International Financial Reporting Standards (IFRS)

As of January 2008, all companies subject to the Securities Law file reports in accordance with the International Financial Reporting Standards (hereinafter - IFRS). The adoption of IFRS in Israel was one of the steps taken by the ISA in order to further the integration of the Israeli capital market within the global capital market and increase the level of transparency and standard of reporting in Israel.

As a result of this, a large part of the ISA’s work is dedicated to examining the implementation of IFRS, so as to ensure that it is done as elsewhere in the world, thus guaranteeing and enhancing the integration of the Israeli capital maket into the global map. To this end, the Corporate Finance Department invests significant efforts and initiates many projects related to IFRS.

This includes, inter alia:

a. The adjustment of the Securities Law and Regulations to the IFRS – in January 25,

2010, a number of amendments were published: Securities Regulations (Annual Financial Statements) of 2010 (hereinafter – the Annual Financial Statements Regulations) and Securities Regulations (Periodic and Immediate Reports) (Amendment 2) of 2010 (hereinafter – the Periodic and Immediate Reports Amendment) (hereinafter, together - the New Regulations), along with a number of

additional amendments25 regarding the anchoring of IFRS in the Securities

Regulations and adjusting the latter thereto.

As part of these regulations, the existing disclosure provisions have been amended and a number of new provisions, not previously in existence, were established, as part of the Securities Regulations (Preparation of Financial Statements) of 1993 (which were revoked following the enactment of this Amendment) and Securities Regulations (Periodic and Immediate Regulations) of 1970 (hereinafter – Periodic and Immediate Regulations) (hereinafter, together – the Previous Regulations), including:

 Regulations and provisions contradicting IFRS were revoked;

 The wording of existing regulations, not revoked albeit IFRS, was changed, so that

the terms used therein be compatible with those in the IFRS. Other regulations and provisions were added so as to reflect IFRS requirements. A disclosure requirement was extended, regarding guarantees granted and cases where financial statements were required to be attached to a guaranteed company, including the manner in which such statements should be attached thereto; a requirement was established to provide summary information, in table format, as regards investments in investees; a requirement was established regarding the provision of disclosure about entrepreneurial projects; a requirement was established to disclose a company’s operating cycle; disclosure requirements regarding the conditions for pledges and collaterals were extended; new rules for the presentation currency of financial statements were prescribed; a disclosure

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Securities Regulations (Details, Structure and Form of Prospectus and Draft Prospectus) (Amendment) of 2010; Securities Regulations (Private Offering of Securities in a Listed Company) (Amendment) of 2010; Securities Regulations (Transaction between a Company and a Controlling Shareholder therein) (Amendment) of 2010; and Securities Regulations (Presentation of Transactions between a Corporation and a Controlling Shareholder therein in Financial Statements) (Amendment) of 2010.

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requirement was prescribed for sales which include credit transactions as well as general and particular details required for the comprehensive income line items and statement of the financial position line items.

 The test was prescribed for combining financial statements of associates and manner of comination thereof, so that the quantitative threshold was raised to 20% (rather than 10% in the previous regulations). In addition, a new requirement was set for the provision of summary information regarding associates the reports of which are not required to be combined, but which meet the quantative tests provided in this matter in the Regulations (a quantative threshold of 10%);

 An additional requirement for the provision of separate financial information was

added, according to the method provided in Amendment 10 to the Periodic and Immediate Reports Regulations and the staff bulletin dated January 24, 2010. The Regulations are effective beginning with the financial statements for 2009.

b. Solo reports – around the time when IFRS were adopted in Israel (January 2008), the

ISA staff published FAQ 11, which delineated the principles underlying solo reports required by companies as of that date. According to this publication, solo reports are to be prepared in accordance with IFRS and are to be published only as part of the annual report.

Following the latest financial crisis in capital markets, in Israel as elsewhere, there arose a need to issue solo reports – which include highly valuable information - more often, more than once a year. This in order to enable investors to receive extended information regarding reporting companies' liquidity and solvency.

Due to the aforesaid, the ISA initiated a legislative amendment approved by the Knesset’s Finance Committee in January 2010. As part of the aforementioned amendment, the Securities Regulations (Periodic and Immediate Reports) of 1970 were amended, and the requirement to attach to the annual financial statements separate financial statements as per IAS 27 (and as a note to the main financial

statements, as required by FAQ 11) was revoked. Nevertheless, companies are

required by law to publish solo reports in the following format:

 Solo reports should be published on a quarterly basis; quarterly reports should be

reviewed, while annual reports should be audited.

 Solo reports shall not be prepared in accordance with IFRS, but in accordance with the provisions of Regulation 9c and Amendment 10 to the Securities Regulations (Periodic and Immediate Reports).

In January 2010, the ISA staff published a clarification to the aforementioned Regulation Amendment. The Clarification dealt with the required treatment of inter- company transactions in solo reports and the extent of disclosure required in the notes to solo reports.

In this respect, it should be noted that towards the end of 2010, and in light of the Reports Improvement Project, the ISA staff decided to re-examine the preparation format and publication timing of solo reports. No change has been made regarding to the amendment of said Regulations as of the publication of this report.

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c. Participation in the IOSCO’s Standing Committee on Multinational Disclosure and Accounting (SC1) – during 2010, the ISA joined the SC1 as a member. The SC1 is a

professional subcommittee of the IOSCO Technical Committee, which is in charge of discussions regarding financial reporting. This includes commenting on proposed standards and documents published by the IASB, publishing fundamental positions regarding aspects of financial reporting, and constitutes a platform for exchanging opinions between various regulators worldwide.

d. Joining the IOSCO Database – During 2008, as part of the adoption of IFRS, the ISA

joined the IOSCO Database. This database includes the enforcement decisions of

IOSCO member regulators regarding the application of IFRS. The ISA thus updates its

accounting enforcement decisions regarding the application of IFRS since their adoption in Israel, and also keeps up to date with enforcement decisions issued by other regulators, so as to learn what issues were discussed and what positions were taken by the regulators on those issues.

e. Taking part in the IFRS Teleconference – during this multi-participant

teleconference, IOSCO members who have adopted IFRS exchange professional views regarding accounting issues with which regulators deal as part of their ongoing regulation work and enforcement activity.