SEC proposes IFRS roadmap and adopts foreign private issuer amendments

By Cydney Posner

Originally published on 27 August 2008.

At an open meeting this morning, the SEC voted to propose a roadmap for U.S. issuers to adopt-- by 2014-- International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board, as well as a number of amendments to the rules related to foreign private issuers.

The IFRS roadmap provides for several milestones, including milestones related to improvements in accounting standards, further development of accountability and funding of the IASC foundation and enhanced education and training in IFRS in the U.S. Under the roadmap, the SEC would make a decision about adoption of IFRS in 2011, leading to a potential adoption date in 2014. One open question is whether to phase in the standard or require all issuers to adopt the standard at the same time. Commissioner Walter stressed that there were significant challenges to adoption, and the SEC could well decide in 2011 that adoption was not in the best interests of investors. As part of the roadmap proposal, the SEC voted to propose amendments to various rules and forms that would permit early use of IFRS by a limited number of eligible U.S. issuers. To be eligible, a company must be among the 20 largest public companies in its industry group and, within that group, IFRS must be used more than any other standard. The staff estimated that at least 110 companies would be eligible.

The amendments relating to foreign private issuers include changes to rules regarding the circumstances under which a foreign private issuer is required to register a class of equity securities under Section 12(g) of the Exchange Act (e.g., scrapping the paper-based application system and allowing issuers to claim the exemption if they meet certain requirements), amendments to the forms and rules applicable to foreign private issuers intended to enhance the information that is available to investors (e.g., accelerating the deadline from six months to four months post-FYE, requiring segment information, requiring English information), revisions to the current exemptions for cross-border business combination transactions and rights offerings to expand the exemptions and allow increased participation by U.S. investors, and changes to the beneficial ownership reporting rules to permit certain foreign institutions to file reports on a shorter form. The SEC also voted to publish interpretive guidance on issues related to cross-border transactions.

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