IFRS: A user perspective VIII Annual CPC Seminar , Sao Paulo Stephen Cooper, Member IASB

IFRS Objective The IFRS Foundation and the IASB are dedicated to developing and sustaining a single set of globally accepted accounting standards: Aimed at providing high-quality, transparent, and comparable information for investors and other users of financial information Providing the world’s integrated capital markets with a common language for financial reporting Promoting capital market stability through the transparency and integrity of financial reporting Taking appropriate steps with regulators and standard-setters to help promote consistent application of standards

Why Global Standards are Needed Accounting standards evolved nationally because companies borrowed and investors invested only in their home country Globalisation is inconsistent with multiple, national or regional accounting languages that hinder comparability Corporations must consolidate global network of operations Investors seeking diversification and return increasingly invest outside domestic markets

Global Standards: Benefits to Investors Transparent financial markets and free trade require a high-quality, single, global accounting language Credibility of local market to foreign investors Greater cross-border investment Efficient capital allocation Comparability across political boundaries Facilitates global education and training

Global Standards: Benefits to Companies In the long run, global standard benefit companies – especially multi-nationals 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

A Decade of Progress Pre 2001 Multi-GAAP world, no major economies using international stds. 2001 IASB is established under Foundation Chair Paul Volcker 2002 Europe leads first wave of jurisdictions to adopt IFRS while convergence process with FASB begins 2003 IASB issues 1st new standard 2005 Over 7000 public companies in 25 European countries switch to IFRS 2006 FASB and IASB establish a “roadmap” to substantially converge IFRS and US GAAP (MoU) 2007 Brazil, Canada, and Korea lead second wave of IFRS adoption 2008-10 Trustees and IASB prioritise response to global financial crisis; G20 repeatedly calls for rapid move towards global standards 2011 On-going work on convergence programme and target date for SEC decision

Status of Global Standard Use April 2010 Status of Global Standard Use 7 Since 2001: Companies in over 100 countries are now required or permitted to use IFRSs: 91 countries require IFRSs (for all domestic companies) 26 countries permit IFRSs 6 countries require IFRSs (for some domestic companies) 123 Total Recent new joiners: Argentina, Brazil, Canada, Korea, Mexico Japan: IFRS permitted for international companies; 2012 decision on mandatory adoption; target implementation pushed by 5-7yrs. 2011: Ninth year of convergence work with FASB resulting in significant new high quality standards 7

Royal Scots Club October 2011 The World is Getting Smaller 8 DT Source of information (adapted from): www.iasplus.com 8

Why Global Standards: Non-US Markets Have Grown 32%

Factors Behind Success Organizational governance and structure supporting high quality standards High quality standards: Internationally, users recognize IFRS as high quality – supported by academic research1 Independent board: A transparent and independent standard setting process assures quality is maintained Internationally accepted: EU decision to adopt IFRSs served as catalyst for broad adoption across Asia, Oceania, Africa, Americas Convergence with the US: Close cooperation with FASB has led to higher-quality standards and a significant reduction in differences between the two sets of standards 1. “A Perspective on the SEC's Proposal to Accept Financial Statements Prepared in Accordance with International Financial Reporting Standards (IFRS) without Reconciliation to U.S. GAAP” by American Accounting Association's Financial Accounting Standards Committee, Karim Jamal (principal author), et al.

Corporate Governance – Three Tier Model 11 U.S. Model Global Model Securities and Exchange Commission (SEC) Monitoring Board (inc. SEC Chair) Public accountability to securities regulators FAF Trustees IFRS Foundation Trustees (5/22 US) Overseen by Trustees Financial Accounting Standards Board Independent standard-setter International Accounting Standards Board (4/15 US) Independent and publically accountable

Key Challenges Ahead The ultimate goal of global standards is still not fully achieved and there are challenges ahead… Pending decisions on IFRS adoption for major economies like Japan, China, India, and the US Consistency and high-quality implementation of IFRSs across jurisdictions On-going need to always evaluate, enhance and then implement improvements to IFRS organization and process

IFRS – FASB Convergence Process 2001 – 04 SEC reaction to US investor desire for improved, global standards following EM crisis and US financial scandals IASB is established; IASB-FASB reach Norwalk Agreement on convergence 2005 – 07 Growing IFRS adoption by major economies; concern over US loss of IPOs; desire to cement IFRS MoU accelerates convergence, sets targets and removes requirement for FPI’s to reconcile with GAAP 2008 - 09 Financial crisis; G20 consensus on convergence and adoption; focus on remaining major joint projects Updates to MoU with 2011 targets and SEC roadmap 2010 - 2011 Stakeholder concerns for high quality standards vs convergence timetable Modified convergence strategy prioritizes joint projects for 2011 SEC decision Convergence is not the end point

Convergence: Accomplished to Date ... 14 Inventory accounting Accounting changes Business combinations Non controlling interests Share-based payments Segment reporting Borrowing costs Conceptual Framework – objective and qualitative characteristics Joint ventures

Convergence: The Major Projects Toronto November 2010 Convergence: The Major Projects 15 Crisis (MoU) Financial Instruments Fair value measurement Consolidation Derecognition Other (Non MoU) Insurance contracts Other (MoU) Revenue Recognition Leases Post-retirement benefits Financial statement presentation Liability / Equity Four remaining projects will be finished with FASB to the highest possible standard

2011 Decision on US Adoption is Next Step SEC Staff Paper released in May details a formal path to US adoption through an incorporation mechanism US companies can minimize implementation costs using phased approach FASB stops writing new standards - preventing divergence Existing, converged standards are incorporated into GAAP IASB active projects will be completed, then incorporated FASB incorporates remaining, non-converged standards over 5-7yrs FASB remains the US national standard setter with responsibility of endorsing new standards as they are issued Early adoption for large US companies is an open question “Incorporation of IFRSs into national GAAP” is the path used by virtually all other countries

Future Agenda Issues Old Standards Agriculture Share-based payments Toronto November 2010 Future Agenda Issues 17 Old Standards Agriculture Share-based payments Income taxes Pensions Associates Post-implementation review Segments Business combinations Government grants Intangibles Foreign currency translation Performance reporting Disclosure framework Other Extractive activities Common control

Principle-Based Standards Toronto November 2010 Principle-Based Standards 18 No exceptions Core principles (objectives) No inconsistencies Tied to conceptual framework Judgement Minimum guidance DT Principles Rules

Investor input is key IFRS focus on needs of investors and other users 19 IFRS focus on needs of investors and other users Significant effort in outreach to investors Regional and global groups: CFA, CRUF, etc Organisations: Fund managers, Rating agencies, etc Individuals: Analysts, PMs, etc IASB investor liaison – Hilary Eastman (heastman@ifrs.org)

Goal of Global Accounting Language is Close IASB dedicated to developing and sustaining high quality, globally accepted standards – Existing projects will be finished with FASB to the highest possible standard Consultation and transparency are critical to setting new agenda IASB and IFRS Foundation accept and are prepared for the responsibility of being the global standard setter

Questions or comments? 21 Expressions of individual views by members of the IASB are encouraged. The views expressed in this presentation are those of the presenters. Official positions of the IASB on accounting matters are determined only after extensive due process and deliberation.