Developments in IFRS and the

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1 Developments in IFRS and the Impact on U.S. Companies

2 Today s Agenda Overview of SEC Actions Regarding adoption of IFRS Status of FASB/IASB Convergence & Joint Work Plan Common comments and findings of the SEC regarding application of IFRS

3 History of IFRS in Regulated Markets In 2005 European Union Countries were required to adopt and apply IFRS for financial statements issued for use on EU regulated markets/exchanges. Australia* (2005), Brazil (2010), Canada (2011), Korea (2011), Mexico (2012), Russia (2012), and South Africa (2005). U.S. Foreign Private Issuers 2007 Pending/ Potential adoption China, India, Japan, and United States.

4 SEC Actions in regards to IFRS 2007 the Commission allowed Form 20-F financial statements of foreign private issuers that are prepared on the basis of IFRS as published by the IASB without a reconciliation to U.S. GAAP SEC IFRS Road Map Set out milestones for adoption. Improvements in Accounting Standards Accountability and Funding of the IASC Foundation Improvement in the Ability to Use Interactive Data for IFRS Reporting Education and Training Limited Early Use of IFRS Where This Would Enhance Comparability for U.S. Investors Anticipated Timing of Future Rulemaking by the Commission Implementation of the Mandatory Use of IFRS

5 SEC Actions in regards to IFRS 2010 Progress Report on the Work Plan 2011 SEC Staff Paper Exploring One Possible Method of Incorporation of IFRS Condorsement Approach November 2011 SEC Staff Reports An Analysis of IFRS in Practice A Comparison of U.S. GAAP and IFRS 2011 AICPA PCAOB SEC Conference 2012 SEC Decision?

6 Status t of FASB & IASB Convergence

7 Short Term Convergence Project Status Share-based Payments Substantially converged standards issued in Segment reporting IFRS 8 Operating Segments issued in Inventory accounting Accounting changes Fair value option FASB converged on the treatment of excess freight and spoilage in FAS 151, Inventory Costs issued in FASB converged on the treatment of voluntary changes in accounting policy by requiring retrospective application in FAS 154, Accounting Changes and Error Corrections issued in FAS 159, The Fair Value Option for Financial Assets and Financial Liabilities, issued in 2007, introducing the fair value option into U.S. GAAP.

8 Short Term Convergence Project Status Borrowing costs Revised IAS 23 Borrowing Costs in Research Costs FAS 141R, Business Combinations issued in 2008, amending the accounting for acquired R&D. Non-controlling interests FAS 160, Non-controlling Interests in Consolidated Financial i Statements, t t issued in 2008, eliminating i the use of mezzanine presentation of non-controlling interests (unless redeemable at the option of the holder).

9 Memorandum of Understanding Projects Project Business combinations Fair value measurement Other Comprehensive Income Post-employment benefits Status Joint requirements for business combination accounting and non-controlling interests issued in FASB Statement No. 157 Fair Value Measurements issued in IFRS 13 Fair Value Measurement issued in Amendments to IFRSs and US GAAP for presentation of other comprehensive income issued in Amendments to IAS 19 Employee Benefits to be issued in 2011.

10 Memorandum of Understanding Projects Project Revenue Recognition Lease Accounting Status Exposure Draft (Re-Issued) Final Standard expected in 2012 Exposure Draft Issued in 2010, Re-Exposure expected in 2Q of Insurance Accounting Exposure Draft expected in Financial Instruments Exposure Draft expected in 2012.

11 Common comments and findings of the SEC regarding application of IFRS

12 Financial Instruments (IAS 39, IAS 32, IFRS 7) Clarification and expanded disclosure about the methods and market data used to determine fair value. Criteria applied to determine whether financial instruments were impaired. Methods and assumptions used in preparing the sensitivity analyses. Support for the criteria applied when financial instruments were derecognized. Classification of financial instruments and components, as a liability or equity. Determinations to account for certain investments at cost when fair value would have been expected.

13 Financial Statement Presentation (IAS 1, IAS 7) Expanded disclosures to explain the reasons why certain income or expense items had been excluded from measures of profit or loss reported on the face of the income statement. Disclose the nature of expenses classified in each income statement line item when expenses were reported by function. Clarification about the classification of items in the statement of cash flows as operating, investing, or financing, as well as the nature of financial assets classified as cash equivalents. Registrants did not present an opening statement of financial position in conjunction with a retrospective change in accounting policy or reclassification. The Staff also commented when first-time IFRS adopters did not present an opening statement of financial position.

14 Impairment of Assets (IAS 36) Clarification regarding how cash-generating units were determined and how management determined the level to which goodwill should be allocated. IAS 36 requires the use of pre-tax assumptions to calculate value in use. SEC requested registrants to disclose whether value in use was calculated using pre-tax assumptions. Reminded registrants to provide disclosure about the events and circumstances that led to the recognition of impairment losses. Disclose circumstances in which a cash-generating g unit s recoverable amount was close to its book value.

15 Consolidation, Investments in Associates and Joint Ventures (IAS 27, IAS 28, IAS 31) The Staff asked registrants to add or expand disclosure to explain why their determinations regarding control or significant influence were not consistent t with the voting power held (e.g., circumstances in which a registrant held more than 50% voting power but asserted that it did not control the entity). The Staff requested registrants to disclose the nature and extent of restrictions on the ability of subsidiaries or associates to transfer funds to the parent or investor. The Staff also questioned registrants application of SIC 12, Consolidation Special Purpose Entities.

16 Revenue Recognition (IAS 18, IAS 11) Expanded d revenue recognition accounting policy disclosures when registrants cited the standard s revenue recognition criteria but did not explain how the criteria were applied to the registrant s sales transactions. The requested disclosures included clarification regarding the nature of the sales transactions and explanations of how the standard was applied to each type of revenue. Requested clarification and expanded disclosures of how and when related expenses, such as warranties, were recognized and measured.

17 Operating Segments (IFRS 8) Clarification and expanded disclosures about the factors registrants used to identify their operating segments. Requested clarification regarding whether operating segments were aggregated and reminded registrants to provide the required entitywide disclosures for products and services, geographic areas and major customers.

18 Income Taxes (IAS 12) The Staff requested disclosure of the amount of deferred tax assets that were not recognized and whether these unrecognized deferred tax assets were re-evaluated at the end of each year. Requested disclosure of when tax loss carry forwards will expire. Registrants to clarify the source of the tax rate and to more clearly depict the nature of the line item components used in the rate reconciliation.

19 Property, Plant, and Equipment (IAS 16) Requested registrants to disclose the depreciation methods used and useful lives of each class of property and equipment. The Staff also asked registrants whether a review of the residual value, the useful lives, and the depreciation method of property, plant, and equipment was performed at least annually.

20 Employee Benefits (IAS 19) Clarification of how frequently actuarial reviews of defined benefit plans were performed. The source of the discount rate. The Staff also requested clarification or disclosure of the accounting The Staff also requested clarification or disclosure of the accounting policy applied for curtailments and settlements.

21 Provisions and Contingent Liabilities (IAS 37) Frequently requested expanded and more granular disclosure of each class of provision. Clarified disclosure of the nature of the underlying matter Disclosure of the uncertainties surrounding the amount or the timing of related payments. Disclosure of how the provisions were estimated, and disclosure of the assumptions used, to disclose this information for provisions and contingent liabilities, to the extent applicable. Registrants to disclose the amount of provisions that were reversed, as well as the impact of discounting.

22 Business Combinations (IFRS 3) Expand accounting policy disclosures to more fully address the recognition and measurement criteria of IFRS 3. The Staff requested registrants to clarify the nature of adjustments to the measurement of the consideration transferred in a business combination and to add required disclosures. Commented on policies for accounting for common control transactions and the consistency of those policies with the requirement in IAS 8 that, in the absence of an IFRS that specifically applies to a transaction, management shall apply an accounting policy that results in relevant and reliable information.

23 Questions

24 Speaker Biography Keith Peterka, CPA Shareholder Mayer Hoffman McCann P.C. With more than 18 years of experience in public accounting, Keith performs national firm responsibilities for IFRS, fair value accounting and auditing, revenue recognition and business combinations. He has also developed national training programs for accounting pronouncements and complex accounting topics, as well as been a member of the MHM SEC taskforce in charge of updating the Firm s SEC Audit Methodology. Keith currently serves as an Engagement Quality Reviewer for designated national high risk engagements and has a key role in the firm s internal inspection program. Additionally, he is a subject matter expert for IFRS, SEC reporting and fair value accounting in MHM s Professional Standards Group. He also is a member on the IFRS Foundation's Small & Medium-sized Entities (SMEs) Implementation Group.

25 Speaker Biography Michael Loritz, CPA Shareholder Mayer Hoffman McCann P.C. Mike has 15 years of public accounting experience with financial and service based companies, including the engineering and construction industry. He is a member of the MHM's Professional Standards Group, providing accounting knowledge leadership in the areas of derivative financial instruments, share-based compensation, fair value, leasing, revenue recognition and others. Mike's experience includes over 14 years with a Big Four firm where he was responsible for client service for large and small SEC filers and non-public entities, audit/accounting technical expertise and training instruction and delivery.