how ifrs can impact u.s. financial statement …...1 how ifrs can impact u.s. financial statement...

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How IFRS can impact U.S. pfinancial statement preparers and users todayThursday, January 24, 2013

Administrative

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Today’s presenters

Jonathan GuthartAudit PartnerPresident of KPMG’s U.S. Capital Markets Group

John McGawPartnerAccounting Advisory Services

Holger ErchingerAudit partnerDepartment of Professional Practice

Susan CallahanManagerGlobal Accounting Policy and Special Studies Ford Motor Company


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Agenda

U.S. subsidiaries of groups domiciled outside the United States

IPOs and M&A transactions

Global statutory alignment

Implications of accounting convergence

SEC IFRS-related activities


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U S subsidiaries of groupsU.S. subsidiaries of groupsdomiciled outside the United States

IFRS implementation around the world (2012)


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No/unknown convergence plans

U.S. GAAP and/or convergence intended

Convergence plans

IFRS permitted or required

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Facts about IFRS around the world

IFRS as issued by the IASB or national/regional variant of IFRS is either permitted or required in approximately 120 countries around the world including:

– European Union

Japan (option for certain companies)– Japan (option for certain companies)

– Canada

– Brazil

– Mexico

– Russia

– Korea


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U.S. subsidiaries report IFRS financial information to the group for consolidation purposes

Public companies registered with the U.S. securities and exchange commission

Approximately 9,000 domestic registrants

Approximately 1,000 foreign registrants

– Canada 340

– Islands 270

– Europe 110

– Asia Pacific 90

– Israel 70

– Central and South America 55

– Other 30


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Foreign registrants using IFRS

– 2010: approximately 200

– 2011: approximately 600

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Polling Question 1

In my job, I am a:

1. Preparer

2. User

3. Auditor

4. Academic

5. Other


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Knowledge Check Question 2

Which of the following statements in correct?

1. IFRS, as issued by the IASB, has been adopted by approximately 120 countries around the globe.

2 IFRS as issued by the IASB or some regional/national variant has been adopted by2. IFRS, as issued by the IASB or some regional/national variant, has been adopted by approximately 120 countries around the globe.

3. Almost all of the largest public companies around the globe, based on market capitalization, are using IFRS.

4. Almost all of the largest public companies around the globe, based on market capitalization, are using U.S. GAAP.


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Knowledge Check Question 2 – Debrief: Correct answer is B

1. Incorrect, Most countries have an endorsement mechanism for bringing IFRS into their local financial reporting framework.

2. Correct, IFRS, as issued by the IASB or some regional/national variant, has been adopted by approximately 120 countries around the globe.

3. Incorrect, companies representing approximately 45 percent of the global market capitalization use IFRS or a national/regional variant of IFRS.

4. Incorrect, companies representing approximately 35 percent of the global market capitalization use U.S. GAAP.


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IPOs and M&A transactions

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Public offerings outside the United States

U.S. domiciled companies going public outside the United States


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Cross-border M&A transactions

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Foreign companies acquiring U.S.-based entities

U.S.-based entities acquiring foreign companies


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Cross-border joint venture structures

U.S. entities entering foreign markets may do so on a joint-venture basis

– Prohibitions on majority foreign ownership

– Access to supply and distribution networks in the local markets

– Lower capital investment to enter market


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Polling Question 3

My organization is:

1. A domestic SEC registrant with more than 50 percent of our operations conducted internationally

2 A domestic SEC registrant with more than 25 percent but less than 50 percent of our2. A domestic SEC registrant with more than 25 percent, but less than 50 percent, of our operations conducted internationally

3. A domestic SEC registrant with less than 25 percent of our operations conducted internationally

4. A private U.S. entity with more than 50 percent of our operations conducted internationally

5. A private U.S. entity with less than 50 percent of our operations conducted internationally

6. A foreign private issuer (SEC registrant)


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7. N/A (users, academic, other)

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Acquisitions of foreign businesses and acquisitions by foreign registrants – Interaction with SEC filing requirements

SEC Regulation S-X Rule 1-02(1) defines a foreign business as a business that is majority-owned by persons who are not citizens or residents of the United States and either:

1. More than 50 percent of its assets are located outside the United States

2 The majority of its executive officers and directors are not U S citizens or residents2. The majority of its executive officers and directors are not U.S. citizens or residents.

SEC Regulation S-X Rule 3-05(b) and 8-04(e) contain special requirements when a domestic


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registrant acquires a foreign business.

Acquisitions of foreign businesses and acquisitions by foreign registrants – Interaction with SEC filing requirements (continued)

If a domestic or foreign registrant must file financial statements for an acquired foreign business, those financial statements may be prepared under IFRS as issued by the

IASB without reconciliation to U S GAAPIASB without reconciliation to U.S. GAAP.(Source: SEC Financial Reporting Manual – Division of Corporation Finance – 6350.1).

Applies equally to situations involving filing requirements in accordance with SEC Regulation S-X Rule 3-09 (Separate financial statements of subsidiaries not consolidated

and 50 percent or less owned persons) or S-X Rule 3-10 (Financial statements of


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and 50 percent or less owned persons) or S-X Rule 3-10 (Financial statements of guarantors and issuers of guaranteed securities registered or being registered).

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Offerings in the United States in accordance with SEC rule 144A

Rule 144A is a safe harbor exemption from the registration requirements of Section 5 of the Securities Act of 1933 for certain offers and sales of qualifying securities by certain persons other than the issuer.

The securities eligible for resale under Rule 144A are securities of U.S. and foreign issuers that are not listed on a U.S. securities exchange or quoted on a U.S. automated interdealer quotation system.

There are certain conditions that a reseller of restricted securities must satisfy to rely on Rule 144A.


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Knowledge Check Question 4


1. For purposes of SEC Rule 144A offerings, there is a requirement to prepare financial information in accordance with U.S. GAAP.

2 For purposes of SEC Rule 144A offerings there is a requirement to prepare financial2. For purposes of SEC Rule 144A offerings, there is a requirement to prepare financial information in accordance with IFRS.

3. SEC Rule 144A does not specify the accounting framework; therefore, the financial information can be prepared in accordance with either U.S. GAAP or IFRS.

4. For purposes of SEC Rule 144A offerings, domestic entities must use U.S. GAAP, and foreign entities may use either U.S. GAAP or IFRS.


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Knowledge Check Question 4 – Debrief: Correct answer is C


1. Incorrect, SEC Rule 144A does not specify an accounting framework.

2. Incorrect, SEC Rule 144A does not specify an accounting framework.

3. Correct, SEC Rule 144A does not specify an accounting framework; therefore, either U.S. GAAP or IFRS can be used in the preparation of financial information.

4. Incorrect, SEC Rule 144A does not specify the accounting framework and, therefore, does not specify the basis of accounting for domestic or foreign entities.


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Tax and statutory reportingSystems and processes Tax and statutory reportingSystems and processes

IFRS financial statements


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HR-relatedFinancing aspects

Polling Question 5

1. My organization could derive significant benefits from aligning systems, processes, external financial reporting, etc. globally on an IFRS basis.

2. My organization would not achieve any benefits from aligning systems, processes, external financial reporting, etc. globally on an IFRS basis.

3. My organization has not yet evaluated whether there would be potential benefits from aligning systems, processes, external financial reporting, etc. globally on an IFRS basis.

4. N/A (users, academic, other)


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Higher priority joint projects

Accounting Standards Advisory Forum (ASAF)


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Global regulatory cooperation

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IASB-FASB MoU: Status of higher priority joint projects

Areas Issues

Lease accounting Lessee obligations on balance sheet, new lessor model, reexposure Q1 2013; final standard 2013/14

Revenue recognition Single revenue recognition model, reexposed Q4 2011; final

As of December 2012

e e ue ecog o S g e e e ue ecog o ode , ee posed Q 0 ; astandard 2013

Financial instruments Classification and measurement, IASB ED Q4 2012, FASB ED Q1 2013

Impairment, FASB ED Q4 2012, IASB ED Q1 2013

Hedge accounting, no joint deliberations currently planned


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Knowledge Question 6

What best describes the implications of accounting convergence on entities using U.S. stakeholders:

A. There are no direct implications to U.S. stakeholders from the accounting convergence initiative between the boards.

B. U.S. stakeholders are likely to be directly impacted by accounting convergence in the foreseeable future without regard to any decision by the SEC on use of IFRS by domestic filers.

C. Until the SEC makes a definitive decision about incorporating IFRS into the U.S. financial reporting system by domestic registrants, there are little or no implications from accounting convergence, but there could be an impact once such a decision is made.


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Knowledge Question 6 – Debrief: Correct answer is B

What describes best the implications regarding accounting convergence:

A. Incorrect, Because the accounting convergence initiative is a joint effort between the IASB and FASB, U.S. GAAP, as well as IFRS, is likely to be impacted.

B Correct Because the accounting convergence initiative is a joint effort between the IASB andB. Correct, Because the accounting convergence initiative is a joint effort between the IASB and FASB, U.S. GAAP, as well as IFRS, is likely to be impacted.

C. Incorrect, Because the accounting convergence initiative is a joint effort between the IASB and FASB, U.S. GAAP, as well as IFRS, is likely to be impacted without regard to an IFRS decision by the SEC.


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Next steps and timing??

SEC chair and SEC chief accountant

IFRS foundation staff report in response to SEC staff report


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Communiqué G-20 finance ministers and central bank governors in November 2012 (Mexico)

“Concerns about the slow progress achieved toward a single set ofhigh-quality accounting standards”

KPMG Institutes and training

About the KPMG IFRS Institute

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