Accounting Standards – the International Setting

International Financial Reporting Standards

The views expressed in this presentation are those of the presenter, not necessarily those of the IASC Foundation or the IASB

Accounting Standards – the International Setting

Sir David Tweedie IASB Chairman

2 The IFRS Objective

•  Goal to be the single set of accounting standards used worldwide

•  Aimed at providing high-quality, transparent, and comparable information for investors and other users of financial information

© 2010 IASC Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.iasb.org

2

3 Why Global Standards are Needed

•  Accounting standards evolved nationally

•  Globalisation hindered by national comparisons

4 Benefits to Capital Markets

•  Credibility of local market to foreign investors

•  Greater cross-border investment

•  Efficient capital allocation

•  Comparability across political boundaries

•  Facilitates global education and training

5 Benefit to companies

•  Lower cost of capital

•  Integrated IT systems

•  Easier consolidation

•  “One set of books”

•  Assist in raising capital overseas

•  Understand financial statements of overseas suppliers, customers, subsidiaries

6

Independent and accountable governance

Financial Accounting Standards Board

International Accounting Standards Board

(4/15 US)

Independent standard-setter

Overseen by Trustees

IASC Foundation Trustees (5/22 US)

Public accountability to securities regulators

FAF Trustees

Securities and Exchange Commission (SEC)

Monitoring Board (inc. SEC Chair)

Domestic model Global model

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Similar governance to the FASB

7 IFRS Around the World

Total

IFRSs permitted 25

IFRSs required 91 (for all domestic companies)

IFRS required 6 (for some domestic companies)

122

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Source of information (adapted from): www.iasplus.com

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Countries seeking convergence with the IASB or pursuing adoption of IFRSsCountries that require or permit IFRSs

More than 100 countries require or permit the use of International Financial Reporting Standards (IFRSs), or are converging with the IASB’s standards.

Countries seeking convergence with the IASB or pursuing adoption of IFRSsCountries that require or permit IFRSs

More than 100 countries require or permit the use of International Financial Reporting Standards (IFRSs), or are converging with the IASB’s standards.

THE MOMENTUM TOWARDS GLOBAL ADOPTION OF IFRSs

The World is Getting Smaller

9


9

US investors, companies depend on cross-border capital flows

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

1994 2000 2001 2007 2008

Trill

ions

of U

S D

olla

rs

Year

Growing cross-border holdings of US companies and investors

Foreign Holdings of US Equities

US Holdings of Foreign Equities Source: US treasury

10


10

At the same time, US markets are diminishing in relative size

52%

35%

6%

4%

15%

30%

29% 28%

13,826,485 (52%) 11,737,646

(35%)

1,025,942 (4%) 2,158,633 (6%)

3,968,483 (15%)

9,959,311 (30%)

7,775,273 (29%)

9,443,561 (28%)

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

End 2001 End 2008

Mill

ion

of U

S D

olla

rs

The Globalization of Capital Markets: Domestic Market Capitalization

Source: World Federation of Exchanges

Europe, Africa, and the Middle East

Asia-Pacific

Americas, excluding US

United States

11 Fortune Global 500 (July 2009)


11

Fortune G500 Based on announced plans

Which GAAP? 2009 2013 Japan 2015?

IFRSs and word-for-word IFRS equivalents 190 245 310

US GAAP 155 155 140

National GAAPs 155 100 50

Total 500 500 500

IFRS – FASB Convergence Process


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2001 – 04 Reaction to investor desire for improved, global standards following Asian crisis and US financial scandals

IASB is established; enters Norwalk Agreement with FASB

2005 – 07 Growing IFRS adoption by major economies; continued US support and recognition of IFRSs as being high-quality standards

MoU accelerating convergence SEC removes reconciliation requirement

2008 - 09 Financial crisis; G20 pressure for convergence leading to adoption; focus on remaining major joint projects

Updates to MoU with 2011 targets and SEC roadmap

2010 - 2011 MoU timetable adjusted to ensure critical issues are completed.

Further SEC update to roadmap Modified convergence strategy prioritizes major projects for June 2011 completion

13 FASB/IASB Agreement - 2002

•  Remove differences

•  Align Agendas

•  Interpretation

14

15

16 Conceptual Framework Issues

•  The objectives of financial reporting

•  Qualitative characteristics

•  Definitions of assets and liabilities

•  Recognition

•  Measurement

•  Presentation

17 Roadmap - 2006

1. Short term

- remove major differences 2. Medium term - new joint standards where significant

improvement required

18 G20 Summit – 25 September 2009

•  Redouble efforts to: –  achieve a single set of high quality, global accounting

standards within the context of their independent standard setting process

–  complete convergence project by June 2011.

•  IASB’s institutional framework should further enhance the involvement of various stakeholders.

•  G20 acknowledge that there could be differences between capital requirements and accounting rules:

–  to ensure comparability, the details of the leverage ratio will be harmonized internationally, fully adjusting for differences in accounting.

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19 Major MoU Projects – 2010 Standard

•  Derecognition

•  Consolidations

20

Major MoU Projects – Q1 2011 Standards

•  Fair Value Measurement

•  Pensions

21 Pensions

£m Deficit 10 Less 10% of liabilities 4 6

Spread over 10 year working life Deficit per accounts - £600,000

22

Major MoU Progress – Q2 2011 Standards

•  Revenue Recognition

•  Leases

•  Financial Instruments

23 Leases - 2008

•  Total Annual leasing volume $644bn

•  N. America 21% •  Europe 49% •  Asia 19%

•  Rest of world 11%

24 Financial Instruments

•  Classification and Measurement – Assets –  Liabilities

•  Impairment

•  Hedging

25 Changing Standard Setting

•  1. Deadlines – quality paramount

•  2. More time taken does not mean better standards

•  3. World and standard setting changed since crisis – Proactive engagement – Globally consistent answers – New ways of working

•  4. Support for post-implementation reviews

26 Possible Agenda Issues •  Old Standards •  - Agriculture •  - Share based payments •  - Income Taxes •  - Pensions •  - Associates •  - Government Grants •  - Intangibles •  - Foreign currency translation •  - Performance reporting •  - Disclosure Framework

27 Possible Agenda Issues (Cont.)

•  Post-implementation Review

•  - Segments

•  - Business Combinations

•  Other

•  - Extractive Industries

•  - Common Control

28 Current Debates

•  1. Transparency v Financial Stability

•  2. Ideology – Fair value v historical cost –  IFRS v US GAAP – Performance presentation

•  3. IFRS – international or regional?

•  4. ADOPT don’t ADAPT

•  5. Principles v rules

29 Principle based standards

Can we do it?

30 Principle-based standards

31 A principle based standard

•  No exceptions

•  Core principles (objectives)

•  No inconsistencies

•  Tied to conceptual framework

•  Judgement

•  Minimum guidance

32 Rule-based Standards

•  If don’t act with integrity

•  If attack reasonable judgement in court

•  If ask for voluminous interpretations

•  If raw economic facts are unacceptable

•  If regulators want one answer

33 Other Projects

•  Insurance

•  SMEs

•  Management Commentary

•  Emission Rights

34 34

The IFRS for SMEs (Private Entities)

Good Financial Reporting Made Simple. •  Just 230 pages (full IFRSs > 3,000) •  Simplified IFRSs, but built on an IFRS

foundation •  Completely stand-alone •  Internationally recognised •  Final standard was issued July 2009 •  Any entity is eligible to use except

publicly traded and financial institutions

35 35

The IFRS for SMEs (Private Entities)

•  To date, 61 jurisdictions have adopted or announced a plan to adopt

•  Why would a private entity want to adopt?

–  Improved access to capital –  Improved comparability –  Improved quality of reporting as compared to

existing national GAAP for SMEs –  Less of a burden where full IFRSs or full

national GAAP are now required

36 The future 36

2010 IFRS in +120 countries and US convergence programme

2012 IFRS in +150 countries and US broadly converged

Vision A single set of high quality global accounting standards

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Documents

Accounting Standards – the International Setting