Commissioner McCreevy announced his plans regarding the 8th Directive in six areas:

• Auditor liability. Recommendation in first quarter 2008 asking Member States to limit auditor liability. Each Member State would decide the means by which liability is limited – for instance, a liability cap, proportionate liability, or contractual arrangements between the auditor and the audited firm. Liability would not be limited in cases involving wilful misconduct by auditors.
• Restrictions on ownership of audit firms. Public consultation will be launched in the first quarter of 2008.
• Audit quality and inspections. Independent inspections of audit firms that audit listed companies are needed. However, before this could be required, more independent inspectors with sufficient expertise are needed. Meanwhile, the EU should give more responsibilities to the public oversight bodies and, for a transitional period, allow professional bodies and practitioners to take part in the inspection process, with a limited role under the supervision of independent inspectors.
• Implementation of the Statutory Audit Directive. Publish a 'scoreboard' in Spring 2008 showing where Member States stand in implementing the 8th Directive, particularly as regards the establishment of independent public auditor oversight.
• International Standards on Auditing (ISAs). Article 26 of the Statutory Audit Directive allows the Commission to make ISAs mandatory for the European Union. However, the Commissioner's intention is not to make a decision on ISAs at this stage but to look at this issue again towards the end of 2008 – following completion of the IAASB's Clarity Project and studies that the EU will undertake.
• Co-operation with 'third countries'. Under the 8th Directive, Member States are required to register all auditors from outside the EU that audit companies listed in EU markets and to subject them to their systems for overseeing domestic audit firms. However, the Directive allows Member States to exempt auditors from non-EU countries whose oversight system is considered equivalent to the EU system. In January 2008, Commissioner McCreevy will propose transitional measures to allow audit firms from such non-EU countries to continue without registration until 1 January 2011. By then, the EU will complete equivalency assessments of these non-EU oversight systems.

"Dealing with the relationship with accounting is of great importance to ensure that the accounting and Pillar 3 disclosures are to the largest extent consistent or at least not such that they lead to major inconsistency problems."

Financial Accounting Standards Board (FASB):

• Reduce the size of the FASB to five members, from seven currently.
• Retain the current simple majority FASB voting requirement.
• Require that FASB have at least one member from each of four backgrounds: investing, auditing, preparing financial statements, and accounting education. The fifth member could be from any background. Currently there is no required mix.
• Give the FASB chair the authority to add issues to FASB's agenda. Currently the full Board must decide. The FAF would have an oversight role in agenda setting.

• Strengthen the governance and oversight activities of the FAF trustees as to the efficiency and effectiveness of the standard-setting process. Trustees propose taking a more active oversight role in such areas as due process, agenda setting, solicitation of public comment, consideration of comments, and the post-isuance evaluation of the effectiveness and efficiency of standards adopted by FASB.
• Give the power to choose FAF trustees to the trustees themselves, replacing the current system by which eight non-government trustees are selected by six specified organisations subject only to rejection by the trustees on grounds a nominee is 'not suitable'.
• Change FAF trustees' maximum terms of service from two three-year terms to one five-year term.
• Change the number of FAF trustees from 16 currently to a range between 14 and 18.
• Require that the next chairman of the FAF devote between one-third and one-half time to the job.

• Retain the current size, term length, and composition of the GASB.
• Secure a stable mandatory funding source for the GASB.
• Give the GASB chair the authority to set GASB's technical agenda. Currently the full Board must decide. The FAF would have an oversight role in agenda setting.

Recent commitments by many countries to use International Financial Reporting Standards (IFRSs) have opened a broad-ranging debate on issues related to accounting standards convergence and globalization. At its core, this debate must include a realistic assessment of how IFRS will work in actual application across the world and what contributions can be made by the FAF and FASB to the quality and consistency of those standards. The outcome of this debate will affect the future role, structure, and influence of the FAF and FASB on the global standard-setting process. However, regardless of the outcome, the FASB likely will continue to have a meaningful role in how international standards are set, and it may have continuing responsibility for setting standards for private enterprises and not-for-profit organizations in the United States.

We support the Board's intention to clarify IAS 39 Financial Instruments: Recognition and Measurement in the areas of what risks are eligible for hedge accounting and what portion can be designated as a hedged item. As the amendments' objective is to provide clarity in what is a qualifying hedge accounting relationship it is important that the finalisation of the amendments on risks and portions is very clear. We currently have concerns that some of the drafting is not clear enough and also that the amendments may have unintended consequences for other hedge accounting designations beyond the intended scope of the amendments. We draw this to your attention as well as our proposals to make the amendments clearer and other drafting comments in the answers to the questions in the Appendix to this comment letter.