United States: Proposed Accommodation For Non-US Companies Transitioning to International Financial Reporting

The Securities and Exchange Commission (the "SEC") has proposed certain amendments to Form 20-F to facilitate non-US companies in their transition to reporting their financial results in accordance with International Financial Reporting Standards ("IFRS"), formerly known as International Accounting Standards. The proposed amendments would allow non-US companies in their first year of reporting under IFRS to include in their annual reports and registration statements filed with the SEC only two years of audited financial information prepared under IFRS, instead of three years of information required under the current rules. In addition, the amendments would require non-US companies adopting IFRS to provide additional disclosure relating to any exceptions from IFRS on which they rely.

In the coming years, we expect that many non-US companies will begin to prepare and report their financial statements under IFRS. European Union nations, in particular, will generally be required under European Union law to adopt IFRS for their consolidated financial statements for fiscal years starting on or after January 1, 2005. To ease the burden of transition to the new accounting standards, the IFRS requires that reports include only two years of financial statements when the company first adopts IFRS.

Under current SEC rules, a non-US company filing with the SEC an Annual Report on Form 20-F or a registration statement under the Securities Act of 1933 generally must provide three years of audited statements of income, changes to shareholders’ equity and cash flows, and two years of audited balance sheets, each year of which must be prepared on a consistent accounting basis. In order to ease the burden that non-US companies may face in adopting IFRS for the first time, the SEC has proposed amending Form 20-F to allow a non-US company using IFRS for the first time to file only two years of audited financial statements prepared under IFRS. This two-year accommodation would only be available to companies that adopt IFRS for the first time for a financial year that begins no later than January 1, 2007. This requirement is intended by the SEC primarily to facilitate the transition of non-US companies to IFRS.

Under current SEC rules, a non-US company may be required to include interim financial statements in a registration statement or a prospectus if a prescribed period of time has elapsed between the end of the last audited financial year and the date of the document. A non-US company that is required to present interim period results for the year in which it is transitioning to IFRS will be required to present three years of audited year-end financial statements and two years of comparative unaudited interim period financial statements prepared under the generally accepted accounting principles previously used by the company ("Previous GAAP"), as well as any published interim financial statements prepared in accordance with IFRS. When IFRS financial statements are presented under these circumstances, the company must provide appropriate and prominent disclosure regarding the noncomparability of the IFRS and non-IFRS financial statements.

Form 20-F generally requires five years of selected financial data. Under the proposed amendments, first-time adopters of IFRS would be required to provide only two years of selected financial data based on IFRS. However, the SEC would continue to require the company to disclose five years of selected financial data prepared in accordance with US GAAP, subject to exceptions historically provided by the SEC.

The proposed amendments would not eliminate the requirement that a non-US company reconcile its financial statements to US GAAP, and this reconciliation must still be audited and included as a note to the audited financial statements prepared in accordance with IFRS. In addition, most companies that provide only two years of financial statements prepared in accordance with IFRS as permitted under the proposed amendments would be required to present audited condensed US GAAP financial information for the three most recent fiscal years. This financial information will include condensed US GAAP income statements and balance sheets, but no notes or statements of changes to shareholders’ equity will be required.

In addition to the financial information prepared in accordance with IFRS, non-US companies may elect to include or refer to financial information prepared under Previous GAAP, including a third year of financial statements that is not required by the IFRS transition rules. In this circumstance, Management’s Discussion and Analysis ("MD&A") must be included for the periods covered by the Previous GAAP financial information. In addition, the SEC has stated that the inclusion of earlier results prepared under the company’s Previous GAAP may be confusing to investors as those results are not directly comparable to the financial statements prepared under IFRS. To reduce the risk of confusion, if a company elects to include or refer to such information, it will be required to include appropriate cautionary language to the effect that financial statements prepared under Previous GAAP will not be directly comparable to financial statements prepared under IFRS.

The required disclosure in Form 20-F with respect to a company’s business and market risks will also be amended to clarify that such disclosure must refer to financial information prepared under IFRS and not the company’s Previous GAAP or US GAAP. The proposed amendments would further instruct management to focus on the financial statements from the past two financial years that were prepared in accordance with IFRS, as well as the corresponding US GAAP reconciliation, in preparing the required MD&A section of Form 20-F. The MD&A section would also need to explain any differences between IFRS and US GAAP to the extent necessary for an understanding of the financial statements and not otherwise discussed in the US GAAP reconciliation.

There are certain elective and mandatory exceptions to IFRS available to a company adopting IFRS for the first time. The proposed amendments would require a discussion of the application of these exceptions. A first-time adopter would also have to provide in its filing with the SEC a reconciliation between its Previous GAAP and IFRS. This requirement is consistent with the IFRS transition rules, which require first-time adopters to include this information in the notes to their financial statements.

The European Commission, while requiring the general adoption of IFRS, is considering allowing member nations to apply for exceptions to certain provisions. However, the SEC is encouraging companies to adopt the IFRS without exceptions. Only companies that present financial statements that comply with IFRS without qualification will be eligible for the two-year disclosure accommodation described above.

With these proposed amendments, the SEC is hoping to facilitate and encourage non-US companies to adopt the IFRS, either as mandated in the European Union or as voluntarily available in other jurisdictions. A copy of the proposed amendments is currently available on the SEC’s Web site at www.sec.gov/rules/proposed/33-8397.htm. The proposed amendments are open for comment and may be substantially modified before actual adoption. Comments must be submitted to the SEC by no later than April 19, 2004.