1. 1 FINANCIAL REPORTING Annual Council Seminar - 2009 Where should we be heading? Should US adopt IFRS? Norm Strauss – US/IASB convergence Tom Jones – case for international standards Christy Wood - convergence in the financial reporting world Mike Hathorn – convergence IFRS/IPSAS FASB IASB

2. 2 FASB/IASB – Progress Towards Conversion The FASB and IASB have a memorandum of understanding to WORK TOGETHER! Can they? A Taste of Common Projects: Revenue Recognition Leases Financial Statement Presentation

3. 3 Memorandum of Understanding (2006 Norwalk agreement updated in September 2008) Wouldn’t it be nice for FASB & IASB to agree (converge) on all the major projects? Work together, leverage off each other, and share staff to develop the same high quality standards – that is if they can agree? The FASB & IASB are trying to get the same answer on several major projects.

4. 4 Revenue Recognition – The new proposed model Asset/liability view - Contract based. Get balance sheet right! A performance obligation to provide goods and services under the contract is a liability not deferred revenue. Recognize revenue when there is a decrease in the performance obligation Dr Performance obligation xxx Cr Revenue xxx What if contract has multiple elements?

5. 5 Multiple Element Arrangements – ship/install Allocate customer consideration (e.g., $900 in the example) to each performance obligation Base it on proportion of the stand-alone Selling Price of each: SP Consideration – Machine $800 80% $720 –rev 1 st qtr – Installation 200 20% 180 –rev 2 nd qtr – Total customer paid 900 What if there’s NO reliable evidence to support stand-alone price – Estimate it anyway! (next step – an exposure draft)

6. 6 Leases - are they going on the balance sheet (over $1 trillion) ? Off-balance sheet leasing is an industry (legitimate but often structured) under FASB 13 ( and many, many amendments and interpretations) – a truly rules based standard to determine how to treat a lease! Red lines – 75%, 90% - all or nothing –hmmm?? If the FASB/IASB’s preliminary views are adopted adopted, all leases would be capitalized: Asset - Right to use an asset during the lease term Liability - Obligation to pay rentals

7. 7 Financial Statement Presentation- The “Cohesiveness” Principle Categories for each financial statement to make it more useful for users! -Business – operating and investing -Financing -Income taxes -Discontinued operations -Other comprehensive income -Equity Goal of FASB/IASB preliminary views document -- financial statements should be clear and articulate!

8. 8 STATEMENT OF COMPREHENSIVE INCOME Sales $1,000 Costs (with lots of details) 800 Net income (business & financing shown separately) 200 Other comprehensive income (after tax) Available for sale securities 30 Cash flow hedges (20) Unfunded pension benefit obligation (15) Foreign translation adjustment (10) Total OCI (15) Total Comprehensive income $185 Would this be an improvement ? An ED is coming!

9. 9 Conversion vs. Just Adopting IFRS? If US converges on major topics first, won’t it be easier for US to just adopt IFRS eventually? But when? What should the FASB be doing now: Push ahead to converge, Work towards switching to IFRS, Just do its own thing, or All of the above at the same time? And what about the public sector? Only Time Will Tell What Will Happen!