A presentation byPierre-hugues Bonnefoy22 November 2005

International Financial Reporting Standards

(IFRSs): What are the impacts for SICAFIs?

2 © 2005 Deloitte

Overview of the presentation

1. What is the IASB

2. IFRS in Europe

3. IFRS in Belgium

4. Conceptual differences with Belgian GAAP

5. Major areas of change for SICAFIs

6. Other significant changes that may impact SICAFIs

7. Conclusions

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What is the IASB ? (1)

• The IASB is a private organisation with independent responsibility for the development of international accounting standards.

• Created in 1973 by the following members of IFAC : Australia, Canada, France, Germany, Japan, Mexico, The Netherlands, the United Kingdom and Ireland, the US.

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What is the IASB ? (2)

• Objectives of IASB :

– Formulate, publish and promote international financial reporting standards

– Harmonisation

– ! No legislative power

• Results of IASB :

– 32 IASs / 6 IFRSs and 16 SICs / IFRICs

– Stable platform for 2005 but in continuing evolution

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KeyAppointsReports to

Memberships linksAdvises

Director of Operations& Non-Technical Staff

Director of TechnicalActivities & Tech. staff

IAS Board (14)(approve and set IASs, IFRSs, EDs, SICs, IFRICs)

IFRIC (12)

Trustees (19)(appoint Board, IFRIC, Trustees)

- Governance- Fund raising

- Public awareness

Advisory Committees (or other specialist advisory groups)

Standards Advisory Council organize wider participation in the

standard setting processNational standard

setters and other

interested parties

What is the IASB ? (3)

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IFRS in Europe (1)

• Mandatory application in Europe at the latest in

2005 for listed companies with consolidated

financial statements (1 year of comparatives :

transition date 1/1/2004)

• Optional for consolidated financial statements of

non listed companies and for stand-alone financial

statements

• Endorsement mechanism :– All IASs, IFRSs and SICs/IFICs have to be endorsed by

the EU

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IFRS in Europe (2)

Political level ARC

European Commission

EFRAG

Technical expert group

Board

Advisory forum of all European Standard

Setters

Observers

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IFRS in Belgium

2005

IAS/IFRS not permitted

Amendment of Belgian accounting rules to IAS/IFRSSTATUTORY

CONSOLIDATED

IAS/IFRS permitted public and non-public

entities“IAS exemption”

IAS/IFRS mandatory for public entities (European Regulation)

IAS/IFRS permitted for non-public

entities(exemption)

IAS/IFRS mandatory for non-public entity (effective date to be

determined)

IAS/IFRS permitted for SICAFIs ?

2007

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Conceptual differences with Belgian GAAP

• Economic criteria “tax pollution”

• “Substance over form” Legal form

• Flexibility of presentation Strict reporting

format

• Fundamental trend : fair value

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Major areas of change for SICAFIs : overview

net asset earnings earnings change impact volatility

•Financial instr. & hedgeaccounting

•Provisions •Fair value investment properties

•Dividend

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Other significant changes that may impact SICAFIs

• Income statement, balance sheet presentation

• Lease incentives

• Securitisation

• Other

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Financial Instruments and hedge accounting (IAS 32/39)

• Fair value (FV) for financial derivatives and some financial instruments (i.e. shares held in other entities)

• Hedge accounting– Fair value hedge : change in FV of the debt (for the risk

hedged) and the hedging instruments in the income statement

– example : hedging of a fixed rate debt using a interest rate swap fix to floating

– Cash flow hedge : change in FV of the hedging instrument in equity and recycle to income statement when the risk hedged affect the income statement

– example : hedging of a floating rate debt using a interest rate swap floating to fix

– Documentation and effectiveness issues• Transaction costs• Treasury shares

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Provisions (IAS 37)

•Rules on provisions - No general and tax based provisions - Definition : - Present obligation (legal or constructive) - Probable outflow of resources - Reliable estimate•Overhauls and major repairs - No longer allowed•Discounting of provisions - Mandatory under IFRS - Unwinding financial costs

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Fair value investment properties (IAS 40)• Investment properties to be valued at fair value with change in

fair value through income statement

– What is the fair value ?

“The fair value is the price at which the property could be exchanged between knowledgeable, willing parties in an armth’s length transaction”

– Is the value carried out by the real estate expert a good representation of the fair value ?

“An entity is encouraged … to determine the fair value … on the basis of a valuation by an independent valuer …”

– How to address the registration rights ?– Not specifically dealt with by IAS 40– Probably more a valuation issue than a GAAP issue– Management’s judgement

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Other significant changes that may impact Sicafis• Dividend : financial statements are presented before allocation

of results• Income statement, balance sheet presentation

– 2005 annual report – full compliance with one year of comparatives (2004)

– No strict rules for presentation under IFRS– Opportunity for a consistent presentation among the Sicafis

• Lease incentives : to be spread over the lease term on a straight line basis as a reduction of rental income– Normally already taken into consideration in the valuation of

the building– If significant could be a classification issue in the income

statement• Securitisation : securitisation of operating lease does not

qualify for derecognition – Partial derecognition of an investment property not allowed

under IFRS

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Conclusions

• IFRS is probably not a big deal for SICAFIs ?

• Most changes are (relatively) easy to understand…

• … but IAS 39 and some others are hard

• Be patient, the answers aren’t all clear

• And there will be different answers

• But remember, this is mere accounting !

• And Cash flows are “likely” to be unchanged

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