IASB 1 International Accounting Standard-Setting Priorities for beyond 2005

IASB 2 IASB Structure 19 Trustees Standards Advisory Council IASB IFRIC National Standard Setters 5

IASB 3 IFRS Around the World Now2005Total IFRSs permitted IFRSs required (for all domestic companies) IFRS required (for some domestic companies)

IASB 4 Beyond the Stable Platform Convergence Tackling conceptual issues and maintaining a principle based approach – Performance reporting, insurance, financial instruments, among others

IASB 5 International Convergence Goal and Tactics Goal—A single set of high-quality accounting standards used internationally Tactics: Jointly develop a common conceptual framework Jointly develop any new standards on major topics Eliminate narrow differences through short-term convergence projects Coordinate interpretative activity

IASB 6 International Convergence Progress Achieved IASB Completed improvements project Issuance of IAS 32 and IAS 39, revised Issuance of IFRS 3, Business Combinations Issuance of IFRS 5, Non-current Assets held for Sale and Discontinued Operations ED of amendments to IAS 37 expected soon FASB Issued ED on share-based payment Issued four EDs relating to the short-term convergence project (final Statements expected by year end)

IASB 7 International Convergence Work in Progress Active Joint Projects – Purchase Method Procedures – Revenue Recognition – Reporting on Financial Performance Short-term convergence – Income taxes – Research and development costs – Interim reporting Agenda Alignment – Insurance (FASB to consider adding to its agenda) – Liabilities and Equity (IASB to consider adding to its agenda) – Liability Extinguishment (IASB to consider adding to its agenda) – Consolidations (work separately to common standard)

IASB 8 International Activities Potential Future Projects Accounting for Employee Benefits (including pensions and other post-employment benefits) Accounting for Leases Accounting for Internally Developed Intangible Assets Financial Instruments (initial focus—shorter term convergence and improvement projects) Continued Work on “Short-Term Convergence” – Joint ventures – Property plant and equipment – Investment properties – Segment reporting

IASB 9 Convergence and the IASB Strategy Objective – A single set of global accounting standards – High quality financial reporting Strategy – International convergence – Accentuating principles over rules – Working with national standard setters

IASB 10 Challenges to Convergence Starting from Very Different Places (IASB, FASB, ASB, ASBJ) Significant Cultural Differences Getting Boards to Agree Some fear US dominance or IASB-FASB alliance Constituent Reactions/Willingness to Change/Change Management Institutional/Legal Barriers to Change Politics??

IASB 11 Convergence - Summary FASB and IASB Are Committed to Working Towards Convergence Not Just Convergence for Sake of Convergence—Better Reporting Convergence Considerations Embedded in our Processes Achieving Goal will Require Continued Vision, Determination, and Perseverance

IASB 12 Major Projects on the IASB’s Agenda Share-based Payment Business Combinations Performance Reporting Financial Instruments

IASB 13 Share-based Payment Objective To specify the accounting treatment of SBP transactions In particular, to require recognition of SBP transactions - including expenses associated with employee share options

IASB 14 General overview Recognise goods or services when received, and Corresponding increase in equity or liabilities Recognise an expense when goods or services consumed Measure at fair value

IASB 15 Employee SBP overview Estimate fair value of shares or share options at grant date Estimate number expected to vest Recognise over vesting period Cumulative expense = grant date FV of shares/options × number vested

IASB 16 Transactions with non- employees Measure at fair value of goods or services received If that fair value cannot be estimated reliably, then measure at fair value of equity instruments FV measured at date the goods or services received

IASB 17 Business Combinations Phase I IFRS 3 Business Combinations Amendments to IAS 38 Intangible Assets Amendments to IAS 36 Impairment of Assets

IASB 18 Reasons for Issuing IAS 22 permitted 2 methods of accounting for business combinations

IASB 19 Reasons for Issuing Also differences across jurisdictions in accounting for – goodwill – negative goodwill – intangible assets acquired in business combinations – provisions for terminating or reducing acquiree’s activities (restructuring provisions)

IASB 20 IFRS 3: Method All business combinations accounted for using purchase method – Pooling of interests method prohibited Identify an acquirer for all combinations – Entity that obtains control of other combining entities or businesses

IASB 21 IFRS 3: Goodwill Recognise as an asset Initially measure at excess of cost over acquirer’s interest in net fair value of identifiable assets, liabilities and contingent liabilities satisfying recognition criteria Subsequently measure at cost less accumulated impairment losses – DON’T AMORTISE

IASB 22 IFRS 3: Negative Goodwill Reassess identification and measurement of: – cost – acquiree’s identifiable assets, liabilities and contingent liabilities Recognise remaining excess as income

IASB 23 IAS 36: Goodwill impairments Allocate goodwill to CGUs Measure recoverable amount of CGU and compare with carrying amount If RA < carrying amount, allocate loss first to goodwill, then to other assets based on relative carrying values

IASB 24 Business Combinations - II 4 parts 1.Purchase method procedures 2.Applying purchase method to combinations involving 2 or more mutuals, and combinations solely by contract (eg DLCs) 3.Formation of joint ventures and possible applications for ‘fresh start’ method 4.Combinations of entities under common control

IASB 25 Performance Reporting – Which statements? Income statement Other comprehensive income Cash flow Statement of changes in equity MD&A?

IASB 26 Background Income statement presentations vary greatly among and within countries It would be helpful, to users and preparers alike, to present clearly items that differ in nature, e.g. – sales, cost of sales, operating expenses – vs. impairment of goodwill, revaluations of PPE, fair value changes in financial instruments

IASB 27 Context IASB joint project with FASB, ASBJ and ASB, and working closely with all national standard setters IASB has conducted a project review – International advisory group being formed – Discussion paper due in 2005

IASB 28 Principles-based approach - possible project objective The objective is to categorise and display all income and expenses for the period in a way that enhances users’ understanding of the entity’s financial results and that assists users in forming expectations of future income, expenses and profit or loss.

IASB 29 Some practical issues on which the IASB will seek guidance Should income statement categories be standardised? – Under the ‘Management approach’ the preparing entity has discretion – Under the ‘Standardised approach’ the accounting standard defines categories and requires consistent presentation across entities – To date the FASB has leaned towards the management approach and the IASB to the standardised approach Are users’ information needs best served by having some income and expenses reported initially outside the income statement? Should financial services entities be treated as a special case?

IASB 30 Classification criteria on which the IASB will seek guidance Operating vs. non-operating Core vs. non-core Recurring vs. one-off Within vs. outside management control Realised vs. unrealised Initial recognition vs. subsequent remeasurement Historical cost vs. fair value

IASB 31 Some ‘problem items’ Property, Plant and Equipment – Depreciation Financial Instruments – Interest income/expense Impairment Revaluation Disposal gains/losses Fair value changes

IASB 32 Possible formats – (1) BUSINESS/OPERATINGxx x FINANCIALxx TAX(x) DISCONTINUING NET INCOME OTHER COMPREHENSIVE INCOME xXXxXX COMPREHENSIVE INCOMEX

IASB 33 Possible formats – (2) TOTALBefore remeasurements Remeasurements BUSINESSOperating Other business Financial xxx xx xxx xx x xx x FINANCING(xx)(x) TAX(x) DISCONT- INUED CASH FLOW HEDGES COMP. INCOME xxxxxx xxxxx

IASB 34 Summary The IASB (ASBJ and ASB) has entered a joint working relationship with the FASB Nothing is decided, and all possible schemes are under consideration An international advisory group is being formed

IASB 35 Financial Instruments IASB inherited IAS 39 Efforts to date have focussed on 2005 implementation

IASB 36 IAS 39 : Going Forward A fresh look at financial instruments accounting Desire to simplify complex rules Want to converge requirements with similar standards (US, Japanese, Canadian GAAP) Introduce improvements as soon as possible

IASB 37 IAS 39 : Next Steps International Working Group being established (similar to insurance) Subgroup to examine interest rate margin hedging

IASB 38