As expected, the European Commission has formally confirmed that generally accepted accounting principles (“GAAP”) of the United States and of Japan will be considered equivalent to International Financial Reporting Standards (“IFRS”), as adopted by the EU (“EU IFRS”), for purposes of satisfying the financial statement requirements of the EU Prospectus Directive and the EU Transparency Directive. At the same time, the European Commission also adopted transitional relief for issuers using Chinese, Canadian, South Korean or Indian GAAP for financial years starting before January 1, 2012.  

In the absence of the confirmation, non-EU issuers (referred to in the applicable regulations as “third country issuers”) that trigger an obligation to prepare a prospectus under the Prospectus Directive, either by reason of a public offering or admission of securities to trading on an EU-regulated exchange, or that have reporting obligations under the Transparency Directive would have been required to provide financial statements prepared in accordance with EU IFRS effective January 1, 2009 as transitional relief expired at the end of 2008.  

The European Commission’s action in respect of GAAP equivalency is given effect through Commission Regulation (EC) No. 1289/2008 for Prospectus Directive purposes and Commission Decision of December 12, 2008 (2008/961) for purposes of the Transparency Directive. The announcement follows the advice provided by the Committee of European Securities Regulators that recommended finding U.S. GAAP and Japanese GAAP to be equivalent to IFRS for use within the EU and recommended accepting financial statements prepared in accordance with Chinese, Canadian, South Korean or Indian GAAP within the EU on a temporary basis through no later than December 31, 2011.  

As a result of the European Commission’s action, as of January 1, 2009, non-EU issuers will have a choice of preparing and presenting historical financial information, for Prospectus Directive and Transparency Directive purposes, in accordance with:  

  • EU IFRS;
  • IFRS other than EU IFRS (provided that the financial statements contain a statement to the effect that such financial statements comply and are in accordance with IAS 1 Presentation of Financial Statements);
  • U.S. GAAP; or
  • Japanese GAAP.

Additionally, non-EU issuers may prepare financial statements for financial years starting prior to January 1, 2012 in accordance with Chinese, Canadian, South Korean and Indian GAAP. The European Commission has not taken any final decision regarding the equivalence of these standards to EU IFRS. Canada, South Korea and India have formally announced plans to adopt IFRS by the end of 2011, and Chinese GAAP has “substantially converged” with IFRS.  

It appears that third country issuers relying on the European Commission’s action will not be required to provide reconciliations, supplemental disclosures or explanations as to the differences between third country GAAP and EU IFRS.