The SEC has recently adopted several amendments to the rules relating to foreign private issuers that are intended to enhance the disclosure that foreign private issuers provide to investors. These amendments are part of a series of initiatives on the part of the SEC that seek to effect changes in the disclosure and other requirements applicable to foreign private issuers in light of global market developments, advancements in technology, and the movement toward greater international agreement on accounting standards. These amendments are designed to provide investors with information on a more timely basis and to more closely align the disclosure requirements of foreign private issuers with domestic issuers.
Annual Test for Foreign Private Issuer Status
These amendments would permit a foreign private issuer to assess its eligibility to use the special forms and rules available to foreign private issuers once a year, on the last business day of the second quarter of its fiscal year, rather than on a continuous basis as had been required. An issuer that determines that it no longer qualifies as a foreign private issuer will have a six-month transition period and will not be required to use the forms for domestic issuers until the first day of the fiscal year following the determination date.
Accelerated Reporting Deadline for Form 20-F Annual Reports
Under the amendments adopted, after a three-year transition period, i.e, for fiscal years ending on or after December 15, 2011, all foreign private issuers will be required to file their annual reports on Form 20-F within four months after their fiscal year-end, instead of within six-months as currently mandated.
Enhanced Disclosure Requirements
- Corporate Governance Practices Disclosure
For fiscal years ending on or after December 15, 2008, a foreign private issuer must begin to comply with the requirements to provide information pursuant to new Item 16G of Form 20-F, which requires a foreign private issuer to provide in its annual report a concise summary of the significant ways in which the foreign private issuer’s corporate governance practices differ from the corporate governance practices followed by domestic companies under the relevant exchange’s listing standards.
- Segment Data Disclosure
Beginning with fiscal years ending on or after December 15, 2009, foreign private issuers will no longer be permitted to omit segment data from their U.S. GAAP financial statements.
- Changes in Certifying Accountants
Beginning with fiscal years ending on or after December 15, 2009, a foreign private issuer will be required to disclose any recent changes in or disagreements with its certifying accountant in its Form 20-F.
- Annual Disclosure of ADR Fees
Beginning with fiscal years ending on or after December 15, 2009, a foreign private issuer will be required to disclose all fees and charges that a holder of American Depositary Receipts may be required to pay in connection with ADR facilities.
- Requiring Item 18 Reconciliation
Beginning with fiscal years ending on or after December 15, 2011, a foreign private issuer will no longer have the option to provide financial statements according to Item 17 of Form 20-F which allows for the exclusion of certain information normally provided in footnote disclosure under U.S. GAAP, but instead will be required to prepare its financial statements pursuant to Item 18 of Form 20-F, which requires the inclusion of these disclosures.
A foreign private issuer is any non-U.S. entity that has 50% or more of its outstanding voting securities held of record by non-U.S. residents, or, if more than 50% of its voting securities are held by U.S. residents, then none of the following is true: (1) a majority of its executive officers or directors are U.S. citizens or residents, (2) more than 50% of its assets are located in the U.S., or (3) its business is principally administered in the U.S.
By Steve Kronengold and David C. Zuckerbrot. © October 2008. All rights reserved.
This article is provided for educational, informational and non-commercial purposes only. The content of this article is not intended to provide legal advice on any subject matter and should not be relied on as such.