International Financial Reporting Standards Accounting Standards the International Setting Sir David Tweedie IASB Chairman The views expressed in this presentation are those of the presenter, not necessarily those of the IASC Foundation or the IASB
The IFRS Objective 2 Goal to be the single set of accounting standards used worldwide Aimed at providing high-quality, transparent, and comparable information for investors and other users of financial information 2010 IASC Foundation. 30 Cannon Street London EC4M 6XH UK. www.iasb.org
Why Global Standards are Needed 3 Accounting standards evolved nationally Globalisation hindered by national comparisons
Benefits to Capital Markets 4 Credibility of local market to foreign investors Greater cross-border investment Efficient capital allocation Comparability across political boundaries Facilitates global education and training
Benefit to companies 5 Lower cost of capital Integrated IT systems Easier consolidation One set of books Assist in raising capital overseas Understand financial statements of overseas suppliers, customers, subsidiaries
Independent and accountable governance 6 Similar governance to the FASB Domestic model Global model Securities and Exchange Commission (SEC) Public accountability to securities regulators Monitoring Board (inc. SEC Chair) FAF Trustees Overseen by Trustees IASC Foundation Trustees (5/22 US) Financial Accounting Standards Board Independent standard-setter International Accounting Standards Board (4/15 US)
IFRS Around the World 7 Total IFRSs permitted 25 IFRSs required 91 (for all domestic companies) IFRS required 6 (for some domestic companies) 122
or are converging with the IASB s standards. The World is Getting Smaller 8 Countries that require or permit IFRSs Countries seeking convergence with the IASB or pursuing adoption of IFRSs Source of information (adapted from): www.iasplus.com
US investors, companies depend on cross-border capital flows 9 90,000 Growing cross-border holdings of US companies and investors Trillions of US Dollars 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 1994 2000 2001 2007 2008 Source: US treasury Year Foreign Holdings of US Equities US Holdings of Foreign Equities 2010 IASC Foundation. 30 Cannon Street London EC4M 6XH UK. www.iasb.org
At the same time, US markets are diminishing in relative size 10 35,000,000 The Globalization of Capital Markets: Domestic Market Capitalization Source: World Federation of Exchanges 30,000,000 9,443,561 (28%) 29% 28% Million of US Dollars 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 7,775,273 (29%) 3,968,483 (15%) 15% 4% 1,025,942 (4%) 52% 9,959,311 (30%) 2,158,633 (6%) 13,826,485 (52%) 11,737,646 (35%) 30% 6% 35% Europe, Africa, and the Middle East Asia-Pacific Americas, excluding US United States 0 End 2001 End 2008 2010 IASC Foundation. 30 Cannon Street London EC4M 6XH UK. www.iasb.org
Fortune Global 500 (July 2009) 11 Fortune G500 Based on announced plans Which GAAP? 2009 2013 Japan 2015? IFRSs and word-for-word IFRS equivalents 190 245 310 US GAAP 155 155 140 National GAAPs 155 100 50 Total 500 500 500 2009 IASC Foundation. 30 Cannon Street London EC4M 6XH UK. www.iasb.org
IFRS FASB Convergence Process 12 2001 04 Reaction to investor desire for improved, global standards following Asian crisis and US financial scandals 2005 07 Growing IFRS adoption by major economies; continued US support and recognition of IFRSs as being high-quality standards 2008-09 Financial crisis; G20 pressure for convergence leading to adoption; focus on remaining major joint projects 2010-2011 MoU timetable adjusted to ensure critical issues are completed. 2010 IASC Foundation. 30 Cannon Street London EC4M 6XH UK. www.iasb.org IASB is established; enters Norwalk Agreement with FASB MoU accelerating convergence SEC removes reconciliation requirement Updates to MoU with 2011 targets and SEC roadmap Further SEC update to roadmap Modified convergence strategy prioritizes major projects for June 2011 completion
FASB/IASB Agreement - 2002 13 Remove differences Align Agendas Interpretation
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Conceptual Framework Issues 16 The objectives of financial reporting Qualitative characteristics Definitions of assets and liabilities Recognition Measurement Presentation
Roadmap - 2006 17 1. Short term - remove major differences 2. Medium term - new joint standards where significant improvement required
G20 Summit 25 September 2009 18 Redouble efforts to: achieve a single set of high quality, global accounting standards within the context of their independent standard setting process complete convergence project by June 2011. IASB s institutional framework should further enhance the involvement of various stakeholders. G20 acknowledge that there could be differences between capital requirements and accounting rules: to ensure comparability, the details of the leverage ratio will be harmonized internationally, fully adjusting for differences in accounting.
Major MoU Projects 2010 Standard 19 Derecognition Consolidations
Major MoU Projects Q1 2011 Standards 20 Fair Value Measurement Pensions
Pensions 21 m Deficit 10 Less 10% of liabilities 4 6 Spread over 10 year working life Deficit per accounts - 600,000
Major MoU Progress Q2 2011 Standards 22 Revenue Recognition Leases Financial Instruments
Leases - 2008 23 Total Annual leasing volume $644bn N. America 21% Europe 49% Asia 19% Rest of world 11%
Financial Instruments 24 Classification and Measurement Assets Liabilities Impairment Hedging
Changing Standard Setting 25 1. Deadlines quality paramount 2. More time taken does not mean better standards 3. World and standard setting changed since crisis Proactive engagement Globally consistent answers New ways of working 4. Support for post-implementation reviews
Possible Agenda Issues 26 Old Standards - Agriculture - Share based payments - Income Taxes - Pensions - Associates - Government Grants - Intangibles - Foreign currency translation - Performance reporting - Disclosure Framework
Possible Agenda Issues (Cont.) 27 Post-implementation Review - Segments - Business Combinations Other - Extractive Industries - Common Control
Current Debates 28 1. Transparency v Financial Stability 2. Ideology Fair value v historical cost IFRS v US GAAP Performance presentation 3. IFRS international or regional? 4. ADOPT don t ADAPT 5. Principles v rules
Principle based standards 29 Can we do it?
Principle-based standards 30
A principle based standard 31 No exceptions Core principles (objectives) No inconsistencies Tied to conceptual framework Judgement Minimum guidance
Rule-based Standards 32 If don t act with integrity If attack reasonable judgement in court If ask for voluminous interpretations If raw economic facts are unacceptable If regulators want one answer
Other Projects 33 Insurance SMEs Management Commentary Emission Rights
The IFRS for SMEs (Private Entities) 34 Good Financial Reporting Made Simple. Just 230 pages (full IFRSs > 3,000) Simplified IFRSs, but built on an IFRS foundation Completely stand-alone Internationally recognised Final standard was issued July 2009 Any entity is eligible to use except publicly traded and financial institutions
The IFRS for SMEs (Private Entities) 35 To date, 61 jurisdictions have adopted or announced a plan to adopt Why would a private entity want to adopt? Improved access to capital Improved comparability Improved quality of reporting as compared to existing national GAAP for SMEs Less of a burden where full IFRSs or full national GAAP are now required
The future 36 2010 IFRS in +120 countries and US convergence programme 2012 IFRS in +150 countries and US broadly converged Vision A single set of high quality global accounting standards
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