[Federal Register: November 21, 2008 (Volume 73, Number 226)]
[Proposed Rules]
[Page 70815-70856]
[DOCID:fr21no08-20]

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Part IV

Securities and Exchange Commission

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17 CFR Parts 210, 229, 230, et al.

Roadmap for the Potential Use of Financial Statements Prepared in
Accordance With International Financial Reporting Standards by U.S.
Issuers; Proposed Rule

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 210, 229, 230, 240, 244 and 249

[Release Nos. 33-8982; 34-58960; File No. S7-27-08]
RIN 3235-AJ93

Roadmap for the Potential Use of Financial Statements Prepared in
Accordance With International Financial Reporting Standards by U.S.
Issuers

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is
proposing a Roadmap for the potential use of financial statements
prepared in accordance with International Financial Reporting Standards
(``IFRS'') as issued by the International Accounting Standards Board by
U.S. issuers for purposes of their filings with the Commission. This
Roadmap sets forth several milestones that, if achieved, could lead to
the required use of IFRS by U.S. issuers in 2014 if the Commission
believes it to be in the public interest and for the protection of
investors. This Roadmap also includes discussion of various areas of
consideration for market participants related to the eventual use of
IFRS in the United States. As part of the Roadmap, the Commission is
proposing amendments to various regulations, rules and forms that would
permit early use of IFRS by a limited number of U.S. issuers where this
would enhance the comparability of financial information to investors.
Only an issuer whose industry uses IFRS as the basis of financial
reporting more than any other set of standards would be eligible to
elect to use IFRS, beginning with filings in 2010.

DATES: Comments should be received on or before February 19, 2009.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use of the Commission's Internet comment form (http://
www.sec.gov/rules/proposed.shtml); or
     Send an e-mail to<EMAIL_ADDRESS>Please include
File Number S7-27-08 on the subject line; or
     Use the Federal Rulemaking ePortal (http://
www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments in triplicate to Florence E. Harmon,
Acting Secretary, Securities and Exchange Commission, 100 F Street,
NE., Washington, DC 20549-1090.

All submissions should refer to File Number S7-27-08. The file number
should be included on the subject line if e-mail is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
Internet Web site (http://www.sec.gov/rules/proposed/shtml). Comments
also are available for public inspection and copying in the
Commission's Public Reference Room, 100 F Street, NE., Washington, DC
20549, on official business days between the hours of 10 a.m. and 3
p.m. All comments received will be posted without change; we do not
edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly.

FOR FURTHER INFORMATION CONTACT: Craig Olinger, Deputy Chief
Accountant, Division of Corporation Finance, at<PHONE_NUMBER> or
Michael D. Coco, Special Counsel, Office of International Corporate
Finance, Division of Corporation Finance, at<PHONE_NUMBER>, or Liza
McAndrew Moberg, Professional Accounting Fellow, Office of the Chief
Accountant, at<PHONE_NUMBER>, U.S. Securities and Exchange Commission,
100 F Street, NE., Washington, DC 20549-3628.

SUPPLEMENTARY INFORMATION: The Commission is publishing for comment a
proposed Roadmap and proposed amendments to Regulations S-X,\1\ S-K \2\
and C \3\ under the Securities Act of 1933 (the ``Securities Act''),\4\
and Rule 12b-2,\5\ Schedule 13E-3,\6\ Schedule TO,\7\ Regulation G,\8\
and Form 8-K,\9\ under the Securities Exchange Act of 1934 (the
``Exchange Act'').\10\ In Regulation S-X, we propose to amend Rules 1-
01,\11\ 1-02,\12\ 3-10,\13\ 4-01 \14\ and 8-01,\15\ and to add Article
13. We are proposing the new Article 13 to apply to U.S. issuers and,
as a conforming change, to foreign private issuers \16\ that file IFRS
financial statements.\17\ In Regulation S-K, we propose to amend Items
10,\18\ 101,\19\ 301,\20\ 504,\21\ 1100,\22\ 1112,\23\ 1114 \24\ and
1115.\25\ In Regulation C, we propose to amend Rule 405.\26\ In
Regulation G, we propose to amend Item 101.\27\
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    \1\ 17 CFR 210.1-01-210.12-29. Regulation S-X sets forth the
form and content of requirements for financial statements.
    \2\ 17 CFR 229.10 et seq.
    \3\ 17 CFR 230.400 et seq.
    \4\ 15 U.S.C. 77a et seq.
    \5\ 17 CFR 240.12b-2.
    \6\ 17 CFR 240.13e-100.
    \7\ 17 CFR 240.14d-100.
    \8\ 17 CFR 244 et seq.
    \9\ 17 CFR 249.308.
    \10\ 15 U.S.C. 78a et seq.
    \11\ 17 CFR 210.1-01.
    \12\ 17 CFR 210.1-02.
    \13\ 17 CFR 210.3-10.
    \14\ 17 CFR 210.4-01.
    \15\ 17 CFR 210.8-01.
    \16\ A ``foreign private issuer,'' as defined in Rule 3b-4(c)
[17 CFR 240.3b-4(c)], means any foreign issuer other than a foreign
government except an issuer that meets the following conditions: (1)
More than 50 percent of the issuer's outstanding voting securities
are directly or indirectly held of record by residents of the United
States; and (2) any of the following: (i) the majority of the
executive officers or directors are United States citizens or
residents; (ii) more than 50 percent of the assets of the issuer are
located in the United States; or (iii) the business of the issuer is
administered principally in the United States.
    \17\ As explained in Section V.B. below, inclusion of foreign
private issuers in Article 13 will not change the content of their
financial statements filed under Form 20-F.
    \18\ 17 CFR 229.10.
    \19\ 17 CFR 229.101.
    \20\ 17 CFR 229.301.
    \21\ 17 CFR 229.504.
    \22\ 17 CFR 229.1100.
    \23\ 17 CFR 229.1112.
    \24\ 17 CFR 229.1114.
    \25\ 17 CFR 229.1115.
    \26\ 17 CFR 230.405.
    \27\ 17 CFR 244.101.
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Table of Contents

I. Overview
II. The Role of IFRS in the U.S. Capital Markets
    A. The Promise of Global Accounting Standards
    1. The Global Nature of Today's Capital Markets
    2. Potential for IFRS as the Global Accounting Standard
    B. Past Policy Considerations Regarding IFRS
III. A Proposed Roadmap to IFRS Reporting by U.S. Issuers
    A. Milestones To Be Achieved Leading to the Use of IFRS by U.S.
Issuers
    1. Improvements in Accounting Standards
    2. Accountability and Funding of the IASC Foundation
    3. Improvement in the Ability To Use Interactive Data for IFRS
Reporting
    4. Education and Training
    5. Limited Early Use of IFRS Where This Would Enhance
Comparability for U.S. Investors
    6. Anticipated Timing of Future Rulemaking by the Commission
    7. Implementation of the Mandatory Use of IFRS
    B. Other Areas of Consideration
    1. The Roles of Financial Information
    2. Accounting Systems, Controls and Procedures
    3. Auditing
    4. Considerations of IFRS and the IASB's Standard Setting
Process
    a. State of IFRS

    b. Relationship to the Accounting Standard Setting Process
IV. Proposal for the Limited Early Use of IFRS Where This Would
Enhance Comparability for U.S. Investors
    A. Eligibility Requirements
    B. Staff Letter of No Objection to the Use of IFRS
    C. Transition
    D. Alternative Proposals for U.S. GAAP Information
    1. Proposal A--Reconciled Information Pursuant to IFRS 1
    2. Proposal B--Supplemental U.S. GAAP Information
    3. Discussion of Proposals A and B
V. Discussion of Proposed Amendments
    A. The Use of IFRS Financial Statements in Commission Filings by
Eligible Issuers
    1. Proposed Amendments to Rule 4-01 of Regulation S-X
    2. Proposed Definition of ``IFRS Issuer''
    B. Application
    1. Article 13 of Regulation S-X
    2. Proposed Clarifying Amendments With Respect to References to
IFRS as Issued by the IASB
    C. Proposed Amendments to Item 10(e) of Regulation S-K and
Regulation G
    D. Related Disclosure and Financial Reporting Issues
    1. Selected Financial Data
    2. Market-Risk and the Safe Harbor Provisions
    3. Disclosure of First-Time Adoption of IFRS in Form 10-K
    4. Other Considerations Relating to IFRS and U.S. GAAP Guidance
    E. Financial Statements of Other Entities Under Regulation S-X
    1. Application of the Amendments to Rules 3-05, 3-09 and 3-14
    a. Significance Testing
    b. Separate Historical Financial Statements of Another Entity
Provided Under Rule 3-05, 3-09 or 3-14
    2. Financial Statements Provided Under Rule 3-10
    3. Financial Statements Provided Under Rule 3-16
    F. Pro Forma Financial Statements Provided Under Article 11
    G. Industry Specific Matters
    1. Disclosure Pursuant to Industry Guides
    2. Disclosure From Oil and Gas Companies Under FAS 69
    H. Application of the Proposed Amendments to Other Forms, Rules
and Schedules
    1. Application of Proposed Amendments to Exempt Offerings
    2. References to FASB Pronouncements in Form 8-K
    3. Application of IFRS to Tender Offer and Going-Private Rules
VI. General Request for Comments
VII. Paperwork Reduction Act
    A. Background
    B. Burden and Cost Estimates Related to the Proposed Amendments
    C. Request for Comment
VIII. Cost-Benefit Analysis
    A. Proposal for Early Use of IFRS by U.S. Issuers
    1. Expected Benefits
    2. Expected Costs
    B. Proposal A: Reconciled Information Pursuant to IFRS 1
    1. Expected Benefits
    2. Expected Costs
    C. Proposal B: Supplemental U.S. GAAP Information
    1. Expected Benefits
    2. Expected Costs
IX. Regulatory Flexibility Act Certification
X. Consideration of Impact on the Economy, Burden on Competition and
Promotion of Efficiency, Competition and Capital Formation
XI. Proposed Amendments to the Codification of Financial Reporting
Policies
XII. Statutory Basis and Text of Proposed Amendments

I. Overview

    The Commission is proposing this Roadmap towards requiring the use
of International Financial Reporting Standards (``IFRS'') as issued by
the International Accounting Standards Board (``IASB'') \28\ by U.S.
issuers \29\ as part of its consideration of the role a single set of
high-quality accounting standards plays in investor protection and the
efficiency and effectiveness of capital formation and allocation. As
capital markets have become increasingly global, U.S. investors have a
corresponding increase in international investment opportunities. In
this environment, we believe that U.S. investors would benefit from an
enhanced ability to compare financial information of U.S. companies
with that of non-U.S. companies. The Commission has long expressed its
support for a single set of high-quality global accounting standards as
an important means of enhancing this comparability.\30\ We believe that
IFRS has the potential to best provide the common platform on which
companies can report and investors can compare financial information.
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    \28\ As used in this release, the phrase ``IFRS as issued by the
IASB'' refers to the authoritative text of IFRS, which, according to
the Constitution of the International Accounting Standards Committee
Foundation (``IASC Foundation''), is published in English. See
``International Financial Reporting Standards, including
International Accounting Standards and Interpretations as at 1
January 2007,'' Preface to International Financial Reporting
Standards, at paragraph 23. Unless otherwise noted, the phrase
``IFRS'' refers to IFRS as issued by the IASB.
    \29\ The terms ``U.S. issuer'' and ``domestic issuer'' are used
interchangeably in this release. Although there is no specific
definition of those terms under the Exchange Act or the Securities
Act, they are used in this document to refer to any issuer that
files annual reports pursuant to the Exchange Act on Form 10-K [17
CFR 249.310] or a registration statement under the Securities Act
for which foreign private issuer status is not an eligibility
requirement. For purposes of this release, the terms U.S. issuer and
domestic issuer also include a foreign issuer or foreign private
issuer, as defined in Rule 3b-4 under the Exchange Act [17 CFR
240.3b-4(c)] and in Rule 405 under the Securities Act [17 CFR
230.405], that elects to file on domestic forms.
    \30\ See, for example, Release No. 33-6807 (November 14, 1988)
[53 FR 46963 (November 21, 1988)].
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    This proposed Roadmap first addresses the basis for considering the
mandatory use of IFRS by U.S. issuers. It then sets forth seven
milestones which, if achieved, could lead to the use of IFRS by U.S.
issuers in their filings with the Commission.\31\ The Commission in
2011 would determine whether to proceed with rulemaking to require that
U.S. issuers use IFRS beginning in 2014 if it is in the public interest
and for the protection of investors to do so. These milestones relate
to:
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    \31\ This release does not address the method the Commission
would use to mandate IFRS for U.S. issuers. One of the options would
be for the Financial Accounting Standards Board (``FASB'') to
continue to be the designated standard setter for purposes of
establishing the financial reporting standards in issuer filings
with the Commission. In this option our presumption would be that
the FASB would incorporate all provisions under IFRS, and all future
changes to IFRS, directly into generally accepted accounting
principles as used in the United States (``U.S. GAAP''). This type
of approach has been adopted by a significant number of other
jurisdictions when they adopted IFRS as the basis of financial
reporting in their capital markets.
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     Improvements in accounting standards;
     The accountability and funding of the IASC Foundation;
     The improvement in the ability to use interactive data for
IFRS reporting;
     Education and training relating to IFRS;
     Limited early use of IFRS where this would enhance
comparability for U.S. investors;
     The anticipated timing of future rulemaking by the
Commission; and
     The implementation of the mandatory use of IFRS by U.S.
issuers.

After describing the milestones, this proposed Roadmap also discusses
how IFRS reporting by U.S. issuers may affect other participants in the
capital markets.
    As a step along this Roadmap, this release then describes proposed
amendments to permit a U.S. issuer that is among the largest companies
worldwide within its industry, and whose industry uses IFRS as the
basis of financial reporting more than any other set of standards, to
elect to use IFRS beginning with filings for fiscal years ending on or
after December 15, 2009. These amendments include a process by which
U.S. issuers would seek confirmation from Commission staff that they
are eligible to use IFRS in their Commission filings. This release also
seeks comment on two alternative proposals under which U.S. issuers
that

elect to use IFRS would disclose U.S. GAAP information.

II. The Role of IFRS in the U.S. Capital Markets

A. The Promise of Global Accounting Standards

1. The Global Nature of Today's Capital Markets
    Today, investors, issuers and other capital markets participants
are able to engage in financial transactions across national boundaries
and to make investment, capital allocation and financing decisions on a
global basis more readily than ever before. This is due in large
measure to today's ever-faster communications, and ever-more-closely
linked markets. Advances in technology that facilitate securities
transactions have reduced barriers that previously existed and that may
have impeded cross-border investment for both retail and institutional
investors. For instance, investors can more readily obtain information
on a wide variety of international investment opportunities than in the
past, largely due to the availability of information over the Internet.
Further, it is now possible for U.S. investors to have access to real-
time securities transaction data from stock exchanges and other
securities markets from around the world and to trade on global
exchanges through accounts they manage over the Internet. As trading
and investment become more global, investors face an increasing need
for full, fair and reliable disclosure that enables comparison of
financial information across investment alternatives that cross
national boundaries.
    A large and increasing number of U.S. investors hold securities of
non-U.S. issuers. Further, U.S. investors have the ability to make
cross-border investments readily.\32\ Thus, we believe it is important
for U.S. investors to have access to the tools to compare effectively
and efficiently their investment opportunities in a global capital
market. The Commission has long considered a reduction in the disparity
between the accounting and disclosure practices of the United States
and those of other countries as an important objective for both the
protection of investors and the efficiency of capital markets.\33\
Further, while our recent Advisory Committee on Improvements to
Financial Reporting (``CIFiR'') purposefully limited its scope relating
to international matters due to ongoing efforts by the Commission and
the FASB, it did similarly note the following in its final report to
the Commission.\34\
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    \32\ Over the period from 1990 to 2006, estimated investments in
foreign equity securities held by U.S. residents has grown from
approximately $200 billion to $4,300 billion, based on estimates
published by the U.S. Bureau of Economic Analysis, U.S. Treasury
statistics. See http://bea.gov/international/xls/intinv07_t2.xls.
Included in this category are investments in equities, whether
listed or unlisted, where the holding by the U.S. resident is less
than 10%.
    \33\ See, for example, Release No. 33-6360 (November 20, 1981)
[46 FR 58511 (December 2, 1981)]. For a further discussion of the
Commission's previous actions promoting development of a single set
of high-quality globally accepted accounting standards, see Section
III.C. of Release No. 33-8831 (August 7, 2007) [72 FR 45600 (August
14, 2007)] (``2007 Concept Release'').
    \34\ See Final Report of the Advisory Committee on Improvements
to Financial Reporting to the United States Securities and Exchange
Commission (August 1, 2008) (``CIFiR Final Report'').
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    We broadly support the continued move to a single set of high-
quality global accounting standards, coupled with enhanced
international coordination to foster their consistent interpretation
and to avoid jurisdictional variants. Further, we encourage the
development of a roadmap to identify issues and milestones to
transition to this end state in the U.S., with sufficient time to
minimize disruptions, resource constraints, and the complexity
arising from such a significant change.\35\
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    \35\ CIFiR Final Report, at page 21 (footnotes references
omitted).

    The Commission recognizes that the use of a single, widely accepted
set of high-quality accounting standards would benefit both the global
capital markets and U.S. investors by providing a common basis for
investors, issuers and others to evaluate investment opportunities and
prospects in different jurisdictions. U.S. investors would be able to
make better-informed investment decisions if they were to obtain high-
quality financial information from U.S. companies that is more
comparable to the presently available information from non-U.S.
companies operating in the same industry or line of business. Capital
formation and investor understanding would be enhanced if the world's
major capital markets all operated under a single set of high-quality
accounting standards that elicit comparable, high-quality financial
information from public companies.
2. Potential for IFRS as the Global Accounting Standard
    The increasing acceptance and use of IFRS in major capital markets
throughout the world over the past several years, and its anticipated
use in other countries in the near future, indicate that IFRS has the
potential to become the set of accounting standards that best provide a
common platform on which companies can report and investors can compare
financial information. Approximately 113 countries around the world
currently require or permit IFRS reporting for domestic, listed
companies.\36\
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    \36\ Some countries have enacted IFRS as national standards and
require compliance to be stated with those national standards. In
some cases, these national standards are identical to IFRS as issued
by the IASB; in other cases, these national standards have been more
narrow, yet consistent with IFRS as issued by the IASB; and, in yet
other cases, these national standards may permit additional options
that are inconsistent with IFRS as issued by the IASB, although
companies may opt to apply standards so that they comply with IFRS
as issued by the IASB. See http://www.iasplus.com/country/
useias.htm.
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    Foreign jurisdictions have chosen to require or allow IFRS for many
different reasons. For example, in the European Union (the ``E.U.''),
prior to its requirement relating to IFRS applicable to companies
incorporated and publicly traded in its Member States,\37\ accounting
standards in each of the E.U. Member States generally were established
individually in each jurisdiction. Further, each Member State would
typically permit the use in its capital markets of accounting standards
set in other jurisdictions, in addition to its own domestic accounting
standards.\38\ IFRS provided a common set of accounting principles
under which all domestic listings in the E.U. could report. In Canada,
accounting standard setters concluded that, given the increasing
globalization of capital markets and other recent developments, that it
was timely for public Canadian companies to adopt globally accepted,
high-quality accounting standards by converging Canadian GAAP with IFRS
over a transitional period, after which a separate and distinct
Canadian GAAP would cease to exist as a basis of financial reporting
for public companies.\39\ In Australia, the decision to adopt IFRS was
part of a strategy to ensure consistency and comparability of
Australian financial reporting with financial reporting across global
financial markets.\40\ More countries

have adopted IFRS, including Israel,\41\ and others have plans to allow
it, including Brazil.\42\ The market capitalization of exchange listed
companies in the E.U., Australia and Israel totals $11 trillion (or
approximately 26% of global market capitalization), and the market
capitalization from those countries plus Brazil and Canada totals $13.4
trillion (or approximately 31% of global market capitalization).\43\
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    \37\ See Regulation (EC) No. 1606/2002 of the European
Parliament and of the Council of the European Union of 19 July 2002
on the application of international accounting standards, Official
Journal L. 243, 11/09/2002 P. 0001-0004.
    \38\ For example, U.S. GAAP was accepted by some E.U. Member
States for domestic registrants and still is accepted for foreign
registrants.
    \39\ For additional information, see http://www.cica.ca/
index.cfm/ci_id/44036/la_id/1.htm. The staff of the Canadian
Securitities Administrators (``CSA'') has proposed retaining the
existing option for a domestic Canadian issuer that is also an SEC
issuer to use U.S. GAAP. See http://www.cica.ca/3/9/1/6/6/
index1.shtml. for the link to ``CSA Announcement re: IFRS in
Canada'' (CSA Staff Notice 52-321).
    \40\ See http://www.asic.gov.au/asic/asic.nsf/byheadline/
Your+questions+about+implementing+the+IFRS?openDocument#1.
    \41\ See Israel Accounting Standard No. 29 ``Adoption of
International Financial Reporting Standards,'' which describes the
adoption of IFRS in Israel for years starting on January 1, 2008.
    \42\ See http://www.cvm.gov.br/port/snc/inst457.pdf.
    \43\ All figures are from the World Federation of Stock
Exchanges, Domestic Market Capitalization as of September 30, 2008,
in U.S. dollars.
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    The Commission is aware of the transitions made by other countries
to IFRS. For example, the vast majority of listed European companies,
including banks and insurance companies, moved to comply with the E.U.
IFRS requirement in 2005 with the remainder transitioning in 2007.
Under these transition approaches, in essence all or almost all of the
listed companies transitioned to IFRS at the same time. Some foreign
regulators have published reports relating to the implementation of
IFRS in their country. For example, the U.K. Financial Reporting Review
Panel and the Autorit[eacute] des March[eacute]s Financiers of France
(``AMF'') have both published reports making observations on IFRS as
applied in their jurisdictions.\44\
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    \44\ For the report of the U.K. Financial Reporting Review
Panel, see ``Preliminary Report: IFRS Implementation'' available at
http://www.frc.org.uk/images/uploaded/documents/
IFRS%20Implementation%20-%20preliminary.pdf. For the report of the
AMF, see ``Recommendations on accounting information reported in
financial statements for 2006,'' dated December 19, 2006, available
at http://www.amf-france.org/documents/general/7565_1.pdf.
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    As with all countries that have evaluated the potential use of IFRS
in their own markets, the policy considerations in the United States
must factor in the individual circumstances of its investors and
capital markets. The U.S. capital markets are among the largest and
most liquid in the world. U.S. GAAP is a well-established basis of
financial reporting and is applied by all U.S. public companies, many
foreign companies, and many U.S. private companies, as well as their
auditors. Today, U.S. GAAP is accepted in capital markets around the
world, and the Commission requires its use by all domestic issuers.\45\
The accounting principles established by the FASB have been recognized
by the Commission as ``generally accepted'' for purposes of the U.S.
federal securities laws.\46\
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    \45\ See Rule 4-01(a)(1) of Regulation S-X [17 CFR 210.4-
01(a)(1)].
    \46\ See Release No. 33-8221, Financial Reporting Release
(``FR'') 70 (April 25, 2003) [68 FR 23333 (May 1, 2003)] (``FR
70'').
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    Regardless of whether the Commission decides to allow or require
IFRS for U.S. issuers in the future, the past and anticipated move
towards the use of IFRS in other jurisdictions may have begun to affect
U.S. investors' ability to evaluate investment alternatives as their
level of investment in non-U.S. companies has increased over time.\47\
The growing level of foreign investment by U.S. residents in
international investment opportunities, including opportunities to
invest in issuers that do not file reports with the Commission, makes
it likely that U.S. investors will increasingly need to use IFRS
financial statements.\48\ Also, it is likely that large U.S. issuers
that compete for capital on a global basis will increasingly need to
use and understand IFRS financial statements in order to remain
competitive. For these reasons, the Commission finds it advisable to
continue to pursue consideration of the use of IFRS in the U.S. markets
in order to better equip U.S. investors to make comparisons of U.S.
companies with certain non-U.S. companies, while balancing this with
the fact that U.S. investors should be able to compare U.S. companies
with other U.S. companies.
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    \47\ As more companies move towards IFRS reporting, current and
potential investors in U.S. issuers may increasingly be comparing
those U.S. issuers' financial information to IFRS-based financial
information of competing investment opportunities. For example,
approximately 120 foreign private issuers currently report to the
Commission using IFRS financial statements.
    \48\ For example, U.S. investors may purchase securities issued
by a non-reporting foreign company directly on a foreign exchange,
or they may invest in American Depositary Receipts representing the
securities of a foreign private issuer that is exempt from Exchange
Act reporting requirements pursuant to Rule 12g3-2(b) [17 CFR
240.12g3-2(b)].
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    Promoting a single set of globally accepted accounting standards
will benefit investors as more and more companies prepare their
financial statements applying a single set of high-quality accounting
standards. With a single set of accounting standards, investors can
more easily compare information and will be in a better position to
make informed investment decisions. This benefit is dependent upon use
of a single set of high-quality standards globally and financial
reporting that is, in fact, consistently applied across companies,
industries and countries. Any decision we may take to expand the use of
IFRS to U.S. issuers would necessitate our evaluation of whether global
developments support the assertion of IFRS as the single set of high-
quality globally accepted accounting standards that is applied
consistently across companies, industries and countries.
    The Commission has identified certain considerations which may
influence the degree to which comparability may be achieved through
widespread adoption of IFRS. These considerations include the extent to
which IFRS is adopted and applied globally, and whether IFRS is adopted
and applied in foreign jurisdictions as issued by the IASB or as
jurisdictional variants of IFRS.\49\ We believe that the benefits of
moving towards a single set of globally accepted standards as a long-
term objective for increased comparability of financial statements are
attainable through the use of IFRS only if IFRS represents a single set
of high-quality accounting standards, which is best accomplished
through the use of IFRS as issued by the IASB. As stated previously,
each jurisdiction's considerations surrounding the use of IFRS in its
markets are unique to the jurisdiction's circumstances. Therefore, the
large number of countries allowing or requiring IFRS in their markets
does not alone determine the Commission's decision. However, in
determining whether to proceed with requiring the use of IFRS by U.S.
issuers, the Commission will consider the extent to which IFRS as
issued by the IASB is used globally, is applied consistently, and
supports the assertion of IFRS as the single set of high-quality global
accounting standards.\50\
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    \49\ Different jurisdictions often have internal processes
through which they adopt or incorporate IFRS into their national
accounting standards. Decisions made during those processes may
result in discrepancies from IFRS as issued by the IASB.
    \50\ In 2007, as part of our efforts to foster a single set of
globally accepted accounting standards, we adopted amendments to
allow foreign private issuers to file IFRS financial statements
without reconciliation to U.S. GAAP only if the financial statements
were prepared in accordance with IFRS as issued by the IASB. See
``Acceptance from Foreign Private Issuers of Financial Statements
Prepared in Accordance with International Financial Reporting
Standards Without Reconciliation to U.S.,'' Release No. 33-8879
(December 21, 2007) [73 FR 986 (January 4, 2008)] (the ``2007
Adopting Release''). The Commission proposed these rules in June
2007 [Release No. 33-8818 (July 3, 2007)] [72 FR 37962 (July 11,
2007)] (the ``2007 Proposing Release'').
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B. Past Policy Considerations Regarding IFRS

    Over time, the Commission has undertaken a series of initiatives to
promote a single set of high-quality globally accepted accounting
standards as a means of advancing the objective of reduced disparity in
financial reporting

between U.S. issuers and foreign issuers. Convergence of U.S. GAAP and
IFRS as issued by the IASB, which involves the best efforts of the IASB
and the FASB (referred to jointly as ``the Boards'') to make their
financial reporting standards fully compatible on a standard-by-
standard basis, has been the predominant approach taken in the United
States to achieve that objective over the past six years.\51\ As
discussed further below, the Commission continues to support the joint
efforts of the IASB and the FASB as an important means of increasing
the quality of IFRS and U.S. GAAP and, at the same time, reducing
disparity between the two.
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    \51\ The Norwalk Agreement, issued in 2002, and a Memorandum of
Understanding entered into by the FASB and the IASB in 2006 express
the Boards' intentions to, on a best efforts basis, converge U.S.
GAAP and IFRS. See http://www.fasb.org/news/memorandum.pdf and
http://www.fasb.org/intl/mou_02-27-06.pdf for further details.
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    More recently, the Commission's consideration of the use of IFRS by
U.S. issuers has included the issuance of a Concept Release addressing
whether U.S. issuers should be permitted, but not required, to use IFRS
in their filings with the Commission.\52\ Specifically, the Commission
sought input on the nature and extent of the public's interest in
giving U.S. issuers the option to file with the Commission financial
statements prepared in accordance with IFRS as issued by the IASB. The
Commission received over 80 comment letters from a wide range of
issuers, investors, accounting firms and other market participants.\53\
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    \52\ See 2007 Concept Release.
    \53\ These comments are available at http://www.sec.gov/
comments/s7-20-07/s72007.shtml.
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    The Commission also has held three public roundtables consisting of
investors, issuers, accounting firms, educators, standard setters and
other capital market participants to receive further input about the
use of IFRS.\54\ In December 2007, the Commission held one roundtable
on IFRS in U.S. markets and a second on practical issues surrounding
the use of IFRS in recent years and its potential expanded use in
future years. The third roundtable, in August 2008, related to the
performance of U.S. GAAP and IFRS during the sub-prime crisis.
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    \54\ Information on these Roundtables, including transcripts, is
available on the Commission's Web site at http://www.sec.gov/
spotlight/ifrsroadmap.htm.
---------------------------------------------------------------------------

    While many commenters on the 2007 Concept Release and the
participants at the roundtables supported allowing U.S. issuers to use
IFRS, certain commenters expressed the belief that IFRS should be
mandated for all U.S. issuers and not limited to a specific group of
U.S. issuers. Other commenters believed that U.S. issuers should
continue to use U.S. GAAP, while supporting ongoing convergence.

III. A Proposed Roadmap to IFRS Reporting by U.S. Issuers

A. Milestones To Be Achieved Leading to the Use of IFRS by U.S. Issuers

    The Commission is proposing this Roadmap to set forth milestones
which, if achieved, could lead to the eventual use of IFRS by all U.S.
issuers. Through this Roadmap, the Commission is seeking to realize the
objective of providing investors with financial information from U.S.
issuers under a set of high-quality globally accepted accounting
standards, which would enable U.S. investors to better compare
financial information of U.S. issuers and competing international
investment opportunities. This Roadmap is further intended to encourage
market participants to consider the effect of IFRS in our capital
markets and to prepare for the use of IFRS financial statements by U.S.
issuers in their filings with the Commission.
    In addition to the milestones, the Commission also expects to
consider, among other things, whether IFRS as issued by the IASB is a
globally accepted set of accounting standards and whether it is
consistently applied. The advantages to U.S. investors of increased
comparability across investment alternatives, as contemplated under
this Roadmap, are dependent upon financial reporting under IFRS that
is, in fact, consistent across companies, industries and countries.
    The course of action described in this proposed Roadmap reflects
the deliberations of the Commission in light of current circumstances.
We intend to publish the final Roadmap, if adopted, in our Codification
of Financial Reporting Policies.\55\ We recognize, however, that as
events occur, new circumstances may require us to update or revise the
Roadmap. With the knowledge of the anticipated timetable for Commission
rulemaking initiatives on this policy matter, investors, issuers and
other market participants may engage more concretely in discussions
about IFRS for U.S. issuers, both through comments provided to the
Commission as well as in further dialogue among parties potentially
affected. The Commission believes that any future actions relating to
the use of IFRS by U.S. issuers would benefit from the increased
awareness by all affected parties of the related issues and
preparedness that this Roadmap is intended to foster. As we progress
along this initiative, we anticipate receiving extensive input from
investors, issuers and other affected parties, which we will consider
carefully.
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    \55\ See FR 1 (April 15, 1982), 7 Fed. Sec. L. Rep. (CCH) ]
72,401, at 62,021.
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    This proposed Roadmap relates solely to U.S. issuers with respect
to their periodic reporting requirements under Sections 13 and 15(d) of
the Exchange Act, proxy and information statements under Section 14 of
the Exchange Act and registration statements under Section 12 of the
Exchange Act and Section 7 of the Securities Act. Our considerations at
this time with respect to the possible use of IFRS do not include
issuers that are investment companies under the Investment Company Act
of 1940. Likewise, at this time, the Roadmap does not extend to other
types of financial reports that are filed or furnished to the
Commission by regulated entities, such as registered broker-dealers.
1. Improvements in Accounting Standards
    In October 2002, the FASB and the IASB announced the issuance of a
memorandum of understanding, called the Norwalk Agreement. The two
bodies acknowledged their joint commitment to the development, ``as
soon as practicable,'' of high-quality, compatible accounting standards
that could be used for both domestic and cross-border financial
reporting. At that time, the FASB and the IASB pledged to use their
best efforts to make their existing financial reporting standards fully
compatible as soon as is practicable and to coordinate their future
work programs to ensure that once achieved, compatibility is
maintained. In a 2006 Memorandum of Understanding, the FASB and the
IASB indicated that a common set of high-quality global standards
remains the long-term strategic priority of both the FASB and the IASB.
As part of this commitment, the IASB and the FASB set out a work plan
covering several projects and coordinated agendas so that major
projects that one board takes up may also be taken up by the other
board. That plan covered specific long- and short-term projects for
work into 2008. In November 2007, the Trustees of the IASC Foundation
reiterated their support for continuing the work program described in
these memoranda, noting that future work is largely focused on areas in
which the objective is to develop new world-class international
standards. The FASB and the IASB have updated the timetable for their
joint work under the 2006

Memorandum of Understanding.\56\ The next phase of the joint work plan
goes through 2011.
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    \56\ See the update to the 2006 Memorandum of Understanding at
http://www.fasb.org/intl/MOU_09-11-08.pdf.
---------------------------------------------------------------------------

    The current joint work plans of the two standard setters, as well
as other work undertaken by them, furthers the goal of comprehensive,
high-quality standards. The Commission will continue to monitor the
activities of both the FASB and the IASB and the progress of their
efforts. In past Commission releases, we have noted areas where IFRS
provides limited guidance on a particular topic, such as accounting for
insurance contracts and for extractive activities.\57\ Further, the
current work plan of the FASB and the IASB includes accounting
standards, including (without emphasizing priority) revenue recognition
and financial statement presentation, that when completed should
improve financial reporting significantly. The Commission will consider
the degree of progress made by the FASB and the IASB in any future
evaluation of the potential expanded role of IFRS in the reporting by
U.S. issuers. When the Commission considers mandating use of IFRS by
U.S. issuers in 2011, it would consider whether those accounting
standards are of high quality and sufficiently comprehensive.\58\ The
Commission urges the two Boards to continue working towards the
completion of their joint work plan estimated to be completed in 2011
and other projects that are expected to improve financial reporting.
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    \57\ See the discussion in Section III.B.4, below.
    \58\ High quality accounting standards consist of a set of
neutral principles that require consistent, comparable, relevant and
reliable information that is useful for investors. See ``SEC Concept
Release: International Accounting Standards,'' Release No. 33-7801
(February 16, 2000) [65 FR 8896 (February 23, 2000)].
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    In addition, it is important that accounting standards be
established under a robust, independent process that includes careful
consideration of possible alternative approaches and due process, which
allows for input from and consideration of views expressed by affected
parties, including investors. It is also important that accounting
standards are promptly considered to keep standards current and reflect
emerging accounting issues and changing business practices. Further, it
is important that the accounting standards produced are capable of
improving the accuracy and effectiveness of financial reporting and the
protection of investors, and of resulting in a high quality of
financial reporting relative to the standards which may be replaced.
Thus, in considering future action as set out in this Roadmap, the
Commission would also assess whether it believes that the IASB
continues to develop its standards, including converged standards,
through a process that reflects these elements.
2. Accountability and Funding of the IASC Foundation
    The IASB is based in London and is an accounting standard setting
body established to develop global standards for financial
reporting.\59\ It is overseen by the IASC Foundation. The IASC
Foundation is based in London and is a stand-alone, not-for profit
organization, incorporated in Delaware. It is responsible for the
activities of the IASB and other work that centers on IFRS, such as
initiatives related to translation of IFRS from the English language,
education about IFRS and the development of interactive data taxonomies
for IFRS. The IASC Foundation is governed by 22 trustees (``IASC
Foundation Trustees'') whose backgrounds are geographically diverse.
---------------------------------------------------------------------------

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

    The IASC Foundation has financed IASB operations largely through
voluntary contributions from a wide range of market participants from
across the world's capital markets, including from a number of firms in
the accounting profession, companies, international organizations,
central banks and governments. Funding commitments were made for the
period 2001-2005 and then were extended for an additional two years
through 2007. In June 2006, the IASC Foundation Trustees agreed on four
elements that should govern the establishment of a funding approach
designed to enable the IASC Foundation to remain a private-sector
organization with the necessary resources to conduct its work in a
timely fashion. The IASC Foundation Trustees determined that
characteristics of the new scheme for 2008 would be broad-based,
compelling, open-ended and country-specific.\60\ The IASC Foundation
Trustees continue to make progress in obtaining funding that satisfies
those elements.\61\
---------------------------------------------------------------------------

    \60\ Further description of these elements can be found on the
IASB's Web site at http://www.iasb.org/About+Us/
About+the+IASC+Foundation/Funding.htm. The IASC Foundation describes
these principles as follows:
     Broad-based: A sustainable long-term financing system
must expand the base of support to include major participants in the
world's capital markets, including official institutions, in order
to ensure diversification of sources.
     Compelling: A system must carry with it enough pressure
to make free riding very difficult. This could be accomplished
through a variety of means, including official support from the
relevant regulatory authorities and formal approval by the
collecting organizations.
     Open-ended: The financial commitments should be open-
ended and not contingent on any particular action that would
infringe on the independence of the IASC Foundation and the IASB.
This should include sustained support from official international
organizations, central banks and the major accounting firms.
     Country-specific: The funding burden should be shared
by the major economies of the world on a proportionate basis, using
GDP as the key determining factor of measurement. Each country
should meet its designated target in a manner consistent with the
principles above. Trustees should be assigned to specific countries
to assist in the development of the funding scheme.
    \61\ See http://www.iasb.org/About+Us/About+the+IASC+Foundation/
2008+funding+commitments.htm.
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    The Commission will carefully consider the degree to which the IASC
Foundation has a secure, stable funding mechanism that permits it to
function independently and that enhances the IASB's standard setting
process. The IASC Foundation has developed targeted contribution levels
from individual jurisdictions. Realizing the IASC Foundation's goal of
receiving open-ended funding commitments from a broad base of
constituents and that are compulsory would encourage the independent
functioning of the IASB in its standard setting process. Otherwise, the
IASB may be subject to a perceived or, potentially, an actual
connection between the availability of funding and the outcome of its
standard setting process. We believe that our future determination
regarding the required use of IFRS for all U.S. issuers should only
occur after the IASC Foundation reaches its goal of securing a stable
funding mechanism that supports the independent functioning of the
IASB.
    National accounting standard setters traditionally have been
accountable to a national securities regulator or other government
authority. In the United States, the Financial Accounting Foundation
(``FAF''), the parent of the FASB, is overseen by the Commission. The
IASC Foundation has not historically had a similar link with any
national securities regulators. Recognizing that such a relationship
would enhance the public accountability of the IASC Foundation, its
Trustees have proposed amendments to its Constitution to establish a
connection between the IASC Foundation and a Monitoring Group composed
of securities authorities charged with the adoption or recognition of
accounting standards used in their respective jurisdictions.\62\

The Commission has been working with other national securities
authorities and the International Organization of Securities
Commissions to establish the Monitoring Group to enable it to begin its
work once the IASC Foundation adopts the necessary changes to its
Constitution.\63\ The securities authorities, including the Commission,
envision that the Monitoring Group will participate in and approve
nominations for IASC Foundation Trustees, review the funding
arrangements of the IASC Foundation for adequacy and appropriateness,
and address matters that the IASC Foundation Trustees are responsible
for, such as oversight of the IASB and potential areas for
consideration by the IASB in its ongoing work.\64\
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    \62\ See http://www.iasb.org/NR/rdonlyres/12CC476D-B88F-418A-
826F-71A7465FC2E0/0/Proposal_and_issues_for_the_
Constitution.pdf for a full description of the proposed amendments
to the Constitution.
    \63\ See the Commission's joint statement with other national
securities regulators with respect to the establishment of a
Monitoring Group at http://www.sec.gov/news/press/2007/2007-226.htm.
    \64\ The proposed responsibilities of the Monitoring Group do
not extend to the standard setting process.
---------------------------------------------------------------------------

    The Commission believes that the accountability of the IASC
Foundation will be enhanced once the Monitoring Group provides the
forum for interaction between securities authorities and the IASC
Foundation Trustees. The Commission believes that effective oversight
is critical to mandating that U.S. issuers prepare financial statements
in accordance with IFRS. Based on the progress of the discussions among
securities regulators, as well as the IASC Foundation's timetable for
adopting the relevant changes to its Constitution, the Commission
assumes that the Monitoring Group will have been established and be
functioning by the time the Commission considers mandating the use of
IFRS for U.S. issuers. We will evaluate the effectiveness of the
oversight mechanism (including the functioning of the multilateral
nature of the Monitoring Group) in making the determination whether
mandating IFRS is in the public interest for the protection of
investors and our markets.
3. Improvement in the Ability To Use Interactive Data for IFRS
Reporting
    In May 2008, the Commission proposed rules to require companies to
provide their financial statements to the Commission and on their
corporate Web sites in interactive data format using the eXtensible
Business Reporting Language (``XBRL'') in order to improve their
usefulness to investors.\65\ Under those proposed rules, financial
statement information could be submitted by public companies in
interactive data format, and that financial information could then be
downloaded directly into spreadsheets, analyzed in a variety of ways
using off-the-shelf commercial software, or used within investment
models in any of a number of other software formats. The rules proposed
in May, if adopted, would apply to domestic and foreign public
companies that prepare their financial statements in accordance with
U.S. GAAP, and foreign private issuers that prepare their financial
statements using IFRS as issued by the IASB. Under the proposal,
foreign private issuers that prepare their financial statements using
IFRS as issued by the IASB would be required to provide financial
statements in interactive data format starting with their fiscal
periods ending on or after December 15, 2010. If the Commission adopts
its proposed rules relating to interactive data, it is anticipated that
they would apply to the limited number of U.S. issuers that could elect
to file IFRS financial statements as proposed in this release.
---------------------------------------------------------------------------

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

    In order to realize the improvements in the usefulness and
comparability of financial information anticipated upon the widespread
use of interactive data, U.S. issuers would have to be capable of
providing IFRS financial statements to the Commission in interactive
data format at a greater level of detail than is currently available.
Therefore, the state of development of an IFRS list of tags for
interactive data reporting will be a consideration in the Commission's
determination of whether to require the use of IFRS for all U.S.
issuers. The IASC Foundation first published a complete list of tags
for the IFRS ``Bound Volume'' in 2004, and has published annual updates
since then to reflect new pronouncements, changes in XBRL technical
standards, and other improvements; the most recent such update was
published in July 2008. The Commission staff is actively involved in
the improvement and monitoring of the IFRS list of tags via
participation in the IASC Foundation's XBRL Advisory Council. The
Commission believes it is appropriate to consider the IASC Foundation's
progress in the development of IFRS taxonomies prior to proceeding with
rulemaking on IFRS for all U.S. issuers.
4. Education and Training
    Reporting in accordance with IFRS by U.S. issuers would increase
the need for effective training and education about IFRS for investors,
accountants, auditors and others involved in the preparation and use of
financial statements, as there are differences between U.S. GAAP and
IFRS.\66\ Investor education is particularly important, so that users
of financial statements can work with the financial information issuers
publish. The main benefits to investors of a single set of high-quality
globally accepted accounting standards would be realized only if
investors more fully understood the basis for the reported results. In
addition to investors, other financial statement users may include
customers, vendors, rating agencies and analysts.
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    \66\ See, as just one example, http://www.kpmgifrsinstitute.com/
documents/IFRS/
721200810043IFRS%20compared%20to%20U.S.%20GAAP%20An%20Overview%20(200
8).pdf.
---------------------------------------------------------------------------

    The education and ongoing training of most accountants in the
United States is limited to or predominantly focused on the current
provisions of U.S. GAAP. Consequently, many parties would likely need
to undertake comprehensive education on IFRS. The need for IFRS
training would involve personnel of issuers, their governing bodies,
such as audit committees, and their auditors. Such requirements for
training also extend to specialists, such as actuaries and valuation
experts, since these professionals are engaged by management to assist
in measuring certain assets and liabilities, and likely are not
currently proficient in IFRS. Professional associations and industry
groups would need to integrate IFRS into their training materials,
publications, testing and certification programs. Colleges and
universities would need to include IFRS in their curricula.\67\
Furthermore, it would be appropriate to include IFRS in the Uniform CPA
Examination.\68\
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    \67\ IFRS supplements to and IFRS content in accounting
textbooks used in U.S. universities have become increasingly
available.
    \68\ The Board of Examiners of the AICPA has issued an exposure
draft, ``Proposed Content and Skill Specifications for the Uniform
CPA Examination'' which proposed, among other things, inclusion of
certain aspects of the IFRS conceptual framework and standard
setting process in future Uniform CPA Examinations. Further, the
proposal states that if IFRS becomes generally accepted in the
United States, inclusion of those standards in the examination would
expand. See http://www.cpa-exam.org/cpa/exposure_draft.html for the
full text of the exposure draft.
---------------------------------------------------------------------------

    On the regulatory side, the Commission staff has continued to
develop its familiarity with IFRS, and such efforts would need to
continue and intensify if the Commission were to

require U.S. issuers to file financial statements prepared in
accordance with IFRS. The Public Company Accounting Oversight Board
(``PCAOB''), as part of its inspection of registered public accounting
firms, regularly reviews the audits of public companies. We understand
the PCAOB has already begun to implement training courses in IFRS to
assist its staff in carrying out inspections, but would need to expand
these training programs.
    The strategies taken by those participants in markets where issuers
already report in accordance with IFRS may serve as examples of
approaches to increasing education and awareness of IFRS. The private
sector may also respond to any increase in demand for education about
IFRS by making educational materials available. Since the Commission's
issuance of the Concept Release in August 2007, several of the largest
accounting firms in the United States have increased the material made
available to the public about IFRS generally as well as about the
application of specific IFRS standards. For example, several of the
accounting firms have held web casts accessible free of charge to the
general public discussing different aspects of IFRS. The Commission
would take into account the then current status of the overall
education, training and readiness of investors, preparers, auditors and
other parties involved in the preparation of financial statements prior
to proceeding with rulemaking on IFRS for all U.S. issuers.
5. Limited Early Use of IFRS Where This Would Enhance Comparability for
U.S. Investors
    This Roadmap contemplates that the Commission would make a decision
in 2011 with regard to the mandated use of IFRS for U.S. issuers, as
described below in Sections III.A.6. and 7. As part of this Roadmap, we
also are proposing amendments to our rules, regulations and forms
which, if adopted, would allow a limited number of U.S. issuers to file
IFRS financial statements prior to any mandated use of IFRS in
Commission filings. These proposed amendments are described later in
this release.
    These proposed amendments would allow the limited early use of IFRS
by U.S. issuers where it would enhance the comparability of financial
reporting to U.S. investors for purposes of comparing the largest U.S.
issuers with the largest non-U.S. companies in the same industry.
Further, the Commission anticipates that providing the alternative to
U.S. issuers to file IFRS financial statements would broaden the
awareness and attention given to IFRS as a single set of high-quality
globally accepted accounting standards.
    The Commission acknowledges the wide variety of opinion that has
been expressed on this subject, including through comment letters
received on the 2007 Concept Release and feedback received in the
Commission's roundtables. Many commenters expressed the view that the
option to use IFRS should be extended to all U.S. issuers. Others
stated that we should require IFRS for all U.S. issuers. Several of
these commenters indicated that any option to use IFRS should only be
part of a transition to the mandatory use of IFRS. Others opposed the
optional or mandatory use of IFRS at this time, and instead called for
a continuation of the ongoing work to improve and converge U.S. GAAP
and IFRS. Still others cited concerns in such areas as tax regimes, the
stage of development of IFRS in certain areas in comparison to U.S.
GAAP, the U.S. legal environment, and the ability of auditors to issue
opinions on IFRS financial statements, as bearing on the questions of
whether and how the use of IFRS should be extended to any U.S. issuers.
We believe allowing the limited use of IFRS by U.S. issuers, only in
those cases where to do so would enhance the comparability of an
industry's financial reporting for the benefit of investors in making
comparisons to non-U.S. issuers, may help inform the decision whether
to mandate the use of IFRS for U.S. public issuers. We also believe
that the ability of capital market participants to evaluate and comment
on these questions would be enhanced by allowing this limited use of
IFRS. We believe this is a prudent approach that will support and
inform our consideration of the milestones in the proposed Roadmap as
well as any future Commission action.
    We also are aware that the proposed amendments would permit some
U.S. issuers to use IFRS financial statements while other U.S. issuers
continue to use U.S. GAAP, thereby creating a dual system of financial
reporting that has not existed previously for U.S. public companies.
This would reduce the comparability among U.S. issuers and would
require investor familiarity with both sets of accounting standards. If
the Commission did not act on further milestones in this Roadmap, this
dual system could continue and could increase if more issuers eligible
to use IFRS elect to do so. To the extent a dual system of financial
reporting develops in the United States for U.S. public companies, and
this development affects the comparability of financial statements
among U.S. public companies, this may create a need to reach a final
resolution on the Roadmap. In order to increase the likelihood that the
comparability between issuers would be enhanced, we therefore have
limited the proposed option to use IFRS to a group of larger U.S.
companies in industries in which IFRS is the most-used set of standards
globally.\69\ We believe that U.S. investors would benefit from an
enhanced ability to compare investment opportunities.
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    \69\ Mindful that all U.S. issuers currently use U.S. GAAP in
their Commission filings, we are also making alternative proposals
for U.S. issuers that elect to use IFRS with respect to the
disclosure of U.S. GAAP information, which should promote the
continued comparability among U.S. issuers whether they use IFRS or
U.S. GAAP in their primary financial statements.
---------------------------------------------------------------------------

6. Anticipated Timing of Future Rulemaking by the Commission
    After reviewing the status of the milestones and the study
discussed below, the Commission would determine, in 2011, whether to
proceed with rules requiring U.S. public companies to file financial
statements prepared in accordance with IFRS by 2014 if it is in the
public interest and promotes investor protection for us to do so. In
order to assist the Commission in determining whether to proceed with
such a rulemaking, the staff has already begun a comprehensive review
of all Commission rules relating to financial reporting in order to
recommend amendments that would fully implement IFRS reporting
throughout the regulatory framework for registration and reporting
under the Exchange Act and the Securities Act.\70\ We believe that a
Commission decision and action in 2011 would provide issuers with
sufficient early notice of the transition to IFRS to permit them to
begin their internal accounting using IFRS in 2012, which would be the
earliest fiscal year that would be covered under the earliest
anticipated phase-in for IFRS reporting in 2014, as described below in
Section III.A.7.
---------------------------------------------------------------------------

    \70\ The Commission also would evaluate the role of a private
sector accounting standard setter, including the role of the FASB
and how IFRS would be incorporated as mandatory accounting standards
for U.S. issuers.
---------------------------------------------------------------------------

    We are proposing this Roadmap towards the mandatory, rather than
elective, use of IFRS for U.S. issuers in order to promote fully a
single set of high-quality globally accepted accounting standards to
improve the comparability of financial information prepared by U.S.
public companies and foreign companies. As described in Section I, IFRS
is the basis of financial reporting used in a large and increasing

number of countries worldwide. Because IFRS has the greatest potential
to become the global standard of accounting, we believe it is in the
interest of U.S. investors, U.S. issuers and U.S. markets to consider
mandating reporting using IFRS in the United States as well.
Additionally, we believe that over the long term the existence of dual
accounting standards in the United States may create challenges in the
U.S. capital markets, such as comparability for investors and other
users of financial information and professional competence of auditors.
We therefore are proposing this Roadmap towards the mandatory use of
IFRS by U.S. issuers.
    If we decide to move forward with rulemaking for the use of IFRS by
U.S. issuers, we expect to continue to require that issuers provide
three years of audited annual IFRS financial statements. Currently,
U.S. issuers are required to provide in their filings with the
Commission three years of audited U.S. GAAP financial statements.\71\
Because the initiative to require the use of IFRS by U.S. issuers
relates to the set of accounting principles that is used for financial
reporting and not to the periods for which financial reporting is
required, the Commission expects that it would require three years of
audited financial statements in the first year of IFRS reporting.\72\
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    \71\ See Rule 3-02(a) of Regulation S-X [17 CFR 210.3-02(a)].
    \72\ To illustrate, if we require IFRS for the years ending on
or after December 15, 2014, a calendar year company would report for
the year ending December 31, 2014 using IFRS for the years ending
December 31, 2012, 2013 and 2014. Many such companies would want to
start IFRS internal accounting on January 1, 2012. However, during
2012, 2013 and the first three quarters of 2014, they would continue
to be publicly reporting under existing U.S. GAAP.
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    To assist the Commission in its decision to mandate the use of IFRS
by U.S. issuers, the Commission directs the Office of the Chief
Accountant with appropriate consultation with other Divisions and
Offices to undertake a study and report to the Commission on the
implications for investors and other market participants of the
implementation of IFRS for U.S. issuers. We anticipate that the report
would be made public by the Commission.
7. Implementation of the Mandatory Use of IFRS
    One means of implementing IFRS reporting by U.S. issuers that we
are considering is a staged transition, as opposed to all U.S. issuers
transitioning at once. Provisionally, under the transition, IFRS
filings would begin for large accelerated filers for fiscal years
ending on or after December 15, 2014.\73\ Accelerated filers would
begin IFRS filings for years ending on or after December 15, 2015. Non-
accelerated filers, including smaller reporting companies, would begin
IFRS filings for years ending on or after December 15, 2016. In each
instance, this would allow the filer to begin its books and records and
internal accounting controls with respect to IFRS reporting for all
three years of audited financial statements that would be required in
its first year of IFRS reporting (e.g., 2012 to 2014 for large
accelerated filers, 2013 to 2015 for accelerated filers, and 2014 to
2016 for non-accelerated filers).
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    \73\ The terms ``large accelerated filer'' and ``accelerated
filer'' are defined in Exchange Act Rule 12b-2 [17 CFR 240.12b-2].
Although the term ``non-accelerated filer'' is not defined in our
rules, we use it in this release to refer to an Exchange Act
reporting company that does not meet the Rule 12b-2 definition of
either an ``accelerated filer'' or a ``large accelerated filer.''
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    We understand that a transition from one set of accounting
standards to another, including changing the controls and systems
relating to the production of financial statements, would involve
costs. The definitions of accelerated filer and large accelerated filer
under the Exchange Act reference the size of an issuer based on its
worldwide public float of its equity securities. Our current
expectation that an issuer's status as an accelerated filer could
determine the date of a required transition to IFRS is based on the
premise that larger issuers would be better able to allocate resources
to the transition to IFRS more quickly than smaller issuers, and a
staged transition also may help manage resource demands on auditors,
consultants and other market participants. Reliance on the existing
definitions of accelerated/large accelerated filer also is expected to
facilitate an orderly, predictable transition to IFRS because an issuer
would already need to ascertain its status as an accelerated filer for
other reporting purposes and allow it to predict when it would be
required to adopt IFRS.\74\ This predictability may also encourage
voluntary movement to IFRS, as an issuer may have an incentive to use
IFRS prior to the date the rules would require it to do so if its
competitors were already using IFRS.\75\ We also recognize, however,
that sequencing the transition, while it would avoid some costs
associated with all issuers transitioning at once, also would result in
some non-comparability of financial information due to application of
the IFRS transition provisions at differing dates. Staging the
transition by an issuer's size would embed that non-comparability among
the issuers within an industry. Further, a staged transition would,
temporarily, create a dual system of reporting for U.S. issuers that
would require investor familiarity with both IFRS and U.S. GAAP, as
described above in Section III.A.5.
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    \74\ Exchange Act Rule 12b-2 contains provisions for entering
and exiting accelerated filer and large accelerated filer status,
including when an issuer must determine its status.
    \75\ In addition, we anticipate that newly public companies,
which are non-accelerated filers until after their first year of
reporting, would be able to use IFRS prior to a mandatory phase-in
date for non-accelerated filers if the Commission decided to adopt a
staged or sequenced transition to IFRS as discussed.
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    As part of the Commission's evaluation, it also may consider
transition rules to expand the eligibility criteria of those U.S.
issuers which could elect to use IFRS in their Commission filings, so
that additional U.S. issuers would be able to use IFRS prior to a
mandatory transition date. In proceeding along the Roadmap, the
Commission would consider the circumstances in which the early use of
IFRS would be most appropriate for investor protection and capital
formation. Another consideration would be how to address the current
choices available to foreign private issuers for their financial
reporting in filings with the Commission. Currently, foreign private
issuers can choose to prepare their financial statements in accordance
with U.S. GAAP, IFRS as issued by the IASB, or another comprehensive
set of accounting principles with a reconciliation to U.S. GAAP.

B. Other Areas of Consideration

    The process of incorporating new accounting standards into any
financial reporting system naturally varies between jurisdictions and
is accomplished gradually. Differences between national accounting
standards, including the extent of similarities or differences between
financial reporting frameworks and the degree of judgment they require,
affect any given jurisdiction's experience with transition to financial
reporting that is in accordance with IFRS. In addition, there are many
elements forming the infrastructure underpinning a set of accounting
standards that keep it current and functioning effectively in a given
jurisdiction. Integration considerations related to the use of IFRS in
different jurisdictions also are manifested in the different regulatory
and legal environments. If the Commission were to require U.S. issuers
to report in accordance with IFRS, a number of considerations and
actions with a series of lead times may be

required for investors, issuers, and other parties that use financial
statements or have a role in the capital markets or the financial
reporting infrastructure. Some of these considerations are discussed in
the remainder of this section.
1. The Roles of Financial Information
    In addition to filing financial statements with the Commission,
U.S. issuers commonly provide financial information to other parties.
While the federal securities laws provide the Commission with the
authority to prescribe accounting principles and standards to be
followed by public companies and other entities that file financial
statements with the Commission, the provision and content of
information to other parties may not be generally or directly regulated
by the Commission. However, changes in the accounting standards used
for purposes of preparing financial statements included in filings with
the Commission could have an effect on financial reporting by companies
to other parties. The following provides examples of circumstances or
parties that may be affected.
    Various federal and state regulators, including regulators of
financial institutions, insurance companies and public utilities, are
provided with periodic financial information on an on-going basis. For
example, U.S. GAAP financial statements frequently are used as the
basis for determining capital requirements for financial institutions.
Another example of the effect on reporting to others relates to federal
and state income taxes. As the Internal Revenue Code has developed over
an extended period of time with existing U.S. GAAP as the predominant
set of accounting standards used in the United States, certain
interactions exist between certain provisions of U.S. GAAP and income
tax requirements. For example, the Internal Revenue Code has conformity
provisions related to the method of accounting for inventory for tax
reporting purposes and the method used for reporting to shareholders
(and other owners or beneficiaries) or for credit purposes.\76\ IFRS
does not allow for the use of the last-in, first-out, or LIFO, method
of accounting for inventory.\77\ As a result, a company that reports in
accordance with IFRS would be required to use a method of accounting
for inventory that is acceptable under IFRS, for example the first-in,
first-out, or FIFO, method. U.S. issuers changing to FIFO for financial
reporting purposes may experience a change in taxable income based on
the difference between inventory valued on a LIFO basis and on a FIFO
basis.
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    \76\ See Section 472 of the Internal Revenue Code.
    \77\ See IAS 2 ``Inventories,'' paragraph IN63.
---------------------------------------------------------------------------

    Many U.S. companies have issued debt securities under indentures or
have entered into lending agreements that may contain various covenants
based upon financial measurements, such as a stated minimum net worth.
Those indentures and agreements, as well as other types of contractual
agreements to which issuers may be subject, may require periodic
reporting of financial information. These contractual obligations may
explicitly require the use of U.S. GAAP in connection with financial
covenants or financial reporting. Other contractual obligations may
have an assumption about the nature of the accounting model under which
such reporting will occur. For a U.S. issuer, it is likely that such
requirements are based on how U.S. GAAP would report financial results.
    Some market indices, such as the S&P 500, currently only include
issuers that report financial statements in accordance with U.S. GAAP.
IFRS reporting might affect an issuer's ability to be included in such
indices or financial instruments based on those indices, exclusion from
which may have an adverse effect on these issuers, unless the
instruments or indices make any necessary changes to include issuers
which report in IFRS.
2. Accounting Systems, Controls and Procedures
    Use of any new accounting standards requires changes to financial
reporting systems and procedures to identify, collect, analyze and
report financial information and the corresponding controls. Changing
numerous accounting standards at the same time, regardless of the
starting point, would require numerous changes in a company's policies
and procedures and system of internal controls. Some changes may prove
more complicated than others. Systems changes would apply not only to
the issuers preparing such statements, but also to various other market
participants such as users of financial information and regulators.
Some companies that have significant foreign operations may already
have familiarity with IFRS. It may not be as difficult for these
companies to adopt IFRS for all of their operations for U.S. reporting
purposes.
    There would be additional implications on financial reporting. Two
examples of the implications relate to an issuer's equity method
investment in another company and initial public offerings. Many
issuers hold investments in other entities which are accounted for
under the equity method. In order for an issuer to properly record the
equity method investment, the issuer would need IFRS-based information
about the investee each reporting period. If the investment were in
equity of a company using U.S. GAAP for its own financial statement
preparation and reporting purposes, obtaining the required IFRS-based
information may prove difficult and costly. This would be similar to
the situation that exists today if an issuer using U.S. GAAP has an
equity investee that uses a different basis of financial reporting.
Further, an additional cost and complication would be added to the
initial public offering process if a private company whose financial
statements were not in accordance with IFRS were required to provide
them for purposes of its initial registration statement with the
Commission.
3. Auditing
    Another affected party is the audit firms that are engaged to audit
a U.S. issuer's financial statements and to report on the effectiveness
of its internal control over financial reporting. This may be
particularly challenging for less globally oriented audit firms, which
typically may have fewer resources available through affiliated or
network firms located in jurisdictions in which issuers already report
in accordance with IFRS. This could be a further factor affecting
concentration in the auditing profession.
    Audit firms would need to consider elements of their systems of
quality control, such as their practices related to hiring, assigning
personnel to engagements, professional development and advancement
activities. Some U.S. audit firms already have some experience with
conducting audits of financial information prepared in accordance with
IFRS, as they may be involved in the audit of the U.S. operations of a
foreign company that does so. But because U.S. auditors generally have
less experience with IFRS than with U.S. GAAP, in the short term, U.S.
audit firms may encounter challenges in establishing policies and
procedures, and hiring and training personnel, to provide themselves
with reasonable assurance that their personnel would possess knowledge
appropriate to perform audits of U.S. issuers. Even with appropriate
systems of quality control, however, additional auditing guidance still
may be necessary.
    Additionally, U.S. firms that are members of global audit networks
may have already begun to consider systems of quality control to foster
the high

quality and consistent application in reporting under IFRS across
national borders. If U.S. issuers were to report in accordance with
IFRS, the U.S. firms of these global audit networks could be affected
more than they are presently by the reporting of audit clients of their
foreign affiliates and by U.S. subsidiaries of those clients.
    One consideration for audit firms relates to their ability to issue
opinions on IFRS financial statements in accordance with PCAOB
standards. For example, one of the conditions under IFRS for
recognizing a provision for a legal contingency is that it is more
likely than not that an obligation exists.\78\ This recognition
threshold is lower than the current recognition threshold in U.S. GAAP,
resulting in the potential for an earlier income statement recognition
of costs associated with litigation.\79\ Concerns have been raised
about an auditor's ability to corroborate the information furnished by
management related to litigation, claims, and assessments by obtaining
an audit inquiry letter from a client's attorney.\80\
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    \78\ See IAS 37, paragraphs 15 and 16.
    \79\ See FAS 5.
    \80\ Some believe that changes to the American Bar Association
Statement of Policy Regarding Lawyers' Responses to Auditors'
Requests for Information may be necessary. See AU Sec.  337C. The
Statement of Policy, commonly referred to as the ``Treaty,''
recognizes the professional responsibilities of attorneys and
auditors and seeks to preserve confidentiality while providing the
necessary level of assurance for the audit. The Treaty recognizes
that the confidentiality of communications between an attorney and a
client may be impaired by the disclosure of the substance of such
communications to third parties, including auditors. By describing
thresholds for disclosure and limitations on responses, the Treaty
sets the scope of the attorney's responses to audit requests for
information on legal matters. Some believe that the thresholds and
limitations described in the Treaty are inconsistent with certain
provisions within IFRS.
---------------------------------------------------------------------------

    We note that references to current U.S. GAAP literature exist in
various standards issued by the PCAOB and other accounting or auditing
organizations. If IFRS were required for all U.S. issuers, amendments
to existing references to U.S. GAAP literature may be appropriate.
Certain changes have already begun with respect to IFRS in the U.S.
accounting profession. For example, under AICPA rules, a member of the
AICPA can only report on financial statements prepared in accordance
with standards promulgated by standard setting bodies designated by the
AICPA Council. In May 2008, the AICPA's Council voted to designate the
IASB in London as an international accounting standard setter for
purposes of establishing international financial accounting and
reporting principles, and to make related amendments to its rules to
provide AICPA members with the option to use IFRS.\81\
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    \81\ See http://www.aicpa.org/download/info/AICPA_NewsUpdate_
Vol.11_No.21.pdf.
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4. Considerations of IFRS and the IASB's Standard Setting Process
a. State of IFRS
    As discussed in the 2007 Concept Release, IFRS is not as developed
as U.S. GAAP in certain areas.\82\ IFRS also is not as prescriptive as
U.S. GAAP in certain areas and in certain areas permits a greater
amount of options than in U.S. GAAP.\83\ The smaller volume of IFRS
literature as compared to U.S. GAAP may decrease the amount of
authoritative guidance available in a particular circumstance. This
relatively lesser amount of guidance and, in some cases, greater
optionality in IFRS could reduce comparability of reported financial
information, as different issuers may account or provide disclosure for
similar transactions or events in different ways but this flexibility
also allows a financial statement that may more closely reflect the
economics of transactions. As we noted in the 2007 Concept Release, in
certain limited areas in which the IASB has yet to develop guidance on
particular industry activities in which IFRS permits disparate options,
we have noted that the level of diversity has manifested itself in the
reporting practices of foreign private issuers.
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    \82\ IFRS does not have a specific standard or interpretation on
accounting treatment for insurance contracts, extractive activities,
certain common control transactions, recapitalization transactions,
reorganizations, acquisitions of minority shares not resulting in a
change of control and similar transactions. However, there are areas
where current U.S. GAAP also does not have a single comprehensive
standard or interpretations, such as for revenue recognition or
property, plant and equipment.
    \83\ As noted by CIFiR in its Final Report: ``From an
international perspective, we note that IFRS currently permits
numerous alternative accounting policies. While we acknowledge the
IASB's efforts in reducing some of these alternative treatments, we
nonetheless believe the SEC should encourage the IASB to [...] seek
to eliminate alternatives as part of its standards-setting
projects.'' CIFiR Final Report, at 51.
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    As U.S. GAAP has been used longer and more extensively than IFRS,
more U.S. GAAP implementation guidance has developed over time. A
variety of factors may have resulted in the accounting profession in
the United States becoming more accustomed to relying on a greater
degree of detailed accounting guidance, including factors such as
seeking consistency and reducing exposure to litigation and
liabilities. Such guidance also can affect the outcomes of discussions
between management and auditors on the use of a particular accounting
treatment. Less prescriptive guidance also may make litigation or
enforcement outcomes more difficult to predict.
    On the other hand, less prescriptive guidance may increase issuers'
ability to account for transactions or events in accordance with their
underlying economics, which could improve comparability of economically
similar situations and highlight differences in dissimilar situations.
As CIFiR noted in its final report:

    Investors are likely to benefit from more emphasis on
principles-based standards, since rules-based standards * * * may
provide a method, such as through exceptions and bright-line tests,
to avoid the accounting objectives underlying the standards. In
other words, without the exercise of judgment, rules in the form of
bright lines may result in a false consistency--that is, ostensibly
uniform accounting for differing fact patterns. If properly
implemented, ``principles-based'' standards should improve the
information provided to investors while reducing investor concerns
about ``financial engineering'' by companies using the rules to
avoid accounting for the substance of a transaction.\84\
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    \84\See CIFiR Final Report, at 88.

The Commission and its staff also have supported the increased use of
objectives, outcomes and principles in accounting standards in contrast
to detailed prescriptive guidance.\85\
---------------------------------------------------------------------------

    \85\ For example, the SEC issued ``Policy Statement: Reaffirming
the Status of the FASB as a Designated Private-Sector Standard
Setter'' Release No. 33-8821 (April 25, 2003), which included
numerous recommendations for the FAF and FASB to consider, including
greater use of principles-based accounting standards whenever
reasonable to do so. The SEC staff also issued ``Study Pursuant to
Section 108(d) of the Sarbanes-Oxley Act of 2002 on the Adoption by
the United States Financial Reporting System of a Principles-Based
Accounting System'' (July 25, 2003), which further explained the
benefits of objectives-oriented standards.
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    In addition, in cases where specific guidance is not available,
IFRS encourages disclosure on the accounting policies that the preparer
of the financial statements has elected and applied.\86\ The same also
is generally true where IFRS permits greater

optionality.\87\ In adopting IFRS, an issuer may find it appropriate to
evaluate its disclosure practices, such as the disclosure provided in
financial statement footnotes and management's discussion and analysis,
to clearly communicate these choices. Further, as we indicated when we
adopted changes to accept IFRS financial statements from foreign
private issuers without a reconciliation to U.S. GAAP,\88\ our staff
has indicated that the issues it has observed in its review of IFRS
financial statements do not appear to be more pervasive or significant
than those it has identified in U.S. GAAP financial statements.
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    \86\ In areas for which an IFRS does not exist, IAS 8
``Accounting Policies, Changes in Accounting Estimates and Errors''
requires preparers to use judgment in developing accounting policies
such that financial information is provided that, among other
things, is relevant to the needs of users and the financial
statements reliably reflect the economic substance of transactions.
In applying such judgment, preparers must consider other guidance
found in IFRS and, if no analogous guidance is found, the
definitions, criteria and concepts in the IFRS conceptual framework.
Additionally, IAS 8 allows preparers to consider pronouncements of
other standard setting bodies if those pronouncements are drawn from
a conceptual framework similar to that underlying IFRS, to the
extent that such pronouncements do not conflict with IFRS.
    \87\ See IAS 1 ``Presentation of Financial Statements,''
paragraph 119 for general guidance on disclosure of accounting
policies from among alternatives. Certain standards under IFRS
specifically require disclosure of selected accounting policies when
choices are allowed. See for example IAS 16 ``Property, Plant and
Equipment,'' paragraph 73.
    \88\ See the 2007 Adopting Release.
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b. Relationship to the Accounting Standard Setting Process
    A change to commit U.S. reporting to following IFRS would include a
change in the relationship of the U.S. capital markets to the
accounting standard setting process. The IASB and its related
organizations include members from a number of countries. The IASB is
expected to be responsive to broad, world-wide constituencies of
investors, issuers, regulators and many others in all facets of its
work, including the establishment of its agenda and the development of
standards. These constituencies can be expected to represent a wide
range of interests, reflecting varying economic, social and political
environments.
    These factors likely would mean that the interaction, and
potentially the relevance and influence, of U.S. capital market
participants, including the Commission and its staff, would be reduced
compared to the current standard setting process in the United States.
The IASB is expected to consider its world-wide constituencies of
investors, issuers, and regulators during the deliberative process for
issuing new or revised accounting standards. Further, the IASB has
entered into convergence agreements with other national accounting
standard setters, such as with the Accounting Standards Board of
Japan.\89\ Due to the IASB's need to develop standards with a wider
variety of constituents in mind, U.S. capital market participants will
have a lesser degree of input into the standard setting process
including fewer members of the IASB and fewer participants on
roundtables and advisory and other groups than they currently have in
the U.S. standard setting process. Further, in the U.S. standard
setting process, participants from multiple constituencies but in the
same geographic market (i.e., the United States) are involved. On the
IASB, constituencies and geographic market (i.e., different countries)
participation are commingled. Also, constituents involved in the IFRS
standard setting process may come from different financial reporting
environments and may have objectives that are different from or not
present in the standard setting process for U.S. GAAP.
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    \89\ See http://www.iasb.org/News/Press+Releases/
The+ASBJ+and+the+IASB+announce+Tokyo+Agreement+on+achieving+convergen
ce+of+accounting+standards+by+2.htm.
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    In addition, individual jurisdictions' processes for incorporating
IFRS into their markets may result in varying degrees of pressure
placed on the IASB in the development of individual standards. For
example, some jurisdictions adopt or endorse IFRS on a standard-by-
standard basis unlike the historical approach in the United States to
look to a standard setter to establish the body of accounting standards
as a whole. Further, the IASB's need to consider a greater number of
constituents in seeking consensus on a new or revised standard, and the
associated need to consider multiple jurisdictions in scheduling
implementation, could lead to a longer deliberative process in issuing
accounting standards. Further, individual jurisdictions, through their
securities regulators, accounting standard setters or other bodies,
could adopt or provide for interpretations or applications of IFRS for
companies in those jurisdictions which are different from those in
other jurisdictions.
    The Commission's participation in the oversight of the IASB would
principally be through participation in the Monitoring Group proposed
by the IASB's governing body, the IASC Foundation. This would be a less
direct oversight relationship as to the participation in board and
trustee appointments, review of finances, and interaction with the
board than the Commission and its staff has currently with respect to
the FASB and the Financial Accounting Foundation.\90\
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    \90\ See FR 70. As noted earlier, this release does not address
the method the Commission would use to mandate IFRS for U.S.
issuers. In addition, the Commission would retain the ability to
take such action as may be appropriate to address financial
reporting issues in filings with the Commission.
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Request for Comment
    1. Do commenters agree that U.S. investors, U.S. issuers and U.S.
markets would benefit from the development and use of a single set of
globally accepted accounting standards? Why or why not? What are
commenters' views on the potential for IFRS as issued by the IASB as
the single set of globally accepted accounting standards?
    2. Do commenters agree that the milestones and considerations
described in Section III.A. of this release (``Milestones to be
Achieved Leading to the Use of IFRS by U.S. Issuers'') comprise a
framework through which the Commission can effectively evaluate whether
IFRS financial statements should be used by U.S. issuers in their
filings with the Commission? Are any of the proposed milestones not
relevant to the Commission's evaluation? Are there any other milestones
that the Commission should consider?
    3. Do commenters agree with the timing presented by the milestones?
Why or why not? In particular, do commenters agree that the Commission
should make a determination in 2011 whether to require use of IFRS by
U.S. issuers? Should the Commission make a determination earlier or
later than 2011? Are there any other timing considerations that the
Commission should take into account?
    4. What are commenters' views on the mandated use of IFRS by U.S.
issuers beginning in 2014, on an either staged-transition or non-staged
transition basis? Should the date for mandated use be earlier or later?
If the Commission requires the use of IFRS, should it do so on a staged
or sequenced basis? If a staged or sequenced basis would be
appropriate, what are commenters' views on the types of U.S. issuers
that should first be subject to a requirement to file IFRS financial
statements and those that should come later in time? Should any
sequenced transition be based on the existing definitions of large
accelerated filer and accelerated filer? Should the time period between
stages be longer than one year, such as two or three years?
    5. What do commenters believe would be the effect on convergence if
the Commission were to follow the proposed Roadmap or allow certain
U.S. issuers to use IFRS as proposed?
    6. Is it appropriate to exclude investment companies and other
regulated entities filing or furnishing reports with the Commission
from the scope of this Roadmap? Should any Roadmap to move to IFRS
include these entities within its scope? Should these considerations be
a part of the

Roadmap? Are there other classes of issuers that should be excluded
from present consideration and be addressed separately?
    7. Do commenters agree that these matters would affect market
participants in the United States as described above? What other
matters may affect market participants? Are there other market
participants that would be affected by the use by U.S. issuers of IFRS
in their Commission filings? If so, who are they and how would they be
affected?
    8. Would a requirement that U.S. issuers file financial statements
prepared in accordance with IFRS have any affect on audit quality, the
availability of audit services, or concentration of market share among
certain audit firms (such as firms with existing international
networks)? Would such a requirement affect the competitive position of
some audit firms? If the competitiveness of some firms would be
adversely affected, would these effects be disproportionately felt by
firms other than the largest firms?
    9. What are commenters' views on the IASB's and FASB's joint work
plan? Does the work plan serve to promote a single set of high-quality
globally accepted accounting standards? Why or why not?
    10. How will the Commission's expectation of progress on the IASB's
and FASB's joint work plan impact U.S. investors, U.S. issuers, and
U.S. markets? What steps should be taken to promote further progress by
the two standard setters?
    11. The current phase of the IASB's and FASB's joint work plan is
scheduled to end in 2011. How should the Commission measure the IASB's
and FASB's progress on a going-forward basis? What factors should the
Commission evaluate in assessing the IASB's and the FASB's work under
the joint work plan?
    12. What are investors', U.S. issuers', and other market
participants' views on the resolution of the IASB governance and
funding issues identified in this release?
    13. What steps should the Commission and others take in order to
determine whether U.S. investors, U.S. issuers, and other market
participants are ready to transition to IFRS? How should the Commission
measure the progress of U.S. investors, U.S. issuers, and other market
participants in this area? What specific factors should the Commission
consider?
    14. Are there any other significant issues the Commission should
evaluate in assessing whether IFRS is sufficiently comprehensive?
    15. Where a standard is absent under IFRS and management must
develop and apply an accounting policy (such as described in IAS 8, for
example) should the Commission require issuers to provide supplemental
disclosures of the accounting policies they have elected and applied,
to the extent such disclosures have not been included in the financial
statements?

IV. Proposal for the Limited Early Use of IFRS Where This Would Enhance
Comparability for U.S. Investors

A. Eligibility Requirements

    We are proposing amendments to our rules that would allow certain
U.S. issuers that meet specific criteria to file financial statements
in accordance with IFRS as issued by the IASB, rather than U.S. GAAP,
for use in their annual and other reports made under Section 13(a) or
15(d) of the Exchange Act,\91\ proxy statements and information
statements under Schedules 14A and 14C under the Exchange Act,\92\ as
well as in registration statements under the Securities Act and the
Exchange Act.\93\ The Commission is proposing these amendments for
several reasons. Investors may find the financial information provided
by eligible issuers who elect to report such information in accordance
with IFRS to be more comparable to the financial information of non-
U.S. competitors. Permitting some U.S. issuers to report under IFRS may
provide assistance in a transition to mandatory financial reporting in
accordance with IFRS by creating additional, but manageable, demand for
IFRS-related services at this time. The Commission also could learn
from investors and the U.S. public capital market participants about
their consideration of IFRS financial information from domestic
issuers. Further, investors in the industry sectors for which the
eligibility requirements are met likely would have familiarity with
IFRS given that it is used more than any other financial reporting
standard on a global basis. The Commission recognizes that there are
many questions relating to permitting some U.S. issuers to report under
IFRS, particularly in light of the proposed milestones, and encourages
public comment on the proposal and the related alternative proposals
concerning what, if any, additional U.S. GAAP information should be
provided by electing issuers.
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    \91\ 15 U.S.C. 78m(a) or 78o(d). Section 13(a) of the Exchange
Act requires every issuer of a security registered pursuant to
Section 12 of the Exchange Act [15 U.S.C. 781] to file with the
Commission such annual reports and such other reports as the
Commission may prescribe. Section 15(d) of the Exchange Act requires
each issuer that has filed a registration statement that has become
effective pursuant to the Securities Act to file such supplementary
and periodic information, documents and reports as may be required
pursuant to Section 13 in respect of a security registered pursuant
to Section 12, unless the duty to file under Section 15(d) has been
suspended for any financial year.
    \92\ 17 CFR 240.14a-101 and 17 CFR 240.14c-101.
    \93\ As such, the proposed option would not apply to the filing
requirements for other regulatory purposes, such as those of
regulated entities such as broker-dealers.
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    In deciding which issuers should be proposed for inclusion in this
group, the objective of the Commission was to identify those categories
of U.S. issuers for whom the use of IFRS would promote comparability
with their significant industry competitors. Since investors frequently
make capital allocation decisions among companies within a particular
industry sector,\94\ the first element of the eligibility criteria
relates to the use of IFRS in the issuers' industry. The second element
is intended to focus on significant competitors within the industry
group, and so requires an identification of the accounting standards
used by the largest twenty companies by market capitalization. We
believe these are the competitors which are the most likely to be
comparable among themselves and most likely to be ready to make the
transition to IFRS. Both proposed elements--the prevalence of the use
of IFRS and the significance of the issuer in a given industry--would
need to be met for a U.S. issuer to be eligible to file its financial
statements in accordance with IFRS with the Commission.
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    \94\ For example, at the end of 2007, there were 219 exchange-
traded funds with an industry/sector-based investment objective,
with net assets of approximately $93 billion. 2008 Investment
Company Factbook, published by the Investment Company Institute.
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    The industry criterion identifies companies for which we
preliminarily believe it would be overall beneficial to investors for
the U.S. issuer to be eligible to use IFRS because financial statement
comparability with other significant competitors in their industry
would be promoted and enhanced. Under this test, an industry would be
eligible if IFRS is used as the basis of financial reporting more often
than any other basis of financial reporting by the 20 largest listed
companies worldwide within that industry as measured by market
capitalization. The U.S. issuer would make that determination as
follows:
    (1) An issuer would ascertain its industry group by using the North
American Industry Classification

System (NAICS) \95\ code at the three-digit level, Standard Industrial
Classification (SIC) \96\ codes at the two-digit level, or the
International Standard Industrial Classification (ISIC) \97\ codes at
the ``Division'' level. Alternatively, the issuer could use a privately
provided, published, and widely accepted industry classification scheme
at a similar level of detail, such as the Industry Classification
Benchmark (ICB) \98\ at the ``Sector'' level or the Global Industry
Classification Standard (GICS) \99\ at the ``Industry'' level. For
classifications of individual companies, the issuer must use a single
published and widely accepted industry source. (The provider of the
classification scheme may be the same entity as the source of
classifications of individual companies.)
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    \95\ See http://www.census.gov/epcd/www/naics.html.
    \96\ See http://www.census.gov/epcd/www/sic.html.
    \97\ See http://unstats.un.org/unsd/class/family/
family2.asp?Cl=27.
    \98\ See http://www.icbenchmark.com/.
    \99\ See http://www.mscibarra.com/products/gics/.
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    (2) Then, the U.S. issuer would determine whether IFRS is used as
the basis of financial reporting more than any other basis of financial
reporting by the 20 largest listed companies worldwide within its
industry.
    a. An issuer would do this by first identifying the 20 largest
listed companies globally in its industry by market
capitalization.\100\ For the purposes of this calculation, market
capitalization should be determined as of the same day within the 180
days preceding the date on which the SEC staff receives a request for a
letter of no objection (as described below). Market capitalization
would need to be determined from a widely accepted source.
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    \100\ For these purposes, market capitalization refers to the
worldwide market value of a company's outstanding voting and non-
voting common equity securities.
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    b. Next, the U.S. issuer would ascertain which accounting standards
each of the 20 companies uses to report its financial results to the
public capital markets. Companies within the industry are considered to
report under a specified set of accounting standards if they have
published audited annual financial statements under those accounting
standards.\101\ As described below, a U.S. company that elects to
report using IFRS would be required to file financial statements
prepared in accordance with IFRS as issued by the IASB.
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    \101\ For purposes of the calculation, companies reporting under
more than one set of standards can be counted as using any of these
standards.
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    If the U.S. issuer were among the 20 largest companies globally in
a particular industry and IFRS is used as the basis of financial
reporting more often than any other basis of financial reporting among
the 20 largest listed companies worldwide in that industry, then the
U.S. issuer would be eligible to elect to use IFRS in its filings with
the Commission. To illustrate, if among the top 20 companies in a given
industry, there were 8 companies using IFRS, 7 using U.S. GAAP and 5
using other bases of financial reporting, the industry would be viewed
as an ``IFRS industry'' and the 7 U.S. companies would be eligible to
change to IFRS.\102\ If among the top 20 companies there were 4 using
IFRS, 3 using U.S. GAAP and 13 using other bases of financial reporting
but no single other basis accounted for more then 3, the industry would
be viewed as an IFRS industry. In contrast, if among the top 20
companies there were 7 using IFRS, 7 using U.S. GAAP and 6 using other
bases of financial reporting, the industry would not be considered an
IFRS industry. If there were 8 companies using U.S. GAAP, 7 using IFRS
and 5 using other bases of financial reporting, then the industry also
would not be an IFRS industry and the U.S. companies would not be
eligible to use IFRS.
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    \102\ The distribution of size among the top 20 companies would
not matter. In other words, there would be no requirement that the
group of companies using a given set of accounting principles, such
as IFRS, would constitute the largest percentage by market
capitalization within the industry or in comparison to other groups
of countries using other sets of accounting principles. The only
criterion would be that the number of companies using IFRS was more
than the number of companies using any other basis of financial
reporting.
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    Using one of the industry classification systems (SIC codes), we
estimate that at present a minimum of approximately 110 U.S. issuers in
34 ``IFRS industries'' would be eligible to receive a letter of no
objection from the staff using the proposed criteria.\103\ Our estimate
contains a number of assumptions and may be impacted by some data not
being readily available, as indicated below. Further, certain factors
could result in the number of eligible issuers becoming higher,
although this availability is most likely to occur in periods beyond
2011 when the Commission would expect to make its decision on IFRS
implementation under the Roadmap.\104\
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    \103\ For example, under the methodology described in this
section, metal mining under SIC code 10 and conglomerates under SIC
code 99 may be eligible.
    \104\ The number of eligible companies at the outset could be
higher due to the fact that different industry classification
systems would be available to determine eligibility. This could
affect the number of U.S. issuers that would be ranked among the 20
largest in their industry by market capitalization, because
companies may be eligible to use IFRS under one classification
system, but not another. In addition, if companies in an industry
that is eligible under one classification system switch to IFRS,
this action may result in IFRS being used more often than any other
set of standards within a separate industry, under a different
classification system. This effect could result in an expansion of
IFRS industries as U.S. companies switch to IFRS, and, in turn, an
increase in eligible U.S. companies. In addition, under the proposed
eligibility criteria, as more countries change to IFRS, more
industries may become ``IFRS industries,'' and more U.S. companies
would become eligible to file IFRS financial statements. For
example, assuming that Brazil, Canada, Chile and South Korea follow
IFRS, the number of IFRS industries increases by 9 and total number
of eligible U.S. companies under our methodology would increase to
approximately 160, representing approximately 23% of the market
capitalization in the United States. Also, to the extent the mix of
competitors by market capitalization changes to include more
competitors that report in IFRS, additional industries may qualify
as IFRS industries over time. We estimate that, if all 74 industries
under our methodology were IFRS industries the theoretical maximum
number of U.S. issuers that could be eligible given the present
assumptions of companies in the top 20 by industry would be
approximately 380, representing 57% of the market capitalization in
the United States. The potential impact of this dynamic is limited,
however, by the fact that the Roadmap anticipates a decision by the
Commission on the use of IFRS by 2011. Eligibility would likely
expand for other reasons. For example, relatively young foreign
public equity markets, particularly in emerging markets, are
developing at a faster rate than the mature U.S. equity market,
resulting in greater representation of large foreign companies on
equity exchanges. This factor may result in an increase in the
number of IFRS-using listed companies in the top 20 of each
industry, by market capitalization, and a corresponding increase in
eligible industries.
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    To develop our estimate of the potentially eligible issuers, our
staff obtained data from publicly available sources on the 20 largest
listed companies measured by market capitalization in each industry,
using two-digit SIC industry classification codes as assigned by
Standard and Poors' COMPUSTAT.\105\ We did not estimate what the
population of eligible issuers would be under other industry
classification methods available under this proposed rule. Therefore,
our estimate represents a lower bound on the number of U.S. issuers at
present that we believe may be eligible to adopt IFRS under this
proposed rule.
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    \105\ There are 74 industry groups under this classification
approach. For some industries, there were less than 20 companies
available under the data obtained. Our staff kept these industries
in its population applying the test of whether IFRS was used more
than any other basis of reporting among the available list of
companies in that industry.
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    To simplify the analysis, the staff relied on a number of
assumptions

regarding the bases of accounting of the companies in the estimated
population. In evaluating what bases of financial reporting were used
by the companies within this estimated population, our staff assumed
that all U.S. entities were registered with the Commission and
therefore reporting under U.S. GAAP. In addition, the staff assumed
that any company from an E.U. country, Australia, New Zealand, South
Africa or Switzerland was reporting under IFRS. For other companies,
our staff attempted to obtain information on the set of accounting
standards used. For purposes of this analysis, an assumption was made
that any assertion as to the use of IFRS, such as on the issuer's Web
site, in the issuer's financial statements or in the audit report, was
considered as reporting under IFRS.
    In some cases, our staff was not able to obtain sufficient
information about the basis of financial reporting used. For example,
published financial statements could not be readily located for all
companies and for others financial statements were not readily
available in English. Because of this and other limitations, the
staff's estimate is an approximate minimum number of issuers that would
currently be eligible under the proposed rule, and the actual number
could be significantly greater. Based on these assumptions,
approximately 34 of the 74 industries identified would be ``IFRS
industries.'' The minimum of approximately 110 U.S. issuers that we
estimate presently would be eligible to file IFRS financial statements
had as of December 2007 a total market capitalization of $2.5 trillion,
which represented approximately 12% of the total U.S. market
capitalization.\106\ The market capitalization of these eligible
companies range from approximately $250 million to $300 billion, with a
mean of $23 billion and a median of $8.3 billion. Approximately 94% of
these eligible issuers would have a worldwide market capitalization
over $700 million.
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    \106\ Based on an estimated U.S. market capitalization of $20
trillion. See http://www.world-exchanges.org/WFE/home.asp?menu=395.
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B. Staff Letter of No Objection to the Use of IFRS

    To be able to use IFRS financial statements in filings with the
Commission, the U.S. issuer would need to obtain a letter of no
objection from the SEC staff. This process would assist U.S. issuers in
determining whether they would be eligible to switch to IFRS financial
statements and provide them with greater certainty before they
undertake the complex process of converting their financial statements
from U.S. GAAP to IFRS. In addition, through our postings of these
letters on our Web site, we would provide information to investors and
others about the possibility of the issuer filing reports using IFRS.
Obtaining a staff no-objection letter would not commit the issuer to
use IFRS. As noted later, such a letter would provide an issuer with
the ability to commence filing reports using IFRS for a period of three
years from the date of the staff response.
    To obtain such a letter, the issuer would make a submission to the
staff of the Division of Corporation Finance's Office of Chief
Accountant.\107\ In that submission, the issuer would describe its
analysis in determining its eligibility to use IFRS.\108\ In preparing
a request for a staff letter of no objection to the use of IFRS, we
would expect U.S. issuers to undertake reasonable efforts to determine
the sets of accounting standards for all companies that comprise the
twenty largest in its industry group. If the staff has no objections to
the issuer's conclusion that it is eligible to file IFRS financial
statements, the staff would issue a letter of no objection. When
issued, the staff letter would be made publicly available on the
Commission Web site, together with the issuer's incoming submission.
The incoming submission from the issuer would not be made public on the
Commission Web site if the staff did not issue a letter of no
objection. A U.S. issuer could file IFRS financial statements only if
it received a letter of no objection. Once the staff issued a letter of
no objection, the issuer could adopt IFRS at any time during the three-
year period following issuance of the letter without the criteria being
recalculated with more current data.\109\ The company would also
disclose in its first filing using IFRS the date that it submitted its
request to the staff demonstrating that it met the criteria and the
date the staff issued its letter of no objection.
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    \107\ To the extent applicable, an applicant could invoke Rule
83.
    \108\ To the extent an issuer's analysis includes companies
whose financial statements are prepared under a jurisdictional
version of IFRS or as to which it is not clear whether the financial
statements are prepared under IFRS as issued by the IASB, the issuer
should state that no information came to its attention from the
content of the financial statements of the companies analyzed or
otherwise that causes it to believe that the financial statements
are not in accordance with IFRS as issued by the IASB.
    \109\ If we were to adopt the proposal, once a U.S. issuer
commenced filing reports using IFRS under these rules, it would not
have to recalculate its eligibility using more current data. A
recalculation and a new staff letter of no objection would be
necessary only if the issuer did not commence filing reports using
IFRS within three years of receipt of the letter.
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    The proposed definition of ``IFRS Issuer'' in Rule 1-02(cc) of
Regulation S-X, which contains the eligibility criteria that must be
demonstrated in the issuer's request to the staff of the Commission,
specifically excludes investment companies; employee stock purchase,
savings and similar plans; and smaller reporting companies.\110\ We
have excluded smaller reporting companies from the proposed definition
of IFRS issuer as a limitation on the number of issuers that would be
eligible to file IFRS financial statements under the proposed rules.
Investment companies are proposed to be excluded because of the
separate regulatory requirements that exist for those entities.
Employee stock purchase, savings and similar plans are proposed to be
excluded because they are special investment entities that are subject
to tailored accounting practices.
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    \110\ The term ``smaller reporting company'' is defined in
Exchange Act Rule 12b-2 [17 CFR 240.12b-2] and in Securities Act
Rule 405 [17 CFR 230.405].
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Request for Comment
    16. Do commenters agree that certain U.S. issuers should have the
alternative to report using IFRS prior to 2011? What circumstances
should the Commission evaluate in order to assess the effects of early
adoption on comparability of industry financial reporting to investors?
    17. Do commenters agree with the proposed criteria by which the
comparability of an industry's financial reporting would be assessed?
If not, what should the criteria be?
    18. Which eligible U.S. issuers have the incentive to avail
themselves of the proposed amendments, if adopted? Are there reasons
for which an issuer that is in a position to file IFRS financial
statements under the proposed amendments would elect not to do so? If
so, what are they?
    19. Is limiting the proposal to the largest 20 competitors by
market capitalization an appropriate criterion? Should it be higher or
lower? Should additional U.S. issuers be eligible to elect to report in
IFRS if some minimum threshold of U.S. issuers (based on the actual
number or market capitalization of U.S. issuers choosing to report in
IFRS) elects to report in IFRS under the eligibility requirements
proposed? To the extent additional U.S. issuers are not permitted to
report in IFRS even if such a minimum threshold is met, are such non-
eligible U.S. issuers placed at a competitive disadvantage vis-
[agrave]-vis U.S. issuers reporting in IFRS?

    20. Would the use of different industry classification schemes as
proposed be unclear or create confusion in determining whether an