Securities Act Release No. 7026

Exchange Act Release No. 33135

International Series Release No. 605

Financial Reporting Release No. 41

Nov. 03, 1993

Adoption of Final Amendments to Rule and Form Requirements Which Govern Age of Financial Statements of Foreign Private Issuers

ACTION: Final Rules

SUMMARY: The Commission is publishing final amendments relating to the age of financial statements of foreign private issuers that register securities for sale under the Securities Act of 1933. The amendments revise the requirements which govern the age of financial statements in registration statements to conform such requirements to the financial statement updating requirements of the home jurisdictions of a substantial majority of foreign issuers. Such conformity is intended to reduce the impediments to foreign issuers making securities offerings in the United States.

EFFECTIVE DATE: These amendments are effective [Insert date of publication in FEDERAL REGISTER].

FOR FURTHER INFORMATION CONTACT: Wayne E. Carnall, Office of the Chief Accountant, Division of Corporation Finance at (202) 272-2553; Richard M. Kosnik, Associate Director, Division of Corporation Finance at (202) 272-7735.

 SUPPLEMENTARY INFORMATION: The Commission is adopting amendments to Rules 3-19(b) ¹, 3-19(c) ² and 3-19(f) ³ of Regulation S-X, ⁴ and Rule 15d-2 ⁵ under the Securities Exchange Act of 1934 ("Exchange Act"), ⁶ Forms F-2 ⁷ and F-3 ⁸ under the Securities Act of 1933 ("Securities Act"), ⁹ and Item 512(a)(4) of Regulation S-K. ¹⁰

I. AMENDMENTS OF RULES APPLICABLE TO AGE OF FINANCIAL STATEMENTS AND UPDATING REQUIREMENTS

The Commission is adopting amendments that relate to the age of financial statements included in registration statements by foreign private issuers at the time of effectiveness and to financial statement updating requirements for such issuers. The amendments will streamline the registration and reporting obligations of foreign companies by accommodating updating of financial statements though use of semi-annual reports more common under foreign reporting regimes.

Registration statements that are filed with the Commission by foreign private issuers are subject to Commission rules that govern the form and content of the financial statements. Rule 3-19 of Regulation S-X sets forth the requirements with respect to the age of financial statements of foreign private issuers included in filings. Until the Commissions action today, Rules 3-19(b) and (c) taken together have required that on the effective date of a Securities Act registration statement:

(1) financial statements in the filing must be as of a date within six months of the effective date, and

(2) the audited year end financial statements must be included in the filing if the effective date falls more than five months after the registrants fiscal year end.

The periodic reporting requirements of many foreign jurisdictions do not require quarterly reporting. Even where interim as well as annual reporting is required, interim reporting periods frequently are longer than that prescribed in the U.S. In recognition of foreign reporting requirements, the Commissions interim reporting requirements for foreign private issuers under the Exchange Act are limited to requiring information on Form 6-K only to the extent it is otherwise provided to shareholders, exchanges or others.

Nonetheless, despite the Commissions determination not to impose any interim periodic reporting requirement on foreign private issuers, the effect of the Commissions age of financial statement provisions has been that a foreign private issuer must provide interim financial information more frequently than semi-annually if it wishes to conduct continuous offerings without interruption and to avoid delays in commencing a registered offering.

To improve foreign issuers access to the U.S. public market without requiring them to produce quarterly financial information, the Commission is amending its age of financial statement requirements. The rules, as amended today, require foreign issuers to provide audited fiscal year financial statements within six months following the end of the fiscal year; unaudited interim financial statements are required only to the extent necessary to bring the most recent financial statements included in a filing to a date within ten months of effectiveness. Under this system, a foreign issuer can have uninterrupted access to the U.S. public market by providing within four months following the end of its fiscal year either its audited financial statements for that year or unaudited interim financial statements as of the end of the third quarter of that year.

On June 5, 1991, the Commission proposed for comment certain amendments to rules applicable to age of financial statements included in registration statements. ¹¹ All eight commenters expressed general support for the proposals. One commenter, however, recommended retaining the requirement to include audited annual financial statements for the most recent year in a registration made effective more than five months after fiscal year-end. The rule adopted today retains the proposals six month timetable for audited financial statements, since this tracks the existing schedule used for periodic reporting under the Exchange Act. Nonetheless, the proposal has been modified in response to this commenters concern for more current information; the rule as adopted requires the most recent financial statements to be not older than 10 months, rather than 12 months as proposed. Thus, the amendment will enable registration statements of foreign private issuers to go effective with audited financial statements as old as 18 months (as compared to 17 months under the rule presently applicable to foreign issuers), with the most recent interim statements as old as 10 months (as compared to 6 months under the present rule and 12 months under the original proposal).

Another commenter suggested that the proposed amendments to Rule 3-19 could be read to conflict with the requirement of Section 10(a)(3) of the Securities Act, which requires a prospectus used more than nine months after the effective date of a registration statement to contain information as of a date not more than 16 months prior to such use. Item 512(a)(4) of Regulation S-K requires a foreign private issuer to update its financial statements included in a prospectus used nine months after effectiveness of a registration statement when they no longer meet the requirements of Rule 3-19. Other information included in the prospectus must be updated at the same time. These specific requirements apply in lieu of the more general updating requirements of Section 10(a)(3), which are not necessary or appropriate where the requirements of Item 512 and of Rule 3-19 are met. Item 512(a)(4) is being amended to clarify this point.

II. AMENDMENT TO REQUIREMENT TO RECONCILE FINANCIAL INFORMATION OTHERWISE PROVIDED

Rule 3-19(f) requires interim financial information that is made available to shareholders, exchanges or others on a more frequent basis than that required by Rules 3-19(b) and (c) to be included in any registration statement filed with the Commission. The rule has required this additional information to be reconciled to U.S. generally accepted accounting principles (GAAP). The amendments provide that such additional information need not be reconciled to U.S. GAAP if adequate narrative disclosures are provided. Specifically, if a registration statement includes reconciled financial statements as of a date which complies with Rules 3-19(b) and (c), more current financial information which is included in the filing need not be reconciled to U.S. GAAP provided that any material variation in accounting underlying the more recent information which was not previously disclosed and quantified in the reconciliations of earlier periods is described and the quantified effects of the material variation are disclosed. The Commission has determined to adopt the amendments as proposed.

III. OTHER AMENDMENTS RELATING TO FINANCIAL STATEMENT UPDATING

Other amendments are being adopted to:

(1) clarify language in Forms F-2 and F-3 to reflect current staff practice of allowing incorporation of interim financial statements filed on Form 6-K; and

(2) amend Rule 15d-2 to permit foreign private issuer registrants to file special year end financial statement reports (subsequent to the effectiveness of a registration statement that did not contain the audited financial statements for the most recent year end) by the later of 90 days following the effective date or six months following the registrants fiscal year end. This amends the current rule to recognize that foreign issuers are allowed up to six months following the end of the fiscal year within which to file their annual report including audited year end financial statements. The Commission has determined to adopt the amendments as proposed.

IV. COST-BENEFIT ANALYSIS

The Commission is not aware of any costs that will result from the amendments to rules and forms relating to the age of financial statements of foreign private issuers, but as foreign issuers will be able to avoid expenses associated with more frequent financial statement updating and reconciliation, benefits are expected to result for such issuers. U.S. issuers are unaffected by these proposed amendments. The commentators did not address specifically the costs and benefits of the proposed amendments, but generally were in favor of the proposals and indicated that the proposals would be beneficial for foreign registrants.

V. REGULATORY FLEXIBILITY ACT CERTIFICATION

Pursuant to Section 605(b) of the Regulatory Flexibility Act [5 U.S.C. §605(b)], the Chairman of the Commission has certified that the amendments will not have a significant impact on a substantial number of small entities. Members of the public who wish to obtain a copy of the Regulatory Flexibility Certification should contact Wayne E. Carnall, (202) 272-2553, Office of the Chief Accountant, Division of Corporation Finance, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.

VI. EFFECTIVE DATE

The amendments to Rule 3-19 and related rules and forms shall be effective immediately upon publication in the FEDERAL REGISTER, in accordance with the Administrative Procedure Act, which allows effectiveness in less than 30 days after publication for, inter alia, "a substantive rule which grants or recognizes an exemption or relieves a restriction." 5 U.S.C. §553(d)(1).

List of Subjects in 17 CFR Parts 210, 229, 239 and 240.

Accounting, Reporting and recordkeeping requirements, Securities

 TEXT OF RULE AND FORM AMENDMENTS

In accordance with the foregoing, Title 17, Chapter II of the Code of Federal Regulations is 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, AND ENERGY POLICY AND CONSERVATION ACT OF 1975.

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

AUTHORITY: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77aa(25), 77aa(26), 78l, 78m, 78n, 78o (d), 78w(a), 78ll (d), 79e(b), 79j(a), 79n, 79t(a), 80a-8, 80a-20, 80a-29, 80a-30, 80a-37, unless otherwise noted.

* * * * *

2. By amending §210.3-19 by revising paragraphs (b), (c) and (f) to read as follows:

§210.3-19 Special provisions as to financial statements for foreign private issuers.

* * * * *

(b) If the filing, other than an annual report on Form 20-F, (§249.220f of this chapter) is made effective within six full months after the end of the registrants fiscal year and if the audited balance sheet for the most recent fiscal year is not available, the audited balance sheets in the filing may be as of the end of the two preceding fiscal years; provided, that on the effective date the filing shall include a balance sheet, which may be unaudited, as of an interim date within ten months of the effective date (except as permitted in paragraph (e) of this section).

(c) If the filing is made effective after six full months subsequent to the end of the most recent fiscal year, the filing shall include the audited financial statements described in paragraph (a) of this section. In addition, if the effective date of the filing is later than ten full months after the end of the most recent fiscal year, the filing shall also include a balance sheet, which may be unaudited, as of an interim date within ten months of the effective date (except as permitted in paragraph (e) of this section).

* * * * *

(f) Notwithstanding the above provisions of this section, if a foreign private issuer prepares and discloses to its shareholders or otherwise makes public, pursuant to applicable foreign laws or regulations or stock exchange requirements or otherwise, interim financial information relating to revenues and income that is more current than the financial statements included in the filing in order to comply with the other provisions of this section, such information also shall be included in the filing and shall be accompanied by:

(1) a description of material variations in the accounting principles, practices and methods used in preparing the financial statements from the principles, practices and methods accepted in the United States; and

(2) quantification of any material variations that are not quantified with respect to their occurrence in the annual or interim financial statements included in the filing.

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

3. The general authority citation for Part 229 continues to read in part as follows:

AUTHORITY: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 77nnn, 77sss, 78c, 78i, 78j, 78l, 78m, 78n, 78o, 78w, 78ll (d), 79e, 79n, 79t, 80a-8, 80a-29, 80a-30, 80a-37, 80b-11, unless otherwise noted.

* * * * *

4. By revising paragraph (a)(4) of §229.512 to read as follows:

§229.512 (Item 512) Undertakings.

* * * * *

(a) * * *

(4) If the registrant is a foreign private issuer, to file a post-effective amendment to the registration statement to include any financial statements required by §210.3-19 of this chapter at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished, provided that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements.

* * * * *

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

5. The authority citation for Part 239 continues to read in part as follows:

AUTHORITY: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77sss, 78c, 78i, 78m, 78n, 78o (d), 78w(a), 78ll (d), 79e, 79f, 79g, 79j, 79l, 79m, 79n, 79q, 79t, 80a-8, 80a-29, 80a-30 and 80a-37, unless otherwise noted.

* * * * *

6. By amending Form F-2 (§239.32) by revising paragraph (b)(2) of Item 11 preceding the Instructions to read as follows:

§239.32 Form F-2, for registration under the Securities Act of 1933 of securities of certain foreign private issuers.

Note--The text of Form F-2 is not and the amendment will not be included in the Code of Federal Regulations.

FORM F-2

* * * * *

Item 11. Material Changes.

* * * * *

(b) * * *

(2) If the financial statements incorporated by reference from the registrants latest Form 20-F, Form 40-F or Form 10-K in accordance with Item 12 are not sufficiently current to comply with the requirements of Rule 3-19 of Regulation S-X (§210.3-19 of this chapter), financial statements necessary to comply with that rule shall be presented (i) directly in the prospectus, (ii) through incorporation by reference and delivery of a Form 6-K identified in the prospectus as containing such financial statements, or (iii) through incorporation by reference and delivery of an amended Form 20-F, Form 40-F or Form 10-K, in which case the prospectus shall disclose that the Form 20-F, Form 40-F or Form 10-K has been so amended.

* * * * *

7. By amending Form F-3 (§239.33) by revising paragraph (b)(2) of Item 11 preceding the Instructions to read as follows:

§239.33 Form F-3, for registration under the Securities Act of 1933 of securities of certain foreign private issuers offered pursuant to certain types of transactions.

Note--The text of Form F-3 is not and the amendment will not be included in the Code of Federal Regulations.

FORM F-3

* * * * *

Item 11. Material Changes.

* * * * *

(b) * * *

(2) If the financial statements incorporated by reference from the registrants latest Form 20-F, Form 40-F or Form 10-K in accordance with Item 12 are not sufficiently current to comply with the requirements of Rule 3-19 of Regulation S-X (§210.3-19 of this chapter), financial statements necessary to comply with that rule shall be presented (i) directly in the prospectus, (ii) through incorporation by reference of a Form 6-K identified in the prospectus as containing such financial statements, or (iii) through incorporation by reference of an amended Form 20-F, Form 40-F or Form 10-K, in which case the prospectus shall disclose that the Form 20-F, Form 40-F or Form 10-K has been so amended.

* * * * *

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

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

Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78i, 78j, 78l, 78m, 78n, 78o, 78p, 78s, 78w, 78x, 78ii (d), 79q, 79t, 80a-20, 80a-23, 80-29, 80a-29, 80a-37, 80b-3, 80b-4 and 80b-11, unless otherwise noted.

* * * * *

9. By amending §240.15d-2 to add one sentence to the end of paragraph (a) to read as follows:

§240.15d-2. Special financial report.

(a) * * * If the registrant is a foreign private issuer as defined in §230.405 of this chapter, then the special financial report shall be filed on the appropriate form for annual reports of the registrant and shall be filed by the later of 90 days after the date on which the registration statement became effective, or six months following the end of the registrants latest full fiscal year.

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By the Commission.

¹ 17 CFR 210.3-19(b).

² 17 CFR 210.3-19(c).

³ 17 CFR 210.3-19(f).

⁴ 17 CFR 210.

⁵ 17 CFR 240.15d-2.

⁶ 15 U.S.C. §78a et seq.

⁷ 17 CFR 239.32.

⁸ 17 CFR 239.33.

⁹ 15 U.S.C. §77a et seq.

¹⁰ 17 CFR 229.512(a)(4).

¹¹ Securities Act Release No. 6895 (June 5, 1991) [56 FR 27562].