Rule 3-05 of Regulation S-X and Item 17 of Forms S-4 and F-4 require registrants to provide up to three years of financial statements of an acquired business or a target company (depending on certain thresholds). When the acquired business or the target company is foreign, the Task Force observed that financial statements using accounting standards that are consistent or substantially consistent with IFRS-IASB (but that do not assert compliance with IFRS-IASB) and audited under local auditing standards or ISAs may already be available outside the US, sometimes publicly.

Forms S-4 and F-4 do not require the historical financial statements of target companies to be audited (except for the most recent year) unless they were already audited. However, the November 1, 2004 International Reporting and Disclosure Issues in the Division of Corporation Finance states, “However, if financial statements of a non-reporting foreign target have been previously audited using auditing standards other than US GAAS, and those financial statements have been published for general distribution in the target's home jurisdiction or elsewhere, the staff would generally expect financial statements to be audited in accordance with US GAAS and included in the registration statement.”

Given the hardship in obtaining three years of financial statements re-audited under US GAAS, the Task Force asked the SEC whether a company could rely on General Instruction G to Form 20-F to omit the earliest of the three years if asserting compliance with IFRS-IASB for the first time even if the previous GAAP was substantially similar to IFRS-IASB. The SEC staff noted that it did not believe that foreign businesses could avail themselves of the accommodations provided by General Instruction G (requirement to present only the most recent year, the comparative year and the opening balance sheet of the comparative year) upon making an unreserved statement of compliance with IFRS-IASB given they generally would have used already the IFRS1 accommodation available to first-time adopters in their accounting framework that is substantially consistent with IFRS-IASB.

The SEC staff encouraged companies to consult with the SEC staff with their facts and circumstances to discuss whether relief from the US GAAS audit requirement would be appropriate for the earliest of the three years in (1) Rule 3-05 financial statements or (2) target company financial statements in an S-4 or F-4.

FRM 6340.4 (which summarizes language included in General Instruction G.(f)(2) to Form 20-F) provides guidance for an issuer changing the body of accounting standards used to prepare its financial statements from a previous GAAP to IFRS. It indicates that “a situation may arise in which the most recent annual financial statements are prepared under previous GAAP and any interim financial statements might be prepared under IFRS. Because the most recent annual and interim periods may not be comparable, financial statements in transitional registration statements for first-time adopters may be prepared under one of three options.” Further, as indicated in the 2005 Adopting Release “First-time application of International Financial Reporting Standards,” the SEC confirmed that it viewed the accommodations of General Instruction G to also apply to Regulation S-X, Rule 3-05 financial statements of a foreign business. While the guidance in the FRM specifically references an issuer, a foreign business whose financial statements are being provided to satisfy Rule 3-05 of Regulation S-X could find itself in that same situation.

For example, a company may prepare local GAAP financial statements reconciled to US GAAP for the three years ended December 31, 2016, and then transition to IFRS on January 1, 2017. Accordingly, by June 30, 2017, this entity is no longer producing local GAAP financial statements. If an acquirer is required to provide annual and interim financial statements of this company under S-X 3-05, the same lack of comparability exists as noted in the FRM example.

The Task Force inquired of the staff as to whether the guidance in FRM 6340.4 that is applicable to an issuer (i.e. the three options of interim reporting for financial statements in transitional registration statements for first-time adopters of IFRS) would also apply to an entity preparing financial statements pursuant to S-X 3-05.

The staff noted that the three options in FRM 6340.4 also could be used to satisfy interim financial statement requirements for an entity preparing financial statements pursuant to S-X 3-05.

On August 17, 2017, the SEC’s Division of Corporation Finance issued two new Compliance and Disclosure Interpretations (C&DIs) that permit interim financial information to be omitted from a draft registration statement submitted for confidential/non-public review. Under the new guidance, an issuer that is not an EGC, but that is permitted to submit draft registration statements for non-public review, may omit from its draft registration statements interim financial information it reasonably believes will not be required to be separately presented at the time it publicly files its registration statement and an EGC may omit interim information from a confidential submission that it does not believe will be required at the time of the contemplated offering. In Securities Act registration statements, FPIs must maintain timeliness of interim financial statements by providing at least six months of comparative interim information for filings made or declared effective nine months or more after year-end (Timeliness Requirements). If, at the filing date of the document, the company has published interim financial information that covers a more current period than those otherwise required to meet the Timeliness Requirements, the more current interim financial information must be included or incorporated by reference in the registration statement (pursuant to Form 20-F Item 8.A.5).

On March 1, 2017, the SEC published the XBRL IFRS Taxonomy for Foreign Private Issuers That Prepare Their Financial Statements in Accordance with International Financial Reporting Standards as Issued by the International Accounting Standards Board (IFRS Taxonomy). The IFRS Taxonomy will allow foreign private issuers (FPIs) preparing financial statements in accordance with IFRS to submit financial information in interactive data format using XBRL.

Mike Willis and Mark Green provided an update on XBRL implementation for IFRS filers, noting the following:

More information regarding XBRL implementation issues for IFRS filers can be found in the highlights of the May 16, 2017 IPTF Meeting.

Previously, the Task Force has discussed inflation in certain countries in this meeting. Since the last meeting, the Task Force has re-evaluated how best to communicate the information. In connection with changes to the way that the information is documented, the Task Force has concluded that it will no longer include this document as a component of the semi-annual meeting with SEC staff, but rather it will generate a separate document to summarize the inflation data collected by the members of the IPTF. This document will not be reviewed by the SEC staff, however, the SEC staff has indicated that they are available for consultation should an entity wish to seek preclearance on its conclusions in this area.

The next meeting of the Task Force has been set for May 16, 2018.