Research the difference between American Depositary Shares and American Depositary Receipts. Then, visit the SEC’s website (www.sec.gov) to locate the final SEC rule Release No. 33-8879 issued on December 21, 2007 and research whether foreign issuers must file with the SEC financial statements in conformity with generally accepted accounting principles (GAAP).
What will be an ideal response?
An American Depositary Share (ADS) is a U.S. dollar denominated equity share of a foreign-based
company available for purchase on an American stock exchange. ADSs are issued by depository banks in
the U.S. under agreement with the issuing foreign company. The entire issuance is called an American
Depositary Receipt (ADR) and the individual shares are referred to as ADSs. The ADS system allows foreign companies to take advantage of the larger investor base through the sale of securities on U.S.
exchanges, and it allows U.S. investors a mechanism for investing in foreign-based companies.
SEC rule Release No. 33-8879 permits foreign-based companies that issue ADSs to file
financial statements with the SEC that are prepared in accordance with International Financial
Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) without
any reconciliation to U.S. generally accepted accounting principles (GAAP). Prior to this Release,
foreign-based registrants had to prepare a reconciliation of their IFRS-based financial statements to
U.S. GAAP. Thus, this Release removed the need to prepare the reconciliation to U.S. GAAP for financial
statements prepared in accordance with IFRS. However, the Release still requires reconciliation to U.S.
GAAP if the financial statements are prepared using a basis of accounting other than IFRS.
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