On September 23, 2008, the United States Securities and Exchange Commission (SEC) amended its reporting rules applicable to foreign private issuers (FPI). Among other things, the amendments, which are intended to enhance information available to investors:

  • allow foreign issuers to assess their eligibility for FPI status annually, rather than continuously;
  • accelerate the deadline for filing annual reports on Form 20-F (Form 20-F Reports) to four months after year end;
  • revise the annual report and registration forms available to FPIs to require disclosure of:
    • (a) changes of, and disagreements with, certifying accountants, and
    • (b) significant differences in corporate governance practices compared to U.S. domestic companies listed on the same exchange; and
  • require that financial statements be prepared under Item 18 of Form 20-F (containing all of the information required by U.S. GAAP) in certain circumstances.

Annual Test for Foreign Private Issuer Status

Currently, to utilize the FPI rules and forms, a foreign issuer must assess its eligibility for FPI status at the end of each fiscal quarter and upon completion of certain transactions. The SEC stated that this can result in uncertainty and confusion among investors, for example if the issuer must switch between FPI and domestic reporting forms in the same fiscal year. Accordingly, the amendments require that foreign issuers assess their FPI status annually on the last business day of their second fiscal quarter.

FPIs that determine that they no longer qualify as FPIs must begin using forms prescribed for U.S. domestic companies commencing on the first day of their next fiscal year. These issuers will therefore have six months lead time to transition to domestic forms and applicable reporting requirements.

Conversely, reporting companies that determine that they qualify as FPIs may avail themselves of the FPI reporting regime (such as filing reports on Form 6-K and Form 20-F Reports) immediately upon such determination.

The amendments also require MJDS issuers (Canadian issuers that file registration statements and reports using the multi-jurisdictional disclosure system, or MJDS) to assess their eligibility for FPI status as of the last business day of their second fiscal quarter. Currently, MJDS issuers that are eligible to file an annual report on Form 40-F at the end of a fiscal year are presumed to remain eligible to use Forms 40-F and 6-K until the end of their next fiscal year. The amendments now require a Canadian issuer that plans to use MJDS to assess its eligibility for FPI status earlier in the year (i.e. at the end of its second fiscal quarter) and the issuer is required to continue to assess its eligibility to file Form 40-F based on all of the other requirements of that form (such as public float) at the end of its fiscal year.

Canadian issuers are currently required to assess their eligibility to use MJDS registration statement forms at the time of filing. Under the amendments, MJDS issuers that do not qualify as FPIs at the end of their second fiscal quarter would immediately lose the ability to use MJDS registration forms, and would be required to use other FPI registration statement forms.

Acceleration of Reporting Deadline for Form 20-F

Currently, FPIs are required to file Form 20-F Reports within six months after their year end. The amendments will require that FPIs file their Form 20-F Reports within four months after their fiscal year end, regardless of their size.

The SEC believes that a delayed filing deadline for these reports is no longer necessary since technological advances permit companies to process and disseminate information quickly, and investors also evaluate and react to, and expect to receive, information more quickly. In addition, many FPIs are expected to file annual reports with their home jurisdiction securities regulators on a faster time table. The SEC intends to continue to monitor market developments with a view to determining whether to further accelerate the due date for Form 20-F Reports.

Elimination of U.S. GAAP Reconciliation in Financial Statements

Currently, FPIs that list a class of securities on a national securities exchange or register a class of securities under Section 12(g) of the United States Securities Exchange Act of 1934, as amended, without conducting a public offering of those securities (Non- Offering FPIs), may provide financial statements in accordance with Item 17 of Form 20-F. In addition, FPIs may provide financial statements in accordance with Item 17 in their Form 20-F Reports.

Item 17 permits the preparation of financial statements and schedules on the basis of accounting principles other than U.S. GAAP, so long as a reconciliation of the financial statements to U.S. GAAP is provided. In contrast, financial statements under Item 18 of Form 20-F must include all of the information required by Item 17 and all other information required by U.S. GAAP and Regulation S-X.

Under the amendments, Non-Offering FPIs (in their registration statements) and FPIs filing a Form 20-F Report will be required to provide financial statements under Item 18 of Form 20-F. MJDS issuers, however, may continue to provide financial information on the basis of Item 17 of Form 20-F. Financial statements of non-registrants that are required to be included in a foreign issuer's registration statement or annual report may be presented on the basis of Item 17 as well. 

Amendments Relating to Certifying Accountants

Currently, unlike US domestic issuers, FPIs are not required to report changes of, or disagreements with, their certifying accountants in their Form 20-F Reports. Under the amendments, FPIs will be required to disclose in their Form 20-F Reports certain information relating to changes of independent auditors within the issuers' two most recent fiscal years or any subsequent interim period, and information relating to any disagreements with their former independent auditors on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure. This information will also be required in FPI registration statements.

Disclosure of Corporate Governance Practices

The amendments will require listed FPIs to disclose in their Form 20-F Reports (or alternatively on their websites) any significant differences in their corporate governance practices from those followed by U.S. domestic companies listed on the same stock exchange. The SEC expects that the enhanced disclosure will benefit investors by facilitating their ability to monitor and assess FPIs' corporate governance practices.

Compliance Dates

The compliance dates relating to the amendments are:

  • provision of corporate governance disclosure in Form 20-F Reports – for the first fiscal year ending on or after December 15, 2008;
  • disclosure of a change of, or disagreements with, a certified accountant – for the first fiscal year ending on or after December 15, 2009;
  • filing of a Form 20-F Report within four months after year end – for the first fiscal year ending on or after December 15, 2011, and
  • inclusion of financial statements prepared in accordance with Item 18 of Form 20-F in a Form 20-F Report – for the first fiscal year ending on or after December 15, 2011.