Standards: SEC s Plans for Moving Forward. Magnus Orrell, Deloitte & Touche LLP D.J. Gannon, Deloitte & Touche LLP

Transcription

1 The Dbriefs Financial Reporting series presents: International Financial Reporting Standards: SEC s Plans for Moving Forward Bob Uhl, Deloitte & Touche LLP Magnus Orrell, Deloitte & Touche LLP D.J. Gannon, Deloitte & Touche LLP Stephanie Wolfe, Deloitte & Touche LLP March 9, 2010

2 Agenda How we got here SEC statement SEC Work Plan SEC's next steps Potential action steps

3 Keep in mind This webcast does not provide official Deloitte & Touche LLP interpretive accounting guidance Check with a qualified advisor before taking any action See later slides for information on obtaining written summaries of issues discussed today

4 Learning objective To enhance participants understanding pertaining to: The SEC statement e t and Work Plan including key areas of concern regarding the use of IFRSs by U.S. issuers A possible timeline for IFRS adoption in the U.S. The importance of the FASB s and IASB s convergence efforts and their current plans for completion in June 2011

5 Poll question #1 How do you view the movement toward a single set of high-quality globally accepted accounting standards? Support Strongly support Oppose Strongly oppose Don t know Not applicable

6 How we got here

7 Where we ve been and where we re heading 2002 FASB and IASB convergence process formalized in Memorandum of Understanding (MoU) 2007 SEC eliminates the U.S. GAAP reconciliation for foreign issuers 2007 SEC concept release on use of IFRSs by U.S. domestic issuers 2008 SEC proposed IFRS Roadmap 2009 G-20 emphasizes completion of convergence efforts 2009 FASB and IASB reaffirm their commitment to improve their respective standards and achieve convergence 2010 SEC statement and related staff Work Plan 2011 Potential SEC decision on IFRS mandate 1.1

8 Use of IFRSs for public companies in G-20* countries IFRSs required: Argentina (2012) Australia (2005) Brazil (2010) Canada (2011) France (2005) Germany (2005) India (2011) Indonesia (2012) Italy y( (2005) Korea (2011) Mexico (2012) Saudi Arabia (Required for certain listed companies) South Africa (2005) Turkey (2005) United Kingdom (2005) IFRSs permitted: China (Permitted for HK listed companies, also convergence of China GAAP with IFRSs) Japan (Permitted in 2010 for certain companies, considering a requirement in 2015 or 2016) Russia (In certain situations) IFRSs not allowed: United States (Except foreign private issuers may use IFRSs) 1.2 *The European Union is the 20th member.

9 SEC statement

10 The SEC statement premise Expresses the SEC s strong commitment to a single set of high-quality globally accepted accounting standards Why a single set of standards? Use of a single set of high-quality global standards will: Facilitate cross-border capital formation Help provide investors with comparable information to make informed decisions What is that right set of standards? IFRSs are best positioned to be that set of standards for the U.S. market 2.1

11 What the SEC statement is Provides an overview of activities to date Provides an overview of the SEC s IFRS activities to date Summarizes feedback on the IFRS roadmap Outlines an approach going forward Directs staff to carry out a Work Plan Work Plan sets forth specific areas and factors to consider before transitioning to IFRSs Staff will re-assess the Work Plan as warranted Staff to provide frequent public progress reports beginning no later than October 2010 Early use proposal Withdraws early use proposal in IFRS roadmap Does not rule out the ability to early adopt IFRSs once a mandate is decided 2.2

12 What the SEC statement isn t Beyond the scope of the statement: Timing of any mandate Methods for incorporation Continued convergence Standard-by-standard adoption Wholesale adoption Scope Note: Decisions on these issues will be made in the context of the information received as part of executing the Work Plan 2.3

13 Poll question #2 Would your company consider early adopting IFRSs if the option is provided, and if so, when? We would consider early adopting as soon as possible We would consider early adopting approximately 1 year after option is available We would consider early adopting approximately 2 years after option is available We would not consider early adoption Don t know Not applicable

14 Role of convergence SEC statement reinforces support for the convergence activities of the FASB and IASB SEC statement emphasizes completion by June 30, 2011 Convergence does not necessarily mean identical standards Convergence: myths and realities Primary focus is on converging g general principles, p not every detail Convergence will not result in a conversion to IFRSs by U.S. issuers in and of itself Relatively few areas where there is no convergence 2.4

15 Convergence projects Major MoU projects: Financial statement presentation Leases Revenue recognition Consolidation Financial instruments with characteristics of equity Financial instruments Fair value measurement Derecognition Other MoU projects: Income taxes Post-employment benefits Joint ventures Other joint projects: Conceptual framework Emissions trading schemes Insurance contracts Targeted convergence

16 Other IFRSs and level of convergence Similar: IFRS 2 Share-based Payment IFRS 3 Business Combinations IFRS 6 Exploration for and Evaluation of Mineral Resources IFRS 8 Operating Segments IAS 7 Statement of Cash Flows IAS 8 Accounting Policies, Changes in Accounting Estimates, and Errors IAS 21 The Effects of Changes in Foreign Exchange Rates IAS 23 Borrowing Costs IAS 33 Earnings per Share Little similarity: Some similarity: IFRS 5 Non-current Assets Held for Sale and Discontinued Operations IAS 2 Inventories IAS 10 Events After the Reporting Period IAS 16 Property, Plant and Equipment IAS 24 Related Party Disclosures IAS 28 Investments in Associates IAS 34 Interim Financial Reporting IAS 37 Provisions Contingent Liabilities and Contingent Assets IFRS 1 First-Time Adoption of International Financial Reporting Standards IAS 20 Accounting for Government Grants and Disclosure of Government Assistance IAS 29 Financial Reporting in Hyperinflationary Economies IAS 36 Impairment of Assets IAS 38 Intangible Assets IAS 40 Investment Property IAS 41 Agriculture 2.6

17 SEC Work Plan

18 Work Plan details Key areas of concern Whethe er I. Sufficient development and application of IFRSs for the U.S. domestic reporting system II. Independence of the global standard-setting process for the benefit of investors When and How 3.1 III. Investor understanding and education regarding IFRSs IV. Impact on regulatory environment V. Human capital readiness VI. Impact on issuers...to t incorporate IFRSs into the financial i reporting system for U.S. issuers

19 Work Plan details Concern about whether to incorporate IFRSs Work Plan considerations I. Sufficient i development and The comprehensiveness of application of IFRSs for the IFRSs U.S. domestic reporting The auditability and system enforceability of IFRSs The comparability of IFRS financial statements within and across jurisdictions 3.2

20 Sufficient development and application of IFRSs Current convergence work plan addresses comprehensiveness of IFRSs More principles-based i standards d highlight hli h the importance of a judgment framework Improved infrastructure amongst various securities regulators Comparability may be achieved via increased transparency in financial statements 3.3

21 Poll question #3 Which IFRS development and application consideration concerns your company the most? Comprehensiveness Auditability and enforceability Comparability within and across jurisdictions Don t know Not applicable

22 Work Plan details Concern about whether to incorporate IFRSs Work Plan considerations II. Independence d of the global l Oversight of the IFRS standard-setting process for Foundation the benefit of investor Composition of the IFRS Foundation and the IASB Funding of the IFRS Foundation IASB standard-setting process 3.4

23 Poll question #4 What level of knowledge and experience does your financial reporting personnel have for reporting under IFRSs? No IFRS knowledge or experience in-house Some in-house knowledge and experience Sufficient knowledge and experience in-house Don t know Not applicable

24 Work Plan details Concern about whether to incorporate IFRSs Work Plan considerations III. Investor understanding di Investors current familiarity it with and education regarding IFRSs and educational efforts IFRSs necessary to effectively incorporate IFRSs into the financial reporting system for U.S. issuers 3.5

25 Investor understanding and education Needs of investors are paramount U.S. investors at a significant advantage as IFRSs become more converged with U.S. GAAP Focus on increased transparency SEC Chairman Mary Schapiro, February 24, 2010 We must carefully consider and deliberate whether such a change [to IFRSs] is in the best interest of U.S. investors and markets 3.6

26 Work Plan details Concern about whether to incorporate IFRSs IV. Impact on the regulatory environment Work Plan considerations Manner in which the SEC fulfills its mission Industry regulators Federal and state tax impacts Statutory dividend and stock repurchase restrictions Audit regulation and standard setting Broker-dealer and investment company reporting Public versus private companies 3.7

27 Impact on the regulatory environment Many activities already have been undertaken to address issues related to the future use of IFRSs in the U.S. Recent IASB decision related to investment company reporting Creation of a Blue-Ribbon Panel to address standards for private companies Led by the AICPA, FAF, and NASBA 3.8

28 Work Plan details Concern about whether to incorporate IFRSs V. Human capital readiness Work Plan considerations Education and training Auditor capacity 3.9

29 Poll question #5 How would you describe your company s readiness for an IFRS conversion? Already reporting under IFRSs Performed an assessment Currently performing an assessment Planning to perform an assessment in the next 1-2 years No actions currently planned Not applicable

30 Work Plan details Concern about whether to incorporate IFRSs VI. Impact on issuers Work Plan considerations Accounting systems, controls and procedures Contractual arrangements Corporate governance Accounting for litigation contingencies Smaller issuers versus larger issuers 3.10

31 Impact on issuers Adoption of IFRSs has broad potential impacts Not just an accounting exercise to be performed by accountants Notjustatop-side top side exercise by corporate office Internal control processes / procedures Statutory and internal reporting Technology Tax planning Treasury and cash management Contracts, legal, and debt covenants People issues (education, training, and compensation) External / shareholder communication i Board and audit committee education and oversight is key Adjustment to a more principles-based environment Proper planning and project management has led to long-term benefits with managed transition costs 3.11

32 SEC s next steps

33 Next steps and expectations Work Plan + Convergence = SEC decision in 2011 Final rulemaking necessary in order to implement any mandate Will be exposed for public comment Adequate time will be allowed for adoption Any mandate would not be effective until approximately 2015 or 2016 Early adoption may be allowed once a mandate is decided Future role of the FASB to be determined d Liaison between IASB and U.S. constituents? Provide technical advice to SEC on endorsement of IFRSs? 4.1

34 Possible timeline for adoption The SEC anticipates providing four to five years for IFRS adoption Potential IFRS Early Adoption U.S. GAAP Reporting First IFRS Financial Statements 1/1/2013 Transition Date Opening statement of financial position 12/31/2015 Reporting Date 3 years of financial statements 4.2

35 Poll question #6 How would you describe the potential effective date for IFRS adoption in 2015? Too aggressive Aggressive About right Not aggressive enough Don t know Not applicable

36 Potential action steps

37 Potential action steps Action Step Near Term Longer Term Develop and analyze statutory reporting baseline Analysis of accounting implications of convergence and IFRSs Understand the statutory reporting requirements, processes, and related resources; and the existing implications of IFRSs Understand the impact of the current convergence work program, including changes to U.S. GAAP and incremental IFRS differences Evaluate opportunities to standardize and centralize statutory reporting under IFRSs Perform a detailed evaluation of high impact areas Analyze other functional and operational areas impacted High level impact analysis of processes and systems Preliminary analysis of significant new U.S. GAAP and IFRS tax provision and planning implications Understand the impacts of new U.S. GAAP and IFRSs on internal control processes, technologies and other business activities Determine a realistic estimate regarding effort to implement new U.S. GAAP and IFRSs Evaluate data gathering needs and capabilities for new U.S. GAAP and IFRSs reporting Adjust scope and timing of existing implementation projects as needed Understand the impacts of new U.S. Identification of significant tax GAAP and IFRSs on U.S. and foreign issues (including tax planning tax positions strategies) important in planning for conversion and developing a roadmap to readiness 5.1

38 Lessons learned on conversion projects Issue prioritization is critical Large component of effort driven by smaller list of differences Focus on differences with sub-ledger impacts Project management capability is critical Need for granular, actionable planning Need to project manage accounting issue resolution Importance of a communication plan Integration of IFRSs and other initiatives ERP implementations Coordination between finance operations and IT 5.2

39 Poll question #7 Which major FASB/IASB convergence project is most important to your company? Consolidation/Derecognition Financial instruments (including equity classification) Financial statement presentation Leases Revenue recognition Other/ Not applicable

40 Questions & Answers

41 Join us March 23, 2010 at 2 PM EDT as our Financial i Reporting series presents: EITF Roundup: Highlights g of the March Meeting

42 Thank you for joining today s webcast. To request CPE credit, click the link below.

43 Contact information Bob Uhl D.J. Gannon Magnus Orrell Stephanie Wolfe Information on IFRS can be found on the following sites:

44 Other resources Heads Up: SEC Publishes Work Plan for Moving Forward With IFRSs for U.S. Issuers (February 26, 2010) Heads Up: SEC Issues Proposed IFRS Roadmap (November 17, 2008) enterprise-risk-services/financial-statement-internal- Control-Audit/Accounting-Standards- Communications/article/e47b7c63a5c07210VgnVCM bb42f00aRCRD.htm enterprise-risk-services/financial-statement-internal- risk services/financial Control-Audit/Accounting-Standards- Communications/article/81d1066f0f001210VgnVCM ba42f00aRCRD.htm Special Report: SEC Comment Letters on Foreign Private Issuers Using IFRSs (December 2009) enterprise-risk-services/financial-statement-internal- Control-Audit/Accounting-Standards- Communications/article/4ad e110VgnVCM ba42f00aRCRD.htm 2009) Communications/article/4ad e110VgnVCM White Papers: International Financial Reporting Standards (IFRS) VgnVCM100000ba42f00aRCRD.htm

45 This presentation contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this presentation, rendering business, financial, investment, or other professional advice or services. This presentation is not a substitute t for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this presentation.

46 About Deloitte 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. Please see for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.

47