1. Why did Nordstjernan start the
“Resistance Movement against IFRS”?
Tomas Billing
May 15, 2012
Stockholm School of Economics

2. PwC’s seminar for listed companies 2010 (I)
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3. PwC’s seminar for listed companies 2010 (II)
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4. It was not because we oppose
the idea of one standard for Europe
or for the world
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5. It was because IFRS has…
1. an inadequate objective
2. an inadequate basic principle
3. an inadequate organisation
4. many inadequate rules (not all )
I will come back to these four points
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6. Who is Tomas Billing?
 CEO of Nordstjernan (since 1999…)
 Chairman of NCC
 SSE graduate (class of 1984)
 Accounting major!
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7. What is Nordstjernan?
 Family controlled investment holding company
 Nordic focus
 Both listed holdings (with IFRS) and non-listed
(without IFRS)
 Examples of listed holdings: NCC, Ramirent,
Ekornes
 Examples of non-listed holdings: Salcomp, Etac,
Rosti
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8. What are the arguments for IFRS?
A. To have the same accounting rules in Europe
(or in the whole world) is good for the capital
market – reduces cost of capital
B. If not IFRS is implemented we will have
national rules or US GAAP. Both are worse
than IFRS!
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9. Do we agree?
A. I am OK with this argument as long as the rules
are adequate. To have the same inadequate
rules will not reduce cost of capital
B. To implement something because the
alternatives are worse is not a valid argument.
History has shown this many times
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10. 1. Yesterday you learnt that IASB’s objective
is…
“to develop, in the public interest, a single set of
high quality, understandable, enforceable and
globally accepted financial reporting standard based
on clearly articulated principles…”
This is what we call “snömos” in Swedish
Make the “reverse test”!

11. 1. According to the IFRS’ framework…
“the objective of general purpose financial
statements is to provide financial information about
the reporting entity that is useful to present and
potential equity investors, lenders and other
creditors in making decisions in their capacity as
capital providers. Information that is decision-useful
to capital providers may also be useful to other
users of financial reporting who are not capital
providers”
Objective is to provide information for
investors, not to help managers/boards to
govern companies

12. 1. An inadequate objective
The objective is to provide information for
investors, not to help managers/boards to
govern companies. Additionally, a lot of
“snömos”

13. 2. An inadequate basic principle (I)
 Market valuation of balance sheet (fair value) vs
cash flow generation
 Example “Polstjernan”
Land 100 Equity 100
Profit 10
Cash flow 0
Land 110 Equity 110
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14. 2. An inadequate basic principle (II)
Land 100 Equity 100
Profit 10
Cash flow 10
Land 100 Equity 110
Cash 10
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15. 2. An inadequate basic principle (III)
IFRS increases the possibility of
management to “fix” profits
IFRS has nothing to do with cash flow
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16. 3. An inadequate organisation
 Over 100 full time employees. What drives
them? Who evaluates them?
 Who decides what new rules to invent? Demand
driven? No!
 Can companies influence IASB? No! (I do not
even get a response…)
 Can politicians influence IASB? (e g IAS 39
regarding held-to-maturity investments) Yes!
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17. 4. Many inadequate rules
 IAS 39
- Classifications
- Loans at fair value
 IFRS 3
- Earn-out
- Partial acquisitions/divestitures
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18. IAS 39 – Classifications
 Normal financial asset
 Financial asset that is a held-to-maturity
investment
“Long term investment is a short term
investment that has gone sour”
Management will influence. Do bonuses
effect behaviors?
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19. IAS 39 – Loans at fair value
Q3-report from UBS (page 1 of 96…):
“Dear shareholders, for the third quarter of 2011
we delivered a net profit attributable to UBS
shareholders of CHF 1,018 million… This was
achieved despite the impact of the unauthorized
trading incident…”
Positive undertone?! My translation:
“Despite difficult conditions, UBS
managed to generate a profit”
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20. IAS 39 – Loans at fair value
“Dear shareholders, for the third quarter of 2011
UBS made a loss of 800 MCHF. This loss and the
general market turmoil has meant that the owners
of UBS debt is more uncertain about their ability to
repay and, therefore, the market value of UBS’s
debts have decreased. Because of IAS 39, UBS
books this devaluation as profit in the P&L
statement and because the amount is as large as
1.8 billion CHF, UBS reports a total profit. This
profit has nothing to do with the business”
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21. IAS 39 – Loans at fair value
 UBS has done nothing wrong, but is this good
for the shareholders?
 Is IFRS’ assumption that managers do not
influence numbers correct?
 Solution for Greece? Heureka!
 When will we have an accounting standard that
shows the real performance of companies?
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22. IFRS 3 – Earn-out
 This standard is about business combinations,
among other earn-outs and other add-on-
payments in a transaction (“tilläggs-
köpeskillingar”)
 Assume NCC purchases a company XYZ for
100 with an extra 30 if profits the next coming
years turn out to be OK
 Since NCC believes that probability of this to
happen it assumes that the full amount, 30, is a
debt
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23. IFRS 3 – Earn-out
 The company XYZ does unfortunately not
perform as planned and the 30 in earn-out does
not have to be paid
 This means that the 30 in debt has ceased to
exist and NCC makes 30 in extra profit. Heureka
again! Make bad acquisitions and make money
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24. IFRS 3 – Partial acquisitions/divestitures
 If NCC increases a holding from 49.9 % to
50.1 % the full investment should be revalued to
market value
 If NCC divests 49.9 % of a formally wholly-
owned subsidiary no result is shown. Full effect
is taken against equity
 These two rules have nothing to do with reality.
Additionally, the management can create profits
when they need them…
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25. IFRS needs…
1. A new objective focusing on making
companies better
2. A new basic principle with cash flow focus
3. A new organisation
4. Many rules should be changed
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