At its open meeting on June 20, 2007, the Securities and Exchange Commission proposed to eliminate the requirement for a foreign registrant that presents financial statements in accordance with International Financial Reporting Standards (IFRS) to reconcile its financial statements to U.S. generally accepted accounting principles (US GAAP).

Under the proposal, a foreign private issuer that presents financial statements in accordance with IFRS as adopted by the International Accounting Standards Board (IASB) will no longer be required to present a reconciliation to US GAAP. Such a reconciliation is currently required for audited financial statements, and in particular in an annual report on Form 20-F. It is also currently required for interim financial statements used in a registered offering of securities when the audited financial statements are more than nine months old.

The full text of the proposal is not yet available, but the discussion at the meeting emphasized these points:

• The proposal will only apply to IFRS as adopted by the IASB. IFRS have been adopted with variations in particular jurisdictions, and notably in the European Union. The SEC, however, would only eliminate reconciliation if the issuer uses IASB IFRS, and the auditor opines on conformity with IASB IFRS. The technical implications of this approach were the subject of extensive discussion at the meeting and will be a focus for comments, since European issuers are required to prepare financial statements in accordance with IFRS as approved by the European Union.
  
• The proposal will refer to the English-language version of IFRS. The staff explained that IFRS are published in many languages, but under the proposal an issuer and its auditors will be required to refer to the English-language version.
  
• The proposal will apply only to foreign private issuers. As previously announced, the SEC staff is working on a concept release concerning whether U.S. domestic issuers should also be permitted to report under IFRS rather than US GAAP. That release was reported to be forthcoming later this summer.
  
• The proposal would affect Form 20-F and several other SEC forms and rules. The staff announced that the proposal would amend Securities Act Rule 701, which permits companies to issue shares and stock options to employees in the United States without SEC registration. Rule 701 currently requires a company to reconcile its financial statements to U.S. GAAP when it sells more than $5 million of securities per year to employees.
  
• It is too early to say when the rule changes might be effective, but it would appear that the process is on track for them to apply to calendar 2008 reports. The commissioners mentioned the importance of the European Commission's deadline to decide by January 1, 2009 whether to allow U.S. issuers to file US GAAP financial statements in Europe.

The SEC said that the proposing release will also seek comment on whether to shorten the deadline for a foreign private issuer to file its annual report on Form 20-F, which is currently six months from the end of the fiscal year. The SEC has considered changing this deadline in the past, and the time required for the US GAAP reconciliation has been one reason it has not done so.

The SEC staff announced at the meeting that it plans to create an area on its website where the public can readily locate the reports of foreign private issuers using IFRS and the comment letter correspondence on those reports.

The proposal will be open for comment for 75 days from the date of publication in the Federal Register.

Please feel free to contact any of your regular contacts at the firm or any of our partners and counsel listed under Corporate Governance or under Securities and Capital Markets in the "Our Practice" section of?this website if you have any questions.

CLEARY GOTTLIEB STEEN & HAMILTON LLP