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Casualty Actuarial Society – San Diego, CA September 10 – 11, 2007 www.ey.com/us/actuarial
INSURANCE AND ACTUARIAL ADVISORY SERVICES
International Accounting – Emerging IssuesInternational Accounting – Emerging Issues
Thomas LeThomas Le
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© 2007 Ernst & Young LLP
International Accounting – Emerging Issues Panelists
Thomas Le Gareth Kennedy Jim Christie
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© 2007 Ernst & Young LLP
International Accounting – Emerging Issues
Will U.S. GAAP ultimately be replaced by International Financial Reporting Standards (IFRS)?
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© 2007 Ernst & Young LLP
International Accounting – Emerging IssuesOverview
International Accounting Standards Board (IASB) discussion paper overview
International Actuarial Association Risk Margins paper overview
FASB and SEC implications FASB 157 & 159 Feedback from actuarial bodies and
regulators
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© 2007 Ernst & Young LLP
International Accounting – Emerging IssuesHistorical Context In 2002 the European Commission required
the use of IFRS starting 1/1/05 In April 2005, then SEC Chief Accountant
Donald Nicolaisen published a “Roadmap” discussing the elimination of U.S. GAAP for foreign private issuers that use IFRS by 2009
In March 2007, the SEC held a Roundtable allowing foreign private issuers a choice to use either IFRS or U.S. GAAP (Continued)
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© 2007 Ernst & Young LLP
International Accounting – Emerging IssuesHistorical Context
In April 2007, the SEC announced plans to issue:– (i) A proposing release that would allow
foreign private issuers to use IFRS without any reconciliation to U.S. GAAP
– (ii) A concept release on possibly allowing U.S. issuers the option of using IFRS
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© 2007 Ernst & Young LLP
International Accounting – Emerging IssuesSEC Faces Two Critical Issues
Legal issue of whether the IASB can be designated as a private sector standard setter pursuant to Section 108 of the Sarbanes-Oxley Act of 2002
SEC must assess the IFRS knowledge of those parties involved in the preparation, audit, and use of IFRS financial statements
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© 2007 Ernst & Young LLP
International Accounting – Emerging IssuesConvergence
In February 2006, FASB and IASB jointly issued a memorandum of understanding, agreeing to identify and eliminate major differences in certain specified areas by 2008
FASB 159 was in part based on the principles of IAS 39
FASB proposal out for comments on August 2, 2007
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© 2007 Ernst & Young LLP
International Accounting – Emerging IssuesConflict U.S. issuer reporting under IFRS would still be
required to apply all SEC rules and regulations SEC generally requires that “push-down”
accounting be applied whenever separate financial information is presented in a filing for a “substantially wholly-owned” purchased subsidiary. This may conflict with IFRS
U.S. issuers may need to pre-clear the accounting with the SEC before filing IFRS financial statements
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© 2007 Ernst & Young LLP
International Accounting – Emerging IssuesCESR
In 2005, the Committee of European Securities Regulators (CESR) concluded that U.S. GAAP was “equivalent” to IFRS
Proposal would still require U.S. issuers to identify all IFRS/U.S. GAAP differences and disclose relevant and material differences (now deferred to 1/1/09)
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© 2007 Ernst & Young LLP
International Accounting – Emerging IssuesDifferences
Impairment model: U.S. GAAP recognizes only if carrying cost falls below both undiscounted cash flow and fair value (two-step test), while IFRS compares the carrying cost to the higher of fair value or value in use (one-step test)
Under IFRS, convertible debt must be bifurcated between debt and equity, while under U.S. GAAP such debt is usually recognized entirely as a liability
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© 2007 Ernst & Young LLP
International Accounting – Emerging IssuesWebsites
www.iasb.org www.fasb.org www.sec.gov www.ey.com/ifrs
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© 2007 Ernst & Young LLP
International Accounting – Emerging IssuesPanelists
Thomas Le215-841-0503 [email protected]
Gareth Kennedy312-879-4459 [email protected]
