1. US GAAP: IFRS REPORTING CONSIDERATIONS

2. 2 MAIN REMAINING DIFFERENCES BETWEEN US GAAP AND IFRS Consolidated financial statements Business combinations Inventories Property, plan and equipment Intangibles assets Impairment of assets Revenue recognition Deferred taxes First time adoption

3. 3 IAS 27: Consolidation financial statements US-GAAPIFRS Entity in which parent has a controlling financial interest (usually ownership of majority of voting shares), unless control does not rest with the majority owner Definition of a subsidiary Entity in which parent has control (power to govern financial and operating policies of the entity so as to obtain benefits from its activities) control is presumed when parent owns more than half of the voting power Control also exists when the parent owns half for less of the voting power, and has: - power over more than half of the voting rights, by virtue of an agreement, - power to govern policies under statute or agreement - Power to appoint or remove majority of the members of the board US-GAAP

4. 4 IAS 31: Investments in a joint venture US-GAAPIFRS Presentation of a jointly controlled entity Requires equity method Requires either the proportionate consolidation or the equity method

5. 5 SIC 12: Consolidation – Special purpose entities Variable interest entity: Lack of sufficient equity investment The holders of the equity investment at risk lack : - Control, - Obligation to absorb expected losses - Right to receive residual returns Voting / economic significantly disproportioned, and substantially all activities involves or are conducted on behalf of an investor with few voting rights Special purpose entity: Created for a narrow and well defined objective Various legal form (may be unincorporated) Legal arrangements often limit decision making powers (e-g auto pilot) Disproportion between economic and voting rights Scope / Definitions

6. 6 SIC 12: Consolidation – Special purpose entities The preliminary beneficiary: the entity Who absorbs the majority of expected losses of the VIE, or Who receives the majority of the expected residual returns of the VIE, or Both, Should consolidate the VIE The following circumstances may indicate control of an SPE: The activities of the SPE are in substance being conducted on behalf of the entity; In substance, the entity has the decision making powers to obtain the majority of the benefits In substance, the entity has rights to obtain the majority of the benefits of the SPE and therefore may be exposed to risks incident to its activity Consolidation criteria

7. 7 Expected outcome An SPE consolidated under SIC 12 would most likely be also consolidated under Fin 46 A VIE consolidated under Fin 46 would not necessarily be consolidated under SIC-12 (e.g. if the VIE is not a SPE) Any reconciliation between SIC 12 and Fin 46 requires special attention Expected outcome An SPE consolidated under SIC 12 would most likely be also consolidated under Fin 46 A VIE consolidated under Fin 46 would not necessarily be consolidated under SIC-12 (e.g. if the VIE is not a SPE) Any reconciliation between SIC 12 and Fin 46 requires special attention SIC 12: Consolidation – Special purpose entities

8. 8 IFRS 3: Business combinations US-GAAPIFRS Shares issued as consideration are recorded at their estimated market price over a reasonable period before and after the date the acquisition terms are agreed to and announced Shares issued as consideration Shares issued as consideration are recorded at their fair value as at the date of exchange Cost of acquisition – contingent consideration Generally the additional cost is not recognized until the contingency is resolved or the amount is determinable Additional cost include in cost of acquisition at acquisition date if adjustment is probable and can be measured reliably Usually measured at share of historical cost of net identifiable assets Measured at minority‘s proportion of the fair value of net identifiable assets Minority interests at acquisition

9. 9 IFRS 3: Business combinations US-GAAPIFRS In process research and development Acquired in process research and development must be expensed immediately Acquired in process research and development is recognized as a separate intangible asset if its fair value can be measured reliably Negative goodwill Any negative goodwill must be allocated as a prorata reduction of all assets acquired other than current assets, financials assets, assets held for sale, prepaid assets related to pensions and deferred tax assets Any excess is recognized immediately in profit After reassessment of the cost of an acquisition and of identifiable assets, liabilities and contingent liabilities, any remaining negative goodwill is recognized immediately in profit

10. 10 IAS 2 – Inventories US-GAAPIFRS Lower of cost or market Market means current replacements cost except that : -Market shall not exceed net realizable value (same definition as IFRS) - Market shall not be less than net realizable value reduced by an allowance for a normal profit margin Inventory valuation Lower of cost or net realizable value Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale Use of LIFO permittedUse of LIFO prohibited Cost

11. 11 IAS 2 – Inventories US-GAAPIFRS Impairment Reversal of write-downs prohibited Reversal of write downs required for subsequent increases in net realisable value Biological assets Generally measured at historical cost Measured at fair value less point of sale costs

12. 12 IAS 16: Property, Plant and Equipment General requirement to use historical cost May use either revalued amount or historical cost US-GAAPIFRS Basis of PP&E MandatoryOptional Mandatory Required under AICPA proposed Statement of position which has not been issued. SEC favors this approach Component accounting Capitalization of borrowing costs

13. 13 IAS 16: Property, Plant and Equipment US-GAAPIFRS FASB has issued exposure draft proposing IFRS approach Recognition of gain or loss if the transaction has ‘commercial substance’ Gains and losses on exchanges of similar non- current assets Major inspection or over –haul costs Generally expensed Generally accounted for as part of the cost of an asset No gain or loss recognized

14. 14 IAS 16: Property, Plant and Equipment US-GAAPIFRS A change in depreciation method is treated as a change in accounting estimate Change in depreciation method Hedge gains / Losses Hedge gains / losses on qualifying cash flow hedges are not included in the cost of the asset Fair value gains / losses on qualifying cash flow hedges relating to the purchase of PPE in a foreign currency are included in the cost of the asset A change in the depreciation method for previously recorded assets is treated as a change in accounting principle FASB has issued exposure draft proposing IFRS approach

15. 15 IAS 17: Leases US-GAAPIFRS Leases involving land and buildings If the fair value of the land is less than 25 percent and neither a transfer of ownership by the end of lease term nor a bargain purchase option exist land and building are considered as a single unit For a lease of land and buildings in which the amount that would initially be recognized for the land element is immaterial, the land and buildings may be treated as a single unit. There is no threshold for this criteria, but according to EY policy committee single unit treatement should be applied if land is less than 10 percent Gain is amortized over the lease term Gain is recognized immediately Gain on sale and operating leaseback transaction

16. 16 IAS 38: Intangibles of assets US-GAAPIFRS Internally generated intangibles assets All research and development costs expensed except some software and website development costs which must be capitalized Research costs are expensed. Developments costs are capitalised if certain criteria are met

17. 17 IAS 36: Impairment of assets US-GAAPIFRS Impairment models Under US GAAP three impairment models: - One model for goodwill (FAS 142) - One model for intangibles with indefinite useful lives (FAS 142) and, - One model applicable to other long lived assets (FAS 144) Under IFRS, a single impairment model applies to: -Goodwill - Intangibles with indefinite and finite useful lives, and property, plant and equipment

18. 18 IAS 36: Impairment of assets Asset’s carrying amount exceeds the expected future cash flows from the asset on an undiscounted basis Asset’s carrying amount exceeds the recoverable amount which is the higher of the asset‘s value- in-use (discounted present value of the asset‘s expected future cash flows) and fair value less costs to sell US-GAAPIFRS Recoverability Test for Long Lived Assets to be held and used Based on fair value Based on the recoverable amount Measurement basis for impairment loss

19. 19 IAS 36: Impairment of assets -FAS 144 encourages the use of probability. weighted cash flow estimation for the computation of both recoverability and fair value - If probability-weighted cash flow estimation used, discount rate should be a risk free rate When estimating value in use: -Expectations about possible variations in the amount or timing of future cash flows - Price for bearing the uncertainty inherent in the asset, and - Other factors such as illiquidity Can be reflected either as adjustments to the expected future cash flows or as adjustment to the discount rate US-GAAPIFRS Use of expected future cash flows – discount rate

20. 20 IAS 36: Impairment of assets Recoverability test: income taxes may be included in cash flow estimates Fair value: income taxes may be included in cash flow estimates but discount rate should be consistent When estimating value in use: -Estimations of future cash flows should be pre-tax - Discounts rate is a pretax rate US-GAAPIFRS Use of expected future cash flows – Tax

21. 21 IAS 36: Impairment of assets Recoverability: -Entity’s own assumptions -Fair value: assumptions that marketplace participants would use in their estimate of the fair value When estimating value in use, estimates of future cash flows should not include: -cash inflows and outflows expected from a future restructuring to which the entity is not yet committed US-GAAPIFRS Use of expected future cash flows - future restructuring

22. 22 IAS 36: Impairment of assets Asset group: a long-lived asset should be grouped with other assets and liabilities at the lowest level for which identifiable cash flow are largely independent of the cash flows of other assets and liabilities Recoverable amount is determined for an individual asset, unless the asset does not generate cash flows that are largely independent of those from other assets or group of assets. If this is the case recoverable amount is determined for the CGU to which the asset belongs. Cash Generating Unit (CGU): smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or group assets US-GAAPIFRS Grouping of long lived assets

23. 23 IAS 36: Impairment of assets Indefinite-life assets are tested separately by comparing their carrying amount with their fair value Indefinite-life assets are tested separately or included in a CGU which is tested for impairment US-GAAPIFRS Impairment for intangibles with indefinite lives

24. 24 IAS 36: Impairment of assets Reporting unit – either a operating segment, or one organizational level below if discrete financial information is available Cash generating unit (CGU) or group of CGUs that represent the lowest level at which goodwill is monitored for internal management purposes – but not larger than a business or geographical segment US-GAAPIFRS Level of impairment testing for goodwill

25. 25 IAS 36: Impairment of assets 1) Compare fair value of reporting unit with its carrying amount including goodwill. If fair value is greater, no impairment. 2) Compare implied fair value of goodwill with carrying amount. Implied fair value of goodwill is obtained by deducting the fair values of all the reporting unit’s assets and liabilities from the fair value of the reporting unit (purchase accounting of the reporting unit) Compare carrying amount to the recoverable amount of a CGU, which is the higher of the value-in-use and the fair value less costs to sell. Allocate the impairment to goodwill first and any remaining impairment to other assets of the unit on a pro rata basis US-GAAPIFRS Calculation of goodwill impairment

26. 26 IAS 36: Impairment of assets Subsequent reversal is prohibited. Subsequent reversal is required, if certain criteria are met. No reversal of impairments of goodwill. US-GAAPIFRS Subsequent reversal of impairment loss

27. 27 IAS 18: Revenue US-GAAPIFRS Extensive detailed guidance exists for specific transactions and industry practices Based on two criteria: revenue is recognized when risks and rewards have been transferred and it can be measured reliably Construction contracts Percentage of completion method, however completed contract method permitted in rare circumstances Percentage of completion method. Completed contract method prohibited Based on two general concepts: revenue is recognized when it is realized or realizable and when it is earned. Revenue recognition

28. 28 IAS 18: Revenue Amortization over the expected customer service period. Direct incremental costs are similarly deferred. If up-front fee is in exchange for product delivered or services performed (and therefore, substantial risks and rewards have been transferred to the buyer in a separate transaction), revenue is recognized on completion of up-front services. Otherwise amortization over expected customer service period. US-GAAPIFRS Up-front non- refundable fees

29. 29 IAS 12: Income taxes No initial recognition exemption Initial recognition of an asset or liability in a transaction that is not a business combination and affects neither accounting profit or taxable profit at the time of the transaction US-GAAPIFRS Exceptions to the general approach

30. 30 IAS 12: Income taxes Use enacted tax rate. Use enacted or “substantially enacted” (i.e. virtually certain) tax rate. US-GAAPIFRS Tax rate for measuring deferred tax assets and liabilities Must use tax rate applicable to undistributed profits. Undistributed earnings of a subsidiary Use the higher tax rate of rate applicable to undistributed profits and rate applicable to distributed profits.

31. 31 Changes in deferred taxes are allocated to current year income. Changes are also charged or credited directly to equity (consistent with the initial treatment). IAS 12: Income Taxes US-GAAPIFRS Changes in deferred taxes that were originally considered in equity Classification split between current and non- current, based on underlying asset or liability. Always classification as non-current. Classification of deferred tax assets and liabilities

32. 32 IAS 12: Income Taxes US-GAAP IFRS Deferred taxes are recognized at the seller’s tax rate. Deferred taxes are recognized at the buyer’s tax rate. Temporary differences related to intercompany profits

33. 33 Other US-GAAPIFRS Research and development All research and development costs expensed Development costs capitalized if certain criteria are met Share Based Payments Choice between FAS123 (fair value) and APB25 (Intrinsic) IFRS 2 (fair value) and similar to FAS123

34. 34 FAS 141 applicable from 30 June 2001 Fair value cannot be used as replacement for cost Continue to use corridor Cumulative translation adjustment still recognized IFRS 1 – First Time Adoption Business combinations Fair value as deemed cost of fixed assets Recognition of all actuarial gains and losses Cumulative translation adjustment set to zero Options for exceptions to retrospective application of standards