Training Material
2000 Edition (3.31.00)

Division of Corporation Finance
an Overview

Accounting Disclosure Rules and Practices

Topic Six: Foreign Private Issuers and Foreign Businesses

Table of Contents

I. Definitions and Basic Rules

A. Definitions

NOTE: In its determination of the majority ownership of a business, the staff will consider the ultimate parent entity that would consolidate the business under U.S. GAAP and its controlling shareholders.

B. Basic Rules

1. Foreign private issuers are eligible to use Form 20-F and the other
"F forms" which provide certain financial statement and disclosure accommodations.

Can a foreign private issuer elect to use the registration and reporting forms that domestic companies use?

Yes. However, if it elects to do so, it must comply with all of the requirements of the ''domestic company'' forms.

2. A foreign issuer--other than a foreign government--that does not meet the definition of a foreign private issuer, must use the same registration and reporting forms as a domestic company. A foreign issuer that loses its foreign private issuer status becomes subject to the reporting requirements for a domestic company on that date. While previous Exchange Act filings do not have to be amended upon the loss of foreign private issuer status, all future filings would be required to fully comply with the requirements for a domestic company. The financial statements and selected financial data should be recast into U.S. GAAP and U.S. dollar reporting currency for all periods presented.

3. If a Canadian company is required by law to prepare financial statements in accordance with Canadian GAAP, the staff will not object to it using Canadian GAAP and Canadian dollars in filings with the Commission even if it does not meet the definition of a foreign private issuer. However, it should file on domestic forms and provide a reconciliation to U.S. GAAP under Item 18 of Form 20-F. Companies incorporated in a foreign country other than Canada that do not meet the definition of a foreign private issuer are required to use U.S. GAAP to prepare their financial statements filed with the Commission.

4. Reincorporation of a foreign private issuer as a U.S. entity generally will require a 1933 Act registration statement on a domestic form (S-4). All periods must be restated to U.S. GAAP/U.S. dollars.

II. General Financial Statement Requirements for
Foreign Private Issuers

A. Periods for which Financial Statements are Required
[Item 8 of Revised Form 20F]

1. Audited financial statements required in a registration statement or annual report:

2. Unaudited interim financial statements required:

a) Registration statement

b) Periodic interim reports Foreign private issuers that file annual reports on Form 20-F are required only to furnish promptly, in a Form 6-K, material information:

(i) Distributed to stockholders or to a national exchange, if made public by that exchange, or

(ii) Required to be made public by its domestic laws. [EAR 15d-13(b) & 13a13(b)]

B. Age of Financial Statements in a Registration Statement
[Item 8 of Revised Form 20-F]

1. Financial statements of a foreign private issuer must be as of a date within 9 months of the effective date of a registration statement. Audited financial statements for the most recent completed fiscal year must be included in registration statements declared effective 3 months or more after fiscal year-end. Under the rule, foreign private issuers can go effective with audited financial statements as old as 15 months, with the most recent interim statements as old as 9 months. If interim statements are required, they must cover a period of at least 6 months.

NOTE: Foreign private issuers use Form 20-F as both an Exchange Act registration statement and an annual report form. An Exchange Act registration statement on Form 20-F is sometimes referred to as a ''20-FR''. The age of financial statements requirements under Item 8 of revised Form 20-F apply when Form 20-F is used as a registration statement.

2. The 15 month period for audited statements is extended to 18 months, and the 9 month period for interim statements is extended to 12 months, for the following offerings:

• exercise of outstanding rights granted pro rata to all existing securityholders;
• dividend or interest reinvestment plan; or
• conversion of outstanding convertible securities or exercise of outstanding transferable warrants. [Item 8 of revised Form 20-F]

3. Special Rule for IPOs - Audited financial statements in initial public offerings must be no more than 12 months old at the time of filing. However, this rule applies only where the registrant is not public in any jurisdiction. Further, the staff will waive the 12-month requirement where compliance is not required in any other jurisdiction and it is impracticable or involves undue hardship. [Item 8 of revised Form 20-F]

4. The age requirements in Item 8 of revised Form 20-F also apply to financial statements of:

• foreign businesses acquired by both foreign and domestic registrants under SX 3-05
• foreign target businesses required in Form S-4 or Form F-4
• foreign equity investees of both foreign and domestic registrants under SX 3-09.

5. A foreign private issuer that has been in existence less than a year must include an audited balance sheet that is no more than 9 months old. [SP]

6. If financial information reporting revenues and income for an annual or interim period more current than required by the rule is made available to shareholders, exchanges, or others in any jurisdiction, that information should be included in the registration statement.

a) The more current information is not required to be reconciled to U.S. GAAP. However, a narrative explanation of differences in accounting principles should be provided, and material new reconciling items should be quantified. Differences between foreign and U.S. GAAP can be identified by cross reference to U.S. GAAP reconciliation footnotes elsewhere in the filing.

b) If a new U.S. accounting standard would be required to be applied in the period for which the updated information is provided, that fact should be disclosed, but no quantification of the effect is necessary if unreasonable cost or delay would be required. [Item 8 of revised Form 20-F]

7. Acquired and to be acquired foreign businesses under SX 3-05

Financial statements of acquired and to be acquired foreign businesses under SX 3-05 must comply with the age of financial statement requirements at the time of effectiveness of the registration statement. Interim financial statements for the period preceding the acquisition date may not be omitted on the basis that the acquisition occurred during the first 9 months of the current year. However, the financial statements generally need not be updated if the omitted period is less than 6 months, and the acquired business does not prepare quarterly financial statements under its home-country reporting requirements.

8. Age of pro formas in cross-border business combinations

Also see Section IV.A.7 for additional guidance on preparation of pro forma financial information.

a) The age of the pro forma financial information included in a registration statement is based on the age of financial statements requirement applicable to the registrant. If a foreign private issuer files a Form F-4 and the target company is a U.S. domestic registrant, the age of the pro forma information may be determined by reference to Item 8 of revised Form 20-F. By contrast, if a U.S. domestic registrant files a Form S-4 and the target company is a foreign private issuer, the age of the pro forma information must be determined by reference to SX 3-12.

b) Application of the age of financial statement rules may require the foreign target company to include in a Form S-4 a period in the pro forma information that would be more current than its separate historical financial statements. However, SX Article 11 permits the ending date of the periods included for the target company to differ from those of the registrant by up to 93 days. The staff will also consider combinations of periods that involve overlaps or gaps in the information of the target company of up to 93 days, provided that the resulting annual and interim periods are of the same length required for the registrant, and there are no overlaps or gaps in the registrants information. However, the staff would not permit a registrant to omit an interim pro forma presentation because of different fiscal periods.

9. In certain circumstances, the staff will consider special processing needs for cross-border offerings which involve special problems of coordination among several national jurisdictions. Foreign issuers should direct requests for special processing to the Office of International Corporate Finance in advance of filing.

C. Due Date for Annual Reports on Form 20-F

1. General rule

An annual report on Form 20-F is required to be filed within 6 months after the foreign private issuers fiscal year-end.

2. Special Report on Form 20-F triggered by an IPO

a) When an IPO is made effective within 6 months after a foreign private issuers fiscal year-end and the audited financial statements of the just recently completed year are not included, the following reporting requirements apply:

* This Special Report should contain the audited financial statements of the just recently completed year. It does not need to include MD&A or other narrative disclosures ordinarily required in a Form 20-F; but, registrants are encouraged to provide that information. To comply with the rules of the exchange on which they are listed (not Commission rules), companies may need to file a complete Form 20-F, rather than a Special Report. Even if omitted from a Special Report, MD&A and other omitted information needs to be included in any subsequent registration statement or proxy.

D. Continuous and Shelf Offerings

Foreign private issuers are required to update the financial statements and other information included in a prospectus used more than nine months after effectiveness of a registration statement only when the financial statements would be as of a date later than the date of financial statements required under Item 8 of revised Form 20-F. Issuers filing on Form F-3 may incorporate by reference reports filed or furnished to the Commission that contain the updated financial statements rather than filing a post-effective amendment. [SK 512(a)(4)]

E. Changes in Fiscal Year [EAR 15d-10(g) & 13a-10(g)]

1. Transition reports for foreign private issuers are filed on Form 20-F as follows:

Transition period is: In a transition report on Form 20-F, include: File the transition report within:

More than 6 months	Audited financial statements reconciled to U.S. GAAP All information required to be filed when Form 20-F is used as an annual report.	Later of 6 months after either the end of the transition period or the date the issuer elected to change its fiscal year-end.
6 months or less, but more than one month	Unaudited financial statements, reconciled to U.S. GAAP Information required by Items 3, 9, 15, 16, and 17 or 18 of Form 20-F. NOTE: The next annual report on Form 20-F must include audited financial statements for this transition period.	Later of 3 months after either the end of the transition period or the date the issuer elected to change its fiscal year-end.
One month or less	No separate filing is required but the one-month transition period must be audited and included in the next annual report on Form 20-F.	No separate filing is required.

2. The staff will consider requests for a transition period of more than 12 months if a longer period is accepted in the issuer's home country. Issuers that receive this accommodation are required to provide complete unaudited financial statements with all of the applicable disclosures for both the
12-month period and the remaining portion of the transition period.

3. Foreign private issuers filing a registration statement after electing to change their fiscal year end may need to provide more current audited financial statements than are required under the Exchange Act transition reporting rules. A foreign private issuers most recently audited financial statements cannot exceed the age specified by Item 8 (generally 15 months) at the registration statements date of effectiveness.

III. Requirement for Reconciliation to U.S. GAAP

Foreign private issuers are allowed to prepare the primary financial statements filed with the Commission in accordance with a comprehensive body of GAAP other than U.S. GAAP. To assist U.S. investors in understanding the nature of the accounting differences and their effects on financial statements, foreign issuers are required to provide a reconciliation to U.S. GAAP.

A. Requirement for Reconciliation By Registrant

1. General

a) A reconciliation is required for each annual and interim period required to be included in a registration statement or annual report.

b) Form 20-F provides two levels of reconciliation to US GAAP - Item 17 and Item 18. Item 18 requires the same information as Item 17 plus all of the disclosures required by U.S. GAAP and Regulation S-X. With certain limited exceptions, Item 18 is required for securities offerings. Some of these exceptions include:

• offerings pursuant to reinvestment plans
• offerings upon the conversion of securities
• offerings of investment grade securities

Item 17 is acceptable in these instances and for purposes of the annual report. Many foreign issuers elect to file their annual reports under Item 18 and provide all of the disclosures required by U.S. GAAP and Regulation S-X. Issuers that file using Item 17 may be required to provide certain additional information in the MD&A to assist the U.S. investor in understanding the financial statements. [SAB 1D].

2. First-time entrants to U.S. reporting system

a) If a foreign registrant has not previously filed financial statements with the Commission on a reconciled basis, it is only required to provide reconciliations of the financial statements and selected financial data to U.S. GAAP for the two most recently completed fiscal years and for any interim periods required in the registration statement. In each subsequent year, on a prospective basis, an additional year of the reconciliation is required. This accommodation also applies to financial statements filed pursuant to SX 3-05 and 3-09.

NOTE: While reconciliations to U.S. GAAP are initially only required for two years, the registrants financial statements still need to be presented in the registration statement for all of the periods required by Item 8 of revised Form 20-F. Similarly, selected financial data still needs to be presented for five years, even though the oldest three years need not be reconciled to U.S. GAAP.

b) First time registrants that elect to prepare the financial statements in accordance with U.S. GAAP may provide income statements and statements of cash flows for only their two most recent fiscal years. However, selected financial data still needs to be presented for five years under home-country GAAP if U.S. GAAP financial data is not available for the oldest three years. MD&A need only discuss the two years presented in the financial statements. [R33-7053]

c) Predecessor financial statements and selected financial data must be presented in the same comprehensive body of accounting as the registrant. A foreign entity that is a predecessor of a U.S. domestic company must present financial statements in U.S. GAAP and U.S. dollars.

3. Issuers of investment grade debt Forms F-1, F-2, F-3 and F-4 allow registration of investment grade securities utilizing the simpler reconciliation requirements of Item 17 of Form 20-F.

4. ''Backdoor'' listings by foreign companies

a) Foreign companies sometimes obtain a ''backdoor'' listing through a reverse acquisition with a U.S. public shell. Even though substantially all of the operations are conducted outside of the U.S., the registrant would not be considered a foreign private issuer.

b) To facilitate timely reporting, the staff would not object if the financial statements included in the Form 8-K are prepared using a foreign GAAP, provided a reconciliation to U.S. GAAP that complies with Item 18 of Form 20-F is provided.

c) The first Form 10-K and any registration statement should include financial statements prepared using U.S. GAAP for all periods presented, including those prior to the reverse acquisition. Financial statements in a foreign GAAP reconciled to U.S. GAAP would not be acceptable.

5. Financial Statements of Foreign Acquired Businesses or Foreign Equity Investees

a) The reporting requirements of Form 8-K do not apply to foreign private issuers. However, foreign private issuers must comply with SX 3-05 in registration statements.

b) If financial statements are required to be filed by registrants (domestic or foreign) for foreign acquirees or foreign equity investees, these statements may be prepared on a basis other than U.S. GAAP. Reconciliations to U.S. GAAP must be provided only when the foreign acquiree or foreign equity investee is significant to the registrant at the 30% level or greater. Refer to Topic Two for the tests of significance. [Item 17(c)(2)(v) and (vi) of Form 20-F]

6. If reconciliation is required, the financial statements of foreign acquirees or foreign investees need only comply with the reconciliation requirements of Item 17 of Form 20-F, rather than Item 18. Even though the significance level of an acquisition may require the presentation of three years of audited financial statements in a registration statement or other transactional filing, the reconciliation only needs to be reconciled for the most recent two years and any required interim period.

7. If three years of audited financial statements of an acquired foreign business would be required based on the level of significance, a registrant may elect to present the acquired business statements for only two years if they are prepared using U.S. GAAP, rather than foreign GAAP with a reconciliation. In applying this accommodation, the registrants primary financial statements must also be prepared in accordance with U.S. GAAP if post-acquisition periods are considered in determining the years presented.

8. A foreign or domestic registrant may apply SAB 80 in determining the periods for which audited financial statements of acquired foreign businesses are required in an IPO. Assuming that the businesses acquired are reporting in the U.S. for the first time, financial statements of foreign businesses required to be presented under the SAB for three years need only be reconciled to U.S. GAAP for the two most recent fiscal years. Financial statements required to be presented under the SAB for two years must be reconciled to U.S. GAAP for both years. Most recent interim period and corresponding prior year financial statements also would be reconciled to U.S. GAAP.

B. Selected Financial Data [Item 3A of revised Form 20-F]

1. Selected financial data should include amounts under U.S. GAAP, if different. The selected data should be provided for 5 years.

2. Selected data for the earliest two years of the five year period may be omitted if the registrant represents that the information cannot be provided without unreasonable effort or expense, and states the reasons for the omission in the filing.

IV. Content of Reconciliation to U.S. GAAP

Form 20-F provides two levels of reconciliation to U.S. GAAP--Item 17 and Item 18. Item 17 permits the registrant to use its financial statements that are prepared on a comprehensive basis other than U.S. GAAP but requires quantification of the material differences in the principles practices and methods of accounting. An issuer complying with Item 18 must satisfy the requirements of Item 17 and also must provide all other information required by U.S. GAAP and Regulation S-X. The distinction between Items 17 and 18 is premised on a classification of the requirements of U.S. GAAP and Regulation S-X into those that specify the methods of measuring the amounts shown on the face of the financial statements and those prescribing disclosures that explain, modify or supplement the accounting measurements. [SAB 1D]

A. Item 17 Requirements

1. A discussion of material variations in accounting principles, practices and methods used in preparing the financial statements between foreign GAAP and U.S. GAAP.

2. A quantified description of balance sheet differences under foreign GAAP in comparison to U.S. GAAP. Most companies elect to present this information in the form of a reconciliation of shareholders equity, but they may also provide restated balances of individual balance sheet line items, or describe, in numerical terms, how balance sheet line items would specifically change under U.S. GAAP.

NOTE: The reconciliation of shareholders equity should be in sufficient detail to allow an investor to determine the differences between a balance sheet prepared using foreign GAAP and one prepared using U.S. GAAP.

Common deficiencies include:

 NOTE: Registrants should supplementally prepare statements of changes in shareholders equity using balances determined under U.S. GAAP as a proof that the reconciliation balances and that it provides appropriate disclosure on changes in the equity accounts on a U.S. GAAP basis. Many registrants elect to include these statements, prepared using U.S. GAAP balances, in the financial statements.

Unless easily determined from the information in the financial statements, the staff should request this information supplementally as a part of the comment process.

3. A reconciliation of net income from foreign GAAP to U.S. GAAP that quantifies and describes each significant difference.

4. Disclosure of basic and diluted EPS calculated in accordance with U.S. GAAP, if materially different from foreign GAAP.

Item 17 registrants are also encouraged to:

• Disclose the number of shares used to determine basic and diluted EPS under U.S. GAAP, and
• Describe any differences between the methods utilized to determine the numerators and denominators in the calculations of EPS under U.S. GAAP and the foreign GAAP

  (This information is required for Item 18 registrants.)

5. A cash flow statement prepared under U.S. GAAP or IAS 7, or a reconciliation of a cash flow statement or statement of changes in financial position that quantifies the material differences in the statement presented as compared to U.S. GAAP. Some of the more common deficiencies in this disclosure include:

a) failure to identify noncash investing and financing activities;

b) presentation of items on a net rather than gross basis;

c) inadequate discussion of the differences in the definitions of ''cash'' and ''cash equivalents''; and,

d) differences in classification.

Issuers are encouraged to supplementally prepare a statement of cash flows prepared in accordance with U.S. GAAP to confirm the adequacy of the disclosure of the reconciling items.

6. A reconciliation for each required supplemental schedule from foreign GAAP to U.S. GAAP that quantifies and describes each significant difference.

7. SX Article 11 pro forma financial statements should either be prepared on a U.S. GAAP basis or be accompanied by quantified reconciliations to U.S. GAAP prepared in a manner consistent with Item 17. Reconciliations of pro forma information to U.S. GAAP are required even if the historical financial statements of the acquired business are not required to be reconciled. See Section II.B.8 for guidance concerning age of pro forma information. A method consistent with FAS 52 should be used to translate currencies.

8. Disclosure of the accounting method used in the reconciliation to U.S. GAAP for stock-based compensation given to employees and to non-employees. Other than this information, issuers filing under Item 17 are not required to provide the pro forma and other disclosures stipulated in FAS 123.

9. Segment information under FAS 131 need not be provided if the information about separate categories of activity required under Item 1 of Form 20-F is provided in the filing.

10. The disclosures required by FAS 7 for development stage companies should be provided since they are part of the primary financial statements.

B. Item 18 Requirements

1. Certain information is required to be disclosed under Item 18, but not Item 17. For example (list not all inclusive):

a) Reconciliations of the numerators and denominators used in computing basic and diluted EPS, and other EPS-related disclosures (FAS 128)

b) Segment information (FAS 131)

c) Fair value information (FAS 107)

d) Concentrations of credit risk (FAS 105)

e) Information about investment securities (FAS 115)

f) Information about off-balance sheet financial instruments
(FAS 119, FAS 133)

g) Pro forma and other disclosures about stock-based compensation to employees and non-employees (FAS 123)

h) Components of pensions and benefits other than pensions
(FAS 87, FAS 106, FAS 132)

i) Components of tax expense and deferred tax liability/asset (FAS 109)

j) Income statement classification differences

2. Pervasive Impact of Differences between Home-Country and U.S. GAAP

If differences between home-country and U.S. GAAP have such a pervasive impact on the financial statements that they render a normal reconciliation as described above confusing to investors, full or condensed financial statements prepared in accordance with U.S. GAAP may be necessary in order for the reader to fully understand the impact of the differences in accounting.

For example: A business combination accounted for as a purchase of another company by the registrant under home-country GAAP but as a reverse acquisition under U.S. GAAP (the registrant is acquired by another company) would most easily be understood if the registrant included, in addition to a description of the differences in accounting, audited financial statements prepared under U.S. GAAP. Those financial statements would reflect the change in basis of the registrant on the acquisition date and present the financial statements of the accounting acquirer prior to the date of acquisition as the financial statements of the registrant (see Appendix B for additional guidance related to reverse acquisitions)

C. Statements of Comprehensive Income

1. Statements of comprehensive income prepared using either U.S. GAAP or home-country GAAP are required for both Item 17 and Item 18 issuers. These statements may be presented in any format permitted by FAS 130. Reconciliation to U.S. GAAP is encouraged, but not required.

2. Paragraph 26 of FAS 130 requires the presentation of the components of the accumulated balance of other comprehensive income items either on the face of the financial statements or in the footnotes. This requirement does not apply to Item 17 filers.

3. In certain countries, equity components under home-country GAAP are included in retained earnings and are not separately tracked. Reconstruction of these amounts may not be practical. The staff will generally not object if an Item 18 filer concludes, and discloses in its filings, that it is not practical to present the components of the accumulated balance of other comprehensive income items specified by paragraph 26 of FAS 130.

D. Accommodations

1. Cash flow statement The Commission will accept without reconciliation to U.S. GAAP a foreign issuer's cash flow statement that is prepared in accordance with IAS 7, "Cash Flow Statements," as amended. [Item 17(c)(2)(iii) of Form 20-F] A reconciliation of home country cash flow presentation to IAS 7 does not meet the requirements of the form.

2. Accounting for effects of hyperinflation

a) A foreign private issuer that accounts in its primary financial statements for its operations in a hyperinflationary economy in accordance with IAS 21, "The Effects of Changes in Foreign Exchange Rates," as amended, may omit quantification of any differences that would have resulted from application of the U.S. standard, FAS 52. [Item 17(c)(2)(iv)(B) of Form 20-F]

b) IAS 21 requires that amounts in the financial statements of the hyperinflationary operation be restated for the effects of changing prices in accordance with IAS 29, "Financial Reporting in Hyperinflationary Economies," and then translated to the reporting currency. The accommodation is only available if the issuer uses the historical cost/constant currency method of IAS 29. This accommodation relates to financial statements prepared in a stable reporting currency, not to financial statements price-level adjusted for inflation.

3. Certain differences involving business combinations

a) In certain circumstances, foreign issuers need not reconcile to U.S. GAAP certain differences attributable to the determination of the method of accounting for a business combination or for the amortization period of goodwill and negative goodwill, provided the financial statements comply with IAS 22, "Business Combinations," as amended (1993). These provisions are not available for business combinations that are promoter transactions, leveraged buyouts, mergers of entities under common control or reverse acquisitions.

(1) A business combination that qualifies as a uniting of interests under IAS 22 and which was accounted for using that method in the primary financial statements may be considered, for purposes of reconciliation to U.S. GAAP, a pooling of interests.

NOTE: Since the requirements are very difficult to meet, business combinations rarely qualify as a uniting of interests under IAS 22. The staff should bring all transactions accounted for as a uniting of interests to the attention of DCAO.

(2) A business combination that qualifies as an acquisition under IAS 22 and which was accounted for using that method in the primary financial statements may be considered, for purposes of reconciliation to U.S. GAAP, a purchase.

b) The reconciliation should quantify differences resulting from applying the business combination method in the primary financial statements and the amounts determined in accordance with U.S. GAAP.

c) Foreign issuers need not reconcile to U.S. GAAP amounts arising from differences in the periods used to amortize goodwill and negative goodwill in the primary financial statements if the method used is consistently applied and consistent with IAS 22. [Item 17(c)(2)(viii)] In determining the amount of goodwill or negative goodwill that is subject to amortization for purposes of the reconciliation to U.S. GAAP, foreign private issuers would continue to be required to consider all other provisions of purchase accounting under U.S. GAAP.

d) IAS 22 was amended in 1998 to change certain requirements regarding the amortization of goodwill and negative goodwill. Ordinarily, the staff will extend the above accommodations to registrants using the 1998 version. However, the 1998 version permits certain treatments that were not contemplated when the original accommodation was adopted. Situations involving goodwill amortization periods greater than 20 years, and all situations involving negative goodwill, should be brought to the attention of DCAO to determine whether the accommodation is available.

4. Effects of proportional (pro rata) consolidation

a) Foreign private issuers that use proportional consolidation under home-country GAAP for investments in joint ventures that would be equity method investees under U.S. GAAP may omit reconciling differences related to classification or display and instead provide summarized footnote disclosure of the amounts proportionately consolidated, such as: [Item 17(c)(2)(vii) of Form 20-F]

• Current assets/liabilities
• Noncurrent assets/liabilities
• Net sales
• Gross profit
• Net income
• Cash flow information resulting from operating, financing, and investing activities

The disclosure should allow a reader to reconstruct a U.S. GAAP balance sheet. Summarized totals from the investee financial statements (rather than the amounts proportionally consolidated by the registrant) do not satisfy this condition.

NOTE: This accommodation for proportionately consolidated joint ventures only applies if :

• the joint venture is an operating entity and
• its significant financial operating policies are, by contractual arrangement, jointly controlled by all parties having an equity interest in the entity.

b) Separate financial statements of a joint venture being proportionally consolidated are not required.

V. Selection of a Reporting Currency

SX 3-20 allows a foreign private issuer to file financial statements prepared in any currency that management believes is appropriate.

A. Currency of Measurement

While there is free choice in the selection of the reporting currency, there is not free choice in the selection of the currency used for measurement. All operations, including those of the parent company, that do not operate in a hyperinflationary environment should be measured using the currency of the primary economic environment to measure transactions. While not specifically referring to FAS 52, SX 3-20 is designed to be conceptually consistent with that standard. Assets and liabilities are translated at the period end exchange rate and the income statement is translated at the weighted average annual exchange rate. The translation effects of exchange rate changes are included as a separate component of equity.

B. Disclosures, if the U.S. dollar is not the reporting currency:

1. Currency used to prepare financial statements displayed prominently on the face of the financial statements.

2. Currency in which dividends are declared, if different from the reporting currency.

3. Description of material exchange restrictions or controls relating to the reporting currency, the currency of the issuer's domicile, or the currency in which the issuer will pay dividends.

4. Five-year history of exchange rates setting forth rates at period end, average, highs and lows. [Item 3.A of revised Form 20-F] The noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank in New York can be obtained over the telephone or through the internet as follows:

• Call (212) 720-6130 and ask for the Federal Reserve Bank certified noon buying rate for foreign currency cable transfers for the respective date and currency.
• Visit the Federal Reserve Bank of New Yorks web site at ftp://ftp.ny.frb.org/forex/12noon or the Federal Reserve Boards web site at http://www.federalreserve.gov/releases/H10/hist

5. Dollar equivalent or convenience translations are generally not permitted, except that a convenience translation may be presented only of the most recent fiscal year and interim period. Translation should be made at the exchange rate on the balance sheet date or most recent date practicable, if materially different. The rate used for the convenience translation should generally be the rate that the issuer would use if dividends were to be paid in U.S. dollars.

6. An issuer filing a registration statement on Form F-2 or Form F-3 that incorporates financial statements previously filed on Form 20-F does not need to amend or otherwise modify these statements to reflect a more current exchange rate in presenting the convenience translation.

NOTE: Amendment or other modification is not necessary even if the company has presented a convenience translation on interim data in the registration statement or by reference to Form 6-K. In this situation, the issuer should disclose in the interim data that different exchange rates have been used for the convenience translation.

C. Change in Reporting Currency

1. Financial information for all periods presented in the filing should be recast into the new reporting currency using a methodology consistent with FAS 52. Income statements should be translated from the old reporting currency into the new reporting currency using a weighted average exchange rate for the applicable period. The balance sheet should be translated using the applicable period end exchange rate. The objective of this procedure is to present financial statements as if the issuer had always used the new reporting currency.

If the reporting currency used in a registrants financial statements is different from that of its predecessor, the predecessors financial statements should be recast using the registrants reporting currency.

3. Use of the Euro as the reporting currency

a) Foreign and domestic registrants that change their reporting currency to the Euro should prepare comparative financial statements for periods prior to the Euros introduction on January 1, 1999 by recasting previously reported financial statements into Euros using the January 1, 1999 fixed exchange rate between the Euro and the prior reporting currency. This method should not be used for a change to a reporting currency other than the Euro.

NOTE: Investors may inappropriately assume that the financial statements of all registrants that report in Euros are directly comparable for periods prior to January 1, 1999. However, the underlying trends and relationships in those financial statements are based on legacy currency measurements and will not be comparable.

b) To highlight the potential lack of comparability in periods prior to January 1, 1999, the registrant should include the disclosures outlined in EITF D-71.

VI. Price-level Adjusted Financial Statements and Effects of Hyperinflationary Environments

A. Requirements

1. An issuer in a hyperinflationary economy must either comprehensively include the effects of price-level changes in the primary statements or, alternatively, present supplemental information to quantify the effects of changing prices using the historical cost/constant currency or current cost/replacement cost approach. [SX 3-20 and 20-F Item 17 & 18(c)(2)(iv)] The quantified effects of applying price-level accounting are not eliminated in the reconciliation to U.S. GAAP. This provision applies to all issuers who price level adjust even if the currency of the primary economic environment is not hyperinflationary as defined under U.S. GAAP.

What is a hyperinflationary economy?

A hyperinflationary economy has cumulative inflation of approximately 100% or more over the most recent three-year period. See EITF D-55 for further guidance.

NOTE: Inflation rates are multiplied in computing cumulative inflation. For example, 1.26 x 1.26 x 1.26 = 2.00. Inflation of at least 26% for three years would result in cumulative inflation of 100%.

2. Issuers in a hyperinflationary economy that elect to report in accordance with U.S. GAAP can report in either the hyperinflationary currency or a stable currency.

B. Preparation of Price-level Adjusted Financial Statements

1. All price level adjusted financial information in a foreign private issuers registration statement should be presented in equivalent purchasing power units of the reporting currency. For each period presented, all measurements are retroactively restated to the purchasing power unit as of the date of the most recent balance sheet information in the filing.

2. If a company updates to include interim financial information, the prior annual financial information must be recast in equivalent purchasing power units. A company that incorporates by reference a prior annual report on Form 20-F need not amend the prior filing, but must file restated financial statements in the registration statement or under cover of a Form 6-K that is incorporated by reference.

3. If the rate of inflation during the interim period is very low such that the effect of restatement does not materially affect apparent trends and is clearly immaterial (for example, 3% or less), the staff has not insisted that prior period financial information be restated. If the information is not restated, the rate of inflation and the reason why restatement was not considered to be necessary should be disclosed.

4. If interim financial information more current than otherwise required by SEC rules is included in a registration statement solely to comply with Instruction 3 to Item 8.A.5 of revised Form 20-F, the staff encourages, but will not insist, that prior periods be restated. The staff expects companies to provide disclosure necessary to prevent the updated data from being misleading in relation to prior period financial information. For example, the registrant should provide supplemental selected financial data recast in equivalent purchasing power units, accompanied by disclosure of the rate of inflation that would be used to restate all prior financial information in equivalent purchasing power units.

a) The cash flow statements of issuers that prepare price-level adjusted financial statements should present the effects of inflation on cash flows separately from their operating, investing and financing activities. The presentation of a ''fourth'' cash flow statement category, which separately captures these effects, meets this objective. Price-level adjusted cash flow statements that include the effects of inflation in the line items comprising the three major categories may make the presentation less meaningful and possibly misleading.

Example of a potentially misleading presentation:

The financing activities section of the cash flows statement, if price-level adjusted for inflation, may depict reductions of foreign-currency denominated debt because of the recasting of prior balance sheet amounts, even though no cash repayments may have actually occurred.

VII.Foreign Auditor Matters

A. Qualifications and Independence

1. In certain instances where the independent accountant is not licensed in the U.S. and not familiar to the staff, OCA may request information about the accountant's qualifications to practice before the Commission. Reports of unfamiliar foreign accountants should be brought to the attention of OCA via DCAO, who will advise of any procedures necessary to determine the acceptability of the foreign auditor's report.

2. Auditors licensed outside the U.S. must comply with all requirements of Article 2 of Regulation S-X, including SEC rules on auditor independence.

3. Auditors may be permitted or required by home-country regulations to render reports on the fairness or adequacy of consideration in an audit clients planned merger or non-monetary transaction. These reports may violate U.S. independence rules. Instances should be brought to the attention of DCAO.

B. Reports

1. The report of the independent accountant, except for MJDS filers in Canada, should include a statement that the audit was conducted in accordance with U.S. GAAS. [Instruction 2 to Item 8.A.2 of revised Form 20-F; R33-7745]

2. The reconciliation to U.S. GAAP must be audited. The staff recommends that the report of the independent accountant refer explicitly to the reconciliation, but the absence of that reference does not relieve the auditor of its responsibility to examine the reconciliation. The reconciliation footnote may not be labeled "unaudited." Pursuant to Commission rules and auditing standards, omission of a material item required to reconcile the financial statements to U.S. GAAP pursuant to Item 17 or Item 18 of Form 20-F, or any otherwise inaccurate presentation of that reconciliation, would require a clear reference in the auditor's report identifying the omission or inaccuracy.

3. If the report includes reference to another accountant, the separate audit report and consent of that accountant must be included. Clarification in one of the reports as to which auditor is responsible for the reconciliation to U.S. GAAP may be necessary.

4. Some foreign private issuers or acquired foreign businesses are jointly audited by more than one firm. Both auditors sign the report and take full responsibility for the audit. Each auditor must comply fully with all requirements of Article 2 of Regulation S-X, including the U.S. independence requirements. In certain cases, one of the firms may be a U.S. firm.

5.Effective January 1, 2000, AICPA SEC Practice Section rules establish minimum requirements for the review of SEC filings by a designated ''filing reviewer'' within the independent accountants U.S. firm or international organization knowledgeable about U.S. GAAP, U.S. GAAS, U.S. auditor independence and SEC reporting requirements. Prior to commencing review of confidential filings, the staff requests written confirmation that the SECPS member firms review procedures were applied to the filing. We also request the name of the designated filing reviewer that the staff may contact with any questions concerning the application of those policies and procedures to the confidential filing. The purpose of the procedure is to ensure that foreign auditors appropriately involve their designated filing reviewer prior to submission of filings. The staff will consider deferring the review of a confidential filing where the application of the firms established policies and procedures to that filing cannot be confirmed.

C. Change in Accountant

Unlike Regulation S-K, Form 20-F does not require disclosure of changes in accountants. Foreign private issuers are not required to provide disclosure regarding a change in accountants in Exchange Act or Securities Act filings.