1. Date
IFRS in the US – Why it Matters Today UT Arlington EMBA Program November 11, 2011
PwC

2. Agenda IFRS background IFRS in the United States
Date
Agenda
IFRS background
IFRS in the United States
Near-term considerations
Impact on your business
Next steps
Questions and answers

3. Date
IFRS background

4. Date
International Financial Reporting Standards (“IFRS”) – The global revolution
More than 100 countries require, permit, or are converging to IFRS
All major capital markets are changing…except the US
Top 10 global capital markets US
US GAAP
Japan
Going to IFRS as adopted by the FSA UK
IFRS by the EU
France
Canada
IFRS by the IASB
Germany
Hong Kong
Spain
Switzerland
Australia
IFRS as adopted locally
Countries converging to IFRSs with the goal of adoption
Countries that require or permit IFRSs
Countries with no current plan to adopt

5. Standard Setting Structure
IFRS Foundation Trustees
The Trustees promote the work of the IASB and the rigorous application of IFRSs but are not involved in any technical matters relating to the standards. Six of the Trustees must be selected from the Asia/Oceania region, six from Europe, six from North America, one from Africa, one from South America and two from the rest of the world
oversee, review effectiveness, appoint and finance
appoint inform
informs
Standard-setting
IFRS Advisory
Council
International Accounting Standards Board (“IASB”) – issues IFRSs
provides strategic advice
IFRS Interpretations Committee – issues IFRICs

6. IFRS in the United States
Date
IFRS in the United States

7. IFRS – Who is part of the debate
Date
IFRS in the United States
IFRS – Who is part of the debate
FASB
SEC
IASB
Preparers
US GAAP / IFRS
Convergence or Change
Europe
Asia
Significant influence is the power to participate in an entity’s financial and operating policy decisions but not control or jointly control those policies [IAS28.2(R.05)]. An investor that holds directly or indirectly 20% or more, but less than 50%, of an entity’s voting rights, is presumed to have significant influence. A shareholding of less than 20% is presumed not to represent significant influence, unless the influence can be demonstrated [IAS28.6(R.05)] (Solution 20.18). An investor that has significant influence accounts for its investment using the equity method [IAS28.11,13(R.05)].
IAS
6. If an investor holds, directly or indirectly (eg through subsidiaries), 20 per cent or more of the voting power of the investee, it is presumed that the investor has significant influence, unless it can be clearly demonstrated that this is not the case. Conversely, if the investor holds, directly or indirectly (eg through subsidiaries), less than 20 per cent of the voting power of the investee, it is presumed that the investor does not have significant influence, unless such influence can be clearly demonstrated. A substantial or majority ownership by another investor does not necessarily preclude an investor from having significant influence.
7. The existence of significant influence by an investor is usually evidenced in one or more of the following ways:
a. representation on the board of directors or equivalent governing body of the investee;
b. participation in policy-making processes, including participation in decisions about dividends or other distributions;
c. material transactions between the investor and the investee;
d. interchange of managerial personnel; or
e. provision of essential technical information.
8. An entity may own share warrants, share call options, debt or equity instruments that are convertible into ordinary shares, or other similar instruments that have the potential, if exercised or converted, to give the entity additional voting power or reduce another party’s voting power over the financial and operating policies of another entity (ie potential voting rights). The existence and effect of potential voting rights that are currently exercisable or convertible, including potential voting rights held by other entities, are considered when assessing whether an entity has significant influence. Potential voting rights are not currently exercisable or convertible when, for example, they cannot be exercised or converted until a future date or until the occurrence of a future event.
9. In assessing whether potential voting rights contribute to significant influence, the entity examines all facts and circumstances (including the terms of exercise of the potential voting rights and any other contractual arrangements whether considered individually or in combination) that affect potential rights, except the intention of management and the financial ability to exercise or convert.
Investors
Academics
Market
Auditors

8. The seeds of revolution…
Date
IFRS in the United States
The seeds of revolution…
October 2002 Norwalk Agreement
Convergence
Objective is to create one global set of high-quality standards
Beginning: equivalent standards
Now: robust, transparent frameworks with similar principles
April 2005 SEC “roadmap” (updated in November 2008)
February 2010 – SEC released Work Plan (first progress report was issued October 2010)
Competitiveness of the US capital markets
Simplicity in US financial reporting
Elimination of the US GAAP reconciliation for non-US registrants
SEC Concepts Release

9. Convergence – Sweeping changes on the horizon
IFRS in the United States
Convergence – Sweeping changes on the horizon
The FASB and IASB established a pathway to converged standards in a Memorandum of Understanding
The planned convergence will result in a significant number of new US GAAP standards which will be significantly influenced by IFRS
It is expected that convergence will not lead to identical standards in the future
The challenge for Company’s is to address convergence as well as anticipate those areas that will not fully converge
US GAAP
GAAP GAP
IFRS
NORWALK AGREEMENT
FASB and IASB formalized commitment to development of high quality, compatible accounting standards and use their best efforts to:
Make their existing financial reporting standards fully compatible as soon as is practicable; and,
Co-ordinate their future work programs to ensure that once achieved, compatibility is maintained
February 2006
Set forth the priorities within the FASB-IASB joint work program by creating specific milestones to be reached by 2008
MoU
April and September 2008
The Boards affirmed their commitment to developing common, high quality standards and agreed on a pathway to competing the MoU projects
Discussion of priorities and projected completion dates
Estimated publication of selected converging IASB/FASB standards:
Key Remaining Differences
PPE
Inventory
Share-Based Payments
Extractive Industries
2011
Comprehensive Income
Fair Value
2012
Leases
Revenue Recognition
Discontinued Operations
Financial Instruments
TBD
Income taxes
EPS
Financial Statement Presentation
Pensions
Consolidation and Derecognition 9

10. Convergence – Staying ahead of the game
Date
IFRS in the United States
Convergence – Staying ahead of the game
Convergence efforts have gone relatively unnoticed by many companies
Companies should start planning for two possible alternatives for US reporting:
Convergence alone
Convergence followed by adoption of IFRS
Multiple financial reporting outcomes could result from either alternative and lead to extensive business consequences
Devising strategies around a range of potential scenarios can help companies prepare for those eventualities
Companies can no longer afford to ignore the potential impacts of both Convergence and IFRS in strategic planning, structuring of contractual arrangements, system projects and other business initiatives 10

11. SEC work plan to assess potential use of IFRS by US issuers
Date
IFRS in the United States
SEC work plan to assess potential use of IFRS by US issuers
In February 2010 the SEC released Commission Statement in Support of Convergence and Global Accounting Standards which includes details of a Work Plan to be executed by the SEC staff to enhance the Commission’s analysis of the implications of a change to IFRS
Proposed phased-in mandatory adoption of IFRS in 2015
The Work Plan identifies six areas of consideration in determining both whether and how to incorporate IFRS into the financial reporting system for U.S. issuers.
Sufficient development and application of IFRS for the US domestic reporting system
The independence of standard setting for the benefit of investors
Investor understanding and education regarding IFRS
Examination of the US regulatory environment that would be affected by a change in accounting standards
The impact on issuers, both large and small, including changes to accounting systems, contractual arrangements and corporate governance
Human Capital Readiness
SEC will also consider consistency of IFRS around the globe
SEC to vote in 2011 on final mandatory adoption

12. Status of SEC vote SEC floated an “condorsement” approach in May 2011
Date
IFRS in the United States
Status of SEC vote
SEC floated an “condorsement” approach in May 2011
Rest of world is pushing for US to at the very least just allow IFRS
G20 is weighing in heavily for global accounting standards

13. Date
Date
IFRS in the United States
IFRS conversion – When might IFRS conversion occur in the US? SEC’s Roadmap for the potential use of financial statements prepared in accordance with IFRS by US issuers
February 24, 2010
SEC released Commission Statement in Support of Convergence and Global Accounting Standards including detailed Work Plan
November 14, 2008
SEC issued the proposed roadmap and rule
March 31, 2015
1st quarter IFRS FS + comparative reconciled to US GAAP
January 1, 2013
Transition Date
Opening balance sheet
January 1, 2015
Adoption Date
Go Live
2012
2008
2010
2014
2016
2015
2009
2011
2013
December 31, 2015
1st annual IFRS FS + comparative reconciled to US GAAP
Dual Reporting Period
IFRS 2 years Comparatives reconciled to US GAAP (annual and interim)
During 2011
SEC to assess progress and confirm path forward – assume proposed mandatory use of IFRS, possibly in a phased approach over 3 years starting in 2015
(B) SEC PROPOSED ROADMAP AND RULE
Resolving current regulatory challenges and restoring confidence in capital markets should be the immediate priorities of the SEC and other market regulators
Adopting a single set of high-quality global accounting standards is in the best interest of investors, issuers, and regulators - IFRS is the only viable solution
Once the independence and funding of the global standard setter are secured, a mandatory IFRS adoption date should be established
A mandatory adoption date will eliminate much of the uncertainty hindering an efficient conversion
(C) SUMMARY OF COMMENT LETTERS RECEIVED TO DATE
Note that on February 3, 2009 the SEC extended the comment period from February 19 (original comment due date) to April 20, The SEC determined an extension was appropriate in order to, among other things, improve the potential response rate and quality of responses. The SEC concluded the extension would be appropriate in order to give the public additional time to consider thoroughly the matters discussed in the proposed Roadmap.
SEC will reconvene in 2011 to assess whether:
Key milestones have been achieved
Mandatory adoption date should be set for all issuers
The option to early adopt should be expanded to a larger population
Removal of the reconciliation requirement
Convergence 13

14. Near-term considerations
Date
Near-term considerations

15. How IFRS is affecting US companies now
Date
Near-term considerations
How IFRS is affecting US companies now
Customers and vendors: Know how IFRS influences non-US counterparties’ negotiation biases
Adoption: Manage non-US subsidiaries’ ongoing adoption of IFRS
M & A: Understand the implications of IFRS reporting by non-US targets and acquirers
Cost savings: Streamline non-US subsidiaries’ financial reporting via shared services
Non-US counterparties
Non-US subsidiaries
Contracts: Consider how IFRS affects the structure of long-term contracts and financial agreements
System upgrades: Anticipate IFRS impact on new company-wide and subsidiary IT systems
Convergence
Tax strategies: Prepare for IFRS effects on tax rate and cash flow.
US reporting: Plan for business implications driven by accounting changes

16. Near-term change drivers
Near-term considerations
Near-term change drivers
The US path to IFRS will likely be one of convergence, ultimately followed by conversion
Companies face four near-term change drivers:
Unprecedented level of accounting change driven by continued convergence of standards
Non-US subsidiaries moving to IFRS as other countries continue to adopt
Customers/suppliers increasing interest in IFRS accounting outcomes
Continued focus on differences between IFRS and US GAAP, as full convergence will not be achieved
Over the next few years, US GAAP will be significantly influenced by IFRS

17. Global Adoption of IFRS - IFRS for SMEs next?
Date
Near-term considerations
Global Adoption of IFRS - IFRS for SMEs next?
IASB issued IFRS for Small and Medium Sized Enterprises (SME) in July 2009
The standard applies to all entities that do not have public accountability - it is a matter for authorities in each territory to decide which entities are permitted or even required to apply the guidance
The IFRS for SMEs contains several simplifications when compared to full IFRS, including fewer disclosures, various omitted topics, disallowance of certain accounting policy options and simplification of many recognition and measurement principles
Bridging IFRS for SMEs with full IFRS could result in significant effort and consolidation complexities for US entities with foreign subsidiaries applying the guidance
IFRS SME (possible) adopters
Austria
Portugal
Belgium
Russia
Denmark
South Africa
Finland
Spain
Ireland
Sweden
Italy
Turkey
Netherlands
United Kingdom
Norway 17

18. Impact on your business
Date
Impact on your business

19. How is the marketplace reacting
Date
Impact on your business
How is the marketplace reacting
Companies are performing initial assessments of the impact of an IFRS, specifically identifying:
Potential US GAAP to IFRS differences
Impact of IFRS conversion across the business (IT, HR, Treasury, etc.)
An IFRS training plan for their employees
Plan for next steps of conversion
Companies are waiting to see if the SEC is really going to mandate a move to IFRS.

20. What does a change in GAAP impact?
Date
Impact on your business
What does a change in GAAP impact?
Changing numbers
Addition of another GAAP and/or change in primary GAAP – accounting policies determination; chart of accounts review, opening balance sheet, comparative financial statements, quarterly financial statements
Changing people: a new business language
Changing processes
Changing systems
Communication
Internal
External
Training
At different levels
Not only finance people
Existing processes to be enhanced
New processes created
Budgeting & forecasting
Internal controls revisited
Data availability and system requirements
New systems components: data warehouse, calculation engine
Re-alignment of management information systems
Multi-GAAP solutions
Primary GAAP changeover
Changing business
Performance management to be embedded across:
Performance measure/KPIs
Management accounts
Remunerations/bonuses
Budgeting/forecasting
Financial and Business impact analysis: debt covenants
Different valuations

21. Key differences between IFRS and US GAAP
Date
Impact on your business
Key differences between IFRS and US GAAP
Business combinations
Tax accounting
Recognition and measurement of provisions
Derivatives and hedge accounting
Consolidation of entities
Impairment testing methods
Capitalization of R&D
Asset retirement obligations
Securitizations/ Derecognition
Revenue recognition
Measurement of inventories
Classification and measurement of financial instruments
Accruals
Debt and equity classification
Employee stock compensation
LIFO
Entities consolidated under IFRS but not under U.S. GAAP
Accounting for business combinations
Revenue recognition criteria
Capitalization of R&D costs
Measurement of fixed assets
Impairment testing methodologies
Conditional asset retirement obligations
Recognition and measurement of provisions
Classification and measurement of various financial instruments
Definition of derivatives and hedging criteria
Timing differences in the recognition of expenses relating to certain share-based and pension-related employee benefits
Measurement of inventories
Tax consequences of these differences
Tax accounting differences

22. Challenges in a conversion to IFRS
Date
Impact on your business
Challenges in a conversion to IFRS
Application of judgment within a principles-based framework
Policy setting and control challenges due to fewer “rules” in IFRS
Adopters finding many more differences than expected
Data gaps resulting from increased disclosures
Systems capabilities
US GAAP deficiencies (i.e., conversion to IFRS uncovering challenges with historical US GAAP accounting)
Sufficient, trained resources
Change management

23. Date
Next steps

24. Date
Next steps
Focus on the challenge address upcoming major US financial reporting changes
Perform an assessment to identify business, accounting, tax, investor, systems, controls and workforce-related issues
Stay current on convergence projects
Be ready to adapt to ongoing change using scenario planning to incorporate likely convergence and IFRS adoption expectations into your strategic thinking and business planning
Monitor actual changes and consider how they will influence your non-US counterparties (customers and vendors) and affect your reporting, long-term contractual commitments, tax structures, financings, systems and controls
Maintain corporate oversight to influence transition timing, strategies, and policy decisions of non-US subsidiaries that are, or may soon apply IFRS
Identify what you can do now, being mindful of the specific aspects of convergence and conversion that will take the longest and consider smaller controlled one-off projects and “easy wins” where desirable
Focus on the challenge. The next several years will bring major changes to US financial reporting. Whether changes arrive through convergence, an SEC-mandated move to IFRS, or continued IFRS adoption by subsidiaries and counterparties, the effect on US businesses will be considerable.
Perform an assessment. Consider the effects these alternative paths could have and identify business, accounting, tax, investor, control, systems and work-force related issues.
Be poised to adapt to ongoing change. Use scenario planning to incorporate likely convergence and IFRS adoption expectations into your strategic thinking and business planning. Monitor actual changes. Closely follow SEC actions and new FASB and IASB standards. Consider how they will influence your non-US counterparties (customers and vendors) and affect your reporting, long-term contractual commitments, tax structures, financings, systems and controls.
Maintain corporate oversight. Influence transition timing, strategies, and policy decisions of non-US subsidiaries who are or may soon be IFRS users.
Identify what you can do now. Be mindful of the specific aspects of convergence and conversion that will take the longest and consider smaller controlled one-off projects and “easy wins” where desirable.

25. Contact Information
Date
Margaret Montemayor
Pioneer Natural Resources
Director of Financial Reporting and Technical Accounting
Phone: (972)
Margaret joined Pioneer Natural Resources, a large independent exploration and production company in June 2010 as the Director of Technical and Equity Accounting.   Margaret was previously employed with PwC as a manager in the Accounting Advisory and Financial Reporting group of Transaction Services in Dallas, Texas where she provided US GAAP, SEC and IFRS expertise to clients in various industries. 
In August 2008, Margaret returned from a four year tour in Zurich, Switzerland with the PwC Capital Markets Group where she provided European companies with advice on complex accounting issues, SEC regulatory issues and IFRS, local GAAP and US GAAP accounting conversions. Prior to Margaret's role in Transaction Services she spent two years in Audit at PwC in Dallas, Texas and 2 years at Arthur Andersen in San Antonio, Texas.
Margaret has a Master of Business Administration and a Bachelor of Business Administration in Accounting from St. Mary’s University in San Antonio, Texas.  She is a Certified Public Accountant and a member of American Institute of Certified Public Accountants and the Texas Society of Certified Public Accountants.