IFRS

1. IFRS Abandon Ship or Smooth Sailing Ahead? Neal J. Hannon AAA Interactive Data Associates Stamford, CT 203-274-6806 nhannon@gmail.com

2. Use of IFRSs Is Widespread! Used by more than 15,000 listed companies overseas Another 12,000 planned by 2011 Used by foreign subsidiaries of US-based multinationals Used by SEC foreign registrants without reconciliation to US GAAP Will probably be used by US companies in a few years Both SEC registrants and private companies

3. More than 100 countries, including the members of the European Union and much of Asia, have already adopted and implemented IFRS. Israel is adopting IFRS this year, with Chile and South Korea set for 2009, Brazil for 2010, and Canada for 2011.

4. Use of IFRSs Is Widespread! FASB, SEC, AICPA, Big-4, and major US multinationals all strongly favor use of IFRSs Designation of IASB under AICPA Rules 202-203 (May 2008) Potential for use of IFRS for Private Entities when it is finished early 2009 What will become of the FASB (and other national standard setters)?

5. Why global accounting standards?

6. Why Global Standards? Enhanced worldwide comparability for investors Enhanced quality of reporting Some national GAAPs are weak or outdated Possibly a lower cost of capital for companies adopting IFRSs More company-friendly US securities market for foreign listings

7. Why Global Standards? Reduced reporting costs For instance, multinational with subs applying many GAAPs No need to develop and maintain national standards For audit firms and companies: Easier movement of auditors and accountants across borders

8. Brief History IASC started 1973: Volunteer, part-time, met 3X/year Issued IASs 1-41 + interpretations Restructured 2001: Full-time IASB based in London 14 members Issues IFRSs Old IASs (most revised by IASB) remain in force

9. IASB Structure

10. Use of IFRSs Around the World Today, IFRSs are used by listed companies in over 100 jurisdictions

11. Use of IFRSs Around the World Today, IFRSs are used by unlisted companies in over 80 jurisdictions

12. Use of IFRSs Means All IFRSs! 33 existing IASs (1 to 41, some deleted) issued by IASC 1973-2000: Most amended or replaced by IASB during 2003-2008 IFRSs 1-8 issued by IASB Also Interpretations

13. Use of IFRSs by Listed Entities Europe (EU+EEA+ Switzerland): All listed (about 8,000 companies) In consolidated financial statements EU: One ‘modification’ (of IAS 39) Consequently, audit report refers to ‘IFRSs as adopted by the EU’ Endorsement mechanism results in time lags

14. Use of IFRSs by Listed Entities Asia-Pacific: Nearly word-for-word convergence:Australia, New Zealand, Hong Kong Modifications, time lags, some not adopted: Singapore, Thailand, Malaysia, Philippines, China Own standards: Japan (convergence program), Taiwan 2011 planned: India, Korea

15. Use of IFRSs by Listed Entities North America: Canada:planned 2011 USA: Permitted for foreign SEC registrants since March 2008 SEC studying domestic registrants ─ roadmap suggests 2014

16. Use of IFRSs by Listed Entities Latin America/Caribbean: IFRSs required:Brazil (2010 all listed and banks), Chile (2009-2011 phased in), and over a dozen smaller jurisdictions Middle East and Africa: IFRSs required:Many countries

17. US vs. the World? The stated objective of the 2002 “Norwalk Agreement” between FASB and the IASB is the development of high quality, compatible accounting standards that could be used for both domestic and cross-border financial reporting. Clearly, this approach says let’s make both sets of standards better, not choose one set over the other.

18. Convergence Still On • Sep 11, 2008 FASB, IASB To Complete Major Convergence Projects by 2011, Says MoU FASB expects to release proposals in 2008 on Subsequent Events and Income Taxes. • Similar to the ‘improve and adopt” approach described by FASB Chairman Robert Herz in interviews and Senate testimony • Other matters noted in 2008 MoU Update: Conceptual Framework: Work is ongoing on the boards’ joint conceptual framework projects. • FASB and the IASB recognize the need for due process • Work Programs Include Other Matters: • The boards “remain committed to completing the MoU projects because they represent a significant step toward the goal of a common set of high quality standards.”

19. Principles Vs. Rules Rule: 55 MPH Limit Principle: Drive safely

20. Voices of Note The question about whether the world is going to global standards is no longer ‘if,’ but ‘when’. Switching to IFRS significantly reduces the cost of accounting and financial reporting for multi-national companies, which would otherwise have to translate and reconcile records prepared under various country-specific standards. KPMG Chairman and CEO Timothy P. Flynn

21. Voices of Note “An international language of disclosure and transparency is a goal worth pursuing on behalf of investors who seek comparable financial information to make well-informed investment decisions,” said SEC Chairman Christopher Cox. “The increasing worldwide acceptance of financial reporting using IFRS, and U.S. investors’ increasing ownership of securities issued by foreign companies that report financial information using IFRS, have led the Commission to propose this cautious and careful plan. Clearly setting out the SEC’s direction well in advance, as well as the conditions that must be met, will help fulfill our mission of protecting investors and facilitating capital formation.”

22. Voices of Note • Meanwhile the IASB at the dawn of the 21st Century began to add meat to but left out many of the bright line rules. Hence it generated a reputation for principles-based standards instead of rules-based its milk toast "politically correct" starter-set of international standards. In many instances it copied FASB standards. • Bob Jensen, Professor emeritus Trinity University. www.trinity.edu/rjensen

23. Voices of Note • "We should start off [a financial reporting standard] with the core principle, which is really the 'true and fair' core of the standard." Sir David Tweedie, Chairman IASB. • “The idea of true and fair in accounting is little more than faith-based accounting, and most certainly not the appropriate starting point for any process of developing high-quality accounting standards.” Tom Selling (www.accountingonion.com)

24. Voices of Note • On accounting, SEC Chairman Cox has unveiled a roadmap where US companies would switch from US GAAP to IFRS by 2014. Unthinkable only two years ago! A dramatic signal indeed. Following the EU's lead, the US is indicating it also wants to choose global standards. One set, in sight, at last. And of course we need to strengthen the governance of the IASB. That is why we are working hard with some of our major counterparts to install new, strengthened oversight mechanisms. Charles McCreevy, European Commissioner for Internal Market14 September 2008.

25. Voices of Note • A precipitous move away from U.S. Generally Accepted Accounting Principles will undermine the U.S. regulatory system, and thereby "put in jeopardy the thing that gives the U.S. a competitive advantage. All research shows that the U.S. is unique in its regulation. No [country] is as effective . . . . We have the lowest cost of capital in the world. Do we really want to give that up?” Charles Niemeier, a member and former acting chair of the Public Company Accounting Oversight Board

26. Voices of Note By the logic of others, which I can’t explain, fuzzy lines in accounting standards have come to be exalted as “principles-based” and bright lines are disparaged as “rules-based.”  Tom Selling, author of The Accounting Onion blog

27. It is important to note that conversion to IFRS will require the retroactive restatement of certain historical periods presented within a company’s first set of IFRS based financial statements. Those restated periods could show a host of changes to a company’s key metrics, bottom-line performance and financial position. Source: PriceWaterhouseCoopers, September 2008

28. What Are the Major Differences?

29. Major DifferencesUS GAAP - IFRS • Revenue recognition • Expense recognition: share-based payments • Financial liabilities and equity • Consolidation • Assets—nonfinancial assets • Assets—financial assets

30. Major DifferencesUS GAAP - IFRS • Liabilities—taxes • Liabilities—other • Financial liabilities and equity • Derivatives and hedging • Consolidations • Business combinations • Other accounting and reporting topics

31. What If IFRS starts 12-31-11? • Preparing IFRS financial statements for the three years ending December 31, 2011, would have a transition date of January 1, 2009. That would also be the date of the opening IFRS balance sheet. • IFRS 1 requires that the opening IFRS balance sheet: • Include all of the assets and liabilities that IFRS requires; • Exclude any assets and liabilities that IFRS does not permit; • Classify all assets, liabilities and equity in accordance with IFRS; and • Measure all items in accordance with IFRS. • These general principles are followed except where one of the optional exemptions or mandatory exceptions does not require or permit recognition, classification and measurement in accordance with IFRS.

32. IFRS Resources Download a comprehensive list: www.iasplus.com/resource/0808aaaifrsresources.pdf Or http://fairfield-ais.wikispaces.com/IFRS+Resource+Page Most of the cited hyperlinks lead to additional resources Most available for free

33. IFRS Resources Deloitte iGAAP 2009 – A Guide to IFRS Reporting (2nd ed., 2,100 pages) iGAAP 2008 Financial Instruments: IAS 32, IAS 39 and IFRS 7 Explained (4th ed., 851 pages). www.iasplus.com IFRS e-Learning IFRSs in your Pocket 2008

34. IFRS Resources Ernst & Young Ernst & Young International GAAP 2008 (2 volumes) www.ey.com/ifrs New academic resource center to be launched Sept. 2008 Grant Thornton http://faculty.gtexperience.com

35. IFRS Resources KPMG KPMG IFRS Institute www.kpmgifrsinstitute.com/ KPMG faculty portal www.kpmgfacultyportal.com KPMG IFRG website www.kpmgifrg.com IFRS publications library www.kpmgifrg.com/pubs/index.cfm

36. IFRS Resources PricewaterhouseCoopers IFRS reporting website www.pwcglobal.com/ifrs IFRS Pocket Guide 2008 ’IFRS Ready’ toolkit for educators www.pwc.com/faculty PWC IFRS Blog http://pwc.blogs.com/ifrs/

37. IFRS Resources US SEC Global Accounting Page www.sec.gov/spotlight/ifrsroadmap.htm IASB www.iasb.org Subscriptions and e-IFRS Webcasts of meetings World Accounting Report www.i-financial.com/

38. IFRS Academic Resources IAAER www.iaaer.org Offers very low-cost academic subscription to eIFRS (from IASB) Includes all IFRSs and other educational materials of the IASB $25 (academician) and $20 (student) Normal price from IASB $400

39. IFRS Resources AICPA IFRSs on CPA Exam: www.cpa-exam.org New IFRS website www.ifrs.com Canadian Institute of CAs IFRS Transition Page: www.cica.ca/index.cfm?ci_id=39166&la_id=1

40. IFRS Resources European Commission Accounting: http://ec.europa.eu/internal_market/accounting/index_en.htm This includes links to: EU accounting news IFRS news and information EU IFRS-related committees EU IFRS directives and regulations

41. IFRS Resources for Educators Textbooks – some recent ones: Nobes and Parker Roberts, Weetman and Gordon Choi and Meek Holt, Mirza and Orrell Alfredson, Leo, Picker, Pacter et al Histories of the IASC: Camfferman and Zeff Kirsch

42. Credits for IASB history and IASB Resources: Stephen Zeff, Rice University and Paul Pacter, IASB From a presentation to: American Accounting Association Anaheim, CA August 4, 2008

43. Thank you. Questions and comments? Neal J. Hannon, AAA Interactive Data Associates Stamford, CT 203-274-6806 nhannon@gmail.com “Bridging the GAAP between XBRL and the SEC”