SEC Roadmap Herschel Mann Texas Tech University

1. SEC RoadmapHerschel MannTexas Tech University

2. Potential for IFRS as the Global Accounting Standard • 113 countries require or permit IFRS • Market capitalization of exchange listed companies in the European Union, Australia, and Israel comprises 26% of global market capitalization • Market capitalization of exchange listed companies in those countries plus Brazil and Canada totals 31% of global market capitalization • SEC believes that the benefits of moving towards IFRS are attainable only if IFRS represents a single set of high-quality accounting standards, which is best accomplished through the use of IFRS as issued by the IASB

3. Past SEC Policy Considerations Regarding IFRS • SEC has long expressed its support for a single set of high-quality global accounting standards (e.g., SEC Release 33-6807 – November 14, 1988) • Convergence of U.S. GAAP and IFRS as issued by IASB (predominant approach) • 2002 Norwalk Agreement • 2006 Memorandum of Understanding • SEC allows foreign private issuers to file IFRS financial statements without reconciliation to the U.S. GAAP (SEC Release 33-8879) • 2007 Concept Release – whether U.S. issuers should be permitted, but not required, to use IFRS in their filing with the SEC

4. Milestones • Improvements in Accounting Standards • Accountability and Funding of the IASC Foundation • Improvement in the Ability to Use Interactive Data for IFRS Reporting • Education and Training • Limited Early Use of IFRS Where This Would Enhance Comparability for U.S. Investors • Anticipated Timing of Future Rulemaking by the Commission • Implementation of the Mandatory Use of IFRS

5. Improvements in Accounting Standards • Norwalk Agreement – 2002 • 2006 Memorandum of Understanding • Agreed that a common set of global standards remains the long-term strategy of both the FASB and IASB • The next phase of the joint work plan goes through 2011 • SEC previously had noted areas where IFRS provides only limited guidance on a particular topic • Accounting for insurance contracts • Accounting for extractive activities • Current convergence projects (e.g., revenue recognition and financial statement presentation)

6. Improvements in Accounting Standards • Accounting standards must be established under a robust, independent process that • Includes careful consideration of possible alternative approaches and due process that allows for input from and consideration of views expressed by affected parties, including investors • Insures that accounting standards are promptly considered to keep standards current and reflect emerging issues and business practices • Requires that accounting standards produced are capable of improving the accuracy and effectiveness of financial reporting and the protection of investors, and of resulting in a high quality of financial reporting relative to the standards that may be replaced • The SEC will assess whether it believes the IASB continues to develop its standards, including converged standards though a process that reflects the above elements

7. Accountability and Funding of the IASC Foundation • IASC Foundation has financed IASB operation largely through voluntary contributions • Funding commitments were made for the period 2001-2005 and then extended for an additional two years through 2007 • In 2006, the IASC Foundation Trustees agreed on four element that should govern the establishment of a funding approach • Broad-based • Compelling • Open-ended • Country-specific

8. Improvement in Ability to Use Interactive Data for IFRS Reporting • May 2008 SEC proposed rules to require companies to use XBRL (eXtensible Business Reporting Language) • Under the proposal, foreign private issuers that prepare their financial statements using IFRS as issued by the IASB would be required to provide financial statements in interactive data format

9. Education and Training • Increased need for effective training and education about IFRS for investors, accountants, auditors and others involved in the preparation and use of financial statements • Investor education would be particularly important

10. Limited Early Use of IFRS • Roadmap contemplates that the SEC will make a decision in 2011 with regard to the mandated use of IFRS for U.S. issuers • The proposed rules would allow the limited early use of IFRS by certain U.S. issuers • The “early use” proposal has been somewhat controversial; respondents have proposed other alternatives • Option to use IFRS should be extended to all U.S. issuers • SEC should require IFRS for all U.S. issuers (no option for anyone – even early adopters) • Continue convergence project without mandatory use of IFRS

11. Anticipated Timing of Future Rulemaking by SEC • After reviewing the status of the milestones, the SEC would determine, in 2011, whether to proceed with mandatory IFRS by 2014 • Users would use U.S. GAAP during 2012, 2013, and the first three quarters of 2014 • 2014 financial report would show financial statements using IFRS for 2012, 2013, and 2014 • SEC directed the Office of Chief Accountant to undertake a study and report to the SEC on the implications for investors and other market participants of the use of IFRS

12. Implementation of Mandatory Use of IFRS • All U.S. issuers adopt IFRS at same time • Staged transition • Large accelerated filers must adopt for financial statements for 2014 • Accelerated filers must adopt for financial statements for 2015 • Non-accelerated filers must adopt for financial statements for 2016

13. Other Issues • LIFO • Debt covenants • Market indices (e.g., S&P 500) currently only include issuers that report under U.S. GAAP • Auditing standards • Nonpublic entities • Not-for-profit organizations • State and local governments