INTERNATIONAL ACCOUNTING STANDARDS

1. INTERNATIONAL ACCOUNTING STANDARDS James Leisenring Member: International Accounting Standards Board Disclaimer: The views expressed in this presentation are those of James Leisenring and not the IASB.

2. Convergence to a single set of standards Shared by FASB and IASB To meet objective requires Improvements Convergence Annual improvement process Interpretations INTERNATIONAL ACCOUNTINGOBJECTIVE 2

3. Reconciliation to US GAAP SEC Proposals Critical it be IFRS not “adopted” IFRS Misunderstandings of SEC role Principle-based vs. Rules-based Europe 2005 INTERNATIONAL ACCOUNTINGOBJECTIVE 3

4. INTERNATIONAL FINANCIAL REPORTING STANDARDS • IFRS No. 1—First Time Adoption of IFRS • IFRS No. 2—Share-based Payment • IFRS No. 3—Business Combinations • IFRS No. 4—Insurance Contracts • IFRS No. 5—Non-current Assets Held for Sale and Discontinued Operations • IFRS No. 6—Exploration and Evaluation of Mineral Resources • IFRS No. 7—Financial Instruments: Disclosures • IFRS No. 8—Operating Segments 4

5. Common Control Transactions Consolidations Emission Trading Schemes Derecognition Fair Value Measurement Guidance Financial Statement Presentation Government Grants Convergence—Short-term Leases Liabilities Management Commentary Post-employment Benefits Revenue Recognition SME (Private Companies) Conceptual Framework IASB AGENDA—ACTIVE 5

6. IAS 12—Income Taxes IAS 31—Joint Ventures IAS 33—Earnings Per Share IAS 36—Impairment (?) IASB AGENDA Convergence: Near Term—IASB/FASB 6

7. Memorandum of Understanding (Roadmap) Focus on major projects on agenda Don’t try to address every reconciling item Don’t try to converge inadequate standards IASB AGENDA Convergence: Longer Term 7

8. Business Combinations (Complete) Consolidations Fair Value Measurement Guidance Liabilities and Equity Distinctions Financial Statement Presentation Postretirement Benefits Revenue Recognition Derecognition Financial Instruments Intangible Assets (Inactive) Leases IASB AGENDAMOU Projects 8

9. Extractive Industries Financial Instruments Intangible Assets CONVERGENCE ROADMAP: LONGER TERM Topics on Research Agenda Not Yet Active 9

10. Extractive Industries (Australia, Canada, South Africa, and Norway) MD&A Reporting (Germany, Canada, UK, New Zealand) Joint Ventures (Australia) Intangible Assets (Australia) Measurement (Canada) IASB RESEARCH AGENDA—INITIAL WORK WITH PARTNERS 10

11. DISCUSSION PAPERS • Preliminary Views on Insurance Contracts • Fair Value Measurements • Management Commentary • Preliminary Views on Amendments to IAS 19 Employee Benefits • Reducing Complexity in Reporting Financial Instruments 11

12. EXPOSURE DRAFTS • State Controlled Entities and the Definition of a Related Party (IAS24) • Cost of an Investment in a Subsidiary (IFRS-1) • IAS 37 Provisions, Contingent Liabilities and Contingent Assets and IAS 19 Employee Benefits • Joint Arrangements • Group Cash-settled Share-based Payment Transactions • Improvements to IFRS 12

13. Project Phases CONCEPTUAL FRAMEWORK A: Objectives and qualitative characteristics B: Elements, recognition/derecognition, and measurement attributes C: Measurement concepts D: Reporting entity E: Presentation and disclosure F: Framework purpose and status G: Applicability to not-for-profit sector H: Entire framework 13

14. Objective of Financial Reporting CONCEPTUAL FRAMEWORK • Decision usefulness • “Stewardship” • “Provide information that is useful to present and potential investors and creditors and others in making investment, credit, and similar resource allocation decisions” • “The objective of general purpose external financial reporting is to provide financial information about the reporting entity that is useful to present and potential investors and creditors in making decisions in their capacity as capital providers” 14

15. Qualitative Characteristics CONCEPTUAL FRAMEWORK Fundamental QCs Relevance • Predictive Value • Feedback Value Faithful Representation • Completeness • Neutrality • Freedom from error Enhancing QCs • Verifiability • Comparability • Timeliness • Understandability Pervasive Constraints • Materiality • Costs versus benefits 15

16. CONCEPTUAL FRAMEWORK Elements Source of the Early Debates • Assets, liabilities, or “what-you-may-call-its” • Proper matching to avoid “distorting” periodic earnings • Argument often used to avoid recognition of an item is that the result will “distort” income (earnings) or to recognize something to avoid “distortion” 16

17. CONCEPTUAL FRAMEWORK Elements IASB and FASB Framework • Basic conclusion as to the conceptual primacy of assets and secondarily liabilities • Thought to be a “balance sheet” approach • Can there be an “income statement” view? 17

18. CONCEPTUAL FRAMEWORK Elements For the income statement view to have any intellectual rigor, proponents must either: • Define revenue and expense without regard to assets and liabilities • Accept that a balance sheet will contain a debit or credit necessary to achieve the “appropriate” amount of net income • Also define or describe what is the “appropriate” amount of net income 18

19. CONCEPTUAL FRAMEWORK Elements • Can’t define revenues, expenses, gains, and losses without reference to assets or liabilities • Absent independent definition of revenues, expenses, gains, and losses (not dependent on assets and liabilities), the income statement view is vacuous • Measuring net income by the change in net assets provides an anchor for resolving difficult accounting questions 19

20. CONCEPTUAL FRAMEWORKS Framework is essential: • To resolve accounting debates in a consistent manner • To defend accounting standard-setting process as in fact neutral • To achieve principles-based standards • Alternatives suggested just won’t work: • Consensus • Compromise • Consequences 20