INTERNATIONAL PRACTICES TASK FORCE — May 16, 2018
The Center for Audit Quality (CAQ) SEC Regulations Committee and its International
Practices Task Force (the Task Force or IPTF) meet periodically with the staff of
the SEC to discuss emerging financial reporting issues relating to SEC rules and
regulations. The purpose of the following highlights is to summarize the issues
discussed at the meetings. These highlights have not been considered or acted on by
senior technical committees of the AICPA and do not represent an official position
of the AICPA or the CAQ. As with all other documents issued by the CAQ, these
highlights are not authoritative and users are urged to refer directly to applicable
authoritative pronouncements for the text of the technical literature. These
highlights do not purport to be applicable or sufficient to the circumstances of any
work performed by practitioners. They are not intended to be a substitute for
professional judgment applied by practitioners.
These highlights were prepared by a representative of CAQ who attended the meeting
and do not purport to be a transcript of the matters discussed. The views attributed
to the SEC staff are informal views of one or more of the staff members present, do
not constitute an official statement of the views of the Commission or of the staff
of the Commission and should not be relied upon as authoritative.
As available on this website, highlights of Joint Meetings of the SEC Regulations
Committee and its International Practices Task Force and the SEC staff are not
updated for the subsequent issuance of technical pronouncements or positions taken
by the SEC staff, nor are they deleted when they are superseded by the issuance of
subsequent highlights or authoritative accounting or auditing literature. As a
result, the information, commentary or guidance contained herein may not be current
or accurate and the CAQ is under no obligation to update such information. Readers
are therefore urged to refer to current authoritative or source material.
I. Attendance
Task Force Members
Steven Jacobs, Chair (EY)
DJ Gannon, Vice-Chair (Deloitte)
Greg Bakeis (PwC)
Rich Davisson (RSM-US) Via Teleconference
Judy Freeman (KPMG) Via Teleconference
Jonathan Guthart (KPMG)
Kathleen Malone (Deloitte)
Alan Millings (EY)
Victor Oliveira (EY)
Ignacio Perez Zaldivar (Deloitte)
Scott Ruggiero (Grant Thornton)
Guilaine Saroul (PwC)
Observers
Craig Olinger (SEC staff)
Jill Davis (SEC staff)
Bobby Klein (SEC staff)
Ryan Milne (SEC staff)
Kyle Moffatt (SEC staff)
Annette Schumacher Barr (CAQ staff)
Guests
Grace C. Li (BDO)
Polia Nair (EY)
II. Discussion of 3-13 Waivers for Foreign Private Issuers
Rule 3-13 of Regulation S-X gives the staff authority, where consistent with
investor protection, to permit the omission of or substitution for certain
financial statements otherwise required by Regulation S-X. In granting such
waivers the staff considers the facts and circumstances specific to each fact
pattern. Examples of waiver requests under Rule 3-13 may include provision of
abbreviated financial statements (i.e., statement of revenues and direct
expenses) in lieu of full financial statements for a recently acquired business
under Rule 3-05 of Regulation S-X, omission of one or more years of historical
financial statements for a recently acquired business under Rule 3-05 of
Regulation S-X, or omission of certain financial statements of an equity method
investment under Rule 3-09 of Regulation S-X.
The Task Force and SEC staff (staff) discussed Rule 3-13 waivers for Foreign
Private Issuers (FPIs). The staff encouraged companies to reach out to the staff
to discuss their facts and circumstances supporting a waiver.
The staff also indicated it may be amenable to reviewing draft registration
statements submitted without certain required information consistent with
guidance issued in June and August 2017. Companies looking
to omit information from a draft registration statement may contact the AD
Office to discuss individual facts and circumstances that are not addressed by
the published guidance.
III. Current Practice Issues
A. Issues/practices around reporting on financial statement presentations that may not comply with IFRS presentation requirements
The Task Force observed that certain SEC rules and staff accommodations
provided with respect to those rules can pose a challenge to entities
reporting under International Financial Reporting Standards, as issued by
the International Accounting Standards Board (IASB) (herein referred to as
“IFRS”), given some of the requirements within IFRS (particularly the
requirements of IAS 1, Presentation of Financial Statements “IAS1”) . For
example historically, the staff has not objected to the inclusion of a
qualified opinion in certain limited instances (e.g., when the IFRS
financial statements of a significant business acquired under Rule 3-05 did
not contain a comparative period if such comparative period was not required
based on the level of significance). At the May 2017 IPTF meeting, the staff
indicated that it would not object to the inclusion of a qualified opinion
for lack of comparatives in the IFRS financial statements in a draft
registration statement for an IPO, where a company has omitted such period
in reliance upon the FAST Act accommodation for Emerging Growth Companies
(EGCs) or the SEC staff’s guidance for non-EGCs draft registration
statements referenced above, and the qualification will be removed prior to
effectiveness of the registration statement.
The Task Force observed other reporting scenarios where IFRS filers may be
unable to provide the required IFRS financial statements under the SEC rules
while also taking available accommodations and relief provided by the SEC
staff and still state explicit compliance with IFRS. In certain scenarios,
the variations may be so pervasive that the auditors may be unable to issue
a qualified opinion and as such the level of effort would be significantly
higher for IFRS than US GAAP preparers. These situations generally relate to
reporting periods requirements which differ from those prescribed by IAS 1
and providing less than a complete set of financial statements (e.g. the use
of abbreviated statements).
The Task Force and staff discussed whether there are reporting alternatives
the staff may consider where an IFRS filer is complying with the SEC rules
or wishing to take advantage of one of the staff accommodations to those
rules such as those for financial statements required by Rule 3-05 of
Regulation S-X, but would not be able to make an unreserved statement of
compliance with IFRS because of the presentation resulting from such an
accommodation. Both the Task Force and staff agreed to consider the issue
and discuss in further detail in the November Joint Meeting.
Impact of Change in Reporting Currency when filing a New (or Amended) Registration Statement
Rule 3-20(e) of Regulation S-X requires the issuer to state all its
comparative financial statements in a filing with the SEC on the same
reporting currency. If the financial statements of a later period are stated
in a currency that is different from that used in financial statements
previously filed with the Commission, the issuer must recast its financial
statements as if the newly adopted currency had been used since at least the
earliest period presented in the filing.
Further, instructions to the various registration statement forms for foreign
private issuers (e.g. F-1 Item 4A(b)(1)(ii), Form F-3 Item 5(b)(1)(ii) and
Form F-4 Item 10(c)(2)) require the issuer to include in the registration
statement, if not in reports filed under the Exchange Act that are
incorporated by reference, restated financial statements if there has been a
change in accounting principles where such change requires material
retroactive restatement of financial statements (under the applicable
GAAP).
The Task Force and staff discussed whether a change in reporting currency
that requires retroactive application should be treated akin to a material
change in accounting principles requiring retroactive application for
purposes of new or amended registration statements on Forms F-1, F-3 and
F-4. The staff concurred with the analogy and stated that when the change in
reporting currency is reflected in one set of interim financial statements
that are included or incorporated by reference in a new registration
statement on Form F-1, F-3 or F-4 to meet the timeliness requirements of
Item 8.A.5 of Form 20-F, the annual financial statements included or
incorporated by reference in the registration statement must be
retrospectively recast to reflect the same reporting currency as the interim
statements.
The Task Force and staff also discussed whether the answer is impacted if the
interim financial statements reflecting the new reporting currency are only
presented in the registration statement as “more current published financial
information” (as referenced in Item 8.A.5 of Form 20-F) as opposed to
interim financial statements included or incorporated by reference to meet
the registration statement timeliness requirements. The staff indicated it
would further consider this aspect of the issue but any conclusion could
depend on the nature of the interim financial information (i.e. capsule
information vs. IAS 34 compliant interim financial statements) and the level
of disclosure about the impact of the change in reporting currency.
C. Change in auditor disclosure considerations when subject to shareholder’s approval
The disclosures required by Item 16F, Changes in Registrant’s Certifying
Accountant, are required in annual reports on Form 20-F, as well as
registration statements on Form 20-F, Form F-1, Form F-3, and Form F-4 if
the registrant has had a change in its certifying accountant during its two
most recent fiscal years or any subsequent interim period.
In many jurisdictions, the change in auditor is subject to shareholder
approval. In some cases, the audit committee and/or the board of directors
may have approved the dismissal of the certifying accountant and/or the
engagement of a new certifying accountant at the time of filing the annual
report or registration statement, yet the termination and/or the engagement
is subject to shareholder approval, which has not yet occurred at the time
of the filing as the annual meeting of shareholders is typically after the
filing of the annual Form 20-F.
While it has historically been rare for the shareholders to not approve the
conclusions of the audit committee/board of directors; the registrant
generally would be bound by the vote of the shareholders.
The Task Force and staff discussed this fact pattern, in particular whether
the event that triggers the disclosure in Item 16F is the approval by the
audit committee/board of directors or the shareholder approval. In the
interest of providing timely information about the decisions made by those
charged with governance, including any related reportable events, companies
likely should disclose the change and the related Item 16F disclosures in
the Form 20-F for the period in which a decision to dismiss or appoint a new
auditor has been made by the audit committee or those charged with
governance.
D. Monitoring Inflation in Certain Countries
Previously, the Task Force has discussed inflation in certain countries in
this meeting. Since the May 2016 meeting, the Task Force has re-evaluated
how best to communicate the information. The summarizing the inflation data
collected by the members of the IPTF document can be found on the CAQ
website at: https://www.thecaq.org/resources/publications.
IV. Next Meeting
The next meeting of the Task Force has been set for November 27, 2018.