2011 Alt Inv Summit V7
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Transcript of 2011 Alt Inv Summit V7
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