Consolidation

1. Consolidation Mr Tham Sai Choy Deputy Chairman, Accounting Standards Council of Singapore September 30, 2010

2. Outline of the Agenda • Introduction • Presentation of AOSSG Discussion Paper - key issues identified from the overall proposals in the Consolidation project • Questions and Answers • Conclusion

3. Presentation of AOSSG Discussion Paper • Consolidation model for structured entities • Dominant shareholder approach • Limited scope exception for investment entities • Proposed disclosure requirements for involvement with structured entities

4. Q1: Consolidation Model for Structured Entities • Single cohesive standard for consolidation of voting interest entities and structured entities • Guidance applicable to structured entities should also be relevant for voting interest/ non-structured entities • Retaining indicators under SIC-12 • Risks and Rewards as an indicator of Control • Autopilot mechanism- irreversible predetermination of strategic operating and financing policies is a form of power • AOSSG recommendation: To adopt a single control model and retain the Risks & Rewards and Autopilot Mechanism as indicators.

5. Q2: Dominant shareholder approach • Dominant shareholder approach – control is dependent on the relative size, dispersion and level of activism of the remaining vote holders: • Application challenge and inconsistent interpretation • Consolidation based on temporary control and presumption that remaining vote holders would not collectively vote in future meetings • Introduction of fine line between significant influence and control • Impairment of decision-usefulness of consolidated financial statements as a results of potential unnecessary volatility and consolidation of entities with large non-controlling interest

6. Q2: Dominant shareholder approach • AOSSG Recommendations: • Control should be based primarily on the relationship between the reporting entity and the other. • Consolidation should apply only where there is evidence of effective control currently and there is no evidence that such control might be lost in the foreseeable future. • Incorporation of requirement that reporting entity has control where there is evidence of its ability to direct the activities of another entity that significantly affect returns • Emphasis should be placed on the potential substantive kick out or preventive rights held by other parties when determining who has control.

7. Q3: Limited scope exception for investment entities • Definition of investment entities • Relevance and appropriateness of unit of ownership and pooling of interests as criteria for single owner investment entity or sovereign funds • Proposed criteria may allow certain entities such as private equities/ venture capitalists that actively managed their investments to be investments entities • AOSSG Recommendation: Review the proposed criteria including removing unit ownership and pooling of interest

8. Q3: Limited scope exception for investment entities • Parent company accounting of an investment entity • Decision-usefulness of information - investments managed at fair value basis are consolidated at parent company level • Inconsistency compared to recent IFRIC decision to allow portion of the investment of an associate measured at fair value at the subsidiary level to flow through to the consolidated account at parent company level • AOSSG Recommendation: Extend the limited scope exception in consolidation to the parent entity regardless of whether it is an investment entity itself.

9. Q4: Proposed disclosure requirements for involvement with structured entities Q4: Proposed disclosure requirements for involvement with structured entities • Disclosure of involvement with structured entities • Conflict the objective of having single control model • Unclear definition of structured entities and unclear guidance of what is meant by “involvement with structured entities” • Practical difficulty to obtain information for disclosure and additional cost to align potentially different reporting periods as these entities are not controlled by the reporting entity • Onerous requirement to disclose three years comparative information on the current income and assets transferred to structured entities sponsored or set up by the reporting entity

10. Q4: Proposed disclosure requirements for involvement with structured entities Q4: Proposed disclosure requirements for involvement with structured entities • AOSSG recommendation: • Single model of disclosure requirements • Require only specific risk disclosure for significant involvement with unconsolidated structured entities • Exempt the requirements for entities that have accounted the non-consolidated structured entities as associate • Remove the requirement for three years comparative disclosures on structured entity set up or sponsored by the reporting entity

11. Questions and Answers • Consolidation model for structured entities • Dominant shareholder approach • Limited scope exception for investment entities • Proposed disclosure requirements for involvement with structured entities

12. Conclusion • Summary of discussion • Generally supportive of the tentative decisions • Clear defined control principles and application guidance are critical • Useful indicators under the existing standard should be retained • Proposals on dominant shareholder approach, definition of investment entities and parent company accounting for investment entities need to be reviewed based on decision-usefulness of the information to users • Disclosure requirements should be objective-based and practical

13. Conclusion • Thank you!