Guide for Foreign Private Issuers: Preparing Your
Upcoming Annual Report on Form 20-F

March 2007
Laura Sizemore, John R. Vetterli, David M. Johansen

This Guide summarizes certain rule changes affecting the Annual Report on Form 20-F for fiscal year 2006 to be filed by foreign private issuers on or prior to July 2, 2007 (the "2006 Annual Report"). ¹

This Guide is not intended to be a cumulative review of rules applicable to foreign private issuers mandated by the Sarbanes-Oxley Act ("Sarbanes-Oxley"), the securities offering reforms that became effective on December 1, 2005, or other rules applicable to Annual Reports on Form 20-F ("Annual Reports"). We have previously distributed White & Case memoranda discussing the provisions of Sarbanes-Oxley and the securities offering reforms and changes affecting the preparation of Annual Reports covering years prior (2004, 2005) to the 2006 fiscal year.

This guide contains a brief summary of the following new disclosure requirements and other regulatory developments affecting the 2006 Annual Report:

• Internal Control over Financial Reporting. Foreign private issuers that are large accelerated filers² must comply with the disclosure requirements of Section 404 of Sarbanes-Oxley in the 2006 Annual Report. Foreign private issuers that are accelerated filers, but not large accelerated filers, are required to comply only with the Section 404 requirement to include management's report on internal control, and not the requirement to include an independent auditor's attestation, in the 2006 Annual Report. For non-accelerated filers, the deadline for compliance with the requirement to include management's report on internal control has been extended to fiscal years ending on or after December 15, 2007, and to fiscal years ending on or after December 15, 2008 for the independent auditor attestation requirement.
  
  
• Section 302 Certification of Internal Control over Financial Reporting. Beginning with the 2006 Annual Report, CEOs and CFOs of accelerated filers and large accelerated filers are required to certify that they are responsible for internal controls over financial reporting and have designed a system of internal controls over financial reporting to provide reasonable assurance that the financial statements are reliable and prepared in accordance with generally accepted accounting principles. Non-accelerated filers will be subject to this Section 404 requirement beginning with their 2007 Annual Reports.
  
  
• Executive Compensation. Recent amendments made by the Securities and Exchange Commission (the "SEC") to the disclosure rules for executive compensation and related party disclosure do not apply to foreign private issuers filing Annual Reports on Form 20-F. However, the amended rules do affect the Form 20-F exhibit requirements. Individual management contracts and compensatory plans now are required to be filed as exhibits only if the foreign private issuer is required to publicly file such documents in its home country, or has otherwise publicly disclosed such documents.
  
  
• SEC Comments on Filings for First-Time IFRS Filers. The SEC has begun to receive and review financial statements filed by first-time adopters of International Financial Reporting Standards ("IFRS") and has issued comments on a number of filings.
  
  
• SEC Interpretive Guidance on Management's Assessment of Internal Control. The SEC has proposed new interpretive guidance for management on assessing internal controls, proposing a "top-down," "risk-based" approach intended to enable management to scale and tailor its evaluation procedures to fit its particular facts and circumstances.³
  
  
• NYSE Changes. The NYSE has eliminated its requirement that Annual Reports be physically distributed to shareholders. This is intended as an accommodation for foreign private issuers, which are exempt from the proxy rules under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
  
  
• Nasdaq Changes. Nasdaq converted to a national securities exchange in 2006. Securities formerly traded on the Nasdaq National Market are now traded on either the Nasdaq Global Market or the Nasdaq Global Select Market. Companies with Nadsaq-traded securities must indicate on the cover page of their Annual Reports that those securities are registered under Section 12(b) of the Exchange Act, rather than under Section 12(g).

Internal Control over Financial Reporting
Section 404 of Sarbanes-Oxley requires that the SEC prescribe rules requiring each registrant's Annual Report to contain an internal control report stating the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting, and containing an assessment of the effectiveness of the internal control structure and procedures of the registrant for financial reporting. In addition, Section 404(b) requires the inclusion of a related attestation from the registrant's independent auditors.

The 2006 Annual Report is the first Annual Report in which foreign private issuers that are large accelerated filers must comply with the disclosure requirements of Section 404. Foreign private issuers that are accelerated filers, but not large accelerated filers, will be required to include only management's report on internal control in the 2006 Annual Report, and not the Section 404(b) requirement to provide an independent auditor's attestation report.

The SEC extended the deadline for meeting the Section 404(b) requirement in an August 9, 2006 release, requiring foreign private issuers that are accelerated filers, but not large accelerated filers, to include the independent auditor's attestation in Annual Reports for fiscal years ending on or after July 15, 2007.⁴ In addition, on December 15, 2006, the SEC further extended the date by which non-accelerated filers must comply with the disclosure requirements of Section 404 with respect to management's report on internal control to Annual Reports for fiscal years ending on or after December 15, 2007,⁵ and with respect to the Section 404(b) requirement to provide an independent auditor's attestation, to the Annual Reports for fiscal years ending on or after December 15, 2008.⁶ To reflect these transitions, the SEC adopted a revised Item 15 to Form 20-F, applicable to foreign private issuers that are large accelerated filers, and a temporary Item 15T, applicable to foreign private issuers that are accelerated filers, but not large accelerated filers.

The current schedule for issuers to begin complying with the Section 404 rules regarding management's assessment and independent auditor attestation is as follows:

Management's Assessment:	For Fiscal Years ending on or after:
Foreign Large Accelerated Filers	July 15, 2006
Foreign Accelerated Filers	July 15, 2006
All Non-Accelerated Filers	December 15, 2007
Independent Auditor Attestation:	For Fiscal Years ending on or after:
Foreign Large Accelerated Filers	July 15, 2006
Foreign Accelerated Filers	July 15, 2007
All Non-Accelerated Filers	December 15, 2007

Although non-accelerated filers do not need to comply with the Section 404 requirements in the 2006 Annual Report, and issuers that are accelerated filers, but not large accelerated filers, do not need to provide an independent auditor's attestation report, the disclosure in the 2006 Annual Report may be affected by the work that such registrants have done or will do prior to the filing. Therefore, registrants should review where they are in their internal controls assessment process and determine the impact, if any, on their 2006 Annual Report disclosure.

 

On December 15, 2006 the SEC also adopted a transition period for newly public companies, which would include a foreign private issuer that is listing on a stock exchange in the United States for the first time. Under the new rule, a newly public company would not be required to provide either a management assessment or an independent auditor attestation report until the second Annual Report that it is required to be filed with the SEC, thereby allowing the company at least one annual reporting period from the time it becomes a public company to prepare for compliance.⁷

Section 302 Certification of Internal Control over Financial Reporting
In addition to the currently applicable Section 302 certification requirements, beginning with the 2006 Annual Report for accelerated filers and large accelerated filers, CEOs and CFOs are required to certify that they are responsible for internal controls over financial reporting and have designed a system of internal controls over financial reporting to provide reasonable assurance that the financial statements are reliable and prepared in accordance with generally accepted accounting principles. Non-accelerated filers will be subject to this Section 404 requirement beginning with their 2007 Annual Reports. The SEC has mandated a specific form for the Section 302 certification. The new form is attached as Annex A hereto, and the new certification language required by Section 404 underlined for your reference.

Executive Compensation
In 2006, the SEC published rules that significantly changed the disclosure requirements for executive and director compensation in corporate proxy and registration statements.⁸ The rules are directed at disclosure requirements applicable to U.S. domestic issuers and do not change the compensation-related disclosure requirements for foreign private issuers in Form 20-F. Under Form 20-F, a foreign private issuer is required to disclose executive compensation paid on an aggregate basis only, unless the issuer's home country rules require disclosure of executive compensation on an individual basis or the issuer has otherwise publicly disclosed such information. However, the amended rules do affect the requirements for filing exhibits to Form 20-F. Prior to the adoption of the amended rules, a foreign private issuer that disclosed executive compensation information on an individual basis was also required to file the corresponding management contracts or compensatory plans as exhibits to its Form 20-F. Under the amended exhibit rules, such contracts are required to be filed as exhibits to Form 20-F only if a foreign private issuer is required to publicly file such contracts in its home country, or has otherwise publicly disclosed such documents.

SEC Comments Regarding First-Time IFRS Filings
On April 13, 2005, the SEC announced an accommodation intended to ease the burdens that a foreign private issuer may face when presenting financial statements in an Annual Report under International Financial Reporting Standards ("IFRS") for the first time for the fiscal year starting on or after January 1, 2007, or an earlier financial year. In addition to requiring certain disclosures from all foreign private issuers that adopt IFRS for the first time during any financial year, the amendments allow such a filer to include the following in its Annual Report for the first fiscal year in which it has adopted IFRS:

• audited financial statements prepared under IFRS for the two most recently completed fiscal years (rather than for the three years that otherwise would be required under Item 8.A of Form 20-F) if (i) the Annual Report relates to the 2007 fiscal year or an earlier fiscal year, (ii) the registrant states "unreservedly and explicitly" that its financial statements comply with IFRS and (iii) the audited financial statements for the registrant's fiscal year to which the Annual Report relates are prepared in accordance with IFRS; and
  
  
• selected financial data prepared under IFRS for the two most recently completed fiscal years (rather than for the five years that otherwise would be required under Item 3.A of Form 20-F) so long as five years of selected financial data based on US GAAP are still provided in accordance with Item 3.A.1 of Form 20-F.

As part of its regular review of corporate filings, the SEC has begun reviewing the financial statements filed by companies that have adopted IFRS for the first time. While it is still in the initial stages of this review, a recent summary of staff comments provided by members of the SEC's Division of Corporation Finance describes three major categories of issues identified with the filings: omitted disclosure, disclosure that is hard to understand and "shallow" disclosure that does not provide useful information to investors. The SEC also noted that in a number of cases registrants omitted information required by IFRS, and suggested that since IFRS requires that companies handle material errors retrospectively, these cases may result in restatements. As of early January, the SEC had reviewed and commented on the filings of approximately 85 foreign private issuers that adopted IFRS in 2006. The comment letters are in the process of being posted to the SEC's website.⁹

SEC Interpretive Guidance on Management's Assessment of Internal Control
On December 20, 2006, the SEC proposed interpretive guidance intended to assist management in making its assessment of internal control under Section 404 more effective and efficient by focusing on risk and materiality.¹⁰ The principles-based guidance proposes a "top-down," "risk-based" approach that enables management to scale and tailor its evaluation procedures to fit its particular facts and circumstances. This guidance is intended to allow management to focus on those controls that are most needed to address the risk of a material misstatement in its financial statements, and to align its evaluation procedures with those areas that pose the greatest risks to reliable financial reporting. This proposed guidance does not technically apply to the 2006 Annual Report, although it may serve as a useful reference for management in preparing its internal control assessment for the 2006 Annual Report.

While the proposed guidance does not specifically address the types of issues that foreign private issuers face in implementing Section 404 and in evaluating financial controls, the SEC has requested comments as to whether the guidance should specifically address considerations unique to foreign private issuers.

NYSE Changes
On August 21, 2006, the SEC approved several NYSE-proposed amendments to listing standards affecting foreign private issuers. The NYSE now requires listed companies to maintain a website¹¹ and has eliminated its requirement that Annual Reports be physically distributed to shareholders. While the NYSE acknowledges that the change will have minimal effect on U.S. domestic companies subject to the proxy rules under the Exchange Act, the amendment is intended to provide efficiencies for foreign private issuers, which are exempt from the proxy rules.¹² NYSE-listed companies can now satisfy the annual financial statement distribution requirement by making their Annual Reports available on or by a link through their website, with a prominent undertaking in English to deliver a paper copy of the company's complete audited financial statements free of charge to all requesting holders. At the same time, listed companies relying on this accommodation must issue a press release announcing that they have filed their Annual Report with the SEC, specifying the web address at which the filing is posted and indicating that a hard copy is available on request.¹³

In addition, foreign private issuers with securities listed on the NYSE are now required to disclose a brief, general summary of the significant ways in which their corporate governance practices differ from those required of domestic companies under NYSE listing standards. Such disclosure must be made available on either their website or in their Annual Report (in either case, in English and accessible from the United States). If the disclosure is made available only on the website, the Annual Report must state this and provide the web address at which the information may be obtained.¹⁴

Nasdaq Changes
During 2006, Nasdaq converted to a national securities exchange. Securities formerly traded on the Nasdaq National Market are now traded on either the Nasdaq Global Market (NasdaqGM) or the Nasdaq Global Select Market (NasdaqGS). Companies with Nasdaq-traded securities should use the applicable updated name in all filings. In addition, such companies must indicate on the cover of their Annual Reports on Form 20-F that the company's Nasdaq-traded securities are now registered under Section 12(b) of the Exchange Act, rather than under Section 12(g). The SEC has advised that companies should continue to file Exchange Act reports using the same file number that they were previously assigned by the SEC. Companies' CIK numbers used for electronic filing via the EDGAR system will also remain the same.¹⁵

We would be pleased to discuss any questions you may have regarding the preparation of your Annual Report. Please contact the attorney at White & Case LLP with whom you regularly discuss securities matters or any of the attorneys identified at the end of this memorandum.

---

¹ For purposes of this Guide, we have assumed a fiscal year ending December 31, 2006. If your company does not have a calendar fiscal year, the timing of the applicability of the new disclosure requirements discussed in this Guide may differ. Please do not hesitate to contact us with any questions you may have about when the new disclosure requirements come into effect for your company's Annual Report.

² Rule 12b-2 of the Exchange Act defines "accelerated filers" as having a public float of at least $75 million but less than $700 million, "large accelerated filers" as having a public float of $700 million or more and "non-accelerated filers" as having a public float of less than $75 million.

³ This proposed guidance does not technically apply to the 2006 Annual Report, although it may serve as a useful reference for management in preparing its internal control assessment for the 2006 Annual Report.

⁴ SEC Rel. 33-8730A (Aug. 9, 2006).

⁵ For the first year, such reports are deemed furnished, not filed. See SEC Rel. 33-8760 (Dec. 15, 2006).

⁶ SEC Rel. 33-8760 (Dec. 15, 2006).

⁷ SEC Rel. 33-8760 (Dec. 15, 2006).

⁸ SEC Rel. 33-8732A (Aug. 29, 2006); SEC Rel. 33-8765 (Dec. 22, 2006).

 

⁹ Speech by SEC Staff, John W. White, Director, Division of Corporate Finance (January 15, 2007).

¹⁰ SEC Rel. 33-8762 (Dec. 20, 2006).

¹¹ Section 303A.14 of the NYSE Listed Company Manual; SEC Rel. 34-54344 (Aug. 21, 2006).

¹² SEC Rel. 34-54029 (Jun. 21, 2006).

¹³ Section 203.01 of the NYSE Listed Company Manual; SEC Rel. 34-54344 (Aug. 21, 2006).

¹⁴ Section 303A.11 of the NYSE Listed Company Manual; SEC Rel. 34-54344 (Aug. 21, 2006).

¹⁵ See http://www.nasdaq.com/about/FAQsExchange.stm.

---

 

This White & Case Securities Update, as well as White & Case LLP client guides and memoranda, is prepared for the general information of our clients and other interested persons. This Guide is not, and is not intended to be, comprehensive in nature. Due to the general nature of its content, this Guide is not and should not be regarded as legal advice.

This Guide may include links to websites other than the White & Case website. White & Case LLP has no responsibility for any websites other than its own, and does not endorse the information, content, presentation or accuracy, or make any warranty, express or implied, regarding any other website.

This Guide is protected by copyright. Material appearing herein may be reproduced with appropriate credit.

© 2007 White & Case LLP