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IFRS NewsShedding light on the IASB’s activities*

IFRS News – Issue 59January 2008

In this issue…

1 IFRS 3R and IAS 27R New standards issued

3 ED9 JointArrangements

5 Roundtablediscussion Businesscombinations

7 SEC roundtables US adoption of IFRS

8 Appointments

9 Contacts

Issue of the month

IFRS 3R and IAS 27RThe IASB has issued two new standards: IFRS 3R on business combinationsand IAS 27R on consolidated and separate financial statements. Thestandards require greater use of fair value through the income statement andcement the ‘economic entity’ view of the reporting entity. Michael Gaull looksthat the key issues facing preparers and deal-makers and lists the keydifferences between the new standards and the previous ones.

Explaining the income statement

One of the key challenges will be explaining a different and more volatile income statementto users of financial statements. Provisions of the standard that affect the incomestatement at the time of acquisition and afterwards are outlined below:• Transaction costs are expensed: acquisition costs are no longer capitalised and

included in goodwill. They are expensed as costs are incurred and the related service isreceived.

• Pre-existing interests are fair valued through income: where the acquirer already ownedan interest in the acquiree (a financial asset or associate), it is measured to fair valuewhen control of the acquiree is obtained; any gain or loss is recognised (or recycled) inincome.

• Share options given to vendors may be expensed: the standard gives guidance onwhether share options given as part of the business combination are payments for thebusiness (and included in the purchase price) or are payments for employee services(and included as a post-combination expense).

• Changes in estimates of earn-out payments are income or expense: contingentconsideration is fair valued at acquisition date. Most liability-based contingentconsideration is fair valued through the income statement after the acquisition date. It isno longer adjusted against goodwill.

• Full goodwill may mean increased impairment charges: in a less than 100% acquisition,100% of goodwill is recognised if an acquirer chooses to measure non-controlling(minority) interest at fair value. If goodwill is impaired, a higher charge will be recordedin the income statement than if non-controlling interest is measured at share of netassets.

• Indemnities will match related liabilities: one requirement that reduces volatility relatesto indemnities received from a seller. IFRS 3R is explicit that indemnification assets arerecognised separately from goodwill, and their subsequent measurement should matchthat of the indemnified liability.

*connectedthinking

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IFRS 3 and IAS 27 IFRS News – Issue 59January 2008

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• Disposals to non-controlling interestsdo not affect income: under theprevious standards, most entities thatsold part of a subsidiary recognised again or loss in the income statement.The new standards treat non-controlling interests as equityparticipants of the group. Sellingshares of a subsidiary to a non-controlling interest is accounted forlike the issue of treasury shares, andany ‘gain’ or ‘loss’ is recognised inequity.

Potential acquirers should look closely attransaction structures to understand thepotential earnings effects.

Dealing with greater use of fairvalueThe use of fair value was extensive inIFRS 3: most acquired assets andliabilities were measured at fair value, andintangible assets were recognised at fairvalue. IFRS 3R extends this:• All elements of consideration are fair

valued: under the previous standardcontingent consideration wasrecognised only if payment wasprobable. Under IFRS 3R it is alwaysrecognised and measured at fairvalue.

• Non-controlling interest may bemeasured at fair value: IFRS 3R givesacquirers the option, on a transaction-by-transaction basis, to measure non-controlling interest at fair value.

• Previously held interests aremeasured at fair value: as notedabove, if an acquirer holds a financialasset or associate interest in anacquiree before it gains control, thatinterest is measured at fair value atacquisition date.

• On disposal, retained interests aremeasured at fair value: if an entitysells a subsidiary but retains anassociate or a financial asset interest,that interest is fair valued on disposalof the subsidiary.

Acquirers will often not have sufficientvaluations expertise in-house and willneed to consider using experts. Sincemore post-acquisition adjustments aremade against income (and not goodwill),

it is more important to get theaccounting and valuation right at thetime of the business combination.Acquirers may wish to get completevaluations information at an earlierstage.

Monitoring of contingent considerationwill need to take place because mostneeds to be measured at fair value until itis settled.

Explaining post-acquisition‘accounting’ volatility

The new standards may result in day 2accounting volatility because of tensionsbetween historical cost and fair value.Many assets and liabilities of businessesare not remeasured to fair value on anongoing basis but some elements fromIFRS 3R will be. If an acquired businessperforms well, changes in the carrying

Key differences between IFRS 3R and IAS 27R and theprevious standards

● Business combinations achieved bycontract alone and businesscombinations involving only mutualentities are accounted for under therevised IFRS 3.

● Transaction costs incurred inconnection with the businesscombination are expensed whenincurred and are no longer includedin the cost of the acquiree.

● An acquirer recognises contingentconsideration at fair value at theacquisition date. Subsequentchanges in the fair value of suchcontingent consideration will oftenaffect the income statement.

● The acquirer recognises either theentire goodwill inherent in theacquiree, independent of whether a100% interest is acquired (fullgoodwill method), or only the portionof the total goodwill whichcorresponds to the proportionateinterest acquired (as currently thecase under IFRS 3).

● Any previously held non-controllinginterest (as a financial asset orassociate, for example) is remeasuredto its fair value at the date ofobtaining control, and a gain or lossis recognised in the incomestatement.

● There are new provisions todetermine whether a portion of the

consideration transferred for theacquiree or the assets acquired andliabilities assumed are part of thebusiness combination or part ofanother transaction to be accountedfor separately under applicable IFRS.

● There is new guidance onclassification and designation ofassets, liabilities and equityinstruments acquired or assumed in abusiness combination on the basis ofthe conditions that exist at theacquisition date, except for leasesand insurance contracts.

● Intangible assets are recognisedseparately from goodwill if they areidentifiable ? ie, if they are separableor arise from contractual or otherlegal rights. The reliably-measurablecriterion no longer has to be met.

● Recognition of deferred tax assets ofthe acquiree after the initialaccounting for the businesscombination leads to an adjustmentof goodwill only if the adjustment ismade within the measurement period(not exceeding one year from theacquisition date) and the adjustmentresults from new information aboutfacts and circumstances that alreadyexisted at the acquisition date.Otherwise, it must be reflected in theincome statement with no change togoodwill.

● Additional disclosure requirements.

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amount of contingent consideration maynot be offset by profits and losses of theacquired subsidiary. A substantialpayment to the previous owners may berequired if an in-process research anddevelopment (IPR&D) project meets keyapproval milestones. The successfulIPR&D project may generate substantialprofits over 20 years. The increasedamounts due under the contingentconsideration arrangement are likely tobe recognised as expense in the incomestatement before the project generatesany revenue at all.

Using the economic entity concept

Most IFRS preparers have seen theinvestors of the reporting entity as beingthe shareholders of the parent company.The changes to IFRS 3 and IAS 27 moveus further into the economic entityconcept. Non-controlling interests are

equity participants in the reportingentity. As a consequence:• Non-controlling interest may be

measured at fair value when firstrecognised, resulting in the minority’sgoodwill being recognised on theconsolidated balance sheet;

• All purchases of equity interests fromand sales of equity interests to non-controlling interests are treated astreasury share transactions. Anydifference between the amount ofconsideration received or given andthe amount of non-controllinginterest is recorded in equity. Entitieswill no longer be able to report gainson the partial disposal of asubsidiary; and

• There may be significant debits toequity if an entity has measured non-controlling interest excluding itsshare of goodwill and that interest issubsequently purchased. The

difference between the amount paidand the non-controlling interest’scarrying value is recorded in equity.

Communications withstakeholders

A business combination under the newstandards may result in the financialstatements looking very different fromthe current state of play under existingIFRS 3 and IAS 27. This is true in theperiod of the acquisition and maycontinue for some years after thecombination. Entities should ensure thatthey understand how the structure ofthe business combination is likely toaffect the financial statements andshould be able to communicate this tostakeholders. The economics ofacquisitions has not changed, but theaccounting results may surprise some.

ED 9 is another step towards the goalsof the Memorandum of Understandingbetween the IASB and the FASB on theconvergence of IFRS and US GAAP. Thechanges proposed are to IFRS only,there are no changes proposed to USGAAP.

ED 9’s core principle is that parties to ajoint arrangement recognise theircontractual rights and obligations arisingfrom the arrangement. The ED thereforefocuses on the recognition of assets andliabilities by the party to the jointarrangement.

The scope of the ED is broadly the sameas that of IAS 31. That is, unanimousagreement is required between the keyparties that have the power to make thefinancial and operating policy decisionsfor the joint arrangement.

The key changes

There are two key changes proposed byED 9. The first is the elimination ofproportionate consolidation for a jointlycontrolled entity. This is expected tobring improved comparability betweenentities by removing the policy choice.The elimination of proportionateconsolidation will have a fundamentalimpact on the income statement andbalance sheet for some entities – but itshould be straightforward to apply.Entities that currently use proportionateconsolidation to account for jointlycontrolled entities may need to accountfor many of these using the equitymethod. These entities will replace theline-by-line proportionate consolidationof the income statement and balancesheet by a single net result and a singlenet investment balance.

The second change is the introductionof a ‘dual approach’ to the accountingfor joint arrangements. ED 9 carriesforward with modification from IAS 31,the three types of joint arrangement;each type having specific accountingrequirements. The first two types areJoint Operations and Joint Assets. Thedescription of these types and theaccounting for them is consistent withJointly Controlled Operations and JointlyControlled Assets in IAS 31. The thirdtype of joint arrangement is a JointVenture which is accounted for usingequity accounting. A Joint Venture isidentified by the party having rights onlyto a share of the outcome of the jointarrangement, for example a share of theprofit or loss of the joint arrangement.The key change is that a single jointarrangement may contain more than onetype; for example Joint Assets and a

ED 9 Joint Arrangements – A step too far, or not far enough?The IASB has published ED 9 Joint Arrangements, which proposes to replace IAS 31 Interests inJoint Ventures. Michael Stewart, director in PwC’s Global ACS Central team, considers theimplications of the proposed changes.

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Joint Venture. The party to such a jointarrangement accounts first for theassets and liabilities of the Joint Assetsarrangement and then uses a residualapproach to equity accounting for theJoint Venture part of the jointarrangement.

Accounting for rights andobligations

The ED calls for parties to a jointarrangement to recognise theircontractual rights and obligations arisingfrom the joint arrangement. This isconsistent with the approach beingdiscussed in other projects such asthose on leasing and the conceptualframework. Accounting for a right leadsto the recognition of an asset, andaccounting for an obligation leads to therecognition of a liability.

The ED proposes that a joint asset isrecognised when the party has exclusiverights to a share of the asset and theeconomic benefits generated from thatasset. There is a similarity between theright to use an asset in a jointarrangement and the right to use anasset in accordance with a leasecontract. The ED 9 proposals torecognise a joint asset for such rights isconsistent with the expected proposalsof the leasing project but a step beyondthe existing guidance in IAS 17 Leasesthat distinguishes between operatingand finance leases. The ED 9 proposalsto recognise rights and obligations makesense but is there a risk that they arepre-empting the results of some otherprojects? An indication that the ED 9proposals may be jumping too far aheadtoo quickly is the lack of explanation ofthe nature of the asset recognised.Some aspects of the ED suggest thatthe asset recognised is the right to usethe underlying asset, whereas otheraspects of the ED suggest the asset is a

share of the underlying asset. This mayseem like a subtlety, but it is importantthat the nature of the asset is clear andconsistent with the approach taken inother projects. Clear descriptions in thestandard will help ensure consistentapplication.

The strength and weakness of the‘dual approach’

The identification of more than one typeof joint arrangement within a singleagreement may be both a strength andweakness of ED 9’s proposals. Thisapproach anticipates that some jointarrangements are sophisticated andcomplex. The proposed dual approachrequires an in-depth analysis of therights and obligations that an entitymight have within a joint arrangementagreement.

The ‘dual approach’ is similar to thegeneral requirement in IFRS to separatetransactions into components where thisis necessary to properly understand theireconomic substance. Each componentis accounted for separately. A typicalexample is the sale of goods and anassociated service contract for thosegoods. The sale of the goods and theservice contract are accounted forseparately, even if they were legally partof the same contract.

A strength of the dual approach is therequirement for an entity to recognisethose assets it controls and the liabilitiesfor which it has obligations, regardlessof the legal form of the jointarrangement. This is consistent with thecore principle of the ED. This approachmight lead to some entities continuing torecognise a share of the assets andliabilities of an incorporated jointarrangement. This might be the result,for example, in the extractive industrieswhere each party takes its share of the

minerals produced and each bears itsshare of the capital and operating costsincurred.

A weakness of the ‘dual approach’ is theresorting to equity accounting for theresidual interest. The IASB has justifiedthe withdrawal of proportionateconsolidation by identifying that it leadsto recognising assets that an entity doesnot control and liabilities that it does nothave obligations for. However, there arealso weaknesses with equity accounting,both conceptually and practically. Thecurrent proposals extend the use of theequity method and fail to propose analternative for dealing with an entity’sinterest in the net results of a jointarrangement.

A step in the right direction?

The core principle of ED 9 makes sense.The objective of accounting for therights and obligations arising from a jointarrangement, rather than focusing solelyon legal form, is clearly the direction inwhich the IASB should go. Recognisingassets where there are rights, andliabilities where there are obligationsmakes sense, even if this mightsometimes be inconsistent with currentlease accounting. However, settling forequity accounting for the residualinterest is not sufficiently robust. Ifchanges are to be made to accountingfor joint arrangements, the ‘answer’should be coherent and comprehensive.One of the IASB’s current projects is theconsolidation project. The problematicequity accounting, for both jointarrangements and associates, should beaddressed as part of a comprehensiveproject addressing associates, jointarrangements, subsidiaries and specialpurpose entities. This project needs toensure that a consistent, seamlessmodel is developed for the continuum ofinvestor influence and control.

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MD: What does the M&A landscapelook like in your country and region?Which industries are most active?

YK: There is a lot of M&A activity inHK/China. In HK, blue-chip companiesare buying overseas companies andcompanies in mainland China. Inmainland China, state-owned enterprisesare buying from the parent companies.Some of them may not be acquiringbusinesses outside of their own group.Rather, they are rationalising their assets.

Traditionally in China, the performingassets have been listed, leaving the non-performing assets at the group level. Butnow the groups are grooming the non-performing assets to becomeperforming, and they want to put thoseinto listed companies. Foreigninvestment is also coming in, but thescale is smaller when compared withstate-owned enterprises.

It is listed companies in the miningsector, ports and retailers that are mainlydoing the acquisitions. Often they issueshares to effect the businesscombination and not cash. The sharesissued include convertible bonds, putsand calls, and options to buy and sellremaining interest. Companiessometimes find it hard to understandthese structures. We have a lot ofdiscussions on what the fair value is ofan equity instrument. In terms ofeducating the market, for now we aretaking companies through the processone at a time.

PS: There’s been a high level of M&Aactivity in Australia in recent years, andwe continue to hit highs with thenumber of deals and dollar-value. A lotof this has been spurred on by privateequity companies taking publiccompanies private. The large amount ofmoney being contributed in tosuperannuation (pensions) is alsofuelling the market.

This is happening to listed companieswhere there is a perception that they maybe undervalued by the market or thatprivate equity could restructure them in away that current management cannot.

The shareholders and boards of publiccompanies are fighting back; action isbeing taken to prevent takeovershappening. Some are defendingthemselves by increasing their gearing,others by returning capital, such as viashare buybacks. They are also doingthings to realise shareholder value, suchas reorganising the group and, or carvingthe existing group up on the principlethat the sum of the pieces will be greaterthan the whole.

MLK: In Singapore, our issues are amixture of those in China and Australia.There is a lot of M&A activity, especiallyfrom private equity companies,institutional funds and investors from theMiddle East. We also see largegovernment-linked companies investingoutside Singapore, buying banks inChina and properties elsewhere. Manycompanies are also re-organising tocarve-out operations or large assets intoinvestment or business trusts to raisefunds. Real estate, infrastructure assets,ships, rigs and other marine assets aretypically involved because these assetowning trusts are allowed to distributecash profits rather than accountingprofits. In addition, the Singaporegovernment offers attractive taxincentives to shipping industries.

MD: What challenges does that givethe local firm’s Accounting ConsultingServices group?

PS: Accounting for the complexrestructurings that are taking place at themoment. One such challenge is aroundgrooming transactions and re-organisation before disposing of part ofthe group: accounting for how a

company takes the existing group, re-structures it as two distinct pieces, andthen lists the second piece, whetherthrough selling shares in an initial publicoffering or by distributing the shares toexisting shareholders.

Accounting for common controltransactions is a challenge. There arediffering views as to whether commoncontrol applies to separate financialstatements or not. It is interesting aroundthe issue of the parent entity, whetherrecording the investment in grouprestructures should be done at fair valueor some amount other than fair value.

MLK: Presenting carve-out financialstatements for big companies that arerationalising their assets to enhanceshareholder value is a key one. Activity ishigh, and the absence of concretetechnical literature is a challenge for thecapital markets team.

MD: What role does the firm’s ACSgroup play in transactions in yourterritory?

YK: We’ve got beyond the challenges ofidentifying intangible assets. In terms ofM&A activity, we are working with thefirm’s Corporate Finance & Recoveryteams, guiding them in doing valuations.In general, the connection between theValuations teams and Assurance teamsin China and in Hong Kong is quitestrong. China is more of a ‘greenfieldsite’, whereas practices in HK are moreestablished, and there is certainly roomto improve links here.

In ACS we also work with Assurancepeople and Transactions Services (TS)people on buy-side and sale-side duediligence. We are very experienced inthis kind of work; to put it intoperspective, in HK/China we getbetween one and three circulars oncapital market transactions to reviewevery week.

Roundtable discussion on business combinationsFour members of PwC’s Business Combinations topic team discussed some of the key IFRS issues facingcompanies in this accounting area. Highlights of this roundtable discussion – covering M&A activity, the role of ACSin advising the market and challenging areas for companies to be aware of – are reproduced below.

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MLK: We have ongoing dialogue withTS, Valuations & Strategy, and theCapital Markets groups. We all meet fortwo hours once a month to discuss hottopics and how we can help each other,so they know the areas to look out forand we can flag up where help will beneeded. We all sit near each otherphysically too, and this helps a greatdeal.

PS: ACS in Australia plays an importantrole in the transactions space. We like toget involved in deals early on and wantto be able to raise issues with TS andAssurance groups so that we can addvalue rather than being focused oncompliance at the back-end.

Our preference is to engage early andaddress consideration vs compensationin structuring acquisition agreements toensure we get the best outcome. It alsomeans that if you have all the potentialissues identified upfront, there is still timefor management to take a different pathif necessary.

MD: What are the more challengingareas of disclosure in terms ofbusiness combinations?

YK: In HK/China, we need to focus ongoodwill disclosure. There is a tendencyin the market to copy from pro formaaccounts on consolidation issues. Morecould also be done in impairmentdisclosures too: what is a CGU, howmuch ‘headroom’ is there? Areas thatcould be improved are the reluctance todisclose the discount rate; insufficientsensitivity analysis; and the use of cashflow and methods – fair value less coststo sell vs value in use.

MLK: In Singapore there is also a lot of‘boiler-plate’ type information. There area lot of disclosures, not necessary high-quality ones.

MD: Why is that?

YK: Companies claim it is because theinformation is sensitive, but in fact theydon’t want to be the first in the market tomake certain disclosures.

PS: Our clients feel – for example, inrecognising an intangible asset separatefrom goodwill – that if no othercompanies have recognised theintangible, especially their competitors,why should they?

In Australia we see the use of templatedisclosures for many disclosures too.There are a lot of companies that do nottailor disclosures to their business.

MD: What we have in financialstatements is lots of data aggregated attoo high a level. Essentially we need toproduce lots of relevant information tokeep users happy.

Some industries are better at disclosurethan others. In the pharmaceuticalindustry, you have to give the marketgood information about the drugpipeline, so they are more used totransparency about the important thingsin the business. Banks are probablybetter at meaningful financial instrumentsand risk management disclosures.

It’s a global problem. Many countries’regulators produced reports on first-timeadoption, and insufficient disclosure wasa common theme.

MD: What is the message that teamsand clients least want to hear?

YK: We do a lot of share deals here. Theway the stock market is, we have lots ofgoodwill on day one, and day two weface impairments. In the separatefinancial statements, you recognise theinvestment in a subsidiary at fair value;and again, on day one there is a bigvalue, and day two it’s impaired.

PS: People are sensitive to share price. Isee often that a share deal is announcedand – because of due process, especiallywith hostile takeovers – it takes three orfour months to get the informationtogether, and then the share price hasmoved favourably so the company isspending more than it expected to onthe acquisition. People get nervousabout that. They have issues about usingthe price on the day of taking control.

The difficulty comes down to disclosure.Management is embarrassed at timeswith the price of acquisition that theaccounting standards come up with, andthey don’t know how to explain it toinvestors. If management had been toldup front that they would pay X price,they may never have done the deal.

MD: Management would like to accountfor what it planned to do and not what itactually did. Nothing new there.

PS: There’s also the issue ofconsideration vs compensation.Management’s intent may have been topay $Xm to acquire the company, but itstructured the deal so that it paid $Ymup front and $Ym to the vendor forcontinuing to work for the entity for thenext three years. It’s a question of: whatwas management’s intent vs what did itactually do?

MD: How does the market feel aboutBC2 and the economic entity model?

PS: In Australia, we need to increaseawareness of what is coming. Peoplehave understood that they have toexpense transaction costs going forward,but a lot of the detail – such as holding-period gains, accounting for existingownership interests and re-fair valuing ifyou lose control – isn’t fully understood.The market is not so aware of thestrategic advantage of doing somethingbetween now and 2009 or the adverseconsequences.

YK: We must try to fight the market’stendency to operate on a just-in-time-basis. The question comes back to howto raise awareness and make peopleunderstand they need to prepare now.We don’t want surprises at the lastmoment.

MLK: In Singapore, knowledge of BC2 isgood – people are aware of the changes,but they don’t like them. There is aconsistent dislike of expensingtransaction costs. But it is hard to getpeople to feed back to the standardsetter at the appropriate stage of thestandard-setting process.

MD: What is the intangible asset leastlikely to be recognised?

PS: Can we turn that around to: whichintangible is most likely to berecognised? I’d say goodwill!

YK: We always query, in financialstatement reviews, where we findacquisitions with no magnification ofadditional intangible assets. What didyou pay for? Customer relationships?Customer relationships is a challengingarea – the valuation of it, not theidentification of it. I ask preparers to gothrough a list of five types of intangiblesand explain why each type is notrelevant. In other words, I challenge themto say which ones they don’t have asopposed to which ones they do.

MLK: Customer relationships is an issuein Singapore too. We are also challengedaround valuations in that there aren’tenough good valuers and we find thevaluation methodology used by externalvaluers isn’t always suitable foraccounting purposes.

MD: Where do we need engagementteams to sharpen up their focus atyear end?

YK: What we need to improve in ourpractice is explaining what goodwill is. Itis not acceptable to say that goodwill isdue to the higher profitability of thecompany. We need to educate people onwhat is behind the goodwill number.

MLK: Our biggest challenge is that thereis so much information to read, digestand communicate to engagement teams.We produce a lot of guidance, but weneed to motivate engagement teams toread it early and engage clients andconsultants early, and then we can talkabout solutions later. The question ishow to make that information more user-friendly to the teams.

YK: There are so many messages. Wedon’t just receive information on financialreporting, but also risk management,methodology, independence, industrygroups, etc.

PS: The key is to empower our staff onengagements, especially senior staff, sothat they know the issues to discusswith companies. It’s a challenge findingefficient ways of sharing the messageswith them. What we want is to get theright information to the team at the righttime. We need to find ways of

communicating effectively – forexample, the big BC2 impacts andissues – making teams aware of theareas that will impact them and theirclients.

SEC Chairman Cox's opening remarksconfirmed that IFRS is receiving a highlevel of attention from thecommissioners, and that the goal of theroundtable was to gain a deeperunderstanding of the impact IFRS hashad around the world, and would haveon the US markets.

A key benefit to European investorssince the 2005 adoption of IFRS in the

European Union has been comparabilityacross national borders. Conversion toIFRS in the US would only help toenhance the global comparability ofcompanies. Panellists agreed thatintroducing another set of standards inthe US might cause confusion in themarketplace, but this may be a shortterm concern. Investors are alreadyevaluating companies using multipleGAAPs both in the US and when

investing internationally. Thereforeadjusting to IFRS reporting in the US isan obstacle that has already beensuccessfully overcome by some.

Almost all panellists observed that theUS will inevitably have to convert toIFRS. They noted that a single set ofstandards would help to drive increasedquality, reduce complexity in financialreporting and increase efficiencies in

SEC Roundtablediscussion

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Participants

● Mary Dolson, Global AccountingConsulting ServicesCentral team andtopic team leader (MD)

● Yvonne Kam, Global AccountingConsulting Services,Hong Kong/China (YK)

● Moi Lre Kok, Global AccountingConsulting Services,Singapore (MLK)

● Paul Shepherd, Global AccountingConsulting Services,Australia (PS)

SEC roundtable discussion on adoptionof IFRS in the USLast month the SEC held a roundtable discussion on whether US companies should be allowed toprepare financial statements in accordance with IFRS. Analysts, investors, educators, standardsetters, preparers, auditors and other interested parties came together to discuss with the SEC

commissioners some of the benefits, concerns and challenges US constituents would face. Dave Kaplan, PwC’s Leaderof US International Accounting and SEC Services reports on the key messages that emerged from the discussions.

capital markets. Panellists also viewedthe global regulatory environment as animportant part of the effort, andencourage the SEC to work with otherregulators to ensure consistent attentionis paid globally to investor protection.Cooperation, communication, consistentinterpretation and respect forprofessional judgment by regulators areimperatives.

Panellists raised other concerns such asthe need for improvements to IFRSs,and ensuring the IASB remains a private,independent organisation. Panellistspointed out that the IASB needs a

sufficient funding source, more technicalsupport to become the single globalstandard setter and should fairlyrepresent all stakeholders. Many believethe adoption of IFRS in the US would bea powerful endorsement of IFRSs andthe IASB, which would encouragecontinued improvement of thestandards.

Panellists recognised the speed withwhich the Commission eliminated thereconciliation requirement for SECregistrants outside the US who file usingIFRS as issued by the IASB, and notedthat the transition period to IFRS should

not be longer than necessary. Most felta mandatory adoption date within fiveyears, permitting early adoption, is areasonable timeframe to meet thechallenges faced, and to allow for theeducation and training needed tosuccessfully apply IFRS in the US.

Overall the panellists were optimisticabout adopting IFRS for use by USissuers. The SEC will need to addressmany challenges, and a detailed, wellconsidered transition plan is critical for asuccessful adoption. Despite thesechallenges and uncertainties, all agreed itwas the right next step.

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Wayne Carnall, senior technical partnerin PwC’s SEC-FPI Services group, hasbeen appointed chief accountant in theSEC's Division of Corporation Finance.He will be the principal advisor to JohnWhite, Director of the Division, onaccounting and auditing matters.

Wayne joined PwC in 1981 and becamepartner in 1997 after spending 10 yearsat the SEC’s Division of CorporationFinance. He held several positions there,including deputy chief accountant andassociate director – accountingoperations.

During his career at the SEC, he workedwith foreign private issuers at a timewhen there was a substantial increase inthe number of non-US companiesentering our markets.

Wayne was the senior technical partner in

the SEC-FPI Services group in his last 10years at PwC. He worked closely withmany engagement partners and FPIsduring this time, resolving difficultfinancial reporting and regulatory issues.

He served on a number of internationalgroups in the firm, including the GlobalInternational Financial ReportingStandards Board and the Global 404Steering Committee. He has also been amember of the AICPA InternationalPractices Task Force.

PwC’s global IFRS leader, Ian Wright, leftthe firm last month to join the UKFinancial Reporting Council (FRC). Iantakes on two roles: FRC director ofcorporate reporting; and deputy chairmanof the FRC’s Financial Reporting ReviewPanel (FRRP).

Ian will lead the work of the FRC

executive on ensuring that corporatereports increasingly meet the needs ofinvestors for relevant, high-qualityinformation. He will be responsible forensuring effective staff support isprovided to the UK’s AccountingStandards Board and the FRRP, and forformulating proposals for FRC policy onaspects of corporate reporting. Ian willrepresent the FRC in discussions withother regulatory bodies in the UK andinternationally.

Ian joined PwC in 1979, where hebecame an audit partner and later globalIFRS leader. He has recently retired as amember of the IFRIC but still serves onthe Financial Reporting Policy Group ofthe Féderation des Experts ComptablesEuropéens. Ian is also an adviser to thetechnical committee of the HundredGroup of Finance Directors.

PwC partners take on importantregulatory rolesWayne Carnall leaves to join the Securities and Exchange Commission; Ian Wrightleaves to join UK Financial Reporting Council.

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For further help, contact:

Head of the Global Corporate Reporting Group

Ian Wright: ian.d.wright@uk.pwc.com tel: +44 207 804 3300

Head of the Global Corporate Reporting Group in Poland

Mirosław Szmigielski: miroslaw.szmigielski@pl.pwc.com tel: +48 22 523 43 21

The Corporate Reporting Group in Poland

Robert Waliczek: robert.waliczek@pl.pwc.com tel: +48 22 523 43 32

Krzysztof Gmur: krzysztof.gmur@pl.pwc.com tel: +48 22 523 42 41

Roger Romański: roger.romanski@pl.pwc.com tel. +48 22 523 45 78