PIB: EL PRODUCTO INTERNO BRUTO, PRODUCTO INTERIOR BRUTO (PIB) O PRODUCTO BRUTO INTERNO (PBI).

For an award containing a market condi- tion that is fully vested and deep-out- of-the-money at grant date, expense recognition may occur earlier under IFRS.

US GAAP contains the concept of a derived service period for awards that contain market conditions. Where an award containing a market condition is fully vested and deep-out-of-the-money at grant date but allows employees only a limited amount of time to exercise their awards in the event of termination, US GAAP presumes that employees must provide some period of service to earn the award. Because there is no explicit service period stated in the award, a derived service period must be determined by reference to a valu- ation technique. The expense for the award would be recognized over the derived service period and reversed if the employee does not complete the requisite service period.

IFRS does not define a derived service period for fully vested, deep-out-of-the- money awards. Therefore, the related expense for such an award would be recognized in full at the grant date because the award is fully vested at that date.

Technical references

IFRS IFRS 2, IFRIC 8, IFRIC 11

US GAAP ASC 480, ASC 505-50, ASC 718, ASC 815-40, SAB Topic 14-D

Note

The foregoing discussion captures a number of the more significant GAAP differences. It is important to note that the discussion is not inclusive of all GAAP differences in this area.

Recent/proposed guidance

FASB Accounting Standards Update 2010-13: Compensation—Stock Compensation (Topic 718): Effect of Denominat- ing the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades—a consensus of the FASB Emerging Issues Task Force

In April 2010, the FASB issued ASU 2010-13, Compensation—Stock Compensation: Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades (EITF 09-J). This Update amends ASC 718, Compensation—Stock Compensation, to specify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should be considered an equity award, assuming all other criteria for equity classification are met. The currency in which the underlying equity trades could be different from the currency in which the employee is paid or the functional currency of the subsidiary.

Prior to this amendment, diversity in practice existed over the interpretation of whether an award should be classified as a liability when the exercise price is not denominated in either the foreign operation’s functional currency or the currency in which the employee is paid, but is denominated in the currency of a market in which a substantial portion of the entity’s equity securi- ties trades.

Under IFRS, there was no such distinction because all share-settled awards are equity-classified. Therefore, this Update will reduce the frequency of differences between US GAAP and IFRS in this area. The amendment is effective retrospectively for fiscal years beginning on or after December 15, 2010, with early adoption permitted.

There are a number of significant differences between US GAAP and IFRS in the area of accounting for pension and other post- retirement and postemployment benefits. Some differences will result in less earnings volatility, while others will result in greater earnings volatility. The net effect depends on the individual facts and circumstances for a given company. Further differences could have a significant impact on presentation, operating metrics, and key ratios. Note that the FASB and the IASB use the term postemployment differently. The IASB uses the term postemployment to include pension, postretirement, and other postemploy- ment benefits, whereas the FASB uses the term postretirement (OPEB) to include postretirement benefits, other than pensions and other postemployment benefits, and the term postemployment benefits to include benefits before retirement.

A selection of differences is summarized below.

Under IFRS, a company can adopt a policy that would allow recognition of gains/losses in other comprehensive income. Gains/ losses treated in accordance with this election would not be subsequently recycled through the income statement. This election generally reduces the volatility of pension expense recorded within a company’s income statement because gains/losses would be recorded only within other comprehensive income. Other policy elections available under IFRS for gain/loss recognition (i.e., corridor approach or immediate recognition within the income statement) are similar to those under US GAAP.

Under IFRS, companies are not required to present the full-funded status of their postemployment benefit plans on the balance sheet. However, companies are required to disclose the full-funded status within the notes to the financial statements.

US GAAP permits the use of a calculated asset value (to spread market movements over periods of up to five years) in the determi- nation of expected returns on plan assets. IFRS prohibits the use of a calculated value and requires that the actual fair value of plan assets at each measurement date be used.

Under IFRS there is no requirement to present the various components of pension cost as a net amount. As such, companies are permitted to present components of net pension cost within different line items on the income statement. The flexibility provided under IFRS would enable companies to record the interest cost and return on plan assets components of pension expense as part of financing within the income statement.

Differences between US GAAP and IFRS also can result in different classifications of a plan as a defined benefit or a defined contri- bution plan. It is possible that a benefit arrangement that is classified as a defined benefit plan under US GAAP may be classified as a defined contribution plan under IFRS and vice versa. Classification differences would result in changes to the expense recog- nition model as well as to the balance sheet presentation.

Both the FASB and the IASB have major projects on their agendas on accounting for pension and other postemployment benefits, which may result in greater convergence in the future. In April 2010, the IASB issued an exposure draft (ED) proposing significant changes to the recognition, presentation, and disclosures of defined benefit plans. As further discussed in the Recent/proposed guidance section below, under the proposal, gains and losses would be recognized immediately in other comprehensive income, eliminating both the delayed recognition (corridor and spreading method) and immediate profit and loss recognition options in the current guidance. Prior service cost, both vested and unvested, also would be recognized immediately in operating income. Net interest expense or income would be calculated by applying the discount rate to the net surplus or deficit in the plan. Additional

the work of the IASB to determine the next steps on its project.

Further details on the foregoing and other selected current differences are described in the following table.

Impact US GAAP IFRS

Expense recognition—actuarial