The Current State of IFRS

1. The Current State of IFRS

2. The Current State of IFRSObjectives & Agenda Objectives Agenda • What is IFRS? • Convergence • Resources • Recognize what IFRS is and when it will become important

3. What is IFRS?IASB Structure Trustee Appointments Advisory Group IASC Foundation advises appoints oversees funds appoints appoints reports reports SAC IASB IFRIC interprets advises creates IFRS high quality, enforceable and global

4. What is IFRS?IASB Standards and History 1973 International Accounting Standards (IAS) ↓ 2001 SIC Interpretations (SIC) 2001 International Financial Reporting Standards (IFRS) ↓ Present IFRIC Interpretations (IFRIC)

5. IASB Standards RESEARCH Agenda Decision DiscussionPaper (DP) (Optional) PROPOSALS PROPOSALS • Input from: • Advisory Council • Working Group • International Groups;Analysts; Preparers;Audit technical partners • Special interest groups • Local standard-setters • Regulators • Political groups Public Consultation ExposureDraft (ED) Public Consultation FeedbackStatement Published IFRS Jurisdictional adoption process IASB two year post-implementation review

6. What is IFRS?8 IFRSs in effect at 1 January 2008

7. What is IFRS?29 IASs in effect at 1 January 2008

8. What is IFRS?29 IASs in effect at 1 January 2008, continued

9. What is IFRS?29 IASs in effect at 1 January 2008, continued

10. What is IFRS?24 Interpretations of the IFRIC and its predecessor, the SIC, in effect at 1 January 2008

11. What is IFRS?24 Interpretations of the IFRIC and its predecessor, the SIC, in effect at 1 January 2008, continued

12. What is IFRS?24 Interpretations of the IFRIC and its predecessor, the SIC, in effect at 1 January 2008, continued

13. What is IFRS?Current State Countries that require or permit IFRSs for domestic entities Countries seeking convergence with, or pursuing adoption of, IFRSs Source: Deloitte – www.iasplus.com

14. Take 5 minutes to complete Activity 1Principles vs. Rules Discuss the advantages for a more or less principles-based standard for each category.

15. Group check IFRS are pure principles-based standards True False

16. Group check Debrief IFRS are pure principles-based standards True False

17. Group check U.S. GAAP are not based on sound, accepted accounting principles True False

18. Group checkDebrief U.S. GAAP are not based on sound, accepted accounting principles True False

19. What is IFRS?Principles vs. Rules Rules Only Principles Only U.S. GAAP IFRS

20. Balance sheet Income statement A statement showing either: All changes in equity; or Changes in equity other than those arising from capital transactions with owners and distributions to owners (called a Statement of Recognised Income and Expense (SORIE)) Cash flow statement (no exemptions) Accounting policies and explanatory notes (IAS 1.8) Balance sheet Income statement Statement of comprehensive income. This statement may be combined with the income statement or the statement of changes in stockholders’ equity (SFAS130.22) Statement of changes in stockholders’ equity. Alternatively, disclosure of changes in the separate accounts comprising stockholders' equity (in addition to retained earnings) could be made in the notes to financial statements (APB 12.10) Statement of cash flows (limited exemptions; see Section 2.5) Notes to financial statements Financial Statement Comprise: IFRS GAAP

21. A finance lease is not determined by a bright lines test. Instead, IAS 17 lists factors normally indicating a finance lease, including any of the following (IAS 17.10): Transfer of ownership by end of lease term Lessee has option to purchase asset on such favourable terms such that option exercise is reasonably certain at inception Lease is for major part of asset's life, even if no purchase option exists Present value of minimum lease payments at inception amounts to at least substantially all of the fair value of the leased asset Leased assets are specialised such that only the lessee can use them without major modification A capital lease is one that meets one or more of the following criteria (SFAS 13.7): Lease transfers ownership of the property to the lessee by the end of the lease term Lease contains a bargain purchase option Lease term is equal to 75 percent or more of the estimated economic life of the leased property.* Present value at the beginning of the lease term of the minimum lease payments, excluding that portion of the payments representing executory costs to be paid by the lessor, including any profit thereon, equals or exceeds 90 percent of the excess of the fair value of the leased property to the lessor at the inception of the lease over any related investment tax credit retained by the lessor and expected to be realized by the lessor.* For the lessor to classify a lease as a capital lease, the following additional criteria must also be met (SFAS 13.8): Comparison of IFRS and US GAAP IFRS GAAP

22. What is IFRS?Principles vs. Rules • Industry accounting not adequately addressed • Insurance contracts • Extractive activities • No IFRS equivalent • In absence of a standard that specifically applies, • Management should use judgment • Should not conflict with IFRS • May also consider other GAAP

23. The Current State of IFRSObjectives & Agenda Objectives Agenda • What is IFRS? • Convergence • Resources • Recognize what IFRS is and when it will become important • Communicate key points about IFRS to your clients

24. ConvergenceDefinition Where transactions or events are the same or similar, the accounting should be the same, or there should be enough transparency in the disclosures to allow the reader to understand the differences. (Plus a continuing effort by standard setters to reduce differences between systems over time.)

25. Lower risk premium Lower cost of capital ConvergenceMovement toward one set of standards - benefits Investor confidence and understanding

26. Greater credibility Greater comparability between companies wherever they are Greater cross-border capital flows Most efficient allocation of capital Thriving economies ConvergenceMovement toward one set of standards - benefits Greater transparency

27. ConvergenceMovement toward one set of standards - obstacles • National pride • Endorsement process • Legal issues • Standard setters • Language

28. Group check Which of the following is most correct? • U.S. GAAP and IFRS are already converged • U.S. GAAP and IFRS are not converged but will be eventually • U.S. GAAP and IFRS will never be converged • U.S. GAAP and IFRS are sufficiently converged to be acceptable in the U.S. capital markets

29. Group checkDebrief Which of the following is most correct? • U.S. GAAP and IFRS are already converged • U.S. GAAP and IFRS are not converged but will be eventually • U.S. GAAP and IFRS will never be converged • U.S. GAAP and IFRS are sufficiently converged to be acceptable in the U.S. capital markets

30. ConvergenceU.S. Convergence – FASB/IASB • 2002 Norwalk Agreement • 2006 Memorandum of Understanding (MOU) • 2008 Memorandum of Understanding (MOU)

31. ConvergenceU.S. Convergence – FASB/IASB • FASB adopts IASB standard • Fair value option (SFAS 159) • Research and development assets acquired in a business combination (SFAS 141 – revised 2007) • IASB adopts FASB standard • Borrowing costs (IAS 23 – revised 2007) • Segment disclosures (IFRS 8)

32. ConvergenceU.S. Convergence - FASB/IASB Short–term convergence Short-term projects deferred • Government grants • Impairment

33. ConvergenceU.S. Convergence – FASB/IASB Major joint projects • Consolidations • Derecognition • Fair value measurement • Financial instruments • Financial statement presentation • Leases • Liabilities and equity distinctions • Post-employment benefits (including pensions) • Revenue recognition

34. ConvergenceU.S. Convergence – FASB/IASB Conceptual Framework – joint project • Mentioned in the 2008 MOU; however no specific timetable • Major joint projects will take account of ongoing Conceptual Framework projects

35. ConvergenceU.S. Convergence - SEC Roadmap – 7 milestones • Improvements in accounting standards • Funding and accountability of IASCF • Improved ability to use XBRL for IFRS • Education and training on IFRS in the U.S. • Limited early use by select few • Anticipated future rulemaking • Potential implementation sequence – FYE on or after 15 December • Large Accelerated Filers 2014 • Accelerated Filers 2015 • Non-Accelerated Filers 2016

36. What’s your opinion? Within the next few years the FASB will be irrelevant and should disband True False

37. ConvergenceU.S. Convergence - SEC • Policy issues • International Organization of Securities Commissions (IOSCO) August2007 ProposingRelease 2000Concept Release April2005Roadmap December2007Final Rule March 2007 Roundtables July 2007ProposingRelease December2007Roundtables

38. ConvergenceRest of the world

39. ConvergenceRest of the world, continued

40. ConvergenceApplication • Jurisdictional variations • Different interpretations • Small and Medium-sized Entities (SMEs)

41. What’s your opinion? Choose either View A or View B

42. Take 2 minutes to complete Activity 2Are companies ready for IFRS? Discuss the characteristics of a company that is unprepared to adopt IFRS and one that is prepared.

43. Activity 2Debrief

44. Next StepsWhat you need to know • Whether and when to switch to IFRS • Required • Competition • Cost / benefit • Future developments

45. How will movement to IFRS impact Financial Reporting?Concerns: • Data collection • Potential impact on tax liability • Potential increased volatility in reporting • Potential change in patter of earnings • Potential increased financial disclosures

46. How will movement to IFRS impact Financial Reporting?Benefits: • Potential cost savings • Opportunity to review and improve process • Potential impact on tax liability • Increased access to funds and markets

47. Top Twenty Issues to Consider 1 IAS 1 Presentation issues: judgments and estimates 2 IAS 1 Presentation issues: primary statement formats 3 IAS 36 Impairment disclosures 4 IFRS 3 Goodwill justification disclosure 5 IFRS 3 Other business combination issues and disclosures 6 IFRS 7 Financial instruments: disclosures 7 IAS 12 Deferred tax accounting and disclosure 8 Accounting policies general messages 9 Accounting policies specific problems: revenue 10 Accounting policies specific problems: financial instruments 11 IFRS 1 Explanation of transition to IFRS 12 IFRS 5 Non-current assets held for sale and discontinued operations 13 IAS 14 Segment information 14 IAS 37 Provisions disclosure 15 IAS 39 Financial instruments: recognition and measurement 16 Standards in issue not yet effective 17 Operating items and exceptional items 18 Comparative information 19 IAS 19 Employee Benefit Disclosures 20 Detail counts don't forget

48. The Current State of IFRS Objectives Agenda • What is IFRS? • Convergence • Resources • Recognize what IFRS is and when it will become important • Communicate key points about IFRS to your clients

49. Grant Thornton Resources • IFRS Resource Center http://www.grantthornton.com/portal/site/gtcom/menuitem.91c078ed5c0ef4ca80cd8710033841ca/index561b974be30c92e309882716712c24c3.html?vgnextoid=bb444cfadd5d3110VgnVCM1000003a8314acRCRD

50. For additional information, visit these Web sites: AICPA • International Financial Reporting Standards (IFRS) – An AICPA Backgrounder at www.ifrs.com • For the latest information on the status of IFRS and educational opportunities visit www.ifrs.com IASB • Memorandum of Understanding with the FASB: http://www.iasb.org/Current+Projects/Memorandum+of+Understanding+with+the+FASB.htm • IFRS summaries: http://www.iasb.org/IFRS+Summaries/IFRS+and+IAS+Summaries+English+2008/IFRS+and+IAS+Summaries+English.htm FASB • Overview of International Activities: http://www.fasb.org/intl/ SEC • International Financial Reporting Standards Road Map: http://www.sec.gov/spotlight/ifrsroadmap.htm