At an open meeting on November 15, 2007, the Securities and Exchange Commission (SEC) approved amendments that will allow foreign private issuers to submit periodic reports or registration statements to the SEC that contain financial statements prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), without reconciliation to generally accepted accounting principles as used in the United States (US GAAP). Under the previous rules, if a foreign private issuer prepared financial statements using a basis of accounting other than US GAAP, any such financial statements included in a periodic report or registration statement filed with the SEC must be reconciled to US GAAP.
The purpose of the amendments is to encourage the development of IFRS as a uniform global standard, rather than a divergent set of standards applied differently in every nation. Today, a record number of U.S. investors own the securities of foreign companies, leading to a growing need for high-quality accounting standards that transcend borders. Consistent application of IFRS will help U.S. investors who own foreign securities to have better comparability.
SEC Chairman Christopher Cox commented, “Consistent application of international accounting standards will help the two-thirds of U.S. investors who own foreign securities to understand and draw better comparisons among investment options than they could with a multiplicity of national accounting standards.”
The rule amendments will include revisions to Form 20-F under the Securities Exchange Act of 1934, and Rules 1-02, 3-10 and 4-01 of Regulation S-X, Forms F-4 and S-4, and Rule 701 under the Securities Act of 1933. The rule amendments will take effect 60 days after they are published in the Federal Register and apply to financial statements covering years ended after November 15, 2007.
The text of the final rules and interpretive guidance are not yet available, and, accordingly, the descriptions provided in this special alert are based on SEC press releases and statements made by the commissioners and staff at the open meeting. We will distribute a more comprehensive summary once the text of the final rules and interpretive guidance become available.