Accounting News. Czech Accounting. Czech Accounting, IFRS and US GAAP. In this issue. Deloitte Czech Republic. April 2010.

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1 Accounting News Czech Accounting, IFRS and US GAAP April 2010 In this issue Czech Accounting Accounting Impact of INCOTERMS Czech Accounting Accounting Impact of INCOTERMS IFRS IFRS EU Endorsement Process The amendments to IFRS 2: Share-based Payment IFRS Tips US GAAP Leasing: Key Differences between US GAAP and IFRS The U.S. Securities and Exchange Commission Specified the IFRS Transition Plan Very often INCOTERMS, the standardised business terms, are used in conducting business. Even though it may not be obvious before their use, this brings with it accounting impacts. In this article, we will review the history and structure of INCOTERMS with a focus on the basic accounting categories and selected accounting principles applicable in the Czech Republic. In addition, we will demonstrate the implementation of INCOTERMS. 1. History and structure of INCOTERMS INCOTERMS are a set of international rules for the interpretation of business clauses most frequently used in international and domestic business. The latest INCOTERMS update provides a division of 13 detailed standardised terms into several categories, of which three criteria are of key importance: documentation, risk and costs. Based on the transfer of rights and obligations arising from the three basic criteria referred to above, a range of INCOTERMS arises (from the seller s point of view) from the relatively simple (EXW) to the most complex (DPP), described as follows: EXW (Ex Works): means that the seller fulfils his obligation to deliver when he has made the goods available at his premises (ie plants, factory, warehouse, etc). In particular, the seller is not responsible for loading the goods onto the vehicle provided by the buyer or for clearing the goods for export. continues on next page Deloitte Czech Republic

2 DDP (Delivered Duty Paid): means that the seller fulfils his obligation to deliver when the goods have been delivered to the buyer, cleared for import but not unloaded from the vehicle, at the named destination. The seller has to bear all risks and costs associated with bringing the goods to the named destination including the obligations related to the import of the goods. The thirteen standardised business terms are divided into the following categories: E Group The goods are transported from the seller s premises by the buyer, the buyer bears responsibility for the goods. EXW (Ex Works) named place F Group The seller provides the goods to a carrier appointed by the buyer. FCA (Free Carrier) named place, any mode of transport FAS (Free Alongside Ship) named port of shipment FOB (Free On Board) named loading port C Group The seller secures a carriage contract without assuming the risk of loss or damage of goods. CFR (Cost and Freight) named port of destination CIF (Cost, Insurance and Freight) named port of destination CPT (Carriage Paid To) named place of destination CIP (Carriage and Insurance Paid To) named place of destination D Group The seller carries all costs and risks related to the entire course of transporting the goods. DAF (Delivered At Frontier) named place of destination DES (Delivered Ex Ship) named port of destination DEQ (Delivered Ex Quay) named port of destination DDU (Delivered Duty Unpaid) named place of destination DDP (Delivered Duty Paid) named place of destination. In the following part of our article, attention will be given to the accounting treatment for the above-outlined three criteria, that is, documentation, risk and costs. 2. Basic Accounting Categories and Selected Accounting Principles under Accounting Legislation of the Czech Republic The accounting and reporting objective under the regulations effective in the Czech Republic is to comply with the true and fair view principle. This principle is stipulated by Section 7 of the Accounting Act as follows: Accounting entities are obligated to maintain accounting records in such a way that the financial statements prepared on the basis of the accounting records give a true and fair view of the subject of accounting and the financial position of the accounting entity. In addition, among other things, Section 25 (3) of the Accounting Act provides guidance on the prudence principle reflected in the accounting methods with regard to risks, as follows: In making valuation at the balance sheet date, the accounting entities reflect solely the profits that have been achieved and take into consideration all foreseeable risks and losses relating to the assets and liabilities that are known to them at the balance sheet date, as well as all instances of impairment, regardless of whether the business result achieved in the accounting period is a profit or a loss. Section 3 (1) of the Accounting Act stipulates the accruals principle, ie that in the accounting period, accounting entities record matters that are the subject of accounting (ie the balance and movement of assets and liabilities, costs, income and profit or loss) in accordance with the effective accounting principles. In addition, All costs and income are accounted for irrespective of the moment of their payment or receipt. Under Czech Accounting Standard for Businesses No. 019, Paragraph 6.1, the principle for accounting for costs and income stipulates that Expenses and income are accounted for solely in the period to which they relate on an accruals basis. Under Paragraph 6.2 Expenses and income are recognised on the relevant accounts of expenses and income based on their type on an accruals basis. Czech Accounting Standard for Businesses No. 001 defines the accounting transaction date as the date of completion of a delivery, settlement of a payable, collection of a receivable, transfer of a receivable, investment of a receivable, making or receiving a prepayment, assumption of a debt, recognition of shortage, damage, a surplus, or a movement of assets within an accounting entity. In addition, it is a date on which other matters arise that are subject to legal regulations and guidelines, Czech Accounting Standards for Businesses and special legal regulations or the internal situation of the accounting entity that is subject to the accounting treatment and that arose in the accounting entity, or based on the relevant underlying documentation that the accounting entity has in place (such as bank statements or the statements of the Securities Centre). With regard to the valuation of receivables and payables denominated in foreign currencies at the date on which they arise, the transaction date is deemed to be the date of effecting the transaction, ie the date of the issuance of an invoice or a similar document by the supplier, and the date of receipt of the invoice or another similar document by the customer. To sum up the above, we can generally state that the Czech accounting legislation stipulates the following requirements: Requirement, as the ultimate goal of accounting, for the financial statements to give a true and fair view of the actual state of affairs; In terms of the true and fair view of the financial statements principle, there is a requirement to apply an adequately prudent approach to the reflection of risks and profits arising from transactions, ie from a day-to-day business routine; and The transaction date is deemed to be the date on which a delivery is completed, the date on which the invoice is issued by the supplier or the date on which the invoice is received by the customer. At this point, we would like to present practical examples of accounting for INCOTERMS in relation to the reflection of risk and profit arising from transactions where the business involves delivery of goods. 3. Implementation of INCOTERMS and the Related Accounting Treatment An entity may use INCOTERMS as input terms (ie namely with regard to the purchase of material) and output terms (ie when selling its own products). We will primarily focus on the sale of products and additionally, we will provide an analogous description of principles for purchases of material. It is obvious that a sale or income for one entity is another entity s purchase or input. Therefore, the principles relating to the recognition of one entity s income should correspond, to a certain degree, with the recognition of another entity s purchase.

3 Example 1 A Czech company manufacturing electronic equipment provides deliveries to its customer located abroad using the CPT term. A shipment is loaded on a truck at the company s registered office in the Czech Republic and is transported to the airport; from there the shipment is transported by air abroad. Since the customer s registered office is located near a regional airport, the total time for delivering the products to the customer does not exceed two days. The question is: How will the income be recognised at 31 December 2009, ie the balance sheet date? Solution: In brief, the CPT delivery term means that the transportation is ensured by the Czech company which bears all costs related to the transportation. However, the risks related to the delivery cease to be borne by the Czech company as soon as the shipment is passed to the carrier (the first carrier in the event that more than one carrier is involved). In the above-mentioned example, the risk related to the shipment passes from the supplying company and is borne by the contracted carrier as soon as the shipment is loaded on the carrier s truck. On the basis of the document confirmed by the carrier, the Czech company may recognise income arising from the sale of products (electronic equipment). The practical implementation would mean that, if the Czech company delivered its products to the carrier on 31 December 2009, the company can recognise income on this date, even if the shipment reaches the customer located abroad later, for example on 1 January At the same date the Czech company will recognise the dispatch of finished products (related cost on account No. 613). Example 2 A Czech company that manufactures automotive components has contracted supplies to a customer located in China using the DDU delivery term. At the company s registered office in the Czech Republic, a shipment comprising the components is loaded onto a truck and transported to Hamburg from where it is transported by ship to an agreed Chinese port; there the shipment is received by the Chinese customer (the customs clearing is provided by the Chinese customer). The question is: How will the income arising from the shipments dispatched during December 2009 be reported as of 31 December 2009, ie the balance sheet date? Solution: In brief, the DDU delivery term means that the supplying company covers the transportation and additional costs (such as insurance and various fees) until the moment the shipment is received by the customer, ie the supplying company bears the risk of impairment of goods until this moment; conversely, the customer provides for the clearance of goods in his country, bearing the costs and the related risk. The Czech company bears the risk related to the shipment until it is received by the customer in the Chinese port, ie in the event that there is an accident during the voyage, the shipment is stolen, etc, the respective damage is incurred and the relevant costs are borne by the Czech company (generally companies take out appropriate insurance). The income from the sale of products will be recognised by the Czech company as and when the risk passes, ie the shipment is received by the customer in the Chinese port, based on the confirmed delivery note or other document. The income arising from the shipments (dispatched during December 2009) will be recognised in January As a result, the Czech company shall not recognise the dispatch of the products out of stock (eg Dr: account no. 613 Change in finished products, Cr: account no. 123 Products in stock), as the finished products are still owned and held by the Czech company. However, with regard to the degree of risk, the shipped products comprise a different category of inventory than the products held in the company s stock in the Czech Republic. Therefore, it is advisable that the company report the shipped finished products on a separate sub-ledger account, eg sub-ledger account no. 123 Finished products in transit, to be received by customers (ie, this would only involve the reclassification within the accounts of the inventory of finished products). In practical usage, the invoice relating to shipments similar to the one named in our example is often issued and dispatched along with the shipment of goods; often the invoice accompanies the goods during the transportation. The question is how the invoice should be accounted for in the entity s books. If it is necessary to issue the invoice at the time when goods are dispatched, regardless of what reasons, it is necessary to recognise the invoice on an accruals basis, eg using account no. 384 Deferred income. Before the actual income is recognised, the issued invoice may be matched with a received prepayment. In practical usage, this treatment of accounting for issued but accrued invoices may give rise to complications in the process of reconciling mutual receivables and payables. Special attention should be given to reconciling intra-group sales or purchases for consolidation purposes. Example 3 A Czech company purchases spare parts for its production lines from a supplier based in Japan. The supplies are realised on a combined basis, by ship and by truck via the port in Hamburg, using the EXW delivery term. The invoices issued by the Japanese supplier are received in the electronic form on the day when the shipment is loaded on board the ship and identical stamped invoices in hard-copy form are received along with the goods. The question is how the purchase of the spare parts will be accounted for with 31 December 2009 as the balance sheet date and 27 December 2009 as the date of initiating the delivery in Japan. Solution: In brief, the EXW delivery term means that the customer ensures the transportation himself and assumes the risks related to the shipment upon receiving the shipment at the premises of the manufacturer. The Czech company arranges a carrier who receives the goods from the inventory of the Japanese supplier. At this moment, the Czech company assumes the risks related to the delivery (on the other hand, the supplier s responsibility for faulty loading or an accident is not lessened). Under Czech Accounting Standards, the spare parts which are the subject of the supply are usually reported on inventory accounts pending their actual use. At the date of shipping the goods, the Czech company has the invoice on hand, ie the transaction will be accounted for as inventory in transit against a corresponding entry to payables. The explanation of this accounting treatment is simple: through loading the spare parts by the contracted carrier, the Czech company assumes the liability to pay for these goods to the Japanese supplier, which is an undeniable fact. At the same time, the goods are a guarantee for future benefits (either in the form of the spare parts themselves or in the form of compensation provided by the carrier if the shipment does not arrive as agreed). The category of inventory in transit itself expresses the difference between the degree of risk related to the inventory owned and shipped from the risk related to inventory held by the company that is physically present in the company s warehouse in the Czech Republic.

4 4. Conclusion The implementation of INCOTERMS reflects a different degree of risk related to business transactions. Individual terms define the moment of transferring the risk between the supplier and the purchaser. The above-outlined examples show that the implementation of INCOTERMS may have significant impacts on the method of presentation of business transactions including an impact on the profit or loss. Therefore, it is necessary that sufficient attention be given to INCOTERMS when applied in practical usage. The Czech accounting legislation does not provide any explicit guidance relating to INCOTERMS. However, the basic approach to the accounting treatment for INCOTERMS may be found based on the interpretation of the Accounting Act and the related accounting legislation. However, the customs, tax and other regulations must also be borne in mind. We note that an INCOTERM may not be considered individually, but within the context of the relevant commercial contract under which a supply is arranged. In such an individual case, an INCOTERM may only provide a supporting definition for the transfer of rights and risks. IFRS IFRS EU Endorsement Process In March 2010 the European Union has endorsed 2 new IFRS documents: 1) The 2009 Improvements to IFRSs (issued in April 2009). This is the second collection of amendments issued under the annual improvements process, which is designed to make necessary, but non-urgent, amendments to IFRSs. The Standard includes amendments to 12 IFRSs which are individually dealt with in our July 2009 newsletter. Effective dates of the amendments are various, mostly 1 January 2010; and 2) Amendments to IFRS 2 Share-based Payment - Group Cash-settled Share-based Payment Transactions (issued in June 2009). These amendments are effective for annual periods beginning on or after 1 January 2010, with earlier application permitted. For more information see the next article of the Accounting News. Therefore, the European Financial Reporting Advisory Group (EFRAG) has updated its report showing the status of endorsement of each IFRS, including standards, interpretations, and amendments. Click to download the Endorsement Status Report as of 25 March 2010 (PDF 116k). The following 6 IASB pronouncements are awaiting European Commission endorsement for use in Europe: Standards IFRS 9 Financial Instruments Interpretations IFRIC 19 Extinguishing Liabilities with Equity Instruments Amendments to IFRIC 14 Prepayments of a Minimum Funding Requirement Amendments Amendments to IFRS 1 Additional Exemptions for First-time Adopters Revised IAS 24 Related party disclosures Amendment to IFRS 1 Limited Exemption from comparative IFRS 7 Disclosures for First-time Adopters You can always find the endorsement status report at endorse. The amendments to IFRS 2: Share-based Payment These amendments were issued by IASB on 18 June 2009 and endorsed by the European Union in March The amendments provide additional guidance on the accounting for share-based payment transactions among group entities. Guidance in this area previously provided in IFRIC 8 Scope of IFRS 2 and IFRIC 11 IFRS 2 Group and Treasury Share Transactions has been incorporated into the amended IFRS 2 and, as a result, these Interpretations will be withdrawn from the effective date of the amendments. Key principles The amendments to IFRS 2: provide additional guidance on the accounting for share-based payment transactions among group entities (incorporating guidance previously contained in IFRIC 11); and amend the scope of the Standard to incorporate the guidance previously provided in IFRIC 8. Share-based payment transactions among group entities IFRS 2 applies when an entity enters into a share-based payment transaction regardless of whether the transaction is to be settled by the entity itself, or by another group member on behalf of the entity. The amendments to IFRS 2 clarify the classification of share-based payment transactions for both the entity that receives the goods or services, and the entity that settles the share-based payment transaction. These amendments are summarised below.

5 The entity receiving the goods or services will recognise the transaction as an equitysettled share based payment transaction only if: the awards granted are its own equity instruments; or it has no obligation to settle the transaction. In all other circumstances, the entity will measure the transaction as a cash-settled share-based payment. Subsequent remeasurement of such equitysettled transactions will only be carried out for changes in nonmarket vesting conditions. The entity responsible for settling the transaction will recognise it as an equitysettled share-based payment only if the transaction is settled in its own equity instruments. In all other circumstances, the transaction will be recognised by the entity that settles the award as a cash-settled share-based payment. The guidance incorporated into IFRS 2 can be illustrated for the most commonly occurring scenarios as follows. Entity receiving goods and services Obligation to settle share-based Payment transaction How is it settled? Subsidiary s individual financial statements Classification Consolidated financial statements Subsidiary Subsidiary Equity of the subsidiary Equity Equity Subsidiary Subsidiary Cash Cash Cash Subsidiary Subsidiary Equity of the parent Cash Equity Subsidiary Parent* Equity of the parent Equity Equity Subsidiary Parent* Cash Equity Cash * The same classification will result if the settlement obligation lies with the shareholders or another group entity (e.g. a fellow subsidiary). As the classification may be different at the subsidiary and parent level, the amount recognised by the entity receiving the goods or services may differ from the amount recognised by the entity settling the transaction and in the consolidated financial statements. Intragroup repayment arrangements will not affect the application of the principles described above for the classification of group-settled share-based payment transactions. Amendment of the scope of IFRS 2 The scope of IFRS 2 has been amended to clarify that it applies to all share-based payment transactions, whether or not the goods or services received under the share-based payment transaction can be individually identified. Any unidentifiable goods and services are measured on the grant date as the difference between the fair values of the share-based payment and the identifiable goods and services. This guidance was previously set out in IFRIC 8. Effective date The amendments to IFRS 2 arising from the incorporation of the requirements of IFRIC 8 and IFRIC 11 are subject to the effective date and transitional provisions of the original Interpretations (now withdrawn). The other amendments to IFRS 2 are to be applied retrospectively for annual periods beginning on or after 1 January 2010 (subject to the transitional provisions in IFRS ), with earlier application permitted. If sufficient information for retrospective application is not available, the entity will reflect in its separate or individual financial statements the amounts previously recognised in the group s consolidated financial statements. IFRS Tips In our auditor s practice, we often come across errors made in the preparation of the Statement of Changes in Equity which is an integral part of the financial statements under IFRS. The reason appears to relate to an incorrect interpretation of revised IAS 1 Presentation of Financial Statements (2007) which is applicable for periods beginning on or after 1 January Principal changes in revised IAS 1 (2007) were described in detail in the October 2007 issue of Accounting News. As compared to the previous wording of IAS 1, the Statement of Changes in Equity according to paragraph 106 of IAS 1 (2007) should contain the following information: (a) total comprehensive income for the period, showing separately total amounts attributable to owners of the parent company and to minority interest; (b) for each component of equity, the effects of retrospective application or retrospective restatement recognised in accordance with IAS 8; (c) the amounts of transactions with owners in their capacity as owners, showing separately contributions by and distributions to owners; and (d) for each component of equity, a reconciliation between the carrying amount at the beginning and the end of the period, separately disclosing each change. According to paragraph 108 of IAS 1 (2007), the components of equity include, for example, each class of contributed equity, the accumulated balance of each class of other comprehensive income and retained earnings. The amount of dividends recognised as distributions to owners during the period, and the related amount per share shall be presented according to paragraph 107 of IAS 1 (2007) either in the Statement of Changes in Equity or in the notes. Individual Items of profits and losses for the period which are required by other standards or interpretations to be recognised directly as changes in equity are no longer presented in the statement of changes in equity.

6 Examples of such items are as follows: changes in revaluation surplus (under IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets); actuarial gains and losses on defined benefit plans recognised in accordance with paragraph 93A of IAS 19 Employee Benefits; gains and losses arising from translating the financial statements of a foreign operation (under IAS 21 The Effects of Changes in Foreign Exchange Rates); gains and losses on remeasuring availablefor-sale financial assets (under IAS 39 Financial Instruments: Recognition and Measurement); and the effective portion of gains and losses on hedging instruments in a cash flow hedge (under IAS 39). The above mentioned items shall be now presented in the Statement of Comprehensive Income. For a comprehensive example of the Statement of Changes in Equity refer to our Model IFRS financial statements for the year ended 31 December 2009 which are available here. The following table shows a simplified example of the Statement of Changes in Equity. Consolidated statement of changes in equity for the year ended 31 December 2009 Share capital Share premium Reserves* Retained earnings Attributable to owners of the parent Noncontrolling interests CZK 000 CZK 000 CZK 000 CZK 000 CZK 000 CZK 000 CZK 000 Total Balance at 1 January Effect of change in accounting policy As restated Payment of dividends Profit or loss for the year Other comprehensive income for the year Total comprehensive income for the year Balance at 31 December Payment of dividends Profit or loss for the year Other comprehensive income for the year Total comprehensive income for the year Issue of shares Share issue costs Buy-back of ordinary shares Share buy-back costs Transfer to retained earnings Income tax relating to transactions with owners Balance at 31 December * We recommend that each reserve is presented in the separate column (e.g. Statutory reserve, Properties revaluation reserve, Investments revaluation reserve, Cash flow hedging reserve, Foreign currency translation reserve etc.)

7 US GAAP Leasing: Key Differences between US GAAP and IFRS The purpose of this article is to show the key differences in accounting for lease arrangements under US GAAP and IFRS from a lesee s perspective. Accounting for lease arrangements under IFRS is primarily regulated by International Accounting Standard (IAS) 17, Leases. For US GAAP the primary source of accounting guidance for this area is ASC 840 Leases (originally FASB Statement No. 13, Accounting for Leases). Although the differences between both frameworks are not substantial, in some cases the accounting treatment of the same lease arrangement under each of these frameworks can be different. Capital Lease Classification Arguably the most important difference between US GAAP and IFRS framework relates to classification of lease arrangements. Both frameworks distinguish between capital leases ( finance leases in IFRS terms) and operating leases, but the classification criteria differ. Generally, if a lease meets one or more of the following four criteria at its inception it must be classified as a capital lease under US GAAP: The lease transfers ownership of the property to the lessee by the end of the lease term. This criterion is met in situations in which the lease agreement provides for the transfer of title at or shortly after the end of the lease term in exchange for the payment of a nominal fee. The lease contains a bargain purchase option. This means that a lease contract contains a provision allowing the lessee, at his option, to purchase the leased property for a predetermined price. Such price should be lower than the expected fair value of the property at the date the option becomes exercisable to reasonably ensure that the bargain purchase option will be exercised. The lease term is equal to 75% or more of the remaining estimated economic life of the leased property However, if the beginning of the lease term falls within the last 25% of the total estimated economic life of the leased property (including earlier years of use) this criterion shall not be used for the purposes of classifying the lease. The present value of the minimum lease payments equals or exceeds 90% of the excess of the fair value of the leased property over any related investment credit retained by the lessor. The present value of the minimum lease payments (excluding that portion of the payments representing executory costs to be paid by the lessor such as insurance, maintenance, and taxes to be paid by the lessor including any profit thereon) equals or exceeds 90% of the excess of the fair value of the leased property over any related investment tax credit retained by the lessor and expected to be realised by the lessor. (However, if the beginning of the lease term falls within the last 25% of the total estimated economic life of the leased property, including earlier years of use, this criterion shall not be used for the purposes of classifying the lease.) Under IFRS a lease arrangement is classified as a finance lease when substantially all risks and rewards incidental to ownership have been transferred. This general principle is assessed through a set of indicators. These indicators are similar to those used in US GAAP (with some additional ones), however, they do not contain any numeric thresholds the achievement of which would automatically trigger classification as a capital lease. For example a lease term of 80% of the estimated economic life of a leased asset is merely an indicator that a lease arrangement should be classified as a capital lease and must be assessed with regard to the overall substance of the transaction and other indicators. Other Differences In this section of this article we will briefly describe other potential differences between the accounting treatment of lease arrangements under US GAAP and IFRS. Practical application of these differences depends on specific conditions agreed in each lease arrangement and both frameworks include more detailed guidance. Discount rate to be used when determining the present value of minimum lease payments Under US GAAP, the discount rate to be used when determining the present value of minimum lease payments is the incremental borrowing rate (ie an interest rate at which a lesee would borrow additional funds), but it can be replaced by the implicit rate resulting from the lease agreement. According to IAS 17, the discount rate to be used is the interest rate implicit in the lease. If its determination is not practical, the lessee s incremental borrowing rate should be used. Leases of land and buildings Other differences can arise in cases where the leased item comprises both land and a building component. For US GAAP land and building elements are generally accounted for as a single unit unless land represents more than 25% of the total fair value of the leased property, whereas under IFRS land and building elements are accounted for separately unless the land element is not material. Sale and leaseback transactions Certain differences between US GAAP and IFRS may also arise for sale and leaseback transactions. These differences are related to recognition of a gain or loss on a sale and leaseback transaction and treatment of sale and leaseback transactions involving real estate.

8 The U.S. Securities and Exchange Commission Specified the IFRS Transition Plan In the accounting newsletter issued in October 2008, we informed you that the U.S. Securities and Exchange Commission (SEC) published a number of revolutionary proposals that could basically lead to a total replacement of US GAAP by IFRS. A specific roadmap issued by SEC in 2008 expected the compulsory migration to IFRS to start in The issuance of the roadmap generated a significant amount of interest and resulted in more than 200 comment letters from a broad range of interested parties (including investors, issuers, regulators, standard setters, etc). In February 2010, the SEC published a statement expressing its strong commitment to the development of a single set of high-quality globally accepted accounting standards and confirmed that IFRSs are best positioned to be that set of standards for the U.S. market. The statement also directs the SEC staff to execute a Work Plan addressing specific areas of concern that have been highlighted in comment letters. After the Work Plan is executed and the FASB s and IASB s current convergence projects are completed, the Commission will determine whether to incorporate IFRSs into the U.S. financial reporting system. The statement indicates that this determination will be made in If the SEC votes to incorporate IFRSs into the U.S. financial reporting system, sufficient transition time would be allowed, with U.S. issuers reporting under such a system no earlier than While the statement and Work Plan do not contain any specific adoption dates or transition methods (as some had hoped), it is a step forward in the movement toward the use of a single set of high-quality globally accepted accounting standards in all major markets around the world.

9 If you have any questions regarding any of the articles in this publication, please contact one of the following audit experts: Czech Accounting IFRS and US GAAP Romana Pojslová Stanislav Staněk Michal Brandejs Martin Tesař Soňa Plachá Pavel Kodýtek Deloitte Advisory s.r.o. Nile House Karolinská 654/ Praha 8 Karlín Czech Republic Tel.: Fax: This publication contains general information only, and none of Deloitte Touche Tohmatsu, its member firms, or its and their affiliates are, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your finances or your business. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. None of Deloitte Touche Tohmatsu, its member firms, or its and their respective affiliates shall be responsible for any loss whatsoever sustained by any person who relies on this publication. *** Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which is a legally separate and independent entity. Please see for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its member firms. Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in 140 countries, Deloitte brings world-class capabilities and deep local expertise to help clients succeed wherever they operate. Deloitte s 165,000 professionals are committed to becoming the standard of excellence Deloitte Czech Republic. Member of Deloitte Touche Tohmatsu