audited" the note required by § 210.316(t), it shall be presumed that appropriate professional standards and procedures with respect to the data in the note have been followed by the independent accountant who is associated with the unaudited footnote by virtue of reporting on the financial statements in which it is included.

[37 FR 14594, July 21, 1972, as amended at 40 FR 46111, Oct. 6, 1975; 41 FR 35479, Aug. 23, 1976]

§ 210.2-03 Examination of financial state

ments by foreign government auditors. Notwithstanding any requirements as to examination by independent accountants, the financial statements of any foreign governmental agency may be examined by the regular and customary auditing staff of the respective government if public financial statements of such governmental agency are customarily examined by such auditing staff.

§ 210.2-04 Examination of financial statements of persons other than the registrant.

If a registrant is required to file financial statements of any other person, such statements need not be examined if examination of such statements would not be required if such person were itself a registrant.

§ 210.2-05 Examination of financial statements by more than one accountant. If, with respect to the examination of the financial statements of any person, the principal accountant relies on an audit made by another accountant of certain of the accounts of such person or its subsidiaries, the report of such other accountant shall be filed (and the provisions of §§ 210.2-01 and 210.2-02 shall be applicable thereto): However, The report of such other accountant need not be filed (a) if no reference is made directly or indirectly to such other accountant's audit in the principal accountant's report, or (b) if, having referred to such other accountant's audit, the principal accountant states in his report that he assumes responsibility for such other accountant's audit in the same manner as if it had been made by him.

RULES OF GENERAL APPLICATION

SOURCE: Sections 210.3-01 to 210.3-18 appear at 37 FR 14595, July 21, 1972, unless otherwise noted.

§ 210.3-01 Form, order, and terminology.

(a) Financial statements may be filed in such form and order, and may use such generally accepted terminology, as will best indicate their significance and character in the light of the provisions applicable thereto.

(b) All money amounts required to be shown in financial statements may be expressed in whole dollars, in thousands of dollars or in hundred thousands of dollars, as appropriate: Provided, That, when stated in other than whole dollars, an indication to that effect is inserted immediately beneath the caption of the statement or schedule, or at the top of the money columns, or at an appropriate point in narrative material. The individual amounts shown need not be adjusted to the nearest dollar, or thousand or hundred thousands if in a note it is stated that the failure of the items to add to the totals shown is due to the dropping of amounts less than $1, $1,000, or $100,000, as appropriate.

(c) Negative amounts (red figures) shall be shown in brackets or parentheses and so described in the related caption, columnar heading or a note to the statement or schedule, as appropriate.

§ 210.3-02 Items not material.

If the amount which would otherwise be required to be shown with respect to any item is not material, it need not be separately set forth (but see Release No. AS-41).

§ 210.3-03 Inapplicable captions and omission of unrequired or inapplicable financial statements.

(a) No caption need be shown in any financial statement as to which the items and conditions are not present.

(b) Financial statements not required or inapplicable because the required matter is not present need not be filed.

(c) Financial statements omitted and the reasons for their omission shall be

indicated in the list of financial statements required by the applicable form.

$210.3-04 Omission of substantially identical notes.

If a note covering substantially the same subject matter is required with respect to two or more financial statements relating to the same or affiliated persons, for which separate sets of notes are presented, the required information may be shown in a note to only one of such statements: Provided, That a clear and specific reference thereto is made in each of the other statements with respect to which the note is required.

$210.3-05 Omission of names of certain

subsidiaries.

Notwithstanding the requirements as to particular statements, subsidiaries, the names of which are permitted to be omitted from the list of affiliates required by the applicable form, need not be named in any financial statement. Reasonable grouping of such subsidiaries may be made, with an explanatory group caption which shall state the number of subsidiaries included in the group.

§ 210.3-06 Additional information.

The information required with respect to any statement shall be furnished as a minimum requirement to which shall be added such further material information as is necessary to make the required statements, in the light of the circumstances under which they are made, not misleading. This rule shall be applicable to all statements required to be filed, including copies of statements required to be filed in the first instance with other governmental agencies.

$210.3-07 Changes in accounting principles and practices and retroactive adjustments of accounts.

(a) Any change in an accounting principle or practice, or in the method of applying any accounting principle or practice, made during any period for which financial statements are being filed which materially affects comparability of such financial statements with those of prior periods, and

the effect thereof upon the net income of the period in which such change is made and, if practicable, of the prior periods for which financial statements are being filed, shall be disclosed in an appropriate manner.

(b) Any material retroactive adjustment made in income statements during any period for which financial statements are being filed, and the effect thereof upon net income of prior periods shall be disclosed in a note to the appropriate financial statement: Provided, however, That such disclosures need not be made (1) if they have been made in filings with the Commission in prior years or (2) the financial statements which are being retroactively adjusted have not previously been filed with the Commission or otherwise made public.

normal operating cycle of the company is longer than 1 year, generally recognized trade practices may be followed with respect to the inclusion of items such as installment receivables or inventories long in process: Provided, An appropriate explanation of the circumstances is made and, if practicable, an estimate is given of the amount not realizable within 1 year. The captions specified under this § 210.3-11 and § 210.3-12 are not required for persons which do not normally distinguish current assets and liabilities from noncurrent.

are payable

§ 210.3-12 Current liabilities. Obligations which within 1 year or whose liquidation is reasonably expected to require the use of existing current assets (see § 210.311) or the creation of other current liabilities shall be classed as current liabilities. However, if the normal operating cycle of the company is longer than 1 year, generally recognized trade practices may be followed with respect to the exclusion of items such as customers' deposits and deferred income, provided an appropriate explanation of the circumstances is made. (See also Release No. AS-102.)

§ 210.3-13 Reacquired evidences of indebtedness.

Reacquired evidences of indebtedness shall be deducted from the appropriate liability caption. However, reacquired evidences of indebtedness held for pension and other special funds not related to the particular issues may be shown as assets of such funds: Provided, That there be stated parenthetically the amount of such evidences of indebtedness, the cost thereof, and the amount at which stated.

§ 210.3-14 Reacquired shares.

Reacquired shares not retired shall be shown separately as a deduction from capital shares, or from the total of capital shares and other stockholders' equity, or from other stockholders' equity, at either par or stated value, or cost, as circumstances require.

§ 210.3-15 Discount on capital shares.

Discount on capital shares, or any unamortized balance thereof, shall be shown separately as a deduction from capital shares or from other stockholders' equity as circumstances require.

[38 FR 6066, Mar. 6, 1973]

§ 210.3-16 General

notes to financial statements. (See Release No. AS-4.) If present in regard to the person for which the financial statements are filed, the following shall be set forth on the face of the appropriate statement or in notes appropriately captioned and referred to in such statement. The information shall be provided for each statement required to be filed, except that the information required by paragraphs (c), (e), (f), (g)(3), (h), (i), (k), and (p) of this section shall be provided as of the most recent audited balance sheet and any subsequent unaudited balance sheet being filed and for item (q) as specified therein. When specific statements are presented separately the pertinent notes shall be attached unless cross-referencing is appropriate.

(a) Principles of consolidation or combination. With regard to consolidated or combined financial statements, refer to §§ 210.4-01 to 210.4-09 for requirements for supplemental information in notes to the financial statements.

(b) Principles of translation of items in foreign currencies. When items in foreign currencies are included in the financial statements being presented, there shall be stated (1) a brief description of the principles followed in translating the foreign currencies into U.S. currency and (2) the amount and disposition of the unrealized gain or loss.

(c) Assets subject to lien. Assets mortgaged, pledged, or otherwise subject to lien, and the approximate amounts thereof, shall be designated and the obligations collateralized briefly identified.

(d) Intercompany profits and losses. The amount, and the effect upon any balance sheet item, of profits or losses resulting from transactions with affili

ated companies and not eliminated shall be stated. If impracticable of accurate determination without unreasonable effort or expense, give an estimate or explain.

(e) Defaults. The facts and amounts concerning any default in principal, interest, sinking fund, or redemption provisions with respect to any issue of securities or credit agreements, or any breach of convenant of a related indenture or agreement, which default or breach existed at the date of the most recent balance sheet being filed and which has not been subsequently cured, shall be stated. Notation of such default or breach of convenant shall be made in the financial statements and the entire amount of obligations to which the default or breach relates shall be classified as a current liability if said default or breach accelerates the maturity of the obligations and makes it current under the terms of the related indenture or agreement. Classification as a current obligation is not required if the lender has waived the accelerated due date or otherwise agreed to a due date more than 1 year from the balance sheet date. If a default or breach exists, but acceleration of the obligation has been waived for a stated period of time beyond the date of the most recent balance sheet being filed, state the amount of the obligation and the period of the waiver.

(f) Preferred shares. (1) If callable, the date or dates and the amount per share at which such shares are callable shall be stated. If convertible, the terms of conversion shall be stated briefly.

(2) Arrears in cumulative dividends per share and in total for each class of shares shall be stated.

(3) Aggregate preferences on involuntary liquidation, if other than the par or stated value, shall be shown parenthetically in the equity section of the balance sheet. When the excess involved is material there shall be shown: (i) The difference between the aggregate preference on involuntary liquidation and the aggregate par or stated value; (ii) a statement that this difference, plus any arrears in dividends, exceeds the sum of the par or stated value of the junior capital

shares and other stockholders' equity applicable to junior shares, if such is the case; and (iii) a statement as to the existence of any restrictions upon retained earnings growing out of the fact that upon involuntary liquidation the preference of the preferred shares exceeds its par or stated value.

(g) Pension and retirement plans. (1) A brief description of the essential provisions of any employee pension or retirement plan and of the accounting and funding policies related thereto shall be given.

(2) The estimated cost of the plan for each period for which an income statement is presented shall be stated.

(3) The excess, if any, of the actuarially computed value of vested benefits over the total of the pension fund and any balance sheet pension accruals, less any pension prepayments or deferred charges, shall be given as of the most recent practicable date.

(4) If a plan has not been fully funded or otherwise provided for, the estimated amount that would be necessary to fund or otherwise provide for the past service cost of the plan shall be disclosed as of the date most recently determined.

(5) A statement shall be given of the nature and effect of significant matters affecting comparability of pension costs for any periods for which income statements are presented.

(h) Restrictions which limit the availability of retained earnings for dividend purposes (see Release No. AS-35). Describe the most restrictive of any such restrictions, other than as reported in paragraph (f) of this section, indicating briefly its source, its pertinent provisions, and, where appropriate and determinable, the amount of retained earnings (1) so restricted or (2) free of such restrictions.

(i) Commitments and contingent liabilities. (1) If material in amount, there shall be disclosed the pertinent facts relative to firm commitments for the acquisition of permanent or longterm investments and property, plant, and equipment and for the purchase, repurchase, construction, or rental of assets under material leases.

(2) A brief statement as to contingent liabilities not reflected in the bal

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the business or enterprise of an issuer, directly or indirectly receives in consideration of services or property, or both services and property, 10 percent or more of any class of securities of the issuer or 10 percent or more of the proceeds from the sale of any class of securities. However, a person who receives such securities or proceeds either solely as underwriting commissions or solely in consideration of property shall not be deemed a promoter within the meaning of this paragraph if such person does not otherwise take part in founding and organizing the enterprise.

(s) Registrant. The term "registrant" means the issuer of the securities for which an application, a registration statement, or a report is filed.

(t) Share. The term "share" means a share of stock in a corporation or unit of interest in unincorporated person.

an

(u) Significant subsidiary. The term "significant subsidiary” means: (1) A subsidiary or (2) a subsidiary and its subsidiaries which meet any of the conditions described below based on: (i) The most recent annual financial statements, including consolidated financial statements, of such subsidiary which would be required to be filed if such subsidiary were a registrant and (ii) the most recent annual consolidated financial statements of the registrant being filed:

(a) The parent's and its other subsidiaries' investments in and advances to, or their proportionate share (based on their equity interests) of the total assets (after intercompany eliminations) of, the subsidiary exceed 10 percent of the total assets of the parent and its consolidated subsidiaries.

(b) The parent's and its other subsidiaries' proportionate share (based on their equity interests) of the total sales and revenues (after intercompany eliminations) of the subsidiary exceeds 10 percent of the total sales and revenues of the parent and its consolidated subsidiaries.

(c) The parent's and its other subsidiaries' equity in the income before income taxes and extraordinary items of the subsidiary exceeds 10 percent of such income of the parent and its con

solidated subsidiaries, provided that if such income of the parent and its consolidated subsidiaries is at least 10 percent lower than the average of such income for the last five fiscal years such average income may be substituted in the determination.

(v) Subsidiary. A “subsidiary" of a specified person is an affiliate controlled by such person directly, or indirectly through one or more intermediaries.

(w) Totally held subsidiary. The term "totally held subsidiary” means a subsidiary (1) substantially all of whose outstanding equity securities are owned by its parent and/or the parent's other totally held subsidiaries, and (2) which is not indebted to any person other than its parent and/ or the parent's other totally held subsidiaries, in an amount which is material in relation to the particular subsidiary, excepting indebtedness incurred in the ordinary course of business which is not overdue and which matures within 1 year from the date of its creation, whether evidenced by securities or not. Indebtedness of a subsidiary which is secured by its parent by guarantee, pledge, assignment, or otherwise is to be excluded for purposes of paragraph (w)(2) of this section.

(x) Voting shares. The term "voting shares" means the sum of all rights, other than as affected by events of default, to vote for election of directors and/or the sum of all interests in an unincorporated person.

(y) Wholly owned subsidiary. The term "wholly owned subsidiary" means a subsidiary substantially all of whose outstanding voting shares are owned by its parent and/or the parent's other wholly owned subsidiaries. [37 FR 14593, July 21, 1972, as amended at 38 FR 6066, Mar. 6, 1973; 39 FR 17931, May 22, 1974; 40 FR 55835, Dec. 2, 1975]

QUALIFICATIONS AND REPORTS OF
ACCOUNTANTS

SOURCE: Sections 210.2-01 to 210.2-05 appear at 37 FR 14594, July 21, 1972, unless otherwise noted.