Update of US and IFRS Mining GAAP September 23 rd, 2010 Presenters: Paul Fitchett James Terry
Contents - Convergence Timeline - IFRS Standards Effective in 2010 - US GAAP Standards Effective in 2010 - US Financial Statement Updates - Upcoming US GAAP Updates - Upcoming IFRS Projects - Key IFRS / US GAAP Differences PricewaterhouseCoopers Slide 2
Convergence Timeline Slide 3
Currently Anticipated US GAAP / IFRS Convergence Timeline Financial instruments Revenue recognition Leases Statement of comprehensive income Fair value measurement Balance sheet netting Consolidation - investment companies* Financial statement presentation Discontinued operations Fin. instr. with characteristics of equity IASB - postemployment benefits** IASB - insurance contracts*** IASB - contingencies** Emissions trading schemes Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q42011 2012 Pre-exposure draft deliberations Exposure draft issued or expected Comment period and redeliberations Finalstandard expected * The consolidation project has been divided into two projects: one focused on investment companies and one that is more comprehensive. The FASB will decide how it wants to proceed on a comprehensive project after it performs additional stakeholder outreach. ** These are IASB projects that have the potential to impact the views of the FASB as it evaluates existing U.S. GAAP in these areas. *** IASB timeline. The FASB will decide, once the IASB issues its exposure draft, how best to proceed and plans to obtain stakeholder feedback on the IASB proposal. Slide 4
Convergence Resources - www.pwc.com/usgaapconvergence.com - Upcoming webcasts - Publications Slide 5
IFRS Standards Effective in 2010 Slide 6
IFRS 1 Additional Exemptions for First-time Adopters Additional exemptions added for entities: Applying full cost accounting for oil and gas assets from retrospective application of IFRS With existing lease contracts from reassessing the classification of those contracts in accordance with IFRIC 4 Effective for years commencing after January 1, 2010 PricewaterhouseCoopers Slide 7
IFRS 3 (Revised) & Business Combinations & IAS 27 (Revised) Consolidated and Separate Financial Statements New requirements related to business combinations and non-controlling interests Key Changes: Definition of a business including additional guidance for development stage enterprises Consideration Fair value of assets and liabilities acquired Step acquisition and non-controlling interest Post-acquisition accounting Disclosures Effective for annual reporting periods commencing after July 1, 2009 PricewaterhouseCoopers Slide 8
IFRS Annual Improvements Project IFRS 2: IFRS 5: IFRS 8: IAS 1: IAS 17: IAS 36: IAS 38: IAS 39: IFRIC 9: IFRIC 16: Share-based Payments Non-current Assets Held for Sale and Discontinued Operations Operating Segments Presentation of Financial Statements Leases Revenue Impairment of Assets Financial Instruments Reassessment of Embedded Derivatives Hedges of Net Investment in a Foreign Operation PricewaterhouseCoopers Slide 9
US GAAP Standards Effective in 2010 Slide 10
HealthCare Reform Patient Protection and Affordable Care Act (the PPACA) - March 23, 2010, Health Care and Education Reconciliation Act of 2010 (HCERA) - March 30, 2010 Many provisions of the Act do not take effect until years in the future; however, their expected impact must be reflected in current reporting periods. Postretirement benefits accounting Plan changes, once adopted, should be accounted for as plan amendments with the effect on the APBO accounted for as prior service cost/credit Slide 11
Dodd-Frank Act Dodd-Frank Wall Street Reform and Consumer Protection Act July 21, 2010 Requires over 533 rules, 60 studies, and 93 reports to clarify and implement the Act s requirements: Significant uncertainty regarding timing of implementation Exempts non-accelerated filers from compliance with SOX Section 404(b) requirements (still requires management attestation) Includes clawback provisions into incentive compensation for executive officers triggered by certain accounting restatements Slide 12
Dodd-Frank Act (continued) Section 1504 Payments made by the registrant to US and foreign governments Likely 2012 requirement Section 1503 Mine safety disclosure information and pending actions before the Federal Mine Safety and Health Review Commission Currently effective Section 1502 Disclosure of conflict minerals originating in the DRC Likely 2012 requirement Slide 12
Example Form 8-K disclosure MSHA Newmont Mining Corporation Slide 13
Example Form 10-Q / 10-K disclosure Safety Cloud Peak Energy (Item 5 Other Information) Slide 14
Dodd-Frank Act (continued) Section 1504 Payments made by the registrant to US and foreign governments Likely 2012 requirement Section 1503 Mine safety disclosure information and pending actions before the Federal Mine Safety and Health Review Commission Currently effective Section 1502 Disclosure of conflict minerals originating in the DRC Likely 2012 requirement Slide 12
Transfers and Servicing ASU 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets Recognition: on- or off-balance sheet treatment? Has a portion of the receivable been transferred? Transfer when consideration includes a deferred purchase price (DPP) DPP needs to be subsequently accounted under Investments-Debt and equity securities guidance Statement of Cash Flow Operating or Investing? Receivable sold in entirety for cash and DPP SEC staff views: may be classified as operating subject to an accounting policy election Slide 15
Consolidation ASU 2009-17, Consolidation (ASC Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities Significantly changes the consolidation rules as they relate to variable interest entities (VIEs) Effective January 1, 2010 for calendar-year companies Changes the model for who should consolidate a VIE Addresses how often this assessment should be performed There are numerous implementation issues that companies need to consider triggered by the conclusion to consolidate Slide 16
Consolidation (continued) ASU 2010-02, Consolidation (ASC Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary a Scope Clarification Clarifies what decrease in ownership provisions apply to Clarifies what decrease in ownership provisions do not apply to Internal controls of consolidated VIE to be assessed Slide 17
Fair Value ASU 2010-06 requires the following new disclosures: Details of significant transfers in and out of Level 1 and Level 2 measurements and the reasons for the transfers; and Gross presentation of activity within the Level 3 roll forward, presenting separately purchases, sales, issuances, and settlements. Requires fair value disclosures by class of assets and liabilities rather than by major category, based on the nature and risks of the assets and liabilities. Reporting entities must disclose the valuation technique used and the inputs used in determining the fair values of each class of assets and liabilities The ASU was effective for 2009, except for the gross presentation of the Level 3 roll forward, which is required for 2010. Slide 18
Highly Inflationary Economies - Venezuela ASU 2010-19, Foreign Currency (Topic 830) Foreign Currency Issues: Multiple Foreign Currency Exchange Rates Venezuela has met the threshold for being a highly inflationary, and therefore calendar year entities will begin applying highly inflationary accounting beginning January 1, 2010. SEC has requested enhanced disclosures. Application of ASC 30-10-45-11 accounting. Slide 19
Stock Compensation ASU 2010-13, Compensation Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades Clarifies classification as equity for certain awards Slide 20
Distributions to Shareholders ASU 2010-01, Equity, (ASC Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash Distinction between share issuance and stock dividend. Effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis. Slide 21
US Financial Statement Updates Slide 22
Subsequent Events ASU 2010-09, Subsequent Events (ASC Topic 855): Amendments to Certain Recognition and Disclosure Requirements Removed requirement for SEC filers to disclose the date through which an entity has evaluated subsequent events If the financial statements of an entity, other than an SEC filer, are revised, as a result of (a) correction of an error or (b) retrospective application of U.S. generally accepted accounting principles, the entity should retain the initial date, but also disclose the date through which subsequent events have been evaluated in the revised financial statements Slide 23
Climate Change Interpretive Release No. 33-9106, Commission Guidance Regarding Disclosure Related to Climate Change Obligation under existing federal securities laws and regulations to consider climate change and its consequences in disclosures Disclosure requirements may require a company to disclose the impact that business or legal developments related to climate change may have on the business: These disclosure rules cover a company s risk factors, business description, legal proceedings and management discussion and analysis. Slide 24
Non-GAAP Measures Updated SEC Guidance 32 Compliance and Disclosure Interpretations Encourages consistency in all communications. Removes certain constraints that discouraged companies from disclosing important non-gaap measures in SEC filings (e.g. excluding recurring items) Companies prohibited from disclosing misleading non-gaap measures and must continue to present the most directly comparable GAAP measures with equal or greater prominence, along with a reconciliation. Required to disclose the reason why the non-gaap measures provide useful information to investors and any other material ways management uses the measures (if any). Slide 25
XBRL (extensible Business Reporting Language) Phase-in Schedule: Date Issuer Description June 15, 2009 Domestic and Foreign Large Accelerated Filers using US GAAP with Worldwide Public Common Equity Float above $5 billion as of the End of the Second Fiscal Quarter of their most recently completed Fiscal Year June 15, 2010 All Other Domestic and Large Accelerated Filers using US GAAP June 15, 2011 All Remaining Filers using US GAAP, including Smaller Reporting Companies June 15, 2011 Foreign Private Issuers with Financial Statements prepared in accordance with IFRS as issued by the IASB Slide 26
Proxy Disclosure Enhancements Effective date: February 28, 2010 Amendments require enhanced disclosures in the areas of: compensation policies and practices that present material risks to the company; stock and option awards of executives and directors; director and nominee qualifications and legal proceedings; board leadership structure; the board s role in risk oversight; and potential conflicts of interest of compensation consultants that advise companies and their boards of directors Slide 27
Statement of Comprehensive Income Joint Project of the IASB and FASB On May 26, 2010, the Board issued a proposed Accounting Standards Update, Statement of Comprehensive Income. The comment period ended on September 30, 2010. See further detail in IFRS update Slide 28
Upcoming US GAAP Updates Slide 29
Accounting for Multiple Foreign Currency Exchange Rates EITF Issue In countries with currency exchange controls, a multiple exchange rate system sometimes exists where companies are able to access certain exchange rates for different types of transactions. Should a company re-measure transactions at one rate and translate its local currency financial statements at a different rate? Task Force to consider whether a company should use multiple exchange rates when a company has the intent and ability to access multiple rates, or when the existence of multiple exchange rates represents an unusual circumstance which might indicate that the a company should use the same rate for re-measurement and translation. The Task Force asked the FASB staff to develop factors to consider when assessing whether an unusual circumstance has occurred. Slide 30
Loss Contingencies FASB Exposure Draft Most common contingencies expected to be in scope are litigation, environmental remediation, withdrawal liabilities related to a multi-employer pension plan, self-insurance liabilities, certain non-income-based tax uncertainties, and warranty liabilities A company should disclose publicly available information (quantitative and qualitative) to better explain the nature and potential magnitude of a loss contingency. A company may aggregate disclosures about similar contingencies (for example, by class or type). Basis for aggregation should also be disclosed. Disclosure of certain remote contingencies may be necessary to alert users about a company's vulnerability to a potential severe impact due to the contingency's nature, potential timing, or potential magnitude. Slide 31
Goodwill Impairment EITF Issue Goodwill reminders and tips Fresh look at determining the fair value of your reporting units Assignment of assets and liabilities Include deferred tax assets and liabilities in the carrying value of a reporting unit in step one of the goodwill impairment test In step two of the goodwill impairment test, first measure the fair value of recognized and unrecognized assets and liabilities At risk for failing step one of the goodwill impairment test? Consider forward looking disclosures Slide 32
IFRS Projects and Pending Standards Slide 33
IASB Proposed Timeline for Changes What Impacts Mining? Income Taxes Lease Accounting Joint Arrangements Revenue Recognition Financial Instruments Measurement of Liabilities Employee Benefits Consolidation Financial Statement Presentation PricewaterhouseCoopers Slide 34
Income Taxes Exposure Draft Withdrawn Convergence project with FASB Exposure Draft issued March 31, 2009 Decided subsequently not to proceed with Exposure Draft following the comment period IASB is considering limited scope amendments to IAS 12 An Exposure Draft of the limited scope amendments is expected in the third or fourth quarter of 2010 Final limited scope amendments to IAS 12 are expected in the first or second quarter of 2011 PricewaterhouseCoopers Slide 35
Income Taxes Exposure Draft Withdrawn IASB is considering limited scope amendments to IAS 12 in the following areas: Uncertain Tax Positions (UTPs) Deferred tax on re-measurement of investment property at fair value Recognition of a deferred tax asset in full and an offsetting valuation allowance to the extent necessary Guidance on assessing the need for a valuation allowance Guidance on the meaning of substantive enactment The allocation of current and deferred taxes within a group that files a consolidated tax return PricewaterhouseCoopers Slide 36
Lease Accounting Exposure Draft (August 2010) Lessee Accounting Single right-of-use model proposed, rather than finance vs. operating lease model Proposed model reflects asset and liabilities arising from all lease contracts Includes contingent cash flows in measurement Adjust for changes in estimates and re-measurements Exposure Draft is open for comment until December 15, 2010 PricewaterhouseCoopers Slide 37
Joint Arrangements Exposure Draft (September 2007) Standard expected Q3 2010 Definition of a joint venture changing Proportionate consolidation of corporate joint ventures no longer an option Substance over from approach Transitional provisions to ease application PricewaterhouseCoopers Slide 38
Revenue Recognition Exposure Draft (June 2010) Single revenue recognition model Core principal is recognize revenue when goods or services are transferred to the customer in the amount of consideration the Company expects to receive from the customer Identify separate performance obligations for distinct goods and services Probability weighted estimates of the consideration expected to be received Customer credit risk in measurement of revenue Allocate transaction price in proportion to estimated stand-alone price Expense acquisition costs PricewaterhouseCoopers Slide 39
What s Changing under IFRS for Financial Instruments? IFRS 9: Financial Instruments: Mixed Measurement approach based on business model and financial asset characteristics Interaction with other Classification & Measurement developments Others Debt vs Equity Consolidation Financial Liabilities Exposure Insurance Contracts Draft: Fair Value Options Incurred loss replaced with expected cash flow approach Impairment IFRS Changes A single approach Derecognition to derecognition based on control Earlier recognition of credit losses Extensive disclosures Aim to simplify requirements May replace fair value hedge accounting with an approach similar to cash flow hedge accounting PricewaterhouseCoopers Hedge Accounting Fair Value Measurement Clarifies the definition of fair value and enhances disclosures Largely consistent with FAS 157 and IASB s Expert Advisory Panel on measuring FV in Inactive Markets Slide 40
Measurement of Liabilities Exposure Draft (January 2010) Probability of Outflows criterion will be removed Account for uncertainty in amount and timing of outflows by using a probability weighed average The amount recognized is the amount of the entity would rationally pay at the measurement date to be relieved of the liability PricewaterhouseCoopers Slide 41
Defined Benefit Plans Exposure Draft (April 2010) Removal of corridor approach, immediate recognition in OCI required Presentation consistency to increase comparability Enhanced disclosures focused on risk PricewaterhouseCoopers Slide 42
Consolidation Exposure Draft (December 2008) Standard expected Q4 2010 Replace IAS 27 and SIC-12 with one source of guidance on consolidation Control is the power to direct the activities of another entity to generate returns for the reporting entity Guidance on control without majority of voting rights, investment companies, structured entities and agency / principal relationships PricewaterhouseCoopers Slide 43
Financial Statement Presentation Changes Statement of Comprehensive Income Exposure Draft (May 2010) Required profit or loss and OCI to be shown as separate components of the statement of comprehensive income Require separate presentation of OCI items that will and will not be recycled IAS 1 / IAS 7 Exposure Draft scheduled for Q2 2010 Comprehensive change in format of primary financial statements Proposal to present primary financial statements by operating, investing and financing activities similar to current Statement of Cash Flows IFRS 5 Exposure Draft (September 2008) Convergence with the FASB on definition of discontinued operations PricewaterhouseCoopers Slide 44
Extractive Activities Project Discussion Paper (April 2010) Harmonized global reserves / resources definitions All exploration, evaluation and subsequent development expenditures are capitalized when legal right to explore is acquired More onerous and details disclosures required (current or fair values of reserves and resources, production revenues by commodity, disaggregated costs summaries) PricewaterhouseCoopers Slide 45
Key IFRS / US GAAP Differences Slide 46
Common Mining US GAAP vs. IFRS Differences Exploration and Evaluation Costs Deferred Stripping Joint Arrangements Income Taxes Impairment Mine Closure / Asset Retirement Obligations PricewaterhouseCoopers Slide 47
Exploration and Evaluation Expenditure Expense under US GAAP until reserves and resources declared IFRS 6 allows the continuation of an entity s existing policy, which includes the capitalization of exploration expenditure Extractive industries project will supersede IFRS 6 when final standard issued PricewaterhouseCoopers Slide 48
Stripping Costs Draft IFRIC (expected Q3 2010) Varied practice under IFRS US GAAP (EITF No. 04-6) specifies stripping costs incurred during production are included in the cost of inventory Canadian GAAP (EIC 160) requires capitalization if there is a betterment of an asset IFRIC currently considering the issue Staff Proposal: Will allow capitalization of stripping costs in the production phase of a surface mine if it adds to an existing asset Unit of account is the stripping campaign Strip ratio approach to be disallowed Cost of stripping campaign allocation to specific section of ore body Prospective application PricewaterhouseCoopers Slide 49
Joint Arrangements Under US GAAP, the entity must first be considered if it is a VIE US GAAP generally only allows equity accounting Currently, equity accounting and proportionate consolidation is still acceptable under IFRS Convergence project between IASB and FASB will harmonize new standard PricewaterhouseCoopers Slide 50
Income Taxes Key Differences: No guidance on uncertain tax positions No exemption for recognition of temporary differences on non-monetary assets Deferred tax on intragroup profits Initial acquisition exemption Tax rates used may be different under IFRS and US GAAP Generally assets and liabilities have only one tax basis under US GAAP, whereas under IFRS there may be more than one Under IFRS all subsequent movements in equity-related deferred tax assets and liabilities are traced back to equity, whereas under US GAAP it is generally recognized through the income statement IFRS requires all deferred taxes to be presented as non-current PricewaterhouseCoopers Slide 51
Impairment Testing Need to revisit grouping of assets into CGUs, which could result in impairment testing at a lower level than that currently required under US GAAP IFRS uses a one-step test (based on discounted cash flows or fair value less costs to sell) as opposed to the two-step approach required under US GAAP Reversals of impairment are prohibited under US GAAP, but are required under IFRS when certain conditions are met (excluding goodwill) PricewaterhouseCoopers Slide 52
Mine Closure and Rehabilitation Provisions Includes constructive obligations, not just legal obligations Re-measure the obligation at each reporting period, using prevailing assumptions, including discount rate PricewaterhouseCoopers Slide 53