United States: It's Annual Report Time—Recent Developments And Trends For The Preparation Of Form 20-F

It is now time for foreign private issuers to prepare their annual reports on Form 20-F. For companies with a calendar year-end, the Form 20-F must be filed with the U.S. Securities and Exchange Commission (the SEC) by 1 May 2018.

To help you with the preparation of this filing, we highlight the following recent developments, trends and topics that may be important focus areas of the SEC in the 2018 review process.

Trends in SEC Comment Letters in 2017

Disclosures of Non-GAAP Financial Measures1

Disclosures of financial measures that do not conform either to U.S. GAAP or IFRS (collectively, "non-GAAP") continue to be an area of importance for the SEC, as indicated by its comments on Form 20-F and other filings in 2017. Since the SEC updated its compliance and disclosure interpretations (C&DIs) regarding the use of non-GAAP financial measures in May 2016 (see here), it has increased focus on non-GAAP measures. In the 2017 commenting season, the SEC Staff highlighted the following topics:

  • Equal or Greater Prominence: The SEC has continued to stress that, as required by Regulation G and Item 10 of Regulation S-K, a presentation of the most directly comparable GAAP or IFRS financial measure must be presented "with equal or greater prominence" whenever a non-GAAP measure is disclosed. Headings, bullets and tables must first present the GAAP or IFRS and then the non-GAAP measures (in that order), including in executive summaries and other summary sections. Non-GAAP measures must be presented individually or in small related sets, as a full non-GAAP income statement may give undue prominence to non-GAAP measures.

  • Reasons for the Inclusion of Non-GAAP Measures: Boilerplate language that management believes the company's non-GAAP measures provide investors with helpful supplemental information may not be sufficient. In several comment letters, the SEC asked companies to elaborate on the usefulness of each non-GAAP measure to both investors and management in the specific circumstances of the company, sometimes focusing on particular adjustments.
  • Clear and Accurate Labeling: Measures, such as "EBITDA" or "free cash flow," must be labeled as "adjusted" if they include adjustments beyond those customarily made for measures with those names. Similarly, "pro forma" should only be used where such financial measures have been prepared in accordance with the SEC's rules for pro forma financial statements in Regulation S-X.2 Finally, "non-recurring" or similar terms can only be used if the requirements of Regulation S-X are met—generally that a similar adjustment has not occurred in the past two years and is unlikely to occur in the next two years. In particular, SEC comment letters have focused on adjustments for long-term and ongoing restructuring or acquisition costs.
  • Problematic Adjustments: The SEC identified several adjustments as problematic, taking the position that certain non-GAAP adjustments, while not expressly prohibited, are presumed to be misleading. The two most commonly identified adjustments are those for normal, recurring cash operating expenses, such as exclusion of rent expense from EBITDAR (particularly relevant to retail and property management companies); and the failure to account for the tax effects of non-GAAP adjustments, both of which were previously identified as problematic in a prior C&DI update. In upcoming Form 20-F filings, companies can still provide explanations as to why such adjustments are relevant but may now face an uphill battle in defending those adjustments.
  • Non-GAAP Measures related to Acquisitions: In its updated non-GAAP C&DI, the SEC has clarified that financial measures (including forecasts), included in filings related to business combinations (primarily Rule 425 filings) as a result of being incorporated into the report of a financial advisor (most commonly in a fairness opinion), are not non-GAAP measures under Regulation S-K and Regulation G, provided the opinion is materially related to the business combination transaction and are being disclosed to comply with Regulation M-A or applicable foreign law. However, such exemption does not apply to inclusion of such measure in a Form 20-F, registration statement, proxy statement or tender offer statement.

Dealings with Sanctioned Countries

As in past years, the Office of Global Security Risk of the SEC's Division of Corporation Finance continues to review annual reports on Form 20-F for transactions in or with countries and entities subject to sanctions implemented by the Office of Foreign Assets Control of the U.S. Department of Justice. In its comment letters, the SEC has required Form 20-F filers to disclose any past, current and anticipated contacts with sanctioned countries, such as direct or indirect agreements, commercial arrangements or other contacts with the governments of those countries or any entities that might be controlled by those governments. Given this practice, Form 20-F filers may want to review their prior filings to prepare themselves for any inquiries in this area.

In particular, the comments have instructed Form 20-F filers to provide disclosure on any associated revenues, assets and liabilities derived from operations in countries designated by the U.S. Department of State as state sponsors of terrorism. Additionally, Form 20-F filers were also requested to include disclosure in their Form 20-F on the absence of such activity, if the issuer had included such disclosure for previous periods. The SEC takes a broad interpretation of the requirement to disclose contacts with sanctioned countries and has requested that companies provide information regarding past, current and anticipated contacts with sanctioned countries, whether through subsidiaries, joint ventures or other direct or indirect arrangements. For further details, please see the section "Sanctions Update," below.3

Cybersecurity Disclosure

The SEC Chairman has specifically referenced the duty of companies to disclose material information about cyber risks and cyber events. While comments on this topic have thus been limited, and related to domestic issuers, it is anticipated that this will continue to be an area of focus for the SEC going forward, and 20-F filers should review their risk factor disclosure on this topic.

Internal Controls Over Financial Reporting

In a continuation of historical trends, internal controls procedures have continued to receive attention from the SEC staff in comment letters. Where material weaknesses in internal controls over financial reporting have been identified, Form 20-F filers must include a discussion on the assessment of existing controls and the implementation of changes to enhance their internal controls.

Sanctions Update

Iran Sanctions

Despite officially renewing sanctions relief under the 2015 Joint Comprehensive Plan of Action (JCPOA), as Iran appears to be abiding by its obligations under the agreement, the Trump Administration has continued to expand non-nuclear related sanctions targeting specific individuals and entities for supporting the country's ballistic missile testing program, or for playing a role in regional unrest more generally. Political sentiment in both countries casts doubt on the future viability of the United States' participation in the JCPOA. This remains a rapidly evolving area of policy.

The "Countering America's Adversaries Through Sanctions" Act

On 2 August 2017, President Trump signed into law the "Countering America's Adversaries Through Sanctions Act," (the CAATSA) which imposes new sanctions against Russia.

The CAATSA imposes primary sanctions on U.S. Persons' activities (prohibition on supplying Russian oil projects; tightening of certain debt financing restrictions on Sectoral Sanctions Identifications-listed entities), and imposes secondary sanctions targeting non-U.S. persons' activities (blocking sanctions, including for cyber activity; termination or restriction of access to the United States for foreign financial institutions engaging in financial transactions on behalf of certain OFAC designated Russian persons or involving investments in Russian crude oil projects (i.e., deepwater, Arctic offshore, or shale projects); restriction on investments in special Russian crude oil projects). Finally, the Act allows the President to impose, in a discretionary fashion, secondary sanctions relating to Russian energy-export pipelines.

On 27 and 31 October, 2017, the U.S. Department of State issued public guidance on the implementation of the CAATSA. With regards to potential sanctions against individuals or entities that knowingly engage in "significant transactions" with a Russian nexus, (i.e. with persons that are a part of, or operating for or on behalf of, Russia's defense or intelligence sectors), such guidance provided a list of entities considered by the State Department to be operating in Russia's defense or intelligence sectors. The guidance includes a discussion as to whether a transaction is "significant" for purposes of the CAATSA. As such, defense and intelligence-related transactions are more likely to be considered "significant," while transactions with civil parties or transactions required by law with the Federal Security Service are less likely to raise any sanctions risks.

The second set of guidance focuses on the State Department's view on secondary sanctions relating to investments in special Russian crude oil projects and energy export pipelines. It defines several key terms and narrows the potential scope of several provisions, removing some uncertainty regarding how the U.S. government intends to apply these new sanctions.

SEC Updates

PCAOB New Standard on Auditor's Report

On 23 October 2017, the SEC adopted PCAOB's new audit standard on auditor's reports content and presentation. Enhanced information is expected to be included in audit reports. Part of the new standard requirements are effective for annual reporting periods ending on or after 15 December 2017. For audit reports included in this year's Form 20-F, this new standard will require auditors, to provide information about auditor's tenure (i.e. year the audit firm began consecutively serving as the issuer's auditor), make a statement on the auditor's independence, include standardized language relating to the role and responsibilities of the auditor and address the report to the shareholders and directors of the reporting company.

For large accelerated filers and other filers, from annual periods ending on or after, respectively, 15 June 2019 and 15 December 2020, auditors will have to include in their report information about matters that they communicated or were required to communicate to the company's audit committee that relate to material accounts or disclosures and involve especially challenging, subjective or complex auditor judgement.

XBRL Filing Requirements Are Now Mandatory for Foreign Private Issuers

Foreign private issuers that prepare financial statements in accordance with IFRS are now required, beginning with annual reports on Form 20-F filed in 2018 relating to fiscal years ending on or after 15 December 2017, to provide a version of their financial statements in interactive data format using eXtensible Business Reporting Language (XBRL) in addition to providing financial statements in their traditional format. Previously, foreign private issuers could voluntarily file financial data in XBRL format, although they were not required to comply with XBRL reporting, because the SEC had not specified tags for certain pieces of data—known as "taxonomy"—specifically applicable to IFRS.

Hyperlinks to Exhibits Now Required

New rules requiring hyperlinking of exhibits in SEC filings took effect in September 2017. The SEC adopted these rules in order to make access to exhibits in registration statements and periodic reports that were originally provided in previous filings easier for market participants to locate. The new rules apply to Form 20-F, but will not apply to Form 6-Ks.

Updated Compliance and Disclosure Interpretations

The Division of Corporation Finance last updated its C&DIs on Securities Act Forms and Rules as well as Exchange Act Forms in October 2017. The C&DIs are available here.

Updated Financial Reporting Manual

The Division of Corporation Finance last updated its Financial Reporting Manual in December 2017. The Financial Reporting Manual is available here.

Planned Disclosure of Government Payments by Resource Extraction Issuers Vacated

In the prior edition of this memo, we updated you on the proposed rule, commonly known as "publish what you pay," which would have required resource extraction issuers to disclose payments they make to governments for the commercial development of oil, natural gas or minerals, and which was scheduled to take effect for the 2018 20-F season. However, on 3 February 2017, U.S. Congress passed a resolution that disapproves the SEC's rule on resource extraction payments, resulting in the rule no longer being in effect.

NYSE Rule Changes

Prohibition on Disclosure of Material News Immediately After Market Close

On December 4, 2017, the NYSE adopted a rule change prohibiting NYSE-listed companies from publishing material news after the official closing time for the NYSE's trading session until the earlier of 4:05 p.m. Eastern Time ("ET") or the publication of the official closing price of the listed company's security. This rule is implemented to alleviate confusion caused by price discrepancies between the NYSE closing price and trading prices on other markets after the NYSE official closing time and before the NYSE closing auction is completed, which can be after 4:00 p.m. ET.

Advance Notice of Dividend or Stock Distribution Announcements

On June 13, 2017, the NYSE proposed a rule change to require listed companies to provide notice to the NYSE at least ten minutes before making any public announcement with respect to a dividend or stock distribution, including when the notice is outside of NYSE trading hours. The effective date will be February 1, 2018.


1  The SEC's release adopting Regulation G, which sets out the rules governing the use of non-GAAP financial measures in public disclosures generally, is available here.

[2]  In securities offerings exempt from SEC registration pursuant to Rule 144A under the U.S. Securities Act of 1933, while the practice is to follow the SEC rules as closely as possible, there is often flexibility to depart from a strict application of the rules.

[3]  In a related recent development, certain clearing systems (such as Euroclear/Clearstream) are requiring representations from the issuer relating to compliance with sanctions laws prior to admitting securities for clearing.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions