
[Federal Register: November 21, 2008 (Volume 73, Number 226)]
[Proposed Rules]               
[Page 70815-70856]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21no08-20]                         


[[Page 70815]]

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Part IV





Securities and Exchange Commission





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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


[[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.

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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 (http://
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 (http://
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 (http://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

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    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 http://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 http://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 http://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 http://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 http://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 http://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 
http://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 http://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 http://www.fasb.org/news/memorandum.pdf and 
http://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 http://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.
---------------------------------------------------------------------------

    \54\ Information on these Roundtables, including transcripts, is 
available on the Commission's Web site at http://www.sec.gov/
spotlight/ifrsroadmap.htm.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    \56\ See the update to the 2006 Memorandum of Understanding at 
http://www.fasb.org/intl/MOU_09-11-08.pdf.
---------------------------------------------------------------------------

    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)].
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \59\ For more information on the structure and operation of the 
IASB,see http://www.iasb.org.
---------------------------------------------------------------------------

    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 http://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 http://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 http://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 http://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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \65\ See ``Interactive Data to Improve Financial Reporting,'' 
Release No. 33-8924 (May 30, 2008) [73 FR 32794 (June 10, 2008)].
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \66\ See, as just one example, http://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 http://www.cpa-exam.org/cpa/exposure_draft.html for the 
full text of the exposure draft.
---------------------------------------------------------------------------

    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 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 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 most-used set of standards 
globally.\69\ We believe that U.S. investors would benefit from an 
enhanced ability to compare investment opportunities.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
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    \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.
---------------------------------------------------------------------------

    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

[[Page 70824]]

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\
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    \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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    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
    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 
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).
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    \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.''
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    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\ 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.
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    \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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    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

[[Page 70825]]

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 on-going 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 change in taxable income based on 
the difference between inventory valued on a LIFO basis and on a FIFO 
basis.
---------------------------------------------------------------------------

    \76\ See Section 472 of the Internal Revenue Code.
    \77\ See IAS 2 ``Inventories,'' paragraph IN63.
---------------------------------------------------------------------------

    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 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

[[Page 70826]]

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\
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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 Sec.  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.
---------------------------------------------------------------------------

    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 rules to 
provide AICPA members with the option to use IFRS.\81\
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    \81\ See http://www.aicpa.org/download/info/AICPA_NewsUpdate_
Vol.11_No.21.pdf.
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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.
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    \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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    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 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\
---------------------------------------------------------------------------

    \84\See CIFiR Final Report, at 88.

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\
---------------------------------------------------------------------------

    \85\ For 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.
---------------------------------------------------------------------------

    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

[[Page 70827]]

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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    \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.
    \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.
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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 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.
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    \89\ See http://www.iasb.org/News/Press+Releases/
The+ASBJ+and+the+IASB+announce+Tokyo+Agreement+on+achieving+convergen
ce+of+accounting+standards+by+2.htm.
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    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\
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    \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 staged-transition 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

[[Page 70828]]

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?
    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 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.
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    \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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    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.
---------------------------------------------------------------------------

    \94\ For example, at the end of 2007, there were 219 exchange-
traded funds with an industry/sector-based investment objective, 
with net assets of approximately $93 billion. 2008 Investment 
Company Factbook, published by the Investment Company Institute.
---------------------------------------------------------------------------

    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

[[Page 70829]]

System (NAICS) \95\ code at the three-digit level, Standard Industrial 
Classification (SIC) \96\ codes at the two-digit 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.)
---------------------------------------------------------------------------

    \95\ See http://www.census.gov/epcd/www/naics.html.
    \96\ See http://www.census.gov/epcd/www/sic.html.
    \97\ See http://unstats.un.org/unsd/class/family/
family2.asp?Cl=27.
    \98\ See http://www.icbenchmark.com/.
    \99\ See http://www.mscibarra.com/products/gics/.
---------------------------------------------------------------------------

    (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.
---------------------------------------------------------------------------

    \100\ For these purposes, market capitalization refers to the 
worldwide market value of a company's outstanding voting and non-
voting common equity securities.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \101\ For purposes of the calculation, companies reporting under 
more than one set of standards can be counted as using any of these 
standards.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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 decision on IFRS 
implementation under the Roadmap.\104\
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    \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.
    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    To simplify the analysis, the staff relied on a number of 
assumptions

[[Page 70830]]

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.
---------------------------------------------------------------------------

    \106\ Based on an estimated U.S. market capitalization of $20 
trillion. See http://www.world-exchanges.org/WFE/home.asp?menu=395.
---------------------------------------------------------------------------

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 
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 no-objection 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 three-
year 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 and the 
date the staff issued its letter of no objection.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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].
---------------------------------------------------------------------------

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-
[agrave]-vis U.S. issuers reporting in IFRS?

[[Page 70831]]

    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 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 cut-off be? Should there be a 
criterion based on the absence of past violations of the federal 
securities laws \111\ or based on shareholder approval?
---------------------------------------------------------------------------

    \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].
---------------------------------------------------------------------------

    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 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 
``First-Time 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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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

[[Page 70832]]

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 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.
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    \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.
    \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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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 on-going 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.
    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.
---------------------------------------------------------------------------

    \115\ See IFRS 1, paragraph 39.
---------------------------------------------------------------------------

    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

[[Page 70833]]

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. 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.
---------------------------------------------------------------------------

    \116\ Item 101(j) is based on paragraph 40 of IFRS 1.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \117\ 15 U.S.C. 78r.
    \118\ 15 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].
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \120\ 15 U.S.C. 7262.
---------------------------------------------------------------------------

    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'' 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 one-time 
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 three-year 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 on-going 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

[[Page 70834]]

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 
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?
---------------------------------------------------------------------------

    \121\ 17 CFR 240.14a-3(b).
---------------------------------------------------------------------------

    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?
---------------------------------------------------------------------------

    \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.''
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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

[[Page 70835]]

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.
---------------------------------------------------------------------------

    \125\ See Rule 4-01(a)(1) of Regulation S-X.
    \126\ See Rule 4-01(a)(2) of Regulation S-X.
---------------------------------------------------------------------------

    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.
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 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.
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
    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 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 non-issuer 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

[[Page 70836]]

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 long-term objective, including increased transparency 
and comparability of financial statements, are attainable only if IFRS 
represents a single set of high-quality 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 
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.
---------------------------------------------------------------------------

    \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.
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    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.
---------------------------------------------------------------------------

    \128\ See IAS 1 ``Presentation of Financial Statements.''
---------------------------------------------------------------------------

    Article 3A ``Consolidated and Combined Financial Statements'' need 
not apply, because the areas to which those rules relate are provided 
for in IFRS as issued by the IASB.\129\
---------------------------------------------------------------------------

    \129\ See IAS 27 ``Consolidated and Separate Financial 
Statements'' and SIC 12 ``Consolidation--Special Purpose Entities.''
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \130\ Financial statement footnote disclosure requirements on 
particular topical areas are found throughout the standards and 
interpretations of IFRS.
---------------------------------------------------------------------------

    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\
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    \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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    With respect to Article 5 ``Commercial and Industrial Companies,'' 
Article 7

[[Page 70837]]

``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 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.
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    \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.
    \137\ IAS 34 uses the term ``changes in equity'' rather than the 
term ``changes in financial position'' that is used in Regulation S-
X.
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    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 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.
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    \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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    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\
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    \139\ 15 U.S.C. 7201 et seq.
    \140\ See 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 http://www.sec.gov/info/accountants/
controlfaq.htm.

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[[Page 70838]]

    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.
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    \145\ See, e.g., Item 303(a)(4) of Regulation S-K [17 CFR 
229.303(a)(4)].
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    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.
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    \146\ See Instruction 5 to Item 5 of Form 20-F.
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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?
    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 non-GAAP financial measures when the issuer's 
primary financial statements are prepared on a basis other than U.S. 
GAAP.
---------------------------------------------------------------------------

    \147\ 17 CFR 229.10(e)(3).
    \148\ 17 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)].
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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 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\
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    \150\ 17 CFR 229.3-05.
    \151\ 15 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.
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    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.
---------------------------------------------------------------------------

    \154\ IFRS 7 requires this information beginning with the 2007 
fiscal year.
---------------------------------------------------------------------------

    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

[[Page 70839]]

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.
---------------------------------------------------------------------------

    \155\ See Securities Act Section 27A(b)(2)(A) and Exchange Act 
Section 21E(b)(2)(A).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \156\ See the 2007 Adopting Release, discussion at Section 
III.C.2.c.
---------------------------------------------------------------------------

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\
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    \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 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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    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?
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\
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    \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 accounting-related 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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Request for Comment
    59. Are there issues on which further guidance for IFRS issuers 
would be necessary and appropriate?

[[Page 70840]]

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.
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    \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 majority-owned 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.
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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.
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    \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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    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.
    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.
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    \164\ The entity need not meet the proposed definition of ``IFRS 
issuer.''
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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 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.
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    \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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \166\ We took a similar approach in our adopting release 
accepting IFRS financial statements by foreign private issuers 
without reconciliation to U.S. GAAP.
---------------------------------------------------------------------------

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

[[Page 70841]]

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.
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    \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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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\
---------------------------------------------------------------------------

    \168\ We took a similar approach in our adopting release 
accepting IFRS financial statements by foreign private issuers 
without reconciliation to U.S. GAAP.
---------------------------------------------------------------------------

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 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.
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    \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).
---------------------------------------------------------------------------

    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 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

[[Page 70842]]

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.
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    \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).
---------------------------------------------------------------------------

    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?

H. Application of the Proposed Amendments to Other Forms, Rules and 
Schedules

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 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)).
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \173\ 17 CFR 243.100 and 243.101.
---------------------------------------------------------------------------

    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 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.
---------------------------------------------------------------------------

    \174\ See Section V.B.2., above.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \175\ 17 CFR 240.14d-100.
    \176\ 17 CFR 240.13e-100.
---------------------------------------------------------------------------

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,

[[Page 70843]]

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\
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    \177\ 44 U.S.C. 3501 et seq.
    \178\ 44 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.
---------------------------------------------------------------------------

    (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 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 in-house 
preparers, reviews by executive

[[Page 70844]]

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.
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    \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.
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    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.
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    \181\ See ``EU Implementation of IFRS and Fair Value Directive'' 
by the Institute of Chartered Accountants of England and Wales 
(``ICAEW''), available at http://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.
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    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 three-year 
period. We estimated that the first-year 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 second-year 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.
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    \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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    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

[[Page 70845]]

company internally is reflected in hours.

                                                Table 1--Incremental Paperwork Burden Under Proposal A184
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                       Number of      Burden hours/     Total burden                          25%          Professional
                                                       responses           form            hours         75%  Company     Professional        costs
                                                                (A)              (B)      (C)=(A)*(B)     (D)=(C)*0.75     (E)=(C)*0.25     (F)=(E)*$400
--------------------------------------------------------------------------------------------------------------------------------------------------------
10-K..............................................              110           50,636        5,570,004        4,177,503        1,329,501     $557,000,400
10-Q..............................................              330            4,134        1,364,098        1,023,073          341,024      136,409,780
8-K...............................................              880              110           96,996           72,747           24,249        9,699,615
Sch. 14A..........................................              108                1              108               81               27           10,800
Sch. 14C..........................................                2                1                2              1.5              0.5              200
Form S-4..........................................                6                1                6              4.5              1.5              600
No Objection Request..............................              110               50            5,500            4,125            1,375          550,000
Reg. S-K..........................................            (\1\)                1                1            (\1\)            (\1\)            (\1\)
Reg. S-X..........................................            (\1\)                1                1            (\1\)            (\1\)            (\1\)
Reg. C............................................            (\1\)                1                1            (\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      Burden hours/     Total burden                          25%          Professional
                                                       responses           form            hours         75%  Company     Professional        costs
                                                                (A)              (B)      (C)=(A)*(B)     (D)=(C)*0.75     (E)=(C)*0.25     (F)=(E)*$400
--------------------------------------------------------------------------------------------------------------------------------------------------------
10-K..............................................              110           55,301        6,083,125        4,562,323        1,520,781     $608,312,454
10-Q..............................................              330            4,134        1,364,098        1,023,073          341,024      136,409,780
8-K...............................................              880              110           96,996           72,747           24,249          699,615
Sch. 14A..........................................              108                1              108               81               27           10,800
Sch. 14C..........................................                2                1                2              1.5              0.5              200
Form S-4..........................................                6                1                6              4.5              1.5              600
No Objection Request..............................              110               50            5,500            4,125            1,375          550,000
Reg. S-K..........................................            (\1\)                1                1            (\1\)            (\1\)            (\1\)
Reg. S-X..........................................            (\1\)                1                1            (\1\)            (\1\)            (\1\)
Reg. C............................................            (\1\)                1                1            (\1\)            (\1\)            (\1\)
                                                   -----------------------------------------------------------------------------------------------------
    Total.........................................            1,546  ...............        7,549,838        5,662,355        1,887,458      754,983,449
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Not applicable.

C. Request for Comment

    Pursuant to 44 U.S.C. 3506(c)(2)(B), we request comment in order 
to:
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

     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;
     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 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.

[[Page 70846]]

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, 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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \186\ As noted, this period is generally three years.
---------------------------------------------------------------------------

    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 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

[[Page 70847]]

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 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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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. 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,

[[Page 70848]]

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 first-time 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 re-evaluated during the comment period as 
more information is known.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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 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 non-financial 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 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 per-company 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

[[Page 70849]]

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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 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 previously-reported 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 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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.

[[Page 70850]]

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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 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\
---------------------------------------------------------------------------

    \192\ Moreover, if the reconciliation requirement addressed 
these matters and thus became more costly, it cold discourage 
eligible issues from switching to IFRS.
---------------------------------------------------------------------------

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 
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.
---------------------------------------------------------------------------

    \193\ These estimated amounts are based on an estimated annual 
recurring cost of $900,000 per eligible issuer, over a three year 
period and 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.
---------------------------------------------------------------------------

    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

[[Page 70851]]

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.
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 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:
---------------------------------------------------------------------------

    \195\ 5 U.S.C. 603.
---------------------------------------------------------------------------

     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.
---------------------------------------------------------------------------

    \196\ 15 U.S.C. 78w(a).
    \197\ 15 U.S.C. 77b(b).
    \198\ U.S.C. 78c(f).
---------------------------------------------------------------------------

    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 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.

[[Page 70852]]

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.
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.

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.

    In accordance with the foregoing, Title 17, Chapter II of the Code 
of Federal Regulations is proposed to be amended as follows:

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

    1. The authority citation for Part 210 continues to read as 
follows:

    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:


Sec.  210.1-01  Application of Regulation S-X (17 CFR part 210).

* * * * *
    (c) * * * In this regard, the application of Sec.  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:


Sec.  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 (Sec.  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 (Sec. Sec.  210.4-01(a)(3) and 
210.13):
    (1) The issuer is not an investment company, an employee stock 
purchase, 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

[[Page 70853]]

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.

Sec.  210.3-10  [Amended]

    4. Section 210.3-10, paragraph (g)(2)(ii), is amended by revising 
the reference ``(Sec. Sec.  210.1-01 through 12-29)'' to read 
``(Sec. Sec.  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.


Sec.  210.4-01  Form, order and terminology.

    (a) * * *
    (3) In filings of IFRS issuers defined in Sec.  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 (Sec. Sec.  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 (Sec. Sec.  210.13-01 through 
210.13-03).


Sec.  210.8-01  [Amended]

    6. Section 210.8-01, in Note 6 to Sec.  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 Sec.  210.12-29 and 
Sec. Sec.  210.13-01, 210.13-02 and 210.13-03 to read as follows:

Article 13--Use of International Financial Reporting Standards

Sec.
210.13-01 Application of Article 13.
210.13-02 Application of Regulation S-X.
210.13-03 Application of references.

Article 13--Use of International Financial Reporting Standards


Sec.  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 Sec.  210.1-02(cc);
    (2) By a foreign private issuer pursuant to Item 17 or Item 18 of 
Form 20-F (Sec.  249.220f of this chapter); or
    (3) Pursuant to Rule 3-05, 3-09 or 3-14 of Regulation S-X (Sec.  
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 
(Sec.  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.


Sec.  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 Sec.  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;
    (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 Sec.  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 Sec.  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 
Sec.  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 
Sec.  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.


Sec.  210.13-03  Application of references.

    (a) Unless otherwise specifically provided, references in Parts 
210, 229, 230, 239, 240 (other than Sec. Sec.  240.11a1-h, 240.15c3-1g, 
240.17a-5, 240.17g-3, 240.17h-1T, and 240.17i-6 of this

[[Page 70854]]

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 (Sec. Sec.  
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 Sec.  
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 Sec.  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.
* * * * *
    9. Section 229.10 is amended by revising paragraphs (e)(3)(i) and 
(ii) to read as follows:


Sec.  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 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:


Sec.  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 [bs] 
(``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 (Sec.  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 (Sec.  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 
(Sec.  249.310 of this chapter) in accordance with IFRS as issued by 
the IASB, pursuant to Article 13 of Regulation S-X (Sec. Sec.  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:


Sec.  229.301  (Item 301) Selected financial data.

* * * * *
    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.


Sec.  229.504  [Amended]

    12. Instruction 6 to Sec.  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), Sec.  229.1112(b)(2), first 
sentence, Sec.  229. 1114(b)(2)(ii), first sentence, and Sec.  
229.1115(b)(2), first sentence, are amended by revising the reference 
``(Sec. Sec.  210.1-01 through 210.12-29 of this chapter)'' to read 
``(Sec. Sec.  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 Sec.  230.405 to add the definition of ``IFRS issuer'' in 
alphabetical order to read as follows.

[[Page 70855]]

Sec.  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 
(Sec.  210.1-02 of this chapter).
* * * * *

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

    16. The authority citation for Part 240 continues to read in part 
as follows:

    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 Sec.  240.12b-2 to add the definition ``IFRS issuer'' in 
alphabetical order to read as follows:


Sec.  240.12b-2  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 
(Sec.  210.1-02 of this chapter).
* * * * *
    18. Amend Sec.  240.13e-100, Instructions to Item 13, by revising 
the last sentence of Instruction 1 and revising Instruction 2 to read 
as follows:


Sec.  240.13e-100  Schedule 13E-3, Transaction statement under section 
13(e) of the Securities Exchange Act of 1934 and Rule 13e-3 (Sec.  
240.13e-3) thereunder.

* * * * *
    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 (Sec.  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. GAAP 
in accordance with Item 17 of Form 20-F (Sec.  249.220f of this 
chapter).
* * * * *
    19. Amend Sec.  240.14d-100, Instructions to Item 10, by revising 
the last sentence of Instruction 6 and revising Instruction 8 to read 
as follows:


Sec.  240.14d-100  Schedule TO. Tender offer statement under section 
14(d)(1) or 13(e)(1) of the Securities Exchange Act of 1934.

* * * * *
    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 (Sec.  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 (Sec.  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 Sec.  244.101 by revising paragraphs (b)(1) and (b)(2) to 
read as follows:


Sec.  244.101  Definitions.

* * * * *
    (b) * * *
    (1) In the case of foreign private issuers or IFRS issuers whose 
primary 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 Sec.  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

* * * * *


Item 2.04  Triggering Events That Accelerate or Increase a Direct 
Financial Obligation or an Obligation Under an Off-Balance 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.

* * * * *
    (d) * * *
    Instruction.
    When providing disclosure in response to provisions of this Item 
that refer to SFAS No. 146, an IFRS issuer

[[Page 70856]]

should refer instead to IFRS 5 ``Non-current 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.

* * * * *
    (c) * * *
    (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 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
