International Accounting Standards. Southeastern Actuaries Conference Fall Meeting Atlanta, Georgia November 20, 2003

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1 International Accounting Standards Southeastern Actuaries Conference Fall Meeting Atlanta, Georgia November 20,

2 Annette M. Knief NAIC Financial Regulatory Services Assistant Director Staff support to the Financial Condition (E) Committee, Examination Oversight Task Force, Risk Assessment Working Group, and various International Committees Joined NAIC in October 1999 Prior to joining NAIC, Auditor for Deloitte & Touche, LLP in Chicago and Kansas City Graduate University of Illinois MBA, CPA, FLMI, ARA, AICPA 2

3 Presentation Overview What is the International Accounting Standards Board (IASB)? Why is there a need for International Accounting Standards (IAS)? Is there need to be involved in IAS Development? IASB Insurance Contracts Project Other current projects of the IASB 3

4 What Is the International Accounting Standards Board (IASB)? IASB Formed in Preceded by IASC IASC Formed in 1973 through agreement by: Australia Japan Netherlands Canada Ireland United Kingdom France Mexico United States Germany 4

5 International Accounting Standards Board Members Mary Barth Tony Cope Gilbert Gelard James Leisenring Warren McGregor Geoffrey Whittington Hans Georg Bruns Robert Garnett Tricia O Malley John Smith Harry Schmid Tatsumi Yamada 5

6 IASB Structure 19 Trustees Appoints, funds and oversees IASB, SAC and SIC SAC 14 Member IASB IFRIC 6

7 International Accounting Standards ~ Board Objectives ~ To develop, in the public interest, a single set of high quality, understandable and enforceable global accounting standards that require high quality, transparent and comparable information in financial statements and other financial reporting to help participants in the world s capital markets and other users make economic decisions 7

8 International Accounting Standards ~ Board Objectives ~ To promote the use and rigorous application of those standards To bring about convergence of national accounting standards and IAS to high quality solutions IASB publishes its finalized Standards in series of International Financial Reporting Standards (IFRS) Currently No

9 Why is there a need for International Accounting Standards? Accounting principles and procedures vary widely from country to country Multinational companies incur additional costs of preparing different reports for use in different countries Accounting reports lack consistency 9

10 Why is there a need for International Accounting Standards? Financial analysis is more costly and less efficient Lack of comparability causes the credibility of accounting to suffer It does not make economic sense for every country to incur the enormous cost of developing its own national standards 10

11 Why is there a need for International Accounting Standards? Most stock exchanges already accept IAS for cross-border listings Except: Canada Japan United States 11

12 2005 EU Requirement European Union (EU) law will require European listed companies to adopt IAS in Impact on US Companies: US Subsidiaries that report up to EU listed companies Foreign branch or subsidiaries that have local statutory reporting requirement under a converted national standard Companies seeking capital on a European exchange 12

13 Views of the SEC and IASB If, by 2005, there has been sufficient progress in the improvement and short-term convergence of accounting standards, in the development of a process and structure for consistent interpretation and application of IAS, and in the enhancement of financial reporting infrastructure, then it may be appropriate for us to reconsider the need for foreign private issuers... to reconcile from IAS to U.S. GAAP. Harvey Pitt, Fmr. Chairman of the SEC While the United States' accounting standards are widely seen as the most comprehensive in the world, some deficiencies exist. Adoption of tougher international standards could solve that problem. - Sir David Tweedie, Chairman of the IASB 13

14 GAAP Convergence 2002 Study by Leading Accounting Firms 92% of 59 countries surveyed plan to adopt, or plan to converge with IFRS Over 50% of respondents indicated that the financial instruments standard and other standards incorporating fair value are the most complicated standards and impede convergence 14

15 GAAP Convergence 2002 Study by Leading Accounting Firms Three countries do not currently intend to converge with IFRS: Iceland, Japan & Saudi Arabia Supposedly, if IASB and FASB make significant progress towards convergence, the SEC will consider allowing non-domestic companies to file in the US under IFRS without requiring a reconciliation to US GAAP 15

16 Need for Involvement in IAS Development? IAS GAAP SAP IASB and FASB 2002 Convergence Agreement Minimize differences between both statutory accounting and general accounting requirements 16

17 IASB Insurance Contracts Project Primary focus of the NAIC Originated by the IASC 1999 Issues Paper & Draft Statement of Principles (DSOP) Two Phases: Phase I: Interim solution for 2005 based on enhanced disclosure and minor modifications to current practices Phase II: A long-term, fair value solution 17

18 IASB Insurance Contracts Project Phase I Determination/Separation of insurance and investment contracts Elimination of certain existing practices Enhancement to the presentation and disclosure for insurance contracts Exemption from hierarchy of IAS Sunset Clause 18

19 IASB Insurance Contracts Project NAIC Positions on Phase I Definition of insurance contract Embedded Derivatives Credit Insurance Weather Derivatives Unbundling of Insurance Contracts Asset and Liability Measurement Disclosures 19

20 IASB Insurance Contracts Project Phase II Asset and Liability Accounting Model Fair Value Measurement Own Credit Standing Discounting Policyholder Behavior Acquisition Costs 20

21 IASB Insurance Contracts Project Current Status Phase I Exposure Draft Comments Submitted October 2003 Phase I IFRS March 2004 (effective 1/1/2005) Phase II Halted Discussions to possibly resume in November

22 IASB Insurance Contracts Project ACLI/IAA Industry Perspectives Asset and Liability Measurement Group of North American Insurance Enterprises Comment Letter June 11,

23 Other Current Projects of the IASB Improvements Project Financial Instruments Project Revenue Recognition Reporting Performance 23

24 Current Projects of the IASB Consolidations (Including SPEs) Business Combinations Impairment and Intangible Assets Convergence with the FASB 24

25 NAIC Website: NAIC International Website Comment Letters Newsletters General Information Become an Interested Regulator/Party: Annette Knief phone:

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London, Tuesday, 31 July, IASB Announces Agenda of Technical Projects

London, Tuesday, 31 July, IASB Announces Agenda of Technical Projects International Accounting Standards Board Press Release London, Tuesday, 31 July, 2001 IASB Announces Agenda of Technical Projects After extensive consultation with its Standards Advisory Council, national