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

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

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

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

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

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

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

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.
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    \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.''
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    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.''
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    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\
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    \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

``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.
---------------------------------------------------------------------------

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

    \145\ See, e.g., Item 303(a)(4) of Regulation S-K [17 CFR
229.303(a)(4)].
---------------------------------------------------------------------------

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

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

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

    \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

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

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

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.
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    (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

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

    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

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:
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    \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.
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     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.

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.
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    \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