1. Full IFRS and IFRS for SMEsICPAS North Shore Industry & Barrett Peterson, C.P.A.Business Forum Manager, AccountingNovember 12, 2012Standards, Procedures, and Analysis , TTX

2. IFRS: Large and Small Why IFRS Why not IFRS yet for US Companies IFRS overview Key differences full IFRS and US GAAP IFRS for SMEs compared to full IFRS What to do now A short list of additional resourcesNovember 12, 2012 ICPAS North Shore Industry & Business Forum 2 3. Why IFRS? Global Efficiency for Multi-National Companies Financial operations and reporting efficiency Reduce risk of errors Increased control over financial reporting High Quality set of Standards Facilitate global financial system Common language for global business transactionsincluding joint ventures, outsourcing, financing Uniform/Comparable, Transparent Principles Based Globally consistent and comparable for investors Minimize cost of capitalNovember 12, 2012 ICPAS North Shore Industry & Business Forum 3 4. Adopting IFRS Managing ExpectationsExpectationChallenge Global set of high quality standards US GAAP recognized as high quality Increased comparability Fewer rules, and more judgments likely to decrease as much as increase comparability Transparency affected by country Increased transparency specific cultural norms, legal practices, and business and ownership structures Fraud has occurred in IFRS countries as More resistant to fraud well as under US GAAP, although more frequently under US GAAP Principles based standards superior to Difference exaggerated: US standards rules based are principles based with a substantial number of rules; IFRS are principles based with far fewer [but some] rules US already enjoys the worlds lowest cost Minimize cost of capital of capital. Likely to aid other countries. Rules and legal structures make US US GAAP too complex complex; judgments make IFRS complexNovember 12, 2012ICPAS North Shore Industry & Business Forum4 5. Transparency in Accounting StandardsNovember 12, 2012 ICPAS North Shore Industry & Business Forum 5 6. Standards and Frauds a Short Digression Both US GAAP and IFRS depend significantly upon the ethical practices of both business executives and their auditors. The rules in US GAAP are intended to alleviate this dependence. But Fraud and Accounting irregularities are driven primarily by ego issues: Aspiration for money Bookkeeper level Gucci bag or a Cadillac rather then a Chevrolet Executive level Brioni suit, stock options and bonus payments, and a Mercedes Mogul level Homes in St. Barts and London, a yacht, and a jet to get to the yacht Status the drive for bragging rights Company profitability Company growth rate Meet investment analysts [Wall Street] expectationsNovember 12, 2012 ICPAS North Shore Industry & Business Forum6 7. Why not yet for US Companies No significant non-US operations reduces statutory, covenant, or other requirements Limited global capital market access required Non-Standard Standards; Country variations Limited understanding by US banks and credit raters Lack of comparability if not universally required and used Training and skills staff, auditors, othersNovember 12, 2012 ICPAS North Shore Industry & Business Forum 7 8. IFRS Overview Governance and Process Governance structure Due Process Standards Literature Comprised Of: Preface to IFRS IASB Framework Standards full IFRS Interpretations full IFRS IFRSs for SMEs Adopted July, 2009, EffectiveimmediatelyNovember 12, 2012 ICPAS North Shore Industry & Business Forum 8 9. IFRS Governance StructureSource: Deloitte IASPlus websiteNovember 12, 2012 ICPAS North Shore Industry & Business Forum9 10. IFRS Standards Literature - Preface Describes IASBs Objectives Describes scope of IFRS Describes IASBs due process procedures Describes policies on effective dates Describes format used in Standards Principles in bold Black Guidance not bolded type Gray Identifies English as the official language of IFRSNovember 12, 2012 ICPAS North Shore Industry & Business Forum 10 11. IFRS Standards Literature - Framework Contains definitions Describes recognition criteria and measurementconcepts for: Assets and liabilities Income and expenses Required to be considered for resolving accountingissues not directly addressed by a standard [by IAS8.11]November 12, 2012 ICPAS North Shore Industry & Business Forum 11 12. IFRS Standards Literature - Standards Encompasses standards issued by the current IASB [IFRSs]and the predecessor IASC [IASs] still outstanding The IASB has issued 13 IFRSs The predecessor IASC issued 41 IASs, of which 28 are still outstanding, with one to be superseded January 1, 2015. Three revised in 2011, and the remainder have been superseded by IFRSs or withdrawn. Similar to US GAAP, IFRS Standards are primarily by topic.November 12, 2012 ICPAS North Shore Industry & Business Forum 12 13. IFRS Standards Literature - Interpretations Authoritative interpretations are issued by the International Financial Reporting Interpretations Committee [IFRIC] when approved by the IASB, and the predecessor Standing Interpretations Committee [SIC] IFRIC has issued 20 interpretations, 17 of which remain in effect SIC issued 33 interpretations, 11 of which remain in effectNovember 12, 2012 ICPAS North Shore Industry & Business Forum 13 14. Selected Differences between full IFRS and US GAAP IFRS directed at for profit entities; does not apply to non-profits, unlike U.S. GAAP LIFO prohibited under IFRS. Inventory write downs can be reversed No extraordinary items and fewer discontinued operations under IFRS Some development costs [R&D] capitalized under IFRS Advertising costs expensed as incurred little prepaid Contingency recognition threshold is lower and amount recognized may be higher under IFRS Securities considered equities in the US with contingent redemption provisions accounted and reported for as debt under IFRS Private Company [SMEs] have a separate standard.November 12, 2012 ICPAS North Shore Industry & Business Forum 14 15. Selected Differences between full IFRS and USGAAP, Continued Revaluation of property, plant, and equipment and intangibles permitted under IFRS Impairment testing model likely to produce more impairments under IFRS Required, under IFRS to record benefit plans actuarial gains and losses directly to OCI and permanently exclude from regular net income. Return and interest components can be classified as financing costs. Return calculated on actual, not average, asset value. Component depreciation is required when applicable and appropriate All deferred income taxes must be classified as non-current IFRS does not always recycle AOCINovember 12, 2012 ICPAS North Shore Industry & Business Forum 15 16. Selected Differences Between Full IFRS and USGAAP, Continued Revenue recognition standards are less rules based and may alter timing of revenue recognition under IFRS Consolidations rules may be very different under IFRS More entities will be required to be consolidated under the controlmodel. FAS 166 and 167 [now ASC 810 Consolidations] reduced thedifferences. Proportional consolidation permitted for certain joint ventureinvestments The timing and amounts recorded for share-based payments will differ under IFRS The classification of debt on the balance sheet is NOT affected by post balance sheet date refinancing or covenant waiver agreements under IFRS IASB/IFRS places greater emphasis on Balance SheetNovember 12, 2012ICPAS North Shore Industry & Business Forum16 17. Comparison of US GAAP and IFRS - InventoriesUS GAAP IFRS Permits a variety of costing Permits a variety of costingmethods including FIFO, methods including FIFO,LIFO, average, and specific average, and specificidentification. identification. LIFO notpermitted. Requires reduction to lower Reserves for market valueof cost or market. Reserves declines can be reversed, butcannot be reversed. not above cost.November 12, 2012 ICPAS North Shore Industry & Business Forum 17 18. Comparison of US GAAP and IFRS PP&EUS GAAPIFRS Historical cost is the prescribed Historical cost is the primarymodel for measurement. model, but a revaluation model is permitted. Revaluation amounts can be Revaluations not permitted. adjusted and are recorded through revaluation surplus in equity. Component depreciation Component depreciation not required. specified and not used often. Useful life, residual value, and Useful life, residual value, anddepreciation method required to depreciation methods reviewed be reviewed at least as of each only when needed. balance sheet date.November 12, 2012ICPAS North Shore Industry & Business Forum18 19. Comparison of US GAAP and IFRS - IntangiblesUS GAAP IFRS Research and development Development costs permitted to be expensed as incurred except certaincapitalized. Software development software development costs.costs treated the same for internaluse or for sale software. Revaluation not permitted. Intangibles permitted to use arevaluation model adjusted throughrevaluation surplus in equity. Costs of other than direct response Advertising costs expensed as advertising expensed or deferred until when advertising first used. incurred unless prepaid before rightDirect response advertising may beto access the goods or services.eligible for deferral andamortization.November 12, 2012 ICPAS North Shore Industry & Business Forum 19 20. Comparison of US GAAP and IFRS Impairment Testing of long-lived assetsUS GAAPIFRS Two step test and measurement A one step assessment is used. The Carrying amount compared tocarrying amount is compared to theundiscounted cash flowshigher of fair value less selling costs Adjust to fair value if carrying or value in use calculated asamount below undiscounted cash discounted cash flows.flows Reversals of impairments are permitted if certain criteria are met. Reversals of impairments are not Impairments of revalued assets permitted. recorded directly in revaluation surplus to the extent of prior upward revaluations.November 12, 2012ICPAS North Shore Industry & Business Forum 20 21. Comparison of US GAAP and IFRS ContingencyProvisionsUS GAAP IFRS Recognition occurs if a Recognition of a contingent contingent liability arising loss from a past event from a past event is probable, required if a loss is probable, usually considered 75% likelyusually considered 50%, and to require settlement. capable of being estimated. Measurement guidance not Measurement is best estimate provided, but if a range ofor the midpoint of a range or outcomes exists, the low end outcomes. is used.November 12, 2012 ICPAS North Shore Industry & Business Forum 21 22. Comparison of US GAAP and IFRS DebtClassificationUS GAAPIFRS Compound securities generally not addressed Bifurcation required of compound securities in US GAAP.containing both equity and debt features withthe debt reflected at fair value usingdiscounted cash flows for the component. Securities with a contingent redemption Most equity type securities with contingent redemption provisions are recognized asprovision [changes in control, e.g.] are equity. US GAAP requires debt classification required to be recognized as debt. for unconditional provisions.Distributions are finance costs, not dividends. Warrants settled in net shares are derivative Warrants settled in net shares are recognized as equity. instruments recognized at fair value throughprofit and loss. Debt can be classified as non-current if Amounts classifiable as current are not agreements completed subsequent to the balance sheet date to refinance or waive affected by post balance sheet date agreements covenant violations are completed. to refinance or waive breaches of loan Disclosure required. covenants. Disclosure required.November 12, 2012 ICPAS North Shore Industry & Business Forum 22 23. Comparison of US GAAP and IFRS DeferredIncome TaxesUS GAAP IFRS Classification follows the related The net liability for a taxing non-tax asset or liability for jurisdiction is reflected as non- financial reporting purposes.current. FIN 48 prescribes detailed rules No detailed requirements for for recognition and disclosures, uncertain tax positions exist, including a roll-forward in thealthough the concept is footnotes. acknowledged. Accounting policy choice, Interest and penalties classified required to be disclosed, to as either interest expenses or classify as income tax expense orother operating expenses, with in pre-tax expenses. disclosure of choice.November 12, 2012 ICPAS North Shore Industry & Business Forum 23 24. Comparison of US GAAP and IFRS RevenueRecognitionUS GAAP IFRS SEC regulations prescribe general Revenue standards of four transaction requirements with significant detail for categories: agreements with multiple deliverables Sale of goods and for specific industries. Rendering of services Others use of an asset [lessor, lender] Recognition criteria include requirement Construction contracts that persuasive evidence of the existence Recognition criteria include a less strict of an arrangement. requirement than in US, includingprobable flow of economic benefits .Other requirements are similar Multiple deliverable rules permit a cost Multiple deliverable rules prohibit estimated cost plus margin, and reverseplus reasonable margin approach, and residual method. reverse residual method permitted insome circumstances. Discounting of revenues required only in Discounting revenue required when limited circumstances and industries.revenue deferred.November 12, 2012 ICPAS North Shore Industry & Business Forum24 25. Comparison of US GAAP and IFRS RevenueRecognition; ContinuedUS GAAP IFRS Customer loyalty programs have Specific guidance for customer loyalty divergent criteria by industry, and oftenprograms generally reflecting multiple reflect the incremental method.deliverable practices [IFRIC 13]. Sales of services prohibit percentage Sales of services requires percentage of complete method. Generally completion. Revenue may be deferred in proportional performance or deferral certain cases. until complete. Construction contract revenue prohibits Construction contract revenuecompleted contract. Percentage measurement can use percentcompletion and zero profit are completion, zero profit, or completedpermitted. Combining and segmenting contract methods. Combining andcontracts required in some cases. segmenting contracts is permitted, but not required. Contingent consideration recognized if Contingent consideration not recognizedbenefit to selling entity probable. until contingency resolved [SAB topic 13]November 12, 2012 ICPAS North Shore Industry & Business Forum 25 26. Comparison of US GAAP and IFRS Accountingfor Employee BenefitsUS GAAPIFRS Defined benefit multi-employer plan Defined benefit multi-employer plan accounted for as a defined contribution plan. accounted for as a defined benefit plan if required information available; defined Group administration [multiple employer contribution plan otherwise. plans] accounted for as a defined benefit plan. Group administration plans accounted for as either a defined benefit or a defined contribution plan. Funded status is net of obligation and fair Funded status is net of obligation and fair value of assets. Actuarial gains and losses and past service costs recognized in profit and lossvalue of assets reduced or increased by net or included in equity[AOCI].unrecognized actuarial gain and losses and past service cost [US funded status plus or minus US AOCI]. All actuarial gains and losses eventually Actuarial gain and losses under IAS 19 reflected in profit and loss, usually byamended in 2011, must be reflected in OCI amortization after initial recording in AOCI in [not profit and loss] in the year they occur, equitywhich is not recycled to profit and loss as it is under GAAP.November 12, 2012ICPAS North Shore Industry & Business Forum 26 27. Comparison of US GAAP and IFRS Accountingfor Employee Benefits, ContinuedUS GAAP IFRS Actuarial gains and losses can be amortized Actuarial gains and losses can be amortized to using a corridor approach over remaining profit and loss using a corridor approach service life or life expectancy. similar to US. Amounts differ by year for anyof a wide array of amortization choices. Past service costs amortized over remaining Past service cost recognized immediately if service life or life expectancy. vested, or recognized over the vesting period. No limit on funded status asset size. Funded status net asset limited in size. Measurement frequency required annually on No specified measurement frequency. balance sheet date. Return component calculated on market- Return component required to be based on related average value of a period up to fivefair value of assets [more volatile than US]. years, a smoothing device.November 12, 2012 ICPAS North Shore Industry & Business Forum 27 28. Comparison of US GAAP and IFRS Consolidated EntitiesUS GAAP IFRS Consolidation of certain entities Consolidation based on controlbased on a two step evaluationbased, in turn, on ability toof variable interests then voting determine operations, not justcontrol. FAS 166 and 167 [ASC voting rights.810 - Consolidations] moved UScloser to IFRS with power tocontrol emphasis. Proportional consolidation used Proportional consolidationonly for unincorporated entitiesin specific industries. Rare in permitted for certain jointlythe US. controlled entities.November 12, 2012 ICPAS North Shore Industry & Business Forum28 29. Comparison of US GAAP and IFRS Income Statement PresentationUS GAAP IFRS Generally follows SEC requirement Entities can present expense either that expenses be presented byby function or by nature. function [e.g. cost of goods sold],Additional disclosure by nature with depreciation [nature] being required if function chosen. The permitted as a separate line item. two methods should not be mixed. Permitted to use a single-step Required disclosure of specific items method or a multiple-step method including revenue, finance expense, separating operating and non-tax expense, and share of post tax operating before pre-tax income. results applicable to affiliatesaccounted for by the equity method. Extraordinary items defined as Exceptional items not defined. infrequent and unusual. Rare in Extraordinary items prohibited. practice.November 12, 2012 ICPAS North Shore Industry & Business Forum 29 30. IFRS for SMEs The IASB Standard International Financial Reporting for Small and Medium-sized Entities [SMEs] is a separate standard from the full IFRS standards and interpretations. Standard is 232 pages vs. 2,700 pages for full IRS. Examples and implementation guide an additional 65 pages. Small and Medium Size entities is a misleading title. The distinction is based on the absence of public accountability. Entities are SMEs, regardless of size, if they have no publically held debt or equity securities outstanding and do not hold funds for others in a fiduciary capacity as a regular part of their business operations. IFRS for SMEs differs from full IFRS in that: Certain full IFRS topics are omitted Options under full IFRS are replaced with a single, simpler option Many principles for recognizing assets, liabilities, income, and expenses are simplified. Required disclosures are significantly fewer and simpler many resulting from the omitted and simplified items.November 12, 2012 ICPAS North Shore Industry & Business Forum 30 31. IFRS for SMEs Omitted Topics Earnings per share Interim financial reporting Segment reporting Special accounting for assets held for saleNovember 12, 2012 ICPAS North Shore Industry & Business Forum 31 32. IFRS for SMEs Reduced Options Proportionate consolidation not permitted. Revaluation option not permitted for either property, plant, and equipment, or intangible assets. Investments in financial securities carried at amortized costs except equities with a readily identifiable market value which are carried at fair value with changes recorded in profit and loss. Investment property measurement is driven by circumstances rather than a choice between the cost and fair value models.November 12, 2012 ICPAS North Shore Industry & Business Forum 32 33. IFRS for SMEs SimplifiedRecognition and Measurement Investments in financial instruments meeting certain criteria are measured at cost or amortized costs. All others measured at fair value through profit and loss. All research and development costs expensed as incurred. Goodwill and other indefinite life intangibles always amortized over estimated useful life or ten years. Investments in joint ventures at cost unless there is a published price, in which case fair value is required. Borrowing costs must be recognized as expenses Annual review of PPE lives, residual value, and depreciation method NOT required. For defined benefit post-employment plans: Recognize all past service costs immediately in profit and loss Recognize all actuarial gains and losses immediately in profit and loss or other comprehensive income through SoRIE. No corridor amortization option.November 12, 2012 ICPAS North Shore Industry & Business Forum33 34. IFRS for SMEs Compared to Full IFRSSection in the IFRS for SMEs Full IFRSPreface Preface 1. Small and Medium Sized Entities 2. Concepts and Pervasive Principles IASB Framework, IAS 1, Presentation of FinancialStatements 3. Financial Statement PresentationIAS 1 4. Statement of Financial Position IAS 1 5. Statement of Comprehensive Income and IAS 1Income Statement 6. Statement of Changes in Equity and StatementIAS 1of Comprehensive Income and RetainedEarnings 7. Statement of Cash Flows IAS 7, Statement of Cash Flows 8. Notes to the Financial Statements IAS 1 9. Consolidated and Separate Financial IAS 27, Consolidated and Separate FinancialStatementsStatements 10. Accounting Policies, Estimates and ErrorsIAS 8, Accounting Polices, Changes in AccountingEstimates and ErrorsNovember 12, 2012ICPAS North Shore Industry & Business Forum 34 35. IFRS for SMEs Compared to Full IFRSSection in the IFRS for SMEs Full IFRS11& Basic Financial Instruments and Other IAS 32, Financial Instruments: Presentation12 Financial Instruments Issues IAS 39, Financial Instruments: Recognitionand MeasurementIFRS 7, Financial Instruments: Disclosures13 InventoriesIAS 2, Inventories14 Investments in AssociatesIAS 28, Investments in Associates15 Investments in Joint VenturesIAS 31, Investments in Joint Ventures16 Investment PropertyIAS 40, Investment Property17 Property, Plant and EquipmentIAS 16, Property, Plant and Equipment18 Intangible Assets Other than GoodwillIAS 38, Intangible Assets19 Business Combinations and Goodwill IFRS 3, Business Combinations20 Leases IAS 17, Leases21 Provisions and Contingencies IAS 37, Provisions, Contingent Liabilitiesand Contingent AssetsNovember 12, 2012ICPAS North Shore Industry & Business Forum35 36. IFRS for SMEs Compared to Full IFRSSection in the IFRS for SMEs Full IFRS 22 Liabilities and Equity IAS 1, IAS 32 23 RevenueIAS 11, Construction Contracts IAS 18, Revenue 24 Government GrantsIAS 20, Accounting for Government Grants and Disclosure of Government Assistance 25 Borrowing CostsIAS 23, Borrowing Costs 26 Share-based PaymentIFRS 2, Share-based Payment 27 Impairment of Assets IAS 2, IAS 36, Impairment of Assets 28 Employee BenefitsIAS 19, Employee Benefits 29 Income Tax IAS 12, Income Taxes 30 Foreign Currency Translation IAS 21, The Effects of Changes in Foreign Exchange Rates 31 Hyperinflation IAS 29, Financial Reporting in Hyperinflationary EconomiesNovember 12, 2012ICPAS North Shore Industry & Business Forum36 37. IFRS for SMEs Compared to Full IFRSSection in the IFRS for SMEs Full IFRS 32 Events after the End of the Reporting PeriodIAS 10, Events after the Reporting Period 33 Related Party Disclosures IAS 24, Related Party Disclosures 34 Specialized ActivitiesIAS 41, AgricultureIFRS 6, Exploration for and Evaluation of MineralResources 35 Transition to the IFRS for SMEs IFRS 1, First-time Adoption of InternationalFinancial Reporting StandardsNovember 12, 2012ICPAS North Shore Industry & Business Forum37 38. Comparison of Full and SMEs IFRS - ObjectivesFull IFRSIFRS for SMEs Purposes Purposes Report financial position Report financial position Report performance Report performance Report changes in financial position Report cash flows Attributes Attributes Accrual basis Relevant Going concern Reliable Understandability Comparability Relevance Complete Reliability requires prudence Prudence Comparability Reflect substance over form Accrual basis Presumes going concern Materiality TimelinessNovember 12, 2012 ICPAS North Shore Industry & Business Forum 38 39. Comparison of Full and SMEs IFRS RequiredFinancial StatementsFull IFRSIFRS for SMEs Statement of Financial Position Statement of Financial Position [required name]may be called Balance Sheet Statement of Income or Statement of Income or Comprehensive Income Comprehensive Income Statement of Changes in Equity. Statement of Changes in Equity. Acombined statement of income andretained earnings permitted ifearnings and dividends are the onlyactivity Statement of Cash Flows Statement of Cash Flows Notes to Financial Statements Notes to Financial StatementsNovember 12, 2012 ICPAS North Shore Industry & Business Forum 39 40. Comparison of Full and SMEs IFRS FinancialInstrumentsFull IFRSIFRS for SMEs Four categories of financial Two topics in IFRS for SMEsinstruments Basic financial instruments, Financial assets or liabilities atgenerally reflected at amortizedfair value through profit and losscost. Held-to-maturity investments Complex financial instruments Loans and receivables generally reflected at fair valuethrough profit and loss. Available-for-sale assetsNovember 12, 2012 ICPAS North Shore Industry & Business Forum 40 41. Comparison of FULL and SMEs IFRS Property,Plant, and EquipmentFull IFRSIFRS for SMEs Accounting policy choice Historical cost model only. between historical cost andRevaluation model not revaluation models.permitted. Component depreciation Component depreciation required.required only if major parts of aPP&E item have significantlydifferent patterns ofconsumption of economicbenefits. Annual review of useful life, Review of useful life, residualresidual value, and depreciationvalue, and depreciation rate onlyrate required.if there is a significant change inthe asset or its use.November 12, 2012 ICPAS North Shore Industry & Business Forum 41 42. Comparison of Full and SMEs IFRS Investmentsin Associates and Joint VenturesFull IFRSIFRS for SMEs Investments in associates Investments in associates or Accounted for by equity methodjointly controlled entity may be Cost and fair value models notaccounted for by: permitted except in separate The cost model [less any company statements impairments] Investments in joint ventures The equity method Proportionate consolidation or The fair value model through Equity method profit and loss Cost and fair value models not permittedNovember 12, 2012 ICPAS North Shore Industry & Business Forum42 43. Comparison of Full and SMEs IFRS - IntangiblesFull IFRSIFRS for SMEs Provides an accounting policy The cost model is required and choice between the cost modelthe revaluation model is and the revaluation modelprohibited. Useful life either finite or All intangible assets are indefinite. Indefinite lifeamortized over their useful life intangibles, including goodwill, or ten years. are not amortized, but an annual impairment test is required. Some development costs are All research and development capitalized. costs expensed as incurred. Some borrowing costs are All borrowing costs expensed as capitalized. incurred.November 12, 2012 ICPAS North Shore Industry & Business Forum43 44. Comparison of FULL and SMEs IFRS DefinedBenefit Pension PlansFull IFRSIFRS for SMEs Actuarial gains and losses Actuarial gains and losses Choice to recognize immediately in Choice to recognize immediately inprofit and loss, or profit and loss, or Recognize immediately in Recognize immediately in othercomprehensive income without ever comprehensive income, but notgoing through profit and loss, or recycled Deferred and amortized through Deferral and amortization [corridorprofit and loss over estimated serviceapproach] not permitted.life [corridor approach]. Calculation of liability Calculation of liability Use unit credit method, or simplify Unit credit method required. calculation by ignoring: Recognition of past service cost Future salary increases Future service of current employees Immediately if vested Possible in-service mortality Over remaining vesting period for unvested amounts Recognize past service costimmediately in profit and loss.November 12, 2012 ICPAS North Shore Industry & Business Forum44 45. Comparison of Full and SMEs IFRS Income TaxesFull IFRSIFRS for SMEs A deferred tax asset is Recognize a valuation allowance recognized only if it is probableto reduce the net asset to an there will sufficient future profitamount more likely than not to to realize the tax asset.be realized. No specific guidance on Recognize the effect of the uncertain tax positions. Inpossible outcomes of a review by practice a liability established attax authorities using the either the single best estimate or probability weighted average of a probability weighted average all possible outcomes. amount of all possible outcomes.November 12, 2012 ICPAS North Shore Industry & Business Forum 45 46. Comparison of Full and SMEs for IFRS Business CombinationsFull IFRSIFRS for SMEs Transaction costs are excluded Transaction costs are included in from acquisition costs.acquisition costs. Contingent consideration is Contingent consideration is recognized in acquisition costsincluded as part of the regardless of the probability of acquisition costs if it is probable payment. the amount will be paid and theamount can be measuredreliably.November 12, 2012 ICPAS North Shore Industry & Business Forum 46 47. Next Steps - Preparation for Adoption of IFRS Accounting systems Data collection procedures for information and attributes not currently captured Redesign of sales contracts and procedures Software requirements Loan, lease , outsourcing, and other contract covenants IFRS aware Tax planning Business unit and corporate metrics dashboard revisions Incentive [cash, stock] compensation plan provisions base and award factors included in computations Documentation of controls over financial reporting, and other processes Staff training needs identify and arrange Timing to provide two years of comparable basis data in the year of adoption Development of plan for conversion including resources requiredNovember 12, 2012 ICPAS North Shore Industry & Business Forum47 48. Will the U.S. Adopt IFRS? Not like to replace GAAP with IFRS. Likely to eventually [10 or more years] consider some form of the SECs Condorsement idea if IFRS substantially reduces its diversity of application in practice and becomes more globally uniform. Likely also tied to more global uniformity in audit standards and practice. Should receive attention as convergence will continue and ideas cross-pollinate. These become US GAAP upon adoptions by the FASB.November 12, 2012ICPAS North Shore Industry & Business Forum BP 49. Principal Convergence Items Currently Underway Leases Revenue Recognition Financial Instruments Consolidations Insurance Contracts Delayed Financial Statement Presentation Intangible Assets Financial Instruments With Characteristics of EquityNovember 12, 2012 ICPAS North Shore Industry & Business Forum BP 50. Comparison of FULL and SMEs IFRS Selected Additional Resources IASB Website: www.iasb.co.uk AICPAs IFRS website: www.ifrs.com Deloitte website: www.iasplus.com PWC website: www.pwc.com/usifrs Books from Wiley available from Wiley and on Amazon.com, where they are less expensive Deloitte 2012 Model IFRS financial statements [140 pages] SEC Staff Comparison of GAAP and IFRS [52 pages]November 12, 2012 ICPAS North Shore Industry & Business Forum 48