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January 2002: FEE study urges EU to adopt International Standards on Auditing
A discussion paper published by the Federation of European Accountants (FEE) proposes that by 2005 national auditing standards in the European Union should require auditors of financial statements to:
- perform audit procedures that comply with International Standards on Auditing (ISAs);
- report on financial statements in accordance with ISAs; and
- perform additional audit procedures and report on additional matters in response to specific legal, regulatory, or other needs established at a national level.
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21 February 2002: EC Commissioner urges US SEC to replace US GAAP with IAS
In an interview with the Financial Times, Frits Bolkestein, European internal market commissioner, urged the US SEC to replace the 'cookery book' approach of US GAAP with the more 'substance over form' approach of IAS. The Commission plans to require listed European Companies to Use IAS by 2005. Mr. Bolkestein expressed concern about what he felt is a rule-book approach of US GAAP: "You tick the boxes and out come the answers," he is quoted as saying. "Having rules is a good thing, but having rigid rules is not the best thing.... American investors are no more protected than European investors." At a minimum, he will ask the SEC to allow US-listed European companies to submit IAS financial statements without reconciliation to US GAAP.
13 March 2002: European Parliament overwhelmingly adopts IAS resolution
By a vote of 492 for, 5 against, and 29 abstentions, on 12 March 2002 the European Parliament endorsed the Commission's proposal that all EU listed companies must follow standards issued by the International Accounting Standards Board in their consolidated financial statements starting no later than 2005. Companies preparing for listing would not be required to follow IAS. Member States are permitted to decide whether non-listed companies must also follow IAS. Member States also have the option to exempt certain companies temporarily from the IAS requirement – but only until 2007 – in two cases:
- companies that are listed both in the EU and in on a non-EU exchange and are following another set of internationally accepted standards and
- companies that have only publicly traded debt securities.
The first exemption would apply primarily to European companies listed in the US that currently prepare US GAAP financial statements. Click for Full Report (PDF 193k).
April 2002: European Finance Ministers Urge Swift Adoption of IAS
As part of their response to Enron-related issues, the European Council of Finance Ministers (ECOFIN) of the 15 European Union countries urged the adoption of the EU regulation that would require all listed EU companies to use IAS starting in 2005. The Ministers also agreed to push the US Securities and Exchange Commission to accept IAS financial statements filed by European companies without the reconciliation to US GAAP that is currently required. The ECOFIN Ministers urged the following 'policy actions' on financial reporting:
- Speedy adoption this year of the Proposed Regulation requiring the use of IAS by listed EU companies from 2005, in line with the Barcelona Council conclusions;
- Preparation of the Commission's endorsement decision of existing IAS so as to make it possible for listed EU companies to prepare the change-over in time for the 2005 deadline;
- Further development of EU and national enforcement mechanisms so as to ensure proper and harmonised application of IAS within the EU in co-ordination with the Committee of European Securities Regulators (CESR);
- Sustained and co-ordinated upstream pressure within the IAS process to ensure that new IAS continue to follow the principle-based approach and reflect, as much as possible, European concerns;
- Continuation of the dialogue with US authorities to encourage their acceptance of IAS financial statements prepared by listed EU companies for listing within the US without reconciliation to US GAAP from 2005 onwards;
- EU support for global convergence through the IAS process on important accounting issues such as the treatment of financial instruments, share based payments and off-balance sheet financing schemes;
- Urgent modernisation of existing Accounting Directives in order to apply IAS principles to unlisted companies, when a Member State so chooses;
- Before Summer 2002, publication by the Commission of a second consultative document on Regular Reporting. This document will address issues such as the periodicity of financial reporting (quarterly reporting) and on-going disclosure obligations.
ECOFIN Meeting Notes (PDF 39k).
FEE Discussion Paper on Enforcement of IFRS in Europe
The European Federation of Accountants (FEE) has published a discussion paper that examines how IFRS should be enforced in order to ensure the consistent and rigorous application of financial reporting standards throughout Europe by 2005. The discussion paper calls for creation of a European enforcement coordination mechanism as a partnership among national enforcement bodies, including securities regulators (such as COB in France or CONSOB in Italy) and review panels (such as the UK Financial Reporting Review Panel). Click for Discussion Paper (PDF 281k) and Press Release (PDF 156k).
FEE Position Paper on Role of Accounting and Auditing in Europe
On 7 May 2002, FEE published a Position Paper on the Role of Accounting and Auditing in Europe. Recent high profile international business failures have seen concerns raised regarding the current state of corporate governance and financial reporting in Europe. With this position paper FEE is highlighting the essential issues for the accountancy profession at the centre of the current debate.
FEE believes that there is a need to strengthen corporate governance arrangements so
that they are equally effective across Europe in providing financial information of the highest
quality to the capital markets. The principal elements of this framework are:
- Preparation of true and fair financial information by an effective and well resourced company accounting function
- Internal audit
- Informed review by directors, audit committees or supervisory boards
- Proper approval procedures for financial information by the body responsible within the company
- External audit and external review subject to quality assurance systems that inspire public
- Effective enforcement bodies
- Stock Exchanges with supportive listing agreements
- Sponsors, advisers and investment bankers committed to high quality financial reporting, particularly in respect of complex transactions
- Investors, analysts, rating agencies and the financial press, all of which should have clear ethical obligations to raise issues of dubious financial reporting
FEE believes that action is needed in:
- Ensuring that the European Financial Reporting Advisory Group, (EFRAG) makes a significant impact in providing a European contribution to the international financial reporting standard setting process (IFRS and IFRIC);
- Ensuring effective enforcement of IFRS in Europe by 2005;
- Coordinating initiatives in the Member States on the enforcement of financial reporting standards, in order to ensure consistency in application decisions within Europe;
- Agreeing on the FEE proposal to require the application of International Standards on Auditing in Europe by 2005;
- Increasing efforts to support and influence the global standard setting process in auditing;
- Speeding up national programs of quality assurance in conformity with the EC's recommendation;
- Stimulating the implementation of the European Commission's recommendations on statutory auditor independence;
- Improving the current situation in the area of auditors' liability; and
- Defining at EU level harmonised conditions for organising the public oversight of the auditing profession in the EU Member States.
May 2002: EU Adopts Auditor Independence Recommendations
The European Commission has adopted non-binding recommendations regarding auditor independence. Click for:
May 2002: EU Proposes Revised Accounting Directives
The European Commission has proposed to amend the existing European Union Accounting Directives as part of its plan to create an integrated financial services market in Europe. The proposal complements the IAS Regulation, due for final adoption by the Council in the next few days, that will require all EU companies listed on a regulated market to use IAS from 2005 onwards and will allow Member States to extend the IAS requirement to all companies. The proposed changes will remove all inconsistencies between the Directives and IAS in existence at 1 May 2002. Click for:
June 2002: Europe Adopts Regulation Requiring IAS by 2005
The Council of the European Union has adopted an 'IAS Regulation' requiring listed companies, including banks and insurance companies, to prepare their consolidated accounts in accordance with IAS from 2005 onwards. Member States may defer application until 2007 for those companies that are listed both in the EU and elsewhere and that currently use US GAAP (or other GAAP) as their primary basis of accounting, as well as for companies that have only publicly traded debt securities. The goal of the Regulation is to eliminate barriers to cross-border trading in securities by ensuring that company accounts throughout the EU are reliable, transparent, and comparable. The Regulation has the force of law without requiring transposition into national legislation. However, "to ensure appropriate political oversight", the Regulation establishes a new EU mechanism to "assess IAS to give them legal endorsement" before they can be used in Europe. Member States have the option of extending the requirements of the Regulation to unlisted companies and to the production of individual accounts.
The Act was approved by Parliament on 19 July 2002 and published into law on 11 September 2002.
The new Regulation requires that the European Commission "decide on the applicability within the Community of international accounting standards", including those currently in existence and future IFRS. The regulation establishes an Accounting Regulatory Committee to advise the Commission in this regard and sets a deadline of 31 December 2002 for decisions regarding existing IAS. Under the regulation, IAS can only be adopted if they:
- are not contrary to EU Directives,
- are conducive to the European public good, and
- meet the criteria of understandability, relevance, reliability, and comparability.
The regulation requires that the Commission consider the views of national accounting standard setters; securities, banking and insurance regulators; central banks including the ECB; the accounting profession; and users and preparers of accounts. The private sector accounting profession in Europe has created an organisation called the European Financial Reporting Advisory Council (EFRAG) to present coordinated views to the Accounting Regulatory Committee and the Commission. EFRAG has begun its task of reviewing the existing IAS with regard to their applicability in Europe. Click for EFRAG Press Release (PDF 21k).
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).
August 2002: European Parliament considers a uniform prospectus for Europe
The European Commission has presented to Parliament an amended proposal for a uniform prospectus to be used for securities offerings throughout Europe – a 'single passport' to all of the European capital markets. Once the proposal becomes law (a Directive), then a prospectus approved by securities authorities in one member state must be accepted in all other states. The proposal sets out the minimum content for a prospectus and how it should be presented, based on Disclosure Standards adopted in 1998 by IOSCO. Required disclosures would include key information on risk factors, related-party transactions, corporate governance, and management's discussion and analysis, none of which is currently required by the existing EU Directive on prospectuses. The specific financial statements, periods covered by them, and other information of a financial nature to be included in prospectuses will be established by EC regulation within 180 days of adoption of the proposed Directive. The EC's goal is final approval of the Directive by the end of 2002. Click for:
October 2002: CESR paper on enforcement of accounting standards in Europe
The Committee of European Securities Regulators (CESR) has issued a consultation paper that contains a Proposed Statement of Principles (SOP) of Enforcement of Accounting Standards in Europe. The SOP will be used for developing standards of best practice on enforcement among CESR members. Principle 1 set out in the SOP states that "competent independent administrative authorities set up by member States should have the ultimate responsibility for enforcement of compliance of the financial information provided by the companies identified by Principle 7 [listed companies and those applying for listing] with the reporting framework." This seems to support the establishment of oversight boards in EU member States similar to the PCAOB set up in the United States by the Sarbanes-Oxley Act of 2002. Comments are requested by 15 January 2003. Click to download:
5 November 2002: ECOFIN Agrees on Directive for a Single Prospectus
At its 5 November 2002 meeting, the EU's Council of Ministers agreed on an amended proposal for a Directive on prospectuses. "This proposal would make it easier and cheaper for companies to raise capital throughout the EU, while reinforcing protection for investors by guaranteeing that all prospectuses, wherever in the EU they are issued, provide them with the clear and comprehensive information they need to make investment decisions." The Directive would introduce a new 'single passport for issuers'. This means that once approved by the authority in one Member State, a prospectus would then have to be accepted everywhere else in the EU. To ensure investor protection, that approval would only be granted if prospectuses meet common EU standards for what information must be disclosed and how. Click for News Release (PDF 26k).
15 November 2002: Report on European company law is published
The European Commission's High-Level Group of Company Law Experts has published its final report on A Modern Regulatory Framework for Company Law in Europe. The report covers the issues considered by the group under the second part of its mandate, including such corporate governance issues as the role of non-executive and supervisory directors; management remuneration; responsibility of management for financial statements; and auditing practices. The Commission is considering the presentation of an action plan for company law in early 2003. Click to Download the Report (PDF 458k). Among the recommendations:
- "The costs of all share incentive schemes should be properly reflected in the annual accounts, and this accounting principle should be recognised in a European framework rule."
- "The responsibility for supervision of the audit of the company's financial statements should lie with a committee of non-executive or supervisory directors who are at least in the majority independent."
- "The Commission should review the Seventh Company Law Directive's provisions in the light of the need for better financial disclosure, and consider whether improvements can be made consistent with International Accounting Standards."
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