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Federal Register / Vol. 86, No. 234 / Thursday, December 9, 2021 / Rules and Regulations
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periodic disclosures.106 The levels of detail and specificity associated with these disclosures vary, however, and the information often is not easily comparable across filings given that similar disclosures may not occur within the same item or section of the report.107
One notable exception to this variation in disclosures, however, is the disclosure by registrants of the PCAOBs inability to conduct inspections of their respective independent audit firms. We observe a highly similar type and pattern of disclosure regarding the PCAOBs inability to inspect those firms included in the majority of the potential Commission-Identified Issuers Item 3
for Form 20F filers and Item 1A for Form 10K filers discussion of risk factors.108 Such disclosures are readily accessible using the keyword search functionality on the Commissions EDGAR website.109 In addition, similar identification of registrants whose independent auditors were not fully inspected by the PCAOB due to limitations and restrictions imposed by authorities in foreign jurisdictions has historically been available via the PCAOBs dedicated Public Companies that are Audit Clients of PCAOBRegistered Firms from Non-U.S.
Jurisdictions where the PCAOB is 106 See Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities.
107 See, e.g., Justin Hopkins, Mark H. Lang &
Jianxin Donny Zhao, The Rise of US-Listed VIEs from China: Balancing State Control and Access to Foreign Capital, Darden Business School Working Paper No. 3119912, Kenan Institute of Private Enterprise Research Paper No. 1917 2018, available at http dx.doi.org/10.2139/ssrn.3119912
finding that, Chinese firms disclose using a VIE
structure in 42 percent of reviewed year 2013 Forms 10K, where some firms simply mention the VIE
structure in passing, while others explicitly disclose the legal risks of the VIE, documenting which specific subsidiaries utilize the VIE and provide pro forma balance sheets and income statements for these subsidiaries, as well as summarizing the specific contracts including the parties and terms.
See also, Paul Gillis& Michelle R. Lowry, Son of Enron: Investors Weigh the Risks of Chinese variable Interest Entities, 26 J. Appl. Corp. Fin. 61
2014.
108 Staff conducted a review of annual report disclosures using a combination of Intelligize searches and a manual review of select filings of Forms 10K and 20F. Highly similar language describing the potential risks associated with the PCAOBs inability to conduct inspections appeared across at least 65% of annual reports filed within the same year, including reviewed periods that predate the initial introduction of the HFCA Act legislation in 2019. As no single audit firm currently serves more than, at maximum, 20% of potential Commission-Identified Issuers, the inclusion of standard disclosures across registrants does not appear to be attributable to the practices of any individual audit firm. See infra note 117 for a description of the sample identification methodology.
109 Available at https www.sec.gov/edgar/
search/.

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Denied Access to Conduct Inspections web page.110
Under the amendments, CommissionIdentified Foreign Issuers will also be required to disclose the presence and identity of any official of the CCP who is a member of its board of directors in addition to the percentage of the shares of the issuer owned by governmental entities in the foreign jurisdiction in which the issuer is incorporated or otherwise organized and whether governmental entities in the applicable foreign jurisdiction with respect to that registered public accounting firm have a controlling financial interest with respect to the issuer. At present, some of this information may be elicited by Form 10K disclosure requirements 111
or Form 20F disclosure requirements.112 Because Form 10K, Part III disclosures may be incorporated by reference from the registrants definitive proxy statement if filed within 120 days of the related Form 10
K fiscal year end, or alternatively filed as a Form 10K amendment by the same 120 day deadline, such disclosures are not currently uniformly present in the annual report filings of the potentially affected issuers. Moreover, there are currently no requirements that such disclosures must include the political party affiliation or party posts of those responsible for registrants management and oversight, including but not limited to members of the board. Nor is there a requirement to systematically disclose the identity and ownership stake of any person or group of personsincluding government entitieswho directly or indirectly acquire or have beneficial ownership of less than five percent of a 110 Available at https pcaobus.org/oversight/
international/denied-access-to-inspections.
111 See 17 CFR 229.401 Item 401 of Regulation SK, 17 CFR 229.403 Item 403 of Regulation S
K, and 17 CFR 229.404 Item 404 of Regulation S
K, required under Items 10, 12 and 13 of Form 10
K. Item 401 of Regulation SK requires disclosure relating to the identification of directors and a brief description of their business experience. Item 403
of Regulation SK requires disclosure with respect to any person or group that beneficially owns more than five percent of any class of the registrants voting securities, as well as ownership information of executive officers and directors of the registrant.
Item 404 of Regulation SK requires disclosure of transactions between the registrant and related persons, such as officers, directors and significant shareholders.
112 See Items 6 and 7 of Form 20F. Item 6 of Form 20F requires disclosure relating to the identification and share ownership of directors and senior management. Item 7 of Form 20F requires disclosure with respect to beneficial owners of more than five percent of any class of the registrants voting securities, disclosure with respect to related party transactions, as well as disclosure of whether the company is directly or indirectly owned or controlled by another corporation or foreign government and the nature of that control.

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class of a Commission-Identified Issuers securities.
Finally, under the amendments, Commission-Identified Foreign Issuers will be required to state whether the articles of incorporation of the issuer or equivalent organizing document contains any charter of the CCP, including the text of any such charter.
While periodic reporting requirements currently instruct registrants to include a complete copy of the articles of incorporation and bylaws as an exhibit to the annual report,113 there are no requirements to identify the political or textual origins of any portion of a registrants articles of incorporation. In practice, given that a registrant may simply indicate in its annual report exhibit index that such articles are incorporated by reference,114 few filers include the full text of such articles, bylaws, or charters in annual report filings after initially doing so at the time of initial public offering IPO
registration. Similarly, amended or revised versions of the registrants articles of incorporation and bylaws are generally not included in the annual report filing, but are incorporated by reference as well. In these cases, locating the submission to which the registrants complete and most recent version of its articles of incorporation are attached in their entirety requires a search and review of the registrants current reports on Forms 8K or 6
K.115 Therefore, under current regulatory requirements and in practice, the majority of annual reports filed by potential Commission-Identified Foreign Issuers do not include, either in part or in complete form, the registrants articles of incorporation, from which the reader might assess the presence or absence of text from the charter of the CCP.
113 See Item 19, Instruction 1 of Form 20F and 17 CFR 229.601b3i.
114 See 17 CFR 240.12b23c.
115 The requirement to submit a Form 6K in such cases by registrants that use Form 20F to file annual reports depends upon the current reporting requirements of the relevant foreign jurisdiction.
Because potential Commission-Identified Issuers domiciled, incorporated, or organized in China are required by Chapter 5 Article 27 of the Regulations of the Peoples Republic of China on Administration of Company Registration to file a complete copy of the revised articles within 30 days of such changes, a similar requirement to promptly furnish a Form 6K including the complete revised articles of incorporation also applies. This document may then be incorporated by reference in the registrants subsequent annual reports.
Analogous requirements for registrants using domestic forms are outlined in Form 8K, Item 5.03.

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