International Financial Reporting Standards The views expressed in this presentation are those of the presenter, not necessarily those of the IFRS Foundation or the IASB Introducing IFRS 10 Consolidated Financial Statements and related disclosures in IFRS 12 Disclosures © 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. December 2011

Why we undertook the project Issues – IAS 27 / SIC12 Inconsistencies in practice Tension between IAS 27 (control) and SIC 12 (risk and rewards) Inconsistent application Disclosures and financial crisis Sufficient guidance for structured entities? Reputational risk as a basis for consolidation? Inadequate disclosures? Solution – IFRS 10, 12 A single control model for all entities Clear principles of control Additional application guidance SIC 12 performed well. Use of existing principles to create a sound foundation for SPEs Enhanced disclosures particularly for unconsolidated structured entities

The control model – overview Single consolidation model for all entities, including structured entities Consolidation based on control – ‘power so as to benefit’ model  Controller must have some exposure to risks and rewards.  Exposure is an indicator of control but is not control of itself  Power arises from rights—voting rights (either majority or less than a majority), potential voting rights, other contractual arrangements, or a combination thereof. Definition of control: An investor controls an investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

The control model – overview (cont’) Assessing control of an investee:  Consider the purpose and design  Identify the activities of the investee that significantly affect the returns of the investee (ie the relevant activities)  Identify how decisions about relevant activities are made  Determine whether the rights of the investor give it the ability to direct the relevant activities  Determine whether the investor is exposed, or has rights, to the variability associated with the returns of the investee  Determine whether the investor has the ability to use its power over the investee to affect its own returns

Main decisions 1. “De facto” control  Entity can control with less than 50% of voting rights.  Factors to consider include: –Size of the holding relative to the size and dispersion of other vote holders –Potential voting rights –Other contractual rights  If the above not conclusive consider additional facts and circumstances that provide evidence of power (eg voting patterns at previous board meeting, etc) 2. Structured entities  General principles apply for assessing control for all types of entities.

Main decisions 3. Potential Voting Rights  Substantive potential voting rights (PVR) can give the holder power  Consider the terms and conditions, including: –Whether there are any barriers that prevent the holder from exercising –Whether exercise of the rights would be beneficial to the holder –Whether the rights are exercisable when decisions need to be made 4.Agency relationships  Consider all of the following factors : –scope of the decision-making authority –rights held by other parties (ie kick-out rights) –remuneration of the decision-maker –other interests that the decision maker holds in the investee

Main decisions 5. Disclosures  Enables investors to assess the nature of, and changes in, the risks associated with its interests in (un)consolidated structured entities 6. Effective Date  Aligned effective date for IFRS 10, IFRS 11 and IFRS 12 –Annual periods beginning on or after 1 January 2013 –Earlier application permitted if applied as a package

Enhanced convergence with US GAAP in key areas 1. Convergence IFRS 10:  Structured entities (or variable interest entities) now have the same basis for consolidation*  Control assessment for voting interest entities differ –Power with less than a majority of voting rights –Consideration of options and convertible instruments 2. Convergence IFRS 12:  Disclosures relating to unconsolidated structured entities (or variable interest entities) are very similar  Generally IFRS 12 goes further because –Information about a reporting entity’s risk exposure from involvement with structured entities that it sponsored but with which it is no longer involved –More information about consolidated entities (and material joint ventures and associates) * Based on FASB issuing principal agent guidance

Outlook – Joint FASB/IASB Investment Entity ED 1. Investment company level  measure investments in controlled entities at fair value through profit or loss  measure investments in joint arrangements and associates at fair value through profit or loss 2. Non investment company parent level  consolidate all controlled entities, even if controlled through an investment entity subsidiary  continue the use of fair value for investments in joint arrangements and associates held by an investment entity subsidiary 3. Comment period  Ends at 5 January 2012, Target Date for IFRS = Q Difference to FASB ED

© 2008 IASC Foundation. 30 Cannon Street | London EC4M 6XH | UK. Questions or comments? Expressions of individual views by members of the IASB and its staff are encouraged. The views expressed in this presentation are those of the presenter. Official positions of the IASB on accounting matters are determined only after extensive due process and deliberation.