As of April 2011 Presented by Teri Willoughby Deters IFRS As of April 2011 Presented by Teri Willoughby Deters

IFRS Who Impacted? Differences between IFRS & US GAAP IFRS for SMEs Transition Other considerations

Who Impacted?

IFRS – Who Impacted? Who needs to be thinking about IFRS Public companies Non-public with international subsidiaries

IFRS – Who Impacted? Securities Exchange Commission (“SEC”) believes a single set of high-quality globally accepted accounting standards will benefit U.S. investors and the goal is consistent with their mission to protect the investors. SEC currently analyzing and decision to be announced by end of 2011

IFRS – Who Impacted? 2011 2014 Canada United Kingdom and Ireland India Country Year Accounting Standard to Apply Canada 2011 International Accounting Standards OR Accounting Standards for Private Enterprises United Kingdom and Ireland 2014 International Accounting Standards as adopted by EU, OR Financial Reporting Standards for Medium-sized Entities India 2011-2014 (depending on net worth) India equivalent IFRS (recently issued)

Accounting Standard to Apply IFRS – Who Impacted? Country Year Accounting Standard to Apply China Continuous China equivalent IFRS Singapore Singapore equivalent IFRS, OR Singapore Financial Reporting Standards for Small Entities Mexico Mexico equivalent IFRS

Differences between IFRS & US GAAP

Differences between IFRS & US GAAP Areas for consideration in adopting IFRS Tangible and intangible assets Liabilities Pension Financial instruments Income taxes Consolidation

Differences between IFRS & US GAAP Tangible and intangible assets under IFRS Prohibits costing of inventory using the LIFO method Allows for revaluation Requires de-recognition of components of assets Level in which impairments performed at the cash-generating unit and involves only 1 step Allows for reversal of impairment losses

Differences between IFRS & US GAAP Liabilities under IFRS Contingencies recognized when an obligation “more likely than not” exists When a range of possible outcomes exists, the mid point of the range would be recognized Asset retirement obligations recorded at the present value of the best estimate Provision should be recognized at the present value of the expected expenditure

Differences between IFRS & US GAAP Pensions under IFRS (under evaluation) Allows for recognition of actuarial gains and losses in equity, without subsequent recycling to net income Vested past service costs recognized immediately in net income Curtailment gain recognized when commitment to reduce employees is demonstrated

Differences between IFRS & US GAAP Pensions under IFRS (under evaluation) Classification of pension expense in operating and non-operating income (i.e., interest) Plan assets recognized at fair value; calculated value is not allowable Recognition of an overall plan asset subject to a ceiling test

IFRS Financial instruments under IFRS (under evaluation) Instruments measured at fair value, including equity instruments that do not have quoted market price Reclassification between categories available Previous losses on debt instruments may be reversed High threshold for de-recognition of financial assets under securitization agreements

Differences between IFRS & US GAAP Financial Instruments and Equity Those items classified as mezzanine would be classified as a financial liability Financial instruments issued between related parties should be recognized at time of issuance at fair value with an offsetting earnings impact Effective yield method based upon expected cash flows—not contractual cash flows Transaction costs should be reported net of the financial liabilities, instead of a non-current asset

Differences between IFRS & US GAAP Hedge accounting (under evaluation) Generally different definitions used and differences in application of the methodologies Application of hedge accounting, specific to foreign currency risk with a firm commitment to enter a business combination, is permissible A parent company may apply hedge accounting on foreign currency exposure of a subsidiary, regardless of the parent company’s functional currency Shortcut method that assumes no ineffectiveness is not available under IFRS

Differences between IFRS & US GAAP Income taxes Current and deferred taxes recognized using the enacted or substantively enacted tax rate Timing of recognition of deferred tax assets Recognition of deferred tax assets on the following: Items relating to equity Items not part of a business combination Translation of non-monetary assets measured using historical rates Inter-company transfers

Differences between IFRS & US GAAP Income taxes A separate tax valuation allowance is not maintained Uncertain tax positions recognized using probability-weighted average method Entire balance classified as non-current

Differences between IFRS & US GAAP Functional currency Same premise—primary economic environment. Be sure analysis is consistent at the subsidiary and consolidated level. Consolidations (under evaluation) Requires consolidation of all subsidiaries Point at which control is assessed Option for proportional consolidation of jointly controlled entities

IFRS for SMEs

IFRS for SMEs Entities that qualify to use IFRS for SMEs: Entities that do not have public accountability, and Publish general purpose financial statements for external users.

IFRS for SMEs Section 1 of IFRS for SMEs: “A subsidiary whose parent uses full IFRSs, or that is part of a consolidated group that uses full IFRSs, is not prohibited from using IFRS for SMEs in its own financial statements if that subsidiary by itself does not have public accountability.”

IFRS for SMEs IFRS IFRS for SMEs Investments in Affiliates (IAS 28.13) Use of equity method required, when applicable Investment in affiliates (Section 14.4) Accounting policy election: cost, equity or fair value Joint ventures (IAS 31.30 and 31.38) Proportionate consolidation or equity method may be used Joint venture (Section 15.9) Same as investment in affiliates. Proportionate consolidation not available Intangibles (IAS 38.88) Useful lives may be finite or indefinite Intangibles (Section 18.19) All intangible assets shall be considered to have a finite useful life Goodwill (IFRS 3.B63(a)) Measured at acquisition date less accumulated impairment losses (under IAS 36) Goodwill (Section 19.23) Measure at cost less accumulated amortization and accumulated impairment losses Borrowing costs (IAS 23.8) Borrowing costs shall be capitalized when directly attributable to the acquired asset Borrowing costs (Section 25.2) Borrowing costs are expensed as incurred

IFRS for SMEs Completed contract method for revenue recognition is prohibited. Hedge accounting is limited under IFRS for SMEs. Only permitted for the following hedge risks: Interest rate risk of a debt instrument Foreign exchange interest rate risk in a firm commitment or highly probable forecasted transaction Foreign exchange risk in a net investment Price risk of a commodity

IFRS for SMEs IFRS IFRS for SMEs Consolidated financial statements (IAS 27.9 and 27.10) *Most likely will not meet exemption as the ultimate or intermediate parent’s financial statements are NOT publicly available (Section 9.3) *May not meet the exemption if the intermediate parent does not produce consolidated general purpose financial statements that comply with full IFRS Receivables (IFRS 7.37) Aging of receivables Receivables No similar disclosure requirements Investment in Associates (IAS 28.37(b)) Disclose summarized financial data, including assets liabilities, revenues and profit (loss) Investment in Associates (Section 14.12 and 14.15) Income taxes (IAS 12.81) Numerical tax rate reconciliation Income taxes (Section 29.32) Explanation of changes in applicable tax rate Capital management and risk management (IAS 1.134 and IFRS 7.31) Capital management and risk management

Transition

Transition Regardless of adopting IFRS or IFRS for SMEs, the respective transition standard shall be applied: IFRS 1, or Section 35 of IFRS for SMEs Comparable financial statements will need to be provided Accounting policies shall be re-established and consistently applied

Policy Elections Available at Adoption Transition Activity Policy Elections Available at Adoption Business Combinations Elect to apply standards to acquisitions that occurred prior to adoption OR apply to acquisitions from the transition date going forward Property Property, plant and equipment may be recorded at either: Fair value Historical costs less accumulated depreciation (after assets lives have been analyzed under newly-elected GAAP) Investments in subsidiaries, jointly controlled entities and associates Investments may be recorded at either: Cost (under cost or equity method, as appropriate) Deemed costs: fair value or previous GAAP carrying amount Employee future benefits All cumulative actuarial gains and losses and past services costs may be recognized in opening retained earnings Cumulative translation difference If reporting entity maintains CTA at the local level, this amount may be recorded to retained earnings

Transition Re-assess designation of financial assets and liabilities Retrospective application at time of adoption: De-recognition of financial assets and liabilities: prospective application for transactions occurring on or after date of transition Hedging: elimination all deferred gains (losses) Non-controlling interest: prospective application for changes in ownership

Other Considerations

Other Considerations Implementation team needs System capabilities for financial reporting purposes U.S. GAAP Parallel reporting Future statutory reporting Tax Communication with Tax and Treasury teams

Q & A