February 2000: Proposed Directive on valuation rules
The European Commission released a proposal for a directive as regards the valuation rules for the annual and consolidated accounts of certain types of companies. Click to Download the Proposal (PDF 101k).
June 2000: EC recommendations on IASs submitted to Council and Parliament
In June 2000, European Commission communicated its recommendations on International Accounting Standards to the Council and the European Parliament. In its recommendations document, titled EU Financial Reporting Strategy: the Way Forward, the Commission stated its intention to submit legislation to the European Parliament that would make it mandatory for all EU listed enterprises (including banks and insurers) to prepare consolidated financial statements in accordance with International Accounting Standards (IAS). Individual Members States will be allowed to extend the requirement to unlisted enterprises and separate financial statements. Implementation of the strategy, including the new accounting requirements, is expected to be effective, at the latest, from 1 January 2005. However, the Commission encourages earlier application of IAS.
Establishment of an EU endorsement mechanism, both on a political and technical level, is proposed to oversee the integration of IAS in the EU, and to confirm that IAS will represent an appropriate basis for financial reporting by EU listed enterprises.
Ensuring rigorous application of IAS is also critical in achieving enhanced comparability of financial statements by EU listed enterprises. In response, an enforcement mechanism will be developed. Close co-operation between the regulatory oversight bodies and issuance
of more implementation guidance, but also high quality audits of IAS financial statements, are key features of successful enforcement in EU.
November 2000: Financial Services Action Plan
In November 2000, the EC published its third report on progress in implementing the Commission's Financial Services Action Plan. The report, EU Financial Services Priorities and Progress, stated that "the Commission will shortly make a legislative proposal for listed companies to report financial statements in accordance with International Accounting Standards (IAS)".
December 2000: FEE study: Accounting standard setting in Europe
In December 2000, The European Federation of Accountants (FEE)published a comprehensive study of Accounting Standard Setting in Europe (PDF 209k).
February 2001: Proposal to require IASs for listed companies
In February 2001, the European Commission proposed a Regulation that would require all EU companies listed on a regulated market, including banks and insurance companies (about 7,000 companies in all), to prepare consolidated accounts in accordance with International Accounting Standards (IAS) by 2005, at the latest. EU Member States would have the option to extend this requirement to unlisted companies and to individual company accounts. The EC announcement said:
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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.
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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.
Links to documents relating to the February 2001 proposal:
February 2001: FESCO response to EU's new accounting strategy
On 28 February 2001, the Forum of European Securities Commissions (FESCO) published its "Response to the EU's New Accounting Strategy: The Final Report from the Expert Group on Accounting". Click to Download the FESCO Response (PDF 166k). Excerpt:
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The Expert Group concluded that as regards the endorsement mechanism of the EU's new
accounting strategy FESCO has a central role to play in conveying the needs of the
investors and the capital markets and its own views as to the enforceability of the
International Accounting Standards. The securities markets supervisors know what
information the markets need to function and have an insight into whether or not the
suggested accounting standards are enforceable.
Therefore, FESCO should play an active role at the expert level, since this level is supposed
to play the reactive as well as the pro-active role in the further development of the
international standard setting process. The group concluded that an observer status for
FESCO could be appropriate, assuming that FESCO, as an observer, would have the
possibility of expressing its views in the discussions before a decision would be made at the
regulatory level. According to the group an active role also implies that, in the hopefully
few cases where FESCO disagrees with the decisions that are made at the expert level,
FESCO would have the right to be consulted on these issues by the regulatory level.
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March 2001: EFRAG proposal
A broad group of organisations representing the European accounting profession, preparers, users, and national standard-setters has proposed to organise a private-sector structure that would (a) provide input to the IASB and (b) assess IAS and SIC Interpretations. The proposal describes the latter process as "endorsement" and describes the structure as an "endorsement mechanism".
Click for:
Click here to go to our EFRAG Page which has considerable background information about
EFRAG.
April 2001: FEE study: Enforcement mechanisms in Europe
In April 2001, the Fédération des Experts Comptables Européens (FEE) published Enforcement Mechanisms in Europe, A Preliminary Investigation of Oversight Systems. The study is a factual report on accounting enforcement mechanisms that exist in Europe. Six different levels of enforcement are distinguished:
- Self-enforcement: preparation of financial statements
- Statutory audit of financial statements
- Approval of financial statements
- Institutional oversight system
- Judicial: sanctions/complaints
- Public and press reactions
The study focuses on the enforcement of financial reporting standards by means of reviews that are substantive in nature, rather than limited to formal checks. It concludes that for nearly half of the countries surveyed, there is no such oversight system in place. In some of these countries, the need to establish an institutional oversight system is currently under consideration.
In releasing the study, FEE said: "A transparent and uniform system of financial reporting requires a sound infrastructure. A key element of that is enforcement. Enforcement encompasses all the procedures employed in a country in order to ensure that accounting principles and standards are applied properly. A key feature of enforcement is the ability to require the restatement of financial statements that do not comply with applicable accounting standards."
Click to Download the FEE Enforcement Mechanisms Study (PDF 267k).
April 2001: EU Comparisons of IAS 1-41 and SIC 1-25 with Directives
The EU has published reports of examinations of the conformity between:
April 2001: FEE paper: Modernisation of the accounting Directives
Click to Download the FEE Discussion Paper on Modernisation of the Accounting Directives (PDF 114k).
May 2001: Fair value of financial instruments (Parliament)
On 15 May, the European Parliament amended the 4th and 7th Directives (European laws) to require listed companies to follow IAS 39 by reporting certain financial assets and liabilities at fair value in their annual consolidated financial statements. Other companies would be permitted to adopt IAS 39. Banks and other financial institutions are not exempted from the amended Directives -- Parliament modified the Commission's recommended legislation in this regard.
Member states must amend their own legislation to conform before 1 January 2004. Member states could also decide whether to permit or require the new rules in parent-company accounts.
The amended Directives were approved by the European Council of Ministers on 31 May (see below).
"The purpose of this amendment is to allow the application of the International Accounting Standard dealing with the recognition and measurement of financial instruments." The text of the amendment notes that it is a step toward implementing the Commission's June 2000 Financial Reporting Strategy (see below).
The amendment states: "Fair value accounting should only be possible for those items where there is a well-developed international consensus that fair value accounting is appropriate. The current consensus is that fair value accounting should not be applied to all financial assets and liabilities, for instance not to most of those relating to the banking book."
The legislation includes a number of differences with IAS 39. For instance, where IAS 39 allows companies to adopt a policy of reporting changes in fair values of available-for-sale financial instruments in net profit or loss or in equity, the European legislation allows member states to require that the value change be reported only in equity.
Click here for a copy of the Adopted Text.
Click here for Commission Press Release welcoming adoption of the revised Directives (PDF 24k).
May 2001:; Fair value of financial instruments (Council)
Meeting in Brussels 30-31 May, the Council of the European Union unanimously approved an amendment to Directives 78/660/EEC, 83/349/EEC and 86/635/EEC as regards the valuation rules for the annual and consolidated accounts of certain types of companies as well as of banks and other financial institutions. The Proposed Amendments (PDF 101k) were presented by the Commission in February 2000, with a view to making it possible for companies to apply IAS 39, Financial Instruments: Recognition and Measurement, facilitating the valuation of certain financial instruments at fair value instead of historical cost. The European Parliament had approved the amendments earlier this month. The EU's announcement said:
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The application of the standard will ensure that the financial impacts of the use of financial instruments are reflected in company financial statements appropriately and with full transparency. This standard has been prepared by a private accounting standard setter (IASB) and will become operative in 2001. The Community endeavours by this directive to facilitate the use of the standard by companies right from the beginning, since otherwise serious problems would be created. The directive now also contains amendments to the Banks Accounts Directive, in addition to the 4th and 7th Company Law Directives.
As regards the general legislative environment, the Commission has also presented, last February, a proposal for a regulation for a mandatory application of International Accounting Standards for listed companies by 2005.
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May 2001: Prospectus proposals
The European Commission has issued a Proposed Directive on Prospectuses prescribing the structure and minimum disclosure content of securities offering documents (prospectuses). The proposal would introduce a 'single passport' to raising capital in Europe. There would be only one prospectus approved by the home country authority of the issuer, which would have to be accepted throughout the EU for public offer and/or admission to trading on regulated markets. Click to download the Full Text of EC Proposal (PDF 103k).
June 2001: Two securities market committees created
The European Commission created two key committees as part of its financial services action plan: a European Securities Committee (ESC) and a Committee of European Securities Regulators (CESR). The ESC will be composed of high-level representatives of the Member States. It will advise the Commission on issues relating to securities policy. At a future date, it will also act as a regulatory committee. The CESR is set up as an independent advisory body composed of representatives of the national public securities regulatory authorities to advise the Commission on the technical details of securities legislation. The Commission's goal is to achieve an integrated European securities market by the end of 2003.
June 2001: Financial Services Action Plan
Fourth progress report on European Commission Financial Services Action Plan (PDF 69k).
June 2001: EFRAG established and Technical Expert Group (TEG) created
The European Financial Reporting Advisory Group (see March 2001 item above) was formalised with the creation of a Technical Expert Group and a Supervisory Board. Click here to go to our EFRAG Page which has considerable background information about EFRAG.
July 2001: Consultation on financial reporting transparency
The European Commission has launched an open Internet consultation on the transparency obligations of issuers whose securities are traded on regulated markets. This is the first consultation set up by the Commission in accordance with the recommendations of the February 2001 report of the Lamfalussy Committee . The Committee recommended that all new legislation in the securities field should be preceded by an early, broad and systematic consultation of all interested parties in the securities area, and this was endorsed by the Stockholm European Council. The consultation document provides first indications of the views of the Commission services as to the possible structure and content of a new regime on disclosure requirements and asks for contributions from interested parties by 30 September 2001. The preliminary orientations contained in the consultation document are without prejudice to any future decisions by the Commission in finalising its proposals. This consultation will be followed soon by another on the revision of the Investment Services Directive.
Internal Market Commissioner Frits Bolkestein said: "I attach great importance to this open Internet consultation and encourage all interested parties - markets, investors, consumers, regulators - to respond to our consultation document. The Lamfalussy report expressed concerns that rules on disclosure of corporate information differ greatly between Member States and urged steps to be taken to enhance the quality and the comparability of financial statements by publicly traded companies. It is therefore necessary to set harmonised standards on disclosure requirements throughout the EU that will provide adequate safeguards for all European investors, irrespective of the Member State in which they are resident. Unless reform is undertaken, inconsistencies will continue and the European financial market will remain fragmented."
Disclosure obligations
The consultation document provides first indications as to the possible future EU regime concerning disclosure obligations of issuers whose securities are admitted to trading on a regulated market. Disclosure obligations cover the following transparency obligations:
- Periodic obligations such as the obligation to provide financial information (annual and interim reports).
- Ongoing obligations such as the obligation to disclose changes in the structure of the major holdings in the capital of a company or other material information that needs to be published on an ad-hoc basis to prevent market distortions (e.g. dismissal of the chief executive of a listed company).
Main subjects of consultation
The main issues on which the Commission is seeking contributions are:
- Consolidation: In order to offer more legal certainty as to the law applicable, the Commission is considering the consolidation in a single text all existing periodic and ongoing disclosure obligations for issuers whose securities are admitted to trading on a regulated market. Consolidation would also eliminate inconsistencies and propose a unified scope of application for all disclosure obligations.
- Upgrading of periodical disclosure obligations: The Commission is considering whether to upgrade the requirements of the existing Directive on regular reporting to meet international best practice; e.g. financial statements would follow international accounting standards (IAS) and interim reports would have to be published at the end of each quarter instead of half-yearly.
- Upgrading of ad-hoc disclosure obligations: To prevent market distortions, the Commission is considering whether to upgrade the provisions concerning material information which is not public knowledge and which may lead to substantial movements in the prices of securities.
- Publication in electronic form: Current requirements to publish in one or more newspapers or equivalent means are out of date in the Internet world. Ongoing and regular information should be freely available via the internet. Electronic publication would be less costly for companies than current requirements and investors would have effective and free world-wide access to information on a real-time basis.
- Control by the home administrative competent authority: For the purposes of simplification and efficient management, in line with the recommendations of the Committee of the Wise Men, the Commission is considering whether for each Member State one competent authority should be established. The competent authority would be the independent securities regulator of the home Member State, which is the authority in charge of ensuring investor protection and market transparency.
- Possibility of future implementing measures following the "Lamfalussy approach": To ensure the necessary flexibility of the system, in accordance with the orientations of the Committee of Wise Men, endorsed by the Stockholm European Council, the Commission's services of DG Internal Market consider that it should be possible, if necessary in future, to make technical adaptations and clarifications in order to keep pace with market developments and to avoid rapid obsolescence of the legal regime.
Responses
Responses to this consultative paper should be provided no later than 30th September 2001 and sent to:
European Commission
Internal Market Directorate General
Securities and Organised Markets Unit F/2
Av. de Cortenbergh, 107
B-1000 Brussels
Responses may also be sent by email to: markt-disclosure-consultation@cec.eu.int
July 2001: EU Economic and Social Committee report to EC Council
In response to a request from the European Council, by vote of 97 to one the EU Economic and Social Committee (ESC) has endorsed the Proposal for a Regulation of the European Parliament and of the Council that would adopt IAS in Europe by 2005.
ESC concurred with an IAS "endorsement mechanism" in which the Accounting Regulatory Committee, chaired by the Commission and with representatives of all Member States, will play a critical role. "At the invitation of the Commission, this function will be provided and financed by a private sector body named EFRAG - European Financial Reporting Advisory Group. As a private sector body its recommendations will not be binding on the Commission which will provide a full report detailing the EFRAG recommendation and its own evaluation to the Accounting Regulatory
Committee for decision."
In that regard, ESC said that it "strongly supports the Commission's intention that each IAS will either be adopted or rejected in total. To introduce partial approval or modified versions of IAS would be extremely confusing and would undermine the fundamental decision to use IAS". Click for Full Text of the ESC Report to Council (PDF 27k).
October 2001: Amended Directives on valuation of financial instruments
The Parliament and Council of the European Union have amended the Directives of the European Union as regards the valuation rules for the annual and consolidated accounts of certain types of companies as well as of banks and other financial institutions. The intent of these amendments is to permit European companies to comply with IAS 39 and the Directives. Click to Download the Amended Directives (PDF 118k).
November 2001: Speech on European capital markets following adoption of IAS
Click to retrieve the full text of a presentation by Michel Prada, Member of IOSCO Technical Committee and President of the Commission des Operations de Bourse (France), titled European Capital Markets Following the Adoption of IAS by the EU (PDF 43k). Mr. Prada made the presentation to the Council of IFAC at the Council's 14-15 November 2001 meeting.
December 2001: Fifth report on EU Financial Services Action Plan
The European Commission has published its Fifth Report on Implementing the EU Financial Services Action Plan (PDF 82k). "The proposals on pension funds, prospectuses, financial conglomerates and International Accounting Standards, and a new proposal on Takeover Bids following the European Parliament setback in July, are key measures that should be adopted by end 2002 if they are to be implemented by the agreed deadlines."
December 2001: Joint Letter Published in Financial Times
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In recent years, the European Union has made considerable progress towards realising a true internal market where goods and services can be traded freely across national borders without restriction. The European Commission's financial services action plan and the subsequent report of the committee of wise men on the regulation of the European securities market both recognised the significance of a single European capital market. These have resulted in a number of important initiatives, including the requirement for listed companies to apply International Accounting Standards by 2005.
Our firms recently released collectively an international accounting survey, GAAP 2001, as a contribution to the IAS debate. We believe this is an important step forward in the work to converge national standards. As firms, we advocate a single worldwide framework for financial accounting and reporting based on high-quality international standards. Achieving such a framework will improve investor confidence by providing greater transparency and comparability of the financial information used in investment decisions. This will contribute to financial market stability and economic growth not just in the EU but across the globe.
A European capital market must be strong if it is to be one of the leading sources of global finance. The application of consistent financial reporting standards is step in the right direction and should be a public interest priority. We wish to record the full support of our respective firms for the Commission's vision for a strong, competitive and efficient capital market for Europe including the application of IAS. This is in the collective interests of the EU member states and should continue to be a political priority for each of them.
Alberto Terol, Managing Partner, Andersen, Western Europe
Cecil Fleming, Chief Executive, BDO
Wolfgang Grewe, Managing Partner, Deloitte & Touche, Europe and Africa
William L. Kimsey, Chief Executive, Ernst & Young Global Practice
David McDonnell, Chief Executive, Grant Thornton
Mike Rake, Chairman, KPMG Europe
Rolf Windmoller, European Senior Partner, PricewaterhouseCoopers Eurofirm
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December 2001: EFRAG reports on consistency of modernised Directives and IASs
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".
December 2001: ECOFIN, European Parliament discuss the proposed IAS regulation
ECOFIN, the European Council of Finance Ministers, met on 13 December 2001 and agreed a 'general orientation' on a proposed Regulation that would require all EU listed companies, including banks and insurance companies, to prepare their consolidated financial statements using IAS. ECOFIN agreed that this requirement should go into effect in 2005 at the latest. during the meeting, an amendment was proposed so that Member States may allow companies that have only debt securities listed, and companies listed outside Europe that currently use US GAAP, to apply IAS no later than 2007. The 2007 extended deadline for companies using US GAAP was inserted at the request of the German and French governments. EU Internal Market Commissioner Frits Bolkestein said:
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The International Accounting Standards Regulation will introduce a new era of transparency and put an end to the current Tower of Babel in financial reporting. It will help European firms to compete on equal terms when raising capital on world markets and allow investors and other stakeholders to compare companies' performance against a common standard. However, I regret the Ministers' decision to grant some big companies the right to apply US GAAP standards until 2007, two years after the Lisbon deadline for completing the Internal Market in financial services.
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The Legal Affairs Committee of the European Parliament met on 18-19 December 2001 to discuss the IAS regulation, and further discussions are expected in 2002.
The Council can adopt a Common Position on the Regulation once it has received an Opinion from the European Parliament.
December 2001: EU is developing comprehensive disclosure legislation
With the objective of creating a fully integrated pan-European securities market, the European Commission is preparing a new proposal for a Directive dealing with ongoing and periodic transparency requirements of securities issuers. The proposed Directive is likely to be submitted to the European Parliament and Council by the summer of 2002. The proposal will be based on views expressed by 90 respondents to a July 2001 invitation to comment. The main points expressed by respondents related to:
- Consolidation of all existing periodic and ongoing disclosure obligations into a single legal text.
- Upgrading of the periodic disclosure obligations of enterprises admitted for trading on a regulated market.
- Publication of information via the Internet.
- Each Member State should have a single authority responsible for public disclosure by securities issuers.
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