AUDIT More Complexity of IFRS – more benefit for the investor? Dr. Anne Schurbohm, Partner, KPMG Germany 6. Dezember 2006

2 Content Complexity and Financial Reporting Current Discussion about a Framework for Financial Reporting Less Complexity in Future?

3 Complexity and Financial Reporting

4 Complexity – some Aspects Real world Rapid changes of technology Increased complexity of legal frameworks Globalization of markets Development of financial services and financial instruments International Financial Reporting Standards Number of rules growth rapidly Accounting concepts become more complex „Accounting language“ becomes more technical Number of interpretations by IFRIC grows Number of organisation dealing with IFRS grows ?

5 Financial Reporting “Analysts need to know economic reality – what is really going on – to the greatest extent it can be depicted by accounting numbers” Corporate financial statements are the primary source of information required by analysts. CFA Institute: A Comprehensive Business Reporting Model, 2005 The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions. IASB, Framework for the Preparation and Presentation of Financial Statements, 1989/2001

6 Current Discussion about the Framework for Financial Reporting

7 Current Discussion I IASB DP Conceptual FrameworkCFA Institute Business Reporting Model Relevance Predictive value Confirmatory value Timeliness Fair value is the only information relevant for financial decision making Recognition and measurement must be determined by relevance, not upon reliability alone Comparability and consistency Understandability Need for a single financial statement of changes in net assets available to common shareholders. This statement should include a timely recognition of all changes in fair values of assets and liabilities. Disaggregation

8 Current Discussion II IASB DP Conceptual FrameworkCFA Institute Business Reporting Model Faithful representation Certainty/ precision Verifiability Neutrality Completeness Financial reporting must be neutral. All economic transactions and events should be completely and accurately recognized as they occur in the financial statements. Constrains Materiality Benefits that justify costs Investor's wealth assessment must determine the materiality threshold

9 Less Complexity in Future?

10 Reporting framework …” assess the amounts, timing, and uncertainty of the entity´s future cash inflows and outflows….” Statement of cash flow projections instead of reporting instruments currently in place? Fair value information Pricing and valuation are not the same! Cost of information Cost for preparing, auditing and understanding information compared to information usefulness?

11 Kontakt: Dr. Anne Schurbohm KPMG +49 (521) Die enthaltenen Informationen sind allgemeiner Natur und nicht auf die spezielle Situation einer Einzelperson oder einer juristischen Person ausgerichtet. Obwohl wir uns bemühen, zuverlässige und aktuelle Informationen zu liefern, können wir nicht garantieren, dass diese Informationen so zutreffend sind wie zum Zeitpunkt ihres Eingangs oder dass sie auch in Zukunft so zutreffend sein werden. Niemand sollte auf Grund dieser Informationen handeln ohne geeigneten fachlichen Rat und ohne gründliche Analyse der betreffenden Situation. © 2006 KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, deutsches Mitgliedsunternehmen von KPMG International, einer Genossenschaft schweizerischen Rechts. Alle Rechte vorbehalten. KPMG und das KPMG-Logo sind eingetragene Markenzeichen von KPMG International.

12 Sources International Accounting Standards Board: Preliminary Views on an improved Conceptual Framework for Financial Reporting: The Objective of Financial Reporting Qualitative Characteristics of Decision- Useful Financial Reporting Information 2006 CFA Centre for Financial Market Integritiy A Comprehensive Business Reporting Model Financial Reporting for Investors 2005