1. Introduction to IFRS

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4. The Big Picture A new perspective on financial reporting – Focus on “transparency” of financial information versus uniformity of practices General movement toward global standards– Growing consensus among regulators and standard setters on need for global standards –Consensus on the use of a “principle-based” approach Shift in how standards are developed, written and applied–Will involve a new way of thinking about accounting and financial reporting –Reducing complexity and simplifying standards

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6. What is IFRS? IFRS is a set of established accounting standards that is rapidly gaining worldwide acceptance Standards are promulgated by the London-based International Accounting Standards Board (IASB)– IASB includes representatives from major countries, including the U.S. Generally more focused on objectives and principles and less reliant on detailed rules and interpretations than U.S. GAAP–IFRS currently consists of a single volume of approximately 40 standards and 25 interpretations –Standards include IASs and IFRSs –Interpretations include SICs and IFRICs

7. The Global Move Towards IFRS Europe 2005 Australia 2005 Canada 2009/11 South Africa 2005 United States (2011?) Current or anticipated requirement or option to use IFRS (or equivalent) Brazil 2010 China 2007 India 2011 Chile 2009 Japan (?)

8. IFRS Today and Tomorrow –Today IFRS is used in over 100 countries : Required across all EU countries, starting in 2005 Argentina, Brazil, Canada and India have announced mandated use Ongoing convergence efforts between FASB and IASB –By 2014, it is expected that : All major countries will have adopted IFRS to some extent China and Japan will be substantially converged to IFRS U.S. public companies will begin to be required to use IFRS Accounting Standards Used by Global Fortune 500

9. Global IFRS reporting trends IFRS quickly picking up share of Global F500 companies IFRS Drivers Enhances transparency/comparability Enhances transparency/comparability Eases flow of capital globally, thus possible reduction in cost of capital Eases flow of capital globally, thus possible reduction in cost of capital Facilitates accounting and reporting Facilitates accounting and reporting 203 268 29 183 113 204 0 50 100 150 200 250 300 20042007 US GAAP Other IFRS

10. Recent Regulatory Developments SEC Concept Release on allowing U.S. issuers a choice between IFRS and U.S. GAAP Elimination of U.S. GAAP reconciliation for Foreign Private Issuers using IFRS FASB panel discussion of U.S. moving to IFRS –Encouragement from stakeholders for the SEC to set a definitive timeline for conversion to IFRS SEC IFRS Roundtable –August 2008 –Discussion on performance of IFRS and U.S. GAAP during credit crisis Consensus that IFRS held up well, if not better than U.S. GAAP Consensus that IFRS held up well, if not better than U.S. GAAP Fair value still remains a challenge under both standards Fair value still remains a challenge under both standards –Discussion on areas where continued convergence is needed

11. Recent Regulatory Developments SEC Proposing Release sets the stage for possible mandatory adoption of IFRS by U.S. issuers beginning with fiscal years ending after December 15, 2014 for large accelerated filers Roadmap contains certain milestones to be achieved–SEC Commission to review milestone progress in 2011 before issuing a final rule for mandatory adoption Proposed rule to permit certain U.S. issuers the option to use IFRS for fiscal years ending after December 15, 2009–Three years of financial statements must be presented –Issuers must be in the top 20 companies in their industry based on market capitalization, andtheir industry peer groupmustpredominantly report under IFRS

12. US GAAP – IFRS Convergence Convergence is to be achieved through: –Formal liaison relationships –Monitoring of FASB and IASB major projects –Short-term convergence projects –Joint projects

13. Ongoing Convergence Efforts –IASB and FASB reaffirm convergence efforts Updating of the “Norwalk Agreement” –Focus is on the process and converging general principles Less focus on converging details –Involves several projects “Short-term” convergence projects Joint conceptual framework projects Other Joint convergence projects Other IASB projects –Future prospects

14. Recent FASB/IASB Standards “High Level” Convergence Description FASB Issuances IASB Issuances Share-based payments FAS 123R IFRS 2 Business combinations FAS 141R IFRS 3 (2008) Goodwill and other intangible assets FAS 142 IAS 36 and IAS 38 Long-lived assets held for sale and discontinued operations FAS 144 IFRS 5 Fair value option and measurement guidance FAS 155, FAS 157 and FAS 159 IAS 39 Even though these were joint projects, key differences still remain.

15. US GAAP – IFRS Convergence – Where are we now? Boards have achieved “high-level” convergence in some areas –Examples include income taxes, business combinations, share-based payments, etc. Other areas, models are very different –Examples include debt/equity classification, de-recognition, consolidation, etc.

16. US GAAP – IFRS Convergence – Where are we now? A study of 130 reconciliations from foreign filers using IFRS in 2006 showed the differences between the two accounting systems can be quite large: –Approx. 2/3 of the companies showed higher earnings under IFRS –Only two companies in the study showed the same earnings under both IFRS and US GAAP

17. US GAAP – IFRS Convergence – Where are we now? Impact to Equity –Slightly more than half of the cos. Showed greater equity under IFRS –1 company had the same equity The following areas contributed significantly to the differences –Deferred taxes, PP&E, pensions, minority interest, capitalization of interest, purchase price accounting and asset impairment

18. First Time Adoption of IFRS

19. Terminology Differences IFRSU.S. GAAP IFRSU.S. GAAP Shares Stock Shares Stock Stock Inventory Stock Inventory Reserves Equity Reserves Equity Associate Investee Associate Investee Provision Accrual True and fairPresents fairly True and fairPresents fairly

20. Overview of IFRS 1 Applicable when an entity makes its first explicit and unreserved reference to IFRS Generally apply retrospectively all IFRS effective at reporting date –Certain exemptions can be elected –Some exceptions that must be followed Requires one year of comparative financial information Transition adjustments recognized in retained earnings Must explain effect of transition to IFRS

21. Scope An entity is a “first-time adopter” if the most previous financial statements were prepared: –In conformity with IFRS in all respects, except that an explicit and unreserved statement of compliance was not presented –Stating compliance with some, but not all of IFRS –With a reconciliation of some amounts to IFRS –On an IFRS basis for internal use only

22. Terms to Remember First IFRS financial statements–First annual financial statements in which an “explicit and unreserved” reference to compliance with IFRS Date of transition to IFRS–Beginning of the earliest comparable period presented in an entity’s first IFRS financial statements Reporting date–The end of the latest period covered by financial statements or by an interim financial report

23. Compliance with IFRS Compliance with IFRS includes: –All active standards (IASs and IFRSs) –All active interpretations (SICs and IFRICs) –IFRS requires presentation of comparative period Must make explicit and unreserved statement of compliance

24. IFRS / GAAP Overview

25. The Good, the Bad, and the Ugly The good–You know more about IFRS than you think –Many areas are similar to U.S. GAAP The bad–There are significant areas of difference –New way of thinking about standards Just plain ugly–There has been historically lax practices in applying IFRS (“IFRS lite”)

26. Accounting Policies

27. Overview of Key Concepts ConceptDiscussion Accounting policiesSpecific principles, bases, conventions, rules and practices rules and practices EstimatesAdjustments in the carrying amount of assets or liabilities Result from new information or developments ErrorsMaterial omissions or misstatements in financial statements Include clerical errors, mistakes in application, oversight or misinterpretation of facts, fraud MaterialOmissions or misstatements that individually or collectively influence the economic decisions of users Consider the size and nature of the item

28. IFRS Accounting Policies – IAS 8 IAS 8 established “hierarchy” when choosing IFRS accounting policies 1. Apply any specific IFRS; consider any relevant implementation guidance 2. Refer to other IFRSs dealing with similar or related issues 3. IFRS Framework 4. Consider pronouncement of other standard-setting bodies or industry practices if consistent with the above steps

29. Consistency of Accounting Policies – IAS 8 If one or more alternative methods are available: Choose and apply one method for the consolidated entity For all transaction/items; or For all transaction/items; or If expressly permitted, for all transactions/items, etc. in a category of items If expressly permitted, for all transactions/items, etc. in a category of items If expressly permitted on a transaction by transaction basis If expressly permitted on a transaction by transaction basis

30. A Principles-based Approach Less detailed guidance to consider –More of a focus on the “substance” of transactions – Evaluate whether the accounting presentation reflects the “economic reality” More use of professional judgment Impact on risk – Possibility of second-guessing by regulators – More of a focus on the “process” around making judgments –CIFR recommendations

31. Other Accounting Policy Considerations In considering the applicability of U.S. GAAP pronouncements, must consider consistency with the overall IFRS “principle” Generally no “bright lines”–Need to establish “benchmarks” for analysis Transitional provisions in U.S. standards and interpretations may not be applicable under IFRS –On first-time adoption would need to apply retrospectively unless related to exemption

32. Financial Statement Presentation

33. Overview of Key Concepts –IAS 1 ConceptDiscussion ConceptDiscussion Fair presentationFaithful representation of the effects of transactions and events in accordance with the Framework Includes financial position, financial performance and cash flows Presumed if compliant with IFRS Going concernAbility to continue to operate Take into account information about the future, which is at least, but not limited to, twelve months from the balance sheet date Accrual basisLook to the definitions of assets, liabilities, equity, income and expense in the Framework OffsettingGenerally don’t offset items

34. Components of Financial Statements Components of Financial Statements Balance sheet Income statement Statement of changes in equity –All changes in equity (SORIE) –Changes in equity other than from transactions with owners Cash flow statement Notes –Significant accounting policies

35. Overview of Key Potential Differences Overview of Key Potential Differences ItemAlternatives MoreDifferent Judgment Disclosure Judgment Disclosure Periods presentedX Performance measuresX X Expense formatX X Extraordinary items X Changes in equityX X “Mezzanine equity” X

36. Overview of Key Concepts –IAS 33 ConceptDiscussion Ordinary share Equity instrument subordinate to all other classes of equity instruments Potential ordinary share Financial instrument or contract that may entitle its holder to ordinary shares Examples: convertibles, options and warrants Examples: convertibles, options and warrants Contingently issuable share Ordinary shares issuable for little or no cash or other consideration Dependent on the satisfaction of specified conditions Dependent on the satisfaction of specified conditions Dilution Reduction in EPS or an increase in loss per share Assume conversion of convertibles and issuance of potential ordinary shares Assume conversion of convertibles and issuance of potential ordinary shares

37. Overview of Key Concepts –IAS 33 Basic EPSDiluted EPS Earnings (the numerator) Profit or loss attributable Adjust for the effects of to ordinary equity holders potential ordinary shares to ordinary equity holders potential ordinary shares May include dividends, interest or other changes in income or expense Shares (the denominator) Weighted average Assume conversion of number of ordinary all dilutive potential shares ordinary shares shares ordinary shares Assume conversion as of the beginning of the period, or issue date, if later

38. EPS Example for 2007 Facts: Profit attributable to ordinary equity holders $1,200,000 Weighted average # of ordinary shares outstanding 500,000 shares Average market price of share $20.00 Weighted average # of shares under option 100,000 shares Exercise price for shares under option $15.00

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