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“International Accounting Standards”
Southeastern Actuaries ConferenceFall Meeting
Atlanta, GeorgiaNovember 20, 2003
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Annette M. KniefAnnette M. KniefAnnette M. KniefAnnette M. Knief
NAIC Financial Regulatory Services Assistant Director
Staff support to the Financial Condition (E) Committee, Examination Oversight Task Force, Risk Assessment Working Group, and various International Committees
Joined NAIC in October 1999
Prior to joining NAIC, Auditor for Deloitte & Touche, LLP in Chicago and Kansas City
Graduate University of Illinois
MBA, CPA, FLMI, ARA, AICPA
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Presentation Overview
What is the International Accounting Standards Board (IASB)?
Why is there a need for International Accounting Standards (IAS)?
Is there need to be involved in IAS Development?
IASB Insurance Contracts Project
Other current projects of the IASB
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What Is the International Accounting Standards Board (IASB)?
IASB Formed in 2001 - Preceded by IASC
IASC Formed in 1973 through agreement by:
Australia Japan Netherlands
Canada Ireland United Kingdom
France Mexico United States
Germany
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International Accounting Standards Board Members
Mary Barth Hans Georg Bruns
Tony Cope Robert Garnett
Gilbert Gelard Tricia O’Malley
James Leisenring John Smith
Warren McGregor Harry Schmid
Geoffrey Whittington Tatsumi Yamada
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International Accounting Standards ~ Board Objectives ~
To develop, in the public interest, a single set of high quality, understandable and enforceable global accounting standards that require high quality, transparent and comparable information in financial statements and other financial reporting to help participants in the world’s capital markets and other users make economic decisions
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To promote the use and rigorous application of those standards
To bring about convergence of national accounting standards and IAS to high quality solutions
IASB publishes its finalized Standards in series of International Financial Reporting Standards (IFRS) – Currently No. 1-41
International Accounting Standards ~ Board Objectives ~
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Why is there a need for International Accounting Standards?
Accounting principles and procedures vary widely from country to country
Multinational companies incur additional costs of preparing different reports for use in different countries
Accounting reports lack consistency
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Why is there a need for International Accounting Standards?
Financial analysis is more costly and less efficient
Lack of comparability causes the credibility of accounting to suffer
It does not make economic sense for every country to incur the enormous cost of developing its own national standards
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Why is there a need for International Accounting Standards?
Most stock exchanges already accept IAS for cross-border listings
Except:
Canada
Japan
United States
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2005 EU Requirement
European Union (EU) law will require European listed companies to adopt IAS in 2005.
Impact on US Companies:
US Subsidiaries that report up to EU listed companies
Foreign branch or subsidiaries that have local statutory reporting requirement under a converted national standard
Companies seeking capital on a European exchange
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Views of the SEC and IASB
“If, by 2005, there has been sufficient progress in the improvement and short-term convergence of accounting standards, in the development of a process and structure for consistent interpretation and application of IAS, and in the enhancement of financial reporting infrastructure, then it may be appropriate for us to reconsider the need for foreign private issuers . . . to reconcile from IAS to U.S. GAAP.”
– Harvey Pitt, Fmr. Chairman of the SEC
“While the United States' accounting standards are widely seen as the most comprehensive in the world, some deficiencies exist. Adoption of tougher international standards could solve that problem.”
- Sir David Tweedie, Chairman of the IASB
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GAAP Convergence 2002
Study by Leading Accounting Firms
92% of 59 countries surveyed plan to adopt, or plan to converge with IFRS
Over 50% of respondents indicated that the financial instruments standard and other standards incorporating fair value are the most complicated standards and impede convergence
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GAAP Convergence 2002
Study by Leading Accounting Firms
Three countries do not currently intend to converge with IFRS:
Iceland, Japan & Saudi Arabia
Supposedly, if IASB and FASB make significant progress towards convergence, the SEC will consider allowing non-domestic companies to file in the US under IFRS without requiring a reconciliation to US GAAP
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Need for Involvement in IAS Development?
IAS GAAP SAP
IASB and FASB 2002 Convergence Agreement
Minimize differences between bothstatutory accounting and general accounting requirements
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IASB Insurance Contracts Project
Primary focus of the NAIC
Originated by the IASC – “1999 Issues Paper”& Draft Statement of Principles (DSOP)
Two Phases:
Phase I: Interim solution for 2005 based on enhanced disclosure and minor modifications to current practices
Phase II: A long-term, fair value solution
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IASB Insurance Contracts Project
Phase IDetermination/Separation of insurance and investment contracts
Elimination of certain existing practices
Enhancement to the presentation and disclosure for insurance contracts
Exemption from hierarchy of IAS‘Sunset Clause’
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IASB Insurance Contracts Project
NAIC Positions on Phase I
Definition of insurance contract
Embedded Derivatives
Credit Insurance
Weather Derivatives
Unbundling of Insurance Contracts
Asset and Liability Measurement
Disclosures
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IASB Insurance Contracts Project
Phase II
Asset and Liability Accounting Model
Fair Value Measurement
Own Credit Standing
Discounting
Policyholder Behavior
Acquisition Costs
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IASB Insurance Contracts Project
Current Status
Phase I Exposure Draft
Comments Submitted October 2003
Phase I IFRS – March 2004
(effective 1/1/2005)
Phase II – Halted
Discussions to possibly resume in November 2003
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IASB Insurance Contracts Project
Industry Perspectives
ACLI/IAA
Asset and Liability Measurement
Group of North American Insurance Enterprises
Comment Letter – June 11, 2003
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Other Current Projects of the IASB
Improvements Project
Financial Instruments Project
Revenue Recognition
Reporting Performance
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Current Projects of the IASB
Consolidations (Including SPEs)
Business Combinations
Impairment and Intangible Assets
Convergence with the FASB
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NAIC International Website
NAIC Website:
http://www.naic.org/financial_services/international_accounting/index.htm
Comment Letters
Newsletters
General Information
Become an Interested Regulator/Party:
Annette Knief
phone: 816-783-8006
aknief@naic.org
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