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Leaseurope Brussels

Noreen Whelan Global Controller – International Financial Reporting General Electric Company. Leaseurope Brussels. November 5, 2007. Agenda. GE in EMEA GE and IFRS IASB and FASB Joint Leasing Project Questions. GE Substantial Presence Throughout EMEA. 115, 000 GE employees today

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Leaseurope Brussels

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  1. Noreen Whelan Global Controller – International Financial Reporting General Electric Company Leaseurope Brussels November 5, 2007

  2. Agenda • GE in EMEA • GE and IFRS • IASB and FASB Joint Leasing Project • Questions

  3. GE Substantial Presence Throughout EMEA • 115, 000 GE employees today • $41.9 billion sales in 2006 (up from $3 billion in 1987) • Six businesses: Commercial Finance, Healthcare, Infrastructure, Industrial, GE Money and NBC-U, • GE’s International headquarters in Brussels…GE Healthcare & GE - Oil & Gas: global headquarters near London & Florence • Global Research Centre in Munich

  4. GE Locations: • Infrastructure • Industrial • Global Research • Healthcare • Money • Comm. Finance • NBC Universal

  5. GE and IFRS

  6. Promising steps are underway.....global trend is convergence with IFRS • > 100 countries permit or require IFRS......Australia, China, Canada, EU, Russia • Expect by 2012 150 countries (including India, Israel, Japan and Korea) using IFRS • IASB/FASB Convergence Roadmap • Not identical standards…close alignment of principles and continued co-operation • Goal 2009: eliminate SEC reconciliation for foreign registrants

  7. US issuers - SEC ‘Concept Release’ • Published in Aug 2007, to obtain information about the level of public interest in allowing U.S. issuers, to prepare financial statements in accordance with IFRS or US GAAP • Comments due on or before Nov.13, 2007 • US issuer choice provides a level playing field for raising capital • For GE - cost and simplification opportunity

  8. Countries converging to IFRS on different time schedules • Today: GE ensuring compliance for statutory and regulated filings in global jurisdictions • ‘IFRS as adopted by’…… • Benefits to investors, regulators and preparers?? • Consistent application?? • Going forward: IFRS global accounting standards • One set of books…less complexity of reporting processes, polices, training and IT platforms • Integrity of financial statements

  9. Principles bring challenges • Education of all interested parties…internal and external on accounting policies • More disclosure of assumptions, judgements and support for careful judgement? • Greater User sophistication • Trend is difficulty of Standards keeps rising • Benefits to investor community? (approx. 10% of comment letters from investor community) • Specialists required (eg preparers, auditors) • Work plan of SEC and CESR should avoid conflicting regulatory decisions on application IFRS and US GAAP

  10. IASB/FASB Lease Project

  11. What is GE Doing? • Joining with worldwide leasing organisations to interact with the IASB and FASB -- International Working Group • Providing industry input & expertise • Discussing the compliance burden • Discussing day 2 impacts

  12. Objectives • Fundamental review of current accounting model: • Leased asset either capitalized by lessee or off-balance sheet (all or nothing) • Lessor recognises a finance lease receivable • US GAAP >50 authoritative pieces of literature • Global harmonization of accounting treatments • Financial Statements reflect the economics of leasing transactions (lessee and lessor) • Allow investors make sound economic investment decisions

  13. Overview • Project added to agenda July 2006 • Develop further a ‘right of use approach’ (ie put rights and obligations on balance sheet at fair value) • Lessee’s right to use = Asset • Lessee’s obligation to pay = Liability • Principles based approach…. but may be complex to implement in practice • Critical that changes result in improved quality financial reporting.....what do Users want?

  14. Lessee - Open Items Include • Relationship of leasing project to existing literature and defination of ‘Right to Use’? • Measurement asset and liability • Fair value (consider interaction IFRS Fair Value DP…next slide) • Questions • Does the asset equal the liability? • Is there a day one gain or loss? • Right to terminate may define lease term • Effect of renewal options, variable lease payments, residual guarantees?

  15. Fair Value Measurement - IASB DP • Defines fair value and establishes a framework for measuring fair value – three-tier hierarchy • Expands fair value disclosure requirements • FASB issued SFAS 157….Effective Date and Transition: • “Effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years” • GE established FAS 157 implementation committee • Significant impact on M&A and Financial Services

  16. Lessor Accounting Not Yet Discussed • Derecognition of the “hard” asset and recognition of a “financial asset”….recognition and measurement approach? • Revenue Recognition project exploring ‘performance obligations’ model (eg. obligations to: deliver goods, warranties, accept returns) • Likely two models exposed: (1) fair value model (lay off notion) (2) customer consideration model (total contract price allocated to performance obligations) • Necessary and before final lease standard issued • Thorough consideration of interaction of FVM, Revenue Recognition and Lease projects • Request: Don’t over-engineer!

  17. Questions?

  18. Appendix

  19. FAS 157: Summaryof Significant Changes

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