pricewaterhousecoopers llp saint louis university exploring ifrs* april 13, 2010 *connectedthinking

PricewaterhouseCoopers LLP

Saint Louis UniversityExploring IFRS* April 13, 2010

*connectedthinking


Bo ButtersAssurance Partner


PricewaterhouseCoopers LLP 3

Agenda

• Background and current landscape

• Similarities and differences between IFRS and US GAAP

• Impact of IFRS

• IFRS Ready

• Q&A


Principles vs. Rules

Fundamentally, the frameworks underlying IFRS and US GAAP are similar

Principles vs. Rules IFRS is more purely principles based US GAAP is also principles based but has evolved to become

more prescriptive and rules-based, addressing specific industries and types of transactions

IFRS—2,500 pages US GAAP—25,000 pages


IFRS Background & Structure

Standard setter—International Accounting Standards Board (IASB) founded in 2001 and based in London

International Accounting Standards Committee (IASC) Foundation- Appoint IASB members- Exercise oversight- Raise funds- Similar to Financial Accounting Foundation (FAF)

Predecessor organization was International Accounting Standards Committee (IASC) founded in 1973


IASB structure

IASCFoundation22 trustees

IFRSAdvisoryCouncil

IFRSHigh quality, enforceable and global

IASB16 members

IFRS Interpretations

Committee14 members

AppointGovernFund

Appoint Appoint

InterpretAdvise

Create

1 Trustee

1 Member

PwC

TrusteesGeographical break-down

Europe 6

North America 6

Asia / Oceania 6

Rest of the world 4


The World is Adopting IFRS

•IFRS has increasingly become the global accounting language

•More than 100 countries now require or permit the use of IFRS. IFRS were adopted in the EU in 2005

•More than 12,000 public and private companies around the world use IFRS as their primary reporting framework

•Many countries have converged their local standards to IFRS

•All major non-US capital markets are impacted


IFRS Overview – A Global Revolution

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Capital Market Implications

•Easier access to capital for global corporations

•Improved cross-border comparability

•Improved transparency for non-US companies

•Reduced cost of compliance

•Streamlined merger and acquisition activity

•More efficient allocation of global capital investment


Why IFRS in the US ?

•Globalization rules

•Complexity of current standards is taking a toll on domestic companies

•Convergence of the two dominant accounting frameworks is a tough proposition

•IFRS will create cost efficiencies for global companies


Proposed SEC Roadmap

• In November 2008, the SEC released a proposed Roadmap for potential use of IFRS by US Issuers that could have led to:

(1) the use of IFRS by all US issuers beginning 2014, and(2) optional use of IFRS by certain qualifying domestic issuers as early

as 2009.


Proposed SEC Roadmap (cont’d)

In February 2010, the SEC released Commission Statement in Support of Convergence and Global Accounting Standards• Provided an update regarding the SEC’s consideration of global

accounting standards and its continued support for convergence of US GAAP and IFRS

• 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

• The Work Plan identified six areas of consideration in determining both whether and how to incorporate IFRS into the financial reporting system for U.S. issuers

• SEC plans to be in a position to make a determination about the use of IFRS in 2011 after execution of the Work Plan and completion of the convergence projects of the FASB and IASB



The six key areas of the Work Plan include:• Sufficient development and application of IFRS for the U.S. domestic

reporting system• The independence of standard setting for the benefit of investors• Investor understanding and education regarding IFRS• Examination of the U.S. 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, changes to contractual arrangements, corporate governance considerations and accounting for litigation contingencies

• Human capital readiness



Reassessment in 2011

• Consistent with the timeline in the original proposed Roadmap, the SEC expects to make a determination about whether to further incorporate IFRS into the financial reporting system for U.S. issuers in 2011.

• Potential mandatory adoption beginning in 2015 or 2016.



#-Staggered adoption possible based on earliest adoption in 2015 or 2016.

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Assuming that the SEC determines in 2011 to incorporate IFRS into the US domestic reporting system, a possible timeline may unfold as follows:


Clear signals from the SEC: • Committed to lead US capital markets through encouragement and clear direction

on the use of IFRS by US companies

• Public statements - Mindful not to carry over US GAAP concepts and practices

Challenges exist:• SEC Commissioner Mary Schapiro

• Tax conformity and the LIFO issue

• Due process to enact IFRS standards – SEC influence

• Concessions on years presented in year of change

• Global regulatory oversight in the IFRS world

Challenges the SEC faces in adopting IFRS in the US


How big are the differences?


Inventory


The Concept of Inventory

IFRS and US GAAP contain similar definitions of inventory:

Assets which (1) are held for sale in the ordinary course of business (2) are in the process of production for such sale or (3) in the form of

materials or supplies to be consumed in the production process or in the rendering of services.

Inventories owned by manufacturing companies include:

•Raw materials (RM)

•Work in progress (WIP)

•Finished goods (FG)


Under IFRS, which inventory costing methodology is not allowed?

A. Last-in, First-out (LIFO)

B. Weighted-average cost

C. First-in, First-out (FIFO)

D. All are allowable methods

How Well Do You Know?


Inventory Cost Formulas

Under IFRS, entities are permitted to use one of the following cost methodologies:• First-in, First-out (FIFO)• Weighted-average cost

Under US GAAP, entities are permitted to use the following cost methodologies: • First-in, First-out (FIFO)• Weighted-average cost• Last-in, First-out (LIFO)


Impact of IFRS


Moving to IFRS – Universities

Considerations and challenges faced by universities

• National Association of State Boards of Accountancy (February 19 2009)- Maintain FASB as sole standard setter for US financial reporting- Focus on convergence with IFRS rather than adoption

• Sufficient, trained resources – faculty and materials

• Forced choice between IFRS and US GAAP for students

• Change management


Moving to IFRS – Students

Considerations and challenges faced by students

• National Association of State Boards of Accountancy (February 19 2009)- Maintain FASB as sole standard setter for US financial reporting- Focus on convergence with IFRS rather than adoption

• Forced choice between IFRS and US GAAP

• Expectations of US GAAP and IFRS knowledge: Additional experience and requirements for interviewing – dependent on type of organization or firm


Moving to IFRS – Accounting Firms

Considerations and challenges faced by accounting firms

• Documentation and support of judgment within a “principles”-based framework

• Sufficient, trained resources

- Large international firms

- Medium and small-size firms

• Change management


Moving to IFRS – Companies

Considerations and challenges faced by companies converting 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 • U.S. GAAP deficiencies (i.e., conversion to IFRS uncovering challenges

with historical U.S. GAAP accounting)• Sufficient, trained resources• Change management• Communication of needs to operations/business development

organizations


Preparing now means reaping the benefits later

You

•Understand what IFRS means and when it might impact you

•Take advantage of every opportunity to learn about IFRS

•Be open to change

PwC

•Enhance expertise in IFRS

•Provide thought leadership for key stakeholders

•Educate partners and staff on IFRS applications


What do you think?

What are you going to do in regards to understanding

IFRS and its impact?


IFRS Ready


• Expectations of new hires

• Learning opportunities – www.pwc.tv- See What’s On, Channel 3 – Learning Annex – IFRS Ready- Videos and illustrative IFRS financial statements- Webcasts on technical topics

IFRS Ready


Sophomores• Seeking summer programs or internships • With at least 1 term of accounting

Pre-awareness

Juniors + • Seeking internships or full-time positions

Awareness

One Year Vision


Pre-Awareness

• Define what IFRS stands for

• Articulate the general uses of IFRS and U.S. GAAP

• Recognize that IFRS will be important in the future

Awareness

• Articulate the sources of U.S. GAAP and IFRS

• Describe IFRS Financial Statements

• Identify a difference between IFRS and U.S. GAAP

• Explain status and timetable for adoption

Learning Goals


Interactive Financial Statements

Learning Goals:• Describe an example of IFRS Financial Statements• Identify an example of a difference between U.S. GAAP and IFRS


Interactive IFRS Financial Statements


www.pwc.com

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pricewaterhousecoopers llp saint louis university exploring ifrs* april 13, 2010 *connectedthinking

Documents

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world use ifrs

potential use of ifrs

optional use of ifrs

tough proposition ifrs

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