latest developments in ifrs - is the us finally ready to move forward?

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Latest Developments in IFRS Latest Developments in IFRS ––Is the US Finally Ready to Is the US Finally Ready to

Move Forward?Move Forward?

Accounting Day Accounting Day 9:15am 9:15am –– 10:35am (Track A)10:35am (Track A)May 9, 2011May 9, 2011

Stephen G. Austin, CPA, MBAStephen G. Austin, CPA, MBAFirm Managing PartnerFirm Managing PartnerSwenson Advisors, LLPSwenson Advisors, LLP

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Stephen G. Austin, CPA, MBA

Over 35 years of public accounting experience as an Audit Partner with Price Waterhouse, McGladrey & Pullen, LLP, and Swenson Advisors, LLP

Certified Public Accountant - California and Georgia

Audit Committee Chairman - Avanir Pharmaceuticals, Rock Church, World Trade Center San Diego, and Santa Fe Christian Schools

Serves on twenty Boards and related Committees

Author of “Rise of the New Ethics Class”

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Swenson Advisors, LLPSwenson Advisors, LLPA Regional Accounting Firm with Global OutreachA Regional Accounting Firm with Global Outreach

■ PCAOB Registered Firm

■ Offices in San Diego, Riverside County, and Hong Kong

■ SEC/SOX - Audit, Tax, Compliance, Asia Pacific Compliance services, IFRS Consulting

■ SOX Consulting Services with SWENTRACKTM - Automated Web Based Solutions

■ Top #30 Accounting Firms in San Diego from 2009 – 2011

■ Second Largest Accounting Firm in Riverside County

■ Members of Integra International - 174 offices, 59 countries

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David TweedieIASB chairman said:

He wants to “stick to the June timeline to focus minds but there would not be compromise on quality.”

BREAKING NEWSBREAKING NEWS

“Global accounting rule setters urged to take time,” 4/1/11, H.Jones

IFRS and FASB Extend Convergence Timetable and Issue April, 2011 Progress Report

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“IASB and FASB Report Progress on Convergence”(Journal of Accountancy, 4/21/11)

■ On April 14, 2011, FASB and IASB have jointly announced a further delay to the convergence of IFRS

■ Announced that they would defer “by a few months” the timeline for:

■ Revenue recognition – End of 2011■ Leasing – End of 2011■ Financial instruments – End of 2011■ Insurance – First half of 2012

■ Boards expect to issue new standards on fair value measurements and presentations of other comprehensive income in the new few weeks.

■ April 21, 2011 – Progress Report

BREAKING NEWSBREAKING NEWS

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BREAKING NEWSBREAKING NEWS

Michel BarnierMember of Member of IASBIASB’’ss monitoring board:monitoring board:

"Convergence should not be at the expense of quality." "Convergence should not be at the expense of quality."

"It is essential that the IASB responds fully to concerns "It is essential that the IASB responds fully to concerns expressed by stakeholders, including additional expressed by stakeholders, including additional

fieldfield--testing of projects where needed.testing of projects where needed.””

““We should make use of the deadline set by the G20 We should make use of the deadline set by the G20 (Group of 20 leading economies) recently.(Group of 20 leading economies) recently.””

“Global accounting rule setters urged to take time,” 4/1/11, H.Jones

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Robert GlauberIASB Trustee:

“Convergence was moving forward and it still has some distance to go.”

"We continue to tell the monitoring board they should be totally assured we do not and shall not permit due process to be sacrificed to any kind of deadline."

BREAKING NEWSBREAKING NEWS

“Global accounting rule setters urged to take time,” 4/1/11, H.Jones

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Mary SchapiroChairman of US SEC:

“I think the rigour and timeliness of oversight is especially important.”

BREAKING NEWSBREAKING NEWS

“Global accounting rule setters urged to take time,” 4/1/11, H.Jones

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2001 Formation of the IASC Foundation and the IASB2002 EU passes regulation to adopt IFRS for listed entities in 2005

FASB and IASB sign ‘The Norwalk Agreement’ in which they commit to reduce differences between US GAAP and IFRS, initiating the conversion efforts

2005 Nearly 7,000 listed entities in Europe adopt IFRS2006 IASB announces ‘three years stable platform period’ - entities

that have already adopted IFRS do not need to implement new IFRS until 2009

2007 SEC removes reconciliation requirement for non-US entities reporting under IFRS

2008 SEC proposes roadmap for potential mandatory adoption of IFRS by US Filers

2009 New SEC Chairman Mary Shapiro is reluctant to fully support roadmap to IFRS. In April, the Group of Twenty supports IFRS as one important step towards reforming the Financial System

2010 SEC Work Plan2011 SEC – April Progress Report/July Roundtable

IFRS Timeline

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Why Global Accounting Standards?

■ Global Accounting Standards improve the functioning of global capital markets by providing better information to investors and other users of financial statements

Decrease the costs of preparing and interpreting financial statements

Decrease cost of capital

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IFRS for Small and Medium Enterprises

(SMEs/Private Entities)

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SME accounting standards response ‘bigger than expected’ (Accountancy Age, 5/3/11)

■ Stakeholders were first invited to comment on the Accounting Standards Board’s (UK ASB) consultation document in October 2010

■ “The Consultation” on IFRS for SMEs concluded on Saturday, April 30th with a response that exceeded expectations

■ Respondents’ main concerns have focused on efforts to simplify FRSME (the draft IFRS for SMEs) by removing some of the options available under full IFRS

■ The ASB board has begun working through the responses which will take until Fall with a Report to emerge in late 2011

BREAKING NEWSBREAKING NEWS

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Summary – IFRS for SMEs

Issued July 2009

Culmination of a five year project

Represents a stand alone set of

standards

Considerably shorter –

only 230 pages

35 chapters

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Small and medium-sized entities are entities that:

(a) Do not have public accountability, and

(b) Publish general purpose financial statements for external users. Examples of external users include owners who are not involved in managing the business, existing and potential creditors, and credit rating agencies

Definition of Users

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30+ Topics

Financial statement presentation

Four separate financial statements

Footnotes

Accounting policies

Inventory

Investment in associates and joint ventures

PP&E

Goodwill and intangibles

Leases

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30+ Topics, Continued

Reserves and contingencies

Revenues

Share-based payments

Impairments

Employee benefits

Taxes

Foreign currency translation

Hyper inflation

Related parties

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Key Differences Between Full IFRS and IFRS for SMEs

Jointly controlled entities - no proportional consolidation

Investment properties – no cost method allowed

PP&E / intangibles – no revaluation treatment

Employee benefits – no corridor method allowed

Intangibles – no capitalization of R&D costs

Borrowing costs – expense only

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Overview of Convergence Process

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MoU Process

First MoU – February 2006

Second MoU – 2008

Third MoU – 2009

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SEC Initial Work Plan (February 2010)

– Six Components1. Sufficient development and

application of IFRS for the US domestic reporting system

2. Independent Standard settings for the benefit of investor

3. Investor understanding and education regarding IFRS

4. Regulatory environment5. Impact of issuers6. Human capital readiness

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Subsequent Series of Progress and Work Plan Reports

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Recent Changes at the Top of theIASB and FASB and their Impact on the Timing of Convergence

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Transitional Times Tommaso Padoa-Schioppa – IFRS Foundation Chairman

• Dies of Heart Attack - Process for selecting a new Chairman will be published soon

Sir David Tweedie – IASB Chairman• Hans Hoogervorst will succeed Sir David Tweedie on his

retirement as chairman of the IASB – June 30, 2011 Robert Herz – FASB Chairman

• Leslie Seidman named FASB Chairman. Her appointment comes as FASB deals with an unprecedented workload to complete priority convergence projects with the IASB by June 30th

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2010-2011 New Pronouncements and Updates

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One new standard – IFRS 9 One revised standard – IAS 24 Amendments to IFRS that were issued as

separate documents Amendments to IFRS issued in the second

annual improvement projects Amendments to other IFRS resulting from those

revised or amended standards Two new interpretations – IFRIC 18 and 19

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IFRS 9 Financial Instruments

IAS 24 Related Party Disclosures

IFRIC 18 Transfers of Assets from Customers

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments

New Pronouncements

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Amendments to IFRS Issued as Separate Documents

Amendments to IFRS 7

Amendments to IFRIC 9 and IAS 39

Annual improvements

Amendments to IFRS 2

Amendments to IFRS 1

Amendments to IAS 32

Amendments to IFRIC 14

Amendments to IAS 12

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Status of Convergence Work

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Overview of the New Revenue Recognition Model

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Work Plan for Remaining Priority Convergence Projects

Revenue recognition: The IASB and FASB published a joint discussion paper in December

2008 The project is critical to both the FASB and the IASB. US GAAP has

a wide range of very detailed industry-specific requirements The boards have been considering the feedback received from

comment letters and the boards’ extensive outreach activities and are close to completing their redeliberations

Draft of the new standard will be:a) Made generally available, via the boards’ websites, for interested parties to

review;b) Used as the basis for outreach with parties that are most affected by the

proposed new requirements; andc) Subjected to a detailed drafting review with selected parties, as part of the

fatal flaw review process each board is required to undertake The board will consider feedback that they received from these steps

to assess whether they can proceed to finalize the standards

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Exposure Draft Issued in June 2010

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Key Components :Revenue Recognition

Step 1 Identify the contracts with the customerStep 2 Identify the separate performance obligationsStep 3 Determine the transaction priceStep 4 Allocate the transaction price to the performance

obligationsStep 5 Recognize revenue when a performance

obligation is satisfied

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Expanded Footnote Disclosures

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Work Plan for Remaining Priority Convergence Projects

Leasing: The objective of this project is to improve financial reporting by

ensuring that all assets and liabilities arising from lease contracts are recognized in the statement of financial position

The boards published a joint exposure draft in August 2010 The boards have been considering the feedback received from

comment letters and the boards’ extensive outreach activities They intend to develop a draft of the new standard, which will be:

a) Made generally available, via the boards’ websites, for interested parties to review;

b) Used as the basis for outreach with parties that are most affected by the proposed new requirements; and

c) Subjected to a detailed drafting review with selected parties, as part of the fatal flaw review process each board is required to undertake

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Work Plan for Remaining Priority Convergence Projects

Financial instruments: Efforts to improve our requirements and to reach a

common solution have been complicated by differing imperatives that pushed our respective development timetables out of alignment

Strategy for addressing those differences remains the same – each board has been publishing its proposals while also soliciting comment on those of the other board, as a way of giving interested parties the opportunity to compare and assess the relative merits of both boards’proposals

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Top 10 Industrialized countries and their Use of IFRS

and

How they Have Implemented the New Standards

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Understanding the Differences between

“Adoption”and

“Adaptation”(=Adaption?)

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China Rules for Listed FilingsIs IFRS required for all listed companies?

No, however CAS (Chinese Accounting Standards) have “somewhat converged” with IFRS. It is not a direct translation of IFRS and several differences remain between CAS and IFRS. The Ministry ofFinance has plans to eliminate those differences. Version of IFRS is not applicable.

Rules for Statutory FilingsIs IFRS or IFRS for SMEs required, permitted or prohibited?

IFRS or IFRS for SMEs are prohibited.Basically “stuck” in the 2006 version of IFRS.

IFRS adoption by country – www.pwc.com

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India Rules for Listed FilingsIs IFRS required for all listed companies?

No, Financial Statements must be prepared in accordance with Indian GAAP. Version of IFRS is not applicable.

Rules for Statutory FilingsIs IFRS or IFRS for SMEs required, permitted or prohibited?

IFRS and IFRS for SMEs are prohibited. Financial Statements must be prepared in accordance with Indian GAAP.

Failed to meet the March, 2011 deadline.

IFRS adoption by country – www.pwc.com

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United Kingdom Rules for Listed FilingsIs IFRS required for all listed companies?

Required for consolidated financial statements. Permitted for standalone/separate financial statements.IFRS as adopted by EU.

Rules for Statutory FilingsIs IFRS or IFRS for SMEs required, permitted or prohibited?

Permitted for standalone/separate financial statements. IFRS for SMEs is prohibited.Parent companies can choose to apply IFRS or UK GAAP.

IFRS adoption by country – www.pwc.com

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Germany Rules for Listed Filings

Is IFRS required for all listed companies?

Required for all consolidated financial statements.IFRS as adopted by EU.

Rules for Statutory FilingsIs IFRS or IFRS for SMEs required, permitted or prohibited?

Permitted, for standalone financial statements as long as additionally, local GAAP (HGB) consolidated financial statements are prepared and filed.IFRS for SMEs is prohibited.

IFRS adoption by country – www.pwc.com

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FranceFrance Rules for Listed FilingsIs IFRS required for all listed companies?

Required for consolidated financial statements.IFRS as adopted by EU.

Are subsidiaries of foreign companies or foreign companies listed on local exchanges subject to different rules?

Yes. Non-EU companies can apply Japanese, US or Canadian GAAP.

Rules for Statutory FilingsIs IFRS or IFRS for SMEs required, permitted or prohibited?

IFRS and IFRS for SMEs are prohibited.

IFRS adoption by country – www.pwc.com

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Australia Rules for Listed FilingsIs IFRS required for all listed companies?

Required for consolidated financial statements. There is no longer a requirement to prepare separate standalone financial statements for the parent entity.IFRS as adopted using the Australian version of IFRS.

Rules for Statutory FilingsIs IFRS or IFRS for SMEs required, permitted or prohibited?

IFRS is required for most consolidated and standalone/separate financial statements.IFRS for SMEs is prohibited.

IFRS adoption by country – www.pwc.com

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New Zealand Rules for Listed FilingsIs IFRS required for all listed companies?

Required for consolidated and standalone/separate financial statements. Like Australia, IFRS as adopted locally. All requirements of IFRS as published by IASB are retained, but also some additional requirements are included in New Zealand Equivalents to IFRS (NZ IFRS) (mainly in relation to public benefit entities, so these would not be relevant for listed entities).

Rules for Statutory FilingsIs IFRS or IFRS for SMEs required, permitted or prohibited?

NZ IFRS is required for some companies and IFRS for SMEs is prohibited.

IFRS adoption by country – www.pwc.com

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Japan Rules for Listed FilingsIs IFRS required for all listed companies?

Listed companies which meet certain requirements ("Specified Companies") are permitted to use IFRS for their consolidated financial statements ending on or after March 31, 2010.IFRS as adopted by the Financial Services Agency ("Designated IFRS’").The Commissioner of the Financial Services Agency of Japan will designate those IFRSs published by the IASB which are recognized as having been approved and issued through fair and reasonable due process and are expected to be considered as being fair and appropriate financial reporting standards from the viewpoint of investor protection and market integrity in Japan.

Rules for Statutory FilingsIs IFRS or IFRS for SMEs required, permitted or prohibited?

Companies which file their consolidated financial statements under the Companies Act are permitted to use IFRS for the consolidated financial statements ending on or after March 31, 2010, if they are Specified Companies.

IFRS adoption by country – www.pwc.com

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Spain Rules for Listed FilingsIs IFRS required for all listed companies?

IFRS is required for consolidated financial statements for listed companies (other than financial institutions). Financial institutions must apply a local accounting plan that complies with IFRS although it is not called IFRS. Main differences are the elimination of the “non preferable accounting policies” when there are alternatives (i.e. the fair value model for IAS16 items is not permitted).IFRS as adopted by the EU.

Rules for Statutory FilingsIs IFRS or IFRS for SMEs required, permitted or prohibited?

IFRS is permitted for consolidated financial statements. All other companies must use New Spanish GAAP (effective January 1, 2008), which is essentially IFRS based with some differences. IFRS for SMEs is prohibited.

IFRS adoption by country – www.pwc.com

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South Korea

Rules for Listed FilingsIs IFRS required for all listed companies?

Adoption of IFRS is required for all listed companies and certainunlisted financial institutions from 2011.IFRS as published by IASB and translated to Korean language word-for-word.

Rules for Statutory FilingsIs IFRS or IFRS for SMEs required, permitted or prohibited?

IFRS is permitted from 2009 for all statutory filers. In 2011, IFRS is a requirement for all listed statutory filers and certain unlistedfinancial institutions. IFRS for SME is prohibited for statutory filings.

IFRS adoption by country – www.pwc.com

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“Deep Dive” into the Progress Report (October 29, 2010)

on the SEC Work Plan and

Practical Issues Surrounding IFRS Adoption

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Progress Report on SEC Work PlanOctober 29, 2010

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SEC “Preliminary Observations”(October 2011)

Approaches to Incorporate IFRS into a Jurisdiction’sFinancial Reporting System

1. Use IFRS as issued by IASB

Very few follow!

2. Use IFRS after some form of national incorporation process

Leading to...

Convergence approachand/or

Endorsement approach

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Convergence Approach

China – Best Example Moving closer Not full incorporated Follow “ASBEs” – Accounting Standards for Business

Enterprises (Set by the Accounting Law of the PRC) Adopted 2006 standards in 2007 September 2009 – new Roadmap (exposure draft) In state of “lull”

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Endorsement Approach(Vast Majority Follow this Approach)

Degree of deviation varies by jurisdiction Translated into local language (not English) Modification based on “country specific issues” EU – largest example

Australia – 2nd largest example

New IFRS must go through multiple steps before its authorized by the “EFRAG” (European Financial Reporting Advisory Group) 

and then “SARG” (Standards Advice Review Group) and then..

“ARC” (Accounting Regulatory Commission) and finally...

the European Parliament has three months to oppose endorsement

If not opposed                      published in the Office Journal of the EU

2006 ‐

Present

Must follow IAS adopted by European Commission for listed companies2005

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Other Critical SEC Observations and Concerns

Oversight of the IFRS Foundation? Composition of the IFRS Foundation and IASB Significant underfunding of the IFRS Foundation

• Operating deficits of $4 million• 75% of the countries do not help fund• United States accounts for about 25% of total

funding Many issues to resolve!!!

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Understanding the New Term“Condorsement”

(Convergence + Endorsement)and

What It Means to You!

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What to Expect from the SEC in the Next 30-60 Days

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SEC will sponsor a Roundtable in July to discuss benefits/challenges in potentially incorporating IFRS

into the financial reporting system for US issuers

The July 7 event will feature three panels representing –investors, smaller public companies, and regulators

SEC welcomes feedback on the topics to address at the roundtableand suggestions for potential roundtable participants

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SEC sent a letter to the Center for Audit Quality –acknowledging that it would be impossible for foreign private issuers,

or those who file their financial statements with the SEC following IFRS, to file in XBRL following SEC rules

On March 25, IFRS Foundation finalized the 2011 IFRS Taxonomy, however the SEC has not yet approved that taxonomy

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IFRS Foundation to Add Common-Practice Tags to IFRS Taxonomy

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What You and Your Team Should Be Doing Now

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PWC SurveyApril 2011

642011 US GAAP Convergence & IFRS Survey, 4/11/11

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Some 43% respondents said the pace is too fast. 15% thought the pace was too slow.

2011 US GAAP Convergence & IFRS Survey, 4/11/11

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Predictive Timeline for 2011-2015?

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Personal Experience in 2011Teaching IFRS to the Chinese

at the MBA Level at Shanghai University

of Finance and Economics

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Thank You

Stephen G. Austin, MBA, CPAsteve.austin@swensonadvisors.com

www.SwensonAdvisors.comwww.swentrack.com

www.swensonforensic.com