Securities offerings and listings in the US: an ... - Latham & Watkins

Chapter 5 – Required financial statement disclosure• Income statements: net income is required to bereconciled in either of three ways: a tabular format;on the face of the income statement; or in a note tothe income statement. In addition, each materialvariation must be described and quantified as aseparate reconciling item, although several materialvariations may be combined on the face of theincome statement if shown separately in a note. 207Earnings per share computed according to US Gaapmust also be included if materially different fromearnings per share under local Gaap or IAS. 208• Balance sheets: a reconciliation must be prepared forany line item that would have been materiallydifferent had that item been prepared using USGaap. 209• Cash flow statements: for each period for which anincome statement is presented and reconciled, a cashflow statement prepared in accordance with US Gaapor International Accounting Standard No 7 must beincluded or, alternatively, an explanatory note to thefinancial statements must be included that describesthe differences that would have resulted if theinformation had been prepared using US Gaap. 210(ii) Selected financial informationLike the annual and interim financial statements, therequired selected financial information may also beprepared using US Gaap, local Gaap or IAS. 211 Areconciliation to US Gaap of local Gaap or IAS selectedfinancial information must generally be provided for allfive years covered by the selected financial information(and any interim periods). 212 First-time registrants,however, need only prepare reconciliations for the twomost recent years (and any interim periods). 213 In thatcase, an additional year of reconciliation is required foreach year following the initial offering in subsequentannual reports. 214If a foreign private issuer prepares its primary financialstatements in accordance with US Gaap (rather thanreconciling to US Gaap), it may present the five years ofselected financial information under local Gaap or IASwithout reconciliation, 215 although the SEC staff willrequire at least two years of selected financial data underUS Gaap (and will require the full five years if theearliest three years are available under US Gaap). 216(iii) MD&AA foreign private issuer’s MD&A disclosure should focuson its primary financial statements, whether thosestatements are prepared in accordance with US Gaap,local Gaap or IAS. 217 To the extent those statements areprepared under local Gaap or IAS, a discussion shouldbe included of the reconciliation to US Gaap and anydifferences between local Gaap or IAS and US Gaap nototherwise discussed in the reconciliation and needed foran understanding of the financial statements as awhole. 218Nevertheless, some disclosures routinely made underUS Gaap may rise to a level of materiality requiringdisclosure in MD&A, including: 219• material undisclosed uncertainties (such as reasonablypossible loss contingencies 220 ), commitments (such asthose arising from leases) and credit risk exposuresand concentrations;• material unrecognized obligations (such as pensionobligations);• material changes in estimates and accountingmethods, and other factors or events affectingcomparability;• defaults on debt and material restrictions ondividends or other legal constraints on the use ofassets;• material changes in the relative amounts ofconstituent elements comprising line items presentedon the face of the financial statements;• significant terms of financings which would revealmaterial cash requirements or constraints;• material subsequent events, such as events that affectthe recoverability of recorded assets;www.iflr.comUS SECURITIES OFFERINGS: A GUIDE FOR NON-US ISSUERS35