1. Click to edit Master title style !@# Casualty Actuarial Society – San Diego, CA September 10 – 11, 2007 www.ey.com/us/actuarial INSURANCE AND ACTUARIAL ADVISORY SERVICES International Accounting – Emerging Issues Thomas Le

2. 1 © 2007 Ernst & Young LLP International Accounting – Emerging Issues Panelists  Thomas Le  Gareth Kennedy  Jim Christie

3. 2 © 2007 Ernst & Young LLP International Accounting – Emerging Issues Will U.S. GAAP ultimately be replaced by International Financial Reporting Standards (IFRS)?

4. 3 © 2007 Ernst & Young LLP International Accounting – Emerging Issues Overview  International Accounting Standards Board (IASB) discussion paper overview  International Actuarial Association Risk Margins paper overview  FASB and SEC implications  FASB 157 & 159  Feedback from actuarial bodies and regulators

5. 4 © 2007 Ernst & Young LLP International Accounting – Emerging Issues Historical Context  In 2002 the European Commission required the use of IFRS starting 1/1/05  In April 2005, then SEC Chief Accountant Donald Nicolaisen published a “Roadmap” discussing the elimination of U.S. GAAP for foreign private issuers that use IFRS by 2009  In March 2007, the SEC held a Roundtable allowing foreign private issuers a choice to use either IFRS or U.S. GAAP (Continued)

6. 5 © 2007 Ernst & Young LLP International Accounting – Emerging Issues Historical Context  In April 2007, the SEC announced plans to issue: – (i) A proposing release that would allow foreign private issuers to use IFRS without any reconciliation to U.S. GAAP –(ii) A concept release on possibly allowing U.S. issuers the option of using IFRS

7. 6 © 2007 Ernst & Young LLP International Accounting – Emerging Issues SEC Faces Two Critical Issues  Legal issue of whether the IASB can be designated as a private sector standard setter pursuant to Section 108 of the Sarbanes-Oxley Act of 2002  SEC must assess the IFRS knowledge of those parties involved in the preparation, audit, and use of IFRS financial statements

8. 7 © 2007 Ernst & Young LLP International Accounting – Emerging Issues Convergence  In February 2006, FASB and IASB jointly issued a memorandum of understanding, agreeing to identify and eliminate major differences in certain specified areas by 2008  FASB 159 was in part based on the principles of IAS 39  FASB proposal out for comments on August 2, 2007

9. 8 © 2007 Ernst & Young LLP International Accounting – Emerging Issues Conflict  U.S. issuer reporting under IFRS would still be required to apply all SEC rules and regulations  SEC generally requires that “push-down” accounting be applied whenever separate financial information is presented in a filing for a “substantially wholly-owned” purchased subsidiary. This may conflict with IFRS  U.S. issuers may need to pre-clear the accounting with the SEC before filing IFRS financial statements

10. 9 © 2007 Ernst & Young LLP International Accounting – Emerging Issues CESR  In 2005, the Committee of European Securities Regulators (CESR) concluded that U.S. GAAP was “equivalent” to IFRS  Proposal would still require U.S. issuers to identify all IFRS/U.S. GAAP differences and disclose relevant and material differences (now deferred to 1/1/09)

11. 10 © 2007 Ernst & Young LLP International Accounting – Emerging Issues Differences  Impairment model: U.S. GAAP recognizes only if carrying cost falls below both undiscounted cash flow and fair value (two-step test), while IFRS compares the carrying cost to the higher of fair value or value in use (one-step test)  Under IFRS, convertible debt must be bifurcated between debt and equity, while under U.S. GAAP such debt is usually recognized entirely as a liability

12. 11 © 2007 Ernst & Young LLP International Accounting – Emerging Issues Websites  www.iasb.org  www.fasb.org  www.sec.gov  www.ey.com/ifrs

13. 12 © 2007 Ernst & Young LLP International Accounting – Emerging Issues Panelists Thomas Le 215-841-0503 tom.le@ey.com Gareth Kennedy 312-879-4459 gareth.kennedy@ey.com Jim Christie 416-943-3468 jim.k.christie@ca.ey.com