IFRS Outlook

Time for governments to come clean 2

Convergence — a moving target 6

Consistency in IFRS — no borders, one language: dream or reality? 7

The future of the IASB’s agenda 9

IFRS project update 10

Resources 11

We welcome your feedback on IFRS Outlook. Please contact us at ifrs@ey.com.

Ruth Picker Global Leader of IFRS Services

In this issue ...Time for governments to come clean As the sovereign debt crisis has unfolded, there has been increasing pressure on governments around the world. We spoke to the Hon. Ruth Richardson, former New Zealand Minister of Finance; Jim Turley, EY’s Chairman and CEO, and EY’s Global Public Sector Accounting leader and IPSAS Board Member, Thomas Müller-Marqués Berger, to get their thoughts on the importance of transparency and accountability for governments in the pursuit of long-term fiscal sustainability.

Convergence — a moving targetRecently, the finance ministers and central bank governors of the G-20 urged the IASB and the FASB to meet their target of issuing standards on key convergence projects by mid-2013, at the latest. We have summarised the progress of the Boards’ joint projects to date.

Consistency in IFRS — no borders, one language: dream or reality?The lack of consistent application of global accounting standards is seen by many as a challenge. Consistency in the application of IFRS is crucial to achieving a single set of high-quality global standards. Otherwise, the standards are “global” in name only. Read more about the roles that the IFRS Foundation and others, including Ernst & Young, play in ensuring consistency.

The future of the IASB’s agendaThe IASB is in the process of completing its first formal public consultation on its future work plan. The comment letters received by the IASB, along with discussions with constituents at recent roundtables, highlighted some common themes. Read more about the feedback received by the Board along with our views on the agenda.

IFRS project updateFind out which projects the IASB and the IFRS Interpretations Committee are currently discussing.

ResourcesLook here for an up to date list of our recent publications.

IFRS Issues for Business Leaders

ey.com/IFRSMay 2012

IFRS Outlook May 20122

Time for governments to come clean

As the sovereign debt crisis has unfolded in recent years, there has been a significant rise in the level of deficient accounting and financial reporting practices by a number of governments and public sector entities around the world. Some of the rogue practices by politicians in these countries have been described as “ponzi schemes that depend on robbing the unsuspecting young to pay the over grasping old.”1 The result has been a loss of confidence in the financial system and a significant risk to financial stability in many countries. However, while many countries have had multiple credit ratings downgrades, others, like Australia and New Zealand (NZ), seem to have weathered the global financial crisis relatively unscathed. We spoke to the former NZ Minister of Finance, the Hon. Ruth Richardson, Ernst & Young Chairman and CEO, Jim Turley, and Ernst & Young Global Public Sector Accounting leader and Thomas Müller-Marqués Berger, a member of IPSASB2, to get their thoughts on why transparency and accountability is imperative for governments that are pursuing long-term fiscal sustainability.

Reasons for the state we are inThe sovereign debt crisis has exposed the severity of the impact of poor financial management and below-par financial reporting by the public sector. Ruth Richardson describes the behaviour and accounting practices adopted by the public sector in some countries as becoming “the toxic norm.” “A private entity that behaved in this fashion would already have faced criminal sanction. The sovereign debt crisis has been an accident waiting to happen. The adherence to a crude cash accounting regime has conspired to disguise the true cost of the unsustainable public finance burden until the crisis hit,” says Richardson. “It is surprising how many governments in this day and age are still accounting for pensions and post-retirement health benefits, and, potentially, a whole host of other entitlements, on a cash basis,” she adds.

Jim Turley makes a candid observation that some governments are still operating under archaic processes and systems, while others don’t even have processes or systems in place to take stock of the assets and liabilities that they hold — at a time when they need to be accountable for their decisions around resource allocation more than ever before. “Rules create incentives that drive behaviour. Accounting and budgetary policy create definite incentives. Therefore, without the right kind of rules within the right framework, we get the wrong behaviour as a consequence. For the governments, the results of accounting processes and standards that fail to reflect reality and fail to provide transparency to stakeholders ... well, we’ve seen the results.”

1 Quote from Ruth Richardson.2 International Public Sector Accounting Standards Board.

“ A private entity that behaved in this fashion would already have faced criminal sanction. The sovereign debt crisis has been an accident waiting to happen. The adherence to a crude cash accounting regime has conspired to disguise the true cost of the unsustainable public finance burden until the crisis hit.”

Ruth Richardson

IFRS Outlook May 2012 3

Time for changeTurley goes on to say, “In the past, it has been quite remarkable that many government entities (including those in the US) issued qualified statements and disclaimers year after year, without the taxpayer seeming to care.” Richardson, Turley and Müller-Marqués Berger unanimously agree that the days of reckless fiscal behaviour by governments are over. “Accrual accounting, including the cash perspective, is clearly superior to pure cash accounting, the debate on adoption is less a question of whether to, but rather, how to adopt,” says Müller-Marqués Berger.

In contrast to the fiscal neglect of many governments around the world, is NZ’s pioneering adoption of accrual accounting in the public sector.3 Richardson had first-hand experience, as Minister of Finance, of driving this public sector management revolution. Asked to share the challenges and triumphs of that reform, she says, “While there was a growing realisation that the country was running out of fiscal runway, the politicians lacked the tools to get a grip on public finances and correct the course. The NZ Treasury persuaded all parliamentarians that they could better match resources with results by the move to accruals in terms of both accounting and budgeting. In an unprecedented public sector management revolution, NZ tied the public sector to the same accounting mast as the private sector, moving from budgeting for inputs to outputs and introduced performance management regimes into all state entities. The old adage — if you can’t measure it, you can’t manage it — rang true! NZ’s credit rating dropped to AA- in 1991, but recovered to AA+ by 1996.” This is also evident in the gradual reduction of government debt as a percentage of GDP (see Figure 1).

Figure 1: NZ government debt reduced by 30% on GDP basis from 1990-2000

Net Government Debt (as % of GDP)

“High-quality reporting distinguishes between operating and capital expenditures and provides comprehensive information about assets and liabilities. As a minister, the ability to write a purchase agreement with the departmental head specifying the cost and quality of the outputs sought was a transformation of the politician’s power to effect change.” Richardson believes that, fundamentally, in order for reform to happen, there needs to be a team of believers at the highest political levels, matched by expert execution at the technical level.

“ In the past, it has been quite remarkable that many government entities (including the US) issued qualified statements and disclaimers year after year, without the taxpayer seeming to care.”

Jim Turley

3 NZ published their first set of whole of government accounts and balance sheet under accrual accounting in 1992 – a global first for a Minister of Finance.

NZ Treasury assembled figures from IMF Government expenditure reports 1995 and 2001

0%

20%

40%

60%

1990 19921991 1993 1994 19961995 1997 1998 20001999

44%

31%

38%

Year

51%53%

47%

50%

27%

22%

25%

21%

-30%

“ NZ tied the public sector to the same accounting mast as the private sector, moving from budgeting for inputs to outputs and introduced performance management regimes into all state entities. The old adage — if you can’t measure it, you can’t manage it — rang true! New Zealand’s credit rating dropped to AA- in 1991, but recovered to AA+ by 1996.”

Ruth Richardson

IFRS Outlook May 201244

How can the accounting profession help improve the current situation?On the issue of reporting under a robust and sound framework, Turley is of the view that because of the systemic nature of sovereign credit risk, the demand for transparency and accountability in government should be even higher than that of the private sector. “While there are fundamental issues that governments need to deal with, such as government spending, social provision expectations and dependency cultures, our profession can support governments in the crucial area of modernising their financial management and reforming their accounting methods. This is an important step to set the right conditions for recovery. Accounting alone can’t guarantee that governments will always make the right decisions, but it can help lower the risks of uninformed decisions that would burden future generations,” says Turley.

Müller-Marqués Berger emphasises that the adoption of IPSAS, which is an IFRS-based set of standards tailored specifically to the nature of public sector entities, will improve transparency and accountability in government accounting. He adds that, currently, the IPSASB is focusing on the completion of several projects, including the conceptual framework and first-time adoption of accrual IPSAS and it is in the research phase for the accounting of social policy obligations. The IPSASB also has a task force working towards the alignment of IPSAS and government finance statistical accounting. Müller-Marques Berger also believes that it is no longer sufficient to assess a government’s performance entirely on financial measures at the balance sheet date. Governments need to place considerably more attention on reporting long-term fiscal sustainability reports focusing on inter-generational equity, and service performance reports.

“We conducted a study4 in 2011, and observed that public finance thinkers and policymakers increasingly believe that their countries cannot rely on antiquated, cash-based accounting systems. It is encouraging to observe that a number of countries have begun the modernisation of public sector accounting, and the financial crisis has not shaken that resolve. They remain convinced that accrual accounting will have the same advantages for government stakeholders that it has had for investors in private companies over the past few centuries — namely, increased transparency of government leaders and accountability to the public” says Müller-Marqués Berger.

Next stepsThe IPSASB has issued for public consultation the Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities: Presentation in General Purpose Financial Reports, with comments requested by 31 May 2012, and an exposure draft entitled Financial Statement Discussion and Analysis, with comments due by 31 July 2012. We encourage all stakeholders to engage with the IPSASB’s standard-setting process, to be involved in the comment letter process and to contribute to the Board’s development of high-quality reporting standards for the public sector.

Time for governments to come clean continued

4 Towards Transparency - A comparative study on the challenges of reporting for governments and public bodies around the world (Ernst & Young in cooperation with Prof. Dr. Andreas Bergmann, Zurich University of Applied Sciences, School of Management & Law, November 2011)

5 Eurostat is the statistical office for the European Union. Its key role is to provide high quality comparative statistics at the European level.

EY supports the adoption of IPSASs by EU Member States

In February 2011, Eurostat5 issued a paper for public consultation entitled, Assessment of the Suitability of International Public Sector Accounting Standards for EU Member States. Comments on the proposals in the paper were requested by 11 May 2012.

In our response to Eurostat, we confirmed our support for the adoption of IPSAS by EU Member States, and we emphasised the importance of transparency and accountability by all governments in budgetary and financial reporting. We also have raised concerns over implementation; the Commission needs to consider the fact that not all EU Member States would start from a homogenous base when it formulates its implementation plan. While the implementation of IPSASs does not guarantee economic recovery, we believe it will provide sound financial information to enhance the quality of governments’ decision-making and as a basis for making appropriate fiscal policies. Furthermore, we believe the support and leadership of European politicians is crucial for the successful implementation of IPSAS. Therefore, the standard-setting process needs to follow due process, be independent, and have adequate safeguards to withstand prevailing political pressures. Therefore, in our view, the issue of an appropriate governance model for the IPSASB needs to be resolved.

5IFRS Outlook May 2012 5

James TurleyJim is the current Chairman and CEO of Ernst and Young. Jim is actively engaged with many stakeholders as part of Ernst & Young’s commitment to enhancing the public’s trust in professional services firms and in the quality of financial reporting. He is co-chair of the Russian Foreign Investment Advisory Council, a director on the Boards of Boy Scouts of America, Catalyst (appointed chair in March 2009), the National Corporate Theater Fund and the Board of Trustees for Rice University (US). He is also a member of the Business Roundtable and International Business Leaders’ Advisory Council for the Mayor of Shanghai and was Chair of the Governing Board of the US Center for Audit Quality from 2007-2011. In the summer of 2010, he was appointed to President Barack Obama’s Export Council.

The Honourable Ruth RichardsonRuth was New Zealand’s Finance Minster from 1990 to 1993 and was principally responsible for the landmark legislation - Fiscal Responsibility Act of 1994 — which changed the nature of the fiscal policy debate in New Zealand. She was also the first Finance Minister in the world to issue sovereign accounts in compliance with accrual-based accounting standards back in 1992. Since leaving parliament in 1994, Ruth has served as a policy consultant to governments around the world on governance, public sector and social policy reforms.

Thomas Müller-Marqués BergerThomas, global leader of Ernst & Young’s IPSAS Sector Group, is the German Board Member of the IPSASB (since January 2009), and Chairman of the Public Sector Committee (PSC) of the Federation of European Accountants (Fédération des Experts-comptables Européens — FEE). Thomas has many years of worldwide experience in auditing and advising governments as well as public and municipal companies, and European organisations including Eurostat. In 2009-2010 he was also appointed as external IPSAS expert for the “DAS Think Tank” of the European Court of Auditors.

IFRS Outlook May 201266

In April 2012, the finance ministers and central bank governors of the G-20 met in Washington D.C. to assess the progress of the financial regulatory reforms. In the communiqué that was published after the meeting, the group confirmed its support for the efforts of the IASB and the FASB to achieve convergence of a globally-accepted set of high quality accounting standards. Moreover, the

G-20 went on to urge the Boards to meet their target of issuing standards on key convergence projects by mid-2013, at the latest, in order to achieve a single set of high-quality international accounting standards. Previously, the G-20 had set a time target of 2011. In light of the communiqué, we summarise the progress of the Boards’ joint projects in the following table:

Convergence — a moving target

Since 2008, the Boards’ convergence efforts have continued to move forward. Overall, we believe that the Boards have made a significant progress on joint projects such as: fair value measurement; revenue; and financial instruments: classification, measurement and impairment. However, more work needs to be done in other joint projects, such as: hedge accounting; leases; and insurance, if the new G-20 mid-2013 target is to be met.

At the same time, many feel that it is also important for the IASB to balance convergence with US GAAP with its responsibilities to existing IFRS preparers. The IASB vice-chairman, Ian Mackintosh quoted, in a recent conference, “Even if we don’t achieve convergence, we have more than 120 countries already signed up to IFRS, and we must look to our future responsibilities.”1

Read more on the latest developments in each of the joint projects and our observations on the potential implications for companies in our publication, Joint Project Watch — March 2012 available at www.ey.com/ifrs.

2010 — Q1 2012(highlights of prior activity)

Q2 2012 Q3 — Q4 2012

Financial instruments

Classification and measurementIASB Final ED

FASB ED ED ED

ImpairmentIASB SD ED

FASB ED SD ED

Hedge accounting — GeneralIASB ED Review draft Final

FASB ED DP

Hedge accounting — Macro IASB DP or ED

Revenue recognitionIASB ED ED RT

FASB ED ED RT

LeasesIASB ED ED

FASB ED ED

Insurance contractsIASB ED Review draft or ED

FASB DP ED

ConsolidationIASB Final

FASB ED Final

Investment entitiesIASB ED RT

FASB ED RT

ED - Exposure draft RT - Roundtable SD - Supplementary document DP - Discussion paper

Joint projects completed in 2011 Inactive joint projects• Financial instruments: balance sheet offsetting • Reporting discontinuing operations• Presentation of other comprehensive income • Emissions trading schemes• Fair value measurement • Financial instruments with characteristics of equity

• Financial statement presentation

1 Accountancy Age 30 September 2011.

7IFRS Outlook May 2012 7

Time and again, global leaders, including the members of the G-20 group, have repeated the call for a single set of high-quality global accounting standards. The current lack of consistent application of global standards is seen as a challenge.

Over the past decade, International Financial Reporting Standards (IFRS) has emerged as a globally acceptable set of accounting standards. Since 2005, the use of IFRS has been mandatory for virtually all publicly-held companies listed on stock exchanges in the European Union (EU). Beyond the EU, many countries such as Australia, Canada, Brazil, Singapore and South Africa, have either adopted or converged with IFRS, while others, like Japan and India are moving towards IFRS. Indeed, many countries have selected IFRS as their national GAAP.

But despite the rise of IFRS, its application has not necessarily been consistent around the world for a number of reasons. For example, the endorsement mechanisms used in certain jurisdictions have led to differences compared with IFRS as issued by the IASB. The same is also true for local or regional interpretations of IFRS. The inconsistent application of IFRS undermines its value as a single set of global standards. The majority of the respondents to the IFRS Foundation’s public consultation paper, Status of Trustee’s Strategy Review, felt that the consistent implementation and application of IFRS were increasingly crucial issues, especially with new standards coming online and with more countries adopting IFRS.2

In April 2011, the IFRS Foundation noted in its report on the Trustees’ Strategy Review, “Countries choosing to adopt IFRS should also avoid creating national or regional variants of IFRS ... First, disclosure should be made where adoption of IFRS is incomplete or there is divergence from the full set of IFRS as issued by the IASB. Second, there should be a mechanism to highlight instances where jurisdictions are asserting compliance with IFRS without adopting IFRS fully.”3 “... if you start to have carve-outs and national tweaks, then the IASB would have not achieved its objective and comparability would be lost,”4 said Liz Murrall, Director of Company Reporting at the Investment Management Association, a United Kingdom investor body, and also a member of the IASB’s Advisory Council. Consistency in the interpretation, application, and regulation of IFRS is crucial to achieving a single set of high-quality global standards. Otherwise, the standards are “global” in name only.

What does consistency really mean?When the facts and circumstances surrounding two transactions are the same, they should both be accounted for in a manner that provides the most faithful representation. Therefore, this generally means that the accounting under IFRS should be the same. For example, the characteristics that constitute ”a business” for the purpose of accounting for an acquisition under IFRS 3 Business Combinations should be consistent in similar circumstances.

Consistency also means that an entity uniformly applies its accounting policies to similar transactions, and consistently uses the same accounting policies between periods. In practice, this means that an entity that applies the option of fair value measurement of its assets, such as investment properties or property, plant and equipment, is expected to continue with fair value accounting consistently, even during unfavourable times.

What leads to inconsistency in IFRS?In limited cases, IFRS (like other GAAPs) allows management to select between two or more accounting methods that both provide a faithful representation. In these limited cases, two identical transactions may be accounted for differently. For example, in IFRS, management can select to measure certain property, plant, and equipment at either depreciated cost, or depreciated fair value.

In some cases, IFRS does not specify a particular accounting principle. As such, management must use informed and sound judgement to determine the accounting policy that best matches the facts and circumstances. It is possible, in some cases, to reach two different conclusions for similar scenarios. For example, IFRS does not specify the accounting for common control business combinations. Some entities may choose to use the pooling of interests method, while others might choose to apply the acquisition method. However, once a method has been chosen, the entity must apply that method consistently for all similar transactions.

Consistency in IFRS- no borders, one language: dream or reality?

2 Observer note from IFRS Trustee/Monitoring Board meeting in April 2011 summarising the feedback received in response to the IFRS Foundation’s public consultation paper Status of Trustees’ Strategy Review issued in November 2010. This is available at www.ifrs.org/NR/rdonlyres/65E74A3E-9783-4801-A125-04FEADAFC5F2/0/APMB1BStrategyReviewResponsecommentletterssummary.pdf

3 IFRS Foundation’s report of the Trustees’ Strategy Review IFRSs as the Global Standard: Setting a Strategy for the Foundation’s Second Decade. This is available at www.ifrs.org/nr/rdonlyres/a490566e-eff5-4f27-8defd2eccf9c5fff/0/trustees_strategy_review_2011.pdf

4 The Guardian, United Kingdom, April 26,2012.

“ Countries choosing to adopt IFRSs should also avoid creating national or regional variants of IFRSs”

IFRS Foundation

IFRS Outlook May 201288

What roles are played by the IFRS Foundation and others in promoting global consistency in IFRS?The IFRS Constitution states that the IFRS Foundation should “promote the use and rigorous application of … [IFRSs]”. This constitutional provision is an explicit acknowledgement that the success of IFRS (and the objective of global standards) requires consistency and faithfulness in the application of IFRS. In pursuing its mission, the IFRS Foundation has a vested interest in helping to ensure the consistent application of IFRS internationally. The Foundation pursues that objective in the following ways:• The IASB monitors the work of the IFRS Interpretations

Committee, which has a mandate to review accounting issues that have arisen within the context of current IFRS, and to provide authoritative interpretations of those issues.

• Preparers and others are encouraged to submit requests for interpretation to the IFRS Interpretations Committee (Interpretations Committee). There are few issues that are unique to only one part of the world, so where there is a need for an interpretation, it should be developed at the global level.

• Industry forums and associations discuss practical issues and raise those issues with the IASB and the Interpretations Committee.

• National standard setters are encouraged by the IASB to refrain from issuing country-specific interpretations or establishing guidance. Instead, they should raise their concerns and questions centrally with the IASB and the Interpretations Committee.

• Regulators use forums such as the International Organization of Securities Commissions and the European Securities and Markets Authority to enforce IFRS consistently with each other, and bring questions and concerns to the IASB and the Interpretations Committee through their representatives.

• All parties are encouraged to comment on new proposals issued by the IASB, and request clarification where needed — to help prevent divergent interpretations of standards.

• The IFRS Foundation, through its education and content services, undertakes and acts as catalyst for educational activities and information aimed at promoting consistent application of IFRS.

• The IFRS Foundation’s XBRL (eXtensible Business Reporting Language) team, maintains IFRS XBRL taxonomy to help ensure the comparability of financial data for end users.

How does Ernst &Young promote global consistency in interpreting IFRS?At Ernst & Young, we endeavour to have consistency in interpreting IFRS within our global network. We have a global IFRS infrastructure and global processes that are based on our philosophy of decentralisation, with coordination and support coming from our core IFRS Services team (Global IFRS Services) in London. • Our local area IFRS desks assist clients and engagement teams

by providing information and technical consultations, by raising issues with Global IFRS Services, and by bringing issues that have occurred in other jurisdictions to the attention of local clients and engagement teams.

• Our global IFRS policy committee, comprising IFRS technical leaders from each of our global areas, meets to resolve technical accounting issues arising in practice that either cannot be resolved at the local level and/or have implications that are global in their reach.

• Our engagement teams are responsible for actively engaging in and managing consultation with our local IFRS desks and the global IFRS policy committee in accordance with our global policies. We publish our views on IFRS internally and externally in International GAAP®. Our publications are available on our website at www.ey.com/IFRS

• Where we feel appropriate, we proactively communicate these issues to the IASB, and the IFRS Interpretations Committee. We provide consistent interpretation of IFRS and US GAAP, for the standards that are the same, and also develop a consistent view on the direction of new proposals from the IASB and the FASB.

While it is inevitable that a certain degree of diversity is likely to occur in a principles-based accounting framework such as IFRS, we believe that the challenge is not insurmountable. Nevertheless, achieving the consistent application of IFRS requires an ongoing commitment by preparers, regulators, standard-setters, users and auditors. One day we should be able to speak the same language!

Consistency in IFRS — no borders, one language: dream or reality? continued

IFRS Outlook May 2012 99

The IASB is in the process of completing its first formal public consultation on its future work plan. The comment letters received by the IASB, along with discussions with constituents at recent roundtables, highlighted some common themes.

Period of calm There was widespread agreement with the IASB’s recommendations that there needs to be a period of calm. Many constituents, including Ernst & Young, highlighted that preparers and users will need this time to implement and digest the raft of new standards that have been completed and are expected to be completed in 2012 and 2013. In addition, we expect the IASB will need to spend time during the implementation phase of the new standards addressing challenges and possibly providing more application guidance. Having said that, we believe that this period offers the Board an ideal opportunity to focus on projects that are critical in enhancing the usefulness of IFRS financial statements. By their nature, these projects tend to be more long-term and would require significant Board attention to complete.

Focus on consistency and strategic purpose of IFRSAfter completing the projects on the IASB’s current agenda, many respondents indicated that priority should be placed on the conceptual framework, assessing performance reporting and clarifying the principles of other comprehensive income.

Many also consider the conceptual framework as integral to financial reporting. As such, there have been calls for it to be tested against existing and potential new standards (and vice versa) on an iterative basis.

A key view discussed and shared by many constituents at the roundtables was that the IASB should develop a more thorough agenda decision-making process that is transparent, before adding an item to its agenda. This would mean a more in-depth analysis of proposed topics from jurisdictions or industries prior to adding them to the active agenda.

Time for reflection and strategic focusOverall, we agree with many of the views expressed above; we believe that the IASB is at a pivotal point in its evolution. With a new Chair and Vice-Chair and much of its existing work programme near completion, there is a significant opportunity to reshape IFRS for the future. We encourage the IASB to take the opportunity to consider the value of IFRS as an important financial reporting tool in “telling the story of the business” to users — and to take bold strategic decisions with the focus on the long-term strategic priorities when shaping its future agenda.

Next stepsWe expect the Board will discuss the agenda consultation at the May 2012 meeting and will focus on deciding what topics to include in its feedback statement (currently scheduled in the work plan to be released by 30 June 2012).

The Board is still in the process of considering constituent feedback and a final strategy for the future agenda is not expected until the second half of 2012.

We encourage the IASB to take the opportunity to consider the value of IFRS as an important financial reporting tool in “telling the story of the business” to users — and to take bold strategic decisions with the focus on the long-term strategic priorities when shaping its future agenda.

The future of the IASB’s agenda

IFRS Outlook May 20121010

IFRS project update

What’s new?The following table shows new publications issued by the IASB:

Projects Publication

Annual Improvements to IFRS 2009-2011 cycle

In May 2012, the IASB issued Annual Improvements to IFRSs 2009 - 2011 Cycle, which contain amendments to its standards. The improvements project provides a mechanism for making necessary, but non-urgent, amendments to IFRSs. The amendments are effective for annual periods beginning on or after 1 January 2013.The amendments can be accessed at: www.ifrs.org/Current+Projects/IASB+Projects/Annual+Improvements/ED+May+2012/Exposure+draft+and+comment+letters.htm

Annual Improvements to IFRS 2010-2012 cycle

In May 2012, the IASB issued the Annual Improvements to IFRSs 2010 - 2012 Cycle exposure draft (ED). The ED contains necessary, but non-urgent, proposed changes to 11 IFRS standards (excluding consequential amendments). The comment period ends on 5 September, 2012. The ED can be accessed at www.ifrs.org/Current+Projects/IASB+Projects/Annual+Improvements/ED+May+2012/Exposure+draft+and+comment+letters.htm

IFRS for Small-Medium Enterprises (IFRS for SMEs)

The SME Implementation Group (SMEIG) has published the four final Questions and Answers (Q&As) on IFRS for SMEs. These final Q&As cover the following topics:• Application of ”undue cost or effort” • Jurisdiction requires fallback to full IFRS• Whether an entity may choose to apply the recognition and measurement provisions of IFRS 9• Whether the recycling of cumulative exchange differences on disposal of a subsidiary is prohibitedThe Q&As can be accessed at www.ifrs.org/IFRS+for+SMEs/QAsSMEs.htmThe IASB published April 2012 IFRS for SMEs Update. This update is a staff summary of news relating to IFRS for SME and can be accessed at www.ifrs.org/Alerts/SME/Apr+SMEs+Update.htm

IFRS XBRL Taxonomy The IFRS Foundation XBRL Team has issued the IFRS Taxonomy 2012. The IFRS Taxonomy is the XBRL (eXtensible Business Reporting Language) representation of IFRS, including IAS, the IFRS interpretations, and IFRS for SMEs issued by the IASB at 1 January 2012. The Taxonomy also contains XBRL tags for all IFRS disclosure requirements. More information on IFRS Taxonomy can be accessed at www.ifrs.org/Alerts/XBRL/IFRS+Taxonomy+2012.htm

Current discussionsThe IASB and FASB held joint discussions on key projects, including financial instruments — classification and measurement and impairment, insurance, and investment entities. Tentative decisions were made for in respect of the insurance and financial instruments (impairment) projects. The Boards continued their outreach efforts in the revenue roundtables. The IASB also held its discussions on the annual improvements to IFRSs.

The IFRS Interpretations Committee met on 15 and 16 May 2012. The Committee continued discussions of the current agenda items, including: the accounting for put options written over non-controlling interests in the consolidated financial statements of the controlling shareholder; the accounting for contingent payments for the separate purchase of property, plant and equipment and intangible assets; the accounting for payments made by an operator to a grantor; the use of IFRIC 6 Liabilities arising from Participating in a specific Market Electrical and Electronic Equipment by analogy to levies; the meaning of “continuous transfer of control” in real estate transaction accounting; the recognition of deferred tax for a single asset in a corporate entity and the accounting for the purchase of right to use land. The Committee also discussed new

issues for initial consideration, including: the accounting for different aspects of restructuring Greek Government bonds; the accounting for post–business combination payments to employees that are forfeited upon termination of employment; identifying the effective IFRS standards under IFRS 1 First-time Adoption of International Financial Reporting Standards; the valuation of biological assets using the residual method; the accounting for employee benefits in the nature of contribution based promises; the accounting for regulatory assets and liabilities and the planned approach for the investigation phase of the post-implementation review of IFRS 8 Operating Segments. Updates from the IASB meetings can be found at www.ifrs.org/Updates.

IASB work planThe IASB updated its work plan on 23 April 2012. The projected post-implementation review of IFRS 3 Business Combinations, which had been expected in Q2, will not be initiated before Q3 2012. There are a number of milestones expected during the coming months in projects such as: the proposed amendments to the transitional requirements of IFRS 10 Consolidated Financial Statements; general hedge accounting; and the post-implementation review of IFRS 8. The work plan can accessed at www.ifrs.org.

IFRS Outlook May 2012 1111

The publications below are all available at www.ey.com/ifrs.

IFRS Core ToolsThe IFRS core tools provide a starting point to help preparers identify changes to IFRS, understand those changes, and to apply the changes in a comprehensive way. The suite of tools includes the following:

IFRS Update (March 2012)This publication provides an overview of the upcoming changes in IFRS standards and interpretations issued as at 31 March 2012.

Good Group (International) Limited — Illustrative interim condensed consolidated financial statements (30 June 2012) This edition of Good Group (International) Limited contains illustrative interim condensed consolidated financial statements for the interim period ending 30 June 2012. It is prepared in accordance with IFRS issued as at 31 March 2012 and effective for annual periods beginning on 1 January 2012.

International GAAP® Disclosure Checklist (March 2012)This checklist includes the disclosures required and encouraged by IFRS for entities with a 30 June 2012 year-end or thereafter. It covers IFRS issued as at 31 March 2012.

IFRS DevelopmentsIssue 26: IFRS 9 Impairment of financial assets — a step closer to completionThe Boards continue to make progress on their “three-bucket” expected loss approach for estimating the impairment of financial assets.

Issue 27: Classification and measurement of financial instruments — narrowing the GAAPThe Boards have made significant progress in aligning their respective models more closely, including the business model assessment for the amortised cost classification category of financial assets and the bifurcation requirements for financial assets and financial liabilities.

Issue 28: Proposed annual improvements to IFRS — the 2010-2012 cycleIn May 2012, the IASB issued the Annual Improvements to IFRSs 2010 - 2012 Cycle exposure draft (ED) that contains necessary, but non-urgent, proposed changes to 11 IFRS standards (excluding consequential amendments).

Issue 29: Annual improvements to IFRS — the 2009-2011 cycleIn May 2012, the IASB issued the Annual Improvements to IFRSs 2009 – 2011 cycle, which contains necessary, but non-urgent, changes to its standards. The effective date is for annual periods beginning on or after 1 January 2013.

Issue 30: The IASB decouples macro hedge accounting (May 2012)At its May 2012 meeting, the IASB decided to work towards a DP on macro hedge accounting as a next due process step before issuing an ED. The Board also decided to decouple the macro hedge accounting project from the IFRS 9 Financial Instruments project and to continue permitting current macro hedge accounting guidance until the project is finalised.

Applying IFRSJoint revenue recognition project — Boards to begin re-deliberations on key issues The IASB and the FASB completed their evaluation of the feedback on the joint revenue recognition project. While respondents generally support their progress on the project, many still have significant concerns about certain aspects. Re-deliberations will take place from June 2012 to December 2012.

Offsetting financial instruments: clarifying the amendmentsThe December 2011 amendments to the offsetting criteria in IAS 32 Financial Instruments: Presentation and the disclosures on offsetting financial assets and financial liabilities in IFRS 7 Financial instruments: Disclosures have raised some interpretation issues. We summarise some of these issues and explore the related challenges in interpretation.

Other PublicationsJoint Project Watch — March 2012The standard-setting activities of the Boards on their joint projects continue to move forward. The Boards have issued final standards or exposure drafts on several projects and continue to re-deliberate others.

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Insurance Accounting Alert: Boards agree on separation of investment component; but remain split on definition of a portfolioDuring a joint recent meeting, the Boards re-deliberated the proposals of respective proposals for the joint project on insurance. The IASB separately held an education session to consider recognising some of the changes in the insurance liability in other comprehensive income (OCI).

Insurance Accounting Alert: Boards discuss reinsurance accounting, insurance contracts and decisions on policy loans and ridersDuring a joint meeting on 18 April 2012, the IASB and the FASB re-deliberated decisions in the IASB’s Exposure Draft Insurance Contracts and in the FASB’s Discussion Paper, Preliminary Views on Insurance Contracts.

Upcoming Thought Center webcastsLessons learned from 2011 IFRS reportersThis upcoming webcast summarises the findings of our surveys of the world’s largest IFRS reporters across 10 sectors and provides insights on reporting trends in IFRS. It also analyses the effect of upcoming changes to IFRS and how adoption of new accounting pronouncements could affect these reporters. Registration details for the webcast are available on webcast.ey.com/thoughtcenter.

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