International Financial Reporting Standards The views expressed in this presentation are those of the presenters, not necessarily those of the IASB or the IASC Foundation IFRS Update Selected projects November 2009

Outline IAS 39 replacement Financial statement presentation Revenue recognition Fair value measurement 2

International Financial Reporting Standards The views expressed in this presentation are those of the presenters, not necessarily those of the IASB or the IASC Foundation IAS 39 replacement Wayne Upton, Director of International Activities

Major projects—financial crisis 4 ProjectProgress towards milestones Financial instruments: recognition and measurement Milestone 2010converged requirements Work doneDP on complexity issued ED on classification and measurement issued DP on credit risk in liability measurement issued FCAG issued report issued FASB-IASB joint round table discussions in Tokyo, London and Norwalk

Major projects—financial crisis continued 5 ProjectProgress towards milestones Financial instruments: recognition and measurement continued ExpectED impairment methodology in November 2009 Final IFRS on classification and measurement of financial assets during November To be followed by IFRS on financial liabilities during 2010 ED hedge accounting in December 2009 FASB to issue comprehensive ED on financial instruments in late 2009/early 2010

Timetable One project – three phases 2008 IASC Foundation | 30 Cannon Street | London EC4M 6XH | UK | 6 Project phaseExposure DraftFinalisation 1. Classification and measurement July 2009For financial assets in time for 2009 year end financial statements For financial liabilities during Impairment methodology November 2009In Hedge accounting (Board deliberations ongoing) December 2009In 2010 * The above is in addition to a project on derecognition of financial instruments. ED Derecognition was published in March 2009.

2009 IASC Foundation | 30 Cannon Street | London EC4M 6XH | UK | 7 Overview of classification model for financial assets only Fair Value (No impairment) Amortised cost (one impairment method) Managed on a contractual cash flow basis Basic loan features + FVO for accounting mismatch (option) All other instruments: Equities Derivatives Some hybrid contracts … Equities: OCI presentation available (option) Tentative decision – reclassification to be required when business model changes

2008 IASC Foundation | 30 Cannon Street | London EC4M 6XH | UK | 8 Current state: Incurred loss impairment IAS 39 requires an incurred loss approach for financial assets What does that mean? Impairment loss only recognised when: –Trigger (loss) event occurs –Impact can be reliably estimated Consequence: Expected losses not recognised before trigger events

2008 IASC Foundation | 30 Cannon Street | London EC4M 6XH | UK | 9 Impairment Exposure Draft Expected cash flow approach Main features: –interest revenue is recognised on the basis of expected cash flows (including initial expected credit losses) –impairment results from an adverse change in credit loss expectations –reversal of impairment loss when expectations change favourably –re-estimation of expected cash flows each period end

2008 IASC Foundation | 30 Cannon Street | London EC4M 6XH | UK | 10 Hedging – Broad direction Consider using cash flow hedge accounting mechanics for fair value hedges –Gains and losses on effective portion recognised in OCI –Hedged item not remeasured –‘Lower of’ test NOT to be used for fair value hedges Simplify cashflow hedge accounting methodology Phasing: –broad hedging model first –then consider portfolio hedge accounting and net investment hedging

2008 IASC Foundation | 30 Cannon Street | London EC4M 6XH | UK | 11 Project to replace IAS 39 Next steps November 2009: IASB publishes ED on impairment of financial assets Q4/2009: IASB to issue final IFRS on classification and measurement of financial assets IASB to publish ED on hedge accounting During 2010: IASB to complete replacement of IAS 39 by issuing final guidance on: impairment derecognition* hedge accounting financial liabilities 1 January 2013: Expected mandatory effective date for Phase I classification and measurement *separate project 1 January 2014: Expected mandatory effective date for Phase II impairment

International Financial Reporting Standards The views expressed in this presentation are those of the presenters, not necessarily those of the IASB or the IASC Foundation Financial statement presentation Tatsumi Yamada, IASB member

MoU projects 13 ProjectProgress towards milestones Financial statement presentation Milestone 2011converged requirements Work doneDP issued ExpectED in Q2 2010

Presentation objectives Financial statements should: Portray a cohesive financial picture –Relationships are clear, statements are complementary Disaggregate information so that it is useful in assessing the amount, timing, and uncertainty of future cash flows –Common sections and categories, more line items Present information about liquidity and financial flexibility –Ability to meet financial commitments and invest in business opportunities 14

Key features of the proposed approach Management approach to classification Single statement of comprehensive income –Current OCI treatment retained –Current tax allocation retained Direct method for presenting operating cash flows Reconciliation schedule –Reconciliation of SCF and SCI –Separate identification of remeasurements 15

Redeliberation decisions (IASB to Oct) Liquidity and flexibility should not be core objectives Cohesiveness not required at line item level Disaggregation both by function and nature Retain discontinued operation presentation Retain financing section (consisting of debt and equity). Categories in the business section (investing and operating) and definitions being revised. 16

Redeliberation decisions (IASB to Oct) Require information about net debt –Net debt = financing section less resources available to service those liabilities Statement of cash flows: –present cash flows using direct method –only significant operating cash flows Reconciliation schedule –replace it with an analysis of the changes in balances of all significant asset and liability line items. 17

Other key decisions for the boards Cohesiveness –Application to 2 or 3 statements Presentation of statement of financial position Disaggregation –Overall principle and segment reporting Statement of comprehensive income –Disaggregation of remeasurements information Basket transactions –Single line or disaggregation Presentation of net debt information 18

International Financial Reporting Standards The views expressed in this presentation are those of the presenters, not necessarily those of the IASB or the IASC Foundation Revenue recognition Prabhakar Kalavacherla (PK), IASB member

MoU projects 20 ProjectProgress towards milestones Revenue recognition Milestone 2011converged requirements Work doneDP issued ExpectED in Q2 2010

Project objective To converge, simplify, and clarify the principles for recognising revenue across various industries Improvements to financial reporting: –Remove inconsistencies and weaknesses –Provide a robust framework for resolving issues –Improve comparability –Simplify preparation 21

Overview of proposals Single revenue recognition model for contracts with customers Revenue recognised when a performance obligation in the contract is satisfied –a performance obligation is satisfied when a good or service has been transferred to the customer, which is when customer obtains control of the good or service Amount of revenue recognised is the amount of the transaction price allocated to the performance obligation Revenue depicts the transfer of goods and services to the customer, not necessarily the activities of the entity 22

23 Recent decisions: Control Proposals Entity recognises revenue when it transfers goods or services to the customer Transfer of good or service depends on when customer obtains control of it Recent decisions Definition of control: the present ability to direct the use of and receive the benefit from the good or service Indicators of control: Payment / legal title / ability to sell / physical possession / customisation / continuing involvement Not abolishing continuous revenue recognition for many construction contracts

24 Recent decisions: Allocating the transaction price Proposals Transaction price allocated to individual performance obligations on a relative standalone selling price basis Standalone selling price estimated if good/service not sold separately Recent decisions When goods and services are transferred continuously, transaction price allocated to contract segments rather than to individual performance obligations A contract segment includes one or more performance obligations for which the entity has evidence of a market—ie evidence that a segment could be sold separately

International Financial Reporting Standards The views expressed in this presentation are those of the presenters, not necessarily those of the IASB or the IASC Foundation Fair value measurement guidance Wei-Guo Zhang

Major projects—financial crisis continued 26 ProjectProgress towards milestones Fair value measurement guidance Milestone 2010converged guidance Work doneED issued ExpectRound table discussions in Q IFRS in Q2 2010

Project overview 27 When? How? IFRS on fair value measurement guidance IAS 39 IAS 41 IFRS 3IFRS 5...  does not introduce new fair values  does not change the measurement objective in existing IFRSs

What does ‘fair value’ mean? Proposed definition in exposure draft The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date –an exit price (directly or indirectly) –a current price (as of the measurement date) –the transaction takes place between market participants (it is market-based, not entity-specific) 28

Overview of the proposals 29 Guidance and other requirements Fair value at initial recognition Valuation techniques Inputs to valuation techniques Fair value hierarchy Core principle The asset or liability The transaction Market participants The price Disclosures Application to assets, liabilities and equity

Milestones 30 Discussion paper (using SFAS 157 as a basis for forming preliminary views) Nov 2006 Expert Advisory Panel report Measuring and disclosing the fair value of financial instruments in markets that are no longer active Oct 2008 Exposure draft May 2009 Round-table meetings (USA, Japan, UK) Nov/Dec IFRS

31 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 presenters. Official positions of the IASB on accounting matters are determined only after extensive due process and deliberation.