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and fair disclosure; and that appropriate auditing and accounting practices and standards have been followed in their preparation. In addition, it recognizes that changes and new developments in financial and economic conditions affect the operations and financial status of the several thousand commercial and industrial companies required to file statements with the Commission and that accounting and auditing procedures cannot remain static and continue to serve well a dynamic economy. The Commission's accounting staff, therefore, studies the changes and new developments for the purpose of establishing and maintaining appropriate accounting and auditing policies, procedures and practices for the protection of investors. The primary responsibility for this program rests with the Chief Accountant of the Commission, who has general supervision with respect to accounting and auditing policies and their application.

Progress in these activities requires continuing contact and consultation between the staff and accountants both individually and through such representative groups as, among others, the American Accounting Association, the American Institute of Certified Public Accountants, the American Petroleum Institute, the Financial Analysts Federation, the Financial Executives Institute, and the National Association of Railroad and Utilities Commissioners, as well as many Government agencies. Recognizing the importance of cooperation in the formulation of accounting principles and practices, adequate disclosure and auditing procedures which will best serve the interests of investors, the American Institute of Certified Public Accountants, the Financial Analysts Federation, and the Financial Executives Institute appoint committees which maintain liaison with the Commission's staff.

The Commission on its part authorized its Chief Accountant to continue to serve during the year as a member of an advisory committee to the Accounting Principles Board of the American Institute of Certified Public Accountants. This committee served as adviser to the Institute's Director of Research while he was engaged in making an inventory of generally accepted accounting principles and practices recognized by the accounting profession and currently in use. The results of this work, which will be useful to laymen as well as to accountants, can be found in an accounting research study published by the Institute entitled “Inventory of Generally Accepted Accounting Principles for Business Enterprises,” by Paul Grady.

In addition to this formal participation the Chief Accountant's Office has furnished suggestions to the Institute's Director of Research and to the Accounting Principles Board who are now revising and bringing up to date prior pronouncements made by the Institute's Committee on Accounting Procedure and preparing for publication opinions of the Accounting Principles Board. These opinions are

based on studies made by the research staff of the Institute and by other persons selected to make the required studies.

The many daily decisions to be made which require the attention of members of the Chief Accountant's staff include questions raised by the operating divisions of the Commission, the regional offices, and the Commission itself. As a result of this day-to-day activity and the need to keep abreast of current accounting problems, the Chief Accountant's staff continually reexamines accounting and auditing principles and practices. From time to time members of the staff are called upon to assist in field investigations, to participate in hearings and to review Commission opinions insofar as they pertain to accounting matters.

Prefiling and other conferences with officials of corporations, practicing accountants and others are also an important part of the work of the staff. Resolution of questions and problems in this manner saves registrants and their representatives both time and expense. The 1964 amendments to the securities acts bring into contact with the Commission many heretofore "unregulated” companies. In many cases, the independent accountant has been a primary bridge between the issuer and the Commission. Registrants falling into this category and the accountants who will certify the financial statements for them have been assisted by members of the Commission and its staff who have lectured and participated in institutes and symposiums sponsored by various groups in different parts of the country, where the provisions of the 1964 amendments were explained.

Many specific accounting and auditing problems are found in the examination of financial statements required to be filed with the Commission. Where examination reveals that the rules and regulations of the Commission have not been complied with or that applicable generally accepted accounting principles have not been adhered to, the examining division usually notifies the registrant by an informal letter of comment. These letters of comment and the correspondence or conferences that follow continue to be a most convenient and satisfactory method of effecting corrections and improvements in financial statements, both to registrants and to the Commission's staff. Where particularly difficult or novel questions arise which cannot be settled by the accounting staff of the divisions and by the Chief Accountant, they are referred to the Commission for consideration and decision.

The staff of the Chief Accountant's Office and the staff of the Office of Policy Research conferred several times during fiscal 1965 with representatives of the New York Stock Exchange and its accounting consultants, Price Waterhouse & Co., for the purpose of implementing the recommendation set forth in the Special Study with respect to obtaining the necessary information for a clearer understanding of the Stock Exchange's commission rate structure and level and the odd-lot differentials. As a result of these conferences the income and expense


report developed by the Exchange for the annual reporting of member firms doing a public commission business was modified and expanded, thus becoming a more useful source of information for additional studies which will be made by the Commission and the Exchange. A financial reporting form comparable to the Exchange's income and expense report was developed for use by the major New York Stock Exchange odd-lot member firms when filing their annual reports.

The proposed revision of Form X-17A-5, the annual report of financial condition required to be filed by certain brokers and dealers pursuant to Section 17 of the Securities Exchange Act of 1934, mentioned in last year's annual report of the Commission,43 is progressing through the required rulemaking process. This form and the related minimum audit requirements are being revised to meet changing conditions and practices in the securities industry.4

The Chief Accountant and his staff cooperated with the staff of the Federal Reserve System and the Federal Deposit Insurance Corporation in the preparation of rules and regulations under the Securities Acts Amendments of 1964 which now govern the reports banks are required to file with the Federal Reserve Board and the Federal Deposit Insurance Corporation. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

Section 15 of the Bretton Woods Agreements Act, as amended, exempts from registration under both the Securities Act of 1933 and the Securities Exchange Act of 1934 securities issued, or guaranteed as to both principal and interest, by the International Bank for Reconstruction and Development. The Bank is required to file with the Commission such annual and other reports with respect to such securities as the Commission determines to be appropriate in view of the special character of the Bank and its operations, and necessary in the public interest or for the protection of investors. The Commission has, pursuant to the above authority, adopted rules requiring the Bank to file quarterly reports and also to file copies of each annual report of the Bank to its board of governors. The Bank is also required to file reports with the Commission in advance of any distribution in the United States of its primary obligations. The Commission, acting in consultation with the National Advisory Council on International Monetary and Financial Problems, is authorized to suspend the exemption at any time as to any or all securities issued or guaranteed by the Bank during the period of such suspension.

Page 148. "On August 23, 1965, the Commission announced that it had under consideration proposed amendments to Form X-17A-5 and the minimum audit requirements. Securities Exchange Act Release No. 7683.

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The Bank reported a net income of $136.9 million for the fiscal year ending June 30, 1965. This compared with net income of $97.5 million in the fiscal year 1964. The difference between the two figures results mainly from the fact that since July 1, 1964, the Bank has discontinued treating a portion of loan receipts as commission to be credited to the Special Reserve and, with a few minor exceptions, all income from loans is considered as regular income.

On July 29, 1965, the Executive Directors allocated $61.9 million from the year's net income to the Supplemental Reserve against losses on loans and guarantees, increasing it to $667.5 million. This increased the Bank's total reserves, including the Special Reserve, to $956.5 million. The Executive Directors recommended to the Board of Governors that the remaining $75 million of the year's net income be transferred to the Bank's affiliate, the International Development Association.

During the year, the Bank made 38 loans totaling $1,023.3 million, compared with a total of $809.9 million last year. The loans were made in Brazil (2 loans), Chile, the Republic of China (2 loans), Finland (2 loans), Gabon, Honduras, India (3 loans), Iran (2 loans), Italy, Jamaica, Japan (3 loans), Malaysia, Mexico, Morocco, Nigeria, Paraguay, Peru (2 loans), Philippines (2 loans), Portugal, Rhodesia and Zambia, Sierra Leone, Spain, Thailand (2 loans), Uruguay, Venezuela (2 loans) and Yugoslavia. This brought the total number of loans to 424 in 77 countries and territories and raised the gross total of commitments to $8,954.6 million. By June 30, as a result of cancellations, exchange adjustments, repayments and sales of loans, the portion of loans signed still retained by the Bank had been reduced to $5,966.8 million.

During the year the Bank sold or agreed to sell $106.2 million principal amounts of loans, compared with sales of $173.3 million last year. On June 30, the total of such sales was $1,884.7 million, of which all except $69 million had been made without the Bank's guarantee.

On June 30, the outstanding funded debt of the Bank was $2.724 million, reflecting a net increase of $232.2 million in the past year. During the year the funded debt was increased through the private placement of bonds and notes totaling $198 million and DM 400 million (equivalent US$100 million) and the public sale of bonds as follows: Can$25 million (US$23.1 million), DM 250 million (US$62.5 million), Sw F 60 million (US$14 million), and US$200 million, of which $17.9 million were sold under delayed delivery arrangements. The debt was decreased through the retirement of bonds and notes totaling US$248 million, Sw F 33 million (US$7.8 million), DM 200 million (US$50 million), Can$11.5 million (US$10.6 mil

lion), and by net sinking and purchase fund transactions amounting to $31.1 million.

During the year eight countries increased their capital subscriptions to the Bank: the Dominican Republic by $5.3 million, the United Arab Republic by $35.5 million, Honduras by $2 million, Costa Rica by $2.7 million, Italy by $306 million, Malaysia by $83.3 million, Panama by $8.6 million and Sudan by $40 million. Thus on June 30, 1965, the subscribed capital of the Bank amounted to $21,669.4 million.

INTER-AMERICAN DEVELOPMENT BANK The Inter-American Development Bank Act, which authorizes the United States to participate in the Inter-American Development Bank, provides an exemption for certain securities which may be issued by the Bank similar to that provided for securities of the International Bank for Reconstruction and Development. Acting pursuant to this authority, the Commission adopted Regulation IA, which requires the Bank to file with the Commission substantially the same information, documents and reports as are required from the International Bank for Reconstruction and Development. The Bank is also required to file a report with the Commission prior to the sale of any of its primary obligations to the public in the United States.

During the year ended June 30, 1965, the Bank made 26 loans totaling the equivalent of $182,806,242 from its ordinary capital resources, bringing the gross total of loan commitments outstanding at June 30, to 115, aggregating $583,695,165. During the year, the Bank sold or agreed to sell $4,702,476 in participations in the aforesaid loans, all of such participations being without the guarantee of the Bank. The loans from the Bank's ordinary capital resources were made in Argentina, Brazil, Chile, Colombia, El Salvador, Nicaragua, Peru, Uruguay, and Venezuela.

During the year the Bank also made 17 loans totaling the equivalent of $65,832,689 from its Fund for Special Operations, bringing the gross total of loan commitments outstanding at June 30, to 56, aggregating $192,354,268. In addition, the Bank made 31 loans aggregating $99,587,000 from the Social Progress Trust Fund, which it administers under an Agreement with the United States, bringing the gross total of loan commitments outstanding at June 30, to 112, aggregating $482,433,534.

On June 30, 1965, the outstanding funded debt of the ordinary capital resources of the Bank was the equivalent of $285,093,548, reflecting an increase during the year of the equivalent of $135,900,000. This increase consisted of two public bond issues, including a $100 million U.S. dollar issue and a German mark issue in the amount of DM 60 million ($15 million); the private placement of an issue in the United Kingdom in the amount of £ 3 million ($8.4 million), and the

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