SEC Reporting Issues for Foreign Private Issuers (Portfolio 5507)

For the best part of the 20th Century and into the 21st Century, the U.S. equities market has been the deepest, broadest and largest equities market in the world.

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This Portfolio is part of the Accounting Policy and Practice Series, an essential resource including more than 70 accounting Portfolios and the latest news and developments.



For the best part of the 20th Century and into the 21st Century, the U.S. equities market has been the deepest, broadest and largest equities market in the world. It is only natural to expect that an increasing number of foreign enterprises would seek to raise capital in the United States. In fact, it has become commonplace for foreign private issuers to execute public offerings in the United States. SEC reporting requirements for foreign private issuers have, in recent years, been influenced by the need to harmonize traditionally strong and precise U.S. disclosure standards with those of other increasingly significant, and now mature, foreign capital markets.
BNA Tax and Accounting Portfolio 5507-2nd, SEC Reporting Issues for Foreign Private Issuers (Accounting Policy and Practice Series) serves as a practical resource for both practitioners and their clients (foreign private issuers). The Portfolio is divided into two principal sections: “Regulatory Framework Applicable to Foreign Private Issuers,” and “Preparing Annual Report on Form 20-F: A Guide.”
The first section discusses the securities laws applicable to foreign private issuers that access the U.S. capital markets and the integrated disclosure system applicable to foreign private issuers. Foreign private issuers that choose to access the U.S. capital markets may offer their securities in a private placement exempt from the registration requirements imposed by the U.S. securities laws. Alternatively, foreign private issuers may conduct a public offering in the United States by registering their securities pursuant to the Securities Act of 1933, as amended, and also register their securities for listing or trading on a U.S. securities exchange pursuant to the Securities Exchange Act of 1934, as amended. For foreign private issuers that have become U.S. reporting companies, Form 20-F is the principal form for regular reporting.
The second section of the Portfolio provides a detailed description of Form 20-F, with a focus on areas that have been revised or that are frequently the subject of SEC comments. This section also provides insight on the kind and quality of disclosure expected by the SEC. The discussion emphasizes financial disclosure, such as Operating and Financial Review and Prospects (which is very similar to Management's Discussion and Analysis) and various accounting hot buttons. In addition, the analysis focuses on both ease of use for foreign private issuers with limited U.S. securities law experience and the detailed description that will be critical for U.S. securities lawyers and bankers who may not regularly work with foreign private issuer clients.
This Portfolio may be cited as BNA Tax and Accounting Portfolio 5507-2nd, Pinedo and Tanenbaum, SEC Reporting Issues for Foreign Private Issuers (Accounting Policy and Practice Series).

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Anna T. Pinedo, B.S.F.S., Georgetown University; J.D., University of Chicago Law School. Partner, Morrison & Foerster LLP (New York office), practicing in the areas of securities and derivatives. Member, New York Bar; American Bar Association's Committee on the Federal Regulation of Securities; ABA Subcommittee on Disclosure and Continuous Reporting; ABA Subcommittee on Securities Registration; ABA Task Force on the Future of Securities Regulation; ABA Committee on Regulation of Futures and Derivatives Instruments. Honors, Crain's New York Business “Forty Under 40”; Investment Dealer's Digest “Forty Under 40”; Hispanic Business's “100 Most Influential Hispanics”; ranked by Chambers USA as one of America's leading capital markets-derivatives lawyers; ranked by Chambers Global as one of the world's leading lawyers (recommended in capital markets-derivatives); recommended lawyer for capital markets in the IFLR 1000 Guide to Leading Lawyers; recommended lawyer in capital markets and in derivatives by The Legal 500—United States; recipient of the Burton Award for Legal Achievement in 2007, 2009, and 2011, honoring excellence in legal writing.

James R. Tanenbaum, B.A. (summa cum laude), Lehigh University; M.A. (Fletcher School of Law and Diplomacy of Tufts and Harvard Universities); J.D. (University of Pennsylvania, Editor of Law Review). Partner, Morrison & Foerster (New York office), Chair of the Global Capital Markets practice. Member, New York Bar; Board of Trustees of Lehigh University; National Chair of the Benjamin Franklin Society of the University of Pennsylvania. Frequent lecturer on capital markets topics, Securities and Exchange Commission, SIFMA, various securities industry groups, various domestic and international law schools. Honors, recommended lawyer for capital markets in the IFLR 1000 Guide to Leading Lawyers; ranked by Chambers USA as one of America's leading lawyers (recommended in capital markets-debt and equity); recommended lawyer for capital markets and international securities transactions by The Legal 500—United States.


Detailed Analysis

I. Regulatory Framework Applicable to Foreign Private Issuers

A. Introduction

1. What Is a Foreign Private Issuer?

2. Ownership Determination

3. Benefits Available to FPIs Compared to U.S. Domestic Issuers

B. Accessing the U.S. Capital Markets

1. Registration Requirements

2. Private Placement Exemptions

a. Section 4(2)/Regulation D

b. Regulation D

c. Rule 144A

(1) QIBs

(2) Eligible Securities

(3) Information Requirements

(4) Notice Requirement

(5) Resales Under Rule 144A

d. Exclusion From Registration Requirements: Regulation S

(1) Issuer Safe Harbor

(2) Resale Safe Harbor

(3) Resale Limitations

(4) Contemporaneous Private Placement in the United States and Reg S Offering

e. Resales of Restricted Securities

f. Rule 144

g. Comparative Analysis of Exemptions

C. U.S. Registered Transactions

1. Securities Act Registration

2. Exchange Act Registration

a. Rule 12g3-2(b) Exemption

b. Non-Reporting Requirement

c. Foreign Listing/Primary Trading Market Requirement

d. Electronic Publication and Disclosure

D. Exchange Act Reporting

1. Annual Report on Form 20-F

2. Reports on Form 6-K

3. No Requirement for Quarterly Reports

4. No Requirement to Comply With Proxy Rules

E. Liability Under the U.S. Federal Securities Laws

1. Introduction

2. Liability Under the Securities Act

a. Section 11 Liability

b. Section 12 Liability

c. Statute of Limitations for Liability Claims

3. Liability Under the Exchange Act

a. Rule 10b-5

b. Regulation M

c. Sections 10(b), 9(e), and 18

d. Time of Sale

e. Director Obligations in Wake of WorldCom Securities Litigation

F. Other Statutes or Regulations Relevant to Foreign Private Issuers

1. Sarbanes-Oxley Act

2. Investment Company Act

3. Federal Tax Laws

4. Trust Indenture Act

5. Securities Exchange Regulations

6. State Blue Sky Laws

G. Registration

1. Initial Public Offering-Offering Ordinary Shares or ADSs/ADRs

2. Forms F-1, F-3, and F-6

a. Form F-6

b. Form F-1

(1) Who Can File a Form F-1?

(2) Information Required by Form F-1

c. Form F-3

(1) Who Can File a Form F-3?

(2) Information Required in Form F-3

3. Securities Offering Reform

a. Well-Known Seasoned Issuers

b. Other Categories of Issuers

H. Overview of Form 20-F

1. Objectives of MD& A

a. Discussion of Key Business Indicators

b. Discussion of Trends and Analysis

c. Liquidity and Capital Resources

d. Results of Operations (or Period to Period Comparisons)

2. Changes to Form 20-F Resulting from SEC's Concerns About MD& A Disclosure, as well as SOX

I. Termination of Registration ("Deregistration")

1. Registration Under the Exchange Act

2. Exemption from Registration Under Section 12(g) of the Exchange Act

3. Filing Requirements for Issuers of Registered Securities

4. Conditions to Deregistration

a. Existing Requirements

b. Deregistration of an Equity Security

c. Deregistration of a Debt Security

d. Deregistration of Securities Following a Consolidation

e. Counting U.S. Investors Under Rule 12h-6

f. Notice Requirements

g. Disclosures by an FPI After Deregistration

5. Determining Whether to Deregister

a. Advantages of Deregistration

b. Disadvantages of Deregistration

II. Preparing Annual Report on Form 20-F: A Detailed Guide

A. Background

B. Item 3-Key Information

1. Selected Financial Data

2. Reconciliation of Selected Financial Data to U.S. GAAP

3. Foreign Currency Exchange Rate Information

4. Risk Factors

C. Item 4-Information on the Company

1. History and Development of the Company

2. Business Overview

a. Information Required for All Companies

b. Additional Information Required for Non-Reporting Issuers

3. Organizational Structure of the Company

4. Property, Plant, and Equipment Disclosures

5. Specialized Industry Information

a. Industry Guides Applicable to Particular Kinds of Companies

b. Oil and Gas Companies

D. Item 5-Operating and Financial Review and Prospects

1. Understanding the SEC's MD& A Guidance

a. SEC Releases FR-36 and FR-72

(i) Provide an Executive Level Summary

(ii) Expand the Liquidity and Capital Resources Discussion

(iii) Quantify the Critical Accounting Estimates Discussion

(iv) Off-Balance Sheet Disclosures

(v) Materiality/Probability

(vi) Forward-Looking Language

b. Regulation G-Non-GAAP Measures Rule

c. Critical Accounting Policies Discussion

2. Drafting Operating and Financial Review and Prospects

a. Results of Operations

b. Discussion of Known Trends, Commitments, and Uncertainties

c. Segment Disclosure

3. Liquidity and Capital Resources

a. Off-Balance Sheet Arrangements

b. Table of Contractual Obligations

c. Contingent Liabilities and Commitments

4. Discussion of Significant Foreign Versus U.S. GAAP Differences and U.S. GAAP Disclosure Requirements

E. Important Accounting Issues for FPIs

1. Accounting for Acquisitions and Internal Restructurings (Goodwill, Impairment, etc.)

a. Acquisition Accounting

b. Goodwill Impairment

c. Impairment of Long-Lived Assets

d. Impairment of Securities Held for Investment

e. Fair Value Accounting

f. Restructuring Charges

2. Including Historical Financial Statements of Acquired Companies or Entities in Which the FPI Has a Minority Investment or Joint Ventures

a. Acquired Companies

b. Subsidiary Issuers and Guarantors

3. Reconciliation to U.S. GAAP


a. Changes in IFRS 3 and IAS 27

b. Remaining Differences Between IFRS and U.S. GAAP

5. Accounting for Contingencies and the Establishment of Reserves

6. Disclosures Concerning Market Risk Exposure (Interest Rates, Currencies, and Commodities) and Hedging Transactions

7. Revenue Recognition

8. Accounting for Stock Options

9. Segment Reporting

F. Item 6-Directors, Senior Management, and Employees

1. Directors and Senior Managers

2. Executive Compensation Disclosure

3. Corporate Governance: Audit and Compensation Committees

a. Audit Committee

(i) Exemption to Audit Committee Requirements

(ii) Securities Exchange Rules for Audit Committees

b. Compensation Committee

4. Employees

G. Item 7-Major Security Holders and Related Party Transactions

1. Stock Ownership by Controlling and Principal Security Holders

2. Required Majority Security Holder Information

3. U.S. Ownership Disclosure

4. Transactions and Indebtedness From Related Parties

a. Who Is a Related Party?

b. What Types of Transactions Must an FPI Disclose?

c. Special Consideration for Foreign Banks

d. Securities Exchange Rules

5. Interests of Experts and Counsel

H. Item 8-Financial Information

1. Financial Information Requirements

2. Audit and Auditors Report Requirements

3. Export Sales Disclosures

4. Legal Proceedings

5. Significant Changes Subsequent to Year-End

I. Item 9-The Offer and Listing

1. Identification of all Stock Exchanges and Other Regulated Markets

2. Trading Prices in the U.S. and the Principal Market Outside the U.S.

J. Item 10-Additional Information

1. Provisions of the Company's Articles of Incorporation and Bylaws

a. General Information About the Company in Memorandum and Articles

b. Information About Directors' Powers and Qualification of Directors

c. Information About Security Holders

d. Information About Significant Transactions

2. Material Contracts During Last Two Years

3. Governmentally Imposed Exchange Controls and Other Limitations on Security Holders' Rights

4. Tax Provisions of the Registrant's Home Country Affecting U.S. Security Holders

K. Item 11-Quantitative and Qualitative Disclosures About Market Risk

1. Segregation of Market Risk Sensitive Instruments-Trading vs. Non-Trading-Market Risk Exposure Category

a. Required Disclosure About Market Risk Sensitive Instruments

b. Recommended Disclosure About Other Market Risk Sensitive Instruments, Positions, and Transactions

c. Trading Versus Non-Trading Instruments

d. Market Risk Exposure Categories

e. Material Market Risk

2. Quantitative Information-Choice of Tabular Presentation, Sensitivity Analysis, or Value at Risk

a. Tabular Presentation

b. Instrument Groups

c. Contract Terms

d. Sensitivity Analysis

e. Requirements for Selected Hypothetical Changes

f. Disclosure of Underlying Model, Assumptions, and Parameters

g. Value at Risk

h. Common Features in Value at Risk and Sensitivity Analysis Disclosure

3. Comparative Disclosure-Impact of Change in Method of Presentation

4. Qualitative Information-Description of Market Risk Exposures and How Managed

L. Items 13 and 14-Defaults, Dividend Arrearages, and Delinquencies; Material Modifications to the Rights of Security Holders and Use of Proceeds

1. Debt Defaults and Preferred Stock Dividend Arrearages

2. Changes in, or Limitations on, the Rights of Security Holders

3. Reporting the Use of Proceeds of an Initial Public Offering

M. Item 15-Controls and Procedures

1. Item 15(a): Disclosure Controls and Procedures

a. General

b. Item 15(a): Procedure Committees

2. Section 404 of the Sarbanes-Oxley Act

3. Item 15(b): Management's Annual Report on Internal Controls Over Financial Reporting

4. Item 15(c): Attestation Report of the Registered Public Accounting Firm

5. Compliance With Items 15(b) and 15(c) of Form 20-F

a. General

b. Additional Considerations

6. Item 15(d): Changes in Internal Control Over Financial Reporting

N. Item 16-Sarbanes-Oxley Disclosures

1. Item 16A: Audit Committee Financial Expert

a. General

b. Audit Committee Financial Expert "Independence"

c. Safe Harbors

d. Securities Exchange Rules

2. Item 16B: Code of Ethics

a. General

b. Substantive Requirements for Code of Ethics

c. Public Availability of Code of Ethics

d. Amendments and Waivers

e. Securities Exchange Rules

3. Item 16C: Principal Accountant Fees and Services

a. General

b. Section 2-01(c)(7) of Regulation S-X

4. Item 16E: Purchases of Equity Securities by the FPI and Affiliated Purchasers

5. Item 16F: Change in Registrants' Certifying Accountant

6. Item 16G: Corporate Governance

O. Items 17, 18, and 19-Financial Statements and Exhibits

1. Item 17 Versus Item 18

2. Financial Statements Required by Regulation S-X

a. Required Financial Statements

b. Age of Financial Statements: "Going Stale"

c. Shelf Registration Statements

d. Financial Statements Relating to Acquisitions

3. Accounting for Acquisitions and Internal Restructurings (Goodwill, Impairment, etc.)

a. Guarantor Financial Statements

b. Segment Information

c. Other Items to Be Included

4. Item 19-Exhibits

5. Reconciliation of Financial Statements to U.S. GAAP Requirements and Exceptions

a. Item 17

b. Item 18

6. Reporting Currency Requirements-Convenience Translations

III. Conclusion


Working Papers


Worksheet 1 Examples of Section 302 Certifications

Worksheet 2 Examples of Section 906 Certifications

Worksheet 3 Examples of Reports of Independent Registered Public Accounting Firms

Worksheet 4 Examples of Internal Controls Disclosure

Worksheet 5 Examples of Management's Assessment Regarding Internal Controls

Worksheet 6 Registration Statement on Form F-1

Worksheet 7 Registration Statement on Form F-3

Worksheet 8 Registration Statement on Form F-6

Worksheet 9 Registration Statement/Annual Report on Form 20-F

Worksheet 10 Report on Form 6-K





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