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					International Financial Reporting Standards

D.J. Gannon, Partner
Deloitte & Touche LLP
Deloitte/FSA Faculty Consortium
May 15, 2008

Current IFRS landscape

IFRS implementation in the U.S.

Company considerations

Wrap up

IFRS Landscape

A Point of View

                         IFRS is inevitable in the U.S.
Movement Toward
                         Convergence landscape is changing
Global Standards
                         Timelines are accelerating

Fundamental Changes      Involves a new way of thinking
in the Financial         Regulatory perspectives are changing
Reporting Environment    Infrastructure changes are underway

                         IFRS may already be applicable
Significant Impact on    Impacts and potential benefits beyond
Companies                 accounting
                         Pro active assessment of impact

The Global Move Towards IFRS

United States
  (2011?)                                                                  China           Japan
                                                                           2007             (?)


                                                          Africa               Australia
                                                          2005                   2005

                                               Current or anticipated requirement
                                               or option to use IFRS (or equivalent)

IFRS Today and Tomorrow

 Today IFRS is used in over 100
  countries:                                              Accounting Standards Used by Global Fortune 500

 – Required across all EU countries, starting in
   2005                                                  250

 – Brazil, Canada and India have announced
   mandated use                                          200                       187
 – Ongoing convergence efforts between FASB
   and IASB
 By 2011, it is expected that:
 – All major countries will have adopted IFRS to
   some extent
 – China and Japan will be substantially                  50
   converged to IFRS
 – U.S. public companies will likely have the              0
   option of using either IFRS or U.S. GAAP                                       2006
                                                                        U.S GAAP     IFRS    Other

Regulatory Developments

 Considerable movement towards mutual recognition of financial reporting
  frameworks between the U.S. and the EU
 – U.S. GAAP in EU - Equivalence Initiative
 – IFRS in U.S. - IFRS “Roadmap”

 SEC developments
 – Elimination of U.S. GAAP reconciliation for Foreign Private Issuers using IFRS effective
   for 12/31/07 year ends
 – Concept release allowing U.S. companies a choice of IFRS is gathering support
 – IFRS “roadmap” on use in the U.S. expected this year

 Ongoing evolution of regulatory practices
 – Greater cooperation amongst regulators on IFRS application issues including agreed
   upon work plans

Ongoing Convergence Efforts

 IASB and FASB reaffirm convergence efforts
 – Updating of the “Norwalk Agreement”

 Focus is on the process and converging general principles
 – Less focus on converging details

 Involves several projects
 – “Short-term” convergence projects
 – Joint conceptual framework projects
 – Other Joint convergence projects
 – Other IASB projects

 Future prospects

IFRS Implementation in the U.S.

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Drivers of Interest in IFRS

            Regulatory – SEC may allow or require U.S. companies to report
             in IFRS
External    Competition – May adopt IFRS achieving a competitive
Drivers      advantage
            Capital markets – Easier access to capital markets, lowering the
             cost of capital

            Centralized and standardized processes – Ability to streamline a
             disjointed financial reporting process
            Consistency in reporting – Implementation of uniform accounting
             policies & procedures for statutory and consolidated financials
Internal    Greater efficiency – Availability and more efficient usage of
Drivers      resources, reducing costs
            Better information – Improved internal controls resulting in better
             financial information at the statutory and consolidated levels

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Recent Deloitte Survey: Would You Consider Adopting IFRS?

                Don't know


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A Perspective on IFRS

 Will require a change in mindset
 – More of a focus on “thinking” about the answer

 Less detailed guidance to consider
 – More of a focus on the “substance” of transactions
 – Evaluate whether the accounting presentation reflects the “economic reality”

 Grater use of professional judgment
 – More of a focus on the “process” around making judgments
 – CIFR recommendations

 Impact on risk
 – Possibility of “second-guessing” by regulators?
 – Will litigation increase?

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What We’re Doing at Deloitte

 Established an IFRS project management office
 – Focused resources to help coordinate and lead firm-wide response to IFRS
 – Coordination and oversight of strategic IFRS activities
 – Deloitte Learning actively involved and driving training effort

 Plan underway to provide IFRS training needed for DTT accreditation to an
  estimated 1,500 professionals in 2008
 – Focus on level of convergence between IFRS and U.S. GAAP
 – Based on current assignment to IFRS clients
 – Scheduled seminars in the Spring and Fall

 Course to highlight IFRS (and explain future changes) has been developed for
  all professionals

 Three to five-year plan under development to address long-term training
  implications for professionals

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Impact on Academia

 When should IFRS be taught?
 – Students in the system today
 – New students coming into the system

 What will the movement to IFRS mean for curriculum?
 – Not just about accounting
 – Greater need to understand other disciplines

 How will the approach to testing and certification change?
 – Objective versus subjective analysis
 – Focus on problem solving and decision making process

                                           - 15 -
Deloitte IFRS University Consortium

 Dedicated to helping to bring IFRS to the classroom
 – Focus on providing solutions

 Open to any institution
 – No cost to institutions
 – Simply agree to participate and provide feedback

 Activities and benefits
 – Providing input in the direction, goals and resources available from the consortium
 – Participation in periodic webcasts and sharing of best practices used in the classroom
 – Involvement in defining the academic needs to be addressed by the development of
 – Access to the support and guidance from Deloitte professionals
 – Access to Deloitte IFRS information resources, publications and training sessions.

 Register at

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Company Considerations

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  From Current State to End State

                     Corp    Current State

  Subs       Subs    Subs    Subs    Subs    Corporate Reporting

  IFRS       Local   Local   Local   Local   Statutory Reporting

                                                            Migration to IFRS

 Standardize IFRS to
 US GAAP adjustments

                                                                                End State
Chart Key:

                              Merge corporate and
                              statutory IFRS reporting
    IFRS                                                                             Local

                                                   - 18 -
Key Impacts of IFRS Implementation

                            Process and
    Technical                                                Technology           Organizational
   Accounting                                               Infrastructure           Issues
• Overall approach      • Internal controls               • General ledger       • Tax structures
  to IFRS                 and processes,                    and chart of         • Treasury and cash
  implementation          including                         account structure,     management
• First time adoption     documentation and                 including            • Legal and debt
  policy                  testing                           performance            covenants
  considerations,       • Management and                    metrics              • People issues,
  including reporting     internal reporting              • Global                 including
  dates and use of        packages                          consolidation          education and
  exemptions            • Global reporting                • Sub-system             training,
• Ongoing policy          packages                          issues related to      compensation
  considerations,                                           configuration and      structures
  including             • Statutory reporting,              data capture         • Internal
  alternatives and        including                       • Capabilities to        communications
  approach to             “opportunities”                   manage multiple      • External and
  “principles”            around IFRS                       GAAP accounting        shareholder
                          adoption                          during transition      communications

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First-time Adoption of IFRS – Overview of IFRS 1

 Applicable when an entity makes its first explicit and unreserved reference to

 Generally apply retrospectively all IFRS effective at reporting date
 – Certain exemptions can be elected
 – Some exceptions that must be followed

 Only requires one year of comparative financial information

 Transition adjustments recognized in retained earnings

 Must explain effect of transition to IFRS

                                           - 20 -
IFRS 1 Considerations

          Overall               Balance Sheet                  Disclosures
 Identify   key dates    Recognize     all assets and  Identify areas where
                           liabilities required under     extensive disclosures
 Identifydifferences
                           IFRS (internal development will be required
 between existing
 accounting policies                                     Reconciliation of equity
 and IFRS and             Derecognize all assets and     and income
 determine IFRS            liabilities not permitted
                                                         Distinguish between
 policies                  under IFRS (post
                                                          policy changes,
                           acquisition restructuring)
 Determinationof                                         estimate changes and
 estimates under IFRS     Measure assets, liabilities    error corrections
                           and equity (impairment of
 Electand apply                                         Narrative discussion
 optional exemptions                                      adjustments
                          Reclassify items (deferred
 Apply
      mandatory                                          Asset impairment
                           tax items)
                                                         Deemed cost

                                       - 21 -
Thoughts on The EU Experience

                Observations                             Lessons Learned
 Overall approach generally was to    Effort was often underestimated
 minimize differences from local GAAP
                                       Late start often result in escalation of
   Variety of performance measures     costs, especially after transition date
 Increaseddisclosure in financial          Many     companies did not achieve
 statements                                     “business as usual” state for IFRS
     Judgments made                            reporting
     Risk disclosures                      Often    a lack of a holistic approach,
                                                taking collateral effects into
 Significant   impact on results
     Asset impairments
                                            Hard    to get it right the first time
     “Split accounting”
                                            Several     companies are only now
     Components approach
                                                starting to explore benefits from IFRS
     Deferred income taxes                     implementation (“one standard
     Derivatives                               reporting”)

                                       - 22 -
Wrap Up

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 IFRS has become a dominant force globally and is coming, sooner or later, to
  the U.S.

 The movement to IFRS will result in a new way of thinking

 A significant number of U.S. companies are planning IFRS adoption

 Now is the time to begin addressing the impact of IFRS

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