December 2001: EFRAG Reports on Consistency of Modernised Directives and IAS
Responding to a request from the European Commission, the EFRAG Technical Expert Group has concluded, in a Report to the Commission (PDF 74k), that there are "no actual inconsistencies between IAS 1 to 41 (and related SIC) and the ['modernised'] 4th and 7th Directives". However, EFRAG has recommended clarification of the Directives with respect to treatment of fundamental errors and accounting policy changes under IAS 8, the corridor approach under IAS 19, and reverse acquisitions under IAS 22. EFRAG also noted that "a number of standards are in the process of being changed and these could result in conflicts with the Directives".
June 2002: EFRAG recommends EC endorsement of all existing IAS 'en bloc'
In response to a request from the European Commission, EFRAG has reviewed IAS 1-41 and all extant SICs and has concluded that (a) they are not contrary to the 4th and 7th Directives and (b) they meet the required criteria of understandability, relevance, reliability, and comparability. Therefore, EFRAG believes that "it is in the European interest that the process of adoption of the current standards should now be set in motion. Accordingly, we recommend endorsement of the current standards 'en bloc'." Click for EFRAG Letter to EC (PDF 28k).
July 2003: EFRAG recommends EC adoption of IFRS 1
In a Letter to the European Commission (PDF 15k), EFRAG has recommended the adoption in Europe of IFRS 1, First-time Adoption of International Financial Reporting Standards.
November 2003: EFRAG Response to CESR Consultation Paper
EFRAG letter of comment to the Committee of European Securities Regulators (CESR) on CESR's Consultation Paper on the Application of IFRS in 2005: Draft Recommendation for Additional Guidance Regarding the Transition to IFRS. Click to Download EFRAG's Letter (PDF 23k).
December 2003: Proposal to enhance EFRAG's role and working process
EFRAG has invited comment on proposals to enhance its role and streamline its operating processes with the goal of "strengthening European input to the IASB". EFRAG, a private-sector body, was created in mid-2001 by a broad array of groups interested in financial reporting in Europe, including the preparers and the accountancy profession. Its principal goal is to make a pro-active contribution to the work of IASB while also advising the European Commission on the technical assessment of the IASB standards and interpretations for application in Europe. Key proposals include:
- Increasing EFRAG's pro-active role with the IASB, to allow EFRAG to present European concerns at the earliest stage.
- Seeking full recognition of EFRAG as a liaison standard-setter by the IASB.
- Creating an Advisory Forum to allow a wide range of stakeholders to contribute to the European financial reporting debate.
- Making EFRAG's working processes more efficient, including (a) closer relationships with the European national standard setters; (b) smaller and more efficient Supervisory Board; and (c) a full-time Chairman for the Technical Expert Group.
- Increasing EFRAG's resources.
Written comments on the proposals are invited by 12 January 2004, and a public hearing will be held in Brussels on 8 January 2004.
January 2004: New EFRAG Appointments
In January 2004, EFRAG's Supervisory Board made a number of appointments to the Technical Experts Group designed to
strengthen links with the European national standard setters. Click for EFRAG Press Release (PDF 31k)
March 2004: EFRAG Endorses the 'Improved' IASs
EFRAG concluded that the revised IASs resulting from IASB's Improvements Project "meet the requirements of the Regulation (EC) No 1606/2002 of the European Parliament and of the Council on the application of international accounting standards" and, in a Letter to the European Commission (PDF 68k), said: "We believe that it is in the European interest to adopt the revised IASs and, accordingly, we recommend their adoption."
January 2005: EFRAG appoints financial instruments group
EFRAG has appointed a financial instruments working group (FIWG) with the twin goals of addressing current IAS 39 issues (such as potential solutions for the carve-out areas in IAS 39) and wider issues for longer-term revision of IAS 39. FIWG members are:
- Thomas Naumann, Dresdner Bank (Chairman)
- David Bradbery, UBS Investment Bank
- Isabelle Collignon, Crédit Agricole SA
- Petri Hofste, KPMG
- Gordong Ireland, PWC
- Victor Jimenez, Banco Bilbao Vizcaya Argentaria
- Ingvar Linse, Swedbank
- Helmut Ortlof, DZ Bank AG
- Massimo Romano, Assicurazioni Generali
- Hugh Shields, Barclays Capital
- Agnes Tardos, PWC
Click to Download FIWG Terms of Reference (PDF 18k).
February 2005: EFRAG appoints insurance working group
EFRAG has restructured its insurance subcommittee into an insurance accounting working group (IAWG). Objectives of the group are to provide pro-active contribution to the work of the IASB in Phase II of its insurance project and to identify interpretation and implementation issues on insurance-specific matters. Members of the working group are:
- Benoit Jaspar, GENERALI (Chairman)
- Bernard Bolle-Reddat, BNP-Paribas
- Ruurd Van den Berg, AEGON
- Jacques Le Douit, AXA
- Hugh Francis, AVIVA
- Catherine Guttmann, Deloitte (EFRAG TEG)
- Joachim Kolschbach, KPMG
- Nigel Masters, PwC
- Carsten Zielke, WestLB
- Observer organisations: European Commission, CESR, CEIOPS, and CEA
- Associate member organisations: ICISA and ACME
Click to Download IAWG Terms of Reference (PDF 20k).
February 2005: EFRAG appoints venture capital working group
EFRAG has appointed a "venture capital working group". Members of the working group are:
- Sigvard Heurlin (Chairman), EFRAG
- Mike Brown, 3i
- Pierre Herve, Natexis PE
- Annie Lambrecht, Ernst & Young
- Heidi Lepantalo, CapMan
- Bart de Leeuw, EFRAG
July 2005: EFRAG enquiry on implementation of IFRSs
On 27 July 2005, the Supervisory Board of EFRAG invited comments on a discussion paper Achieving Consistent Application of IFRS in the EU (Word .DOC 75k). The Supervisory Board's goal is "to stimulate debate in Europe on this very important subject". The paper seeks information about the nature and quantity of IFRS implementation issues that are arising in Europe and discusses various options available to Europe if problems are identified. Broad issues addressed in the paper are:
- Is there a problem and, if there is, what is it?
- What additional mechanisms might Europe need?
- IFRIC: standing ready to meet the demand
- European interpretations/interpretive guidance: not needed if the IFRIC delivers
- European implementation guidance: also not needed if the IFRIC delivers
- A European urgent issues mechanism: not feasible without shortcutting due process, which is not acceptable
- A European mechanism that supports the work of IFRIC: a possibility if needed
Comments were invited on the paper by 6 October 2005.
October 2006: Notes from IASB meeting with EFRAG representatives
On the morning of 17 October 2006, the International Accounting Standards Board met with representatives of the European Financial Reporting Advisory Group (EFRAG). Click to go to the preliminary and unofficial Notes Taken by Deloitte Observers at that meeting.
November 2006: European discussion paper on the conceptual framework
EFRAG and the French accounting standard setter (Conseil National de la Comptabilite, or CNC) have jointly published the first Discussion Paper under the auspices of the Pro-active Accounting Activities in Europe (PAAinE). The Discussion Paper is titled The Conceptual Framework: Starting from the Right Place? It elaborates on the following issues:
- Purpose of the conceptual framework;
- Users of financial reporting;
- Entities within the scope of the Framework; and
- The scope of financial reporting.
EFRAG and CNC invite comments, which are due by 18 March 2007. Click to Download the Discussion Paper PDF 873k).
November 2006: European discussion paper on performance reporting
EFRAG and the Instituto de Contabilidad y Auditoría de Cuentas (or ICAC) published a Discussion Paper on performance reporting entitled What (if anything) is wrong with the good old income statement? It is the second paper issued under the auspices of the Pro-active Accounting Activities in Europe (PAAinE). The paper identifies and analyses the arguments of those who believe that fundamental changes are needed to the existing performance reporting model, and also explains the reasoning of those who believe such changes are not needed. The paper does not reach any conclusions on the issues, but it sets the scene for a subsequent paper that will explore the underlying issues involved in greater detail. The comment period ends on 31 March 2007. Click to Download the Discussion Paper (PDF 896k).
April 2007: Notes from IASB meeting with EFRAG representatives
On the morning of 17 April 2007, the International Accounting Standards Board met with representatives of the European Financial Reporting Advisory Group (EFRAG). Click to go to the preliminary and unofficial Notes Taken by Deloitte Observers at that meeting.
July 2007: EFRAG discussion paper on revenue recognition
KIn July 2007, EFRAG and the German accounting standard setter jointly published a discussion paper Revenue Recognition – A European Contribution (PDF 694k) as part of EFRAG's Pro-active Accounting in Europe (PAAinE) Initiative. The paper was prepared in recognition that the IASB and the FASB are working on a joint project on revenue recognition. The paper notes that the IASB and FASB have tentatively decided to develop a comprehensive set of principles for revenue recognition that are in line with an asset/liability approach. The PAAinE paper first discusses what revenue is and when it arises. It then develops and compares various approaches to revenue recognition. EFRAG invites comments on the issues in the discussion paper by 10 December 2007 (send to commentletter@efrag.org).
January 2008: European paper on liability-equity distinction
On 28 January 2008, EFRAG and several European accounting standard setters jointly published a discussion paper Distinguishing between Liabilities and Equity as part of EFRAG's Pro-active Accounting Activities in Europe (PAAinE) programme. Comments on the paper are requested by 28 July 2008. The IASB has an Agenda Project on this topic, as does the US Financial Accounting Standards Board (FASB).
- EFRAG's paper. The paper analyses the distinction between equity and liabilities under the existing IASB Framework and current IFRSs. The paper concludes that "the distinction principle used therein has apparent shortcomings. The shortcomings cannot be accommodated by merely 'fixing' bits and pieces or by amending definitions. Rather, a fundamental review of the principle itself is warranted." The paper concludes that participating or sharing in losses is "the decisive factor for distinguishing
equity from debt". Click to download the Discussion Paper (PDF 1,023k).
- FASB's paper. On 30 November 2007, the FASB published its Preliminary Views (PV) on Financial Instruments with Characteristics of Equity (see IASPlus News Story 5 Dec 2007). FASB favours the 'basic ownership' approach, which limits the instruments that can be classified as equity to the lowest residual interests in an entity. The holders of those instruments are viewed as the owners of the entity. All other instruments represent either liabilities or assets. An instrument that reduces the net assets available to the owners of the entity is a liability; and an instrument that enhances net assets available to the owners is an asset. Under this approach, forward contracts, options, and convertible debt would be classified as liabilities or assets. You can download the paper from FASB's Website (PDF 510k) without charge.
- IASB's paper. At its December 2007 meeting, the IASB decided to issue a Discussion Paper on Financial Instruments with Characteristics of Equity. The IASB's DP is planned for March 2008. It would incorporate FASB's preliminary views document, possibly with additional material or questions, and invite public comments.
January 2008: European paper on financial reporting of pensions
EFRAG and several European accounting standard setters have jointly published a discussion paper on The Financial Reporting Of Pensions (PDF 2,849k, 237 pages) as part of EFRAG's Pro-active Accounting Activities in Europe (PAAinE) programme. Work on developing the paper was led by the UK Accounting Standards Board. Comments on the paper are requested by 14 July 2008. The IASB has an Agenda Project on this topic, as does the US Financial Accounting Standards Board (link to FASB website project page). After considering the responses to the proposals in its discussion paper, EFRAG intends to issue a report setting out final recommendations for consideration by the IASB and FASB. Some points about the EFRAG paper:
Rather than seeking to improve existing accounting standards, the paper proposes a fundamental reconsideration of pension accounting. Consequently, some of the views in the paper differ markedly from existing standards on pensions. Recommendations include:
- The same principles should be applied to all pension arrangements, whether 'defined contribution' or 'defined benefit' plans.
- The expected return on assets should not be reported as part of the profit or loss for the year.
- Only benefits that the entity is presently committed (by legal or constructive obligation) to pay should be reflected in the liability. Where the entity has genuine discretion to vary the amount of future benefit, this is not reflected in the liability.
- The focus should shift from mechanisms that spread pension costs over employees' service lives to the principle of reflecting only present obligations as liabilities. Therefore, if benefits are linked to employees' salaries at or near retirement or leaving service, expected future salary increases would only be reflected in the liability when increases are required by law or contract or are seen as non-discretionary. Under this approach, the pension expense and the pension liability is increased only when pensionable salaries actually increase. (The report notes differing views on this issue.)
- Changes in the measurement of assets and liabilities relating to pension plans should not be deferred, such as by spreading them over the average remaining service lives of employees or by a 'corridor' approach under which changes are not
recognised at all unless they exceed a certain threshold.
- Pension liabilities should be measured at a current value, defined as the settlement amount that reflects the cash outflows needed now or in the future to discharge the liability.
- Pension liabilities should be measured by discounting future cash flows using a current market discount rate that reflects the time value of money only, that is, a risk-free rate. Risks, such as mortality risk, would be reported via disclosure.
- Assets held to pay benefits should be reported at current values.
- Regarding financial reporting by pension plans themselves, the IASB should consider withdrawing IAS 26 Accounting and Reporting by Retirement Benefit Plans and requring, instead, that the standards for the general purpose financial reports of pension plans be consistent with IFRSs in general. Thus, a plan's liability to pay benefits in the future should be measured using the same principles as an employer's liability.
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July 2008: Public consultation on EFRAG enhancement
On 23 July 2008, the Supervisory Board of the European Financial Reporting Advisory Group (EFRAG) invited public comment on a proposal for the enhancement of EFRAG. The proposal is in response to calls for strengthening the European contribution to the work of IASB. EFRAG is seeking input on:
- enhancing the EU's pro-active input to the IASB by building on EFRAG's structures and experience;
- further involvement of National Standard Setters and coordination of European resources and the creation of a Planning and Resource Committee
- enhanced governance, transparency of EFRAG and accountability to European organisations and institutions;
- balanced involvement of European stakeholders in EFRAG;
- a significant increase in EFRAG's human and financial resources.
The proposal envisions a new EFRAG structure as shown in the diagram below.
The structure would include:
- A new General Assembly (GA) with a Governance and Nominating Committee. The GA would consist of representatives of major European organisations. It would meet annually to approve the budget and appoint Supervisory Board (SB) members. The Governance and Nominating Committee would make recommendations on appointments to the SB.
- The Supervisory Board (17 members) would have responsibilities for oversight, financing, and some external liaisons (including IASCF, EC, and EP). It would also appoint members of the Technical Expert Group (TEG) and Planning and Resource Committee (PRC).
- The PRC would coordinate EFRAG's proactive work with the IASB agenda and EFRAG technical surveys.
- There would be a new Consultative Group, similar to SAC, to advise TEG, PRC, and SB. It would meet annually.
- Regarding TEG, no major changes are proposed to the existing structure (9 to 12 voting members plus 3 non-voting members from major EU standard-setters).
The proposal envisions a budget for EFRAG of €3 million in 2009. That would double to €6 million in 2010, with the European Commission contributing half. EFRAG would have a technical staff of 20. The proposal envisages that the new structure will be put in place during the first half of 2009. Click to download EFRAG Enhancement Proposal (PDF 352k). Comment deadline is 22 September 2008.
September 2008: We comment on EFRAG enhancement proposals
On 22 July 2008, the Supervisory Board of the European Financial Reporting Advisory Group (EFRAG) invited public comment on proposals for enhancing EFRAG as a way to strengthen the European contribution to the work of IASB (see news item immediately above). The proposal envisions a new structure, a budget of €3 million in 2009 doubling to €6 million in 2010, and an EFRAG technical staff of 20. Deloitte has submitted a Letter of Comment on the Proposals (PDF 18k). While we support EFRAG's proposals to improve its ability to be a strong and coordinated European voice for high quality accounting standards for users in Europe, we caution that EFRAG's constitution should be clear that EFRAG is neither a standard-setter nor a replacement for the existing EU national standard-setters.
December 2008: Final plan for restructuring of EFRAG
Following public consultation, on 10 December 2008 EFRAG published a plan to restructure itself with the goal of 'more influence for EFRAG in international standard-setting process'. The final plan is based on proposals published in July 2008 (see above). The proposals envision a new EFRAG structure as shown in the diagram below. The report states that, to increase its influence on the IASB, 'EFRAG needs to place more emphasis on developing its own research and discussion papers at an early stage of the IASB's consideration of the topics concerned or even before they figure on the IASB agenda'. Among the changes to the current structure being proposed are:
- A new nine-member Planning and Resource Committee (PRC) including four National Standard Setters (NSS), the EFRAG Technical Expert Group (TEG) Chair, and at least two Supervisory Board (SB) members. The PRC will set the agenda for proactive work, provide guidance on the allocation of resources to proactive projects, and monitor progress. The SB will negotiate a Memorandum of Understanding with each of the NSS as a condition for PRC membership.
- An informal Coordination Group, consisting of a wider range of NSS, will also be set up (not shown in the diagram below).
- The SB will have 17 members, including four with public policy experience (see next bullet) plus observers from the EC and CESR.
- Four members of the SB must be experienced in public policy, either at a national or European level. They will not represent particular organisations.
- New Governance and Nominating Committee (GNC) of the General Assembly (GA) in which some National Funding Mechanisms (NFM) have a seat. The GNC will have seven members – four appointed from among GA members and three from among the National Funding Mechanisms (NFM). The GA will continue to consist of representatives of the European organisations that are members of EFRAG.
- An informal Consultative Forum for NFM as a process to coordinate the NFM in the various countries (not shown in the diagram below).
- A new Consultation Group, replacing the current Advisory Forum. It will meet at least annually.
- A three-tier funding model: European organisations, NFMs and the European Commission. The report states that EFRAG has not been able to be proactive 'due to limited resources'.
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The current Technical Expert Group of nine to twelve voting members, plus three non-voting NSS chairs, will continue. TEG responsibilities will be:
- Provide input to the IASB and IFRIC
- Develop proactive discussion papers
- Monitor ongoing IASB activities and provide feedback to the IASB
- Issue endorsement advice to the EC on final pronouncements issued by the IASB
- Issue effect study reports
The plan is described as a 'proposal'. It does not include a plan for or timing of transition.
Click for:
March 2009: New membership of the EFRAG Financial Instruments Working Group (FIWG)
On 9 March 2009, EFRAG appointed new membership of its Financial Instruments Working Group, as follows:
- Mike Ashley (Chairman and TEG member) - KPMG
- David Bradbery - UBS
- Pierre-Henri Damotte - Société Générale
- Laure Guegan - EY
- Armin Hausmann - Novartis International
- Petri Hofste - ABN Amro
- Gordon Ireland - PwC
- Dennis Jullens - UBS
- Roberto Monachino (TEG Member) - Unicredit
- Cynthia Mustafa - Deutsche Bank
- Nicolas Patrigot - CNCE
- Henricus Seerden - EIB
- Agnes Tardos - PwC
- Brendan van der Hoek - Lloyds TSB
- Thierry Veyssière - BNP Paribas
- Pietro Virgili - Banca IntesaSanpaolo
- Yvonne Wiehagen-Knopke - DZ Bank
In addition, the EC, CESR and CEBS will be invited to participate as observers in the Group.
March 2009: European discussion paper on performance reporting
oln 25 March 2009, EFRAG and the national standard-setters of Denmark, France, Germany, Italy, Poland, Spain, Sweden, and the UK published a Discussion Paper on Performance Reporting (PDF 972k) under the PAAinE initiative. Broadly defined, performance is the relationship of the income and expenses of an entity. Traditionally entities reported their performance in an income statement. Under IAS 1(2007), entities report performance either in a single statement of comprehensive income (with a subtotal for traditional profit or loss) or in two statements, an income statement and a statement of comprehensive income. IAS 1 allows flexibilitiy in formats of, and groupings and subtotals in, those statements. The IASB and the FASB have a joint Project on Financial Statement Presentation that encompasses performance reporting. In October 2008, they published a Discussion Paper proposing the structure and format of an entity's financial statements. The new PAAinE discussion paper acknowledges the joint IASB-FASB project but notes that:
There are a number of fundamental issues about the presentation of financial performance information that that discussion paper does not address. Those issues include:
- should the net income line be retained?
- (if it should be retained), what should the basis be for determining whether something is within net income or outside net income?
- what role should recycling have in performance reporting?
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The PAAinE paper observes that 'there is a clear need for one or more key lines to provide a basis for communication to the market and as a starting point for analysis and comparison'. The paper discusses the attributes such a key line needs to have if it is to fulfil this purpose. 'It is therefore important that items of income, expense, gains, and losses are disaggregated, grouped, and aggregated in a way that ensures that the most useful key lines are presented.' The paper notes that whether recycling is needed also depends on the aggregation/disaggregation model used. The final chapters of the paper discuss various disaggregation models. EFRAG invites comments on the paper by 30 September 2009.
April 2009: New EFRAG planning and resource committee
The EFRAG Supervisory Board has appointed an interim Planning and Resource Committee (PRC) as part of EFRAG's restructuring. The role of the PRC will be to set the agenda for proactive work that results in the issuance of discussion papers, position papers, and other outputs. The PRC will provide guidance on the allocation of resources from EFRAG and National Standard Setters (NSS) to proactive projects and will monitor the progress of the work concerned. Members of the interim PRC are:
- Peter Sampers - Member of the EFRAG Supervisory Board, Chair of the PRC ad interim
- Angelo Caso - Chair of the OIC (Italian Standard Setter)
- Ian Mackintosh - Chair of the UK ASB
- Jean-Francois Lepetit - Chair of the ANC (French Standard Setter)
- Hans Van Damme - Member of the EFRAG Supervisory Board
- Stig Enevoldsen - Chairman of EFRAG TEG
Click for Press Release (PDF 60k).
July 2009: New chairman of EFRAG Supervisory Board
Pedro Solbes Mira, the former Member of the European Commission responsible for Economic and Financial Affairs (1999-2004) and Minister of Economy and Finance (2004-2009) of Spain has been appointed Chairman of the EFRAG Supervisory Board, effective immediately. Click for Press Release (PDF 89k).
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