CIA Annual Meeting Assemblée annuelle de l’ICA June 29 & 30, 2006 Ÿ Les 29 et 30 juin 2006 Ottawa, Ontario CICA 3855: OSFI Comments – Helmut Engels

OSFI Guideline D-10 AcSB included Fair Value Option in its new financial instruments standard Is consistent with international IASB standard Except it did not include a subsequent IASB amendment

OSFI Guideline D-10 The IASB amendment limits the use of FVO to situations where: It eliminates or significantly reduces an accounting mismatch, or A group of financial assets, financial liabilities or both is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management strategy.

OSFI Guideline D-10 Guideline D-10:Accounting for Financial Instruments Designated as Fair Value Option Gives additional guidance from OSFI Purpose is to introduce the IASB amendment to Canadian financial reporting 2 Concerns: Are fair values reliable and consistent? Are fair values based on sound internal management practices?

OSFI Guideline D-10 Reliable Fair Values: Most reliable are liquid, tradable assets Published quotes for similar sizes, risks, etc. Valuation techniques

OSFI Guideline D-10 FVO not allowed for: Loans and mortgages to companies with gross annual revenues of less than $62.5 million Loans and mortgages to individuals Surplus Assets

OSFI Guideline D-10 OSFI expects all institutions using the FVO to meet the supervisory expectations set out in Principles 1 – 4 of the Basel Committee’s Supervisory guidance on the use of the fair value option for financial instruments by banks. OSFI intends to follow principles 5 – 7 in assessing risk management, controls and capital adequacy related to the use of the FVO.

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