FASB, Fair Value & GP-to-LP Reporting Rules Update

1. FASB, Fair Value & GP-to-LP Reporting Rules Update The implementation of FAS 157 – valuing your portfolio companies from 2006 to 2008 as FAS 157 takes effect What your LPs are looking for because their auditors are asking for it? Things to think about before 2008

2. Panelists • John Taylor, National Venture Capital Association • Leroy Wall, Canada Pension Plan Investment Board • David Larsen, Duff and Phelps LLC • Tom Millon, KPMG

3. Why Fair Value? • Most Limited Partners prepare financial statements in accordance with Generally Accepted Accounting Principles (GAAP). • Therefore, Most Limited Partnership Agreements require the PE Fund to prepare financial statements in accordance with GAAP. • For Private Equity Funds GAAP require that investments be recorded at “Fair Value” (both before and after implementing FASB Statement No. 157). • FASB Statement No. 157 modifies the GAAP definition, determination and disclosure of Fair Value. • Fair Value accounting invokes Auditors to apply SAS 101 (guidance for auditing Fair Value) in their audits of PE Funds and the AICPA Practice Aid for Auditors: Alternative Investments – Audit Considerations in their audits of limited partners. • Limited Partners need consistent, transparent information to exercise their fiduciary duty. Fair Value provides such information. An arbitrary reporting basis such as cost does not allow apple to apple comparisons. • Fair Value—Who Cares? Everyone!

4. The Effect of Alphabet Soup … • AU228/SAS 101 • FAS 157 • PEIGG Guidelines • AU Sec 9332 which interprets AU 332 (SAS 92) • AICPA Practice Aid on Alternative Investments • AS-5

5. Overview FASB Statement No. 157 • Does not change GAAP • Expands disclosure – Level 1,2,3 • Applicable for all entities and industries using GAAP (not PE specific) • Effective for Financial Years beginning after Nov 15, 2007 • PE Subtle Changes • No Blockage or Liquidity Discount • Inside rounds must be considered in determining Fair Value • Transaction costs, not included in Fair Value (could impact GP and LP)

6. Updated PEIGG PE Valuation Guidelines • Issued March 13, 2007 • Evolutionary not Revolutionary • Paragraph 30 – Now Symmetrical • Further the goal of International Harmonization • FASB Statement No 157 Complaint • Most changes are subtle

7. LP Information Needs? • What do LPs Want? • What do LPs Need? • Why do LPs seem to want/need different information? • How are LPs regulated? • Goal is consistency and transparency in presentation and content!

8. LP Policy Considerations • Management is responsible for making the fair value measurements and disclosures included in the financial statements. As part of fulfilling its responsibility, management needs to establish an accounting and financial reporting process for determining the fair value measurements and disclosures, select appropriate valuation methods, identify and adequately support any significant assumptions used, prepare the valuation, and ensure that the presentation and disclosure of the fair value measurements are in accordance with GAAP. (AU 328 paragraph 4)

9. GP/FUND Reporting Basis *Problematic for LPs, **Somewhat Problematic for LPs

11. PE Reporting Resources • “Tracking and Validation of Capital Accounts” www.ILPA.Info (Capital Account Best Practice) • “ILPA Reporting Best Practices”www.ILPA.Info (ILPA Reporting Best Practices) • PEIGG “Reporting and Performance Measurement Guidelines”www.peigg.org (Performance) • PEIGG “Updated 2007 Private Equity Valuation Guidelines” www.peigg.org (Valuation)

12. Panel Members:David L. Larsen, Duff & Phelps, david.larsen@duffandphelps.com Tom Millon, Managing Director, tmillon@kpmg.comJohn S. Taylor, National Venture Capital Association, jstaylor@nvca.org Leroy Wall, Head of Finance & Operations (Private Investments), lwall@cppib.ca