International Financial Reporting Standards: Strategies For Adopting a Single Set of Standards

Transcription

1 Driving Enterprise Value Presents: International Financial Reporting Standards: Strategies For Adopting a Single Set of Standards D.J. Gannon, Deloitte & Touche LLP Joel Osnoss, Deloitte & Touche LLP February 20, 2008

2 Welcome to the Next Episode in Driving Enterprise Value Shareholder Value Revenue Growth Operating Margin (after taxes) Asset Efficiency Expectations Volume Price Realization Selling, General & Administrative (SG&A) Cost of Goods Sold (COGS) Income Taxes Property, Plant & Equipment (PP&E) Inventory Receivables & Payables Company Strengths External Factors Acquire New Customers Retain and Grow Current Customers Leverage Income- Generating Assets Strengthen Pricing Improve Customer Interaction Efficiency Improve Corporate/ Shared Service Efficiency Improve Development & Production Efficiency Improve Logistics & Service Provision Efficiency Improve Income Tax Efficiency Improve PP&E Efficiency Improve Inventory Efficiency Improve Receivables & Payables Efficiency Improve Managerial & Governance Effectiveness Improve Execution Capabilities Product & Service Innovation Product & Service Innovation Cash/Asset Management Demand & Supply Management Marketing & Advertising IT, Telecom & Networking Product Development Logistics & Distribution Income Tax Management RealEstate & Infrastructure Finished Goods Accounts, Notes & Interest Receivable Governance Operational Excellence Marketing & Sales Account Management Price Optimization Sales Real Estate Materials Merchandising Equipment & Systems Work in Process & Raw Materials Accounts, Notes & Interest Payable Business Planning Partnership & Collaboration Retention Customer Service & Support Human Resources Production Service Delivery Program Delivery Relationship Strength Cross-Sell/ Up-Sell Order Fulfillment & Billing Procurement (Excluding Production Materials & Merchandise) Business Performance Management Agility& Flexibility Business Management Strategic Assets Financial Management

3 Agenda IFRS background and update Why are U.S. companies considering IFRS? A case study Final thoughts

4 IFRS Background and Update

5 IFRS Today and Tomorrow Today IFRS is used in over 100 countries Required across all EU countries, starting in 2005 Large countries like Brazil, Canada and India have announced mandated adoption By 2011, it is expected that All major countries will have adopted IFRS to some extent China and Japan will be substantially converged to IFRS Substantial majority of Global Fortune 500 will report under IFRS U.S. public companies will likely have the option of using either IFRS or U.S. GAAP

6 Regulatory Developments Ongoing evolution of regulatory practices around the globe Movement towards mutual recognition of financial reporting frameworks Greater scrutiny of IFRS financials Presentation and disclosure are significant areas of focus across industries Focus on understanding judgments used and assumptions made in applying IFRS Greater cooperation on IFRS application issues SEC/CESR work plan

7 Principles-based Approach Greater emphasis will be on interpretation and application of principles Need to assess the substance of transactions Evaluate whether the accounting presentation reflects the economic reality Companies will need to do a reality check Renewed focus on use of professional judgment Greater use of fair value as a measurement basis Comparability versus uniformity

8 Poll Question #1 Principles-based judgments should play a more important role in the application of accounting and financial reporting standards than adherence to bright-line rules. Strongly agree Agree Neither agree nor disagree Disagree Strongly disagree Don t know / not applicable

9 Why Are U.S. Companies Considering IFRS?

10 Drivers of Interest in IFRS Industries dominated by non-u.s. companies Financial services, pharmaceuticals, energy & resources, certain technology and manufacturing sectors Fear of the other guy adopting Cross-border M&A transactions Acquisitions of foreign companies using IFRS Targets of foreign companies using IFRS Investments in joint ventures

11 Poll Question #2 What do you see as the most significant obstacle/reason for not adopting IFRS? Total cost of education and/or conversion Your competition does not use IFRS Lack of a consistent IFRS application globally IFRS is not as comprehensive as U.S. GAAP IFRS is not viewed as acceptable as U.S. GAAP by investors and analysts Don t know/not applicable

12 You May Already Be Using IFRS Your subsidiaries may already file IFRS financials More countries are considering IFRS Publicly available financial information More disclosure than before Are you tracking statutory reporting? Who is ensuring accuracy and consistency? IFRS is inevitable in the U.S. Consider building the foundation now if there is a business case

13 A Case Study

14 Poll Question #3 Your company has centralized visibility over statutory reporting requirements that govern non-u.s. subsidiaries. Strongly agree Agree Neither agree nor disagree Disagree Strongly disagree Don t know/not applicable

15 Case Study: Laying the Groundwork Created a Steering Committee Implemented a project management office (PMO) and assembled a working group Full participation of company, advisors and auditors Internal communications set the tone

16 Case Study: Initial Assessment Statutory reporting questions asked In how many different countries and GAAPs do we report? What is the risk of getting statutory reporting wrong? Where we are adopting IFRS as our local GAAP, how confident are we? How many GAAPs could we replace with IFRS? Where do we place significant reliance on external firms? How much does statutory reporting cost us and can cost be reduced? Consolidated reporting how do we prepare for the inevitable?

17 Case Study: Centralized Activities Formulated a long-term strategy Held kick-off meetings and training sessions Evaluated policy alternatives Developed solutions to GAAP differences and issues Created tools Developed policies and procedures Began assessing optional countries Began assessing potential global impacts

18 Case Study: What Was Learned Challenges Uncertain future enforcement Cultural bias and other change management challenges Possible effects on tax structures and covenants IFRS: more complex and restrictive than former local statutory GAAPs Statutory reports in many countries can be accessed by the public Benefits Standardized and improved accounting and reporting policies Availability and more efficient usage of resources Improved controls Statutory reports often prepared based on manual conversion from U.S. GAAP Better cash management Consistent standard across countries can help improve cash flow planning

19 Poll Question #4 If given a choice between U.S. GAAP and IFRS for U.S. reporting purposes, your company would consider adopting IFRS. Strongly agree Agree Neither agree nor disagree Disagree Strongly disagree Don t know/not applicable

20 Final Thoughts IFRS has become a dominant force globally and is coming, sooner or later, to the U.S. Global transition to IFRS has current implications for statutory reporting obligations of MNCs Requirements to report under IFRS for statutory reporting Opportunities to use IFRS for statutory reporting Local GAAP may be substantially the same as IFRS IFRS can significantly improve global reporting processes A significant number of U.S. companies are planning for the adoption of IFRS

21 Poll Question #5 Your company has an adequate number of personnel who collectively have a level of IFRS knowledge sufficient to convert to and maintain IFRS financial statements. Strongly agree Agree Neither agree nor disagree Disagree Strongly disagree Don t know/not applicable

22 Questions & Answers

23 Join us March 19 th at 3PM ET as our Driving Enterprise Value series presents: Mergers and Acquisitions: What CFOs Should Consider Asking Before the Deal Is Done

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25 Contact Information D.J. Gannon Deloitte & Touche LLP Joel Osnoss Deloitte & Touche LLP

26 The information contained in this publication is for general purposes only and is not intended, and should not be construed, as legal, accounting, or tax advice or opinion provided by Deloitte to the reader. This material may not be applicable or suitable for, the reader s specific circumstances of needs. Therefore, the information should not be used as a substitute for consultation with professional accounting, tax, or other competent advisors. Please contact a local Deloitte professional before taking any action based upon this information.

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