Reading a foreign company's financial statements

Open the annual report of a European or Japanese company and much of it will look familiar: an income statement, a balance sheet, a cash flow statement, pages of notes. The differences are in the details. The report may be prepared under International Financial Reporting Standards rather than U.S. GAAP, filed on a different SEC form, published twice a year rather than four times, and stated in euros, yen or Swiss francs. None of that makes the numbers less useful. It does mean you need to know what you are looking at before you compare it with a U.S. company.

IFRS vs. U.S. GAAP: the differences investors notice

IFRS is set by the International Accounting Standards Board and used for listed companies in the European Union, the U.K., Australia, Canada and many other markets. In 2007 the SEC began accepting financial statements from foreign private issuers prepared under IFRS as issued by the IASB, with no reconciliation to U.S. GAAP. The two systems agree on far more than they disagree, but several differences show up in the numbers:

Two more points. Under IFRS, companies have some choice in where interest and dividends appear in the cash flow statement, so "operating cash flow" is not always defined the same way across companies. And a new standard, IFRS 18, takes effect for annual periods beginning on or after January 1, 2027. It introduces required subtotals, including operating profit, and requires disclosure of the "management-defined performance measures" companies use in their public communications. Expect income statements from IFRS reporters to change shape in 2027 reports.

The SEC forms: 20-F, 6-K and 40-F

Foreign companies that file with the SEC, including those with exchange-listed ADRs (Level II and III programs), are usually "foreign private issuers," and their reporting system differs from the one U.S. companies use.

• Form 20-F is the annual report, roughly the counterpart of a 10-K. It is due within four months of fiscal year-end; the SEC shortened the deadline from six months beginning with fiscal years ending on or after December 15, 2011. For a calendar-year company, that means the 20-F can arrive as late as April 30.
• Form 6-K is how foreign private issuers furnish information they make public at home, file with a stock exchange, or distribute to shareholders. Interim results, press releases and shareholder-meeting materials typically arrive this way. There is no 10-Q or 8-K counterpart with fixed content; a 6-K contains whatever the company published in its home market.
• Form 40-F is the annual report used by eligible Canadian issuers under the Multijurisdictional Disclosure System, or MJDS, which the SEC adopted in 1991. MJDS lets qualifying Canadian companies satisfy many U.S. requirements largely with their Canadian disclosure documents. A 40-F typically wraps the company's Canadian annual information form, audited financial statements and MD&A.

Companies with unlisted Level I ADRs or OTC-quoted shares often do not file with the SEC at all; they rely on the Rule 12g3-2(b) exemption and publish English-language reports on their own websites. See ADR levels explained and OTC foreign stocks.

Semiannual reporting is common

Quarterly reporting is a U.S. habit that much of the world does not share. In the European Union, a 2013 amendment to the Transparency Directive abolished the requirement for quarterly interim management statements, and the deadline for half-yearly reports is three months after the period ends. Many large European companies still publish quarterly updates voluntarily, often with less detail than their half-year and annual reports. Other markets set their own rules, so check each country's requirements rather than assuming a quarterly cadence.

The practical effect for a U.S. investor: there can be six months between full sets of financial statements, and the most recent balance sheet may be older than you are used to. Check the company's financial calendar on its investor-relations page.

Reporting currency and translation

Foreign companies usually report in their home or functional currency. A 20-F from a Japanese company will be in yen; one from a Swiss company may be in francs or, for some multinationals, dollars or euros. Some companies add "convenience translations" into dollars at a single exchange rate, which are useful for scale but are not the audited figures.

Two things to keep straight. First, growth rates in local currency and in dollars can differ sharply; many companies also report "constant currency" growth that strips out exchange-rate effects. Second, your return as a U.S. holder depends on the currency too. See currency risk.

Where to find filings

• SEC EDGAR holds 20-F, 40-F and 6-K filings, free, for any company that files with the SEC. ADR program documents (Form F-6) are there too, including the fee schedule.
• Home regulators and exchanges. For Canadian issuers, use SEDAR+, the Canadian Securities Administrators' filing system since July 2023. Other countries have their own systems; our country pages, such as Canada, Germany and Japan, point to them.
• Company investor-relations sites usually post annual reports, half-year reports, presentations and English translations, and are the main source for companies relying on Rule 12g3-2(b).

Mining companies add a layer of technical disclosure. If you follow Canadian juniors, read how to read an NI 43-101 report alongside the financial statements.

Educational content only, not investment, tax or legal advice. The Stateside Report does not recommend buying or selling any security. Tax rules depend on your situation; confirm with a qualified tax professional. Full disclosures.