- Constitute a comprehensive basis of accounting
- Are of a high quality (i.e., result in transparency and comparability and provide
for full disclosure) - Are capable of being, and actually be, vigorously interpreted and applied
(b) Adaptation of Rules Regarding Non-U.S. Issuers
(i) Changes to Rules Relating to Public Offerings. Over the years, the SEC has made
several important concessions adapting its rules to the needs of non-U.S. issuers. In
April 1994, the SEC adopted several rule changes that affect offerings by non-U.S.
issuers. While none of these changes had a major effect in and of itself, together they
made U.S. public offerings by non-U.S. issuers easier and more attractive, and
marked the SEC’s continuing commitment that, provided U.S. issuers are protected,
U.S. regulations should not deter foreign companies from making offerings in the
United States. The most noteworthy development was the SEC’s acceptance of cash
flow statements prepared in accordance with IASC standards (IAS 7) without recon-
ciliation to U.S. GAAP. In addition, the SEC amended its rules to require reconcilia-
tion to U.S. GAAP of financial statements and selected financial data only for the two
most recently completed fiscal years and any interim periods; relaxed its require-
ments relating to reconciliation of financial statements of non-U.S. issuers’ smaller
acquisitions and equity investees; made accommodation for pro rata consolidation
for certain joint ventures that would be accounted for under the equity method pur-
suant to U.S. GAAP; and eliminated certain supplemental financial schedules as part
of the reconciling information.
The Commission also adopted further changes relating to registration and report-
ing by foreign issuers, including registration on Form F-3. Form F-3 is a “short
form,” permitting incorporation by reference of filings made previously with the
SEC. Prior to the change in 1994, that form generally could be used only if the pub-
lic float of voting stock was $300 million or more and the issuer had been reporting
for at least 36 months. The Commission amended Form F-3 to lower the public float
requirement from US$300 million to US$75 million and to reduce the reporting his-
tory provision from 36 to 12 months.
In December 1994, the SEC again relied on the IAS standards as an alternative to
U.S. GAAP when it permitted non-U.S. issuers to account for their operations in hy-
perinflationary economies in accordance with IAS 21, and to determine the manner
in which to account for business combinations in accordance with IAS 22. The Com-
mission streamlined and reduced other accounting disclosures applying to non-U.S.
issuers at the same time.
(ii) Non-Public Offerings under Rule 144A. Rule 144A under the Securities Act was
adopted in April 1990 after a two-year proposal and comment period. While Rule
144A applies equally to domestic and foreign companies, a substantial part of the
SEC’s intention in the rule’s adoption was to attract foreign companies to the U.S.
capital markets. The rule did this by providing a new alternative for the resale of pri-
vately placed securities, thus increasing the liquidity of the secondary market for pri-
vately placed securities in the United States. This, in turn, reduces the cost of capital
in the private markets in the United States.
14.5 RESPONSE TO GLOBALIZATION 14 • 11