PLANTA ACTUAL COOPERATIVA NILO II DE R.L.

In executing the Work Plan, the Staff analyzed, among other items, the effects of any incorporation of IFRS into the financial reporting system for U.S. issuers by:

 Analyzing the effects on issuer compliance with industry regulatory requirements.

 Considering the impact of a change in SEC reporting on industry regulators.

Release No. 33-9250 (Aug. 8, 2011) [70 FR 5017 (Aug. 12, 2011)]; and Staff Accounting Bulletin No. 114 (Mar. 7, 2011), respectively.

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 Analyzing constituent concerns associated with any potential changes, or lack thereof, to regulatory regimes.427

The Staff reached out to various industry regulators in order to obtain their perspectives on the expected impact on their respective regulatory regimes should the Commission decide to incorporate IFRS. The Staff did not survey every regulator that could potentially be impacted by a Commission decision, but rather gathered information from regulators representing a number of different regulatory regimes, including regulators of financial institutions, insurance

companies, employee benefits, public utilities, and government procurement. The Staff notes that several of the issues raised by regulators that were surveyed would also be relevant to other types of SEC-regulated entities where U.S. GAAP financial reporting is used (e.g., requirements for broker-dealers) or may be proposed to be used (e.g., capital requirements for securities-based swap entities) for regulatory purposes. Based on the information obtained, the Staff identified some common themes, the more significant of which are discussed below.

1. Regulators Currently Tend to Use U.S. GAAP

The U.S. regulators surveyed are responsible for a wide variety of regulatory functions, including establishing utility rates, assessing the safety and soundness of financial institutions and approving financial institutions’ transactions or activities, and determining the permissibility of costs for federal procurement contracts. These regulators rely heavily on regulated entities’ financial information—currently prepared in accordance with U.S. GAAP—in carrying out these activities. Some regulators use amounts established under U.S. GAAP directly. Other regulators have their own regulatory accounting standards, which may rely on U.S. GAAP-based inputs. For example, certain regulatory capital requirements for financial institutions are determined by adjusting a U.S. GAAP-based input for specific regulatory requirements (e.g., equity calculated under U.S. GAAP adjusted for specific requirements within a regulation), resulting in the number submitted to prudential regulators. Changing U.S. GAAP could result in changes to the numbers relied on by regulators (either directly or as inputs), which could have significant implications for the regulatory regime.

The Staff found, through its outreach, that regulators use U.S. GAAP for different reasons. Regulators’ use of U.S. GAAP may be a question of expediency: the consideration of financial information is necessary for regulatory purposes, and it is easier to use financial information prepared in accordance with U.S. GAAP—which is both uniform and already required by the Commission—than it is to develop new requirements. In addition, the Staff identified many situations in which statutes or regulations specifically require the use of U.S. GAAP, either directly or by interpretation of the regulator.

2. Commission Incorporation of IFRS Would Impact Regulators

The regulators surveyed expressed uncertainty about the impact of a Commission decision to incorporate IFRS, in part, because the impact would depend greatly on the method and timing of incorporation.

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a. Direct Incorporation

If the Commission determined to incorporate IFRS directly—i.e., to require U.S. issuers to use IFRS as issued by the IASB—regulators indicated that several challenges would result. First, the Commission’s determination would apply only to U.S. issuers and not to private companies—but other regulators typically regulate both types of companies. Unless private companies also transitioned to IFRS (a topic discussed further below), a regulator would be supervising some companies that prepare financial information in accordance with IFRS, and other companies that prepare financial information in accordance with U.S. GAAP. Regulatory responses to this situation could include: (1) continuing to require regulatory reporting based on U.S. GAAP (forcing issuers to maintain dual accounting records); (2) shifting regulatory

reporting for all companies to IFRS (forcing private companies to change their basis of

accounting to IFRS or maintain dual accounting records); or (3) adjusting the regulatory regime to accept both sets of standards. Regulators have expressed that in some cases there is legal uncertainty regarding their authority to accept IFRS in any respect under their governing statutes. Therefore, it is possible that federal and state legislation may be required before some regulators could even consider the second or third options outlined above. Moreover, it is not clear what would happen to U.S. GAAP over the long term if the Commission were to require directly the use of IFRS, thereby adding uncertainty to options one and three above. In addition, some companies have more than one regulator. Different regulators may take different approaches, based on their regulatory needs, resulting in complexity and increased expense for regulated entities.

If a regulator were to determine that it had the authority to accept IFRS and elect an option that involved accepting IFRS information (either exclusively or as an alternative in addition to U.S. GAAP), regulators expressed that they would need to engage in a process to evaluate the IFRS standards to determine areas of alignment with their regulatory regime and areas of disconnect and, accordingly, determine how to adjust their regulatory requirements. For example, if regulators that accepted only U.S. GAAP as an input into a regulatory accounting system then decide to accept either set of standards going forward, they may need to develop a parallel regulatory accounting system that takes into account the differences between U.S. GAAP and IFRS. The regulator likely would need to undertake a substantial amount of up-front work to create the separate system, and likely would need to put forth incremental effort going forward to maintain the systems, provide training, and incorporate any future changes to IFRS or U.S. GAAP. To the extent that IFRS and U.S. GAAP are converged and remain converged before any incorporation, these potential burdens on the regulators may decrease. For regulators that accept either basis of accounting and that use financial statement inputs to make regulatory calculations, any differences in the set of standards used to provide those inputs may complicate comparability across regulated entities.

Some regulatory agencies have significant amounts of regulation, policy, and other material (e.g., internal manuals and training materials) based on U.S. GAAP, which likely would require update to reflect the adoption of IFRS in the United States. Additionally, some agencies have large examination or inspection functions and few of their personnel have had significant exposure to IFRS to date. To this point, some regulators expressed concerns about whether current staff levels would be sufficient to effectively handle a conversion to IFRS or a potential

companies report under U.S. GAAP. Finally, regulators raised concerns about the cost of the general IFRS requirement to apply IFRS retrospectively upon adoption. For example, energy regulators at state and federal levels expressed concerns about the retrospective application of IFRS to fixed asset accounting and the impact it would have on their regulatory activities.

b. Incorporation through an Endorsement Mechanism

A decision that would involve the FASB’s incorporation of IFRS into U.S. GAAP would most likely alleviate many of the regulators’ issues associated with direct incorporation of IFRS, but it would not resolve all issues or concerns. Regulators could continue to require regulatory reporting based on financial statements prepared in accordance with “U.S. GAAP,” which, in this scenario, would incorporate IFRS. In theory, rule-making would not necessarily be required, and regulators would not have to develop dual systems. However, regulators would need to review each standard written by the FASB to incorporate IFRS and determine whether and, if so, how, to modify their regulatory systems to take into consideration the changes. In general, regulatory agencies expressed that they have processes in place to respond to accounting changes. The sophistication and effectiveness of the processes vary significantly among the regulatory agencies, and the Staff understands that the process for responding to change can be at times lengthy. Therefore, if the Commission determines to incorporate IFRS in some form into the financial reporting system for U.S. issuers, a transition approach that incorporates existing IFRSs into U.S. GAAP over time may be needed to facilitate the required changes.

3. Regulators’ Impressions of IFRS

a. Regulators Generally Support a Single Set of Standards

Regulators generally agreed that they would benefit from a single set of high-quality, globally accepted accounting standards that fosters transparent and consistent reporting. A single set of standards likely would provide regulators and their counterparts in other

jurisdictions with a common accounting language, thereby potentially simplifying cross-border interactions and allowing for a greater exchange of more comparable information. Regulators’ support for a single set of high-quality, globally accepted accounting standards is tempered by concerns in several areas: (1) the extent of resources likely needed to address a transition (e.g., changing regulations, training of examiner work force, etc.); (2) whether their ability to express their views and provide input to a global accounting standard-setting body would be more limited than it is currently; and (3) whether jurisdictional variations (either in the text of the written standards or in application) will prevent the full benefit of consistency from being achieved after expending significant costs in trying to achieve that benefit.

b. Regulators Have Some Concerns about IFRS

Regulators expressed three primary concerns about the potential for IFRS to be used as the single set of high-quality, globally accepted accounting standards.

First, both IFRS and U.S. GAAP are in a state of change. The Boards are working on two MoU projects—financial instruments and insurance—that will have a significant impact on regulators of financial institutions and insurance companies, respectively. The conclusions

are converged, will inform regulators’ views on the sufficiency of IFRS for their respective purposes.

Second, some broad concerns were raised about the perception that IFRS is more principles-based than U.S. GAAP and lacks interpretive guidance, which could impact the sufficiency of IFRS for regulatory purposes. Certain industry regulators felt that they may be compelled to issue more detailed guidance and interpretations about the acceptable application of IFRS to enable them to limit diversity in practice and achieve more effectively their regulatory objectives (e.g., safety and soundness for a bank or policyholder protection for an insurer). This dynamic exists with any accounting regime, including U.S. GAAP, and is a reasonable way to address differing information needs. However, regulatory interpretations may in turn impact the underlying financial reporting. To the extent that multiple regulators issue interpretations, and do so in different ways, regulated entities could be faced with conflicting interpretations from multiple authoritative sources.

Third, IFRS lacks industry-specific guidance in certain areas. Under U.S. GAAP, industry-specific standards and practices have developed over time to respond to the unique nature of different industries. The absence of such standards or practices under IFRS causes concern for some regulators. For example, as discussed above, there is no equivalent in IFRS to ASC Topic 980, Regulated Operations, which permits incurred costs that are expected to be recovered in the future to be recognized as a rate-regulated asset.428 Further, commenters expressed concerns about losing industry-specific guidance for investment companies and oil and gas companies.429