The Prospects for Global Convergence of Accounting Standards ICAEW (Brussels) April 05 The Prospects for Global Convergence of Accounting Standards Sir David Tweedie IASB Chairman

Key Forces for Convergence Desire for strong, stable and liquid capital markets Unfamiliar standards lead to risk premium Differing accounting standards affect confidence Investor confidence greater if accounting standards subject to due process and are accepted Lowers cost

IFRS Around the World 2004 2005 Total IFRSs permitted 22 -1 21 IFRSs required (for all domestic companies) 39 27 66 IFRS required (for some domestic companies) 5 - 5 66 26 92

FASB/IASB Agreement Remove differences Align Agendas Interpretation

Convergence Short-term Differences IASB – - Business combinations (goodwill/brands, acquisitions, IPR&D) - Asset Disposals and Discontinued Operations (IFRS 5) Provisions (soon) Segments

Convergence FASB - - EPS - Voluntary changes in accounting policy - Exchanges of non-monetary assets - Inventory spoilage and idle capacity

Convergence IASB and FASB - Income taxes - R&D - Interim Reporting - Investment Properties - Borrowing costs - Impairment - Joint ventures - Classification of liabilities

Issues on Agenda Conceptual framework Consolidation Financial Instruments Insurance Revenue Recognition Performance Reporting

Performance Reporting Early days 4 Statements Statement of financial position Statement of comprehensive income (2?) Statement of changes in equity Statement of cash flows

Performance Reporting Comparatives – current year and prior year date to be sufficient Statement of cash flows Concerns raised by direct method tie in with the line items in the income statement? Support of operating/business and financing categories – more work to be done on a disaggregation of line items

Potential New Issues Leases Intangibles Employee Benefits

Pensions £m Deficit 10 Less 10% of liabilities 4 6 Spread over 10 year working life Deficit per accounts - £600,000

Convergence with US Will not produce identical statements Will result in close alignment of accounting Will be clear understanding of significant differences

Research Agenda Extractive industries Joint ventures MD&A Concessions Hyperinflation Investment group

Problems for Convergence “It’s not for me - its for them” Many changes to existing standards Principles v rules

Principles v Rules Objectives Clearly defined scope No exceptions Few bright lines Sufficient implementation guidance

Principles v Rules Role of CFO/Auditor Interpretations Q&A’s Litigation

A New IAS 39? What to change? Mixed attribute system 4 treatments for financial instruments 2(3?) Treatments for hedges