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SEC Warns on Foreign Business vs. Joint Venture

Tammy Whitehouse | January 23, 2015

Be careful what you call a “foreign business.” The Securities and Exchange Commission says it is seeing too many instances of companies trying to call their joint ventures “foreign businesses” for financial reporting purposes. Perhaps that’s because the reporting requirements might be easier to meet.

In a joint meeting of SEC staff and the Center for Audit Quality’s International Practices Task Force, SEC staff said they see situations where joint ventures that were 50 percent owned by a U.S. company and 50 percent owned by someone who is not a citizen or resident of the United States reported as “foreign businesses.” The SEC says in such cases, the non-U.S. investor didn’t consolidate the joint venture but followed equity method accounting to represent the non-U.S. ownership interest.

In a summary of the meeting, which took place in late November but the highlights...

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