting standards that keep it
current and functioning effectively in a
given jurisdiction. Integration
considerations related to the use of IFRS
in different jurisdictions also are
manifested in the different regulatory
and legal environments. If the
Commission were to require U.S. issuers
to report in accordance with IFRS, a
number of considerations and actions
with a series of lead times may be
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required for investors, issuers, and other
parties that use financial statements or
have a role in the capital markets or the
financial reporting infrastructure. Some
of these considerations are discussed in
the remainder of this section.
1. The Roles of Financial Information
In addition to filing financial
statements with the Commission, U.S.
issuers commonly provide financial
information to other parties. While the
federal securities laws provide the
Commission with the authority to
prescribe accounting principles and
standards to be followed by public
companies and other entities that file
financial statements with the
Commission, the provision and content
of information to other parties may not
be generally or directly regulated by the
Commission. However, changes in the
accounting standards used for purposes
of preparing financial statements
included in filings with the Commission
could have an effect on financial
reporting by companies to other parties.
The following provides examples of
circumstances or parties that may be
affected.
Various federal and state regulators,
including regulators of financial
institutions, insurance companies and
public utilities, are provided with
periodic financial information on an ongoing basis. For example, U.S. GAAP
financial statements frequently are used
as the basis for determining capital
requirements for financial institutions.
Another example of the effect on
reporting to others relates to federal and
state income taxes. As the Internal
Revenue Code has developed over an
extended period of time with existing
U.S. GAAP as the predominant set of
accounting standards used in the United
States, certain interactions exist
between certain provisions of U.S.
GAAP and income tax requirements. For
example, the Internal Revenue Code has
conformity provisions related to the
method of accounting for inventory for
tax reporting purposes and the method
used for reporting to shareholders (and
other owners or beneficiaries) or for
credit purposes.76 IFRS does not allow
for the use of the last-in, first-out, or
LIFO, method of accounting for
inventory.77 As a result, a company that
reports in accordance with IFRS would
be required to use a method of
accounting for inventory that is
acceptable under IFRS, for example the
first-in, first-out, or FIFO, method. U.S.
issuers changing to FIFO for financial
reporting purposes may experience a
76 See
77 See
Section 472 of the Internal Revenue Code.
IAS 2 ‘‘Inventories,’’ paragraph IN63.
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change in taxable income based on the
difference between inventory valued on
a LIFO basis and on a FIFO basis.
Many U.S. companies have issued
debt securities under indentures or have
entered into lending agreements that
may contain various covenants based
upon financial measurements, such as a
stated minimum net worth. Those
indentures and agreements, as well as
other types of contractual agreements to
which issuers may be subject, may
require periodic reporting of financial
information. These contractual
obligations may explicitly require the
use of U.S. GAAP in connection with
financial covenants or financial
reporting. Other contractual obligations
may have an assumption about the
nature of the accounting model under
which such reporting will occur. For a
U.S. issuer, it is likely that such
requirements are based on how U.S.
GAAP would report financial results.
Some market indices, such as the S&P
500, currently only include issuers that
report financial statements in
accordance with U.S. GAAP. IFRS
reporting might affect an issuer’s ability
to be included in such indices or
financial instruments based on those
indices, exclusion from which may have
an adverse effect on these issuers,
unless the instruments or indices make
any necessary changes to include
issuers which report in IFRS.
2. Accounting Systems, Controls and
Procedures
Use of any new accounting standards
requires changes to financial reporting
systems and procedures to identify,
collect, analyze and report financial
information and the corresponding
controls. Changing numerous
accounting standards at the same time,
regardless of the starting point, would
require numerous changes in a
company’s policies and procedures and
system of internal controls. Some
changes may prove more complicated
than others. Systems changes would
apply not only to the issuers preparing
such statements, but also to various
other market participants such as users
of financial information and regulators.
Some companies that have significant
foreign operations may already have
familiarity with IFRS. It may not be as
difficult for these companies to adopt
IFRS for all of their operations for U.S.
reporting purposes.
There would be additional
implications on financial reporting. Two
examples of the implications relate to an
issuer’s equity method investment in
another company and initial public
offerings. Many issuers hold
investments in other entities which are
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accounted for under the equity method.
In order for an issuer to properly record
the equity method investment, the
issuer would need IFRS-based
information about the investee each
reporting period. If the investment were
in equity of a company using U.S.
GAAP for its own financial statement
preparation and reporting purposes,
obtaining the required IFRS-based
information may prove difficult and
costly. This would be similar to the
situation that exists today if an issuer
using U.S. GAAP has an equity investee
that uses a different basis of financial
reporting. Further, an additional cost
and complication would be added to the
initial public offering process if a
private company whose financial
statements were not in accordance with
IFRS were required to provide them for
purposes of its initial registration
statement with the Commission.
3. Auditing
Another affected party is the audit
firms that are engaged to audit a U.S.
issuer’s financial statements and to
report on the effectiveness of its internal
control over financial reporting. This
may be particularly challenging for less
globally oriented audit firms, which
typically may have fewer resources
available through affiliated or network
firms located in jurisdictions in which
issuers already report in accordance
with IFRS. This could be a further factor
affecting concentration in the auditing
profession.
Audit firms would need to consider
elements of their systems of quality
control, such as their practices related to
hiring, assigning personnel to
engagements, professional development
and advancement activities. Some U.S.
audit firms already have some
experience with conducting audits of
financial information prepared in
accordance with IFRS, as they may be
involved in the audit of the U.S.
operations of a foreign company that
does so. But because U.S. auditors
generally have less experience with
IFRS than with U.S. GAAP, in the short
term, U.S. audit firms may encounter
challenges in establishing policies and
procedures, and hiring and training
personnel, to provide themselves with
reasonable assurance that their
personnel would possess knowledge
appropriate to perform audits of U.S.
issuers. Even with appropriate systems
of quality control, however, additional
auditing guidance still may be
necessary.
Additionally, U.S. firms that are
members of global audit networks may
have already begun to consider systems
of quality control to foster the high
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quality and consistent application in
reporting under IFRS across national
borders. If U.S. issuers were to report in
accordance with IFRS, the U.S. firms of
these global audit networks could be
affected more than they are presently by
the reporting of audit clients of their
foreign affiliates and by U.S.
subsidiaries of those clients.
One consideration for audit firms
relates to their ability to issue opinions
on IFRS financial statements in
accordance with PCAOB standards. For
example, one of the conditions under
IFRS for recognizing a provision for a
legal contingency is that it is more likely
than not that an obligation exists.78 This
recognition threshold is lower than the
current recognition threshold in U.S.
GAAP, resulting in the potential for an
earlier income statement recognition of
costs associated with litigation.79
Concerns have been raised about an
auditor’s ability to corroborate the
information furnished by management
related to litigation, claims, and
assessments by obtaining an audit
inquiry letter from a client’s attorney.80
We note that references to current
U.S. GAAP literature exist in various
standards issued by the PCAOB and
other accounting or auditing
organizations. If IFRS were required for
all U.S. issuers, amendments to existing
references to U.S. GAAP literature may
be appropriate. Certain changes have
already begun with respect to IFRS in
the U.S. accounting profession. For
example, under AICPA rules, a member
of the AICPA can only report on
financial statements prepared in
accordance with standards promulgated
by standard setting bodies designated by
the AICPA Council. In May 2008, the
AICPA’s Council voted to designate the
IASB in London as an international
accounting standard setter for purposes
of establishing international financial
accounting and reporting principles,
and to make related amendments to its
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78 See
IAS 37, paragraphs 15 and 16.
79 See FAS 5.
80 Some believe that changes to the American Bar
Association Statement of Policy Regarding Lawyers’
Responses to Auditors’ Requests for Information
may be necessary. See AU § 337C. The Statement
of Policy, commonly referred to as the ‘‘Treaty,’’
recognizes the professional responsibilities of
attorneys and auditors and seeks to preserve
confidentiality while providing the necessary level
of assurance for the audit. The Treaty recognizes
that the confidentiality of communications between
an attorney and a client may be impaired by the
disclosure of the substance of such communications
to third parties, including auditors. By describing
thresholds for disclosure and limitations on
responses, the Treaty sets the scope of the attorney’s
responses to audit requests for information on legal
matters. Some believe that the thresholds and
limitations described in the Treaty are inconsistent
with certain provisions within IFRS.
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rules to provide AICPA members with
the option to use IFRS.81
4. Considerations of IFRS and the
IASB’s Standard Setting Process
a. State of IFRS
As discussed in the 2007 Concept
Release, IFRS is not as developed as
U.S. GAAP in certain areas.82 IFRS also
is not as prescriptive as U.S. GAAP in
certain areas and in certain areas
permits a greater amount of options than
in U.S. GAAP.83 The smaller volume of
IFRS literature as compared to U.S.
GAAP may decrease the amount of
authoritative guidance available in a
particular circumstance. This relatively
lesser amount of guidance and, in some
cases, greater optionality in IFRS could
reduce comparability of reported
financial information, as different
issuers may account or provide
disclosure for similar transactions or
events in different ways but this
flexibility also allows a financial
statement that may more closely reflect
the economics of transactions. As we
noted in the 2007 Concept Release, in
certain limited areas in which the IASB
has yet to develop guidance on
particular industry activities in which
IFRS permits disparate options, we have
noted that the level of diversity has
manifested itself in the reporting
practices of foreign private issuers.
As U.S. GAAP has been used longer
and more extensively than IFRS, more
U.S. GAAP implementation guidance
has developed over time. A variety of
factors may have resulted in the
accounting profession in the United
States becoming more accustomed to
relying on a greater degree of detailed
accounting guidance, including factors
such as seeking consistency and
reducing exposure to litigation and
liabilities. Such guidance also can affect
the outcomes of discussions between
management and auditors on the use of
81 See https://www.aicpa.org/download/info/
AICPA_NewsUpdate_Vol.11_No.21.pdf.
82 IFRS does not have a specific standard or
interpretation on accounting treatment for
insurance contracts, extractive activities, certain
common control transactions, recapitalization
transactions, reorganizations, acquisitions of
minority shares not resulting in a change of control
and similar transactions. However, there are areas
where current U.S. GAAP also does not have a
single comprehensive standard or interpretations,
such as for revenue recognition or property, plant
and equipment.
83 As noted by CIFiR in its Final Report: ‘‘From
an international perspective, we note that IFRS
currently permits numerous alternative accounting
policies. While we acknowledge the IASB’s efforts
in reducing some of these alternative treatments, we
nonetheless believe the SEC should encourage the
IASB to [...] seek to eliminate alternatives as part
of its standards-setting projects.’’ CIFiR Final
Report, at 51.
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a particular accounting treatment. Less
prescriptive guidance also may make
litigation or enforcement outcomes more
difficult to predict.
On the other hand, less prescriptive
guidance may increase issuers’ ability to
account for transactions or events in
accordance with their underlying
economics, which could improve
comparability of economically similar
situations and highlight differences in
dissimilar situations. As CIFiR noted in
its final report:
Investors are likely to benefit from more
emphasis on principles-based standards,
since rules-based standards * * * may
provide a method, such as through
exceptions and bright-line tests, to avoid the
accounting objectives underlying the
standards. In other words, without the
exercise of judgment, rules in the form of
bright lines may result in a false
consistency—that is, ostensibly uniform
accounting for differing fact patterns. If
properly implemented, ‘‘principles-based’’
standards should improve the information
provided to investors while reducing investor
concerns about ‘‘financial engineering’’ by
companies using the rules to avoid
accounting for the substance of a
transaction.84
The Commission and its staff also have
supported the increased use of
objectives, outcomes and principles in
accounting standards in contrast to
detailed prescriptive guidance.85
In addition, in cases where specific
guidance is not available, IFRS
encourages disclosure on the accounting
policies that the preparer of the
financial statements has elected and
applied.86 The same also is generally
true where IFRS permits greater
84See
CIFiR Final Report, at 88.
example, the SEC issued ‘‘Policy Statement:
Reaffirming the Status of the FASB as a Designated
Private-Sector Standard Setter’’ Release No. 33–
8821 (April 25, 2003), which included numerous
recommendations for the FAF and FASB to
consider, including greater use of principles-based
accounting standards whenever reasonable to do so.
The SEC staff also issued ‘‘Study Pursuant to
Section 108(d) of the Sarbanes-Oxley Act of 2002
on the Adoption by the United States Financial
Reporting System of a Principles-Based Accounting
System’’ (July 25, 2003), which further explained
the benefits of objectives-oriented standards.
86 In areas for which an IFRS does not exist, IAS
8 ‘‘Accounting Policies, Changes in Accounting
Estimates and Errors’’ requires preparers to use
judgment in developing accounting policies such
that financial information is provided that, among
other things, is relevant to the needs of users and
the financial statements reliably reflect the
economic substance of transactions. In applying
such judgment, preparers must consider other
guidance found in IFRS and, if no analogous
guidance is found, the definitions, criteria and
concepts in the IFRS conceptual framework.
Additionally, IAS 8 allows preparers to consider
pronouncements of other standard setting bodies if
those pronouncements are drawn from a conceptual
framework similar to that underlying IFRS, to the
extent that such pronouncements do not conflict
with IFRS.
85 For
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optionality.87 In adopting IFRS, an
issuer may find it appropriate to
evaluate its disclosure practices, such as
the disclosure provided in financial
statement footnotes and management’s
discussion and analysis, to clearly
communicate these choices. Further, as
we indicated when we adopted changes
to accept IFRS financial statements from
foreign private issuers without a
reconciliation to U.S. GAAP,88 our staff
has indicated that the issues it has
observed in its review of IFRS financial
statements do not appear to be more
pervasive or significant than those it has
identified in U.S. GAAP financial
statements.
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b. Relationship to the Accounting
Standard Setting Process
A change to commit U.S. reporting to
following IFRS would include a change
in the relationship of the U.S. capital
markets to the accounting standard
setting process. The IASB and its related
organizations include members from a
number of countries. The IASB is
expected to be responsive to broad,
world-wide constituencies of investors,
issuers, regulators and many others in
all facets of its work, including the
establishment of its agenda and the
development of standards. These
constituencies can be expected to
represent a wide range of interests,
reflecting varying economic, social and
political environments.
These factors likely would mean that
the interaction, and potentially the
relevance and influence, of U.S. capital
market participants, including the
Commission and its staff, would be
reduced compared to the current
standard setting process in the United
States. The IASB is expected to consider
its world-wide constituencies of
investors, issuers, and regulators during
the deliberative process for issuing new
or revised accounting standards.
Further, the IASB has entered into
convergence agreements with other
national accounting standard setters,
such as with the Accounting Standards
Board of Japan.89 Due to the IASB’s
need to develop standards with a wider
variety of constituents in mind, U.S.
capital market participants will have a
87 See IAS 1 ‘‘Presentation of Financial
Statements,’’ paragraph 119 for general guidance on
disclosure of accounting policies from among
alternatives. Certain standards under IFRS
specifically require disclosure of selected
accounting policies when choices are allowed. See
for example IAS 16 ‘‘Property, Plant and
Equipment,’’ paragraph 73.
88 See the 2007 Adopting Release.
89 See https://www.iasb.org/News/Press+Releases/
The+ASBJ+and+the+IASB+announce+
Tokyo+Agreement+on+achieving+convergence+of
+accounting+standards+by+2.htm.
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lesser degree of input into the standard
setting process including fewer
members of the IASB and fewer
participants on roundtables and
advisory and other groups than they
currently have in the U.S. standard
setting process. Further, in the U.S.
standard setting process, participants
from multiple constituencies but in the
same geographic market (i.e., the United
States) are involved. On the IASB,
constituencies and geographic market
(i.e., different countries) participation
are commingled. Also, constituents
involved in the IFRS standard setting
process may come from different
financial reporting environments and
may have objectives that are different
from or not present in the standard
setting process for U.S. GAAP.
In addition, individual jurisdictions’
processes for incorporating IFRS into
their markets may result in varying
degrees of pressure placed on the IASB
in the development of individual
standards. For example, some
jurisdictions adopt or endorse IFRS on
a standard-by-standard basis unlike the
historical approach in the United States
to look to a standard setter to establish
the body of accounting standards as a
whole. Further, the IASB’s need to
consider a greater number of
constituents in seeking consensus on a
new or revised standard, and the
associated need to consider multiple
jurisdictions in scheduling
implementation, could lead to a longer
deliberative process in issuing
accounting standards. Further,
individual jurisdictions, through their
securities regulators, accounting
standard setters or other bodies, could
adopt or provide for interpretations or
applications of IFRS for companies in
those jurisdictions which are different
from those in other jurisdictions.
The Commission’s participation in the
oversight of the IASB would principally
be through participation in the
Monitoring Group proposed by the
IASB’s governing body, the IASC
Foundation. This would be a less direct
oversight relationship as to the
participation in board and trustee
appointments, review of finances, and
interaction with the board than the
Commission and its staff has currently
with respect to the FASB and the
Financial Accounting Foundation.90
90 See FR 70. As noted earlier, this release does
not address the method the Commission would use
to mandate IFRS for U.S. issuers. In addition, the
Commission would retain the ability to take such
action as may be appropriate to address financial
reporting issues in filings with the Commission.
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Request for Comment
1. Do commenters agree that U.S.
investors, U.S. issuers and U.S. markets
would benefit from the development
and use of a single set of globally
accepted accounting standards? Why or
why not? What are commenters’ views
on the potential for IFRS as issued by
the IASB as the single set of globally
accepted accounting standards?
2. Do commenters agree that the
milestones and considerations described
in Section III.A. of this release
(‘‘Milestones to be Achieved Leading to
the Use of IFRS by U.S. Issuers’’)
comprise a framework through which
the Commission can effectively evaluate
whether IFRS financial statements
should be used by U.S. issuers in their
filings with the Commission? Are any of
the proposed milestones not relevant to
the Commission’s evaluation? Are there
any other milestones that the
Commission should consider?
3. Do commenters agree with the
timing presented by the milestones?
Why or why not? In particular, do
commenters agree that the Commission
should make a determination in 2011
whether to require use of IFRS by U.S.
issuers? Should the Commission make a
determination earlier or later than 2011?
Are there any other timing
considerations that the Commission
should take into account?
4. What are commenters’ views on the
mandated use of IFRS by U.S. issuers
beginning in 2014, on an either stagedtransition or non-staged transition basis?
Should the date for mandated use be
earlier or later? If the Commission
requires the use of IFRS, should it do so
on a staged or sequenced basis? If a
staged or sequenced basis would be
appropriate, what are commenters’
views on the types of U.S. issuers that
should first be subject to a requirement
to file IFRS financial statements and
those that should come later in time?
Should any sequenced transition be
based on the existing definitions of large
accelerated filer and accelerated filer?
Should the time period between stages
be longer than one year, such as two or
three years?
5. What do commenters believe would
be the effect on convergence if the
Commission were to follow the
proposed Roadmap or allow certain U.S.
issuers to use IFRS as proposed?
6. Is it appropriate to exclude
investment companies and other
regulated entities filing or furnishing
reports with the Commission from the
scope of this Roadmap? Should any
Roadmap to move to IFRS include these
entities within its scope? Should these
considerations be a part of the
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Roadmap? Are there other classes of
issuers that should be excluded from
present consideration and be addressed
separately?
7. Do commenters agree that these
matters would affect market participants
in the United States as described above?
What other matters may affect market
participants? Are there other market
participants that would be affected by
the use by U.S. issuers of IFRS in their
Commission filings? If so, who are they
and how would they be affected?
8. Would a requirement that U.S.
issuers file financial statements
prepared in accordance with IFRS have
any affect on audit quality, the
availability of audit services, or
concentration of market share among
certain audit firms (such as firms with
existing international networks)? Would
such a requirement affect the
competitive position of some audit
firms? If the competitiveness of some
firms would be adversely affected,
would these effects be
disproportionately felt by firms other
than the largest firms?
9. What are commenters’ views on the
IASB’s and FASB’s joint work plan?
Does the work plan serve to promote a
single set of high-quality globally
accepted accounting standards? Why or
why not?
10. How will the Commission’s
expectation of progress on the IASB’s
and FASB’s joint work plan impact U.S.
investors, U.S. issuers, and U.S.
markets? What steps should be taken to
promote further progress by the two
standard setters?
11. The current phase of the IASB’s
and FASB’s joint work plan is
scheduled to end in 2011. How should
the Commission measure the IASB’s and
FASB’s progress on a going-forward
basis? What factors should the
Commission evaluate in assessing the
IASB’s and the FASB’s work under the
joint work plan?
12. What are investors’, U.S. issuers’,
and other market participants’ views on
the resolution of the IASB governance
and funding issues identified in this
release?
13. What steps should the
Commission and others take in order to
determine whether U.S. investors, U.S.
issuers, and other market participants
are ready to transition to IFRS? How
should the Commission measure the
progress of U.S. investors, U.S. issuers,
and other market participants in this
area? What specific factors should the
Commission consider?
14. Are there any other significant
issues the Commission should evaluate
in assessing whether IFRS is sufficiently
comprehensive?
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15. Where a standard is absent under
IFRS and management must develop
and apply an accounting policy (such as
described in IAS 8, for example) should
the Commission require issuers to
provide supplemental disclosures of the
accounting policies they have elected
and applied, to the extent such
disclosures have not been included in
the financial statements?
IV. Proposal for the Limited Early Use
of IFRS Where This Would Enhance
Comparability for U.S. Investors
A. Eligibility Requirements
We are proposing amendments to our
rules that would allow certain U.S.
issuers that meet specific criteria to file
financial statements in accordance with
IFRS as issued by the IASB, rather than
U.S. GAAP, for use in their annual and
other reports made under Section 13(a)
or 15(d) of the Exchange Act,91 proxy
statements and information statements
under Schedules 14A and 14C under the
Exchange Act,92 as well as in
registration statements under the
Securities Act and the Exchange Act.93
The Commission is proposing these
amendments for several reasons.
Investors may find the financial
information provided by eligible issuers
who elect to report such information in
accordance with IFRS to be more
comparable to the financial information
of non-U.S. competitors. Permitting
some U.S. issuers to report under IFRS
may provide assistance in a transition to
mandatory financial reporting in
accordance with IFRS by creating
additional, but manageable, demand for
IFRS-related services at this time. The
Commission also could learn from
investors and the U.S. public capital
market participants about their
consideration of IFRS financial
information from domestic issuers.
Further, investors in the industry
sectors for which the eligibility
requirements are met likely would have
familiarity with IFRS given that it is
91 15 U.S.C. 78m(a) or 78o(d). Section 13(a) of the
Exchange Act requires every issuer of a security
registered pursuant to Section 12 of the Exchange
Act [15 U.S.C. 781] to file with the Commission
such annual reports and such other reports as the
Commission may prescribe. Section 15(d) of the
Exchange Act requires each issuer that has filed a
registration statement that has become effective
pursuant to the Securities Act to file such
supplementary and periodic information,
documents and reports as may be required pursuant
to Section 13 in respect of a security registered
pursuant to Section 12, unless the duty to file under
Section 15(d) has been suspended for any financial
year.
92 17 CFR 240.14a–101 and 17 CFR 240.14c–101.
93 As such, the proposed option would not apply
to the filing requirements for other regulatory
purposes, such as those of regulated entities such
as broker-dealers.
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used more than any other financial
reporting standard on a global basis. The
Commission recognizes that there are
many questions relating to permitting
some U.S. issuers to report under IFRS,
particularly in light of the proposed
milestones, and encourages public
comment on the proposal and the
related alternative proposals concerning
what, if any, additional U.S. GAAP
information should be provided by
electing issuers.
In deciding which issuers should be
proposed for inclusion in this group, the
objective of the Commission was to
identify those categories of U.S. issuers
for whom the use of IFRS would
promote comparability with their
significant industry competitors. Since
investors frequently make capital
allocation decisions among companies
within a particular industry sector,94 the
first element of the eligibility criteria
relates to the use of IFRS in the issuers’
industry. The second element is
intended to focus on significant
competitors within the industry group,
and so requires an identification of the
accounting standards used by the largest
twenty companies by market
capitalization. We believe these are the
competitors which are the most likely to
be comparable among themselves and
most likely to be ready to make the
transition to IFRS. Both proposed
elements—the prevalence of the use of
IFRS and the significance of the issuer
in a given industry—would need to be
met for a U.S. issuer to be eligible to file
its financial statements in accordance
with IFRS with the Commission.
The industry criterion identifies
companies for which we preliminarily
believe it would be overall beneficial to
investors for the U.S. issuer to be
eligible to use IFRS because financial
statement comparability with other
significant competitors in their industry
would be promoted and enhanced.
Under this test, an industry would be
eligible if IFRS is used as the basis of
financial reporting more often than any
other basis of financial reporting by the
20 largest listed companies worldwide
within that industry as measured by
market capitalization. The U.S. issuer
would make that determination as
follows:
(1) An issuer would ascertain its
industry group by using the North
American Industry Classification
94 For example, at the end of 2007, there were 219
exchange-traded funds with an industry/sectorbased investment objective, with net assets of
approximately $93 billion. 2008 Investment
Company Factbook, published by the Investment
Company Institute.
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System (NAICS) 95 code at the threedigit level, Standard Industrial
Classification (SIC) 96 codes at the twodigit level, or the International Standard
Industrial Classification (ISIC) 97 codes
at the ‘‘Division’’ level. Alternatively,
the issuer could use a privately
provided, published, and widely
accepted industry classification scheme
at a similar level of detail, such as the
Industry Classification Benchmark
(ICB) 98 at the ‘‘Sector’’ level or the
Global Industry Classification Standard
(GICS) 99 at the ‘‘Industry’’ level. For
classifications of individual companies,
the issuer must use a single published
and widely accepted industry source.
(The provider of the classification
scheme may be the same entity as the
source of classifications of individual
companies.)
(2) Then, the U.S. issuer would
determine whether IFRS is used as the
basis of financial reporting more than
any other basis of financial reporting by
the 20 largest listed companies
worldwide within its industry.
a. An issuer would do this by first
identifying the 20 largest listed
companies globally in its industry by
market capitalization.100 For the
purposes of this calculation, market
capitalization should be determined as
of the same day within the 180 days
preceding the date on which the SEC
staff receives a request for a letter of no
objection (as described below). Market
capitalization would need to be
determined from a widely accepted
source.
b. Next, the U.S. issuer would
ascertain which accounting standards
each of the 20 companies uses to report
its financial results to the public capital
markets. Companies within the industry
are considered to report under a
specified set of accounting standards if
they have published audited annual
financial statements under those
accounting standards.101 As described
below, a U.S. company that elects to
report using IFRS would be required to
file financial statements prepared in
accordance with IFRS as issued by the
IASB.
If the U.S. issuer were among the 20
largest companies globally in a
particular industry and IFRS is used as
the basis of financial reporting more
often than any other basis of financial
reporting among the 20 largest listed
companies worldwide in that industry,
then the U.S. issuer would be eligible to
elect to use IFRS in its filings with the
Commission. To illustrate, if among the
top 20 companies in a given industry,
there were 8 companies using IFRS, 7
using U.S. GAAP and 5 using other
bases of financial reporting, the industry
would be viewed as an ‘‘IFRS industry’’
and the 7 U.S. companies would be
eligible to change to IFRS.102 If among
the top 20 companies there were 4 using
IFRS, 3 using U.S. GAAP and 13 using
other bases of financial reporting but no
single other basis accounted for more
then 3, the industry would be viewed as
an IFRS industry. In contrast, if among
the top 20 companies there were 7 using
IFRS, 7 using U.S. GAAP and 6 using
other bases of financial reporting, the
industry would not be considered an
IFRS industry. If there were 8
companies using U.S. GAAP, 7 using
IFRS and 5 using other bases of
financial reporting, then the industry
also would not be an IFRS industry and
the U.S. companies would not be
eligible to use IFRS.
Using one of the industry
classification systems (SIC codes), we
estimate that at present a minimum of
approximately 110 U.S. issuers in 34
‘‘IFRS industries’’ would be eligible to
receive a letter of no objection from the
staff using the proposed criteria.103 Our
estimate contains a number of
assumptions and may be impacted by
some data not being readily available, as
indicated below. Further, certain factors
could result in the number of eligible
issuers becoming higher, although this
availability is most likely to occur in
periods beyond 2011 when the
Commission would expect to make its
95 See https://www.census.gov/epcd/www/
naics.html.
96 See https://www.census.gov/epcd/www/
sic.html.
97 See https://unstats.un.org/unsd/class/family/
family2.asp?Cl=27.
98 See https://www.icbenchmark.com/.
99 See https://www.mscibarra.com/products/gics/.
100 For these purposes, market capitalization
refers to the worldwide market value of a
company’s outstanding voting and non-voting
common equity securities.
101 For purposes of the calculation, companies
reporting under more than one set of standards can
be counted as using any of these standards.
102 The distribution of size among the top 20
companies would not matter. In other words, there
would be no requirement that the group of
companies using a given set of accounting
principles, such as IFRS, would constitute the
largest percentage by market capitalization within
the industry or in comparison to other groups of
countries using other sets of accounting principles.
The only criterion would be that the number of
companies using IFRS was more than the number
of companies using any other basis of financial
reporting.
103 For example, under the methodology
described in this section, metal mining under SIC
code 10 and conglomerates under SIC code 99 may
be eligible.
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70829
decision on IFRS implementation under
the Roadmap.104
To develop our estimate of the
potentially eligible issuers, our staff
obtained data from publicly available
sources on the 20 largest listed
companies measured by market
capitalization in each industry, using
two-digit SIC industry classification
codes as assigned by Standard and
Poors’ COMPUSTAT.105 We did not
estimate what the population of eligible
issuers would be under other industry
classification methods available under
this proposed rule. Therefore, our
estimate represents a lower bound on
the number of U.S. issuers at present
that we believe may be eligible to adopt
IFRS under this proposed rule.
To simplify the analysis, the staff
relied on a number of assumptions
104 The number of eligible companies at the outset
could be higher due to the fact that different
industry classification systems would be available
to determine eligibility. This could affect the
number of U.S. issuers that would be ranked among
the 20 largest in their industry by market
capitalization, because companies may be eligible
to use IFRS under one classification system, but not
another. In addition, if companies in an industry
that is eligible under one classification system
switch to IFRS, this action may result in IFRS being
used more often than any other set of standards
within a separate industry, under a different
classification system. This effect could result in an
expansion of IFRS industries as U.S. companies
switch to IFRS, and, in turn, an increase in eligible
U.S. companies. In addition, under the proposed
eligibility criteria, as more countries change to
IFRS, more industries may become ‘‘IFRS
industries,’’ and more U.S. companies would
become eligible to file IFRS financial statements.
For example, assuming that Brazil, Canada, Chile
and South Korea follow IFRS, the number of IFRS
industries increases by 9 and total number of
eligible U.S. companies under our methodology
would increase to approximately 160, representing
approximately 23% of the market capitalization in
the United States. Also, to the extent the mix of
competitors by market capitalization changes to
include more competitors that report in IFRS,
additional industries may qualify as IFRS industries
over time. We estimate that, if all 74 industries
under our methodology were IFRS industries the
theoretical maximum number of U.S. issuers that
could be eligible given the present assumptions of
companies in the top 20 by industry would be
approximately 380, representing 57% of the market
capitalization in the United States. The potential
impact of this dynamic is limited, however, by the
fact that the Roadmap anticipates a decision by the
Commission on the use of IFRS by 2011. Eligibility
would likely expand for other reasons. For example,
relatively young foreign public equity markets,
particularly in emerging markets, are developing at
a faster rate than the mature U.S. equity market,
resulting in greater representation of large foreign
companies on equity exchanges. This factor may
result in an increase in the number of IFRS-using
listed companies in the top 20 of each industry, by
market capitalization, and a corresponding increase
in eligible industries.
105 There are 74 industry groups under this
classification approach. For some industries, there
were less than 20 companies available under the
data obtained. Our staff kept these industries in its
population applying the test of whether IFRS was
used more than any other basis of reporting among
the available list of companies in that industry.
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regarding the bases of accounting of the
companies in the estimated population.
In evaluating what bases of financial
reporting were used by the companies
within this estimated population, our
staff assumed that all U.S. entities were
registered with the Commission and
therefore reporting under U.S. GAAP. In
addition, the staff assumed that any
company from an E.U. country,
Australia, New Zealand, South Africa or
Switzerland was reporting under IFRS.
For other companies, our staff attempted
to obtain information on the set of
accounting standards used. For
purposes of this analysis, an assumption
was made that any assertion as to the
use of IFRS, such as on the issuer’s Web
site, in the issuer’s financial statements
or in the audit report, was considered as
reporting under IFRS.
In some cases, our staff was not able
to obtain sufficient information about
the basis of financial reporting used. For
example, published financial statements
could not be readily located for all
companies and for others financial
statements were not readily available in
English. Because of this and other
limitations, the staff’s estimate is an
approximate minimum number of
issuers that would currently be eligible
under the proposed rule, and the actual
number could be significantly greater.
Based on these assumptions,
approximately 34 of the 74 industries
identified would be ‘‘IFRS industries.’’
The minimum of approximately 110
U.S. issuers that we estimate presently
would be eligible to file IFRS financial
statements had as of December 2007 a
total market capitalization of $2.5
trillion, which represented
approximately 12% of the total U.S.
market capitalization.106 The market
capitalization of these eligible
companies range from approximately
$250 million to $300 billion, with a
mean of $23 billion and a median of
$8.3 billion. Approximately 94% of
these eligible issuers would have a
worldwide market capitalization over
$700 million.
B. Staff Letter of No Objection to the Use
of IFRS
To be able to use IFRS financial
statements in filings with the
Commission, the U.S. issuer would need
to obtain a letter of no objection from
the SEC staff. This process would assist
U.S. issuers in determining whether
they would be eligible to switch to IFRS
financial statements and provide them
with greater certainty before they
106 Based
on an estimated U.S. market
capitalization of $20 trillion. See https://www.worldexchanges.org/WFE/home.asp?menu=395.
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undertake the complex process of
converting their financial statements
from U.S. GAAP to IFRS. In addition,
through our postings of these letters on
our Web site, we would provide
information to investors and others
about the possibility of the issuer filing
reports using IFRS. Obtaining a staff noobjection letter would not commit the
issuer to use IFRS. As noted later, such
a letter would provide an issuer with
the ability to commence filing reports
using IFRS for a period of three years
from the date of the staff response.
To obtain such a letter, the issuer
would make a submission to the staff of
the Division of Corporation Finance’s
Office of Chief Accountant.107 In that
submission, the issuer would describe
its analysis in determining its eligibility
to use IFRS.108 In preparing a request for
a staff letter of no objection to the use
of IFRS, we would expect U.S. issuers
to undertake reasonable efforts to
determine the sets of accounting
standards for all companies that
comprise the twenty largest in its
industry group. If the staff has no
objections to the issuer’s conclusion that
it is eligible to file IFRS financial
statements, the staff would issue a letter
of no objection. When issued, the staff
letter would be made publicly available
on the Commission Web site, together
with the issuer’s incoming submission.
The incoming submission from the
issuer would not be made public on the
Commission Web site if the staff did not
issue a letter of no objection. A U.S.
issuer could file IFRS financial
statements only if it received a letter of
no objection. Once the staff issued a
letter of no objection, the issuer could
adopt IFRS at any time during the threeyear period following issuance of the
letter without the criteria being
recalculated with more current data.109
The company would also disclose in its
first filing using IFRS the date that it
submitted its request to the staff
demonstrating that it met the criteria
107 To the extent applicable, an applicant could
invoke Rule 83.
108 To the extent an issuer’s analysis includes
companies whose financial statements are prepared
under a jurisdictional version of IFRS or as to
which it is not clear whether the financial
statements are prepared under IFRS as issued by the
IASB, the issuer should state that no information
came to its attention from the content of the
financial statements of the companies analyzed or
otherwise that causes it to believe that the financial
statements are not in accordance with IFRS as
issued by the IASB.
109 If we were to adopt the proposal, once a U.S.
issuer commenced filing reports using IFRS under
these rules, it would not have to recalculate its
eligibility using more current data. A recalculation
and a new staff letter of no objection would be
necessary only if the issuer did not commence filing
reports using IFRS within three years of receipt of
the letter.
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and the date the staff issued its letter of
no objection.
The proposed definition of ‘‘IFRS
Issuer’’ in Rule 1–02(cc) of Regulation
S–X, which contains the eligibility
criteria that must be demonstrated in
the issuer’s request to the staff of the
Commission, specifically excludes
investment companies; employee stock
purchase, savings and similar plans; and
smaller reporting companies.110 We
have excluded smaller reporting
companies from the proposed definition
of IFRS issuer as a limitation on the
number of issuers that would be eligible
to file IFRS financial statements under
the proposed rules. Investment
companies are proposed to be excluded
because of the separate regulatory
requirements that exist for those
entities. Employee stock purchase,
savings and similar plans are proposed
to be excluded because they are special
investment entities that are subject to
tailored accounting practices.
Request for Comment
16. Do commenters agree that certain
U.S. issuers should have the alternative
to report using IFRS prior to 2011? What
circumstances should the Commission
evaluate in order to assess the effects of
early adoption on comparability of
industry financial reporting to
investors?
17. Do commenters agree with the
proposed criteria by which the
comparability of an industry’s financial
reporting would be assessed? If not,
what should the criteria be?
18. Which eligible U.S. issuers have
the incentive to avail themselves of the
proposed amendments, if adopted? Are
there reasons for which an issuer that is
in a position to file IFRS financial
statements under the proposed
amendments would elect not to do so?
If so, what are they?
19. Is limiting the proposal to the
largest 20 competitors by market
capitalization an appropriate criterion?
Should it be higher or lower? Should
additional U.S. issuers be eligible to
elect to report in IFRS if some minimum
threshold of U.S. issuers (based on the
actual number or market capitalization
of U.S. issuers choosing to report in
IFRS) elects to report in IFRS under the
eligibility requirements proposed? To
the extent additional U.S. issuers are not
permitted to report in IFRS even if such
a minimum threshold is met, are such
non-eligible U.S. issuers placed at a
`
competitive disadvantage vis-a-vis U.S.
issuers reporting in IFRS?
110 The term ‘‘smaller reporting company’’ is
defined in Exchange Act Rule 12b–2 [17 CFR
240.12b–2] and in Securities Act Rule 405 [17 CFR
230.405].
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20. Would the use of different
industry classification schemes as
proposed be unclear or create confusion
in determining whether an issuer is
IFRS eligible? Should we require that all
issuers use a single industry
classification scheme? Why or why not?
21. What impact will the
Commission’s determination to allow an
industry to qualify as an ‘‘IFRS
industry’’ without majority IFRS use
have on the Commission’s objective of
promoting comparability for U.S.
investors? How will this impact U.S.
investors, U.S. issuers, and U.S.
markets? Is the use of IFRS more than
any other set of financial reporting
standards the right criterion? Should it
be higher or lower?
22. Should the Commission permit
additional industries to qualify as IFRS
industries, and thus additional U.S.
issuers to become early adopters, as
more countries outside the U.S. adopt
IFRS? Alternatively, should the group of
potential industries and early adopters
be limited to those that qualify at the
time the Commission determines to
permit early adoption?
23. Do commenters have any
suggestions about the procedural
aspects of the proposed eligibility
requirements, e.g., the procedure for
obtaining a letter of no objection from
the Commission staff or the minimum
contents of the required submission? Is
such a procedure necessary? Do
commenters agree that such a procedure
would assist both issuers and investors?
Should the procedural aspects of the
proposed eligibility requirements be less
formal? Should the procedure be similar
to that in the no action letter process
regarding shareholder proposals under
Rule 14a–8 of the Exchange Act? Should
the letter of no objection be advisory
only? Should obtaining a letter of no
objection be optional? Is the method for
calculating eligibility clear and
appropriate or are there alternative
suggestions that should be considered?
Should the Commission publish
standards or criteria to guide the staff’s
determination? What do commenters
believe the respective role of the
Commission and its staff should be in
making these eligibility determinations?
Should the Commission post on its Web
site all submissions and responses,
including those for which the staff does
not issue a no-objection letter?
24. Currently, some public companies
in the U.S. public capital market report
in accordance with IFRS and others in
accordance with U.S. GAAP. Today,
however, this ability to report using
IFRS exists only for foreign companies.
What consequences, opportunities or
challenges would be created, and for
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whom, of extending the option to use
IFRS to a limited number of U.S.
companies based on the criterion of
improving the comparability of financial
reporting for investors?
25. Do commenters agree that the
criterion of enhanced comparability is
the correct one? Are there other criteria
that should be used? For example,
should issuers be eligible based on their
size or their global activities? If a size
criterion were used to include the
largest U.S issuers, what should the cutoff be? Should there be a criterion based
on the absence of past violations of the
federal securities laws 111 or based on
shareholder approval?
26. Do commenters agree that the
proposed required disclosures are
appropriate? If not, what disclosures
should be provided?
27. What are commenters’ views on
the accounting principles that should be
used by those U.S. issuers that elect to
file IFRS financial statements if the
Commission decides not to mandate or
permit other U.S. issuers to file IFRS
financial statements in 2011? Should
the Commission require these issuers to
revert back to U.S. GAAP in that
situation?
28. Is it appropriate to exclude
investment companies, employee stock
purchase, savings and similar plans and
smaller reporting companies? Are there
other classes of issuers or certain
industries that should be excluded?
C. Transition
We believe that the option to move to
IFRS should be made available to
eligible U.S. issuers upon adoption of
rule amendments; thus we propose that
it be applicable for filings for fiscal
years ending on or after December 15,
2009. We believe that the ease with
which an eligible issuer could transition
to IFRS in filings with the Commission,
and thus the actual transition timing for
an eligible issuer, would depend on the
extent to which the issuer has
experience with IFRS. An eligible issuer
that elects to file IFRS financial
statements with the Commission under
the proposed amendments would be
required first to do so in an annual
report containing three years of audited
financial statements. Similarly, an IFRS
issuer changing from IFRS as issued by
the IASB to U.S. GAAP may only begin
reporting using U.S. GAAP in an annual
report on Form 10–K. An eligible issuer
would not be able to file IFRS financial
statements with the Commission for the
111 An example of such a criterion is found under
clauses (vi), (vii) and (viii) under the definition of
‘‘ineligible issuer’’ under Rule 405 under the
Securities Act [17 CFR 230.405].
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first time in a quarterly report,
Securities Act or Exchange Act
registration statement, or proxy or
information statement. We propose
limiting first time filing to annual
reports to minimize the potential
diversity of filings available, as a
multitude of options may be difficult for
investors to track and some of the filings
may be directed only to a subset of
investors. We also do not believe the
transition to IFRS requires amendments
to our rules relating to the timing of
filings with the Commission.
An issuer that is eligible to file IFRS
financial statements with the
Commission and is a ‘‘first-time
adopter’’ of IFRS would provide the
reconciliation and disclosure
information required by IFRS 1 ‘‘FirstTime Adoption of IFRS’’ (‘‘IFRS 1’’).
If we adopt these amendments, we
would continue to require that issuers
provide three years of audited annual
financial statements. Currently, U.S.
issuers are required to provide in their
filings with the Commission three years
of audited financial statements prepared
in accordance with U.S. GAAP. Because
these proposals relate to the set of
accounting principles that is used for
preparing financial statements and not
to the periods for which financial
statements are required, we propose to
continue to require three years of
audited financial statements from U.S.
issuers in the first year of IFRS
reporting. We are not inclined to allow
U.S. issuers to present only two years of
IFRS financial statements, although we
request comment below on a potential
option for when a company would file
three years of U.S. GAAP and two years
of IFRS financial statements.
Under the proposal, an eligible issuer
that elects to file IFRS financial
statements may begin to file financial
statements prepared in accordance with
IFRS as issued by the IASB for fiscal
years ending on or after December 15,
2009.112 As discussed in further detail
below in Section V.D.3., we also are
proposing that an issuer that elects to
file IFRS financial statements with the
Commission disclose information
related to its decision to change to IFRS
in its first Form 10–K that contains IFRS
financial statements.
Request for Comment
29. Should we limit the first filing
available to an annual report on Form
10–K, as proposed? If not, why not? Is
the proposed transition date of fiscal
112 A company filing an annual report for the year
ended December 31, 2009 would have to present
IFRS financial statements for its fiscal years ended
December 31, 2007, 2008 and 2009.
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years ending on or after December 15,
2009 appropriate? Should it be earlier or
later, and why? What factors should be
considered in setting the date?
30. Are there any considerations that
may make it difficult for an eligible U.S.
issuer to file IFRS financial statements?
Are there considerations about filing
IFRS financial statements that would
weigh differently for an eligible U.S.
issuer than they would for a foreign
private issuer that files IFRS financial
statements?
31. What difficulties, if any, do U.S.
issuers anticipate in applying the
requirements of IFRS 1 on first-time
adoption of IFRS, including the
requirements for restatement of and
reconciliation from previous years’ U.S.
GAAP financial statements?
32. What would affect a company’s
willingness to use IFRS if it were
eligible to do so? For example, some
market indices, such as the S&P 500,
currently only include issuers that
report in U.S. GAAP. Are there other
investment instruments or indices that
would affect companies that would be
eligible to use IFRS under the proposed
criteria? Would the ability to be
included in the S&P 500, or other
instrument or index affect whether an
eligible U.S. issuer decides to use IFRS?
Would these indices be prepared to
accept IFRS, and, if so, how long would
it take for them to change their criteria?
Would more issuers be likely to use
IFRS after they do? Should these
considerations influence our decision
on whether or when to permit or require
U.S. issuers to use IFRS in their
Commission filings?
33. To facilitate the transition to IFRS,
should we add an instruction to Form
10–K and Form 10–Q under which an
issuer could file two years, rather than
three years, of IFRS financial statements
in its first annual report containing IFRS
financial statements as long as it also
filed in that annual report three years of
U.S. GAAP financial statements? Under
such an approach, an issuer could,
during its third year after beginning its
IFRS accounting, choose to file a
Form10–K/A with IFRS financial
statements covering the previous two
fiscal years.113 For the current (third)
fiscal year, the issuer could then file
quarterly reports on Form 10–Q using
113 The IFRS financial statements covering the
two prior years could be included in the Form 10–
K if the issuer were prepared to do so as of the due
date. In that case, the Form 10–K would also
contain three years of U.S. GAAP financial
statements. Compliance with Exchange Act Rule
13a–14 [240.13a–14] would be required for both a
Form 10–K and a Form 10–K/A that contained IFRS
financial statements.
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IFRS financial statements.114 For
example, a calendar-year issuer that
began its IFRS accounting for the 2010
fiscal year would use U.S. GAAP to
prepare its Forms 10–Q and Forms 10–
K for the 2010 and 2011 fiscal years. In
2012, that issuer would have the option
of filing a Form 10–K or a Form 10–K/
A with IFRS financial statements for
2010 and 2011, which would allow it to
use IFRS in its quarterly reports during
2012, or continuing to use U.S. GAAP.
In either case, the Form 10–K covering
the 2012 fiscal year would include three
years of IFRS financial statements.
D. Alternative Proposals for U.S. GAAP
Information
The Commission is proposing two
alternatives with respect to the
disclosure of U.S. GAAP information by
U.S. issuers that elect to use IFRS
financial statements in their
Commission filings. Under the first
proposal, U.S. issuers would provide a
one-time reconciliation from certain
U.S. GAAP financial statements to IFRS
in accordance with IFRS 1. Under the
second proposal, U.S. issuers also
would provide on an annual basis a
reconciliation from IFRS financial
statements to U.S. GAAP covering a
three-year period. The Commission is
soliciting comment on these alternative
proposals to assist it with assessing
whether a one-time reconciliation in
accordance with IFRS is sufficient or
whether it also should require the ongoing disclosure of supplemental U.S.
GAAP financial information by U.S.
issuers that have elected to file IFRS
financial statements.
1. Proposal A—Reconciled Information
Pursuant to IFRS 1
Under the first alternative, Proposal
A, a U.S. issuer that elects to file IFRS
financial statements would provide the
reconciling information from U.S.
GAAP to IFRS called for under IFRS 1
in a footnote to its audited financial
statements. IFRS 1 provides the
requirements for transition from a prior
basis of reporting, in this case U.S.
GAAP, to IFRS as issued by the IASB.
This information includes the
restatement of and reconciliation from
prior year’s financial statements and the
related disclosures. This information
helps investors and users of financial
statements to understand the differences
between financial statements prepared
in accordance with the prior basis of
financial reporting and IFRS as issued
by the IASB.
114 An issuer that did not choose to file two years
of IFRS financial statements would file its quarterly
reports for the third year using U.S. GAAP.
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This reconciliation called for under
IFRS 1 would be included as part of the
issuer’s audited financial statements in
its first annual report that includes IFRS
financial statements. IFRS 1 requires
that entities explain how the transition
from previous GAAP to IFRS affects its
reported financial position, financial
performance and cash flows. To comply
with this requirement, an entity’s first
IFRS financial statements must include
reconciliations of its equity reported
under previous GAAP to its equity
under IFRS for the date of transition to
IFRS and the end of the latest period
presented in the most recent annual
financial statements prepared under
previous GAAP, and of its profit and
loss, and cash flows, reported under
previous GAAP for the latest period in
the most recent annual financial
statements to its profit and loss under
IFRS for the same period.115 Under
Proposal A, U.S. issuers would comply
with these requirements under IFRS. We
are not proposing additional
requirements, including specific form
and content requirements for the
reconciliations presented under IFRS 1.
This reconciling information from U.S.
GAAP to IFRS as of the dates and for the
annual period required under IFRS
would provide investors with
information relating to the financial
statement effects of the change from
U.S. GAAP to IFRS for these dates and
annual period.
Under Proposal A, an eligible issuer
that elects to file IFRS financial
statements may begin to file financial
statements prepared in accordance with
IFRS for fiscal years ending on or after
December 15, 2009. As an example,
under this alternative, a U.S. issuer
filing an annual report for the year
ending December 31, 2009 in
accordance with IFRS for the first time
would include a reconciliation of its
reported equity from U.S. GAAP to IFRS
as of January 1, 2007 and December 31,
2008 and a reconciliation for the year
ending December 31, 2008 of its
reported total comprehensive income.
After the initial reconciliation, the
issuer would not be required to provide
any reconciliation in future filings with
the Commission. However, nothing
would prevent a U.S. issuer from
voluntarily disclosing such U.S. GAAP
information to the market that it
believes may be useful for investors.
2. Proposal B—Supplemental U.S.
GAAP Information
Under the second alternative,
Proposal B, U.S. issuers that elect to file
IFRS financial statements would
115 See
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provide the reconciling information
from U.S. GAAP to IFRS required under
IFRS 1, and would also disclose on an
annual basis certain unaudited
supplemental U.S. GAAP financial
information covering a three-year
period. This unaudited supplemental
financial information would be in the
form of a reconciliation from IFRS as
issued by the IASB to U.S. GAAP. For
each period covered, the reconciliation
would be substantially similar to that
required under IFRS 1, except that it
would reconcile from IFRS financial
statements to U.S. GAAP and it would
reconcile the financial statements
indicated below. Under Proposal B, the
reconciliation would relate to all annual
periods covered by IFRS audited
financial statements, usually the most
recent three fiscal years. This unaudited
information would be disclosed on an
annual basis in the issuer’s annual
report on Form 10–K.
The supplemental U.S. GAAP
information provided under Proposal B
would incrementally increase
comparability in the following ways. In
the annual report covering the year in
which a U.S. issuer elected to report in
accordance with IFRS, Proposal B
would require U.S. GAAP information
concerning the three most recently
completed fiscal years. It also would
require U.S. GAAP information in
annual reports for periods after that in
which an issuer elected to report in
accordance with IFRS. In addition to
improved comparability, the additional
periods of U.S. GAAP information
would incrementally aid investors in
understanding the differences between
IFRS and U.S. GAAP, including trends.
Proposal B also increases the likelihood
that U.S. issuers would maintain U.S.
GAAP controls, procedures, and books
and records, for periods after the
election to report in IFRS.
Consequently, were the Commission to
determine not to continue to permit or
require U.S. issuers to use IFRS, those
issuers who had elected to report under
IFRS could more easily return to
reporting in accordance with U.S.
GAAP. In addition, even if the
Commission did not require issuers to
revert to U.S. GAAP, some issuers may
find it appropriate to do so.
To implement Proposal B, we would
amend Item 101 ‘‘Business’’ of
Regulation S–K by adding a paragraph
(j). Under proposed Item 101(j), an
issuer that uses IFRS as issued by the
IASB as its basis of financial reporting
would provide reconciliations from its
IFRS financial statements to U.S. GAAP
for each of the three fiscal years covered
by the audited IFRS financial statements
included elsewhere in the Form 10–K.
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The reconciliations would cover all of
the financial statements required to be
presented under IFRS: The balance
sheets, statements of income (loss),
statements of cash flow, statements of
changes in shareholders’ equity, and
statements of comprehensive income.
Quarterly reports on Form 10–Q would
not be required to provide disclosure
pursuant to Item 101(j).
Under proposed Item 101(j), the
reconciliations would be presented in a
form and level of information in
sufficient detail to explain all material
adjustments to the relevant financial
statements.116 We are not proposing
specific form and content requirements
for the reconciliations presented under
Item 101(j). While issuers could elect to
reconcile the statements of
comprehensive income and
shareholders’ equity from IFRS to U.S.
GAAP, they may find it easier to prepare
these statements using U.S. GAAP
amounts.
Under this alternative, the
information disclosed pursuant to
proposed Item 101(j) would be
contained under an appropriate caption
in the body of the annual report on
Form 10–K. As such, consistent with
other non-financial statement
information, it would be considered
‘‘filed’’ for purposes of Section 18 of the
Exchange Act,117 would be subject to
the certifications by the principal
executive and financial officers
pursuant to Sections 302 and 906 of the
Sarbanes-Oxley Act of 2002,118 and
would be subject to the disclosures and
certifications relating to disclosure
controls and procedures.119
The preparation of the supplemental
U.S. GAAP information, the underlying
books and records on which that
information is based and the internal
accounting controls and procedures
used to prepare such information would
not be subject either to management’s
assessment of, or to the independent
auditor’s report relating to, internal
controls and procedures over financial
reporting pursuant to Section 404 of the
Sarbanes-Oxley Act.120 In addition, the
supplemental U.S. GAAP information
would not be required to be audited or
reviewed by the issuer’s independent
auditors.
If we subsequently adopt rules to
mandate the use of IFRS or
subsequently determine not to mandate
the use of IFRS and require ‘‘early use’’
116 Item
101(j) is based on paragraph 40 of IFRS
1.
117 15
U.S.C. 78r.
U.S.C. 7241 and 18 U.S.C. 1349.
119 Exchange Act Rules 13a–15 and 15d–15 [17
CFR 240.13a–15 and 240.15d–15].
120 15 U.S.C. 7262.
118 15
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issuers to revert back to U.S. GAAP, we
anticipate eliminating any requirement
to disclose supplemental U.S. GAAP
financial information.
Under Proposal B, an eligible issuer
that elects to file IFRS financial
statements may begin to file financial
statements prepared in accordance with
IFRS for fiscal years ending on or after
December 15, 2009. As an example,
under this alternative, a U.S. issuer
filing an annual report for the year
ending December 31, 2009 in
accordance with IFRS for the first time
would include, in addition to the onetime reconciliation required under IFRS
1 (as described under Proposal A), the
reconciliation from IFRS to U.S. GAAP
as of December 31, 2008 and 2009 for
balance sheet information and for the
three years ending December 31, 2009
for the statements of income (loss) and
other annual period financial
statements. Thereafter, in each annual
report on Form 10–K, the issuer would
provide the IFRS to U.S. GAAP
reconciliation covering the same threeyear period as the audited financial
statements included in the Form 10–K.
3. Discussion of Proposals A and B
We believe that U.S. GAAP financial
information, whether presented under
either Proposal, would be useful to
investors in order to facilitate their
understanding of and education with
respect to IFRS during the early stages
of the transition of U.S. issuers to IFRS.
This reconciliation, under either
Proposal, would assist investors in their
understanding and appreciation of the
differences between U.S. GAAP and
IFRS as issued by the IASB as such
differences relate to the issuer providing
the disclosure. The Proposal B
requirement to provide a U.S. GAAP
reconciliation on an annual and ongoing basis would provide U.S. GAAP
information for additional and future
periods beyond the one-time
requirement under IFRS 1. Under
Proposal B, issuers would need to have
in place sufficient records and controls
to prepare this U.S GAAP information.
In addition, U.S. GAAP financial
information, whether presented under
either Proposal, would facilitate the
ability of investors to make comparisons
among U.S. issuers that prepare U.S.
GAAP financial statements and those
that have elected the early use of IFRS.
As proposed, only a limited number of
U.S. issuers would be eligible to elect
the early use of IFRS. While we believe
the early use of IFRS by these eligible
issuers may promote their comparability
to non-U.S. issuers in certain industries,
investors may also find it useful to make
comparisons with other U.S. issuers, the
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majority of which would continue to
prepare U.S. GAAP financial statements.
The Proposal B requirement to provide
a U.S. GAAP reconciliation on an
annual and on-going basis could
promote comparability with U.S. issuers
that continue to use U.S. GAAP.
Were the Commission to determine
not to continue to permit or require
additional U.S. issuers to use IFRS, the
Commission would determine whether
to require U.S. issuers that had elected
the early use of IFRS to revert back to
U.S. GAAP. In addition, those issuers
may find it appropriate to revert back to
U.S. GAAP even if not required to do so.
Thus, it would appear important that
U.S. issuers electing to file IFRS
financial statements maintain sufficient
information, records and controls in
place to be able to revert back to U.S.
GAAP. The Proposal A requirement to
provide only the reconciliation under
IFRS 1 would not appear to promote the
ability of U.S. issuers to revert back to
U.S. GAAP, since U.S. GAAP
information would not have been
required to be accumulated or disclosed
beyond the last year that the issuer
previously reported under U.S. GAAP.
The Proposal B requirement to provide
a U.S. GAAP reconciliation on an
annual and on-going basis may promote
the ability of U.S. issuers to revert back
to U.S. GAAP.
Request for Comment
34. What are commenters’ views on
Proposals A and B relating to U.S.
GAAP reconciling information? Which
Proposal would be most useful for
investors? Is there a need for the
supplemental information provided by
Proposal B? Would the requirement
under Proposal B have an effect on
whether eligible U.S. companies elect to
file IFRS financial statements? To what
extent might market discipline (i.e. ,
investor demand for reconciliation
information) encourage early adopters to
reconcile to U.S. GAAP even in the
absence of a reconciliation requirement?
35. What role does keeping a set of
books in accordance with U.S. GAAP
play in the transition of U.S. issuers to
IFRS? What impact will keeping U.S.
GAAP books have on U.S. investors,
U.S. issuers, and market participants?
36. How valuable is reconciliation to
U.S. investors, U.S. issuers, and market
participants? How valuable is
reconciliation to global market
participants? Are there some financial
statements (such as the statement of
comprehensive income) which should
not be required to be reconciled to U.S.
GAAP?
37. Under either Proposal, would
investors find the U.S. GAAP
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information helpful in their education
about IFRS or in being able to continue
to make financial statement
comparisons with U.S. (and non-U.S.)
issuers that continue to prepare U.S.
GAAP financial statements? Would one
alternative be more helpful to U.S.
investors, regulators, or others in
understanding information prepared
under IFRS or to continue to make
comparisons with issuers who prepare
U.S. GAAP financial statements?
38. Should we be concerned about the
ability of U.S. issuers that elect the early
use of IFRS to revert to U.S. GAAP?
Would either Proposal be preferred to
facilitate such a reversion, should that
be appropriate or required as described
above?
39. Under Proposal B, should the
proposed U.S. GAAP financial
information be audited? Is the proposed
role of the auditor appropriate? Should
the proposed U.S. GAAP financial
information be filed as an exhibit to the
Form 10–K annual report, instead of as
part of the body of the report? Is the
proposed treatment of the information
appropriate? For example, should the
information be deemed ‘‘furnished’’ and
not ‘‘filed’’ for purposes of Section 18 of
the Exchange Act? Should we require
that the supplemental U.S. GAAP
information be contained in the annual
report that is prepared pursuant to
Exchange Act Rule 14a–3(b)? 121 Should
the supplemental U.S. GAAP
information appear as a note to the
financial statements? Is the proposed
role of the auditor appropriate?
40. Under either Proposal, should we
provide more guidance as to the form
and content of the information called
for? Under either Proposal, should we
require that additional information be
provided, such as a ‘‘full reconciliation’’
as is required under Item 18 of Form
20–F? 122 Is there an intermediate
position between the reconciliation
under Proposal B and the reconciliation
under Item 18 of Form 20–F?
41. Under either Proposal, should we
require that the issuer’s ‘‘Management’s
Discussion and Analysis of Financial
Condition and Results of Operations’’
prepared under Item 303 of Regulation
S–K contain a discussion of the
reconciliation and the differences
between IFRS as issued by the IASB and
U.S. GAAP? 123
121 17
CFR 240.14a–3(b).
122 Item 18 of Form 20–F requires that a foreign
private issuer provide as part of the U.S. GAAP
reconciliation ‘‘all other information required by
U.S. generally accepted accounting principles and
Regulation S–X.’’
123 Foreign private issuers that provide a U.S.
GAAP reconciliation are required to provide such
disclosure. See Instruction 2 to Item 5 of Form 20–
F.
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42. Should we require supplemental
U.S. GAAP information, such as that in
Proposal B, for all quarterly periods
covered by IFRS financial statements?
43. Should the option to report under
IFRS, whether under Proposal A or
Proposal B, automatically terminate as
of a date certain? If so, should that date
be a set period of time? For example,
should it be three years following the
effective date of an adopting release?
Should it be a longer or shorter time
period? Should it be measured from
another date (e.g., the first permissible
compliance date or the date of the first
letter of no objection issued)? What
considerations should be part of our
decision as to the date or duration?
44. Under Proposal B, does providing
U.S. GAAP information require issuers
electing to file IFRS financial statements
to maintain sufficient information,
records and controls in order to revert
back to U.S. GAAP? If not, what
additional information, records or
controls must be maintained?
45. Under Proposal A, what
additional information, records or
controls would be necessary for U.S.
issuers electing to file IFRS financial
statements to maintain so that they
could revert back to U.S. GAAP?
V. Discussion of Proposed Amendments
Because we have not previously
permitted U.S. issuers to use financial
statements prepared in accordance with
IFRS as issued by the IASB in their
Securities Act and Exchange Act filings,
our disclosure requirements and forms
have not been specifically adapted for
IFRS. This section discusses the
proposed amendments to our rules and
forms designed to permit the limited
early use of IFRS as issued by the IASB
as described in Section IV. The
amendments also are designed to
provide further instruction as to how
any issuer that prepares its financial
statements in accordance with IFRS as
issued by the IASB for filings with the
Commission, whether a U.S. issuer or a
foreign private issuer that elects to file
IFRS financial statements, should
respond to disclosure requirements.124
A. The Use of IFRS Financial
Statements in Commission Filings by
Eligible Issuers
1. Proposed Amendments to Rule 4–01
of Regulation S–X
Regulation S–X contains, among other
things, the form and content
requirements for financial statements
124 As discussed below in Section V.B., inclusion
of foreign private issuers in Article 13 will not
change the content of their financial statements
filed under Form 20–F.
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included in Securities Act registration
statements, registration statements
under Section 12 of the Exchange Act,
annual and other reports under Sections
13 and 15(d) of the Exchange Act, and
proxy and information statements under
Section 14 of the Exchange Act. Article
4 of Regulation S–X sets out the rules of
general application for those financial
statements, and Rule 4–01 of Article 4
describes the form, order and
terminology to be used for financial
statements included in filings under the
Securities Act and the Exchange Act.
Under current Regulation S–X, the
financial statements contained in the
filings of any domestic issuer must be
prepared in accordance with U.S.
GAAP, unless the Commission has
otherwise provided.125 Although the
Commission has made such provisions
for foreign private issuers, which may
prepare their financial statements in
accordance with a comprehensive set of
accounting principles other than U.S.
GAAP with a reconciliation to U.S.
GAAP or in accordance with IFRS as
issued by the IASB without a
reconciliation to U.S. GAAP,126 issuers
that are not foreign private issuers are
permitted to use only U.S. GAAP.
To accommodate the limited early use
of IFRS proposed in this release, we are
proposing to add a new paragraph (a)(3)
to Rule 4–01 of Regulation S–X so that
a new category of issuers (e.g., those
meeting the proposed definition of
‘‘IFRS issuer’’ discussed further below)
may prepare their financial statements
in accordance with IFRS as issued by
the IASB. Under the proposed Rule 4–
01(a)(3), financial statements prepared
in accordance with IFRS as issued by
the IASB would be subject to the
proposed new Article 13, as described
in Section V.B., below. Neither
proposed Rule 4–01(a)(3) nor the
proposed definition of ‘‘IFRS issuer’’
would affect the use of financial
statements prepared in accordance with
IFRS as issued by the IASB by foreign
private issuers.
propose to add a definition of ‘‘IFRS
issuer’’ to the general definitions section
of Rule 405 of Regulation C under the
Securities Act and Rule 12b–2 of
Regulation 12B under the Exchange Act.
These proposed definitions would refer
to the definition contained in proposed
Rule 1–02(cc) of Regulation S–X. We
propose defining ‘‘IFRS issuer’’ in the
same way under Regulation S–X, the
Securities Act and the Exchange Act in
order to indicate clearly that the term is
to have the same meaning in the
application of all applicable rules,
regulations and forms under the
Securities Act and the Exchange Act.
2. Proposed Definition of ‘‘IFRS Issuer’’
We are proposing to include a
definition of ‘‘IFRS Issuer’’ in the
definitions section of Regulation S–X as
new Rule 1–02(cc). The term ‘‘IFRS
issuer’’ would be defined as any issuer,
other than a foreign private issuer that
files financial statements pursuant to
Item 17 or Item 18 of Form 20–F, that
prepares its financial statements in
accordance with IFRS as issued by the
IASB and meets the eligibility criteria
discussed in Section IV.A. We also
We are proposing a new Article 13 to
Regulation S–X which relates to the use
of IFRS and sets out requirements as to
the application of Regulation S–X and
related rules and forms for any issuer,
be it an eligible U.S. issuer or a foreign
private issuer, that prepares financial
statements in accordance with IFRS as
issued by the IASB for filings with the
Commission. We believe aggregating
provisions relating to the use of IFRS as
issued by the IASB into a single new
article provides for the greatest
simplicity and ease of use at this time.
Proposed Rule 13–01 relates to the
application of proposed Article 13 with
125 See
126 See
Rule 4–01(a)(1) of Regulation S–X.
Rule 4–01(a)(2) of Regulation S–X.
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Request for Comment
46. Are the criteria for issuers eligible
to file financial statements in
accordance with IFRS as issued by the
IASB clear from the proposed definition
of ‘‘IFRS issuer?’’ If not, in what way is
the definition unclear, and what
revisions would be necessary to
eliminate any lack of clarity?
47. Is there any ambiguity in the
proposed amendments regarding the
reasons for the distinction between
‘‘IFRS issuer’’ and foreign private issuer,
and the application of the rules to each?
If so, what is the nature of the ambiguity
and what would be necessary to provide
clarity?
48. Is the application of Regulation S–
X and Regulation S–K to financial
statements prepared in accordance with
IFRS as issued by the IASB clear from
the proposed amendments, or are there
other items within those regulations that
should be specifically amended to
permit the filing of financial statements
prepared in accordance with IFRS as
issued by the IASB? If so, how would
the application of Regulation S–X and
Regulation S–K be unclear if there were
no changes to those other than those
proposed? What changes would be
suggested in order to make them clear?
B. Application
1. Article 13 of Regulation S–X
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regard to both financial statements and
issuers. Under proposed Rule 13–01(a),
Article 13 applies to financial
statements that are prepared in
accordance with IFRS as issued by the
IASB filed by an IFRS issuer, by a
foreign private issuer pursuant to Form
20–F, or by an issuer with regard to nonissuer financial statements pursuant to
Rule 3–05, 3–09 or 3–14 of Regulation
S–X, as discussed further in Section
V.E.1. below. We do not include foreign
private issuers under the definition of
IFRS issuer, and consequently list
foreign private issuers and IFRS issuers
separately in proposed Rule 13–01(a),
because financial statement and other
disclosure requirements for foreign
private issuers are contained separately
in Form 20–F. Because Form 20–F refers
a foreign private issuer back to
Regulation S–X, we believe providing
for the application of Article 13 in this
manner will provide that our rules
relating to the use of financial
statements prepared in accordance with
IFRS as issued by the IASB will apply
equally to both domestic issuers and
foreign private issuers, while
recognizing that foreign private issuers
are subject to a separate disclosure and
reporting regime under Form 20–F.
Proposed Rule 13–01(b) brings
together three basic requirements for
IFRS financial statements. First, such
financial statements must contain an
appropriate captioned note in which the
issuer unreservedly and explicitly states
compliance with IFRS as issued by the
IASB. Second, the applicable
accountant’s report must include an
opinion on whether the financial
statements comply with IFRS as issued
by the IASB. Finally, financial
statements which are not prepared in
accordance with IFRS as issued by the
IASB will be presumed to be misleading
or inaccurate, despite footnote or other
disclosures, unless the Commission has
otherwise provided. The first two
requirements currently exist for foreign
private issuers that use IFRS as issued
by the IASB, but exist outside of
Regulation S–X. The third clarifies the
application of Rule 4–01(a) for IFRS
financial statements.
The purpose of these requirements is
so that issuers that file IFRS financial
statements with the Commission do not
deviate from IFRS as issued by the
IASB. Deviations would not foster the
development and use of a single set of
high-quality global accounting
standards and would undercut an
objective of the proposed option, which
as stated previously is intended to
enhance comparability in an industry
where IFRS is used more often than any
other set of accounting standards. As we
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stated in the adopting release accepting
IFRS financial statements by foreign
private issuers without reconciliation to
U.S. GAAP, we believe that the benefits
of moving towards a single set of
globally accepted standards as a longterm objective, including increased
transparency and comparability of
financial statements, are attainable only
if IFRS represents a single set of highquality accounting standards and not a
multiplicity of divergent standards
using the same name. However, we
would retain the ability to take such
action as may be appropriate to address
financial reporting issues in filings with
the Commission.
Proposed Rule 13–02 describes how
the other articles contained in
Regulation S–X would apply to IFRS
financial statements. Regulation S–X
has various provisions that specify the
financial presentation, disclosure
content, and in some cases, recognition
and measurement of amounts, to be
provided within an issuer’s financial
statements. Under the proposed rules,
an eligible IFRS issuer would apply
IFRS as issued by the IASB in its
entirety, and ordinarily would not be
required to comply with provisions of
Regulation S–X that specify financial
presentation, disclosure content, or
recognition and measurement of
amounts within the issuer’s financial
statements. However, as described more
fully in Section V.D.4., in many
instances an eligible IFRS issuer may be
permitted to follow these types of
provisions as acceptable accounting
policy choices under IAS 8. Also, in
many instances disclosures of the types
specified by Regulation S–X may be
necessary in IFRS financial statements
to fully comply with the general
requirement for fair presentation of IFRS
financial statements under IAS 1
‘‘Presentation of Financial Statements.’’
Regulation S–X also has various
provisions that specify the age, dates
and periods to be covered by financial
statements of the issuer in Commission
filings under various circumstances, the
qualifications of auditors and the
content of audit reports, and
circumstances in which financial
statements of entities other than the
issuer are required in the issuer’s filings.
These provisions are relevant
irrespective of any particular system of
accounting principles and would
continue to apply to IFRS issuers.
A walkthrough of how proposed Rule
13–02 would specify this application
follows. In those instances where an
eligible IFRS issuer is not required to
comply with the particular provision of
Regulation S–X, but may be permitted to
do so as an acceptable accounting policy
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choice under IAS 8, the provision is
described as ‘‘need not apply’’.127 If the
particular provision of Regulation S–X
is by its nature not applicable to IFRS
financial statements, or would be in
conflict with IFRS as issued by the
IASB, the provision is described as
‘‘shall not apply’’. Otherwise, the
provisions of Regulation S–X would
apply.
Article 1 ‘‘Application of Regulation
S–X’’ describes the application of
Regulation S–X in setting forth the form
and content requirements for financial
statements filed as part of Commission
filings, and includes definitions of terms
used throughout Regulation S–X. Except
as noted below regarding Rule 4–10,
Article 1 would apply.
Article 2 ‘‘Qualifications and Reports
of Accountants’’ describes the
qualifications and reports of
accountants and includes certain
requirements related thereto. Article 2
would apply.
Article 3 ‘‘General Instructions as to
Financial Statements’’, which
principally addresses the age, dates and
periods to be covered by financial
statements of the issuer and the
circumstances in which financial
statements of entities other than the
issuer are required in the issuer’s filings,
would apply. However, some of the
individual rules contained in Article 3
specify certain disclosure content
within an issuer’s financial statements,
and need not, or would not, apply to
IFRS financial statements. Specifically,
Rule 3–03 ‘‘Instructions to income
statement requirements,’’ and Rule 3–04
‘‘Changes in other stockholders’ equity,’’
need not apply to IFRS financial
statements because the areas to which
they relate are provided for in IFRS as
issued by the IASB. Rule 3–15(a)(1)
‘‘Special provisions as to real estate
investment trusts,’’ would not apply
because its requirements with respect to
income statement presentation are
incompatible with IFRS as issued by the
IASB.128 Rules 3–15(b) and (c) need not
apply to IFRS financial statements but
the disclosures specified therein may be
necessary for a fair presentation under
IAS 1. Rule 3–20 ‘‘Currency for financial
statements of foreign private issuers’’ by
its terms applies only to foreign private
issuers.
Article 3A ‘‘Consolidated and
Combined Financial Statements’’ need
127 However, such a provision could not be used
to the extent it would create a conflict with IFRS.
For example, certain provisions of Rule 4–10(c)
‘‘Full Cost Method’’ may conflict with certain
requirements of particular IFRS standards or the
IFRS Framework.
128 See IAS 1 ‘‘Presentation of Financial
Statements.’’
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not apply, because the areas to which
those rules relate are provided for in
IFRS as issued by the IASB.129
Article 4 ‘‘Rules of General
Application’’ would apply, except for
Rules 4–07, 4–08, and certain
paragraphs of Rule 4–10. Rule 4–07
‘‘Discount on shares’’ and Rule 4–08
‘‘General notes to financial statements,’’
need not apply to IFRS financial
statements, because the areas to which
those rules relate are provided for in
IFRS as issued by the IASB.130
Rule 4–10, ‘‘Financial Accounting and
Reporting for Oil and Gas Producing
Activities Pursuant to the Federal
Securities Laws and the Energy Policy
and Conservation Act of 1975’’
references energy-related statutes and
contains references to specific
pronouncements under U.S. GAAP.131
With respect to Commission filings,
Rule 4–10 would apply, except as noted
below.132 Specifically, Rule 4–10(a)
would apply to IFRS financial
statements because the definitions it
contains are used in the disclosure
requirements under Industry Guide 2
and FAS 69, with which an issuer using
IFRS would continue to comply.133 Rule
4–10(b) ‘‘Successful Efforts Method,’’
which specifies compliance with FAS
19 ‘‘Financial Accounting and Reporting
by Oil and Gas Producing Companies,’’
need not be applied to IFRS financial
statements. Although FAS 19 may be
applied in IFRS financial statements in
the absence of specific guidance on oil
and gas accounting under IFRS, IFRS
does not require the application of FAS
19.134 Rule 4–10(c) ‘‘Full Cost Method’’
need not apply to IFRS financial
statements. Rule 4–10(d) ‘‘Income
Taxes’’ need not apply to IFRS financial
statements because the areas to which
they relate are provided for in IFRS as
issued by the IASB.135
With respect to Article 5 ‘‘Commercial
and Industrial Companies,’’ Article 7
129 See IAS 27 ‘‘Consolidated and Separate
Financial Statements’’ and SIC 12 ‘‘Consolidation—
Special Purpose Entities.’’
130 Financial statement footnote disclosure
requirements on particular topical areas are found
throughout the standards and interpretations of
IFRS.
131 The Commission has recently issued a
proposing release relating to oil and gas disclosure
requirements contained in Regulation S–X and
Regulation S–K. See Release No. 33–8935 [73 FR
39526 (July 9, 2008)].
132 We propose to clarify in Rule 1–01(c) of
Regulation S–X that the proposed application of
Rule 4–10 in Rule 13–02 would apply only to
Commission filings.
133 See Section V.G.2. below.
134 For discussion relating to IAS 8 ‘‘Accounting
Policies, Changes in Accounting Estimates and
Errors’’ and the use of guidance to areas for which
specific IFRS do not exist, see Section III.B.4.,
above, and Section V.C.4., below.
135 IAS 12 ‘‘Income Taxes.’’
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‘‘Insurance Companies,’’ and Article 9
‘‘Bank Holding Companies,’’ which
prescribe specific financial statement
captions and certain footnote
disclosures for issuers in their
respective industries, these articles need
not apply to IFRS financial statements.
However, the schedules under Rules 5–
04, 7–05, and 9–06, which specify
supplemental parent company-only
information or separate supplemental
tabular disclosures, would still apply.
As discussed in Section V.B.2., below,
in providing separate audited schedules
pursuant to those rules, we propose that
an IFRS issuer or foreign private issuer
may use amounts based on IFRS as
issued by the IASB.
Article 6 ‘‘Registered Investment
Companies,’’ Article 6A ‘‘Employee
Stock Purchase, Savings and Similar
Plans,’’ and Article 8 ‘‘Financial
Statements of Smaller Reporting
Companies’’ would not apply because,
as described in Section IV above, such
issuers would be excluded from the
definition of ‘‘IFRS issuer.’’
Article 10, ‘‘Interim Financial
Statements,’’ would not generally apply
to IFRS financial statements. This is
because interim financial statements
that comply with IFRS as issued by the
IASB must comply with IAS 34 ‘‘Interim
Financial Reporting,’’ which prescribes
the minimum content of an interim
financial report and the principles for
recognition and measurement in interim
period financial statements.
However, several paragraphs of Rule
10–01 would continue to apply to IFRS
financial statements. Rule 10–01(a)(1)
would apply because it contains the
general requirement for interim
financial statements that must be
provided. Rule 10–01(a)(6) would
continue to apply so as to allow the
omission of schedules for IFRS interim
financial statements. Rule 10–01(b)(6)
would continue to apply to require
disclosure relating to any material
accounting changes and the filing of a
preferability letter from the issuer’s
independent auditor. For issuers that
file IFRS financial statements, the
disclosure required by this paragraph
should comply with the requirements of
IAS 34. Rules 10–01(c)(1)–(3) 136 would
also continue to apply to IFRS financial
statements for interim periods, as those
paragraphs describe the periods for
which balance sheets, income
statements, and changes in financial
position are required to be presented in
136 Rule
10–01(c)(4) would not apply to an IFRS
issuer. IAS 34 permits a highly seasonal entity to
present a 12-month interim period in addition to,
but not in lieu of, the year-to-date interim period.
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quarterly reports on Form 10–Q.137 Rule
10–01(d), which requires that interim
financial statements included in
quarterly reports be reviewed by an
independent accountant, would
continue to apply. Rule 10–01(e) also
continues to apply to permit the filing
of interim financial information to be
waived in certain cases.
Finally, both Article 11 ‘‘Pro Forma
Financial Information,’’ and Article 12
‘‘Form and Content of Schedules,’’
would apply in their entirety.
Additional information on the proposed
application of Article 11 is provided in
Section V.E.
Request for Comment
49. Is there any reason why an issuer
would be unable to assert compliance
with IFRS as issued by the IASB and
obtain the necessary opinion from its
independent auditor?
50. Is the application of Articles 1
through 12 of Regulation S–X to IFRS
financial statements clear from the
proposed Rule 13–02? If not, what
further clarification is necessary? Are
there other rules contained in Articles 1
through 12 that do not, or may not,
apply to financial statements prepared
in accordance with IFRS as issued by
the IASB and that are not addressed in
proposed Rule 13–02? If so, what are
they and how should they be addressed?
51. A U.S. issuer engaged in oil and
gas producing activities that has
followed the successful efforts method
and carries forward that practice under
IFRS will have consistent reserves
disclosure under FAS 19, FAS 69 and
Industry Guide 2. If that issuer were to
apply another method of accounting
permitted under IFRS, it may lead to
inconsistencies between Industry Guide
disclosure, FAS 69 disclosure, and the
financial statements. Would such
potential inconsistencies create
ambiguity for users of that information
or otherwise be a cause for concern? If
so, what would be an appropriate means
of addressing the inconsistencies?
2. Proposed Clarifying Amendments
With Respect to References to IFRS as
Issued by the IASB
The federal securities laws contain
several references to ‘‘generally
accepted accounting principles.’’ 138 In
addition, our regulations contain
numerous accounting references, which
include both references to ‘‘generally
accepted accounting principles’’, or
‘‘GAAP’’ and specific references to
137 IAS 34 uses the term ‘‘changes in equity’’
rather than the term ‘‘changes in financial position’’
that is used in Regulation S–X.
138 See, e.g., Exchange Act Section 13(b)(2)(B)(ii)
[15 U.S.C. 78m(b)(2)(B)(ii)].
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provisions of U.S. GAAP. This may
cause some doubt as to how such
references should apply with respect to
financial statements prepared in
accordance with IFRS as issued by the
IASB. In order to provide clarity as to
application of our regulations, we are
proposing Rule 13–03 to address
application of both general references to
GAAP as well as the references to
specific U.S. GAAP pronouncements for
IFRS financial statements. Consistent
with our proposed approach to Article
13 of Regulation S–X overall, we
propose an approach to address these
matters on a consolidated basis rather
than amending each of the specific
references at this time.
With regard to general references to
GAAP, we are proposing an approach
consistent with the approach we used
when we adopted rules pursuant to
Section 401(b) of the Sarbanes-Oxley
Act of 2002 139 with respect to the use
of non-GAAP financial measures by
foreign private issuers.140 In both
Regulation G and Item 10(e)(3) of
Regulation S–K, we specified that GAAP
refers to U.S. GAAP, but in the case of
foreign private issuers whose primarily
financial statements are prepared in
accordance with non-U.S. generally
accepted accounting principles, GAAP
refers to the principles under which
those primary financial statements are
prepared.141 Similarly, we are proposing
a similar approach for administrative
purposes only in Rule 13–03(a) that,
unless otherwise specifically
provided,142 references to ‘‘generally
accepted accounting principles’’ in Parts
210, 229, 230, 239, 240 and 249, except
for certain rules in Part 240 not relating
to financial statements in Exchange Act
registration statements, periodic reports
and proxy or information statements,143
should be construed by issuers to which
Article 13 applies to mean IFRS as
issued by the IASB.144
139 15
U.S.C. 7201 et seq.
Release No. 33–8176 (January 22, 2003)
[68 FR 4820 (January 30, 2003)]. See also Rule
407(d)(5) of Regulation S–K for a similar approach
with respect to audit committee financial expert
disclosure.
141 See, e.g., Section 101(b) of Regulation G and
Item 10(e)(3)(i) of Regulation S–K.
142 An example of specifically providing
otherwise is in Regulation G and Item 10(e)(3) of
Regulation S–K, where references to U.S. GAAP and
other comprehensive bases of accounting is
intended to be specific. See also Rule 4–01 of
Regulation S–X.
143 Specifically, Rules 11a–1h, 15c3–1g, 17a–5,
17g–3, 17h–1T, and 17i–6.
144 The staff has taken a similar approach in the
application of internal control reporting
requirements by foreign private issuers without
recognizing foreign bases of accounting as
‘‘generally accepted.’’ See https://www.sec.gov/info/
accountants/controlfaq.htm.
140 See
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In addition to general references to
GAAP, our regulations also contain
numerous references to specific
standards and interpretations included
in U.S. GAAP.145 We are proposing an
approach consistent with the approach
we used for our amendments removing
the reconciliation requirement for IFRS
financial statements by foreign private
issuers. Proposed Rule 13–03(b) would
indicate that, unless otherwise
specifically provided, in providing
information in response to requirements
in Parts 210, 229, 230, 239, 240 and 249
that refer to pronouncements of U.S.
GAAP, disclosure is to be provided that
satisfies the objective of the relevant
disclosure requirements. We are not
proposing to revise the references to
U.S. GAAP standards and interpretation
to include their analog under IFRS as
issued by the IASB. We believe that
issuers preparing IFRS financial
statements would be able to determine
which, if any, IFRS standards would
provide useful reference in satisfying
the relevant disclosure requirements
without undue burden.
Finally, proposed Rule 13–03(c)
would clarify that in providing general
caption data, segment data or schedule
information in response to Regulation
S–K item requirements, IFRS issuers
may present amounts based on IFRS as
issued by the IASB. This proposed
approach is consistent with the
approach adopted for foreign private
issuers that file IFRS financial
statements without a reconciliation to
U.S. GAAP.146 It is also consistent with
the proposed approach to schedule
information from IFRS issuers under
Articles 5, 7 and 9 of Regulation S–X,
as discussed above.
dwashington3 on PRODPC61 with PROPOSALS2
Request for Comment
52. With regard to specific references
to U.S. GAAP in our regulations, should
we amend the references to U.S. GAAP
pronouncements to also reference
appropriate IFRS guidance, and, if so,
what should the references refer to?
Would issuers be able to apply the
proposed broad approach to U.S. GAAP
pronouncements and would this
approach elicit appropriate information
for investors? Should we retain the U.S.
GAAP references for definitional
purposes?
53. With regard to general references
to U.S. GAAP, is our proposed approach
appropriate and sufficiently clear? If
not, how should these matters be
addressed differently and why?
145 See, e.g., Item 303(a)(4) of Regulation S–K [17
CFR 229.303(a)(4)].
146 See Instruction 5 to Item 5 of Form 20–F.
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54. Is our proposed approach
sufficiently clear on how to address
general caption data, segment data and
schedule information outside the
financial statements? If not, what
changes should we make? Are there
other places in our regulations that need
to be addressed?
C. Proposed Amendments to Item 10(e)
of Regulation S–K and Regulation G
In addition to the general references
to ‘‘generally accepted accounting
principles’’ described above, certain
rules relating to the use of non-GAAP
financial measures contain specific
references to ‘‘U.S. generally accepted
accounting principles:’’ both Item
10(e)(3) of Regulation S–K 147 and Rule
101(b) of Regulation G 148 state that for
purposes of those regulations, ‘‘GAAP
refers to generally accepted accounting
principles in the United States.’’ In each
case, there is an express provision
addressing the application of Item 10(e)
and Regulation G to foreign private
issuers that prepare financial statements
in accordance with non-U.S. generally
accepted accounting principles.149 In
order to similarly address the situation
of U.S. issuers preparing their financial
statements in accordance with IFRS as
issued by the IASB, we are proposing to
amend Item 10(e)(3) of Regulation S–K
and Rule 101(b) of Regulation G to
include IFRS issuers together with
foreign private issuers in how to apply
our rules relating to the use of nonGAAP financial measures when the
issuer’s primary financial statements are
prepared on a basis other than U.S.
GAAP.
D. Related Disclosure and Financial
Reporting Issues
1. Selected Financial Data
Under Item 301(a) of Regulation S–K,
issuers must provide five years of
selected financial data. As part of our
proposal to accept financial statements
prepared using IFRS as issued by the
IASB from certain domestic issuers, we
are proposing to add an instruction to
Item 301 to clarify that an IFRS issuer
shall present selected financial data on
the basis of IFRS as issued by the IASB.
We recognize that, under the
amendments proposed in this release,
many IFRS issuers will be adopting
IFRS as issued by the IASB for the first
time and therefore will not have
available five years of financial data
147 17
CFR 229.10(e)(3).
CFR 244.101(b).
149 See Item 10(e)(3)(i) and (ii) of Regulation
S–K [17 CFR 229.10(e)(3)(i) and 229.10(e)(3)(ii)] and
Rule 101(b)(1) and (2) of Regulation G [17 CFR
244.101(b)(1) and 244.101(b)(2)].
148 17
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based on IFRS as issued by the IASB.
Accordingly, the proposed instruction
to Item 301 allows an IFRS issuer that
prepares its financial statements in
accordance with IFRS as issued by the
IASB for the first time to present
selected historical financial data for the
three most recent fiscal years. If this
instruction is adopted, in each of the
two subsequent fiscal years that IFRS
issuer would provide an additional year
of selected financial data based on IFRS
as issued by the IASB, building up to
five years.
Request for Comment
55. Will three years of selected
financial data based on IFRS be
sufficient for investors, or should IFRS
issuers be required to disclose in their
selected financial data previously
published information based on U.S.
GAAP with respect to previous financial
years or interim periods?
2. Market-Risk and the Safe Harbor
Provisions
Pursuant to Item 305 of Regulation
S–K,150 an issuer is required to provide
quantitative and qualitative disclosure
about market risk related to certain
financial instruments. This information,
which is not included in the financial
statements of a filing, is expressly
subject to the statutory safe harbors
provided under Section 27A of the
Securities Act 151 and Section 21E of the
Exchange Act 152 to the extent it
constitutes ‘‘forward looking
statements.’’ 153
IFRS 7 ‘‘Financial Instruments:
Disclosure’’ as recently amended,
requires market risk disclosure that is
similar to that required under Item
305.154 In this respect, the sensitivity
analysis provided under IFRS will be
based on forward-looking information.
This information will appear in the
footnotes to audited IFRS financial
statements.
Section 27A of the Securities Act and
Section 21E of the Exchange Act
expressly exclude from the safe harbor
any information ‘‘included in a financial
statement prepared in accordance with
generally accepted accounting
principles.’’ 155 The safe harbor
therefore is not available for any
150 17
CFR 229.3–05.
U.S.C. 77z–2.
152 15 U.S.C. 78u–5.
153 See Item 305(d) of Regulation S–K. See also
Release No. 33–7386 (January 31, 1997) [62 FR 6044
(February 10, 1997)] for the release adopting the
derivatives disclosure requirement and the related
express safe harbor.
154 IFRS 7 requires this information beginning
with the 2007 fiscal year.
155 See Securities Act Section 27A(b)(2)(A) and
Exchange Act Section 21E(b)(2)(A).
151 15
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forward looking information included in
IFRS financial statements. When we
adopted the market risk disclosure
requirements, the Commission
considered whether the market risk
disclosure could be included in a
registrant’s financial statements and, if
so, whether the safe harbor should
apply to that disclosure. The
Commission decided to require that the
information required under Item 305 be
disclosed outside the financial
statements.
As required by Article 4–01 of
Regulation S–X, the financial statements
filed by a registrant must comply fully
with a comprehensive body of
accounting principles, which, under the
proposed amendments, includes IFRS 7
for those companies that use IFRS as
issued by the IASB.
We recognize that foreign private
issuers that are IFRS filers have
expressed particular concerns related to
the applicability of the safe harbor for
forward-looking statements.156 As we
did in connection with our approach to
foreign private issuers, we are not
proposing any changes in this area for
U.S. issuers that elect to use IFRS,
although we are soliciting comments
below. At this time, we believe the
question warrants further consideration
and, if appropriate, we may address
through a separate rulemaking initiative.
dwashington3 on PRODPC61 with PROPOSALS2
Request for Comment
56. Should the Commission address
the implications of forward-looking
disclosure contained in a footnote to the
financial statements in accordance with
IFRS 7? For example, would some kind
of safe harbor provision or other relief
or statement be appropriate?
3. Disclosure of First-Time Adoption of
IFRS in Form 10–K
As referenced above in Section IV.C.,
we are proposing that an eligible U.S.
issuer that changes to IFRS disclose
certain information related to that
change in its annual report on Form 10–
K covering the fiscal year for which
IFRS financial statements are first filed.
Because U.S. issuers have not
previously been permitted to use a basis
of financial reporting other than U.S.
GAAP, we believe it is appropriate that
an issuer provide disclosure related to a
change in its basis of financial reporting
prominently in its Form 10–K, such as
at the beginning of the Business
section.157
156 See the 2007 Adopting Release, discussion at
Section III.C.2.c.
157 We have not proposed amendments to Form
20–F to require similar disclosure from foreign
private issuers that adopt IFRS for the first time
because foreign private issuers have previously
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Under our integrated disclosure
system, disclosure requirements for
Form 10–K are contained in Regulation
S–K. To implement these disclosure
requirements in Form 10–K, we are
proposing to amend Item 101
‘‘Business’’ in Regulation S–K by adding
a paragraph (i). Under the proposed
Item 101(i), an issuer that changes the
comprehensive set of accounting
principles used in preparing its primary
financial statements to IFRS must
prominently disclose the following in
its first annual report on Form 10–K that
uses IFRS:
• The financial statements are
prepared using IFRS;
• The reasons for the change;
• The corporate governance processes
followed in electing to make the change
(including whether a shareholder vote
was held and whether the company’s
board of directors and audit committee
considered the matter); and
• The date the issuer submitted its
request to the staff demonstrating that it
met the criteria to change to IFRS and
the date the staff issued its letter of no
objection.
Under proposed Item 101(i), similar
disclosure relating to the first three
items above would be required from any
IFRS issuer that subsequently chose to
revert back to U.S. GAAP. That
disclosure would be included in the
annual report on Form 10–K for the year
in which the issuer reverted to U.S.
GAAP.
Request for Comment
57. Is the proposed disclosure in Form
10–K sufficient in prominence and
content to indicate to investors that the
issuer has changed its basis of financial
reporting from that used in previous
filings? If not, what further disclosure
should be provided, and where? Should
we require that an issuer disclose the
criteria under which it is eligible to file
IFRS financial statements? Should
issuers be required to reference the
letter of no objection in their first IFRS
filing?
58. Should we amend Form 8–K to
require ‘‘forward-looking’’ disclosure
relating to an issuer’s consideration of
whether it will file IFRS financial
statements in the future? If so, what type
of information should be disclosed, and
at what point in time prior to the issuer
actually filing IFRS financial
statements? Would a requirement to
make such forward-looking disclosure
have any impact on an issuer’s decision
to adopt IFRS? If so, what would the
effect be?
been permitted to change their basis of financial
reporting and because a foreign private issuer’s
change to IFRS in many cases will be mandatory.
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70839
4. Other Considerations Relating to IFRS
and U.S. GAAP Guidance
The Commission recognizes that a
U.S. issuer that files financial
statements prepared in accordance with
IFRS as issued by the IASB may
nevertheless pursuant to the application
of IAS 8 look for guidance from
Commission sources other than rules
and regulations, including Accounting
Series Releases (‘‘ASRs’’) and Financial
Reporting Releases (‘‘FRs’’).158 In
addition, such an issuer may look to the
guidance that the Commission staff
provides in Staff Accounting Bulletins
(‘‘SABs’’), and, if the issuer is engaged
in certain lines of business, various
Industry Guides.159 No changes to such
guidance are planned. We believe that
an issuer that prepares its financial
statements in accordance with IFRS as
issued by the IASB, and its auditor,
would continue to be required to follow
any Commission guidance that relates to
auditing issues.160 An issuer using IFRS
as issued by the IASB, although not
required to follow U.S. GAAP guidance,
may find reference to FRs, ASRs, SABs,
and Industry Guides and other forms of
guidance useful in the application of
IAS 8.161
Request for Comment
59. Are there issues on which further
guidance for IFRS issuers would be
necessary and appropriate?
158 FRs contain the Commission’s views and
interpretations relating to financial reporting. Prior
to 1982, the Commission published its views and
interpretations relating to financial reporting in
Accounting Series Releases (ASRs). In FR 1,
Adoption of the Financial Reporting Release Series
and Codification of Currently Relevant ASRs, the
Commission codified certain previously issued
ASRs on financial reporting matters.
159 Staff Accounting Bulletins reflect the
Commission staff’s views regarding accountingrelated disclosure practices. They represent
interpretations and policies followed by the
Division of Corporation Finance and the Office of
the Chief Accountant in administering the
disclosure requirements of the federal securities
laws. Industry Guides serve as expressions of the
policies and practices of the Division of Corporation
Finance. They are of assistance to issuers, their
counsel and others preparing registration
statements and reports, as well as to the
Commission’s staff. SABs and Industry Guides are
not rules, regulations, or statements of the
Commission. They have not been issued pursuant
to notice and comment rulemaking, and the
Commission has neither approved nor disapproved
these interpretations.
160 Issuers are required to have audits conducted
in accordance with the standards of the PCAOB
regardless of the comprehensive basis of financial
reporting they use to prepare their financial
statements.
161 The provisions of IAS 8 are described above
in footnote 76.
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E. Financial Statements of Other
Entities Under Regulation S–X
Several rules under Regulation S–X
relate to financial statements of other
entities that an issuer must include in
its filings. This section describes how
these rules would apply to an issuer that
files IFRS financial statements.
1. Application of the Amendments to
Rules 3–05, 3–09 and 3–14
Under Rules 3–05, 3–09 and 3–14 of
Regulation S–X, an issuer, in certain
circumstances, must include the
financial statements of another entity in
its filings.162 Although we are not
proposing specific amendments to those
rules as part of this rulemaking
initiative, as noted in proposed Rule 13–
03(a), the amendments we are proposing
in this release will apply equally in the
application of Rules 3–05, 3–09 and
3–14.
dwashington3 on PRODPC61 with PROPOSALS2
a. Significance Testing
Under Rules 3–05, 3–09 and 3–14, an
issuer is required to include the
financial statements of another entity if
the entity meets certain significance
tests.163 If the significance thresholds
under Rule 3–05, 3–09 or 3–14 are met,
then the issuer must provide on a
separate basis audited annual financial
statements of the subject entity.
Significance testing under Rule 1–
02(w) has historically been performed
using U.S. GAAP amounts. As part of
our adopting release accepting IFRS
financial statements by foreign private
issuers without reconciliation to U.S.
GAAP, we amended Rule 1–02(w) to
clarify that a foreign private issuer that
prepares its financial statements in
accordance with IFRS as issued by the
IASB should conduct significance
testing using amounts determined under
IFRS as issued by the IASB. We are
proposing to revise Rule 1–02(w) to
clarify that an IFRS issuer that prepares
its financial statements in accordance
with IFRS as issued by the IASB also
should perform significance testing
using amounts determined under IFRS
as issued by the IASB.
162 Rule 3–05 specifies the requirements for
financial statements of businesses acquired or to be
acquired. Rule 3–09 specifies the requirements for
financial statements of unconsolidated majorityowned subsidiaries and 50% or less owned
investments accounted for by the equity method.
Rule 3–14 specifies requirements for financial
statements of real estate operations (properties)
acquired or to be acquired.
163 An entity is significant to the issuer under
Rules 3–05 and 3–09 if the issuer’s investment in
the entity exceeds 20% of the issuer’s total assets,
the entity’s income (as defined) exceeds 20% of the
issuer’s corresponding income, or (for Rule 3–05
only) the entity’s total assets exceed 20% of the
issuer’s total assets. Rule 3–14 significance is based
on the 10% level in Rule 1–02(w).
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Requirements for significance testing
are governed by the financial statements
of the issuer. Generally, if an issuer
prepares its own financial statements
using IFRS as issued by the IASB, that
issuer would perform the significance
tests under Rules 3–05, 3–09 and 3–14
using IFRS as issued by the IASB,
regardless of the basis of financial
reporting used by the other entity.
b. Separate Historical Financial
Statements of Another Entity Provided
Under Rule 3–05, 3–09 or 3–14
Generally, the historical financial
statement requirements for an acquired
business or investee under Rule 3–05,
3–09 or 3–14 are governed by the status
of that entity, and the burden of
providing the financial statements of a
non-issuer entity would be no higher
than if it were the issuer. Under the
adopting release accepting IFRS
financial statements by foreign private
issuers without reconciliation to U.S.
GAAP, we permit foreign and domestic
issuers to file financial statements under
Rules 3–05 and 3–09 for foreign
businesses under IFRS as issued by the
IASB without reconciliation to U.S.
GAAP. In addition, in applying the
proposed amendments, if an IFRS issuer
or foreign private issuer is required to
file financial statements under Rule 3–
05, 3–09, or 3–14 for any entity, whether
domestic or foreign, whose audited
financial statements are in accordance
with IFRS as issued by the IASB, those
financial statements would be
acceptable in a Commission filing.164
For example, IFRS issuers and foreign
private issuers that acquire a
‘‘significant’’ business, domestic or
foreign, under Rule 3–05 would be
permitted, under the proposed rules, to
include the acquiree’s financial
statements prepared in accordance with
IFRS as issued by the IASB. The same
would be true for the financial
statements of a ‘‘significant’’ investee
under Rule 3–09 or acquired property
under Rule 3–14. To clarify this ability
to use IFRS as issued by the IASB for
any financial statements under Rule 3–
05, 3–09 or 3–14, we are proposing to
amend Rule 4–01(a) of Regulation S–X
to clarify that such an option is
available.
2. Financial Statements Provided Under
Rule 3–10
Rule 3–10 of Regulation S–X specifies
financial statement requirements for
issuers of guaranteed securities and
164 The entity need not meet the proposed
definition of ‘‘IFRS issuer.’’
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guarantors.165 Generally, under this rule
both the issuer of the guaranteed
security and the guarantor must follow
the financial statement requirements of
a registrant. If both entities were IFRS
issuers, we would accept the financial
statements prepared in accordance with
IFRS as issued by the IASB.
However, Rule 3–10 permits modified
reporting by subsidiary issuers of
guaranteed securities and subsidiary
guarantors. Separate financial
statements need not be filed for
subsidiaries meeting the applicable
conditions contained in Rules 3–10(b)
through 3–10(f). Instead, condensed
consolidating financial information is
presented in the parent company’s
reports in an additional audited footnote
to the financial statements. A parent
issuer or guarantor that presents
consolidated financial statements under
IFRS as issued by the IASB would
present the condensed consolidating
financial information on the basis of
IFRS as issued by the IASB.166 We do
not believe that any revision to Rule 3–
10 is necessary to implement the
acceptance of financial statements
prepared using IFRS as issued by the
IASB, other than extending the
reference to the articles of Regulation S–
X to incorporate Article 13.
3. Financial Statements Provided Under
Rule 3–16
Rule 3–16 specifies the requirement
for financial statements of affiliates of
an issuer whose securities collateralize
an issue registered or being registered.
The requirement to provide separate
financial statements under Rule 3–16 is
based upon whether or not the
securities are a substantial portion (as
defined) of the collateral for the class of
securities registered or being
registered.167 Affiliates whose securities
collateralize a security registered or
being registered are not themselves
issuers, but the issuer whose securities
are collateralized (ordinarily the parent
company) must file the financial
statements of those affiliates under Rule
3–16 ‘‘that would be required if the
affiliate were a registrant.’’ The affiliates
165 A guarantee of a registered security is itself a
security, so a guarantor of a registered security is
itself considered an issuer of a security. See
Securities Act Section 2(a)(1).
166 We took a similar approach in our adopting
release accepting IFRS financial statements by
foreign private issuers without reconciliation to
U.S. GAAP.
167 Substantial portion of the collateral is defined
in Rule 3–16(b) as ‘‘the aggregate principal amount,
par value, or book value of the [affiliate’s] securities
as carried by the registrant, or the market value of
such securities, whichever is the greatest, equals 20
percent or more of the principal amount of the
secured class of securities.’’
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will ordinarily be consolidated
subsidiaries of the parent/issuer. If the
parent/issuer is an eligible IFRS issuer,
then we would accept financial
statements prepared in accordance with
IFRS as issued by the IASB for both the
parent/issuer and the Rule 3–16
affiliates. If the parent/issuer files U.S.
GAAP financial statements, we would
expect the Rule 3–16 financial
statements to be U.S. GAAP as well. We
do not believe that any revision to Rule
3–16 is necessary to implement the
acceptance of financial statements
prepared in accordance with IFRS as
issued by the IASB.
dwashington3 on PRODPC61 with PROPOSALS2
F. Pro Forma Financial Statements
Provided Under Article 11
Under Article 11 of Regulation S–X,
issuers are required to prepare
unaudited pro forma financial
information that is intended to give
effect as if a particular transaction, such
as a significant recent or probable
business combination, had occurred at
the beginning of the financial period.
Requirements for pro forma financial
information under Article 11 continue
to be governed by the financial
statements of the issuer rather than of
the acquiree or other entity, as the pro
forma results must be presented using
the same basis of financial reporting as
the issuer. Similarly, these rules do not
impose a higher presentation burden on
pro forma financial information than
would be imposed on the historical
financial statements of the issuer. We
are not proposing to amend Article 11,
but the proposed amendments will
apply in the application of Article 11.
Accordingly, if the proposed
amendments are adopted, an IFRS
issuer would prepare the pro forma
financial information by presenting its
IFRS results and converting the
financial statements of the business
acquired (or to be acquired) into IFRS as
issued by the IASB.168
Request for Comment
60. Is the application of the proposed
rules to the preparation of financial
statements and financial information
described in Sections V.D and V.E above
sufficiently clear? If not, what areas
need to be clarified? Are any further
changes needed for issuers that prepare
their financial statements using IFRS as
issued by the IASB?
61. Under the proposed rules, an IFRS
issuer or foreign private issuer may file
financial statements of an entity under
Rule 3–05, 3–09 or 3–14 prepared in
168 We took a similar approach in our adopting
release accepting IFRS financial statements by
foreign private issuers without reconciliation to
U.S. GAAP.
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accordance with IFRS as issued by the
IASB even though the entity does not
meet the definition of ‘‘IFRS issuer.’’
Should we also accept financial
statements required under Rule 3–05, 3–
09 or 3–14 prepared in accordance with
IFRS as issued by the IASB without
regard to the status of the issuer as an
IFRS issuer or foreign private issuer?
Should our acceptance depend on
characteristics of the entity whose
financial statements are being provided,
such as that the entity already prepares
IFRS financial statements or the entity
principally operates outside the United
States?
62. Are there other rules in Regulation
S–X that should be specifically
amended to accommodate our proposal?
If so, how would the application of
those rules be unclear if there were no
changes to those rules, and what
changes would be suggested in order to
make them clear?
G. Industry Specific Matters
1. Disclosure Pursuant to Industry
Guides
Companies that are engaged in certain
lines of business are subject to various
Industry Guides.169 The Commission is
not proposing any specific amendments
with respect to information required to
be disclosed pursuant to the Industry
Guides by IFRS issuers and believes that
IFRS issuers that transition to IFRS and
to which these Guides apply do not
need a general accommodation.
Several of the Industry Guides contain
specific references to U.S. GAAP
pronouncements. Although we are not
proposing to amend the Industry
Guides, IFRS issuers should respond to
those provisions in a manner consistent
with the approach taken in the proposed
Rule 13–03 of Regulation S–K.
Specifically, an IFRS issuer that is
subject to the Industry Guides, in
responding to Industry Guide items that
refer to U.S. GAAP pronouncements,
should provide disclosure that satisfies
the objective of the Industry Guide
disclosure requirements. In providing
such disclosure, an IFRS issuer would
not need to repeat information
contained in its IFRS financial
statements.
Industry Guide disclosure is intended
to provide a ‘‘track-record’’ of trend
information such as loan quality
information for banks providing
disclosure under Industry Guide 3 or
169 Industry Guides serve as expressions of the
policies and practices of the Division of Corporation
Finance. They are of assistance to issuers, their
counsel and others preparing registration
statements and reports, as well as to the
Commission’s staff. See 17 CFR 229.801(a)–(g) and
229.802(a)–(d) and (e).
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70841
property casualty loss reserve
development under Industry Guide 6.
The Commission recognizes that
transition to IFRS will impact the
Industry Guide disclosure of IFRS
issuers for the first time, who may not
have available prior years of Industry
Guide information prepared under IFRS
as issued by the IASB. Although the
staff does not intend to amend the
Industry Guides, the staff believes and
intends to apply the Industry Guides
such that a first-time adopter of IFRS
who relies on the amendments, if
adopted, would be consistent with
existing Industry Guides if it provides
three years of Industry Guide
information under IFRS as issued by the
IASB, with information provided under
U.S. GAAP to cover earlier years as
called for by the Industry Guides, as
applicable.
Under Industry Guide 5 ‘‘Preparation
of Financial Statements Relating to
Interest in Real Estate Limited
Partnerships,’’ real estate limited
partnerships provide prior performance
information of programs sponsored by
the general partner and its affiliates in
tabular form. The tables containing this
information may encompass numerous
affiliates of the General Partner, and
often are quite voluminous. For issuers
that prepare their financial statements
in accordance with IFRS as issued by
the IASB, the staff would permit this
prior performance information to
continue to be presented in U.S. GAAP.
The General Partner and affiliated
partnerships need not convert their
prior performance information to IFRS if
the partnership is otherwise eligible to
use IFRS under the proposed rules.
2. Disclosure From Oil and Gas
Companies Under FAS 69
Pursuant to either earlier Commission
rules or more recent FASB standards,
public companies with significant oil
and gas activities have been required to
disclose reserve and other information
relating to those activities. In November
1982, the FASB adopted FAS 69
‘‘Disclosures about Oil and Gas
Producing Activities,’’ which
establishes a comprehensive set of
disclosures for oil and gas producing
activities. Under this standard, public
companies with such significant
activities are required to disclose
unaudited supplementary information
relating to proved oil and gas reserves,
and capitalized costs relating to oil and
gas producing activities. As a result of
the FASB’s adoption of FAS 69, the
Commission initially suspended the
effectiveness of a rule under Regulation
S–X calling for substantially similar
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information,170 and then deleted the
rule altogether.171 The Commission
noted that, in light of the FASB
standard, its own earlier rule requiring
this disclosure was duplicative and no
longer necessary.
As we did with foreign private issuers
when we provided the option to provide
IFRS financial statements without a
reconciliation to U.S. GAAP, we are
proposing to continue to require an
IFRS issuer to provide the information
called for under FAS 69 even though the
company is preparing financial
statements in accordance with IFRS as
issued by the IASB. See proposed Rule
13–03(d) of Regulation S–X. The nature
of the information provided under FAS
69 is not in the nature of U.S. GAAP
information but rather is supplementary
information included as an unaudited
footnote to the audited financial
statements. We believe that the
information required by FAS 69 is
useful to investors and would not
otherwise be required to be disclosed
under IFRS.
Request for Comment
63. Should an IFRS issuer be required
to continue to comply with the
disclosure requirements of FAS 69?
What alternatives may be available to
elicit the same or substantially the same
disclosure? Proposed Rule 13–03(d) of
Regulation S–X is modeled on an
instruction relating to FAS 69 in Item 18
of Form 20–F. Does this proposed rule
need to be modified in any way to more
clearly require filers to provide
information required by FAS 69?
1. Application of Proposed
Amendments to Exempt Offerings
The proposed amendments, if
adopted, would apply to financial
statements filed with the Commission
by an eligible IFRS issuer that are
included in any registration statement
filed under the Securities Act or the
Exchange Act, periodic or other report
filed under Section 13(a) or 15(d) of the
Exchange Act and any proxy or
information statement pursuant to
Section 14 of the Exchange Act. An
IFRS issuer that would be eligible to file
with the Commission financial
statements prepared in accordance with
2. References to FASB Pronouncements
in Form 8–K
The proposed amendments, if
adopted, would apply to current reports
on Form 8–K filed pursuant to Rule
13a–11 or Rule 15d–11 under the
Exchange Act and for reports of
nonpublic information required to be
disclosed by Regulation FD.173 The
proposed amendments also would apply
to filings made pursuant to Rule 425
under the Securities Act, regarding
written communications related to
business combination transactions, or
Rules 14a–12(b) or Rule 14d–2(b) under
the Exchange Act relating to soliciting
materials and pre-commencement
communications pursuant to tender
offers.
Form 8–K contains several items that
contain references to specific standards
included in U.S. GAAP. We are
proposing to add instructions to those
items to provide references to specific
IFRS standards to which an IFRS issuer
would refer instead of the U.S. GAAP
standard. Specifically, we are proposing
to add a new sentence at the end of
instruction 4 to Item 2.04 to refer to IAS
37 ‘‘Provisions, Contingent Liabilities
170 The requirement was found in former Rule 4–
10(k) of Regulation S–X. The application of this rule
was suspended in Release No. 33–6444 (December
15, 1982) [47 FR 57911 (December 29, 1982)].
171 Release No. 33–6818 (February 17, 1989) [54
FR 8202 (February 27, 1989)] proposed the deletion
which was adopted in Release No. 33–6959
(September 17, 1992).
172 For example, a reporting issuer that makes an
offering of over $7,500,000 under Regulation D of
the Securities Act (Sections 230.501–230–508) must
furnish purchasers with information contained in
any reports filed by the issuer under Sections 13(a),
14(a), 14(c), and 15(d) of the Exchange Act. See
Rule 502(b)(2)(ii)(C).
173 17 CFR 243.100 and 243.101.
H. Application of the Proposed
Amendments to Other Forms, Rules and
Schedules
dwashington3 on PRODPC61 with PROPOSALS2
IFRS under the proposed rules also
would be able to use those financial
statements when conducting an offer or
sale of securities that is exempt from
registration under the Securities Act,
where the exemption relied upon
requires that financial statements be
furnished to investors.172 We believe
allowing an eligible IFRS issuer to use
IFRS financial statements in its
Commission filings while disallowing
the use of those financial statements in
an exempt offering would be unduly
burdensome to issuers and inconsistent
with our proposed acceptance of the use
of IFRS as issued by the IASB in the
United States capital market. However,
an issuer to which proposed Article 13
of Regulation S–X would not apply
would not be able to use financial
statements prepared in accordance with
IFRS as issued by the IASB in exempt
offers or sales of securities where the
exemption relied upon requires that
financial statements be furnished to
investors (including if that issuer would
have been permitted to file IFRS
financial statements solely for purposes
of Rules 3–05, 3–09 and 3–14 pursuant
to proposed Rule 4–01(a)(4)).
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and Contingent Assets,’’ as may be
modified, supplemented or succeeded.
We also are proposing to add a new
instruction to Item 2.05 to refer to IFRS
5, ‘‘Non-current Assets Held for Sale
and Discontinued Operations,’’ as may
be modified, supplemented or
succeeded. Finally, we are proposing to
add a new instruction to Item 4.02 to
refer to IAS 8 ‘‘Accounting Policies,
Changes in Accounting Estimates and
Errors,’’ as may be modified,
supplemented or succeeded.
This proposed reference to specific
IFRS standards in Form 8–K differs from
the general approach in proposed Rule
13–03(c), where we are not proposing to
identify specific IFRS standards that an
IFRS issuer should look to when
responding to item requirements that
make reference to specific U.S. GAAP
pronouncements.174 We believe that
providing the specific IFRS standard is
necessary as the occurrence of an event
specified in Items 2.04, 2.05 and 4.02 of
Form 8–K requires the U.S. issuer to file
a Form 8–K in addition to disclosing
these events.
3. Application of IFRS to Tender Offer
and Going-Private Rules
Instructions 6 and 8 to Item 10 of
Schedule TO, the tender offer statement
under the Exchange Act,175 contain
references to a reconciliation to U.S.
GAAP. Instructions 1 and 2 to Item 13
of Schedule 13E–3,176 the transaction
statement under Section 13(e) of the
Exchange Act, also contain references to
a reconciliation to U.S. GAAP. In order
to implement fully the proposed use of
IFRS by eligible U.S. issuers, we are
proposing conforming amendments to
these instructions of Schedule TO and
Schedule 13E–3 to clarify that issuers
eligible to use IFRS financial statements
may use those financial statements in
Schedule TO and Schedule 13E–3
without a reconciliation to U.S. GAAP.
Request for Comment
64. Is the guidance in this proposal
sufficient to avoid any ambiguity about
the use of IFRS financial statements in
exempt offerings? If not, what additional
clarification is needed? Is any revision
to forms or rules necessary?
65. Are there other rules or forms
under the Securities Act or the
Exchange Act that should be specifically
amended to permit the filing of financial
statements prepared in accordance with
IFRS as issued by the IASB? If so, how
would the rules or forms be unclear if
there were no changes to those forms,
174 See
Section V.B.2., above.
CFR 240.14d–100.
176 17 CFR 240.13e–100.
175 17
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and what changes would be suggested
in order to make them clear?
VI. General Request for Comments
We request and encourage any
interested persons to submit comments
regarding:
• The proposed changes that are the
subject of this release;
• Additional or different changes; or
• Other matters that may have an
effect on the proposals contained in this
release.
In addition to providing comments on
these matters, we encourage interested
parties to provide comment on broader
matters related to the development of a
single set of globally accepted
accounting standards, for example:
66. Are there other considerations in
addition to those discussed in this
release that the Commission should
consider as part of the proposed
amendments to permit the limited use
of IFRS or its future decision regarding
the use of IFRS by U.S. issuers?
We request comment from the point
of view of registrants, investors,
accountants, accounting standard
setters, users of financial statements and
other market participants. With regard
to any comments, we note that such
comments are of greatest assistance to
our rulemaking initiative if
accompanied by supporting data and
analysis of the issues addressed in those
comments.
VII. Paperwork Reduction Act
A. Background
Certain provisions of the proposed
amendments contain ‘‘collection of
information’’ requirements within the
meaning of the Paperwork Reduction
Act of 1995 (‘‘PRA’’).177 We are
submitting the proposed amendments to
the Office of Management and Budget
(‘‘OMB’’) for review in accordance with
the PRA.178 The titles for the collection
of information are: 179
177 44
U.S.C. 3501 et seq.
U.S.C. 3507(d) and 5 CFR 1320.11.
179 Certain provisions of the proposed
amendments to Regulation S–X could also affect
collection of information requirements within the
meaning of the PRA for Form S–1 under the
Securities Act and Form 10 under the Exchange
Act. However, all of the issuers that currently
would be eligible to use IFRS accounting if these
proposals were adopted are issuers that are eligible
to use alternative forms in lieu of Forms S–1 and
10 that would allow an issuer to incorporate the
Regulation S–X disclosures from the issuer’s
Exchange Act periodic reports. We reviewed the
types of filings made by a sample of the issuers that
we estimate are currently eligible over a three year
period, and none of the issuers filed a Form S–1 or
Form 10 over this time. Accordingly, we do not
believe the proposed amendments would impose
any new recordkeeping or information collection
requirements, or other collections of information
requiring OMB’s approval for Forms S–1 and 10.
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178 44
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(1) ‘‘Form 10–K’’ (OMB Control No.
3235–0063);
(2) ‘‘Form 10–Q’’ (OMB Control No.
3235–0070);
(3) ‘‘Form 8–K’’ (OMB Control No.
3235–0060);
(4) ‘‘Form S–4’’ (OMB Control No.
3235–0324);
(5) ‘‘Schedule 14A’’ (OMB Control No.
3235–0059);
(6) ‘‘Schedule 14C’’ (OMB Control No.
3235–0057);
(7) ‘‘Regulation S–X’’ (OMB Control
No. 3235–0009);
(8) ‘‘Regulation S–K’’ (OMB Control
No. 3235–0071);
(9) ‘‘Regulation C’’ (OMB Control No.
3235–0074); and
(10) ‘‘Request for a Letter of No
Objection to use IFRS’’.
The regulations, schedules and forms
were adopted under the Securities Act
and the Exchange Act and set forth the
disclosure requirements for annual,
quarterly and current reports;
registration statements; and proxy and
information statements filed by U.S.
issuers to help shareholders make
informed voting and investment
decisions. The hours and costs
associated with preparing, filing and
sending the form constitute reporting
and cost burdens imposed by each
collection of information. The Request
for a Letter of No Objection to use IFRS
would constitute a new collection of
information under the Exchange Act to
be used by issuers that would be eligible
to switch to IFRS accounting. An agency
may not conduct or sponsor, and a
person is not required to respond to, a
collection of information unless it
displays a currently valid OMB control
number. Compliance with the proposed
amendments by eligible U.S. issuers
opting to file their financial statements
in accordance with IFRS would be
mandatory. Responses to the
information collections would not be
kept confidential and there would be no
mandatory retention period for the
information disclosed.
As discussed in more detail above, we
are proposing two alternatives that
would allow certain U.S. issuers to file
financial statements in accordance with
IFRS, rather than U.S. GAAP, for use in
their periodic and current reports made
under Section 13(a) or 15(d) of the
Exchange Act; Schedules 14A and 14C
under the Exchange Act, as well as in
registration statements under the
Securities Act and Exchange Act. Under
Proposal A, eligible U.S. issuers would
be allowed to file their financial
statements in accordance with IFRS and
would need to include a one-time
reconciliation from certain U.S. GAAP
financial statements to IFRS in
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70843
accordance with IFRS 1. Under Proposal
B, eligible U.S. issuers would be
allowed to file their financial statements
in accordance with IFRS but would be
required to provide a reconciliation
from IFRS financial statements to U.S.
GAAP for each of the three years
presented.
Under both Proposal A and Proposal
B, once an issuer determines that it is
eligible to use IFRS accounting and
seeks to use IFRS accounting, it would
first need to submit a Request for a
Letter of No Objection to use IFRS
describing its analysis in determining its
eligibility to use IFRS accounting. In
addition, an eligible issuer would need
to disclose in its first Form 10–K filing
using IFRS accounting that its financial
statements are prepared using IFRS as
issued by the IASB. As described in
Section V.D.3., the issuer also must
disclose the reasons for the change to
IFRS, the corporate governance
processes by which the issuer decided
to transition to IFRS, the date of the
issuer’s submission to the Commission
staff requesting a letter of no objection
and the date such a letter was issued by
the Commission staff.
B. Burden and Cost Estimates Related to
the Proposed Amendments
We anticipate that the amendments
would increase the burdens and costs
for U.S. issuers that switch from U.S.
GAAP to IFRS accounting. We estimated
the average number of hours an issuer
would spend completing the forms and
the average hourly rate for outside
professionals. In deriving this estimate,
we recognize that the burdens will
likely vary among individual companies
based on a number of factors, including
the complexity of their organizations,
the nature of their current accounting
procedures, the types of transactions
they enter into and the approach they
take in adopting IFRS. We believe that
some issuers will experience costs in
excess of this average in the first year of
compliance with proposals and some
issuers may experience less than the
average costs. As further discussed
below, we also believe that costs will
decrease after the first year of
compliance due to the extent of effort
required for first-time adoption of IFRS
as compared to subsequent years. We
have considered all of these factors in
formulating our proposed estimates.
We derived the burden hour estimates
for the forms and schedules by
estimating the total amount of time that
it would take an issuer to transition to
presenting its financial statements in
accordance with IFRS. The estimates
include the time and the cost of inhouse preparers, reviews by executive
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dwashington3 on PRODPC61 with PROPOSALS2
officers, in-house counsel, outside
counsel, independent auditors and
members of the audit committee.180 Our
estimates are based on the number of
filings, over the past three years,
received from a selection of issuers with
characteristics similar to those that we
currently anticipate may be eligible to
rely on the proposals, if adopted.
The estimate is based in part on data
published in a report on IFRS
implementation in the E.U. prepared by
the Institute of Chartered Accountants
of England and Wales.181 In this report,
the ICAEW estimated that the typical
cost incurred by a publicly traded
company established in the E.U. to
prepare its first IFRS consolidated
financial statements was approximately
0.05% of the company’s revenue. We
estimated that the cost of IFRS
transition under Proposal A would be
0.125% of revenue for the U.S. issuers
that would be eligible to use IFRS
accounting, and would be
approximately 0.13% of revenue under
Proposal B to reflect the additional U.S.
GAAP reconciliation disclosure.182 We
used a higher percentage of revenue to
take into account our different filing
obligations in the U.S., which require,
among other things, issuers to include
three years of audited financial
statements, and our requirements
related to internal controls over
financial reporting.
Our annual burden estimates are also
based on several other assumptions.
First, we assumed that the transition
from U.S. GAAP to IFRS by eligible
issuers would be a multi-year process.
Therefore, our PRA estimates represent
the average annual burden over a threeyear period. We estimated that the firstyear burden would be greater than that
for subsequent years, as a portion of the
costs will reflect some one-time
expenditures associated with making
the transition from U.S. GAAP to IFRS,
such as compiling documentation,
preparing the Request for a Letter of No
Objection to use IFRS and implementing
new processes. We reduced the secondyear estimates by 75% as compared to
the first-year estimates to eliminate the
one-time costs and to account for the
fact that eligible issuers applying IFRS
should become more efficient at
preparing their financial statements
after the first year as the process
becomes more routine. We adjusted the
third-year estimates by a 90% reduction
in costs as compared to the second-year
costs to reflect continuing
improvements in efficiency with
reporting under IFRS.183 This reflects
the assumption that the costs of
transition would likely have been
largely reduced by the third year of
actual reporting.
Second, we assumed that 110 U.S.
issuers, representing the approximate
minimum number of those presently
eligible to use IFRS accounting under
the proposals, would elect to switch
from U.S. GAAP to IFRS. This
assumption is conservative, in that it is
unlikely that all of those issuers would
elect to file their financial statements in
accordance with IFRS. We do not know
the actual number of eligible issuers that
would choose to switch to IFRS
accounting. We also acknowledge that
eligibility extends beyond this estimated
group, which represents a minimum of
eligible issuers under the proposals. We
request comment and supporting
empirical data, for purposes of the PRA,
on the number of eligible issuers, and
the number that would elect to switch
to IFRS accounting.
Third, we assumed that there would
be a direct correlation between the
extent of the burden and the size of the
eligible issuer, with the burden
increasing commensurate with the size
of the company.
Fourth, we assumed that substantially
all of the burdens associated with the
proposed amendments would be
associated with Forms 10–K and 10–Q
as these would be the primary forms for
which IFRS financial statements would
be prepared and presented, and that any
IFRS financial statements that would be
required in Form S–4 and Schedules
14A and 14C would be incorporated
from Forms 10–K and 10–Q.
Table 1 below illustrates the total
annual compliance burden of the
collection of information in hours and
in cost under Proposal A for annual
reports; quarterly reports; proxy and
information statements; Form S–4 under
the Securities Act, the Request for a
Letter of No Objection to use IFRS; and
Regulations S–X, S–K and C. Table 2
below illustrates the total annual
compliance burdens under Proposal B
for the same collections. The burden
was calculated by multiplying the
estimated number of responses by the
estimated average number of hours each
entity would spend completing the
different forms and schedules. For
Exchange Act reports, the proxy and
information statements, and the Request
for a Letter of No Objection to use IFRS,
we estimate that 75% of the burden of
preparation is carried by the company
internally and that 25% of the burden
of preparation is carried by outside
professionals retained by the company
at an average cost of $400 per hour. For
Form S–4, we estimate that 25% of the
burden of preparation is carried by the
company internally and that 75% of the
burden of preparation is carried by
outside professionals retained by the
company at an average cost of $400 per
hour. There is no change to the
estimated burden of the collections of
information entitled ‘‘Regulation S–K,’’
‘‘Regulation S–X,’’ and ‘‘Regulation C’’
because the burdens that these
regulations impose are reflected in our
revised estimates for the forms. The
portion of the burden carried by outside
professionals is reflected as a cost, while
the portion of the burden carried by the
180 Consistent with other recent rulemakings, we
estimate an hourly rate of $400 based on our
discussions with several private law firms as the
cost to companies for the services of outside
professionals retained to assist in the preparation of
these disclosures. For Securities Act registration
statements, we also consider additional reviews of
the disclosure by underwriters and their counsel.
181 See ‘‘EU Implementation of IFRS and Fair
Value Directive’’ by the Institute of Chartered
Accountants of England and Wales (‘‘ICAEW’’),
available at https://www.icaew.com/index.cfm/route/
145392/icaew_ga/en/Technical_amp
_Business_Topics/Topics/Accounting_and_
corporate_reporting/em_IFRS_one_year_onICAEW_
assesses_implementation_em. The ICAEW
published the report for the European Commission
on the first year of implementation IFRS in the E.U.
The report evaluates the implementation of IFRS
across E.U. industries, market places and member
states, and includes an estimate of implementation
costs based on an on-line survey of approximately
100 companies drawn from across most E.U.
member states.
The staff also used its own experience with IFRS
to estimate the burden.
182 The Commission staff estimated the cost based
on revenues reported by a selection of U.S. issuers
with characteristics similar to those issuers that we
currently anticipate may be eligible to rely on the
proposals, if adopted.
183 In developing our annual burden estimates we
included many costs that will reflect one-time
expenditures associated with making the transition
from U.S. GAAP to IFRS by large companies.
Activities giving rise to these costs include, but are
not limited to, identifying differences between U.S.
GAAP and IFRS, determining accounting policies
under IFRS, maintaining systems for financial
reporting under both U.S. GAAP and IFRS for up
to three years in order to present comparative IFRS
information in the first Form 10–K including IFRS
financial statements, implementing new accounting
systems and the associated changes to internal
controls over financial reporting and disclosures,
and drafting financial statement disclosures under
IFRS. Our estimates of the annual burden for years
2 and 3 represent the continuation of many of these
activities but at significantly lower levels, as
refinements are made to IFRS reporting. These
refinements include improvements in the
accounting and internal control systems and to
financial statement disclosures. The decreases in
the annual burden estimates between years 1 and
2 (75%) and between years 2 and 3 (90%) were
based on the collective experience of the staff in
working with and at preparers and audit firms in
adopting new accounting standards, updating
accounting policies, implementing new information
technology systems and complying with internal
control reporting requirements over multi-year
periods. Comment on these and other PRA
estimates are sought at the end of this PRA section.
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70845
company internally is reflected in
hours.
TABLE 1—INCREMENTAL PAPERWORK BURDEN UNDER PROPOSAL A184
Number of
responses
Burden hours/
form
Total burden
hours
75%
Company
25%
Professional
Professional
costs
(A)
(B)
(C)=(A)*(B)
(D)=(C)*0.75
(E)=(C)*0.25
(F)=(E)*$400
10–K .............................................
10–Q ............................................
8–K ...............................................
Sch. 14A ......................................
Sch. 14C ......................................
Form S–4 .....................................
No Objection Request ..................
Reg. S–K ......................................
Reg. S–X ......................................
Reg. C ..........................................
110
330
880
108
2
6
110
(1)
(1)
(1)
50,636
4,134
110
1
1
1
50
1
1
1
5,570,004
1,364,098
96,996
108
2
6
5,500
1
1
1
4,177,503
1,023,073
72,747
81
1.5
4.5
4,125
(1 )
(1 )
( 1)
1,329,501
341,024
24,249
27
0.5
1.5
1,375
(1 )
(1 )
(1 )
$557,000,400
136,409,780
9,699,615
10,800
200
600
550,000
(1 )
(1 )
(1 )
Total ......................................
1,546
..........................
7,036,717
5,277,535
1,696,178
703,671,395
1 Not
applicable.
TABLE 2—INCREMENTAL PAPERWORK BURDEN UNDER PROPOSAL B
Number of
responses
Burden hours/
form
Total burden
hours
75%
Company
25%
Professional
Professional
costs
(A)
(B)
(C)=(A)*(B)
(D)=(C)*0.75
(E)=(C)*0.25
(F)=(E)*$400
10–K .............................................
10–Q ............................................
8–K ...............................................
Sch. 14A ......................................
Sch. 14C ......................................
Form S–4 .....................................
No Objection Request ..................
Reg. S–K ......................................
Reg. S–X ......................................
Reg. C ..........................................
110
330
880
108
2
6
110
(1)
(1)
(1)
55,301
4,134
110
1
1
1
50
1
1
1
6,083,125
1,364,098
96,996
108
2
6
5,500
1
1
1
4,562,323
1,023,073
72,747
81
1.5
4.5
4,125
(1 )
(1 )
( 1)
1,520,781
341,024
24,249
27
0.5
1.5
1,375
(1 )
(1 )
(1 )
$608,312,454
136,409,780
699,615
10,800
200
600
550,000
(1 )
(1 )
(1 )
Total ......................................
1,546
..........................
7,549,838
5,662,355
1,887,458
754,983,449
1 Not
applicable.
dwashington3 on PRODPC61 with PROPOSALS2
C. Request for Comment
Pursuant to44 U.S.C. 3506(c)(2)(B), we
request comment in order to:
• Evaluate whether the proposed
collections of information are necessary
for the proper performance of the
functions of the Commission, including
whether the information will have
practical utility;
• Evaluate the accuracy of our
estimates of the burden of the proposed
collections of information;
184 The number of responses was calculated by
examining the actual number of forms and
schedules filed over the last three fiscal years by a
sample of U.S. issuers with characteristics similar
to those of issuers that may be eligible to request
IFRS accounting use under the rule proposals. Our
PRA estimates also include an estimated 0.5 hour
burden in the forms and schedules to account for
the filing by an eligible issuer of one-time
disclosure that an issuer would have to disclose,
such as, when the decision to file IFRS financial
statements was made, the reasons for the change,
and the corporate governance processes by which
the issuer decided to transition to IFRS. Figures in
both Tables have been rounded to the nearest whole
number.
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• Determine whether there are ways
to enhance the quality, utility, and
clarity of the information to be
collected;
• Evaluate whether there are ways to
minimize the burden of the collections
of information on those who respond,
including through the use of automated
collection techniques or other forms of
information technology; and
• Evaluate whether the proposed
amendments will have any effects on
any other collections of information not
previously identified in this section.
Any member of the public may direct
to us any comments concerning the
accuracy of these burden estimates and
any suggestions for reducing the
burdens. Persons who desire to submit
comments on the collection of
information requirements should direct
their comments to the OMB, Attention:
Desk Officer for the Securities and
Exchange Commission, Office of
Information and Regulatory Affairs,
Washington, DC 20503, and send a copy
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of the comments to Florence E. Harmon,
Acting Secretary, Securities and
Exchange Commission, 100 F Street,
NE., Washington, DC 20549–1090, with
reference to File No. S7–27–08.
Requests for materials submitted to the
OMB by us with regard to these
collections of information should be in
writing, refer to File No. S7–27–08 and
be submitted to the Securities and
Exchange Commission, Records
Management, Office of Filings and
Information Services, 100 F Street, NE.,
Washington, DC 20549. Because the
OMB is required to make a decision
concerning the collections of
information between 30 and 60 days
after publication, your comments are
best assured of having their full effect if
the OMB receives them within 30 days
of publication.
VIII. Cost-Benefit Analysis
We are proposing amendments to
existing regulations, rules and forms to
accept financial statements from U.S.
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issuers meeting specific criteria
(‘‘eligible U.S. issuers’’) prepared in
accordance with IFRS as issued by the
IASB. Currently, financial statements
that U.S. issuers file with the
Commission must be prepared in
accordance with U.S. GAAP. The
amendments, if adopted, would
therefore provide eligible U.S. issuers
with an option to use IFRS in preparing
financial statements for filing with the
Commission. The amendments would
apply to a registrant’s financial
statements contained in annual reports
on Form 10–K, its quarterly reports on
Form 10–Q, its proxy or information
statements, and its financial statements
included in Securities Act and
Securities Exchange Act registration
statements filed by U.S. issuers or, when
applicable, included in a registration
statement or reported pursuant to Rule
3–05, 3–09 or 3–14 of Regulation S–X.
Currently, there are approximately
12,000 U.S. issuers registered with the
Commission. The proposed
amendments would be available to only
a limited number of U.S. issuers that
operate in industry sectors in which
IFRS is used more than any other set of
standards. Specifically, the eligible U.S.
issuers are among the top 20 listed
companies worldwide, as measured by
market capitalization, in any industry in
which IFRS is used more than any other
basis of financial reporting to prepare
financial statements for the public
capital markets. For example, if 6
companies among the top 20 by market
capitalization in an industry reported in
IFRS, 4 reported in U.S. GAAP and the
other 12 reported in 4 different bases of
accounting among them (and no other
basis of financial reporting was used by
more than 5 companies), then the 4 U.S.
issuers among the top 20 in market
capitalization in this industry would
each be eligible to use IFRS.
We estimate that an approximate
minimum of 110 issuers, accounting for
approximately 12 percent of total U.S.
market capitalization as of December
2007, would be eligible to be an ‘‘IFRS
issuer’’ as we propose to define it. For
reasons described in Section IV, these
amounts represent the estimated lower
bounds on current eligibility.
Additionally, in the future, we expect
both the number of eligible issuers and
the portion of total U.S. market
capitalization to increase. Several
countries have announced plans to
require IFRS financial statements from
their listed companies, and others are
considering this step. Overall trends
point to the continuing increase in use
of IFRS in preference to other bases of
financial reporting. Further, relatively
young foreign public equity markets,
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especially emerging markets, are
developing at a faster rate than the
mature U.S. equity market. Existing
large foreign companies are increasingly
listing in these markets. The result is
that the number of foreign companies in
an industry in the top 20 by market
capitalization worldwide is growing
over time. These companies are more
likely to use IFRS than U.S. GAAP.
These factors may result in an increase
in the number of IFRS-using listed
companies in the top 20 of each
industry, by market capitalization, and
a corresponding increase in eligible
industries. Early adoption of IFRS by
eligible U.S. issuers would also increase
eligibility.185 For these reasons, both
current and future levels of eligibility
are subject to substantial uncertainty.
Only eligible U.S. issuers, which we
expect would be limited in number,
would be permitted to file financial
statements with the Commission that
are prepared in accordance with IFRS.
Of this limited number of eligible
issuers, we believe few would be in a
position to file IFRS financial
statements with the Commission
immediately upon adoption of the
proposed rules. This is because we
understand that there are few U.S.
issuers that have already prepared IFRS
financial statements for any other
purpose. In order to avail themselves of
the IFRS alternative, eligible U.S.
issuers would need to (1) make a
submission to the Commission and
obtain a letter of no objection as
described in Section IV., (2) work
through the first time adoption
requirements of IFRS, (3) apply IFRS to
the preparation of their financial
statements for the entire period called
for in our filings,186 (4) make the
necessary disclosures proposed in
Section V.D.3., and (5) provide the
supplemental U.S. GAAP information
required under Proposal B, if adopted.
Our proposed rules to allow for the
limited use of financial statements
prepared using IFRS, if adopted, may
foster the use of IFRS as issued by the
IASB as a way of moving to a single set
of globally accepted accounting
standards. This effect would be
strengthened by potential network
185 Under the proposed rules, issuers may choose
from multiple industry classification systems.
These systems classify companies differently,
implying that companies may be eligible under one
classification system, but not another. If companies
in an industry that are eligible under one
classification system switch to IFRS, this action
may result in IFRS then being used more often than
any other set of standards within a separate
industry, under a different classification system.
This effect results in an expansion of eligibility
across industries as U.S. companies switch to IFRS.
186 As noted, this period is generally three years.
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effects of the proposed amendments:
The more issuers that use IFRS as issued
by the IASB, the greater the incentive
for other issuers to do so.
The cost-benefit analysis analyzes
separately three components of the
proposed rules. The first component is
the acceptance of IFRS financial
statements from U.S. issuers under the
proposed eligibility criteria. The second
component is Proposal A, under which
U.S. issuers adopting IFRS would only
be required to provide the reconciling
information from U.S. GAAP to IFRS
called for under IFRS 1. The third
component is Proposal B, under which
U.S. issuers adopting IFRS would, in
addition to providing the reconciling
information called for under IFRS 1,
disclose on an annual basis certain
unaudited supplemental U.S. GAAP
financial information covering the
financial statements included in an
annual report, including the current
year.
A. Proposal for Early Use of IFRS by
U.S. Issuers
1. Expected Benefits
In industries with a large number of
companies using IFRS, allowing U.S.
issuers to move to IFRS could help
eliminate the principal source of
accounting differences within the
industry and potentially enhance
comparability within the industry,
improving the ability of investors to
allocate capital. Thus, if a large
percentage of companies use IFRS,
allowing U.S. issuers to use IFRS could
potentially benefit investors by
improving the comparability of
companies within the industry. If
investors prefer IFRS and we do allow
a switch to IFRS, then a U.S. issuer may
experience an increased following in the
marketplace. In contrast, if an industry
consists primarily of companies using
other bases of accounting, particularly
bases of accounting that produce results
more comparable to U.S. GAAP than to
IFRS, allowing U.S. issuers to move to
IFRS would not improve
comparability—investors would still
need to interpret multiple bases of
accounting to perform within-industry
comparisons.
Comparability within any set of
accounting standards depends on
consistent interpretation and
application across jurisdictions. In
particular, potential benefits of the
proposed rule relating to increased
within-industry comparability across
jurisdictions depend on the consistent
interpretation and application of IFRS.
Such benefits may be limited to the
extent that, for example, foreign
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companies use local variations of IFRS
as issued by the IASB. Transparent
disclosure about the nature and effect of
variations from IFRS as issued by the
IASB may offset some of these
limitations to benefits in comparability.
In recognition of the benefits associated
with consistent application of IFRS, the
proposed rule makes eligibility
contingent on use of IFRS as issued by
the IASB by a large number of
companies in the industry.
The utility for investors of a set of
accounting standards increases as the
number of issuers using it increases.
Investors reap a benefit from the
network effects caused by numerous
individual issuers each deciding to use
IFRS. To the extent an issuer switching
to IFRS does not internalize the full
benefits of any such network effects,
such issuer is expected to be less likely
to switch even if eligible to do so.
The benefits associated with a set of
accounting standards are dependent
upon the quality of the standards,
including how the standards are applied
in practice. Factors that could affect the
quality of IFRS are both institutional
with respect to the IASC Foundation,
including its governance and funding,
as well as operational with respect to
the actual standard setting process of
the IASB. We recognize that our
relationship with the IASB is currently
less direct than our relationship with
the FASB. Further, constituents of the
IASB are greater in number and more
varied than the constituents of the
FASB. The result is that our view—
based on U.S. constituents—is one of
many views that the IASB receives from
around the world and considers when
developing future standards. As the
IASB must prioritize the needs of its
various constituents, including
investors, the timeliness in which
improvements or development of
standards occur of particular relevance
or importance to our issuers and
markets could be affected.
The use of IFRS by a limited number
of U.S. issuers in industries in which
IFRS is used more often than any other
set of standards would provide some
empirical basis for evaluating, among
other things, the cost of converting to
IFRS. Early adoption of IFRS will
generate information for regulators,
including the Commission, to be used in
further decision making. Using IFRS
would also give U.S. investors the
opportunity to better understand and
compare the financial reports of U.S.
and foreign issuers if all of their reports
are prepared in accordance with IFRS.
This effect may not be immediate
because it may take time for U.S.
investors to become familiar with
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working with financial results reported
under IFRS.
Over the longer term, if all other
things are equal, the increased
worldwide demand for the securities of
U.S. issuers using IFRS could make
their capital more efficiently priced.
This effect is contingent on the degree
to which foreign investors can use IFRS
more effectively than U.S. GAAP. While
U.S. GAAP is accepted worldwide,
foreign investors may become
increasingly familiar with IFRS and may
be more likely to make their decisions
to invest in U.S. issuers contingent on
use of IFRS by those issuers. Currently,
U.S. issuers, using exclusively U.S.
GAAP, comprise a large portion of
worldwide equity market capitalization,
and foreign investors likely have a
correspondingly thorough
understanding of U.S. GAAP. This
percentage may decrease as foreign
equity markets continue to develop, and
it may become less advantageous for
foreign investors to maintain this level
of understanding.
Some U.S. issuers currently may use
IFRS in addition to U.S. GAAP. For
example, some foreign subsidiaries of
U.S. issuers may be required to use
IFRS. Under the proposed rules, any
such issuer who is eligible and elects to
adopt IFRS may need fewer resources to
prepare Commission filings. Investors
may benefit from this to the extent that
an issuer can realize cost savings from
having the parent company and all its
subsidiaries use one basis of accounting.
As discussed in the 2007 Proposing
Release and in Section III.B.4., above,
IFRS is not as developed as current U.S.
GAAP in certain areas. IFRS also is not
as prescriptive as U.S. GAAP in certain
areas and in certain areas permits a
greater amount of allowable options
than currently in U.S. GAAP.187 This
relatively lesser amount of guidance and
greater optionality may increase issuers’
ability to account for transactions or
events in accordance with their
underlying economics but may also
result in the application of greater
judgment in applying the standards.
2. Expected Costs
Under the proposed amendments, if
adopted, the required financial
information that investors in the U.S.
capital markets receive from any U.S.
187 As noted by CIFiR in its Final Report:
From an international perspective, we note that
IFRS currently permits numerous alternative
accounting policies. While we acknowledge the
IASB’s efforts in reducing some of these alternative
treatments, we nonetheless believe the SEC should
encourage the IASB to [* * * ] seek to eliminate
alternatives as part of its standards-setting projects.
CIFiR Final Report, at 51.
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70847
issuer that avails itself of the option to
use IFRS will differ from what it was
previously. This may or may not
represent a loss or an increase of
information in absolute terms. Whether
there is an absolute loss or gain in
information will depend upon whether
IFRS financial statements yield more or
less information, or higher or lower
quality information, about a particular
issuer than the U.S. GAAP financial
statements yielded. The usefulness of
any omitted U.S. GAAP information or
any additional IFRS information
depends on the extent to which the
investor used the U.S. GAAP
information provided, if at all, relative
to the extent to which the investor will
use the new IFRS information, if at all.
Investors are differently situated in
the market and have varying levels of
familiarity with IFRS. Consequently,
investors may not all bear the costs or
obtain the benefits from the proposed
amendments equally. The extent to
which a particular investor may use
IFRS financial information will depend
on many factors including the size and
nature of the investor and the industry
to which the issuer in question belongs.
The proposed amendments, if
adopted, may lead to some costs to both
investors and U.S. issuers. If the
investor community prefers the
information communicated by U.S.
GAAP, then a U.S. issuer that uses IFRS
as issued by the IASB to prepare
financial statements may face a reduced
following in the marketplace. Investors
that are not sufficiently familiar with
IFRS accounting standards may prefer
U.S. GAAP. In addition, unfamiliarity
with IFRS as issued by the IASB may
have an adverse effect on investors’
confidence in the reported results. At a
minimum, for those investors who seek
to understand accounting principles,
they will bear incremental transitional
learning costs to become familiar with
IFRS. While many regard both U.S.
GAAP and IFRS as high-quality sets of
accounting standards, the relative
quality of the financial information
provided under each set of standards
may differ. Potential costs involved in
moving to or remaining on a set of
standards that provides relatively lower
quality information may include
reductions in liquidity and pricing
efficiency of the issuers’ securities.
These effects are related to changes in
information asymmetry between
insiders and investors. Any potential
changes in information asymmetry may
also affect transaction costs for issuers
in raising capital.
Companies may choose to adopt IFRS
only after concluding the benefits justify
the costs to their investors; alternatively,
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because of principal-agent problems
inherent in corporate governance,
companies may choose to adopt IFRS
after concluding that benefits to
management exceed costs to
management. In either calculation, costs
to the company of adopting IFRS play
a key role in the analysis. Costs to adopt
IFRS may include those associated with
making a submission to the Commission
staff in order to obtain a no objection
letter, as described in Section IV.B.;
costs to transition to IFRS reporting,
including determining the effect of firsttime adoption under IFRS 1 and systems
changes to support financial reporting
in accordance with IFRS; costs to
prepare the disclosures proposed in
Section V.D.3. upon initially reporting
under IFRS; and potentially higher costs
for accounting personnel, outside
consultants and auditors who are
familiar with IFRS. Additionally, for
those issuers currently audited by an
accounting firm without extensive IFRS
experience, incremental costs may be
incurred in order to change to an audit
firm with a sufficient background in
IFRS. For the companies we estimate to
be eligible, based on the data used for
purposes of the Paperwork Reduction
Act we estimate the costs for issuers of
transitioning to IFRS to sum to
approximately $32 million per company
and relate to the first three years of
filings on Form 10–K under IFRS. Total
estimated costs for the approximate
minimum of 110 issuers estimated to be
eligible would therefore be
approximately $3.5 billion. We expect
that the majority of these transition
costs would be incurred primarily in
preparation of filings for the first year in
which an issuer reports with the
Commission using IFRS.188 These
estimates will continue to be reevaluated during the comment period as
more information is known.
A further cost of allowing U.S. issuers
to file IFRS financial statements is the
potential change in the level of
comparability among the reported
results of U.S. issuers. This affects
investors to the extent they are seeking
to compare only U.S. companies rather
than companies in the top 20 by market
capitalization within a worldwide
industry. If some U.S. issuers in an
industry in which IFRS is used more
than any other set of standards choose
to switch from U.S. GAAP, comparing
the financial results of any remaining
U.S. issuers to those that have switched
188 Specifically, we assume that per-year costs
decline by 75% in the second year and by 90% in
the third year. See Section VII., Paperwork
Reduction Act. Costs do not include incremental
reconciliation requirements of Proposal B.
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will be more costly and less precise. In
eligible industries, it is likely that not
all companies will convert to IFRS
simultaneously, if at all. This may lead
to enhanced comparability on an
industry-wide basis, but potential
reductions in comparability for the
subset of the industry represented by
U.S. firms. In addition, if investors wish
to compare companies across different
industries—for example, they may want
to compare companies sharing the same
inputs, such as energy or labor—there
would be either improvements or a
diminution in comparability. If one
industry is eligible to convert to IFRS,
but another is not, comparability may be
diminished. If IFRS is used more
frequently than any other set of
accounting standards in the top 20
companies by market capitalization in
each industry to be compared and if
U.S. issuers choose to adopt IFRS, on
the other hand, comparability may be
improved. In companies with multiple
business lines, switching to IFRS could
potentially enhance the comparability of
some business lines, but detract from
comparability of others. Any change in
comparability would potentially have
the greatest impact on less sophisticated
investors. Because they are less able to
compare financial results across
different bases of accounting, changes in
comparability would disproportionately
affect them. In all cases, the extent to
which the comparability could be
affected would in part depend on the
degree to which companies across
jurisdictions consistently apply IFRS as
issued by the IASB.
While improving the comparability of
financial reporting across entire
industries is a benefit to investors,
assuming the information being
compared is not of lower quality than
the information produced under the
prior basis of financial reporting, a
number of considerations limit the
extent of that benefit in the case of
international comparisons, relative to
domestic comparisons. There are
reporting differences between U.S.
registrants and non-registrants that are
unrelated to the basis for accounting.
These differences include language used
in presenting financial statements, the
level of information provided in nonfinancial statement disclosures, and the
extent of interim disclosure.
Additionally, other economic
differences, such as product markets
and regulatory structures, may exist. To
the extent these differences diminish
the value of international comparisons
for investors, the benefit of the proposed
amendments is correspondingly limited.
The number of eligible U.S. issuers
that elect to adopt IFRS may influence
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a future decision by the Commission
regarding the ongoing role of IFRS in the
U.S. capital markets. If, in the future, all
U.S. issuers were required to use U.S.
GAAP in filings with the Commission,
those eligible issuers that had elected to
adopt IFRS under these proposed rules
would incur costs of switching back to
U.S. GAAP. These costs could be
expected to be less than the estimated
costs of adoption of IFRS, due to the
existing knowledge of U.S. GAAP by
accountants in the United States and
because issuers would have previous
U.S. GAAP policies and reported
information available. However, if a
substantial number of issuers or
percentage of total U.S. market
capitalization adopts IFRS under the
proposed ‘‘early use’’ option, the costs
of requiring these issuers to return to
U.S. GAAP may be large enough that
they may affect the Commission’s
consideration of this decision, which
would be a cost to investors.
Alternatively, if the Commission
chooses to continue to allow both IFRS
and U.S. GAAP use by U.S. issuers,
investors may continue to face the costs
of limited comparability across U.S.
companies, as described above, in
perpetuity, or at least until convergence
reduces differences between bases of
accounting. However, U.S. investors
would continue to receive the benefit of
increased comparability between U.S.
issuers reporting in IFRS and their
foreign counterparts reporting in IFRS.
If the Commission chooses to require
mandatory IFRS reporting, transition
costs to IFRS could be similar, on a percompany basis, to transition costs
described in the PRA analysis.
Another consideration if the
Commission were to adopt the
amendments as proposed is the impact
on the continued improvement of IFRS.
The Commission’s intention is to
enhance the incentives for the
continued improvements to IFRS and
U.S. GAAP. We believe, moreover, that
the needs of the marketplace will
continue to support the IASB and the
FASB working together on their next
phase of joint work to develop the best
international standards to be used in the
United States and internationally.
Without prejudice as to priority, the
current joint work program includes
topics such as revenue recognition and
financial statement presentation. These
are topics on which both the IASB and
the FASB seek to develop better
standards (rather than one standard
setter adopting the other standard
setter’s existing U.S. GAAP or IFRS
standard). We believe that investors and
issuers seek comparable information in
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global capital markets, thereby
providing an incentive for continued
improvements to U.S. GAAP and IFRS.
It is possible, though, that acceptance of
IFRS for U.S. issuers could reduce the
incentive to converge standards under
IFRS and U.S. GAAP.
This proposed rulemaking, if adopted,
may create costs to investors in eligible
issuers that choose to continue to
prepare their financial statements under
U.S. GAAP. The desire of potential
investors for comparability of financial
information may create an incentive for
those that continue to use U.S. GAAP,
where comparable companies have
adopted IFRS, to provide additional
financial information prepared under
IFRS as issued by the IASB in addition
to U.S. GAAP financial statements. If
those U.S. issuers make this choice
voluntarily to provide their investors
with additional information, their
investors would bear additional
preparation cost, while benefiting, along
with potential investors and regulators,
from additional information provided.
U.S. issuers currently compete for
capital with companies who provide
financial information prepared under
IFRS. In spite of this international
competition for capital, we do not
believe it is currently a widespread
practice for U.S. issuers to provide
financial information under IFRS,
perhaps because U.S. GAAP is accepted
by investors in foreign markets.
As discussed above, IFRS is not as
developed as current U.S. GAAP in
certain areas. IFRS also is not as
prescriptive as U.S. GAAP in certain
areas and in certain areas permits a
greater amount of allowable options
than currently in U.S. GAAP.189 This
relatively lesser amount of guidance and
greater optionality may reduce
comparability of reported financial
information, as different issuers may
account or provide disclosure for
similar transactions or events in
different ways. This increased level of
managerial choice could affect
comparability across companies.
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B. Proposal A: Reconciled Information
Pursuant to IFRS 1
Under Proposal A, U.S. issuers
adopting IFRS would only be required
to publish the reconciling information
required under IFRS 1. This information
189 As noted by CIFiR in its Final Report:
From an international perspective, we note that
IFRS currently permits numerous alternative
accounting policies. While we acknowledge the
IASB’s efforts in reducing some of these alternative
treatments, we nonetheless believe the SEC should
encourage the IASB to [* * *] seek to eliminate
alternatives as part of its standards-setting projects.
CIFiR Final Report, at 51.
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is a one-time disclosure related to
transition from a prior basis of
reporting, in this case U.S. GAAP, to
IFRS. This information includes, among
other things, reconciliation of the prior
year’s total comprehensive income and
ending equity under previous GAAP to
IFRS and certain disclosures to assist
users’ understanding of the effect and
implications of transitioning to IFRS.
Adoption of IFRS as issued by the IASB
requires implementation of IFRS 1 and
therefore Proposal A represents the
minimum reconciliation disclosure that
would be required of an eligible U.S.
issuer electing to adopt IFRS under
these proposed rules. The following
sections separately describe the benefits
and costs of these IFRS 1-related
requirements, relative to a theoretical
benchmark in which these requirements
were excluded from IFRS.
1. Expected Benefits
The IASB noted in the basis for
conclusion discussion accompanying
IFRS 1 that the required reconciliations
and disclosures were necessary to help
users understand the effect and
implementation of the transition to
IFRS. Further, such information is
expected to assist users in identifying
changes needed to their analytical
models to make use of information
presented under IFRS.
2. Expected Costs
Both Proposal A and Proposal B
require an issuer that elects to adopt
IFRS to prepare financial information
under both IFRS and U.S. GAAP for a
period of time. This could be
accomplished in a number of ways,
including maintaining systems for
financial reporting under both IFRS and
U.S. GAAP contemporaneously or
maintaining such systems under one set
of accounting standards and making
adjustments to determine the
appropriate amounts and information
under the other set of accounting
standards. Regardless of the approach
taken, the preparation of financial
information under two sets of
accounting standards would impose
costs on issuers.
Due to the requirement to present
financial statements that generally
include three years of activity, the
application of IFRS 1, as contemplated
in Proposal A, would result in certain
gaps in information provided to
investors about the amounts and nature
of differences between previouslyreported U.S. GAAP information and
IFRS comparative information included
in an issuer’s first annual report under
IFRS. Specifically, a U.S. issuer would
be required under IFRS 1 to reconcile
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70849
equity as of the date of transition to
IFRS, which is the first day of the fiscal
year for the earliest period presented.
Additionally, a U.S. issuer would be
required under IFRS 1 to reconcile the
previously reported U.S. GAAP equity
to IFRS equity as of the end of the
second year presented, along with a
reconciliation of total comprehensive
income for that second fiscal year.
However, no reconciling information
would be required for the year-end
equity or total comprehensive income
related to the first year presented.
Further, under the proposed rules, an
issuer would present and file with the
Commission on Form 10–Q quarterly
information under U.S. GAAP during
the first year of IFRS reporting, but
would report under IFRS in its annual
report on Form 10–K. IFRS 1 would not
require reconciling information for the
year in which IFRS financial statements
are first presented.
As an example, if a U.S. issuer with
a December 31 fiscal year end were to
elect to report under IFRS beginning
with the year ending December 31,
2012, the financial statements included
in Form 10–K would present IFRS
financial statements for 2010, 2011 and
2012.190 IFRS 1 would require a
reconciliation of equity from U.S. GAAP
to IFRS as of January 1, 2010. Further,
IFRS 1 would require a reconciliation of
ending equity and total comprehensive
income for the year ending December
31, 2011. In this example, users of the
financial statements who wish to
evaluate trends for the three years
presented would not have information
about the effects of IFRS adoption for
the year ending 2010 nor for the year
ending December 31, 2012.
C. Proposal B: Supplemental U.S. GAAP
Information
Under Proposal B, in addition to the
reconciling information from U.S.
GAAP required under IFRS 1, U.S.
issuers adopting IFRS would annually
disclose certain unaudited
supplemental U.S. GAAP financial
information covering the period called
for in our filings, generally three years,
including the current year. The
following sections describe benefits and
costs of Proposal B as a whole,
combining the benefits and costs of
IFRS 1 disclosures and the benefits and
costs of the additional, continuing
reconciliation.
190 In addition, for purposes of this example, the
Form 10–Q filed for the first three fiscal quarters of
2012 would contain U.S. GAAP financial
statements.
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dwashington3 on PRODPC61 with PROPOSALS2
1. Expected Benefits
Because IFRS 1 disclosure
requirements are part of Proposals A
and B, the expected benefits of Proposal
B include the expected benefits of
Proposal A. Specifically, users of
financial statements would be provided
the information to help them
understand the effect and
implementation of the transition to
IFRS. Such disclosure is expected to
assist users in identifying changes
needed to analytical models applied to
issuers’ reported financial information.
Under the additional reconciliation
requirements of Proposal B, investors
benefit from the inclusion of a
continuing reconciliation to U.S. GAAP
of certain items in the financial
statements. Ongoing reconciliation to
U.S. GAAP of certain items allows a
degree of continued comparability
between U.S. issuers adopting IFRS and
other U.S. issuers continuing to report
under U.S. GAAP, and a degree of
comparability between current and past
financial results of issuers electing to
adopt IFRS. Additionally, reconciliation
may help to highlight differences
between U.S. GAAP and IFRS,
providing useful information for
regulators and for other U.S. issuers
contemplating adoption.
Reconciliation also reduces the costs
to issuers of returning to U.S. GAAP,
should the Commission require such an
action.191 As previously described, such
costs could affect the Commission’s
decision in 2011, representing a cost to
investors; by reducing these costs,
reconciliation creates a benefit for
investors. On the other hand, eligible
U.S. issuers choosing to report in IFRS
may be able to assess for themselves the
possibility of a return to U.S. GAAP and
have an incentive to take voluntary
steps as they see appropriate to enable
reporting in U.S. GAAP should we
require them to do so in the future.
Reductions in comparability
mentioned above as costs to investors
are substantially mitigated by the
inclusion of a reconciliation to U.S.
GAAP. This effect is tempered by the
unaudited and selective nature of the
reconciliation.
The benefits of the additional
reconciliation requirements of Proposal
B related to comparability are mitigated
191 Absent such future rulemaking, the
Commission may decide to propose rules requiring
the use of U.S. GAAP for all U.S. issuers.
Alternatively, an issuer may decide to resume
reporting under U.S. GAAP only. In such cases,
associated costs would include audit fees and
internal labor costs associated with obtaining an
audit of the U.S. GAAP information for the periods
during which the issuer was reporting with the
Commission under IFRS.
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by several factors. Not all items in
financial statements are reconciled;
investors seeking to compare details
between IFRS and U.S. GAAP financial
statements will be less able to do so,
even with a reconciliation. Because the
reconciliation would not be required to
be audited, information contained
therein would not be subject to external
assurances by an independent auditor of
fair presentation. To the extent that
investors benefit from such scrutiny,
they may be affected. However, the
possibility that U.S. GAAP books and
records will be audited in the future,
upon any potential return to reporting
by the issuer under U.S. GAAP, may
help to diminish any such effect.192
2. Expected Costs
Because IFRS 1 disclosure
requirements are part of Proposals A
and B, the expected costs of Proposal B
include certain expected costs of
Proposal A. Specifically, the costs
related to the preparation of financial
information under both IFRS and U.S.
GAAP for a period of time would be
imposed under either proposal.
However, certain expected costs under
Proposal A relate to the absence of
certain reconciliation disclosures to
assist users of financial information to
understand the impact of reporting
under IFRS rather than U.S. GAAP.
Thus, the expected costs under Proposal
A associated with providing users with
less information would not be imposed
under Proposal B.
Because Proposal B would require
continued reconciliation between
certain U.S. GAAP and IFRS
information, the expected costs of
preparing information under two sets of
accounting standards would be greater
under Proposal B. The additional
requirements of Proposal B to provide a
continuing reconciliation of certain
items to U.S. GAAP increase reporting
costs and, potentially, record-keeping
costs for issuers, which may be passed
through to their investors. Based on the
data used for purposes of the Paperwork
Reduction Act, we currently estimate
the costs at this time to be
approximately $2.7 million per adopting
company over three years, or an
aggregate of approximately $297 million
over three years, for the approximately
110 issuers estimated to be the
approximate minimum eligible under
the proposed amendments.193 These
192 Moreover, if the reconciliation requirement
addressed these matters and thus became more
costly, it cold discourage eligible issues from
switching to IFRS.
193 These estimated amounts are based on an
estimated annual recurring cost of $900,000 per
eligible issuer, over a three year period and
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cost estimates assume an annual,
recurring cost of $900,000 per company
and reflect an assumption that issuers
will choose to keep two sets of books
and records as a result of the proposed
reconciliation requirement.194 The
degree to which ongoing reconciliation
imposes an incremental cost depends on
the manner in which a company would
implement adoption in the absence of
an ongoing reconciliation requirement.
Under the proposed rule, companies
adopting IFRS may keep two parallel
sets of books and records, one in U.S.
GAAP and one in IFRS, for a period of
time, whether or not an ongoing
reconciliation is required. Keeping
parallel books and records would help
a company to ensure a smooth transition
between accounting systems and would
allow flexibility to return to U.S. GAAP
reporting, were such an action
necessary. If such a practice is the norm,
we expect that the costs of required
ongoing reconciliation would be small,
as U.S. GAAP results would be readily
available. Alternatively, some
companies adopting IFRS, in the
absence of the requirements in Proposal
B, may elect to switch to IFRS without
keeping two sets of books and records.
If companies follow this practice, then
the incremental costs of a required
ongoing reconciliation would be larger.
In either case, some companies may
continue to provide ongoing U.S. GAAP
information voluntarily, in the absence
of a requirement, based on market
demand. Shareholder efforts to require
consistent and high-quality disclosure
can be considered a public good, which
is expected to be underprovided in the
absence of regulation. Addressing this
underprovision of monitoring efforts
through disclosure is one of the key
purposes of regulatory disclosure
requirements. In this case, the
incremental costs of required ongoing
reconciliation for these companies
would be small. We are aware of very
few companies that publish financial
results in accordance with more than
one set of accounting standards absent
a requirement to do so.
As noted, if some U.S. issuers elect to
adopt IFRS, regulators and investors
benefit from enhanced information
about the use of IFRS in U.S. markets,
information useful for investment and
regulatory decision making. This benefit
may be mitigated if, under Proposal B,
some companies would be less likely to
adopt IFRS. Proposal B could have two
potential effects affecting likelihood of
assuming that all 110 of the approximate minimum
estimated eligible issuers would adopt IFRS and be
subject to the annual reconciliation requirement.
194 See Section VII., Paperwork Reduction Act.
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Federal Register / Vol. 73, No. 226 / Friday, November 21, 2008 / Proposed Rules
an eligible issuer adopting IFRS. First, a
reconciliation requirement involves
some costs to the issuer, discussed in
the previous paragraph; any increase in
adoption costs likely reduces issuers’
willingness to adopt IFRS. Second, as
discussed in the benefits section of
Proposal B, a reconciliation reduces the
costs of requiring a return to U.S. GAAP.
These lowered costs may result in
issuers believing that the Commission
will decide in 2011 not to require IFRS,
and issuers may also then believe that
there is a chance of a required return to
U.S. GAAP. This would lower their net
benefits from early adoption, and they
may elect not to adopt IFRS.
dwashington3 on PRODPC61 with PROPOSALS2
Request for Comment
67. Do you agree with our assessment
of the costs and benefits as discussed in
this section? Are there costs or benefits
that we have not considered? Are you
aware of data and/or estimation
techniques for attempting to quantify
these costs and/or benefits? If so, what
are they and how might the information
be obtained?
IX. Regulatory Flexibility Act
Certification
The Commission hereby certifies
pursuant to 5 U.S.C. 605(b), that the
amendments contained in this release, if
adopted, would not have a significant
economic impact on a substantial
number of small entities. The proposal
would amend those regulations, rules
and forms to allow eligible U.S. issuers
to use as their basis of financial
reporting IFRS as issued by the IASB
and to file their financial statements
prepared in that manner. The
Commission is not proposing that filing
in this manner be required, therefore if
these amendments were adopted small
entities need not take any action. We
propose to exclude smaller reporting
companies from the proposed definition
of ‘‘IFRS issuer’’ as a limitation on the
number of issuers that would be eligible
to file IFRS financial statements under
the proposed rules. In addition, we
believe that few small entities would
meet the eligibility test under the
proposed rules, which would permit an
issuer to use IFRS only if it is in the
largest 20 companies in its industry
worldwide as measured by market
capitalization. For these reasons, the
proposed amendments should not have
a significant economic impact on a
substantial number of small entities.
Additionally, in the event that we
decide in 2011 to mandate the use of
IFRS for all U.S. issuers, any disparate
impact on small entities caused by the
proposed amendments in this release
would be temporary. We solicit written
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comments regarding this certification.
We request that commenters describe
the nature of any impact on small
entities and provide empirical data to
support the extent of the impact.
X. Consideration of Impact on the
Economy, Burden on Competition and
Promotion of Efficiency, Competition
and Capital Formation
For purposes of the Small Business
Regulatory Enforcement Fairness Act of
1996, or ‘‘SBREFA,’’ 195 we solicit data
to determine whether the proposals
constitute a ‘‘major’’ rule. Under
SBREFA, a rule is considered ‘‘major’’
where, if adopted, it results or is likely
to result in:
• An annual effect on the economy of
$100 million or more (either in the form
of an increase or a decrease);
• A major increase in costs or prices
for consumers or individual industries;
or
• Significant adverse effects on
competition, investment or innovation.
We request comment on the potential
impact of the proposals on the economy
on an annual basis. Commenters are
requested to provide empirical data and
other factual support for their views if
possible.
Section 23(a)(2) of the Exchange
Act 196 also requires us, when adopting
rules under the Exchange Act, to
consider the impact that any new rule
would have on competition. Section
23(a)(2) prohibits us from adopting any
rule that would impose a burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Exchange Act. In
addition, Section 2(b) 197 of the
Securities Act and Section 3(f) 198 of the
Exchange Act require us, when engaging
in rulemaking where we are required to
consider or determine whether an action
is necessary or appropriate in the public
interest, to also consider whether the
action will promote efficiency,
competition, and capital formation.
The proposed amendments would
allow eligible U.S. issuers to use IFRS
rather than U.S. GAAP to prepare their
financial statements in filings with the
Commission. This proposal is designed
to increase efficiency, competition and
capital formation by helping to move
towards the use of a single set of
globally accepted accounting standards.
The use of a single set of accounting
standards could help investors better
understand investment opportunities
than the use of differing sets of
195 5
U.S.C. 603.
U.S.C. 78w(a).
197 15 U.S.C. 77b(b).
198 U.S.C. 78c(f).
196 15
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70851
accounting standards. In addition,
presenting investors with financial
information that varies substantially
depending on which set of accounting
standards is employed can cause
confusion about the actual financial
results of a company and result in a
correspondingly adverse effect on
investor confidence and cost of capital.
The proposals are intended to
increase efficiency by enabling investors
to better compare financial statements of
U.S. issuers that adopt IFRS with those
of non-U.S. issuers operating in the
same industry. Issuers with subsidiaries
that already use IFRS also may be able
to streamline their accounting systems
and increase their efficiency if they
adopt IFRS across all of their operations.
We also are aware that the proposed
amendments would permit some U.S.
issuers to use IFRS financial statements
while other U.S. issuers continue to use
U.S. GAAP, thereby creating a dual
system of financial reporting that has
not existed previously for U.S. public
companies. This could reduce the
comparability among U.S. issuers and
would require investor familiarity with
both sets of accounting standards,
which may adversely affect efficiency.
However, we anticipate any such dual
system may be transitional and not
permanent.
The proposed amendments are
designed to promote competition by
enhancing the ability of eligible U.S.
issuers that adopt IFRS to compete with
non-U.S. issuers that use IFRS. The
proposed rules would not enhance the
competitiveness of U.S. issuers that
would not be eligible to adopt IFRS but
that compete with issuers that do use
IFRS.
The proposed amendments may
facilitate capital formation for eligible
U.S. issuers that adopt IFRS by allowing
them greater access to global capital
raising opportunities. As more
jurisdictions accept financial statements
prepared in accordance with IFRS for
local regulatory or statutory filing
purposes, companies accessing global
capital markets would not incur any
additional costs to translate financial
statements using different accounting
standards to IFRS. However, U.S.
issuers that would not be eligible to use
IFRS under the proposed amendments
may be for a time at a comparative
disadvantage in this regard.
It is possible that the amendments
would not confer comparative
advantages on those eligible issuers who
transition to IFRS versus the companies
that continue using U.S. GAAP. In
addition, the amendments could have a
negative impact on capital formation if
IFRS does not gain acceptance by U.S.
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Federal Register / Vol. 73, No. 226 / Friday, November 21, 2008 / Proposed Rules
investors. We solicit public comment
that will assist us in assessing the
impact that the proposed amendments
could have on competition, efficiency
and capital formation.
In accordance with the foregoing,
Title 17, Chapter II of the Code of
Federal Regulations is proposed to be
amended as follows:
Request for Comment
68. We solicit comment on whether
the proposed rules would impose a
burden on competition or whether they
would promote efficiency, competition
and capital formation. For example,
would the proposals have an adverse
effect on competition that is neither
necessary nor appropriate in furtherance
of the purposes of the Exchange Act?
69. Would the proposals create an
adverse competitive effect on U.S.
issuers that are not in a position to rely
on the alternative or on foreign private
issuers that do not report in IFRS?
70. Would the proposed amendments,
if adopted, promote efficiency,
competition and capital formation?
Commenters are requested to provide
empirical data and other factual support
for their views if possible.
1. The authority citation for Part 210
continues to read as follows:
dwashington3 on PRODPC61 with PROPOSALS2
XI. Proposed Amendments to the
Codification of Financial Reporting
Policies
We propose to update the
‘‘Codification of Financial Reporting
Policies’’ announced in Financial
Reporting Release 1 (April 15, 1982) [47
FR 21028] as follows:
By adding at the end of Section 101,
under the Financial Reporting Number
(FR–XX) assigned to this release, the
text of Sections I through III of this
release.
The Codification is a separate
publication of the Commission. It will
not be published in the Code of Federal
Regulations System.
XII. Statutory Basis and Text of
Proposed Amendments
We are proposing amendments to
Rules 1–01, 1–02, 3–10, 4–01, 8–01 and
Article 13 of Regulation S-X; Items 10,
101, 301, 504, 1100, 1112, 1114 and
1115 of Regulation S-K and Rule 405 of
Regulation C under the Securities Act;
and Rule 12b–2 of Regulation 12B,
Schedule 13E–3, Schedule TO, Rule
101(b) of Regulation G and Form 8–K
under the Exchange Act; pursuant to
Sections 6, 7, 10, and 19 of the
Securities Act, Sections 3, 12, 13, 15, 23
and 36 of the Exchange Act , and
Sections 3(c)(2) and 108(c) of the
Sarbanes Oxley Act of 2002.
Text of Amendments
List of Subjects in 17 CFR Parts 210,
229, 230, 240, 244 and 249
Reporting and recordkeeping
requirements, Securities.
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Jkt 217001
PART 210—FORM AND CONTENT OF
AND REQUIREMENTS FOR FINANCIAL
STATEMENTS, SECURITIES ACT OF
1933, SECURITIES EXCHANGE ACT
OF 1934, PUBLIC UTILITY HOLDING
COMPANY ACT OF 1935, INVESTMENT
COMPANY ACT OF 1940, INVESTMENT
ADVISORS ACT OF 1940, AND
ENERGY POLICY AND
CONSERVATION ACT OF 1975
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s,
77z–2, 77z–3, 77aa(25), 77aa(26), 78c, 78j–1,
78l, 78m, 78n, 78o(d), 78q, 78u–5, 78w(a),
78ll, 78mm, 80a–8, 80a–20, 80a–29, 80a–30,
80a–31, 80a–37(a), 80b–3, 80b–11, 7202, and
7262, unless otherwise noted.
2. Section 210.1–01 is amended by
adding a sentence at the end of
paragraph (c) to read as follows:
§ 210.1–01 Application of Regulation S-X
(17 CFR part 210).
*
*
*
*
*
(c) * * * In this regard, the
application of § 210.4–10 in Article 13
of this Part only applies to filings
pursuant to the federal securities laws.
3. Section 210.1–02 is amended by
a. Revising the last sentence to the
‘‘Note to paragraph (w),’’ and
b. Adding paragraph (cc).
The revision and addition read as
follows:
§ 210.1–02 Definitions of terms used in
Regulation S-X (17 CFR part 210).
*
*
*
(w) * * *
*
*
Note to paragraph (w): * * * An IFRS
issuer or a foreign private issuer that files its
financial statements in accordance with
International Financial Reporting Standards
(‘‘IFRS’’) as issued by the International
Accounting Standards Board (‘‘IASB’’) shall
make the prescribed tests using amounts
determined under IFRS as issued by the
IASB.
*
*
*
*
*
(cc) IFRS issuer. The term IFRS issuer
means any issuer, other than a foreign
private issuer that files financial
statements pursuant to Item 17 or Item
18 of Form 20–F (§ 249.220f of this
chapter), that meets the following
criteria and files its financial statements
in accordance with IFRS as issued by
the IASB pursuant to Rule 4–01(a)(3)
and Article 13 of Regulation S-X
(§§ 210.4–01(a)(3) and 210.13):
(1) The issuer is not an investment
company, an employee stock purchase,
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savings and similar plan, or a smaller
reporting company;
(2) The issuer has requested and
received a letter from the staff of the
Commission expressing no objection
that the issuer is eligible to file with the
Commission financial statements
prepared in accordance with IFRS as
issued by the IASB;
(3) The issuer makes its first filing
preparing its required financial
statements in accordance with IFRS as
issued by the IASB within 3 years
following issuance of the most recently
dated letter from the staff of the
Commission described in paragraph
(cc)(2) of this section; and
(4) The issuer’s incoming request to
the staff of the Commission pursuant to
paragraph (cc)(2) of this section must be
sent to the attention of the Division of
Corporation Finance—Office of the
Chief Accountant and demonstrate the
following:
(i) The issuer is in an industry in
which IFRS as issued by the IASB is
used as the basis of financial reporting
more than any other basis of financial
reporting by the 20 largest listed
companies worldwide by market
capitalization within that industry; and
(ii) The issuer is one of the 20 largest
listed companies worldwide by market
capitalization within that industry as of
a date within 180 days prior to the
request.
Note 1 to paragraph (cc): An issuer, in
determining its industry and the top 20
largest listed companies worldwide by
market capitalization within that industry,
must use one of the following classification
schemes: The North American Industry
Classification System (NAICS) codes at the
three-digit level, the Standard Industrial
Classification (SIC) codes at the two-digit
level, or the International Standard Industrial
Classification (ISIC) codes at the ‘‘Division’’
level. In the alternative, an issuer could use
a private industry classification scheme
provided that such classification scheme is
published and is widely accepted as an
industry classification scheme, such as, for
example, the Industry Classification
Benchmark (ICB) at the ‘‘Sector’’ level or the
Global Industry Classification Standard
(GICS) at the ‘‘Industry’’ level. For
classifications of individual companies, the
issuer must use a single published and
widely accepted industry source. The
provider of the classification scheme may be
the same entity as the source of
classifications of individual companies.
Note 2 to paragraph (cc): Market
capitalization for purposes of this section
means aggregate worldwide market value of
voting and non-voting common equity.
Market capitalization must be determined
from a widely accepted source as of the same
day within 180 days prior to the request.
Note 3 to paragraph (cc): The basis of
financial reporting is to be determined based
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Federal Register / Vol. 73, No. 226 / Friday, November 21, 2008 / Proposed Rules
on a specified set of accounting principles.
Companies in an industry are considered to
report under a specified set of accounting
principles if they have published audited
financial statements under those accounting
principles. Companies reporting under more
than one set of accounting principles can be
counted as using any of those sets of
accounting principles. In determining its
eligibility to use IFRS as issued by the IASB,
an issuer must undertake reasonable efforts
to determine the set of accounting standards
used by the twenty largest companies in its
industry group. To the extent an issuer’s
analysis includes companies whose financial
statements are prepared under a
jurisdictional version of IFRS or as to which
it is not clear whether the financial
statements are prepared under IFRS as issued
by the IASB, the issuer should state that no
information came to its attention from the
content of the financial statements of the
companies analyzed or otherwise that causes
it to believe that the financial statements are
not in accordance with IFRS as issued by the
IASB.
§ 210.3–10
[Amended]
4. Section 210.3–10, paragraph
(g)(2)(ii), is amended by revising the
reference ‘‘(§§ 210.1–01 through 12–29)’’
to read ‘‘(§§ 210.1–01 through 210.13–
03).’’
5. Section 210.4–01 is amended by:
a. Redesignating paragraph (a)(3) as
paragraph (a)(5), and
b. Adding new paragraphs (a)(3),
(a)(4) and (d).
The addition reads as follows.
§ 210.4–01
Form, order and terminology.
(a) * * *
(3) In filings of IFRS issuers defined
in § 210.1–02(cc) financial statements
may be prepared according to
International Financial Reporting
Standards (‘‘IFRS’’) as issued by the
International Accounting Standards
Board (‘‘IASB’’).
(4) With respect to financial
statements required by Rule 3–05, 3–09
or 3–14 of Regulation S–X (§§ 210.3–05,
210.3–09 or 210.3–14) in the filings of
IFRS issuers or foreign private issuers,
the financial statements may be
prepared in accordance with IFRS as
issued by the IASB.
*
*
*
*
*
(d) Financial statements prepared in
accordance with IFRS as issued by the
IASB are subject to Article 13
(§§ 210.13–01 through 210.13–03).
dwashington3 on PRODPC61 with PROPOSALS2
§ 210.8–01
[Amended]
6. Section 210.8–01, in Note 6 to
§ 210.8, is amended by revising the
reference ‘‘Section 210.4–01(a)(3)’’ to
read ‘‘Section 210.4–01(a)(5)’’.
7. Add an undesignated center
heading following § 210.12–29 and
§§ 210.13–01, 210.13–02 and 210.13–03
to read as follows:
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Jkt 217001
Article 13—Use of International
Financial Reporting Standards
Sec.
210.13–01
210.13–02
210.13–03
Application of Article 13.
Application of Regulation S–X.
Application of references.
Article 13—Use of International
Financial Reporting Standards
§ 210.13–01
Application of Article 13.
(a) This article shall be applicable to
financial statements that are to be
prepared in accordance with
International Financial Reporting
Standards (‘‘IFRS’’) as issued by the
International Accounting Standards
Board (‘‘IASB’’) filed:
(1) By an IFRS issuer as defined in
§ 210.1–02(cc);
(2) By a foreign private issuer
pursuant to Item 17 or Item 18 of Form
20–F (§ 249.220f of this chapter); or
(3) Pursuant to Rule 3–05, 3–09 or
3–14 of Regulation S–X (§ 210.3–05,
210.3–09 or 210.3–14), where
applicable.
(b) With respect to the financial
statements described in paragraph (a) of
this section:
(1) Such financial statements must
contain an appropriately captioned note
in which the issuer unreservedly and
explicitly states compliance with IFRS
as issued by the IASB;
(2) The applicable accountant’s report
must include an opinion on whether the
financial statements comply with IFRS
as issued by the IASB; and
(3) Financial statements which are not
prepared in accordance with IFRS as
issued by the IASB will be presumed to
be misleading or inaccurate, despite
footnote or other disclosures, unless the
Commission has otherwise provided.
(c) Transition provisions for IFRS
issuers. An IFRS issuer changing from
U.S. GAAP to IFRS as issued by the
IASB may only begin reporting using
IFRS as issued by the IASB in an annual
report on Form 10–K (§ 249.310 of this
chapter). Similarly, an IFRS issuer
changing from IFRS as issued by the
IASB to U.S. GAAP may only begin
reporting using U.S. GAAP in an annual
report on Form 10–K.
§ 210.13–02
Application of Regulation S–X.
Unless a specific provision of
Regulation S–X does not otherwise
apply, the provisions of Article 1
through Article 12 of Regulation S–X
shall apply to financial statements
described in § 210.13–01(a) as follows:
(a) Article 1 ‘‘Application of
Regulation S–X’’ shall apply;
(b) Article 2 ‘‘Qualifications and
Reports of Accountants’’ shall apply;
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(c) Article 3 ‘‘General Instructions as
to Financial Statements’’ shall apply,
except for:
(1) Section 210.3–03 which need not
apply;
(2) Section 210.3–04, which need not
apply;
(3) Section 210.3–15(a), which shall
not apply;
(4) Section 210.3–15(b) and (c), which
need not apply; and
(5) Section 210.3–20, which shall not
apply to an IFRS issuer.
(d) Article 3A ‘‘Consolidated and
Combined Financial Statements’’ need
not apply.
(e) Article 4 ‘‘Rules of General
Application’’ shall apply, except for:
(1) Section 210.4–07, which need not
apply;
(2) Section 210.4–08, which need not
apply; and
(3) The following paragraphs of
§ 210.4–10:
(i) Paragraph (b) of this section, which
need not apply;
(ii) Paragraph (c) of this section,
which need not apply; and
(iii) Paragraph (d) of this section,
which need not apply.
(f) Article 5 ‘‘Commercial and
Industrial Companies’’ need not apply,
except for § 210.5–04, which shall
apply.
(g) Article 6 ‘‘Registered Investment
Companies’’ shall not apply.
(h) Article 6A ‘‘Employee Stock
Purchase, Savings and Similar Plans’’
shall not apply.
(i) Article 7 ‘‘Insurance Companies’’
need not apply, except for § 210.7–05,
which shall apply.
(j) Article 8 ‘‘Financial Statements of
Smaller Reporting Companies’’ shall not
apply.
(k) Article 9 ‘‘Bank Holding
Companies’’ need not apply, except for
§ 210.9–06, which shall apply.
(l) Article 10 ‘‘Interim Financial
Statements’’ need not apply, except for
the following, which shall apply:
(1) Sections 210.10–01(a)(1) and
(a)(6);
(2) Section 210.10–01(b)(6);
(3) Sections 210.10–01(c)(1) through
(c)(3);
(4) Section 210.10–01(d); and
(5) Section 210.10–01(e).
(m) Article 11 ‘‘Pro Forma Financial
Information’’ shall apply.
(n) Article 12 ‘‘Form and Content of
Schedules’’ shall apply.
§ 210.13–03
Application of references.
(a) Unless otherwise specifically
provided, references in Parts 210, 229,
230, 239, 240 (other than §§ 240.11a1–
h, 240.15c3–1g, 240.17a–5, 240.17g–3,
240.17h–1T, and 240.17i–6 of this
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chapter) and 249 to ‘‘generally accepted
accounting principles,’’ should be
construed solely for purposes of
application of the relevant requirement
to mean IFRS as issued by the IASB.
(b) Unless otherwise specifically
provided, in providing information in
response to requirements in Parts 210,
229, 230, 239, 240 and 249 that refer to
specific pronouncements of U.S. GAAP,
disclosure is to be provided that
satisfies the objective of the relevant
disclosure requirements.
(c) In providing general caption data,
segment data or schedule information in
response to Regulation S–K item
requirements (§§ 229.10 through
229.915 of this chapter), amounts may
be presented based on IFRS as issued by
the IASB. In providing schedules
pursuant to § 210.5–04 or 210.7–05, an
IFRS issuer or foreign private issuer that
prepares financial statements in
accordance with IFRS as issued by the
IASB may present amounts based on
IFRS as issued by the IASB. Financial
information presented pursuant to
§ 210–9.06 may be presented as a
separate audited schedule and may use
amounts based on IFRS as issued by the
IASB.
(d) An issuer or entity that is required
to provide disclosure under FASB
Statement of Accounting Standards No.
69, ‘‘Disclosure about Oil and Gas
Producing Activities,’’ shall do so
regardless of whether its financial
statements are prepared in accordance
with IFRS as issued by the IASB.
PART 229—STANDARD
INSTRUCTIONS FOR FILING FORMS
UNDER SECURITIES ACT OF 1933,
SECURITIES EXCHANGE ACT OF 1934
AND ENERGY POLICY AND
CONSERVATION ACT OF 1975—
REGULATION S–K
8. The authority citation for part 229
continues to read in part as follows:
Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j,
77k, 77s, 77z–2, 77z–3, 77aa(25), 77aa(26),
77ddd, 77eee, 77ggg, 77hhh, 777iii, 77jjj,
77nnn, 77sss, 78c, 78i, 78j, 78l, 78m, 78n,
78o, 78u–5, 78w, 78ll, 78mm, 80a–8, 80a–9,
80a–20, 80a–29, 80a–30, 80a–31(c), 80a–37,
80a–38(a), 80a–39, 80b–11, and 7201 et seq.;
and 18 U.S.C. 1350, unless otherwise noted.
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*
*
*
*
9. Section 229.10 is amended by
revising paragraphs (e)(3)(i) and (ii) to
read as follows:
§ 229.10
(Item 10) General.
*
*
*
*
*
(e) * * *
(3) * * *
(i) In the case of foreign private
issuers or IFRS issuers whose primary
financial statements are prepared in
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accordance with non-U.S. generally
accepted accounting principles, GAAP
refers to the principles under which
those primary financial statements are
prepared; and
(ii) In the case of foreign private
issuers or IFRS issuers that include a
non-GAAP financial measure derived
from a measure calculated in
accordance with U.S. generally accepted
accounting principles, GAAP refers to
U.S. generally accepted accounting
principles for purposes of the
application of the requirements of this
paragraph (e) to the disclosure of that
measure.
*
*
*
*
*
10. Section 229.101 is amended by
adding paragraphs (i) and (j) before the
Instructions to Item 101 to read as
follows:
§ 229.101 (Item 101) Description of
business.
*
*
*
*
*
(i) Change in comprehensive set of
accounting principles. An issuer that
has elected to change the
comprehensive set of accounting
principles used in preparing its primary
financial statements to International
Financial Reporting Standards \
(‘‘IFRS’’) as issued by the International
Accounting Standards Board (‘‘IASB’’),
or to U.S. GAAP from IFRS as issued by
the IASB, for purposes of its filings with
the Commission shall prominently
disclose the following in its first annual
report on Form 10–K (§ 249.310 of this
chapter) that contains financial
statements prepared using such
comprehensive set of accounting
principles:
(1) The new comprehensive set of
accounting principles used to prepare
the financial statements;
(2) The reasons for which the issuer
elected to make the change;
(3) The corporate governance
processes followed in electing to make
the change, including, for example,
whether a shareholder vote was held
and the extent to which the issuer’s
board of directors and audit committee
considered the matter; and
(4) With respect to an election to IFRS
as issued by the IASB, the date the
issuer made its request to the staff of the
Commission demonstrating that the
issuer met the criteria in Rule 1–02(cc)
of Regulation S–X (§ 210.1–02(cc) of this
chapter) for being an ‘‘IFRS issuer,’’ and
the date the staff of the Commission
issued its letter of no objection to such
request.
(j) Supplemental U.S. GAAP
information. An issuer that prepares its
primary financial statements included
in an annual report on Form 10–K
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(§ 249.310 of this chapter) in accordance
with IFRS as issued by the IASB,
pursuant to Article 13 of Regulation
S–X (§§ 210.13–01 through 210.13–03 of
this chapter) shall provide in the annual
report a reconciliation of financial
information from IFRS as issued by the
IASB to U.S. generally accepted
accounting principles. The
reconciliation shall give sufficient
details to enable users to understand the
material adjustments to the primary
financial statements presented in
accordance with IFRS as issued by the
IASB that would be necessary were the
primary financial statements presented
in accordance with U.S. generally
accepted accounting principles.
*
*
*
*
*
11. Section 229.301 is amended
adding Instruction 8 to the Instructions
to Item 301 to read as follows:
§ 229.301
data.
(Item 301) Selected financial
*
*
*
*
*
Instructions to Item 301:
*
*
*
*
*
8. IFRS issuers shall present the
selected financial data on the basis of
IFRS as issued by the IASB. An IFRS
issuer that prepares its primary financial
statements in accordance with IFRS as
issued by the IASB for the first time may
provide selected financial data based on
IFRS as issued by the IASB for the three
most recent years.
§ 229.504
[Amended]
12. Instruction 6 to § 229.504 is
amended by revising the reference ‘‘(17
CFR 210.1–01 through 210.12–29)’’ to
read ‘‘(17 CFR 210.1–01 through
210.13–03)’’.
13. Section 229.1100(c)(2)(ii)(F),
§ 229.1112(b)(2), first sentence, § 229.
1114(b)(2)(ii), first sentence, and
§ 229.1115(b)(2), first sentence, are
amended by revising the reference
‘‘(§§ 210.1–01 through 210.12–29 of this
chapter)’’ to read ‘‘(§§ 210.1–01 through
210.13.03 of this chapter)’’.
PART 230—GENERAL RULES AND
REGULATIONS, SECURITIES ACT OF
1933
14. The authority citation for Part 230
continues to read in part as follows:
Authority: 15 U.S.C. 77b, 77c, 77d, 77f,
77g, 77h, 77j, 77r, 77s, 77z–3, 77sss, 78c, 78d,
78j, 78l, 78m, 78n, 78o, 78t, 78w, 78ll(d),
78mm, 80a–8, 80a–24, 80a–28, 80a–29, 80a–
30, and 80a–37, unless otherwise noted.
*
*
*
*
*
15. Amend § 230.405 to add the
definition of ‘‘IFRS issuer’’ in
alphabetical order to read as follows.
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§ 230.405
Definition of terms.
*
*
*
*
*
IFRS issuer. The term IFRS issuer
means any issuer that meets the
definition of ‘‘IFRS issuer’’ contained in
Rule 1–02 of Regulation S–X (§ 210.1–02
of this chapter).
*
*
*
*
*
PART 240—GENERAL RULES AND
REGULATIONS, SECURITIES
EXCHANGE ACT OF 1934
Authority: 15 U.S.C. 77c, 77d, 77g, 77j,
77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn,
77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j,
78j–1, 78k, 78k–1, 78l, 78m, 78n, 78o, 78p,
78q, 78s, 78u–5, 78w, 78x, 78ll, 78mm, 80a–
20, 80a–23, 80a–29, 80a–37, 80b–3, 80b–4,
80b–11, and 7201 et seq.; and 18 U.S.C. 1350,
unless otherwise noted.
*
*
*
*
*
17. Amend § 240.12b–2 to add the
definition ‘‘IFRS issuer’’ in alphabetical
order to read as follows:
Definitions.
*
*
*
*
*
IFRS issuer. The term IFRS issuer
means any issuer that meets the
definition of ‘‘IFRS issuer’’ contained in
Rule 1–02 of Regulation S–X (§ 210.1–02
of this chapter).
*
*
*
*
*
18. Amend § 240.13e-100, Instructions
to Item 13, by revising the last sentence
of Instruction 1 and revising Instruction
2 to read as follows:
§ 240.13e-100 Schedule 13E–3,
Transaction statement under section 13(e)
of the Securities Exchange Act of 1934 and
Rule 13e-3 (§ 240.13e-3) thereunder.
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*
*
*
*
*
Instructions to Item 13:
1. * * * If the summarized financial
information is prepared on the basis of
a comprehensive body of accounting
principles other than either U.S. GAAP,
or International Financial Reporting
Standards (‘‘IFRS’’) as issued by the
International Accounting Standards
Board (‘‘IASB’’) if filed by a foreign
private issuer or an IFRS issuer as
defined in Rule 1–02(cc) of Regulation
S–X (§ 210.1–02(cc) of this chapter), the
summarized financial information must
be accompanied by a reconciliation as
described in Instruction 2 of this Item.
2. If the financial statements required
by this Item are prepared on the basis
of a comprehensive body of accounting
principles other than U.S. GAAP, or
IFRS as issued by the IASB if filed by
a foreign private issuer or an IFRS
issuer, provide a reconciliation to U.S.
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§ 240.14d-100 Schedule TO. Tender offer
statement under section 14(d)(1) or 13(e)(1)
of the Securities Exchange Act of 1934.
*
16. The authority citation for Part 240
continues to read in part as follows:
§ 240.12b-2
GAAP in accordance with Item 17 of
Form 20–F (§ 249.220f of this chapter).
*
*
*
*
*
19. Amend § 240.14d-100,
Instructions to Item 10, by revising the
last sentence of Instruction 6 and
revising Instruction 8 to read as follows:
*
*
*
*
Instructions to Item 10:
*
*
*
*
*
6. * * * If the summarized financial
information is prepared on the basis of
a comprehensive body of accounting
principles other than either U.S. GAAP,
or International Financial Reporting
Standards (‘‘IFRS’’) as issued by the
International Accounting Standards
Board (‘‘IASB’’) if filed by a foreign
private issuer or an IFRS issuer as
defined in Rule 1–02(cc) of Regulation
S–X (§ 210.1–02(cc) of this chapter), the
summarized financial information must
be accompanied by a reconciliation as
described in Instruction 8 of this Item.
*
*
*
*
*
8. If the financial statements required
by this Item are prepared on the basis
of a comprehensive body of accounting
principles other than either U.S. GAAP,
or IFRS as issued by the IASB if filed
by a foreign private issuer or an IFRS
issuer, provide a reconciliation to U.S.
GAAP in accordance with Item 17 of
Form 20–F (§ 249.220f of this chapter),
unless a reconciliation is unavailable or
not obtainable without unreasonable
cost or expense. At a minimum,
however, when financial statements are
prepared on a basis other than U.S.
GAAP, or IFRS as issued by the IASB if
filed by a foreign private issuer or an
IFRS issuer, a narrative description 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. must be presented.
*
*
*
*
*
PART 244—REGULATION G
20. The authority citation for part 244
continues to read as follows:
Authority: 15 U.S.C. 7261, 78c, 78i, 78j,
78m, 78o, 78w, 78mm, and 80a–29.
21. Amend § 244.101 by revising
paragraphs (b)(1) and (b)(2) to read as
follows:
§ 244.101
*
*
*
*
*
(b) * * *
(1) In the case of foreign private
issuers or IFRS issuers whose primary
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Fmt 4701
financial statements are prepared in
accordance with non-U.S. generally
accepted accounting principles, GAAP
refers to the principles under which
those primary financial statements are
prepared; and
(2) In the case of foreign private
issuers or IFRS issuers that include a
non-GAAP financial measure derived
from a measure calculated in
accordance with U.S. generally accepted
accounting principles, GAAP refers to
U.S. generally accepted accounting
principles for purposes of the
application of the requirements of
Regulation G to the disclosure of that
measure.
*
*
*
*
*
PART 249—FORMS, SECURITIES
EXCHANGE ACT OF 1934
22. The authority citation for part 249
continues to read in part as follows:
Authority: 15 U.S.C. 78a et seq., and 7201
et seq.; and 18 U.S.C. 1350, unless otherwise
noted.
*
*
*
*
*
23. Amend Form 8–K (referenced in
§ 249.308) as follows:
a. In Item 2.04, add a sentence at the
end of Instruction 4;
b. In Item 2.05, add an Instruction
following paragraph (d); and
c. In Item 4.02, add an Instruction
following paragraph (c)(3).
The additions and revisions read as
follows.
Note: The text of Form 8–K does not and
this amendment will not appear in the Code
of Federal Regulations.
FORM 8–K
*
*
*
Sfmt 4702
*
*
Item 2.04 Triggering Events That
Accelerate or Increase a Direct Financial
Obligation or an Obligation Under an OffBalance Sheet Arrangement.
*
*
*
*
*
Instructions.
*
*
*
*
*
4. * * * When providing disclosure
in response to provisions of this Item
that refer to SFAS No. 5, an IFRS issuer
should refer instead to IAS 37
‘‘Provisions, Contingent Liabilities and
Contingent Assets,’’ as may be modified,
supplemented or succeeded.
*
*
*
*
*
Item 2.05 Costs Associated with Exit or
Disposal Activities.
*
Definitions.
70855
*
*
*
*
(d) * * *
Instruction.
When providing disclosure in
response to provisions of this Item that
refer to SFAS No. 146, an IFRS issuer
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should refer instead to IFRS 5 ‘‘Noncurrent Assets Held for Sale and
Discontinued Operations,’’ as may be
modified, supplemented or succeeded.
*
*
*
*
*
Item 4.02 Non-Reliance on Previously
Issued Financial Statements or a Related
Audit Report or Completed Interim Review.
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*
*
(c) * * *
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*
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(3) * * *
Instruction.
When providing disclosure in
response to provisions of this Item that
refer to Accounting Principles Board
Opinion No. 20, as may be modified,
supplemented or succeeded, an IFRS
issuer should refer instead to IAS 8
‘‘Accounting Policies, Changes in
Accounting Estimates and Errors,’’ as
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may be modified, supplemented or
succeeded.
*
*
*
*
*
By the Commission.
Dated: November 14, 2008.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–27559 Filed 11–20–08; 8:45 am]
BILLING CODE 8011–01–P
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[Federal Register Volume 73, Number 226 (Friday, November 21, 2008)]
[Proposed Rules]
[Pages 70816-70856]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-27559]
[[Page 70815]]
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Part IV
Securities and Exchange Commission
-----------------------------------------------------------------------
17 CFR Parts 210, 229, 230, et al.
Roadmap for the Potential Use of Financial Statements Prepared in
Accordance With International Financial Reporting Standards by U.S.
Issuers; Proposed Rule
Federal Register / Vol. 73, No. 226 / Friday, November 21, 2008 /
Proposed Rules
[[Page 70816]]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 210, 229, 230, 240, 244 and 249
[Release Nos. 33-8982; 34-58960; File No. S7-27-08]
RIN 3235-AJ93
Roadmap for the Potential Use of Financial Statements Prepared in
Accordance With International Financial Reporting Standards by U.S.
Issuers
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The Securities and Exchange Commission (``Commission'') is
proposing a Roadmap for the potential use of financial statements
prepared in accordance with International Financial Reporting Standards
(``IFRS'') as issued by the International Accounting Standards Board by
U.S. issuers for purposes of their filings with the Commission. This
Roadmap sets forth several milestones that, if achieved, could lead to
the required use of IFRS by U.S. issuers in 2014 if the Commission
believes it to be in the public interest and for the protection of
investors. This Roadmap also includes discussion of various areas of
consideration for market participants related to the eventual use of
IFRS in the United States. As part of the Roadmap, the Commission is
proposing amendments to various regulations, rules and forms that would
permit early use of IFRS by a limited number of U.S. issuers where this
would enhance the comparability of financial information to investors.
Only an issuer whose industry uses IFRS as the basis of financial
reporting more than any other set of standards would be eligible to
elect to use IFRS, beginning with filings in 2010.
DATES: Comments should be received on or before February 19, 2009.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
Use of the Commission's Internet comment form (https://
www.sec.gov/rules/proposed.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number S7-27-08 on the subject line; or
Use the Federal Rulemaking ePortal (https://
www.regulations.gov). Follow the instructions for submitting comments.
Paper Comments
Send paper comments in triplicate to Florence E. Harmon,
Acting Secretary, Securities and Exchange Commission, 100 F Street,
NE., Washington, DC 20549-1090.
All submissions should refer to File Number S7-27-08. The file number
should be included on the subject line if e-mail is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
Internet Web site (https://www.sec.gov/rules/proposed/shtml). Comments
also are available for public inspection and copying in the
Commission's Public Reference Room, 100 F Street, NE., Washington, DC
20549, on official business days between the hours of 10 a.m. and 3
p.m. All comments received will be posted without change; we do not
edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly.
FOR FURTHER INFORMATION CONTACT: Craig Olinger, Deputy Chief
Accountant, Division of Corporation Finance, at (202) 551-3400 or
Michael D. Coco, Special Counsel, Office of International Corporate
Finance, Division of Corporation Finance, at (202) 551-3450, or Liza
McAndrew Moberg, Professional Accounting Fellow, Office of the Chief
Accountant, at (202) 551-5300, U.S. Securities and Exchange Commission,
100 F Street, NE., Washington, DC 20549-3628.
SUPPLEMENTARY INFORMATION: The Commission is publishing for comment a
proposed Roadmap and proposed amendments to Regulations S-X,\1\ S-K \2\
and C \3\ under the Securities Act of 1933 (the ``Securities Act''),\4\
and Rule 12b-2,\5\ Schedule 13E-3,\6\ Schedule TO,\7\ Regulation G,\8\
and Form 8-K,\9\ under the Securities Exchange Act of 1934 (the
``Exchange Act'').\10\ In Regulation S-X, we propose to amend Rules 1-
01,\11\ 1-02,\12\ 3-10,\13\ 4-01 \14\ and 8-01,\15\ and to add Article
13. We are proposing the new Article 13 to apply to U.S. issuers and,
as a conforming change, to foreign private issuers \16\ that file IFRS
financial statements.\17\ In Regulation S-K, we propose to amend Items
10,\18\ 101,\19\ 301,\20\ 504,\21\ 1100,\22\ 1112,\23\ 1114 \24\ and
1115.\25\ In Regulation C, we propose to amend Rule 405.\26\ In
Regulation G, we propose to amend Item 101.\27\
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\1\ 17 CFR 210.1-01-210.12-29. Regulation S-X sets forth the
form and content of requirements for financial statements.
\2\ 17 CFR 229.10 et seq.
\3\ 17 CFR 230.400 et seq.
\4\ 15 U.S.C. 77a et seq.
\5\ 17 CFR 240.12b-2.
\6\ 17 CFR 240.13e-100.
\7\ 17 CFR 240.14d-100.
\8\ 17 CFR 244 et seq.
\9\ 17 CFR 249.308.
\10\ 15 U.S.C. 78a et seq.
\11\ 17 CFR 210.1-01.
\12\ 17 CFR 210.1-02.
\13\ 17 CFR 210.3-10.
\14\ 17 CFR 210.4-01.
\15\ 17 CFR 210.8-01.
\16\ A ``foreign private issuer,'' as defined in Rule 3b-4(c)
[17 CFR 240.3b-4(c)], means any foreign issuer other than a foreign
government except an issuer that meets the following conditions: (1)
More than 50 percent of the issuer's outstanding voting securities
are directly or indirectly held of record by residents of the United
States; and (2) any of the following: (i) the majority of the
executive officers or directors are United States citizens or
residents; (ii) more than 50 percent of the assets of the issuer are
located in the United States; or (iii) the business of the issuer is
administered principally in the United States.
\17\ As explained in Section V.B. below, inclusion of foreign
private issuers in Article 13 will not change the content of their
financial statements filed under Form 20-F.
\18\ 17 CFR 229.10.
\19\ 17 CFR 229.101.
\20\ 17 CFR 229.301.
\21\ 17 CFR 229.504.
\22\ 17 CFR 229.1100.
\23\ 17 CFR 229.1112.
\24\ 17 CFR 229.1114.
\25\ 17 CFR 229.1115.
\26\ 17 CFR 230.405.
\27\ 17 CFR 244.101.
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Table of Contents
I. Overview
II. The Role of IFRS in the U.S. Capital Markets
A. The Promise of Global Accounting Standards
1. The Global Nature of Today's Capital Markets
2. Potential for IFRS as the Global Accounting Standard
B. Past Policy Considerations Regarding IFRS
III. A Proposed Roadmap to IFRS Reporting by U.S. Issuers
A. Milestones To Be Achieved Leading to the Use of IFRS by U.S.
Issuers
1. Improvements in Accounting Standards
2. Accountability and Funding of the IASC Foundation
3. Improvement in the Ability To Use Interactive Data for IFRS
Reporting
4. Education and Training
5. Limited Early Use of IFRS Where This Would Enhance
Comparability for U.S. Investors
6. Anticipated Timing of Future Rulemaking by the Commission
7. Implementation of the Mandatory Use of IFRS
B. Other Areas of Consideration
1. The Roles of Financial Information
2. Accounting Systems, Controls and Procedures
3. Auditing
4. Considerations of IFRS and the IASB's Standard Setting
Process
a. State of IFRS
[[Page 70817]]
b. Relationship to the Accounting Standard Setting Process
IV. Proposal for the Limited Early Use of IFRS Where This Would
Enhance Comparability for U.S. Investors
A. Eligibility Requirements
B. Staff Letter of No Objection to the Use of IFRS
C. Transition
D. Alternative Proposals for U.S. GAAP Information
1. Proposal A--Reconciled Information Pursuant to IFRS 1
2. Proposal B--Supplemental U.S. GAAP Information
3. Discussion of Proposals A and B
V. Discussion of Proposed Amendments
A. The Use of IFRS Financial Statements in Commission Filings by
Eligible Issuers
1. Proposed Amendments to Rule 4-01 of Regulation S-X
2. Proposed Definition of ``IFRS Issuer''
B. Application
1. Article 13 of Regulation S-X
2. Proposed Clarifying Amendments With Respect to References to
IFRS as Issued by the IASB
C. Proposed Amendments to Item 10(e) of Regulation S-K and
Regulation G
D. Related Disclosure and Financial Reporting Issues
1. Selected Financial Data
2. Market-Risk and the Safe Harbor Provisions
3. Disclosure of First-Time Adoption of IFRS in Form 10-K
4. Other Considerations Relating to IFRS and U.S. GAAP Guidance
E. Financial Statements of Other Entities Under Regulation S-X
1. Application of the Amendments to Rules 3-05, 3-09 and 3-14
a. Significance Testing
b. Separate Historical Financial Statements of Another Entity
Provided Under Rule 3-05, 3-09 or 3-14
2. Financial Statements Provided Under Rule 3-10
3. Financial Statements Provided Under Rule 3-16
F. Pro Forma Financial Statements Provided Under Article 11
G. Industry Specific Matters
1. Disclosure Pursuant to Industry Guides
2. Disclosure From Oil and Gas Companies Under FAS 69
H. Application of the Proposed Amendments to Other Forms, Rules
and Schedules
1. Application of Proposed Amendments to Exempt Offerings
2. References to FASB Pronouncements in Form 8-K
3. Application of IFRS to Tender Offer and Going-Private Rules
VI. General Request for Comments
VII. Paperwork Reduction Act
A. Background
B. Burden and Cost Estimates Related to the Proposed Amendments
C. Request for Comment
VIII. Cost-Benefit Analysis
A. Proposal for Early Use of IFRS by U.S. Issuers
1. Expected Benefits
2. Expected Costs
B. Proposal A: Reconciled Information Pursuant to IFRS 1
1. Expected Benefits
2. Expected Costs
C. Proposal B: Supplemental U.S. GAAP Information
1. Expected Benefits
2. Expected Costs
IX. Regulatory Flexibility Act Certification
X. Consideration of Impact on the Economy, Burden on Competition and
Promotion of Efficiency, Competition and Capital Formation
XI. Proposed Amendments to the Codification of Financial Reporting
Policies
XII. Statutory Basis and Text of Proposed Amendments
I. Overview
The Commission is proposing this Roadmap towards requiring the use
of International Financial Reporting Standards (``IFRS'') as issued by
the International Accounting Standards Board (``IASB'') \28\ by U.S.
issuers \29\ as part of its consideration of the role a single set of
high-quality accounting standards plays in investor protection and the
efficiency and effectiveness of capital formation and allocation. As
capital markets have become increasingly global, U.S. investors have a
corresponding increase in international investment opportunities. In
this environment, we believe that U.S. investors would benefit from an
enhanced ability to compare financial information of U.S. companies
with that of non-U.S. companies. The Commission has long expressed its
support for a single set of high-quality global accounting standards as
an important means of enhancing this comparability.\30\ We believe that
IFRS has the potential to best provide the common platform on which
companies can report and investors can compare financial information.
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\28\ As used in this release, the phrase ``IFRS as issued by the
IASB'' refers to the authoritative text of IFRS, which, according to
the Constitution of the International Accounting Standards Committee
Foundation (``IASC Foundation''), is published in English. See
``International Financial Reporting Standards, including
International Accounting Standards and Interpretations as at 1
January 2007,'' Preface to International Financial Reporting
Standards, at paragraph 23. Unless otherwise noted, the phrase
``IFRS'' refers to IFRS as issued by the IASB.
\29\ The terms ``U.S. issuer'' and ``domestic issuer'' are used
interchangeably in this release. Although there is no specific
definition of those terms under the Exchange Act or the Securities
Act, they are used in this document to refer to any issuer that
files annual reports pursuant to the Exchange Act on Form 10-K [17
CFR 249.310] or a registration statement under the Securities Act
for which foreign private issuer status is not an eligibility
requirement. For purposes of this release, the terms U.S. issuer and
domestic issuer also include a foreign issuer or foreign private
issuer, as defined in Rule 3b-4 under the Exchange Act [17 CFR
240.3b-4(c)] and in Rule 405 under the Securities Act [17 CFR
230.405], that elects to file on domestic forms.
\30\ See, for example, Release No. 33-6807 (November 14, 1988)
[53 FR 46963 (November 21, 1988)].
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This proposed Roadmap first addresses the basis for considering the
mandatory use of IFRS by U.S. issuers. It then sets forth seven
milestones which, if achieved, could lead to the use of IFRS by U.S.
issuers in their filings with the Commission.\31\ The Commission in
2011 would determine whether to proceed with rulemaking to require that
U.S. issuers use IFRS beginning in 2014 if it is in the public interest
and for the protection of investors to do so. These milestones relate
to:
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\31\ This release does not address the method the Commission
would use to mandate IFRS for U.S. issuers. One of the options would
be for the Financial Accounting Standards Board (``FASB'') to
continue to be the designated standard setter for purposes of
establishing the financial reporting standards in issuer filings
with the Commission. In this option our presumption would be that
the FASB would incorporate all provisions under IFRS, and all future
changes to IFRS, directly into generally accepted accounting
principles as used in the United States (``U.S. GAAP''). This type
of approach has been adopted by a significant number of other
jurisdictions when they adopted IFRS as the basis of financial
reporting in their capital markets.
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Improvements in accounting standards;
The accountability and funding of the IASC Foundation;
The improvement in the ability to use interactive data for
IFRS reporting;
Education and training relating to IFRS;
Limited early use of IFRS where this would enhance
comparability for U.S. investors;
The anticipated timing of future rulemaking by the
Commission; and
The implementation of the mandatory use of IFRS by U.S.
issuers.
After describing the milestones, this proposed Roadmap also discusses
how IFRS reporting by U.S. issuers may affect other participants in the
capital markets.
As a step along this Roadmap, this release then describes proposed
amendments to permit a U.S. issuer that is among the largest companies
worldwide within its industry, and whose industry uses IFRS as the
basis of financial reporting more than any other set of standards, to
elect to use IFRS beginning with filings for fiscal years ending on or
after December 15, 2009. These amendments include a process by which
U.S. issuers would seek confirmation from Commission staff that they
are eligible to use IFRS in their Commission filings. This release also
seeks comment on two alternative proposals under which U.S. issuers
that
[[Page 70818]]
elect to use IFRS would disclose U.S. GAAP information.
II. The Role of IFRS in the U.S. Capital Markets
A. The Promise of Global Accounting Standards
1. The Global Nature of Today's Capital Markets
Today, investors, issuers and other capital markets participants
are able to engage in financial transactions across national boundaries
and to make investment, capital allocation and financing decisions on a
global basis more readily than ever before. This is due in large
measure to today's ever-faster communications, and ever-more-closely
linked markets. Advances in technology that facilitate securities
transactions have reduced barriers that previously existed and that may
have impeded cross-border investment for both retail and institutional
investors. For instance, investors can more readily obtain information
on a wide variety of international investment opportunities than in the
past, largely due to the availability of information over the Internet.
Further, it is now possible for U.S. investors to have access to real-
time securities transaction data from stock exchanges and other
securities markets from around the world and to trade on global
exchanges through accounts they manage over the Internet. As trading
and investment become more global, investors face an increasing need
for full, fair and reliable disclosure that enables comparison of
financial information across investment alternatives that cross
national boundaries.
A large and increasing number of U.S. investors hold securities of
non-U.S. issuers. Further, U.S. investors have the ability to make
cross-border investments readily.\32\ Thus, we believe it is important
for U.S. investors to have access to the tools to compare effectively
and efficiently their investment opportunities in a global capital
market. The Commission has long considered a reduction in the disparity
between the accounting and disclosure practices of the United States
and those of other countries as an important objective for both the
protection of investors and the efficiency of capital markets.\33\
Further, while our recent Advisory Committee on Improvements to
Financial Reporting (``CIFiR'') purposefully limited its scope relating
to international matters due to ongoing efforts by the Commission and
the FASB, it did similarly note the following in its final report to
the Commission.\34\
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\32\ Over the period from 1990 to 2006, estimated investments in
foreign equity securities held by U.S. residents has grown from
approximately $200 billion to $4,300 billion, based on estimates
published by the U.S. Bureau of Economic Analysis, U.S. Treasury
statistics. See https://bea.gov/international/xls/intinv07_t2.xls.
Included in this category are investments in equities, whether
listed or unlisted, where the holding by the U.S. resident is less
than 10%.
\33\ See, for example, Release No. 33-6360 (November 20, 1981)
[46 FR 58511 (December 2, 1981)]. For a further discussion of the
Commission's previous actions promoting development of a single set
of high-quality globally accepted accounting standards, see Section
III.C. of Release No. 33-8831 (August 7, 2007) [72 FR 45600 (August
14, 2007)] (``2007 Concept Release'').
\34\ See Final Report of the Advisory Committee on Improvements
to Financial Reporting to the United States Securities and Exchange
Commission (August 1, 2008) (``CIFiR Final Report'').
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We broadly support the continued move to a single set of high-
quality global accounting standards, coupled with enhanced
international coordination to foster their consistent interpretation
and to avoid jurisdictional variants. Further, we encourage the
development of a roadmap to identify issues and milestones to
transition to this end state in the U.S., with sufficient time to
minimize disruptions, resource constraints, and the complexity
arising from such a significant change.\35\
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\35\ CIFiR Final Report, at page 21 (footnotes references
omitted).
The Commission recognizes that the use of a single, widely accepted
set of high-quality accounting standards would benefit both the global
capital markets and U.S. investors by providing a common basis for
investors, issuers and others to evaluate investment opportunities and
prospects in different jurisdictions. U.S. investors would be able to
make better-informed investment decisions if they were to obtain high-
quality financial information from U.S. companies that is more
comparable to the presently available information from non-U.S.
companies operating in the same industry or line of business. Capital
formation and investor understanding would be enhanced if the world's
major capital markets all operated under a single set of high-quality
accounting standards that elicit comparable, high-quality financial
information from public companies.
2. Potential for IFRS as the Global Accounting Standard
The increasing acceptance and use of IFRS in major capital markets
throughout the world over the past several years, and its anticipated
use in other countries in the near future, indicate that IFRS has the
potential to become the set of accounting standards that best provide a
common platform on which companies can report and investors can compare
financial information. Approximately 113 countries around the world
currently require or permit IFRS reporting for domestic, listed
companies.\36\
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\36\ Some countries have enacted IFRS as national standards and
require compliance to be stated with those national standards. In
some cases, these national standards are identical to IFRS as issued
by the IASB; in other cases, these national standards have been more
narrow, yet consistent with IFRS as issued by the IASB; and, in yet
other cases, these national standards may permit additional options
that are inconsistent with IFRS as issued by the IASB, although
companies may opt to apply standards so that they comply with IFRS
as issued by the IASB. See https://www.iasplus.com/country/
useias.htm.
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Foreign jurisdictions have chosen to require or allow IFRS for many
different reasons. For example, in the European Union (the ``E.U.''),
prior to its requirement relating to IFRS applicable to companies
incorporated and publicly traded in its Member States,\37\ accounting
standards in each of the E.U. Member States generally were established
individually in each jurisdiction. Further, each Member State would
typically permit the use in its capital markets of accounting standards
set in other jurisdictions, in addition to its own domestic accounting
standards.\38\ IFRS provided a common set of accounting principles
under which all domestic listings in the E.U. could report. In Canada,
accounting standard setters concluded that, given the increasing
globalization of capital markets and other recent developments, that it
was timely for public Canadian companies to adopt globally accepted,
high-quality accounting standards by converging Canadian GAAP with IFRS
over a transitional period, after which a separate and distinct
Canadian GAAP would cease to exist as a basis of financial reporting
for public companies.\39\ In Australia, the decision to adopt IFRS was
part of a strategy to ensure consistency and comparability of
Australian financial reporting with financial reporting across global
financial markets.\40\ More countries
[[Page 70819]]
have adopted IFRS, including Israel,\41\ and others have plans to allow
it, including Brazil.\42\ The market capitalization of exchange listed
companies in the E.U., Australia and Israel totals $11 trillion (or
approximately 26% of global market capitalization), and the market
capitalization from those countries plus Brazil and Canada totals $13.4
trillion (or approximately 31% of global market capitalization).\43\
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\37\ See Regulation (EC) No. 1606/2002 of the European
Parliament and of the Council of the European Union of 19 July 2002
on the application of international accounting standards, Official
Journal L. 243, 11/09/2002 P. 0001-0004.
\38\ For example, U.S. GAAP was accepted by some E.U. Member
States for domestic registrants and still is accepted for foreign
registrants.
\39\ For additional information, see https://www.cica.ca/
index.cfm/ci_id/44036/la_id/1.htm. The staff of the Canadian
Securitities Administrators (``CSA'') has proposed retaining the
existing option for a domestic Canadian issuer that is also an SEC
issuer to use U.S. GAAP. See https://www.cica.ca/3/9/1/6/6/
index1.shtml. for the link to ``CSA Announcement re: IFRS in
Canada'' (CSA Staff Notice 52-321).
\40\ See https://www.asic.gov.au/asic/asic.nsf/byheadline/
Your+questions+about+implementing+the+IFRS?openDocument#1.
\41\ See Israel Accounting Standard No. 29 ``Adoption of
International Financial Reporting Standards,'' which describes the
adoption of IFRS in Israel for years starting on January 1, 2008.
\42\ See https://www.cvm.gov.br/port/snc/inst457.pdf.
\43\ All figures are from the World Federation of Stock
Exchanges, Domestic Market Capitalization as of September 30, 2008,
in U.S. dollars.
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The Commission is aware of the transitions made by other countries
to IFRS. For example, the vast majority of listed European companies,
including banks and insurance companies, moved to comply with the E.U.
IFRS requirement in 2005 with the remainder transitioning in 2007.
Under these transition approaches, in essence all or almost all of the
listed companies transitioned to IFRS at the same time. Some foreign
regulators have published reports relating to the implementation of
IFRS in their country. For example, the U.K. Financial Reporting Review
Panel and the Autorit[eacute] des March[eacute]s Financiers of France
(``AMF'') have both published reports making observations on IFRS as
applied in their jurisdictions.\44\
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\44\ For the report of the U.K. Financial Reporting Review
Panel, see ``Preliminary Report: IFRS Implementation'' available at
https://www.frc.org.uk/images/uploaded/documents/
IFRS%20Implementation%20-%20preliminary.pdf. For the report of the
AMF, see ``Recommendations on accounting information reported in
financial statements for 2006,'' dated December 19, 2006, available
at https://www.amf-france.org/documents/general/7565_1.pdf.
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As with all countries that have evaluated the potential use of IFRS
in their own markets, the policy considerations in the United States
must factor in the individual circumstances of its investors and
capital markets. The U.S. capital markets are among the largest and
most liquid in the world. U.S. GAAP is a well-established basis of
financial reporting and is applied by all U.S. public companies, many
foreign companies, and many U.S. private companies, as well as their
auditors. Today, U.S. GAAP is accepted in capital markets around the
world, and the Commission requires its use by all domestic issuers.\45\
The accounting principles established by the FASB have been recognized
by the Commission as ``generally accepted'' for purposes of the U.S.
federal securities laws.\46\
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\45\ See Rule 4-01(a)(1) of Regulation S-X [17 CFR 210.4-
01(a)(1)].
\46\ See Release No. 33-8221, Financial Reporting Release
(``FR'') 70 (April 25, 2003) [68 FR 23333 (May 1, 2003)] (``FR
70'').
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Regardless of whether the Commission decides to allow or require
IFRS for U.S. issuers in the future, the past and anticipated move
towards the use of IFRS in other jurisdictions may have begun to affect
U.S. investors' ability to evaluate investment alternatives as their
level of investment in non-U.S. companies has increased over time.\47\
The growing level of foreign investment by U.S. residents in
international investment opportunities, including opportunities to
invest in issuers that do not file reports with the Commission, makes
it likely that U.S. investors will increasingly need to use IFRS
financial statements.\48\ Also, it is likely that large U.S. issuers
that compete for capital on a global basis will increasingly need to
use and understand IFRS financial statements in order to remain
competitive. For these reasons, the Commission finds it advisable to
continue to pursue consideration of the use of IFRS in the U.S. markets
in order to better equip U.S. investors to make comparisons of U.S.
companies with certain non-U.S. companies, while balancing this with
the fact that U.S. investors should be able to compare U.S. companies
with other U.S. companies.
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\47\ As more companies move towards IFRS reporting, current and
potential investors in U.S. issuers may increasingly be comparing
those U.S. issuers' financial information to IFRS-based financial
information of competing investment opportunities. For example,
approximately 120 foreign private issuers currently report to the
Commission using IFRS financial statements.
\48\ For example, U.S. investors may purchase securities issued
by a non-reporting foreign company directly on a foreign exchange,
or they may invest in American Depositary Receipts representing the
securities of a foreign private issuer that is exempt from Exchange
Act reporting requirements pursuant to Rule 12g3-2(b) [17 CFR
240.12g3-2(b)].
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Promoting a single set of globally accepted accounting standards
will benefit investors as more and more companies prepare their
financial statements applying a single set of high-quality accounting
standards. With a single set of accounting standards, investors can
more easily compare information and will be in a better position to
make informed investment decisions. This benefit is dependent upon use
of a single set of high-quality standards globally and financial
reporting that is, in fact, consistently applied across companies,
industries and countries. Any decision we may take to expand the use of
IFRS to U.S. issuers would necessitate our evaluation of whether global
developments support the assertion of IFRS as the single set of high-
quality globally accepted accounting standards that is applied
consistently across companies, industries and countries.
The Commission has identified certain considerations which may
influence the degree to which comparability may be achieved through
widespread adoption of IFRS. These considerations include the extent to
which IFRS is adopted and applied globally, and whether IFRS is adopted
and applied in foreign jurisdictions as issued by the IASB or as
jurisdictional variants of IFRS.\49\ We believe that the benefits of
moving towards a single set of globally accepted standards as a long-
term objective for increased comparability of financial statements are
attainable through the use of IFRS only if IFRS represents a single set
of high-quality accounting standards, which is best accomplished
through the use of IFRS as issued by the IASB. As stated previously,
each jurisdiction's considerations surrounding the use of IFRS in its
markets are unique to the jurisdiction's circumstances. Therefore, the
large number of countries allowing or requiring IFRS in their markets
does not alone determine the Commission's decision. However, in
determining whether to proceed with requiring the use of IFRS by U.S.
issuers, the Commission will consider the extent to which IFRS as
issued by the IASB is used globally, is applied consistently, and
supports the assertion of IFRS as the single set of high-quality global
accounting standards.\50\
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\49\ Different jurisdictions often have internal processes
through which they adopt or incorporate IFRS into their national
accounting standards. Decisions made during those processes may
result in discrepancies from IFRS as issued by the IASB.
\50\ In 2007, as part of our efforts to foster a single set of
globally accepted accounting standards, we adopted amendments to
allow foreign private issuers to file IFRS financial statements
without reconciliation to U.S. GAAP only if the financial statements
were prepared in accordance with IFRS as issued by the IASB. See
``Acceptance from Foreign Private Issuers of Financial Statements
Prepared in Accordance with International Financial Reporting
Standards Without Reconciliation to U.S.,'' Release No. 33-8879
(December 21, 2007) [73 FR 986 (January 4, 2008)] (the ``2007
Adopting Release''). The Commission proposed these rules in June
2007 [Release No. 33-8818 (July 3, 2007)] [72 FR 37962 (July 11,
2007)] (the ``2007 Proposing Release'').
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B. Past Policy Considerations Regarding IFRS
Over time, the Commission has undertaken a series of initiatives to
promote a single set of high-quality globally accepted accounting
standards as a means of advancing the objective of reduced disparity in
financial reporting
[[Page 70820]]
between U.S. issuers and foreign issuers. Convergence of U.S. GAAP and
IFRS as issued by the IASB, which involves the best efforts of the IASB
and the FASB (referred to jointly as ``the Boards'') to make their
financial reporting standards fully compatible on a standard-by-
standard basis, has been the predominant approach taken in the United
States to achieve that objective over the past six years.\51\ As
discussed further below, the Commission continues to support the joint
efforts of the IASB and the FASB as an important means of increasing
the quality of IFRS and U.S. GAAP and, at the same time, reducing
disparity between the two.
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\51\ The Norwalk Agreement, issued in 2002, and a Memorandum of
Understanding entered into by the FASB and the IASB in 2006 express
the Boards' intentions to, on a best efforts basis, converge U.S.
GAAP and IFRS. See https://www.fasb.org/news/memorandum.pdf and
https://www.fasb.org/intl/mou_02-27-06.pdf for further details.
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More recently, the Commission's consideration of the use of IFRS by
U.S. issuers has included the issuance of a Concept Release addressing
whether U.S. issuers should be permitted, but not required, to use IFRS
in their filings with the Commission.\52\ Specifically, the Commission
sought input on the nature and extent of the public's interest in
giving U.S. issuers the option to file with the Commission financial
statements prepared in accordance with IFRS as issued by the IASB. The
Commission received over 80 comment letters from a wide range of
issuers, investors, accounting firms and other market participants.\53\
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\52\ See 2007 Concept Release.
\53\ These comments are available at https://www.sec.gov/
comments/s7-20-07/s72007.shtml.
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The Commission also has held three public roundtables consisting of
investors, issuers, accounting firms, educators, standard setters and
other capital market participants to receive further input about the
use of IFRS.\54\ In December 2007, the Commission held one roundtable
on IFRS in U.S. markets and a second on practical issues surrounding
the use of IFRS in recent years and its potential expanded use in
future years. The third roundtable, in August 2008, related to the
performance of U.S. GAAP and IFRS during the sub-prime crisis.
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\54\ Information on these Roundtables, including transcripts, is
available on the Commission's Web site at https://www.sec.gov/
spotlight/ifrsroadmap.htm.
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While many commenters on the 2007 Concept Release and the
participants at the roundtables supported allowing U.S. issuers to use
IFRS, certain commenters expressed the belief that IFRS should be
mandated for all U.S. issuers and not limited to a specific group of
U.S. issuers. Other commenters believed that U.S. issuers should
continue to use U.S. GAAP, while supporting ongoing convergence.
III. A Proposed Roadmap to IFRS Reporting by U.S. Issuers
A. Milestones To Be Achieved Leading to the Use of IFRS by U.S. Issuers
The Commission is proposing this Roadmap to set forth milestones
which, if achieved, could lead to the eventual use of IFRS by all U.S.
issuers. Through this Roadmap, the Commission is seeking to realize the
objective of providing investors with financial information from U.S.
issuers under a set of high-quality globally accepted accounting
standards, which would enable U.S. investors to better compare
financial information of U.S. issuers and competing international
investment opportunities. This Roadmap is further intended to encourage
market participants to consider the effect of IFRS in our capital
markets and to prepare for the use of IFRS financial statements by U.S.
issuers in their filings with the Commission.
In addition to the milestones, the Commission also expects to
consider, among other things, whether IFRS as issued by the IASB is a
globally accepted set of accounting standards and whether it is
consistently applied. The advantages to U.S. investors of increased
comparability across investment alternatives, as contemplated under
this Roadmap, are dependent upon financial reporting under IFRS that
is, in fact, consistent across companies, industries and countries.
The course of action described in this proposed Roadmap reflects
the deliberations of the Commission in light of current circumstances.
We intend to publish the final Roadmap, if adopted, in our Codification
of Financial Reporting Policies.\55\ We recognize, however, that as
events occur, new circumstances may require us to update or revise the
Roadmap. With the knowledge of the anticipated timetable for Commission
rulemaking initiatives on this policy matter, investors, issuers and
other market participants may engage more concretely in discussions
about IFRS for U.S. issuers, both through comments provided to the
Commission as well as in further dialogue among parties potentially
affected. The Commission believes that any future actions relating to
the use of IFRS by U.S. issuers would benefit from the increased
awareness by all affected parties of the related issues and
preparedness that this Roadmap is intended to foster. As we progress
along this initiative, we anticipate receiving extensive input from
investors, issuers and other affected parties, which we will consider
carefully.
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\55\ See FR 1 (April 15, 1982), 7 Fed. Sec. L. Rep. (CCH) ]
72,401, at 62,021.
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This proposed Roadmap relates solely to U.S. issuers with respect
to their periodic reporting requirements under Sections 13 and 15(d) of
the Exchange Act, proxy and information statements under Section 14 of
the Exchange Act and registration statements under Section 12 of the
Exchange Act and Section 7 of the Securities Act. Our considerations at
this time with respect to the possible use of IFRS do not include
issuers that are investment companies under the Investment Company Act
of 1940. Likewise, at this time, the Roadmap does not extend to other
types of financial reports that are filed or furnished to the
Commission by regulated entities, such as registered broker-dealers.
1. Improvements in Accounting Standards
In October 2002, the FASB and the IASB announced the issuance of a
memorandum of understanding, called the Norwalk Agreement. The two
bodies acknowledged their joint commitment to the development, ``as
soon as practicable,'' of high-quality, compatible accounting standards
that could be used for both domestic and cross-border financial
reporting. At that time, the FASB and the IASB pledged to use their
best efforts to make their existing financial reporting standards fully
compatible as soon as is practicable and to coordinate their future
work programs to ensure that once achieved, compatibility is
maintained. In a 2006 Memorandum of Understanding, the FASB and the
IASB indicated that a common set of high-quality global standards
remains the long-term strategic priority of both the FASB and the IASB.
As part of this commitment, the IASB and the FASB set out a work plan
covering several projects and coordinated agendas so that major
projects that one board takes up may also be taken up by the other
board. That plan covered specific long- and short-term projects for
work into 2008. In November 2007, the Trustees of the IASC Foundation
reiterated their support for continuing the work program described in
these memoranda, noting that future work is largely focused on areas in
which the objective is to develop new world-class international
standards. The FASB and the IASB have updated the timetable for their
joint work under the 2006
[[Page 70821]]
Memorandum of Understanding.\56\ The next phase of the joint work plan
goes through 2011.
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\56\ See the update to the 2006 Memorandum of Understanding at
https://www.fasb.org/intl/MOU_09-11-08.pdf.
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The current joint work plans of the two standard setters, as well
as other work undertaken by them, furthers the goal of comprehensive,
high-quality standards. The Commission will continue to monitor the
activities of both the FASB and the IASB and the progress of their
efforts. In past Commission releases, we have noted areas where IFRS
provides limited guidance on a particular topic, such as accounting for
insurance contracts and for extractive activities.\57\ Further, the
current work plan of the FASB and the IASB includes accounting
standards, including (without emphasizing priority) revenue recognition
and financial statement presentation, that when completed should
improve financial reporting significantly. The Commission will consider
the degree of progress made by the FASB and the IASB in any future
evaluation of the potential expanded role of IFRS in the reporting by
U.S. issuers. When the Commission considers mandating use of IFRS by
U.S. issuers in 2011, it would consider whether those accounting
standards are of high quality and sufficiently comprehensive.\58\ The
Commission urges the two Boards to continue working towards the
completion of their joint work plan estimated to be completed in 2011
and other projects that are expected to improve financial reporting.
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\57\ See the discussion in Section III.B.4, below.
\58\ High quality accounting standards consist of a set of
neutral principles that require consistent, comparable, relevant and
reliable information that is useful for investors. See ``SEC Concept
Release: International Accounting Standards,'' Release No. 33-7801
(February 16, 2000) [65 FR 8896 (February 23, 2000)].
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In addition, it is important that accounting standards be
established under a robust, independent process that includes careful
consideration of possible alternative approaches and due process, which
allows for input from and consideration of views expressed by affected
parties, including investors. It is also important that accounting
standards are promptly considered to keep standards current and reflect
emerging accounting issues and changing business practices. Further, it
is important that the accounting standards produced are capable of
improving the accuracy and effectiveness of financial reporting and the
protection of investors, and of resulting in a high quality of
financial reporting relative to the standards which may be replaced.
Thus, in considering future action as set out in this Roadmap, the
Commission would also assess whether it believes that the IASB
continues to develop its standards, including converged standards,
through a process that reflects these elements.
2. Accountability and Funding of the IASC Foundation
The IASB is based in London and is an accounting standard setting
body established to develop global standards for financial
reporting.\59\ It is overseen by the IASC Foundation. The IASC
Foundation is based in London and is a stand-alone, not-for profit
organization, incorporated in Delaware. It is responsible for the
activities of the IASB and other work that centers on IFRS, such as
initiatives related to translation of IFRS from the English language,
education about IFRS and the development of interactive data taxonomies
for IFRS. The IASC Foundation is governed by 22 trustees (``IASC
Foundation Trustees'') whose backgrounds are geographically diverse.
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\59\ For more information on the structure and operation of the
IASB,see https://www.iasb.org.
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The IASC Foundation has financed IASB operations largely through
voluntary contributions from a wide range of market participants from
across the world's capital markets, including from a number of firms in
the accounting profession, companies, international organizations,
central banks and governments. Funding commitments were made for the
period 2001-2005 and then were extended for an additional two years
through 2007. In June 2006, the IASC Foundation Trustees agreed on four
elements that should govern the establishment of a funding approach
designed to enable the IASC Foundation to remain a private-sector
organization with the necessary resources to conduct its work in a
timely fashion. The IASC Foundation Trustees determined that
characteristics of the new scheme for 2008 would be broad-based,
compelling, open-ended and country-specific.\60\ The IASC Foundation
Trustees continue to make progress in obtaining funding that satisfies
those elements.\61\
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\60\ Further description of these elements can be found on the
IASB's Web site at https://www.iasb.org/About+Us/
About+the+IASC+Foundation/Funding.htm. The IASC Foundation describes
these principles as follows:
Broad-based: A sustainable long-term financing system
must expand the base of support to include major participants in the
world's capital markets, including official institutions, in order
to ensure diversification of sources.
Compelling: A system must carry with it enough pressure
to make free riding very difficult. This could be accomplished
through a variety of means, including official support from the
relevant regulatory authorities and formal approval by the
collecting organizations.
Open-ended: The financial commitments should be open-
ended and not contingent on any particular action that would
infringe on the independence of the IASC Foundation and the IASB.
This should include sustained support from official international
organizations, central banks and the major accounting firms.
Country-specific: The funding burden should be shared
by the major economies of the world on a proportionate basis, using
GDP as the key determining factor of measurement. Each country
should meet its designated target in a manner consistent with the
principles above. Trustees should be assigned to specific countries
to assist in the development of the funding scheme.
\61\ See https://www.iasb.org/About+Us/About+the+IASC+Foundation/
2008+funding+commitments.htm.
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The Commission will carefully consider the degree to which the IASC
Foundation has a secure, stable funding mechanism that permits it to
function independently and that enhances the IASB's standard setting
process. The IASC Foundation has developed targeted contribution levels
from individual jurisdictions. Realizing the IASC Foundation's goal of
receiving open-ended funding commitments from a broad base of
constituents and that are compulsory would encourage the independent
functioning of the IASB in its standard setting process. Otherwise, the
IASB may be subject to a perceived or, potentially, an actual
connection between the availability of funding and the outcome of its
standard setting process. We believe that our future determination
regarding the required use of IFRS for all U.S. issuers should only
occur after the IASC Foundation reaches its goal of securing a stable
funding mechanism that supports the independent functioning of the
IASB.
National accounting standard setters traditionally have been
accountable to a national securities regulator or other government
authority. In the United States, the Financial Accounting Foundation
(``FAF''), the parent of the FASB, is overseen by the Commission. The
IASC Foundation has not historically had a similar link with any
national securities regulators. Recognizing that such a relationship
would enhance the public accountability of the IASC Foundation, its
Trustees have proposed amendments to its Constitution to establish a
connection between the IASC Foundation and a Monitoring Group composed
of securities authorities charged with the adoption or recognition of
accounting standards used in their respective jurisdictions.\62\
[[Page 70822]]
The Commission has been working with other national securities
authorities and the International Organization of Securities
Commissions to establish the Monitoring Group to enable it to begin its
work once the IASC Foundation adopts the necessary changes to its
Constitution.\63\ The securities authorities, including the Commission,
envision that the Monitoring Group will participate in and approve
nominations for IASC Foundation Trustees, review the funding
arrangements of the IASC Foundation for adequacy and appropriateness,
and address matters that the IASC Foundation Trustees are responsible
for, such as oversight of the IASB and potential areas for
consideration by the IASB in its ongoing work.\64\
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\62\ See https://www.iasb.org/NR/rdonlyres/12CC476D-B88F-418A-
826F-71A7465FC2E0/0/Proposal_and_issues_for_the_
Constitution.pdf for a full description of the proposed amendments
to the Constitution.
\63\ See the Commission's joint statement with other national
securities regulators with respect to the establishment of a
Monitoring Group at https://www.sec.gov/news/press/2007/2007-226.htm.
\64\ The proposed responsibilities of the Monitoring Group do
not extend to the standard setting process.
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The Commission believes that the accountability of the IASC
Foundation will be enhanced once the Monitoring Group provides the
forum for interaction between securities authorities and the IASC
Foundation Trustees. The Commission believes that effective oversight
is critical to mandating that U.S. issuers prepare financial statements
in accordance with IFRS. Based on the progress of the discussions among
securities regulators, as well as the IASC Foundation's timetable for
adopting the relevant changes to its Constitution, the Commission
assumes that the Monitoring Group will have been established and be
functioning by the time the Commission considers mandating the use of
IFRS for U.S. issuers. We will evaluate the effectiveness of the
oversight mechanism (including the functioning of the multilateral
nature of the Monitoring Group) in making the determination whether
mandating IFRS is in the public interest for the protection of
investors and our markets.
3. Improvement in the Ability To Use Interactive Data for IFRS
Reporting
In May 2008, the Commission proposed rules to require companies to
provide their financial statements to the Commission and on their
corporate Web sites in interactive data format using the eXtensible
Business Reporting Language (``XBRL'') in order to improve their
usefulness to investors.\65\ Under those proposed rules, financial
statement information could be submitted by public companies in
interactive data format, and that financial information could then be
downloaded directly into spreadsheets, analyzed in a variety of ways
using off-the-shelf commercial software, or used within investment
models in any of a number of other software formats. The rules proposed
in May, if adopted, would apply to domestic and foreign public
companies that prepare their financial statements in accordance with
U.S. GAAP, and foreign private issuers that prepare their financial
statements using IFRS as issued by the IASB. Under the proposal,
foreign private issuers that prepare their financial statements using
IFRS as issued by the IASB would be required to provide financial
statements in interactive data format starting with their fiscal
periods ending on or after December 15, 2010. If the Commission adopts
its proposed rules relating to interactive data, it is anticipated that
they would apply to the limited number of U.S. issuers that could elect
to file IFRS financial statements as proposed in this release.
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\65\ See ``Interactive Data to Improve Financial Reporting,''
Release No. 33-8924 (May 30, 2008) [73 FR 32794 (June 10, 2008)].
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In order to realize the improvements in the usefulness and
comparability of financial information anticipated upon the widespread
use of interactive data, U.S. issuers would have to be capable of
providing IFRS financial statements to the Commission in interactive
data format at a greater level of detail than is currently available.
Therefore, the state of development of an IFRS list of tags for
interactive data reporting will be a consideration in the Commission's
determination of whether to require the use of IFRS for all U.S.
issuers. The IASC Foundation first published a complete list of tags
for the IFRS ``Bound Volume'' in 2004, and has published annual updates
since then to reflect new pronouncements, changes in XBRL technical
standards, and other improvements; the most recent such update was
published in July 2008. The Commission staff is actively involved in
the improvement and monitoring of the IFRS list of tags via
participation in the IASC Foundation's XBRL Advisory Council. The
Commission believes it is appropriate to consider the IASC Foundation's
progress in the development of IFRS taxonomies prior to proceeding with
rulemaking on IFRS for all U.S. issuers.
4. Education and Training
Reporting in accordance with IFRS by U.S. issuers would increase
the need for effective training and education about IFRS for investors,
accountants, auditors and others involved in the preparation and use of
financial statements, as there are differences between U.S. GAAP and
IFRS.\66\ Investor education is particularly important, so that users
of financial statements can work with the financial information issuers
publish. The main benefits to investors of a single set of high-quality
globally accepted accounting standards would be realized only if
investors more fully understood the basis for the reported results. In
addition to investors, other financial statement users may include
customers, vendors, rating agencies and analysts.
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\66\ See, as just one example, https://www.kpmgifrsinstitute.com/
documents/IFRS/
721200810043IFRS%20compared%20to%20U.S.%20GAAP%20An%20Overview%20(200
8).pdf.
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The education and ongoing training of most accountants in the
United States is limited to or predominantly focused on the current
provisions of U.S. GAAP. Consequently, many parties would likely need
to undertake comprehensive education on IFRS. The need for IFRS
training would involve personnel of issuers, their governing bodies,
such as audit committees, and their auditors. Such requirements for
training also extend to specialists, such as actuaries and valuation
experts, since these professionals are engaged by management to assist
in measuring certain assets and liabilities, and likely are not
currently proficient in IFRS. Professional associations and industry
groups would need to integrate IFRS into their training materials,
publications, testing and certification programs. Colleges and
universities would need to include IFRS in their curricula.\67\
Furthermore, it would be appropriate to include IFRS in the Uniform CPA
Examination.\68\
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\67\ IFRS supplements to and IFRS content in accounting
textbooks used in U.S. universities have become increasingly
available.
\68\ The Board of Examiners of the AICPA has issued an exposure
draft, ``Proposed Content and Skill Specifications for the Uniform
CPA Examination'' which proposed, among other things, inclusion of
certain aspects of the IFRS conceptual framework and standard
setting process in future Uniform CPA Examinations. Further, the
proposal states that if IFRS becomes generally accepted in the
United States, inclusion of those standards in the examination would
expand. See https://www.cpa-exam.org/cpa/exposure_draft.html for the
full text of the exposure draft.
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On the regulatory side, the Commission staff has continued to
develop its familiarity with IFRS, and such efforts would need to
continue and intensify if the Commission were to
[[Page 70823]]
require U.S. issuers to file financial statements prepared in
accordance with IFRS. The Public Company Accounting Oversight Board
(``PCAOB''), as part of its inspection of registered public accounting
firms, regularly reviews the audits of public companies. We understand
the PCAOB has already begun to implement training courses in IFRS to
assist its staff in carrying out inspections, but would need to expand
these training programs.
The strategies taken by those participants in markets where issuers
already report in accordance with IFRS may serve as examples of
approaches to increasing education and awareness of IFRS. The private
sector may also respond to any increase in demand for education about
IFRS by making educational materials available. Since the Commission's
issuance of the Concept Release in August 2007, several of the largest
accounting firms in the United States have increased the material made
available to the public about IFRS generally as well as about the
application of specific IFRS standards. For example, several of the
accounting firms have held web casts accessible free of charge to the
general public discussing different aspects of IFRS. The Commission
would take into account the then current status of the overall
education, training and readiness of investors, preparers, auditors and
other parties involved in the preparation of financial statements prior
to proceeding with rulemaking on IFRS for all U.S. issuers.
5. Limited Early Use of IFRS Where This Would Enhance Comparability for
U.S. Investors
This Roadmap contemplates that the Commission would make a decision
in 2011 with regard to the mandated use of IFRS for U.S. issuers, as
described below in Sections III.A.6. and 7. As part of this Roadmap, we
also are proposing amendments to our rules, regulations and forms
which, if adopted, would allow a limited number of U.S. issuers to file
IFRS financial statements prior to any mandated use of IFRS in
Commission filings. These proposed amendments are described later in
this release.
These proposed amendments would allow the limited early use of IFRS
by U.S. issuers where it would enhance the comparability of financial
reporting to U.S. investors for purposes of comparing the largest U.S.
issuers with the largest non-U.S. companies in the same industry.
Further, the Commission anticipates that providing the alternative to
U.S. issuers to file IFRS financial statements would broaden the
awareness and attention given to IFRS as a single set of high-quality
globally accepted accounting standards.
The Commission acknowledges the wide variety of opinion that has
been expressed on this subject, including through comment letters
received on the 2007 Concept Release and feedback received in the
Commission's roundtables. Many commenters expressed the view that the
option to use IFRS should be extended to all U.S. issuers. Others
stated that we should require IFRS for all U.S. issuers. Several of
these commenters indicated that any option to use IFRS should only be
part of a transition to the mandatory use of IFRS. Others opposed the
optional or mandatory use of IFRS at this time, and instead called for
a continuation of the ongoing work to improve and converge U.S. GAAP
and IFRS. Still others cited concerns in such areas as tax regimes, the
stage of development of IFRS in certain areas in comparison to U.S.
GAAP, the U.S. legal environment, and the ability of auditors to issue
opinions on IFRS financial statements, as bearing on the questions of
whether and how the use of IFRS should be extended to any U.S. issuers.
We believe allowing the limited use of IFRS by U.S. issuers, only in
those cases where to do so would enhance the comparability of an
industry's financial reporting for the benefit of investors in making
comparisons to non-U.S. issuers, may help inform the decision whether
to mandate the use of IFRS for U.S. public issuers. We also believe
that the ability of ca
