1. Anthony Carey RSM International ECMI-CEPS-ICAEW workshop Brussels, 22 November 2005 Reflecting economic reality: Challenges in moving from theory to practice

2. What is economic reality? Hicksian concept of income

3. Review of key areas from economic reality perspective Properties (including investment properties) Intangibles/business combinations Financial Instruments Pensions Deferred taxation

4. Properties Hold at cost or revaluation Depreciation Operating leases

5. Intangibles Allocation of purchase price Inclusion of contingent assets/liabilities in PPA Non-recognition of internally generated goodwill Barriers to carrying internally generated intangibles at a valuation Non-amortisation of acquired goodwill/impairment test Acquisitions on first implementation of IFRS

6. Financial Instruments Hedge accounting Issues relating to measurement at fair value

7. Pensions Use of corridor/spreading of actuarial gains or losses Legacy employees Assumptions

8. Deferred taxation Impact of revaluations Discounting

9. The sources of challenge to economic reality Forecasting uncertainty Valuation methodologies Estimation in allocation Accounting conventions Changing price levels Standard-setting processes

10. Relevance and reliability Where do you strike the balance? Depth of markets varies – important issue internationally Need for debate – risks v benefits of alternative approaches

11. Need to set standard-setting in context Information needed on: Assumptions Valuation methodologies Independence of valuations Forecasts v out-turns

12. Good quality reporting Relies on: Accounting standard-setting Auditing Audit inspection Financial reporting enforcement

13. Looking ahead Important focus on MD&A Thorough review of conceptual framework Learn from practical experience of implementing IFRS More research on users’ needs on intangibles Focus on quality of reporting not just standard-setting Fostering the right culture A busy agenda!