1. IFRS – Will the Global Accounting Experiment Succeed? Sir David Tweedie Chairman - International Accounting Standards Board - 2001– 2011 President – The Institute of Chartered Accountants of Scotland

2. © Copyright ICAS 2012 The Objective Taking Stock Adoption Update The Path Forward Summary 2

3. © Copyright ICAS 2012 The Objective The IFRS Foundation and the IASB are dedicated to developing and sustaining a single set of globally accepted accounting standards : Aimed at providing high-quality, transparent and comparable information for investors and other users of financial information Providing the world’s integrated capital markets with a common language for financial reporting Promoting capital market stability through the transparency and integrity of financial reporting Taking appropriate steps with regulators and standard-setters to help promote consistent application of standards 3

4. © Copyright ICAS 2012 Why Global Standards are Needed Accounting standards evolved nationally because companies borrowed and investors invested only in their home country Globalisation is inconsistent with multiple, national or regional accounting languages that hinder comparability Corporations must consolidate global network of operations Investors seeking diversification and return increasingly invest outside domestic markets 4

5. © Copyright ICAS 2012 Why Global Standards: Benefits to Capital Markets Transparent financial markets and free trade require a high-quality, single, global accounting language Credibility of local market to foreign investors Greater cross-border investment Efficient capital allocation Comparability across political boundaries Facilitates global education and training 5

6. © Copyright ICAS 2012 Why Global Standards: Benefits to Companies In the long run, global standard benefit companies – especially multi-nationals Lower cost of capital Integrated IT systems Easier consolidation One set of books Assist in raising capital overseas Understand financial statements of overseas suppliers, customers, subsidiaries 6

7. © Copyright ICAS 2012 A Decade of Progress Pre 2001Multi-GAAP world, no major economies using international stds. 2001IASB is established under Foundation Chair Paul Volcker 2002Europe leads first wave of jurisdictions to adopt IFRS while convergence process with FASB begins 2003IASB issues 1 st new standard 2005Over 7000 public companies in 25 European countries switch to IFRS 2006FASB and IASB establish a “roadmap” to substantially converge IFRS and US GAAP (MoU) 2007Brazil, Canada, and Korea lead second wave of IFRS adoption. ASB Japan/IASB sign Tokyo Agreement 2008-11Trustees and IASB prioritise response to global financial crisis; G20 repeatedly calls for rapid move towards global standards. Target end of IFRS/JGAAP Convergence Programme 2012On-going work on convergence programme and target date for SEC/Japanese decision 7

8. © Copyright ICAS 2012 Status of Global Standard Use Since 2001: Companies in over 100 countries are now required or permitted to use IFRSs Recent new joiners: Brazil, Canada, Korea, Mexico, Russia Japan: IFRS permitted for international companies; 2012 decision on mandatory adoption may be delayed; progress toward IFRS adoption continues as more large companies move away from US GAAP 2012: After ten years, convergence work with FASB winds down with significant new high quality standards for revenue recognition, leasing, impairment, classification & measurement 8

9. © Copyright ICAS 2012 The World is Getting Smaller 9 Over 100 countries require or permit the use of IFRSs for listed companies Source: IASplus/Deloitte

10. © Copyright ICAS 2012 US investors, companies depend on cross-border capital flows 10 Growing cross-border holdings of US companies and investors Source: US treasury

11. © Copyright ICAS 2012 Why Global Standards: Non-US Markets Have Grown 11 The Globalisation of Capital Markets: Domestic Market Capitalisation Source: World Federation of Exchanges in $US trillions USA Americas (excluding USA) Europe, Africa and Middle East China Asia (excluding China) (52%)

12. © Copyright ICAS 2012 US is Key Piece of Global Puzzle (July 2010) Based on announced plans Which GAAP?20112013If Japan 2015 IFRS and word-for- word equivalents 42% 44% 58% US GAAP 31% 27% National GAAP 27% 25% 15% Totals100% (source: Fortune Global 500) 12

13. © Copyright ICAS 2012 After 2013, remaining non-IFRS (listed companies) Comments No. G500 co’s China Adopted main IFRS principles 61 ColombiaIFRSs under discussion 1 India Proposed many modifications to IFRSs 8 Japan Seriously considering: 2016? 68 (51 J-GAAP & 17 US GAAP) Russia IFRSs adoption approved 7 Saudi Arabia 1 Thailand1 USA SEC Roadmap and Work Plan 133 (source: Fortune Global 500) 13

14. © Copyright ICAS 2012 The Objective Taking Stock Adoption Update The Path Forward Summary 14

15. © Copyright ICAS 2012 Factors Behind Success Organisational governance and structure supporting high quality standards High quality standards: Internationally, users recognise IFRS as high quality – supported by academic research Independent board: A transparent and independent standard setting process assures quality is maintained Internationally accepted: EU decision to adopt IFRSs served as catalyst for broad adoption across Asia, Oceania, Africa, Americas Convergence with the US: Close cooperation with FASB has led to higher-quality standards and a significant reduction in differences between the two sets of standards 15

16. © Copyright ICAS 2012 Corporate Governance – Three Tier Model Securities and Exchange Commission (SEC) FAF Trustees Financial Accounting Standards Board Public accountability to securities regulators Monitoring Board IFRS Foundation Trustees (5/22 US) Overseen by Trustees International Accounting Standards Board Independent standard-setter Independent and publically accountable US ModelGlobal Model 16

17. © Copyright ICAS 2012 Key Challenges Ahead The ultimate goal of global standards is still not fully achieved and there are challenges ahead… Pending decisions on IFRS adoption for major economies like Japan, China, India and the US Consistency and high-quality implementation of IFRSs across jurisdictions On-going need to always evaluate, enhance and then implement improvements to IFRS organisation and process 17

18. © Copyright ICAS 2012 The Objective Taking Stock Adoption Update The Path Forward Summary 18

19. © Copyright ICAS 2012 IFRS – FASB Convergence Process 2001 – 2004SEC reaction to US investor desire for improved, global standards following EM crisis and US financial scandals IASB is established; IASB-FASB reach Norwalk Agreement on convergence 2005 – 2007Growing IFRS adoption by major economies; concern over US loss of IPOs; desire to cement IFRS MoU accelerates convergence, sets targets and removes requirement for FPI’s to reconcile with GAAP 2008 – 2009Financial crisis; G20 consensus on convergence and adoption; focus on remaining major joint projects Updates to MoU with 2011 targets and SEC roadmap 2010 – 2012Stakeholder concerns for high quality standards vs convergence timetable Modified convergence strategy prioritizes joint projects for 2012 SEC decision Convergence is not the end point 19

20. © Copyright ICAS 2012 What has been accomplished to date? Nonmonetary exchanges Inventory accounting Accounting changes Business combinations Non controlling interests Share-based payments Segment reporting Borrowing costs Conceptual Framework – objective and qualitative characteristics Joint ventures 20

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23. © Copyright ICAS 2012 Conceptual Framework Issues The objectives of financial reporting Qualitative characteristics Definitions of assets and liabilities Recognition Measurement Presentation and disclosure 23

24. © Copyright ICAS 2012 Debit = Asset or Expense 24

25. © Copyright ICAS 2012 25 Debit = Asset or Expense or Whatsit

26. © Copyright ICAS 2012 Role of Valuation Value inherent in asset/trading Fair value Value in productive ability Cost 26

27. © Copyright ICAS 2012 Income Profit and Loss Account Trading activities Other Comprehensive Income Long-term Non Trading Gains and Losses Cross holdings Revaluation of buildings Changes in pension fund surpluses and deficits 27

28. © Copyright ICAS 2012 The Major Projects Crisis (MoU)  Financial Instruments Fair value measurement Consolidation Derecognition Other (Non MoU)  Insurance contracts Other (MoU)  Revenue Recognition  Leases Post-retirement benefits Financial statement presentation Liability / Equity IASB working to reach as much convergence as possible on three remaining MoU projects 28

29. © Copyright ICAS 2012 Pensions $ Deficit1000 Less 10% of liabilities 400 600 Spread over 10 year working life Deficit per accounts - $60m 29

30. © Copyright ICAS 2012 Leases – Equipment Leases 2008 2009 2010 Total Annual leasing volume$644bn $557bn$617bn N. America 21% 34% 35% Europe 49% 38% 34% Asia 19% 20% 24% Rest of world 11% 8% 7% 30

31. © Copyright ICAS 2012 Decision on US Incorporation SEC Staff Paper released in May 2011 detailed a formal path to US adoption through an incorporation mechanism US companies minimise implementation costs using phased approach FASB stops writing new standards – preventing divergence Existing, converged standards are incorporated into GAAP IASB active projects will be completed, then incorporated FASB incorporates remaining, non-converged standards over 5-7 years FASB remains the US national standard setter with responsibility of endorsing new standards as they are issued “ Incorporation of IFRSs into national GAAP” is the path used by virtually all other countries 31

32. © Copyright ICAS 2012 Final SEC Staff Report Published July 2012 Provides comprehensive assessment of preparedness of US, but little new information Reflects an SEC overwhelmed with rulemaking Important to note: No decision, not a ‘no’ decision Conclusions broadly consistent with recently completed strategy and governance reviews With political will, the challenges of transition can be overcome 32

33. © Copyright ICAS 2012 What happens Next? Both boards have concluded that convergence has served its purpose, now approaching diminishing returns IASB dedicated to completing the three MoU projects, but in transition to a new agenda Ambiguous posture by the US may slow global standard momentum: Risk of IASB and FASB divergence Continued uncertainty for business community However: Momentum behind IFRS as global standards is irreversible The endpoint will be global accounting standards 33

34. © Copyright ICAS 2012 The Objective Taking Stock Adoption Update The Path Forward Summary 34

35. © Copyright ICAS 2012 Changing Standard Setting Deadlines can be effective - but quality paramount More time taken does not mean better standards World and standard setting has changed since financial crisis Proactive engagement reaches outside the traditional financial reporting community Globally consistent answers must be reached – “similar” is not good enough New ways of working – technology and cooperation improve efficiency Support for post-implementation reviews 35

36. © Copyright ICAS 2012 Future Agenda Issues Old Standards Agriculture Share-based payments Income taxes Pensions Associates Post-implementation review Segments Business combinations Government grants Intangibles Foreign currency translation Performance reporting Disclosure framework Other Extractive activities Common control 36

37. © Copyright ICAS 2012 Principle-Based Standards PrinciplesRules No exceptions Core principles (objectives) No inconsistencies Tied to conceptual framework Judgement Minimum guidance 37

38. © Copyright ICAS 2012 Preparing for the Next 10 Years IFRS Foundation Trustee Strategy Review Reflecting on progress of past ten years and acknowledging there are challenges ahead, the review prepares for IFRS as the global standard. Independence must be maintained –Monitoring Board, Trustees, IASB structure is appropriate Global adoption, and not convergence, is the goal IFRSs should provide a faithful representation of an entity’s financial position and performance – underpinning the transparency / integrity of financial reporting and capital market stability 38

39. © Copyright ICAS 2012 Preparing for the Next 10 Years Vested interest in consistent application of IFRSs requires taking appropriate steps with regulators and standard-setters to identify differences National carve-outs can be best eliminated and consistency of application improved through successful due process in the standard-setting process and post-implementation reviews Funding of IFRS must maintain independence in standard-setting while providing organisational accountability Significant progress has been made to migrate away from voluntary contributions on a global basis 39

40. © Copyright ICAS 2012 Monitoring Board: Governance review Key conclusions Reaffirmed support for three-tier structure: Monitoring Board: Public accountability Trustees: Governance and oversight IASB: Independent standard-setter Clearer delineation of responsibilities across three tiers 40

41. © Copyright ICAS 2012 Key conclusions - continued Monitoring Board membership Permanent membership criteria to be assessed based on ‘use of IFRSs’ Membership to be expanded, to include major emerging markets plus rotating seats Greater transparency in Monitoring Board activities and closer dialogue with Trustees and IASB Trustees and Monitoring Board will coordinate future actions 41

42. © Copyright ICAS 2012 The Objective Taking Stock Adoption Update The Path Forward Summary 42

43. © Copyright ICAS 2012 Goal of Global Accounting Language is Close G20 adoption represents 90% GDP; 80% trade; 2/3 of population IASB dedicated to developing and sustaining high quality, globally accepted standards – Consultation and transparency are critical to setting new agenda IASB/IFRSF accepts and is prepared for the responsibility of being the global standard setter Japan and Asia to become more assertive – if adopt IFRS! 43

44. © Copyright ICAS 2012 Questions? 44