The adoption of International Accounting Standards should be a great boon to European companies, particularly large multinationals, due to the reduced cost of compliance and raising capital. Transparency of financial reporting should benefit investors, who will be able to compare company performance more easily across the member states.

There are many compelling reasons for moving to IAS including marketability, cross border mergers and acquisitions, shareholder communication and finance raising. The implementation of this Regulation will improve competition and greatly facilitate free movement of capital. It makes complete sense to have one method of accounting for a transaction, whether it takes place in Berlin, Dublin, or Boston.

The Regulation would help eliminate barriers to cross-border trading in securities by ensuring that company accounts throughout the EU are more transparent and can be more easily compared. This would in turn increase market efficiency and reduce the cost of raising capital for companies. The proposal is a priority measure under the Financial Services Action Plan, endorsed by the Lisbon European Council as a key element of the creation of an integrated financial services market. It is also in line with the strategy outlined in the Commission's June 2000 Communication on the future of financial reporting in Europe.

The Regulation proposes to establish a new EU mechanism to "assess IAS and give them legal endorsement for use within the EU. This mechanism will use an Accounting Regulatory Committee set up under the proposal that will operate at the political level under established EU rules on decision-making by regulatory committees. The Accounting Regulatory Committee, chaired by the Commission and composed of representatives of the Member States, will adopt or reject IAS on the basis of a proposal made by the Commission."

Currently, approximately 275 European listed companies prepare their consolidated financial statements under IAS, 300 under US GAAP, and the remainder (about 6,500 companies) use their national GAAP. (These figures do not include Switzerland, where most large companies already follow IAS.) The EC said:

IAS will offer [those now using US GAAP] the same high quality level of financial information as US GAAP, with the additional advantage that IAS have been conceived in a truly international perspective and are not modelled by a particular national environment. The Commission hopes and expects that the US Securities and Exchange Commission (SEC) will accept in the near future financial statements prepared by EU issuers without requiring a reconciliation to US GAAP.