Why the move to IFRS in the US is inevitable April 28, 2008 Date Why the move to IFRS in the US is inevitable April 28, 2008 St. Louis, MO PwC

Welcome and introduction - Bo Butters - Troy Pingsterhaus Date Welcome and introduction - Bo Butters - Troy Pingsterhaus

Why the move to IFRS in the US is inevitable Agenda: Date Why the move to IFRS in the US is inevitable Agenda: A financial reporting revolution outside the US A financial reporting revolution in the US IFRS considerations for US companies US GAAP and IFRS potential differences Challenges and other points of consideration Questions and answers

The world is adopting IFRS Date Why the move to IFRS in the US is inevitable: A financial reporting revolution outside the US The world is adopting IFRS All Major Non-US Capital Markets Impacted Adoption of IFRS in the EU in 2005 8,000 companies Accelerated transition to IFRS globally More than 100 countries around the world require or permit International Financial Reporting Standards (IFRS) Countries converging or planning to converge to IFRS: Canada China South Africa Singapore New Zealand Brazil

IFRS Developments – What’s the big deal Date Why the move to IFRS in the US is inevitable: A financial reporting revolution outside the US IFRS Developments – What’s the big deal The Momentum Towards Global IFRS Adoption More than 100 countries require or permit the use of IFRS or are converging with the IASB’s standards. Top 10 Global Capital Markets US US GAAP Japan Converting to IFRS UK IFRS France Canada Germany Hong Kong Spain Switzerland Australia Countries seeking convergence with the IASB or pursuing adoption of IFRS Countries that require or permit IFRS

A reasonable timeline for transition to IFRS? Date Why the move to IFRS in the US is inevitable: A financial reporting revolution in the US A reasonable timeline for transition to IFRS? Reasonable timeline for the US transition to IFRS 2008 2010 2009 2012 2014 2007 2011 2013 2015 March 2007 SEC roundtable on US GAAP reconciliation for IFRS filers July 2007 SEC proposal eliminating US GAAP reconciliation for IFRS filers August 2007 SEC concept release on use of IFRS for US registrants December 2007 Reconciliation eliminated Between January 2009 and 2010 Potential voluntary application of IFRS permitted for US registrants Between January 2013 and 2015 Potential mandatory application of IFRS for US registrants

The early “fires” of revolution… Date Why the move to IFRS in the US is inevitable: A financial reporting revolution in the US The early “fires” of revolution… October 2002 Norwalk Agreement Convergence Objective is to create one global set of high-quality standards Beginning: equivalent standards Now: robust, transparent frameworks with similar principles “Convergence means change” – Bob Herz, FASB Chairman Competitiveness of the US capital markets Simplicity in US financial reporting April 2005 SEC “roadmap” Goal to eliminate the reconciliation as early as possible and no later than 2009

The early “fires” of revolution…(continued) Date Why the move to IFRS in the US is inevitable: A financial reporting revolution in the US The early “fires” of revolution…(continued) SEC Roundtable on US GAAP Reconciliation – March 2007 Broad support for roadmap and elimination of reconciliation Support for convergence August 2007 Concepts Release Should domestic issuers be allowed to use IFRS? Most constituents agree some form of transition to IFRS in the US is preferred SEC eliminates reconciliation Foreign companies filing under IFRS as issued by the IASB will not have to reconcile to US GAAP for fiscal years ending after November 15, 2007 SEC Roundtable on IFRS – December 2007

Date Why the move to IFRS in the US is inevitable: A financial reporting revolution in the US Key Messages from Concept Release Responses and SEC Roundtable Discussions Broad support for mandatory change; mixed support for allowing early adoption; a reasonable transition period is within five years Reconciliation back to US GAAP is a disincentive to IFRS adoption Regulatory environment is important – US GAAP and IFRS reporting quality are similar in the same regulatory environment Cooperation, communication, consistent interpretation and respect for professional judgment by regulators are imperatives Comparability and cost efficiencies are key benefits – initial cost /time commitment will be high; but worthwhile IFRS and US GAAP convergence efforts should continue IASB independence, including funding, should be ensured Education and licensing are not seen as large hindrances

PwC’s View on IFRS in the US Date Why the move to IFRS in the US is inevitable: A financial reporting revolution in the US PwC’s View on IFRS in the US Globalization will drive a change to IFRS in the US Domestic registrants should have the same option as FPIs Ultimately the US markets will have only one GAAP and it will be IFRS Transitioning to IFRS will be at a cost, but it will be worthwhile Enhance efficiency of capital allocation Cost savings for harmonized global reporting systems The current convergence model is a challenging proposition IFRS provides opportunities to Increase global comparability Reduce complexity and simplify financial reporting Implement a principles-based framework in the US Reduces complexity; allows for greater use of professional judgment

Date Why the move to IFRS in the US is inevitable: IFRS Considerations for US Companies Market Considerations Why now? Ease of access to other capital markets (potentially reduced cost of capital) Stakeholders may request IFRS information Global competitors are already applying IFRS (benchmarking) Certain US domestic-listed companies with global operations are beginning to prepare for IFRS (best-in-class finance function) IFRS influences US GAAP IFRS is globally accepted Over 100 markets require or permit a form of IFRS Other large capital markets (Canada, Japan, China, Brazil and Korea) plan to adopt or converge with IFRS IFRS is gaining momentum in the US and its eventual adoption is inevitable SEC has agreed that foreign private issuers can use IFRS instead of US GAAP Voluntary adoption for some US domestic companies could be allowed as early as 2009 You want to be ready if IFRS becomes an option or is mandated in the US Knowing the impact of IFRS for transactions and stakeholder communications requires planning (e.g., stock compensation, debt/equity classification, covenants) IFRS requires complete and clear documentation upon adoption (e.g., hedging) A conversion and embedding project takes time - on average 18 to 30 months Changes to systems and controls need to be considered (e.g., SOX compliance) IFRS conversion is not just an accounting matter, but a business-transformation project impacting people, processes, systems and tax Internal Considerations / Benefits Potential to reduce cost of compliance Standardizing consolidation procedures and controls (cost and error reduction) Quality of financial information Coordinating Group-wide system implementation with adoption of IFRS Build IFRS knowledge in the company Cross border transactions may require IFRS knowledge Non-US subsidiaries may be permitted or required to report under IFRS locally Fewer rules but more judgment The Group can develop global IFRS policies and procedures to roll out through the organization which might also be used for regulatory and tax purposes in some jurisdictions, thus reducing conversion costs and the number of GAAPs being reported IFRS policy decisions taken by non-US subsidiaries may limit policy options when the US consolidated group converts to IFRS Development of IFRS policies at a central level can help ensure: Consistency Issues are resolved once rather than multiple times, which helps reduce costs Increased IFRS knowledge within the Group IFRS (together with US GAAP) can be included in the Group’s global chart of accounts; streamlining the reporting process for both group and local regulatory reporting Potentially better matching of economics with accounting using IFRS

Date Why the move to IFRS in the US is inevitable: US GAAP and IFRS Potential Differences IFRS vs. US GAAP Areas of Key Differences Complex technical areas requiring special attention — Consolidation Revenue Impairment testing Intangible assets Financial instruments and hedging Securitizations Debt / equity classification Inventories Employee benefits Stock-based compensation Provisions Tax accounting Presentation and disclosure First time adoption of IFRS Entities consolidated under IFRS but not under US GAAP; Differences in revenue recognition criteria; Differences in the level of impairment testing; Differences in capitalization of R&D costs; Differences in the classification and measurement of various financial instruments; Differences in derivatives and hedging criteria; Differences in the measurement of inventories; use of LIFO prohibited; Greater use of fair value measurement in certain areas ; Timing differences in the recognition of expenses relating to certain share-based and pension-related employee benefits; The tax consequences of these differences; Additional disclosures; and First-time adoption elections.

Loss of sovereignty (pride and politics – both sides) Date Why the move to IFRS in the US is inevitable: Challenges and other points of consideration Key challenges: Loss of sovereignty (pride and politics – both sides) US culture, politics and legal environment Adapting to a global standard setter (IASB versus FASB) Professional training and accreditation US education and licensing (currently at state level) Capital market education Adapting to a principles-based environment Understanding how IFRS affects financials Capturing cost and process efficiencies Other considerations: Private companies (US) Internal controls (Sarbanes Oxley)

Why the move to IFRS in the US is inevitable: Questions and answers Date Why the move to IFRS in the US is inevitable: Questions and answers - Questions and answers

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