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Dataline
                                               A look at current financial reporting
                                               issues

                                               Accounting implications of the elimination of
No. 2011-04
January 21, 2011                               the preferential exchange rate in Venezuela
What’s inside:
At a glance ....................... 1
                                               At a glance
The main details .............. 1
Re-measurement of                                  On April 1, 2010, we issued Dataline 2010-18, which provided guidance related to the
 bolivar-denominated                               determination that Venezuela was a highly inflationary economy. On July 16, 2010,
 transactions ..........................1          we issued Dataline 2010-29, which provided guidance on the elimination of the
Disclosure................................ 3
                                                   parallel market and its replacement with the government-regulated Transaction
Questions .........................3
                                                   System for Foreign Currency Denominated Securities (SITME) market. This Dataline
                                                   should be read in conjunction with Dataline 2010-18 and Dataline 2010-29.

                                                   On December 30, 2010, the government of Venezuela announced that it is eliminating
                                                   the 2.6 BsF/$ preferential exchange rate. On January 14, 2011, the government of
                                                   Venezuela published a clarification specifying how the announcement on December
                                                   30, 2010 will be administered.

                                                   The elimination of the preferential exchange rate could affect the rate used for re-
                                                   measurement of bolivar-denominated transactions, and could affect the accounting
                                                   for certain bonds issued by the Venezuelan government.

                                                   The SEC continues to expect robust disclosure regarding registrants’ operations in
                                                   Venezuela.


                                               The main details
                                               .1 The preferential exchange rate was established in January 2010, and was applicable
                                               to imports of food, medicine and other essential items. On December 30, 2010, the
                                               government of Venezuela announced that it is eliminating the 2.6 BsF/$ preferential
                                               exchange rate ("the December 30, 2010 announcement"). As a result, in most cases there
                                               are only two exchange rates available for remeasuring bolivar-denominated transactions
                                               as of December 31, 2010—the official rate of 4.3 BsF/$ and the government-regulated
                                               SITME rate.

                                               Re-measurement of bolivar-denominated transactions
                                               .2 As discussed in Dataline 2010-18 and Dataline 2010-29, for periods subsequent to
                                               Venezuela becoming a highly inflationary economy, a Venezuelan entity must decide at


                                               National Professional Services Group | CFOdirect Network – www.cfodirect.pwc.com   Dataline   1
which rate it should record its bolivar-denominated transactions. Prior to the December
30, 2010 announcement, a Venezuelan entity with a U.S. dollar functional currency
potentially had three different exchange rates to use for remeasurement—the 2.6
BsF/$ preferential rate, the 4.3 BsF/$ general rate, or the 5.2 BsF/$ SITME rate. After
the December 30, 2010 announcement, only the 4.3 BsF/$ rate and the SITME rate will
be available. For companies that had been using the 2.6 BsF/$ rate for remeasurement,
an analysis should be performed at December 31, 2010 to determine how much, if any, of
its bolivar-denominated transactions will be settled at the 2.6 BsF/$ rate.

  PwC observation:
  It is our understanding that, for most imported goods, unless a given transaction had
  received approval from both CADIVI (the Venezuelan government body that
  administers currency exchange in Venezuela) and the Central Bank of Venezuela as of
  December 30, 2010, it will not be eligible to receive the 2.6 BsF/$ rate. As a result, in
  many cases, transactions previously eligible for the 2.6 BsF/$ rate will need to be
  remeasured at either the 4.3 BsF/$ rate or the SITME rate as of December 31, 2010.
  However, on January 14, 2011, a publication by the Venezuelan government clarified
  that the 2.6 BsF/$ rate will be granted for imports of food or medicine if documented
  approval was received from CADIVI by December 31, 2010. Accordingly, the January
  14, 2011 clarification has the effect of increasing the number of transactions that are
  eligible to be remeasured with the 2.6 BsF/$ rate as of December 31, 2010. The
  appropriate rate used to prepare December 31, 2010 financial statements depends on
  a Venezuelan entity's own facts and circumstances.

.3 The Venezuelan government has historically issued bonds called Titulo de Interes y
Capital Cubierto bonds ("TICC" bonds). TICC bonds, which are settled in bolivars but
denominated in U.S. dollars, provide investors protection against future exchange rate
devaluations via a feature that adjusts the amount of bolivars received at maturity for
devaluations that occurred subsequent to issuance. Because the elimination of the 2.6
BsF/$ preference rate is akin to a devaluation, we expect the exchange rate used to
determine how many bolivars will be delivered at the maturity of a TICC bond will move
from the 2.6 BSF/$ exchange rate to the 4.3 BsF/$ exchange rate. For example, an
investor that paid 260,000 bolivars ($60,465 at the 4.3 BsF/$ general exchange rate) in
April 2010 for a $100,000 notional TICC bond would now expect to receive 430,000
bolivars ($100,000 at the 4.3 BsF/$ general exchange rate) at maturity given the
December 30, 2010 announcement. From a fair value perspective, we expect that this
adjustment will be reflected in the December 31, 2010 valuation of the TICC bonds.
However, as of the date of this Dataline, we understand that there have been few, if any,
observable market transactions for TICC bonds since the December 30, 2010
announcement.

  PwC observation:
  The TICC bonds are considered debt securities under ASC 320 (formerly FAS 115). As
  such, the bonds should be designated as trading, available-for-sale or held-to-
  maturity. We believe that most companies have designated these securities as
  available-for-sale securities. In the event of a trading designation, any change in fair
  value related to the December 30, 2010 announcement should be recorded in
  earnings as a gain or loss. In the event of an available-for-sale designation, any
  change in fair value related to the December 30, 2010 announcement should be
  reflected in other comprehensive income, pursuant to ASC 830-20-35-6 (formerly
  EITF 96-15). Since held-to-maturity securities are monetary assets, we believe that
  any change in fair value related to the December 30, 2010 announcement should be
  reflected in net income in accordance with ASC 830 (formerly FAS 52).




National Professional Services Group | CFOdirect Network – www.cfodirect.pwc.com   Dataline   2
Disclosure
.4 At the 2009 AICPA National Conference on Current SEC and PCAOB Developments,
the SEC staff expressed concern over the lack of disclosure included in the filings of
registrants with Venezuelan operations. Throughout 2010, the SEC has frequently
questioned registrants’ disclosures about Venezuela, and has clearly indicated that they
expect robust disclosure regarding registrants’ operations in Venezuela in all future
filings.

.5 We believe that it is prudent for preparers to consider disclosing the following:

    Summarized financial information of the Venezuelan entity (including balance sheet,
    statement of cash flows, and income statement)

    Net monetary assets and liabilities by currency

    The exchange rates used for remeasurement purposes. If multiple exchange rates are
    being used, provide an explanation of the criteria used to make the distinction and
    provide information on the relative significance of the various exchange rates.

    The amount of any gain or loss that resulted from changing exchange rates

    The amount of BsF pending government approval at each of the exchange rates, as
    well as the length of time the requests have been pending

    Business practices that have or are expected to change as a result of recent events

    MD&A disclosures should enable a reader to understand the risk and accounting
    impact of an exchange rate change on future operations, financial position, and cash
    flows


Questions
.6 PwC clients who have questions about this Dataline should contact their engagement
partner. Engagement teams that have questions should contact the Financial
Instruments team in the National Professional Services Group (1-973-236-7803).




National Professional Services Group | CFOdirect Network – www.cfodirect.pwc.com   Dataline   3
Authored by:
                                      Kenneth O. Miller, Jr.
                                      Partner
                                      Phone: 1-973-236-7336
                                      Email: kenneth.miller@us.pwc.com

                                      John F. Horan III
                                      Director
                                      Phone: 1-973-236-4072
                                      Email: john.f.horan.iii@us.pwc.com




Datalines address current financial-reporting issues and are prepared by the National Professional Services Group of PwC. This publication has been
prepared for general information on matters of interest only, and does not constitute professional advice on facts and circumstances specific to any
person or entity. You should not act upon the information contained in this publication without obtaining specific professional advice. No
representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication. The
information contained in this material was not intended or written to be used, and cannot be used, for purposes of avoiding penalties or sanctions
imposed by any government or other regulatory body. PwC, its members, employees and agents shall not be responsible for any loss sustained by any
person or entity who relies on this publication.

© 2011 PwC. All rights reserved. "PwC" refers to PricewaterhouseCoopers LLP, a Delaware limited liability partnership, which is a member firm of
PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. [FP120610]

To access additional content on reporting issues, register for CFOdirect Network (www.cfodirect.pwc.com), PwC’s online resource for financial
executives.

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PWC Dataline 2011 04

  • 1. Dataline A look at current financial reporting issues Accounting implications of the elimination of No. 2011-04 January 21, 2011 the preferential exchange rate in Venezuela What’s inside: At a glance ....................... 1 At a glance The main details .............. 1 Re-measurement of On April 1, 2010, we issued Dataline 2010-18, which provided guidance related to the bolivar-denominated determination that Venezuela was a highly inflationary economy. On July 16, 2010, transactions ..........................1 we issued Dataline 2010-29, which provided guidance on the elimination of the Disclosure................................ 3 parallel market and its replacement with the government-regulated Transaction Questions .........................3 System for Foreign Currency Denominated Securities (SITME) market. This Dataline should be read in conjunction with Dataline 2010-18 and Dataline 2010-29. On December 30, 2010, the government of Venezuela announced that it is eliminating the 2.6 BsF/$ preferential exchange rate. On January 14, 2011, the government of Venezuela published a clarification specifying how the announcement on December 30, 2010 will be administered. The elimination of the preferential exchange rate could affect the rate used for re- measurement of bolivar-denominated transactions, and could affect the accounting for certain bonds issued by the Venezuelan government. The SEC continues to expect robust disclosure regarding registrants’ operations in Venezuela. The main details .1 The preferential exchange rate was established in January 2010, and was applicable to imports of food, medicine and other essential items. On December 30, 2010, the government of Venezuela announced that it is eliminating the 2.6 BsF/$ preferential exchange rate ("the December 30, 2010 announcement"). As a result, in most cases there are only two exchange rates available for remeasuring bolivar-denominated transactions as of December 31, 2010—the official rate of 4.3 BsF/$ and the government-regulated SITME rate. Re-measurement of bolivar-denominated transactions .2 As discussed in Dataline 2010-18 and Dataline 2010-29, for periods subsequent to Venezuela becoming a highly inflationary economy, a Venezuelan entity must decide at National Professional Services Group | CFOdirect Network – www.cfodirect.pwc.com Dataline 1
  • 2. which rate it should record its bolivar-denominated transactions. Prior to the December 30, 2010 announcement, a Venezuelan entity with a U.S. dollar functional currency potentially had three different exchange rates to use for remeasurement—the 2.6 BsF/$ preferential rate, the 4.3 BsF/$ general rate, or the 5.2 BsF/$ SITME rate. After the December 30, 2010 announcement, only the 4.3 BsF/$ rate and the SITME rate will be available. For companies that had been using the 2.6 BsF/$ rate for remeasurement, an analysis should be performed at December 31, 2010 to determine how much, if any, of its bolivar-denominated transactions will be settled at the 2.6 BsF/$ rate. PwC observation: It is our understanding that, for most imported goods, unless a given transaction had received approval from both CADIVI (the Venezuelan government body that administers currency exchange in Venezuela) and the Central Bank of Venezuela as of December 30, 2010, it will not be eligible to receive the 2.6 BsF/$ rate. As a result, in many cases, transactions previously eligible for the 2.6 BsF/$ rate will need to be remeasured at either the 4.3 BsF/$ rate or the SITME rate as of December 31, 2010. However, on January 14, 2011, a publication by the Venezuelan government clarified that the 2.6 BsF/$ rate will be granted for imports of food or medicine if documented approval was received from CADIVI by December 31, 2010. Accordingly, the January 14, 2011 clarification has the effect of increasing the number of transactions that are eligible to be remeasured with the 2.6 BsF/$ rate as of December 31, 2010. The appropriate rate used to prepare December 31, 2010 financial statements depends on a Venezuelan entity's own facts and circumstances. .3 The Venezuelan government has historically issued bonds called Titulo de Interes y Capital Cubierto bonds ("TICC" bonds). TICC bonds, which are settled in bolivars but denominated in U.S. dollars, provide investors protection against future exchange rate devaluations via a feature that adjusts the amount of bolivars received at maturity for devaluations that occurred subsequent to issuance. Because the elimination of the 2.6 BsF/$ preference rate is akin to a devaluation, we expect the exchange rate used to determine how many bolivars will be delivered at the maturity of a TICC bond will move from the 2.6 BSF/$ exchange rate to the 4.3 BsF/$ exchange rate. For example, an investor that paid 260,000 bolivars ($60,465 at the 4.3 BsF/$ general exchange rate) in April 2010 for a $100,000 notional TICC bond would now expect to receive 430,000 bolivars ($100,000 at the 4.3 BsF/$ general exchange rate) at maturity given the December 30, 2010 announcement. From a fair value perspective, we expect that this adjustment will be reflected in the December 31, 2010 valuation of the TICC bonds. However, as of the date of this Dataline, we understand that there have been few, if any, observable market transactions for TICC bonds since the December 30, 2010 announcement. PwC observation: The TICC bonds are considered debt securities under ASC 320 (formerly FAS 115). As such, the bonds should be designated as trading, available-for-sale or held-to- maturity. We believe that most companies have designated these securities as available-for-sale securities. In the event of a trading designation, any change in fair value related to the December 30, 2010 announcement should be recorded in earnings as a gain or loss. In the event of an available-for-sale designation, any change in fair value related to the December 30, 2010 announcement should be reflected in other comprehensive income, pursuant to ASC 830-20-35-6 (formerly EITF 96-15). Since held-to-maturity securities are monetary assets, we believe that any change in fair value related to the December 30, 2010 announcement should be reflected in net income in accordance with ASC 830 (formerly FAS 52). National Professional Services Group | CFOdirect Network – www.cfodirect.pwc.com Dataline 2
  • 3. Disclosure .4 At the 2009 AICPA National Conference on Current SEC and PCAOB Developments, the SEC staff expressed concern over the lack of disclosure included in the filings of registrants with Venezuelan operations. Throughout 2010, the SEC has frequently questioned registrants’ disclosures about Venezuela, and has clearly indicated that they expect robust disclosure regarding registrants’ operations in Venezuela in all future filings. .5 We believe that it is prudent for preparers to consider disclosing the following: Summarized financial information of the Venezuelan entity (including balance sheet, statement of cash flows, and income statement) Net monetary assets and liabilities by currency The exchange rates used for remeasurement purposes. If multiple exchange rates are being used, provide an explanation of the criteria used to make the distinction and provide information on the relative significance of the various exchange rates. The amount of any gain or loss that resulted from changing exchange rates The amount of BsF pending government approval at each of the exchange rates, as well as the length of time the requests have been pending Business practices that have or are expected to change as a result of recent events MD&A disclosures should enable a reader to understand the risk and accounting impact of an exchange rate change on future operations, financial position, and cash flows Questions .6 PwC clients who have questions about this Dataline should contact their engagement partner. Engagement teams that have questions should contact the Financial Instruments team in the National Professional Services Group (1-973-236-7803). National Professional Services Group | CFOdirect Network – www.cfodirect.pwc.com Dataline 3
  • 4. Authored by: Kenneth O. Miller, Jr. Partner Phone: 1-973-236-7336 Email: kenneth.miller@us.pwc.com John F. Horan III Director Phone: 1-973-236-4072 Email: john.f.horan.iii@us.pwc.com Datalines address current financial-reporting issues and are prepared by the National Professional Services Group of PwC. This publication has been prepared for general information on matters of interest only, and does not constitute professional advice on facts and circumstances specific to any person or entity. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication. The information contained in this material was not intended or written to be used, and cannot be used, for purposes of avoiding penalties or sanctions imposed by any government or other regulatory body. PwC, its members, employees and agents shall not be responsible for any loss sustained by any person or entity who relies on this publication. © 2011 PwC. All rights reserved. "PwC" refers to PricewaterhouseCoopers LLP, a Delaware limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. [FP120610] To access additional content on reporting issues, register for CFOdirect Network (www.cfodirect.pwc.com), PwC’s online resource for financial executives.