Third Annual Alternative Investment SummitInternational Financial Reporting Standards (IFRS)

Markus VeithPartner, Financial Institutions

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Table of Content

Introduction Overview of IFRS Expected Roadmap to Adoption in the U.S. Impact of IFRS on Financial Services

Companies

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Introduction

IfrsE = E Tk2

IfrsE = IFRS excellence

E = expertise

Tk = technical accounting knowledge

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Introduction

The US GAAP Literature- Over 2,000 pronouncements

- Over 6,500 pages – FASB material alone

- Some 25,000 pages of standards and guidance in total

The IFRS Literature- 55 pronouncements

- Some 2,500 pages (all pronouncements)

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Overview of IFRS

Principles (IFRS) A general statement with

widespread support, which is intended to support truth and fairness and acts as a guide to action

Use of judgement

Rules (US GAAP) A means of establishing

an unambiguous decision-making method in order to eliminate doubts about when and how it is to be applied

Check-list culture

Set of Principles vs. Set of Rules

Overview of IFRS

Currently 120+ countries that permit/require use North America

- US – see following slides for overview

- Canada – Public companies must use IFRS 1/1/11

- South/Central America: various countries require/permit use

Europe- Listed companies must apply IFRS as endorsed by EU

- Member states may extend requirement to non-listed

- Certain amendments and IFRS 9 not yet endorsed

Asia-Pacific- Variety of methods

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Expected Roadmap to Adoption in the U.S.Initial Milestone

Foreign issuers are no longer required to prepare a reconciliation between IFRS and US GAAP (21 December 2007)

- Foreign private issuers in their filings with the Commission are allowed to file financial statements prepared in accordance with IFRS as issued by the IASB without reconciliation to US GAAP

- EU companies that have taken advantage of the EU carve-out of IAS 39 are on a two-year transition

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Expected Roadmap to Adoption in the U.S.Original 2008 SEC Roadmap

Proposed original timeline

Limited early adoption beginning in 2009 Large accelerated filers beginning for fiscal years ending

on or after December 15, 2014 Accelerated filers beginning for fiscal years ending on or

after December 15, 2015 Non-accelerated filers beginning for fiscal years ending

on or after December 15, 2016 Would require 3-year comparative financials Final decision to be made by SEC in 2011

2010 2011 2012 2014 2016 2017 201820152009 31 December 2008

Evaluation period

Possible phased in adoption periods

Possible early adoption period

Large accelerated filers

SEC Final decision

2013

Transition date

Reporting date

Effective dates of converged standards

Expected Roadmap to Adoption in the U.S.SEC Proposed Roadmap – Possible Timeline towards Global Standards

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AICPA Annual Conference – December 2010

SEC Chairman Shapiro comments:- Reiterated commitment to a decision in 2011 – although no

promise of decision by June 2011

- Allow a minimum of four years for public companies to make the adjustment to IFRS

Paul Beswick, SEC Deputy Chief Accountant, comments:- Introduced a possible alternative to both IFRS conversion

and U.S. endorsement of IFRS

- “Condorsement” approach • Incorporates properties of both convergence and

endorsement• Would allow FASB to retain control over US GAAP

Expected Roadmap to Adoption in the U.S.Recent comments from the SEC

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Expected Roadmap to Adoption in the U.S.Recent comments from the AICPA

AICPA Recommends SEC Allow Optional Adoption of IFRS by U.S. Public Companies  - “Whether or not the SEC decides to incorporate IFRS

into the U.S. financial reporting system through an endorsement/convergence approach, we believe U.S. issuers should be given the option to adopt IFRS as issued by the IASB,” Paul V. Stahlin, AICPA chairman, and Barry C. Melancon, AICPA president and CEO, said in a four-page letter to the SEC.

- Per this proposition, U.S. Issuers compliant with US GAAP should also be able to represent that they are compliant with IFRS as issued by the IASB.

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Impact of IFRS on Financial Services Companies

IFRS does not provide industry-specific guidance or standards for registered investment companies or private funds- Where specific guidance does not exist for

industry specific issues, investment companies following IFRS must look to other IFRS dealing with similar issues, the Conceptual Framework, standards of other standard-setting bodies and, in certain circumstances, accepted industry practices.

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Impact of IFRS on Financial Services Companies

Industry Views of IFRS for Investment Funds- US GAAP are more appropriate to open-end

investment funds than existing IFRS

- IFRS does not presently provide a satisfactory basis for investment funds financial reporting and is not sufficiently focused on the needs of investors.

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Impact of IFRS on Financial Services Companies

IFRS US GAAP

• Funds are required to consolidate all investments (incl. other funds and operating companies) over which they have control.

• Relief is in sight!The IASB proposes to exempt investment entities from consolidation requirements and has issued the Exposure Draft, Investment Entities, which proposes criteria that would have to be met by an entity in order to qualify as an investment entity.

• Operating companies of investment funds are not consolidated except in the case of operating service subsidiaries.

• Master funds in a master/feeder structure are not consolidated

• Fund of funds do not consolidate investee funds.

Sample key differences between IFRS and US GAAP

• Consolidation

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Impact of IFRS on Financial Services Companies

IFRS US GAAP

• Shareholder interest is currently expressed as a liability when the interest is redeemable by the investor. In addition, IFRS requires that investor capital be split between share capital, premium and surplus.

• Net assets of open-end investment funds could have zero net assets, impacting contractual calculations such as mgmt. fees as mgmt. fees as mgmt. agreements may need to be updated.

• Shareholder interest is classified as equity.

Sample key differences between IFRS and US GAAP

• Classification of Investor Ownership

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Impact of IFRS on Financial Services Companies

• Challenges for Investment Funds

• IFRS 7 Disclosures

• Consolidation of Investments

• Systems Limitations

• Investor Education

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Thank you