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6410 Requirement for Reconciliation
us SEC - Financial Reporting Manual
6410.1 General
(Last updated: 9/30/2011)
a. A reconciliation is required for each annual and interim period required to be included in a registration statement or annual report. [Item 17(c) of Form 20-F]
b. Form 20-F provides two levels of reconciliation to U.S. GAAP - Item 17 and Item 18. Item 18 requires the same information as Item 17 plus all of the disclosures required by U.S. GAAP and Regulation S-X.
c. Compliance with Item 18 rather than Item 17 is required for all issuer financial statements in all Securities Act registration statements, Exchange Act registration statements on Form 20-F, and annual reports on Form 20-F.
d. Item 17 is permitted for pro forma information pursuant to S-X Article 11.
e. Item 17 compliance is permitted for non-issuer financial statements such as those pursuant to S-X 3-05, 3-09, 3-14, and 8-04 for smaller reporting companies, as well as non-issuer target company financial statements included in Forms S-4, F-4 and proxy statements. [Release No. 33-8959 (Last updated: 12/31/2022)
f. Non-issuers using Item 17 that are required to provide MD&A (e.g., target companies in Forms S-4, F-4, and proxy statements) should consider the need to provide certain additional information in the MD&A to assist the U.S. investor in understanding the financial statements. [SAB Topic 1D]
6410.2 First-time Entrants to U.S. Reporting System
a. If a foreign registrant has not previously filed financial statements with the SEC on a reconciled basis, it is only required to provide reconciliations of the financial statements and selected financial data to U.S. GAAP for the two most recently completed fiscal years and for any interim periods required in the registration statement. In each subsequent year, on a prospective basis, an additional year of the reconciliation is required. This also applies to any other required financial statements where the entity is a foreign business such as those filed pursuant to S-X 3-05, 3-09, 3-10 and 3-14, as well as target company financial statements in Forms F-4, Forms S-4, and proxy statements. Published financial information that is included because it is more current (see Section 6220.6) is ordinarily not required to be reconciled. (Last updated: 12/31/2022)
b. The U.S. GAAP reconciliation (compliant with Item 17 of Form 20-F) must be included for non-reporting foreign target companies in Forms F-4, Forms S-4 and proxy statements unless a reconciliation is unavailable or not obtainable without unreasonable cost or expense. In these cases, a narrative description must be provided of all material variations in accounting principles, practices and methods used in preparing the non-U.S. GAAP financial statements from those accepted in the U.S. [See Instruction 2 to Item 17 of Form S-4, Instruction to paragraphs (b)(5) and (b)(6) of Item 17 of Form F-4, Item 14 of Schedule 14A]
NOTE: While reconciliations to U.S. GAAP initially are required only for two years, the registrant's financial statements still need to be presented in the registration statement for all of the periods required by Item 8 of Form 20-F (see Section 10220.1 for EGCs). Similarly, non-EGCs must present selected financial data for five years, even though the oldest three years need not be reconciled to U.S. GAAP. (See Section 10220.2 for exception for EGCs.)
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c. First-time registrants that elect to prepare the financial statements in accordance with U.S. GAAP may provide statements of comprehensive income and statements of cash flows for only their two most recent fiscal years. However, selected financial data still needs to be presented for five years under home-country GAAP if U.S. GAAP financial data is not available for the oldest three years, unless the registrant qualifies as an EGC (see Section 10220.2). MD&A need only discuss the two years presented in the financial statements. [Item 8 of Form 20-F]
d. Predecessor financial statements and selected financial data must be presented in the same comprehensive body of accounting as the registrant. A foreign entity that is a predecessor of a U.S. domestic company must present financial statements in U.S. GAAP and U.S. dollars.
(Last updated: 6/30/2013)
6410.3 [Reserved]. (Last updated: 9/30/2011)
6410.4 "Backdoor" Listings by Foreign Companies
a. Foreign companies sometimes obtain a "backdoor" listing through a reverse recapitalization with a U.S. public shell. Even though substantially all of the operations are conducted outside of the U.S., the registrant would not be considered a foreign private issuer.
b. In this situation, the transaction, including financial statements of the foreign company, must be reported on a Form 8-K within four business days of the completion of the transaction. The Form 8-K that is filed must include the same information as a registration of securities on Form 10. For example, the accommodations in Form 20-F that in certain circumstances permit two years of financial statements rather than three years are not applicable. [Item 2.01 of Form 8-K and Item 5.06 of Form 8-K] Refer to Topic 12. (Last updated: 9/30/2010)
c. The financial statements included in the Form 8-K must be prepared using U.S. GAAP for all periods presented, including those prior to the reverse recapitalization. Financial statements prepared using IFRS as issued by the IASB or in a home-country GAAP reconciled to U.S. GAAP would not be acceptable. (Last updated: 10/20/2014)
6410.5 Transactions that Result in a Foreign Private Issuer Ceasing to be a Shell Company
a. A foreign private issuer may cease to be a shell company as a result of a reverse acquisition or merger. In this situation, the transaction, including financial statements of the other party to the transaction, must be reported on a Form 20-F within four business days of the completion of the transaction. The Form 20-F that is filed must include the same information as a registration of securities on Form 20-F. For example, the accommodations in Form 20-F that in certain circumstances permit two years of financial statements rather than three years are applicable. Refer to Topic 12. [Exchange Act Rules 13a-19 and 15d-19, and Instruction A(d) to Form 20-F]
b. If the foreign private issuer shell company engages in a transaction that causes it to lose its status as a foreign private issuer at the same time it ceases to be a shell company, reports filed or furnished during the remainder of the fiscal year may continue to be made using forms and requirements applicable to foreign private issuers. See Sections 6110.3 and 6120.2. (Last updated: 10/20/2014)
6410.6 Financial Statements of Foreign Acquired Businesses or Foreign Equity Investees in Filings by Domestic Issuers or Foreign Private Issuers
a. The reporting requirements of Form 8-K do not apply to foreign private issuers. Financial statements under Rule 3-05 are also not required when filing Form 20-F as an annual report. However, foreign private issuers must comply with S-X 3-05 in registration statements under the 1933 Act (e.g., Form F-1, F-3) and in registration statements on Form 20-F.
b. If financial statements are required to be filed for foreign acquirees or foreign equity investees, these statements may be prepared on a comprehensive basis other than U.S. GAAP or IFRS as issued by the IASB. Reconciliations to U.S. GAAP must be provided when the significance of the foreign acquiree or foreign equity investee to the registrant exceeds 30%. Refer to Topic 2 for the tests of significance. [Item 17(c)(2)(v) and (vi) of Form 20-F]
When determining whether a reconciliation to U.S. GAAP is required, if the foreign equity investee is significant to the registrant at the 30% level or greater in any of the years being tested, a reconciliation is required for all periods. Whether the U.S. GAAP reconciliation is required to be audited is based upon the audit requirements applicable to the underlying financial statements of the foreign acquiree or equity investee.
For example, take a foreign equity investee that had previously been significant at a 30% level in prior periods, was significant at the 20% level in 2005, was not significant in 2006, and is significant at the 30% level in 2007. The financial statements provided for the foreign equity investee in the registrant's 2007 filing must include a U.S. GAAP reconciliation for all years. The financial statements, including the reconciliation, must be audited for 2005 and 2007, but not for 2006.
Note that if this had been the first time the financial statements of the foreign equity investee were significant at a 30% level, the reconciliation of the financial statements could be provided only for the two most recent years.
c. The 30% significance test does not apply to non-reporting foreign target companies provided in Forms S-4, Forms F-4 and proxy statements.
d. Financial statements of acquired businesses or equity investees that meet the definition of a foreign business may be prepared under International Financial Reporting Standard for Small and Medium - sized Entities ("IFRS for SMEs"), published by the IASB in July 2009, with reconciliation to U.S. GAAP as described in b and c above. The staff would not accept financial statements prepared under IFRS for SMEs for issuers, predecessors of issuers, domestic acquired businesses, or domestic equity method investees.
(Last updated: 6/30/2010)
(Last updated: 6/30/2010)
NOTE: The accommodation to not reconcile separate financial statements of less than 30% significant equity investees does not affect a domestic issuer's measurement of earnings or disclosures under Regulation S-X. ASC 323 requires equity investees to be accounted for using U.S. GAAP. Further, summarized data under S-X 4-08(g) must be presented in accordance with U.S. GAAP. [Release No. 33-7118] (Last updated 9/30/2009)
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6410.7 If reconciliation is required, the financial statements of foreign acquirees or foreign investees need only comply with the reconciliation requirements of Item 17 of Form 20-F, rather than Item 18. Even though the significance level of an acquisition may require the presentation of three years of audited financial statements in a registration statement or other transactional filing, if the acquiree or investee's financial statements have not previously been required in a SEC filing, the U.S. GAAP reconciliation only needs to be provided for the most recent two years and any required interim period.
6410.8 If three years of audited financial statements of an acquired foreign business would be required based on the level of significance, a registrant may elect to present the acquired business' statements for only two years if they are prepared using U.S. GAAP, rather than home-country GAAP with a reconciliation. The registrant's primary financial statements must also be prepared in accordance with U.S. GAAP if post-acquisition periods are considered in determining the years presented.
6410.9 If a foreign incorporated acquiree or investee does not qualify as a foreign business and financial statements are required under S-X 3-05 or 3-09, those financial statements must be presented in conformity with U.S. GAAP, or:
- home-country GAAP reconciled to U.S. GAAP in accordance with Item 18 of Form 20-F; or
- IFRS as issued by the IASB reconciled to U.S. GAAP in accordance with Item 18 of Form 20-F. If the acquiree or investee does not qualify as a foreign business, but does meet the definition of a foreign private issuer, CF-OCA will consider requests for relief from the reconciliation requirement.
NOTE to SECTION 6410.9
For the financial statements referenced in the bullets above, the 30% test discussed in 6410.6(b) does not apply. See footnote 31 to Release No. 33-7118. (Last updated: 12/31/2012)
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6410.10 A foreign or domestic registrant may apply SAB 80 in determining the periods for which audited financial statements of acquired foreign businesses are required in an IPO. Assuming that the businesses acquired are reporting in the U.S. for the first time, financial statements of foreign businesses required to be presented under the SAB for three years need only be reconciled to U.S. GAAP for the two most recent fiscal years. Financial statements required to be presented under the SAB for two years must be reconciled to U.S. GAAP for both years. Most recent interim period and corresponding prior year financial statements also would be reconciled to U.S. GAAP.
6410.11 If pro forma financial statements are required, they should be prepared in accordance with U.S. GAAP or reconciled to U.S. GAAP. See Section 6360.1 and 6360.2.
6410.12 [Reserved]. (Last updated: 12/31/2022)
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