International Financial Reporting Standards

D.J. Gannon, PartnerDeloitte & Touche LLPDeloitte/FSA Faculty ConsortiumMay 15, 2008

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Agenda

Current IFRS landscape

IFRS implementation in the U.S.

Company considerations

Wrap up

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IFRS Landscape

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A Point of View

Involves a new way of thinking Regulatory perspectives are changing Infrastructure changes are underway

IFRS is inevitable in the U.S. Convergence landscape is changing Timelines are accelerating

Fundamental Changes in the Financial Reporting Environment

Movement Toward Global Standards

Significant Impact on Companies

IFRS may already be applicable Impacts and potential benefits beyond

accounting Pro active assessment of impact

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The Global Move Towards IFRS

Europe2005

Australia 2005

Canada2009/11

South Africa2005

United States (2011?)

Current or anticipated requirement or option to use IFRS (or equivalent)

Brazil2010

China 2007

India 2011

Chile 2009

Japan(?)

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IFRS Today and Tomorrow

Today IFRS is used in over 100 countries:– Required across all EU countries, starting in

2005

– Brazil, Canada and India have announced mandated use

– Ongoing convergence efforts between FASB and IASB

By 2011, it is expected that:– All major countries will have adopted IFRS to

some extent

– China and Japan will be substantially converged to IFRS

– U.S. public companies will likely have the option of using either IFRS or U.S. GAAP

196187

117

0

50

100

150

200

250

2006

U.S GAAP IFRS Other

Accounting Standards Used by Global Fortune 500

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Regulatory Developments

Considerable movement towards mutual recognition of financial reporting frameworks between the U.S. and the EU

– U.S. GAAP in EU - Equivalence Initiative

– IFRS in U.S. - IFRS “Roadmap”

SEC developments

– Elimination of U.S. GAAP reconciliation for Foreign Private Issuers using IFRS effective for 12/31/07 year ends

– Concept release allowing U.S. companies a choice of IFRS is gathering support

– IFRS “roadmap” on use in the U.S. expected this year

Ongoing evolution of regulatory practices

– Greater cooperation amongst regulators on IFRS application issues including agreed upon work plans

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Ongoing Convergence Efforts

IASB and FASB reaffirm convergence efforts

– Updating of the “Norwalk Agreement”

Focus is on the process and converging general principles

– Less focus on converging details

Involves several projects

– “Short-term” convergence projects

– Joint conceptual framework projects

– Other Joint convergence projects

– Other IASB projects

Future prospects

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IFRS Implementation in the U.S.

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Drivers of Interest in IFRS

ExternalDrivers

InternalDrivers

Centralized and standardized processes – Ability to streamline a disjointed financial reporting process

Consistency in reporting – Implementation of uniform accounting policies & procedures for statutory and consolidated financials

Greater efficiency – Availability and more efficient usage of resources, reducing costs

Better information – Improved internal controls resulting in better financial information at the statutory and consolidated levels

Regulatory – SEC may allow or require U.S. companies to report in IFRS

Competition – May adopt IFRS achieving a competitive advantage

Capital markets – Easier access to capital markets, lowering the cost of capital

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Recent Deloitte Survey: Would You Consider Adopting IFRS?

Agree30%

Disagree42%

Undecided18%

Don't know10%

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A Perspective on IFRS

Will require a change in mindset

– More of a focus on “thinking” about the answer

Less detailed guidance to consider

– More of a focus on the “substance” of transactions

– Evaluate whether the accounting presentation reflects the “economic reality”

Grater use of professional judgment

– More of a focus on the “process” around making judgments

– CIFR recommendations

Impact on risk

– Possibility of “second-guessing” by regulators?

– Will litigation increase?

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What We’re Doing at Deloitte

Established an IFRS project management office

– Focused resources to help coordinate and lead firm-wide response to IFRS

– Coordination and oversight of strategic IFRS activities

– Deloitte Learning actively involved and driving training effort

Plan underway to provide IFRS training needed for DTT accreditation to an estimated 1,500 professionals in 2008

– Focus on level of convergence between IFRS and U.S. GAAP

– Based on current assignment to IFRS clients

– Scheduled seminars in the Spring and Fall

Course to highlight IFRS (and explain future changes) has been developed for all professionals

Three to five-year plan under development to address long-term training implications for professionals

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Impact on Academia

When should IFRS be taught?

– Students in the system today

– New students coming into the system

What will the movement to IFRS mean for curriculum?

– Not just about accounting

– Greater need to understand other disciplines

How will the approach to testing and certification change?

– Objective versus subjective analysis

– Focus on problem solving and decision making process

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Deloitte IFRS University Consortium

Dedicated to helping to bring IFRS to the classroom

– Focus on providing solutions

Open to any institution

– No cost to institutions

– Simply agree to participate and provide feedback

Activities and benefits

– Providing input in the direction, goals and resources available from the consortium

– Participation in periodic webcasts and sharing of best practices used in the classroom

– Involvement in defining the academic needs to be addressed by the development of materials

– Access to the support and guidance from Deloitte professionals

– Access to Deloitte IFRS information resources, publications and training sessions.

Register at USDeloitteIFRSUniversityConsortium@deloitte.com

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Company Considerations

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From Current State to End State

Local

Local

Corp

Subs Subs SubsSubsSubs

IFRS Local Local Local Local

Chart Key:

US GAAP

IFRS

Current State

End State

Migration to IFRS

Corporate Reporting

Statutory Reporting

Merge corporate and statutory IFRS reporting

Standardize IFRS to US GAAP adjustments

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Key Impacts of IFRS Implementation

• Tax structures• Treasury and cash

management• Legal and debt

covenants• People issues,

including education and training, compensation structures

• Internal communications

• External and shareholder communications

OrganizationalIssues

TechnologyInfrastructure

• General ledger and chart of account structure, including performance metrics

• Global consolidation

• Sub-system issues related to configuration and data capture

• Capabilities to manage multiple GAAP accounting during transition

Process and Statutory Reporting

• Internal controls and processes, including documentation and testing

• Management and internal reporting packages

• Global reporting packages

• Statutory reporting, including “opportunities” around IFRS adoption

Technical Accounting

• Overall approach to IFRS implementation

• First time adoption policy considerations, including reporting dates and use of exemptions

• Ongoing policy considerations, including alternatives and approach to “principles”

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First-time Adoption of IFRS – Overview of IFRS 1

Applicable when an entity makes its first explicit and unreserved reference to IFRS

Generally apply retrospectively all IFRS effective at reporting date

– Certain exemptions can be elected

– Some exceptions that must be followed

Only requires one year of comparative financial information

Transition adjustments recognized in retained earnings

Must explain effect of transition to IFRS

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IFRS 1 Considerations

OverallOpening

Balance Sheet Disclosures

Identify key dates

Identify differences between existing accounting policies and IFRS and determine IFRS policies

Determination of estimates under IFRS

Elect and apply optional exemptions

Apply mandatory exceptions

Recognize all assets and liabilities required under IFRS (internal development costs)

Derecognize all assets and liabilities not permitted under IFRS (post acquisition restructuring)

Measure assets, liabilities and equity (impairment of assets)

Reclassify items (deferred tax items)

Identify areas where extensive disclosures will be required

Reconciliation of equity and income

Distinguish between policy changes, estimate changes and error corrections

Narrative discussion adjustments

Asset impairment

Deemed cost

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Thoughts on The EU Experience

Observations Lessons Learned

Overall approach generally was to minimize differences from local GAAP

Variety of performance measures

Increased disclosure in financial statements

Judgments made

Risk disclosures

Significant impact on results

Asset impairments

“Split accounting”

Components approach

Deferred income taxes

Derivatives

Effort was often underestimated

Late start often result in escalation of costs, especially after transition date

Many companies did not achieve “business as usual” state for IFRS reporting

Often a lack of a holistic approach, taking collateral effects into consideration

Hard to get it right the first time

Several companies are only now starting to explore benefits from IFRS implementation (“one standard reporting”)

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Wrap Up

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Summary

IFRS has become a dominant force globally and is coming, sooner or later, to the U.S.

The movement to IFRS will result in a new way of thinking

A significant number of U.S. companies are planning IFRS adoption

Now is the time to begin addressing the impact of IFRS

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About Deloitte

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