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Is IFRS in Our Future? Wendy Hambleton BDO USA, LLP whambleton@bdo.com

Is IFRS in Our Future? Wendy Hambleton BDO USA, LLP whambleton@bdo.com. Agenda. What is IFRS? Status IFRS Adoption in the U.S. Public and Private Companies What 2011 May Bring Progress report issued by the IASB and FASB on convergence work Status update on IFRS adoption in other territories.

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Is IFRS in Our Future? Wendy Hambleton BDO USA, LLP whambleton@bdo.com

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  1. Is IFRS in Our Future?Wendy HambletonBDO USA, LLPwhambleton@bdo.com

  2. BDO Seidman Alliance Conference Agenda • What is IFRS? • Status IFRS Adoption in the U.S. • Public and Private Companies • What 2011 May Bring • Progress report issued by the IASB and FASB on convergence work • Status update on IFRS adoption in other territories

  3. Status of IFRS in the United States • In May 2008, the AICPA’s Governing Council recognized the IASB as authorized standard setter, which allows U.S. privately held companies the option to adopt IFRS. This provision technically allows U.S. private companies in addition to US GAAP to adopt • IFRS • IFRS for SMEs

  4. Status of IFRS in the United States • The SEC currently permits Foreign Private Issuers (FPIs) to present financial statements using IFRS without reconciliation to U.S. GAAP • The SEC currently prohibits U.S. Domestic companies from presenting financial statements using IFRS

  5. Uses of IFRS • Acquisitions of IFRS-reporting targets • Sales of businesses to an IFRS-reporting entity • U.S. company w/ a foreign, IFRS-reporting parent • U.S. company w/ a JV IFRS-reporting entity • U.S. company w/ foreign subs w/ local reporting requirements • U.S. company seeking to raise foreign capital • U.S. company with major competitors who report under IFRS

  6. BDO Seidman Alliance Conference IFRS Update – What Might 2011 Have in Store? Two key activities coming to conclusion: • SEC decision on whether to permit or require U.S. domestic companies to use IFRS • IASB/FASB nearing completion of targeted convergence for major joint projects (more later on the status)

  7. BDO Seidman Alliance Conference Who’s Who? • IASB Present Chairman: Sir David Tweedie • IASB Incoming Chairman: Hans Hoogervorst (effective June 2011) • SEC Chairman: Mary Schapiro • FASB Chairman: Leslie Seidman

  8. BDO Seidman Alliance Conference Potential IFRS Adoption in the U.S. SEC Work Plan • The Work Plan: • Makes it clear that 2015 is the earliest possible date for IFRS adoption • Withdraws the early adoption option envisaged in the Roadmap • Also indicates that possibilities still exist where Domestic Issuers may be permitted to choose between the use of IFRS or U.S. GAAP • Considers specific areas and factors relevant to a determination in 2011as to whether, when, and how to transition to a system incorporating IFRS for Domestic Registrants • States that the SEC staff will make periodic, public reports about its progress on the Work Plan beginning in October 2010

  9. BDO Seidman Alliance Conference Potential IFRS Adoption in the U.S. SEC Work Plan • The Work Plan factors and areas are as follows: • Sufficient development and application of IFRS for the U.S. domestic reporting system • The independence of standard setting for the benefit of investors • Investor understanding and education regarding IFRS • Examination of the U.S. regulatory environment that would be affected by a change in accounting standards • The impact on issuers, both large and small, including changes to accounting systems, changes to contractual arrangements, corporate governance considerations, and litigation contingencies; and • Human capital readiness

  10. BDO Seidman Alliance Conference Potential IFRS Adoption in the U.S. SEC Work Plan • The October 29, 2010 Progress Report indicated the following: • That the SEC will be in a position in 2011 to make a determination on successful completion of: • The Work Plan and • The convergence projects of the FASB and IASB • That efforts are currently in process and are not expected to be completed until 2011, particularly as they relate to • Consideration of the sufficient development and application of IFRS for the U.S. domestic reporting system and • Independence of standard setting for the benefit of investors • Current progress?

  11. BDO Seidman Alliance Conference Potential IFRS Adoption in the U.S. Opinions “Years from now we will look back on 2011 as a year when the future path of financial reporting was determined… My vision… includes IFRSs as the common basis of financial reporting for listed companies throughout the world, including the United States… We all know that there cannot be a global system without U.S. acceptance of IFRSs.” IASB Chairman Sir David Tweedie’s address to the U.S. Chamber of Commerce on March 10, 2011 accessed at: http://www.ifrs.org/News/Announcements+and+Speeches/convergence+or+not+speech.htm

  12. BDO Seidman Alliance Conference Potential IFRS Adoption in the U.S. Opinions “…a negative decision on IFRS in 2011 by the SEC -- or, as bad, a decision to delay an adoption commitment -- would likely have tragic consequences... The coalition in support of IFRS could hold and the U.S. would become isolated. The U.S. would no longer play the large and constructive role it now plays in IFRS development and oversight. I believe that without active U.S. participation the overall quality of the international accounting standards would deteriorate.” IFRS Foundation Trustee & former Commissioner of the SEC Harvey Goldschmid – November, 2010

  13. How To Move Towards IFRS • If the US does go forward what will be the role of the FASB?

  14. BDO Seidman Alliance Conference Potential IFRS Adoption in the U.S. Opinions “In my opinion, if the U.S. were to move to IFRS, somewhere in between could be the right approach. I will call it a "condorsement" approach…So how would this approach work? Well, to begin, U.S. GAAP would continue to exist. The IASB and the FASB would finish the major projects in their MOU. The FASB would not begin work on any major new projects in the normal course. Rather, a new set of priorities would be established where the FASB would work to converge existing U.S. GAAP to IFRS over a period of time for standards that are not on the IASB's agenda.” SEC Deputy Chief Accountant Paul Beswick – December 6, 2010

  15. BDO Seidman Alliance Conference Potential IFRS Adoption in the U.S.SEC Potential Incorporation Framework Approach – Recent Update • The SEC has indicated that the term “condorsement” will no longer be used in the context of incorporating an IFRS framework • New terminology: Potential Incorporation Framework • Many jurisdictions go through some sort of endorsement process. Considering the best approach for the US.

  16. BDO Seidman Alliance Conference Potential IFRS Adoption in the U.S.SEC Potential Incorporation Framework Approach • Essentially the “co-existence” of U.S. GAAP and IFRS • FASB/IASB would work to finish their joint converged projects • FASB would then: • Work to converge U.S. GAAP to IFRS over a period of time for standards that are not on the IASB’s work plan; and • Converge new standards issued by IASB into U.S. GAAP • FASB would have input early in the process for new standards

  17. BDO Seidman Alliance Conference Potential IFRS Adoption in the U.S.SEC Potential Incorporation Framework Approach • Rationale: Most international jurisdictions follow either a convergence or endorsement approach – only a few use IFRS issued by IASB with no mechanism for making changes to the standards • Pros: Allow FASB to retain control over U.S. GAAP; mitigate effort associated with full scale, mandated switch to IFRS; ensure high quality of standards; gradual change would provide “best practices” for smaller companies • Cons: Undermine purpose of having single uniform set of standards; present continuing challenges of transparency and cost with having multiple standards to report under

  18. BDO Seidman Alliance Conference Potential IFRS Adoption in the U.S.SEC Potential Incorporation Framework Approach When asked about the key points of this approach and the FASB’s role: “I think… [it] is very important, that we [FASB] go through the remaining differences between U.S. GAAP and IFRS and have critical evaluation …from both a quantitative and qualitative standpoint… By qualitative, … have discussions with investors about whether they care about these differences or not… FASB would manage the process for the U.S. [of international standard setting by the IASB by being] an active participant... In other words, I would not be supportive of an approach where we [FASB] weigh in at the end…” Excerpt from interview of FASB Chairman Leslie Seidman appearing in Part 3 of a series of articles run on April 4, 2011 in the Journal of Accountancy (JoA) available at: http://www.journalofaccountancy.com/Web/20113940Part3.htm

  19. What About Private Companies? • Will they follow public companies if IFRS is required for domestic issuers? • Blue Ribbon Panel Report on Private Company standards? • IFRS for SMEs?

  20. BDO Seidman Alliance Conference FASB- IASB Status Report on convergence Work – April 2011 • Completed 5 projects • Fair Value Measurement • Disclosure of Other Comprehensive Income • Consolidations • Joint Arrangements • Post employment benefits • Priority to be given to the remaining MOU projects and insurance accounting • Extended completion target beyond June 2011 • Effective dates will give entities sufficient time to implement changes

  21. BDO Seidman Alliance Conference Current IASB/FASB Remaining MOU Projects • Second half of 2011—Final Standards: • Financial instruments: Impairment, Hedge Accounting, Asset and Liability Offsetting • Leases • Revenue Recognition • Insurance (US Standard likely to be 2012) http://www.ifrs.org/Current+Projects/IASB+Projects/IASB+Work+Plan.htm

  22. BDO Seidman Alliance Conference Potential IFRS Adoption in the U.S. What Happens When IASB/FASB Convergence Program Draws to an End? “… even though the conclusion of the Memorandum of Understanding [MoU] formally ends the exclusive partnership between the IASB and FASB, we want to retain a strong partnership with the FASB, which we would expect to continue to play a leading role in the international standard-setting process.” - IASB Chairman Sir David Tweedie

  23. BDO Seidman Alliance Conference Question As the IASB/FASB are working together as part of their commitment under the Memorandum of Understanding on various projects that are slated to be completed in 2011, they will be inviting additional comments through a separate consultation on how best to introduce these new standards. What is your own view on how these new standards should be introduced? • As soon as possible, with voluntary early adoption allowed • A date certain for all standards to become effective, but not before 2013 • Phased- in implementation with more time to be given for the complex standards • Still unsure as to the best scenario

  24. BDO Seidman Alliance Conference Status of International IFRS Adoption • More than 120 countries either require or permit use of IFRS for listed companies in domestic markets or have definitive plans in place for adoption • 2010 – Brazil adopted • This year and next – Canada, Korea and Mexico will require use of IFRS • China, India and Japan have yet to make formal commitment for adoption – closely watching the activities of the U.S.

  25. BDO Seidman Alliance Conference Status of International IFRS Adoption 2010 • Brazil 2011 • Canada • South Korea 2012 • Argentina • India* • Malaysia (but can voluntarily early adopt) • Mexico * 2012-2014 phased adoption - changes possible 2013 • Taiwan • United Kingdom? (non-public) 2015 • Russia • Japan? (Certain companies can voluntarily adopt from 2010) 20XX… • USA?

  26. BDO Seidman Alliance Conference Potential IFRS Adoption in the U.S. In summary: • Path towards adoption is still not clear, but most commentators believe it is coming, and it may be later than 2015 • Additional progress reports are expected from the SEC during 2011 before a final decision is made, possibly towards the end of 2011

  27. BDO Seidman Alliance Conference Question In light of all of the above, how likely do you believe mandatory U.S. adoption of IFRS by public companies will be in 2015? • Likely • Possible • Unlikely • Likely, but later than 2015

  28. BDO Seidman Alliance Conference Poll Commentary Interestingly, Harvey Goldschmid also said the following during his speech at the FEI conference on “Regulatory Reform and IFRS at a Critical Crossroad”: “The effective date -- when IFRS would be required for the largest U.S. public corporations -- will not come until 2016, at the earliest. The SEC has talked in terms of 2015 or 2016 for mandatory implementation, and in my view, 2016 is the earliest, realistic date. This would provide ample time for planning, education, training, and retooling.”

  29. ADDITIONAL IFRS RESOURCES

  30. BDO Resources – Available Training • Adoption of IFRS: • Ac’sense 2009 Self Study IFRS – Adoption and IFRS No. 1 • Ac’sense 2009 Self Study IFRS Implementation and Process Considerations • Specific Topics: • Ac’sense 2010 Self Study IFRS - Taxation • Ac’sense 2010 Self Study IFRS for SMEs • Ac’sense 2009 Self Study IFRS - Business Combinations • Ac’sense 2010 Self Study IFRS – Share-Based Payment Arrangements • Ac’sense 2010 Self Study IFRS Project Update • http://www.bdo.com./acsense/

  31. Additional BDO Resources • BDO USA, LLP IFRS Resource Center http://www.bdo.com/ifrs/ • Designed to assist professionals in keeping current on the latest developments with regard to IFRS • Includes: articles on various IFRS topics of interest, IFRS Daily News updates, IFRS considerations for audit committees, and more • BDO International Resource Center http://www.bdointernational.com/BDOGCO/website/BDOGCO/website.nsf/pages/IFRSnews • Daily reporting of IFRS developments, including exposure drafts, standards and interpretations issued by the IASB and IFRIC • BDO comment letters on the standard setter's proposals, and regular technical bulletins

  32. External Resources • Securities and Exchange Commission – Work Plan: http://www.sec.gov/spotlight/globalaccountingstandards.shtml • Financial Accounting Standards Board Overview on Convergence: http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176156245663 • International Accounting Standards Board Work Plan: http://www.ifrs.org/Current+Projects/IASB+Projects/IASB+Work+Plan.htm • AICPA IFRS Resource Center: www.ifrs.com

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