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January 2005: EU publishes 'endorsed IFRSs'
The European Union published the following Commission Regulations in the Official Journal on 31 December 2004:
- Commission Regulation (EC) No 2238/2004 of 29 December 2004 amending Regulation (EC) No 1725/2003 adopting certain IFRSs (the ones revised in the IASB's Improvements Project) in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council, as regards IASs IFRS 1, IASs Nos 1 to 10, 12 to 17, 19 to 24, 27 to 38, 40 and 41 and SIC Nos 1 to 7, 11 to 14, 18 to 27, and 30 to 33. The regulation includes the Full Text of the Following Standards (PDF 1,410k): IASs 1, 2, 8, 10, 16, 17, 21, 24, 27, 28, 31, 33, and 40.
- Commission Regulation (EC) No 2237/2004 of 29 December 2004 amending Regulation (EC) No 1725/2003 adopting certain IFRSs in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council, as regards IAS No 32 and IFRIC 1. The regulation includes the Full Text of the Following Standard and Interpretation (PDF 323k): IAS 32 and IFRIC 1.
- Commission Regulation (EC) No 2236/2004 of 29 December 2004 amending Regulation (EC) No 1725/2003 adopting certain IFRSs in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council as regards International Financial Reporting Standards (IFRSs) Nos 1, 3 to 5, International Accounting Standards (IASs) Nos 1, 10, 12, 14, 16 to 19, 22, 27, 28, 31 to 41 and SIC Nos 9, 22, 28 and 32. The regulation includes the Full Text of the following Standards and Interpretations (PDF 1,028k): IFRSs 3, 4, and 5 and IASs 36 and 38.
Please note that 'full text' means the body of the standard and does not include the introduction, implementation guidance, or basis for conclusions. Here is the Link to Standards and Interpretations Previously Adopted by the EC. All of the standards and interpretations are available in all of the official EU languages in the Official Journal.
January 2005: Survey on extended use of IFRSs in European Union
The European Union Accounting Regulation requires that European companies listed in a European securities market must use IFRSs to prepare their consolidated financial statements starting in 2005. EU countries have the option to:
- Require or permit IFRSs for unlisted companies
- Require or permit IFRSs in parent company (unconsolidated) financial statements
- Permit companies whose only listed securities are debt securities to delay IFRS adoption until 2007
- Permit companies that are listed on exchanges outside of the EU and that currently prepare their primary financial statements using a non-EU GAAP (in most cases this would be US GAAP) to delay IFRS adoption until 2007.
The European Commission has surveyed the 25 EU member states and the 3 EEA member countries concerning their plans for the four options above. Click to download the results of that survey:
Note: This table was updated by the Commission as of 25 February 2008:
February 2005: IASCF Chairman Volcker addresses the ARC on Constitution review
On 25 February 2005, IASC Foundation Chairman Paul A. Volcker spoke to the European Commission's Accounting Regulatory Committee about the Trustees' current review of the constitution under which the Foundation and the Board operate. Among the points that Mr. Volcker made:
- The underlying reality in my view is that good progress is being made toward achieving a common set of respected accounting standards applicable in all significant markets. That is the grand prize that should not be lost.
- The only way to do that is to achieve a high degree of confidence in the process by which the IASB reaches agreement on internally consistent, effective, realistic and, I hope, simpler standards.
- In the constitution review, it has not been the Trustees' intent to revisit the entire debate five years ago about the organisation of the IASB and our Constitution. The central idea that emerged from that debate, and will remain, is to foster the independence of judgement of a highly professional, decision-making Board, appropriately protected from particular national or special interest pleading.
- The IASCF proposals released in November directly addressed a large number of the concerns raised by various commentators, in particular those in Europe, including more Board consultation with representative groups, the process for agenda decisions, Board appointments, and Board voting requirements.
- The decision of the European Union to enforce IFRSs by law provided bold and constructive leadership toward the concept of international, rather than national or regional, standards. It does not, however, logically lead to a decision to overweight European representation on the Board or the Trustees. The 'end game', after all, is the acceptability of international standards right around the world.
Click to download:
April 2005: EU Commissioner urges US recognition of IFRSs
In a speech in Madrid on Competitiveness and Growth in the EU on 1 April 2004, Charlie McCreevy, the European Commissioner for Internal Market and Services, urged US recognition of IFRS financial statements submitted to the SEC without the need for reconciliation to US GAAP. He noted that with respect to auditing standards "the US authorities have broadly accepted the equivalence of the approach of EU Member States' audit requirements." He said he would raise the issue of mutual recognition of accounting standards with the SEC during a trip to Washington later this time, including insistence on agreement on a framework and a timetable. Click to Download Commissioner McCreevy's Speech (PDF 76k). Here is an excerpt:
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Since the beginning of this year, two major sets of standards are being applied globally: US GAAP and International Financial Reporting Standards, which are being applied by listed European companies since the beginning of this year. We have to find a way to free businesses which are active on both sides of the Atlantic from the costly requirement to publish their accounts according to both sets of rules and then having to square them up.
Up to now, US companies listed in Europe were able to publish their accounts in US GAAP. Under our new Prospectus and Transparency Directives, we must come to a decision about the equivalence of US GAAP to allow them to continue to publish their accounts in US GAAP. The Commission will base its decision on a technical report by the Committee of European Securities Regulators due in the summer.
But this is not a one-way street – it is only reasonable for European companies to expect that US regulators will make similar efforts to judge the equivalence of our international standards with US GAAP, and once this is done, to release companies from the costly burdens of converting standards. We intend to work closely with the SEC and standard setters to find a mutually acceptable road map through this problem.
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April 2005: Commissioner McCreevy speaks three more times about accounting issues
In a speech to the Institute of Chartered Accountants in England and Wales in Brussels on 5 April 2005, Charlie McCreevy, the EU Commissioner for Internal Market and Services, discussed a range of issues relating to IFRSs, including:
- Convergence of US GAAP and IFRSs
- Convergence of Japanese GAAP and IFRSs
- EC consideration of the equivalence of US, Canadian, and Japanese GAAPs to IFRSs
- The EC 'carve-out' of two sections of IAS 39
- Independence of the IASB
- The need for interpretations
- Enforcement of IFRSs
- Auditor oversight
- The need for international regulatory cooperation in a globalised world
With regard to interpretations, Commissioner McCreevy commented:
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Standards must not be undermined by a myriad of interpretations leading to a rules-based system. I very clearly see that the
important players, such as the European Financial Reporting Advisory Group (EFRAG), CESR, and the national standard setters, have to ensure that this does not happen. And we need to consider how the links between a strengthened EFRAG and the IASB can be better defined.
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Click to Download Mr. McCreevy's Speech (PDF 77k).
On 7 April 2005, at a European Policy Centre Breakfast Briefing on the future of Internal Market regulation, Mr. McCreevy discussed convergence of IFRSs and US GAAP and governance of international standard setters such as the IASB. On the latter issue, the Commissioner said:
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The governance, financing, participation in and the accountability of international standard setters, in particular the International Accounting Standards Board (IASB) and the International Auditing and Assurance Standards Board (IAASB), is becoming a subject of heated public debate.
The Commission is working hard to influence the reform process underway within
the International Accounting Standards Board (IASB). We are also looking very carefully at the arrangements proposed for the International Auditing and Assurance Standards Board (IAASB) which will elaborate International Standards on Auditing.
The governance of international standard setters is high on our agenda and will remain there in the coming months. During my visit to the US I intend to talk to Paul Volcker, the Chairman of the Board of the IASB Trustees to see how we can best do
this. We will also raise these issues in our talks with the other American counterparts. |
Click to Download Mr. McCreevy's Speech (PDF 77k).
On 8 April 2005, Commissioner McCreevy spoke in Dublin about The Limits of Accounting Standards:
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While we must have a framework that minimises the risk of fraud and malpractice if we are to sustain and nurture investor confidence, no investor should delude themselves. Tougher regulations and laws may help stamp out false accounting. But creative accounting will always be with us – even if recent developments in international accounting standard setting makes it more challenging. That's why the task of the non-executive director, of the fund manager, of the banker, of the supplier or of any other interested party in a company's underlying financial health is to ask the many questions that the published accounts don't answer.
Published accounts will always be like bikinis – much more interesting for what they conceal than for what they reveal – regardless of more exacting accounting standards. |
Click to Download Mr. McCreevy's Speech (PDF 75k).
April 2005: FEE study on audit report implications of IFRSs
The European Federation of Accountants (FEE) has released a discussion paper on Reporting Issues in Relation to Endorsed IFRS and Possible Implications for the Audit Report. The European Union IAS Regulation requires European listed companies to prepare consolidated financial statements from 2005 on the basis of those IFRS that have been endorsed by the European Commission. Because endorsed IFRSs may not necessarily be the same as full IFRSs because of time lags or 'carve-outs' such as was done with IAS 39, the appropriate wording to describe the accounting framework in the auditor's report and in the accounting policies note must be carefully considered. The FEE discussion paper examines the following questions:
- How should the financial reporting framework be referred to in the accounting policies in the notes to the financial statements?
- When the company also complies with full IFRSs, should it refer to that fact?
- How should the framework be described in the audit report? Can there be a difference in description compared to the reference to the financial reporting framework in the accounting policies?
- Would the reference to the European financial reporting framework have a clear meaning outside the EU?
FEE invites comments on the issues raised in the discussion paper, with a 31 May 2005 deadline. Click to Download the FEE Discussion Paper (PDF 129k).
April 2005: SEC announcement on IFRS reconciliation
William Donaldson, Chairman of the US SEC, and Charles McCreevy, EU Internal Market Commissioner, met on 21 April 2005 in Washington to discuss a range of topics of mutual interest between the SEC and the European Union, including expanding the use of high-quality global accounting standards and eliminating the reconciliation to US GAAP for IFRS filers. An SEC Press Release (PDF 65k) about the meeting states:
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Chairman Donaldson reaffirmed his support for the convergence program being undertaken jointly by the International Accounting Standards Board and the US Financial Accounting Standards Board. Chairman Donaldson also discussed with Commissioner McCreevy a 'roadmap' developed by SEC staff that highlights the steps needed to eliminate the US GAAP reconciliation requirement for foreign private issuers that use International Financial Reporting Standards, or IFRSs. The roadmap establishes a goal of eliminating the requirement as early as possible between now and 2009 at the latest.
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The European Commission highlighted the progress made between the EC and the SEC in a Press Release (PDF 77k) titled Accounting Standards: EU Commissioner McCreevy Sees Agreement with SEC as Progress Toward Equivalence. The reference to 'equivalence' relates to a study currently underway within the European Commission to assess whether US GAAP, Canadian GAAP, and/or Japanese GAAP are 'equivalent' to IFRSs and, therefore, should be allowed for non-European companies in European capital markets. An excerpt from Commissioner McCreevy's press release:
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I very much welcome the constructive approach the SEC is taking to moving these critical issues forward. We will work closely together to promote the closer alignment of IFRS and US GAAP and towards the elimination of US GAAP reconciliation requirements for foreign private issuers. These are major steps towards high-quality global accounting standards, which the European Union strongly supports. Clearly there is much to do all round, but the bandwagon has now started. International accounting standard setters, preparers, issuers, auditors and regulators must now accelerate their efforts to seize this unique opportunity. They must set clear goals and deliver the necessary convergence, consistency and enforcement required. I will be pressing all concerned in Europe to play their part.
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April 2005: CESR publishes its draft 'equivalency report'
The Committee of European Securities Regulators (CESR) has invited comments on its tentative conclusions that Canadian, Japanese, and US GAAP, taken as a whole, are "equivalent to IFRSs, subject to a number of additional disclosures" for the purpose of listings by non-European companies in European public securities markets. European companies trading in European securities markets are required to start using IFRSs in 2005. Non-European companies are allowed to continue to use their national GAAPs until 2007. The European Commission is studying whether to allow Canadian, Japanese, and/or US GAAP to continue to be used after 2007 and has asked CESR for its views. The European Commission had also asked CESR to include, in its report on equivalence, a description of the enforcement mechanisms that are in place in each country. The European Commission has asked to have CESR's final advice by 30 June 2005. CESR's comment deadline is 27 May 2005. CESR will hold an open hearing at its offices in Paris on the afternoon of 18 May 2005. Click to download:
29 April 2005: McCreevy discusses convergence, equivalence in New York
In a Speech (PDF 92k) on the integration of Europe's financial markets and international cooperation in New York on 20 April 2005, EC Internal Markets Commissioner Charlie McCreevy discussed, among other things, the reconciliation from IFRS to US GAAP, accounting convergence, the internal control provisions of Section 404 of the Sarbanes Oxley Act, and deregistration. An excerpt:
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The goal must be mutual recognition of equivalence. You can also call it the home-country principle. If you agree to accept each other's system as equivalent then duplicative requirements disappear. You can then operate in the other country under
the rules of your home country. I think we should find more areas in our transatlantic relation where we can apply this principle. In accounting, in insurance, for securities markets and in all the other financial regulation.
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May 2005: EC 'Green Paper' on financial services
In a Green Paper on Financial Services Policy (2005-2010), the European Commission sets out its financial services policy priorities for the next five years, with the goal of fostering an integrated, open, and competitive financial market "where financial services and capital can circulate freely at the lowest possible cost throughout the EU
– with adequate and effective levels of prudential control, financial stability and a high level of consumer protection." The regulation requiring IFRSs for European listed companies and permitting member states to extend IFRSs to unlisted companies is part of that policy. The Green Paper suggests that the oversight and 'political accountability' of the IASB need to be strengthened:
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The debate about the future governance, funding and political accountability of global standard-setting bodies, such as the International Accounting Standards Board, are of growing political importance. The Commission considers that public oversight of these structures must be strengthened, to ensure appropriate reflection of stakeholders, satisfactory transparency, due process and sustainable financing.
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Annex 1 to the paper discusses the EU-US regulatory dialogue. A key goal of the Commission is to "work towards equivalence/convergence between IAS and US-GAAP – agreeing a roadmap and timetable are now urgent." The paper notes that the Commission will wait until the end of 2006 or early 2007 before making a decision on the IFRS-equivalence of the major third-country accounting systems (Canadian, Japanese, and US). Click to download:
The Commission has invited comments on its policies by 1 August 2005.
Decisions at the 20 May 2005 meeting of the ARC
At its meeting on 20 May 2005, the Accounting Regulatory Committee, which advises the European Commission on endorsement of individual IFRSs and IFRIC Interpretations for use in Europe, agreed unanimously to recommend endorsement of IFRS 6, IFRIC Interpretations 4 and 5, IFRIC's recent amendment to SIC 12, and the IASB's recent amendment to IAS 19, and related consequential amendments. ARC members also expressed strong support for the Commission's intention to endorse the IASB's proposed amendments to the Fair Value Option in IAS 39, pending publication of the amendments by the IASB. The Commission intends to seek the ARC's approval of these amendments at the ARC's next meeting on 8 July 2005.
With respect to IFRIC 3 Emission Rights, in light of EFRAG's recommendation that the Commission not endorse IFRIC 3 for use in Europe, the Commission has asked the IASB to defer the effective date of IFRIC 3. If the effective date is not deferred, the ARC will be asked to decide on IFRIC 3 at its 8 July 2005 meeting.
Click here to download the Summary Report of the May 2005 ARC Meeting" (PDF 36k).
Background papers for the 20 May 2005 ARC meeting may be found at The ARC Website.
May 2005: Deloitte letter to CESR on GAAP equivalence
On 31 May 2005, Deloitte submitted a letter of comment to the Committee of European Securities Regulators (CESR) on CESR's tentative conclusions that Canadian, Japanese, and US GAAP, taken as a whole, are "equivalent to IFRSs, subject to a number of additional disclosures" for the purpose of listings by non-European companies in European public securities markets. The European Commission is studying whether to allow Canadian, Japanese, and/or US GAAP to continue to be used after 2007 and has asked CESR for its views. The EC had also asked CESR to include, in its report on equivalence, a description of the enforcement mechanisms that are in place in each country. The EC has asked to have CESR's final advice by 30 June 2005. Click to download:
CESR invited comments on their tentative views. Deloitte's Comment Letter (PDF 35k) states:
| We believe this equivalence project has made a valuable contribution to the shared understanding of both the common ground and the differences between the leading sets of GAAP and we are supportive of the concept of focusing on "real world outcomes of investor behavior" and efficient remedies that are targeted on what really matters to investors. However, we do have reservations about the role and capacity of the auditor in this regard, which we address in our detailed comments.
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May 2005: EC Working Paper on international regulatory dialogues
The European Commission has published a Working Paper (PDF 52k) that outlines the state of play of ongoing international regulatory dialogues between the Commission and certain non-EU country regulators on internal market issues. The paper sets out the Commission's policy priorities for the next several years. Priority will be given to "those regulators and issues where regulatory interdependence is highest and where inefficiencies or frictions are most likely to cause damage." Policy priorities relevant to accounting and auditing include these:
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United States: Regarding the United States, regulators on both sides are convinced of the need to increase convergence and acceptance of functional equivalence in key areas such as accounting and audit standards....
Japan: As the move to global financial markets accelerates, the EU and Japan also intend to deepen their cooperation by enhancing the informal financial markets dialogue,
covering such issues as accounting and auditing,
Recognition of equivalence: Experience has shown that 100% convergence to the point of identical rules may not
always be feasible or necessary, for instance when the respective regulations already reflect broadly equivalent approaches or pursue broadly similar goals. Convergence and equivalence are often linked insofar as a convergence process should at some stage lead to a situation where protection standards of different regulators are equivalent. Before forcing foreign service-providers or businesses to comply with the full set of local rules, regulators and other relevant bodies should ask themselves whether the other jurisdiction already meets, for example, equivalent or materially reciprocal protection standards to those achieved by local rules.
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May 2005: Europe may establish an IFRS interpretations 'forum'
In an Address to the Federation of European Securities Exchanges (PDF 100k), European Commissioner for Internal Market and Services Charlie McCreevy indicated that the EC is considering a proposal for a 'European Forum' to identify and analyse IFRS implementation issues, to allow IFRIC to focus on key issues. While Mr McCreevy did not provide details about the forum, in several recent speeches members of EFRAG have said that EFRAG would seek to be such a forum. An excerpt from Commissioner McCreevy's comments:
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The main question in the medium term will be how to ensure consistent application of IFRS within Europe. This is crucial, to have a uniform set of standards and not effectively 25 national standards in place. It is also crucial to the objective of
removal of the US GAAP reconciliation. A number of proposals are being considered, including one for a 'European Forum' consisting of interested parties, regulators, standard setters, preparers, and auditors in their peer groups. The forum
would be tasked with promoting consistent application.
But we do not want to add layers of interpreting bodies. International Accounting Standards are principles-based and should remain so. I see the chief advantage of a possible European Forum in identifying and analysing issues, acting as a filter and
thus allowing the International Financial Reporting Interpretation Committee to concentrate on the key issues requiring their attention.
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Commissioner McCreevy also spoke about EU-US mutual recognition of each other's GAAP:
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The European Commission has always been a strong advocate of global standards – not just for accounting but also for auditing. While IFRS is the basis for a true global standard we must recognise the role US GAAP plays in the largest capital
market in the world, i.e. the US. We do not necessarily need to apply exactly the same accounting standards, but differences should be narrowed down to such an extent that we can at least recognise each other's standards as equivalent. The world is moving towards IFRS – so this convergence issue is a key nut to crack.
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June and July 2005: CESR advice on historical financial information to be included in prospectuses
In June 2005, the Committee of European Securities Regulators (CESR) issued a Call for Evidence (PDF 131k) inviting comments on what additional financial information should be included in a prospectus when the issuer has not prepared its historical financial statements as a single business entity during the whole period for which historical financial information is required under the EC's Prospectus Regulation 809/2004 of 29 April 2004. Comment deadline is 20 June 2005. Examples of such circumstances include:
- the issuer is a newly incorporated holding company inserted over an established business;
- the issuer consists of companies that were under common control or ownership but which never formed a legal group;
- the issuer has made a significant acquisition (representing more than 25% of the group) during the three year historical record or subsequent to the last audited consolidated financial information on the issuer;
- the issuer has disposed of a significant part of its business since the last audited accounts;
- the issuer has changed its accounting reference date during the three year period.
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In July 2005, CESR published a consultation paper that sets out recommendations for a possible amendment of the Commission's Prospectus Regulation regarding historical financial information that must be included in a prospectus. The Prospectus Regulation, which came into effect on 1 July 2005, requires (among other things) three years' audited historical information for the issuer as a whole. Sometimes, however, the issuer has not prepared its historical financial information as a single business during the whole of the three-year period, for example, because:
- the issuer is a newly incorporated holding company inserted over an established business;
- the issuer consists of companies that were under common control or ownership but that never formed a legal group;
- the issuer has made a significant acquisition (representing more than 25% of the group) during the three-year historical period;
- the issuer has disposed of a significant part of its business since the last audited accounts;
- the issuer has changed the end of its financial year during the three year period.
CESR's recommendations relate to what additional information should be included in prospectuses in circumstances such as the foregoing. CESR requests replies by 15 September 2005 and will hold a hearing on 6 September 2005. Click to download:
July 2005: CESR recommendations on half-yearly reporting
CESR's Final Technical Advice on Possible Implementing Measures of the Transparency Directive proposes that the minimum content of half-yearly financial statements not prepared in accordance with IFRSs should be defined by reference to the principles of IAS 34 Interim Financial Reporting. Further, CESR proposes that in half-yearly reports, the definition of 'related party transactions' in IAS 24 Related Party Disclosures should apply both when an issuer prepares consolidated accounts and when it does not.
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July 2005: IASB chairman meets with the ARC
IASB chairman Sir David Tweedie met with the European Commission's Accounting Regulatory Committee (ARC) in Brussels to discuss the development of International Financial Reporting Standards and, in particular, the convergence of international and national accounting standards. Sir David was accompanied by IASC Foundation Trustee Max Dietrich Kley. The ARC is composed of representatives of EU Member States and was set up to advise the Commission on proposals to endorse individual IFRSs for use in Europe. Click to download Sir David's Prepared Remarks (PDF 42k). An excerpt:
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The European Commission, the European Parliament and EU Member States deserve much credit for providing the impetus to our efforts. Your choice of an international approach to accounting standards over a national and regional approach for Europe is a model for others. At the same time, if we are to achieve truly global standards and all the benefits that they will bring, accounting convergence must necessarily involve the United States, which accounts for nearly half of the world's total market capitalisation.
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July 2005: ARC endorses revised IAS 39 fair value option
At its meeting on 8 July 2005, the Accounting Regulatory Committee, which advises the European Commission on adoption of individual International Financial Reporting Standards for use in the European Union, agreed unanimously to recommend endorsement of an amended version of IAS 39 that includes revised provisions relating to the fair value option (FVO). When the Commission adopted IAS 39 last year, the FVO provisions were carved out. The Commission has already consulted the European Parliament on the revised FVO and, provided Parliament raises no objections, the Commission intends to adopt the amended standard by the end of September 2005. Adoption will be retroactive to 1 January 2005, so that companies can apply the amended standard for their 2005 final statements. Click for:
Concurrently, the European Commission published Frequently Asked Questions – IAS 39 Fair Value Option (FVO) (PDF 94k), providing the Commission's views on the following questions:
- Why did the Commission carve out the full fair value option in the original IAS 39 standard?
- Do prudential supervisors support the IAS 39 FVO as published by the IASB?
- When will the Commission to adopt the amended standard for the IAS 39 FVO?
- Will companies be able to apply the amended standard for their 2005 financial statements?
- Does the amended standard for IAS 39 FVO meet the EU endorsement criteria?
- What about the relationship between the fair valuation of own liabilities under the amended IAS 39 FVO standard and under Article 42(a) of the Fourth Company Law Directive?
- Will the Commission now propose amending Article 42(a) of the Fourth Company Directive?
- What about the remaining IAS 39 carve-out relating to certain hedge accounting provisions?
July 2005: CESR advice on national GAAP equivalence to IFRSs
The Committee of European Securities Regulators (CESR) has published its final technical advice to the European Commission on the equivalence between Canadian, Japanese, and US general accepted accounting principles (GAAP) and IFRSs. CESR's principal conclusion is that "the three countries' GAAPs, each taken as a whole, are equivalent to IFRSs". Therefore, CESR recommends that non-European companies trading in European securities markets be allowed to submit financial statements in Canadian, Japanese, and US GAAP without a full reconciliation of their accounts to IFRSs. However, they must provide information about certain specific differences between those national GAAPs and IFRSs. CESR's advice includes a non-exhaustive standard-by-standard list of differences as of 1 January 2005 for which disclosure of the nature and effect of the differences is required. CESR intends to update the list as of 1 January 2007. In addition, CESR proposes the following:
- Companies that have subsidiaries such as Qualifying Special Purpose Entities (QSPEs) that are not consolidated for third country GAAP purposes, but are required to be consolidated for the purposes of IFRS, must report a pro-forma balance sheet and profit and loss account on their local GAAP basis, but including the unconsolidated subsidiaries.
- Companies reporting under Japanese GAAP that have either accounted for mergers by the pooling of interest method and/or have consolidated subsidiaries on the basis of GAAPs that are not consistent with either IFRS or any of the third country GAAPs should report a pro-forma balance sheet and profit and loss account on the basis of IFRS covering business combinations and consistent accounting policies, respectively.
- Japanese and US issuers must adopt accounting policies for the expensing of stock options on a basis equivalent (but not necessarily identical) to IFRSs, for implementation on or before 1 January 2007. (The US has already adopted such a standard, and Japan is considering doing so.)
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July 2005: Summary record of ARC July 2005 meeting
The Summary Record of the July 2005 Meeting of the Accounting Regulatory Committee (PDF 39k) indicates that the following issues related to the IASB and IFRSs were discussed:
- The ARC members voted unanimously to endorse, for use in Europe, the IASB's June 2005 Fair Value Option Amendment to IAS 39 and consequential amendments to IFRS 1 and IAS 32.
- The ARC discussed how European companies should account for emission rights in light of the IASB's withdrawal of IFRIC 3. It was noted that IAS 8 provides guidance on what companies should do if a transaction or event is not specifically addressed in IFRSs. "The CESR representative stated that it was unlikely that they would be looking at companies' accounting treatment of emission rights."
- Sir David Tweedie, Chairman of the IASB, addressed the ARC on the IASB's work on the convergence of international and national accounting standards. Max Kley, Trustee of the IASC Foundation, gave an update on the completion of the constitutional review. Questions asked by ARC Member States related to:
- How the decision is made as to which standard (IFRSs or US GAAP) is better.
- The timetable for convergence and how much change is appropriate in the next few years.
- Would IASB support a single technical accounting body speaking for Europe rather than the current situation where there are several European bodies.
- Regarding the joint IASB/FASB performance reporting project, the ARC meeting summary indicates that "some Member States found the proposals for a single statement of comprehensive income unacceptable". In that regard, the IASB chairman said that a final decision on whether to have one or two performance statements has not yet been made.
- The ARC discussed the issues of consistent application and enforcement of IFRSs in the EU. They considered whether to form a 'roundtable' involving a broad range of stakeholders, including the Commission, IASB/IFRIC, CESR, EFRAG, FEE, the Big Four, national standard setters, and preparers, that could:
- allow rapid discussion of important accounting issues, thereby minimising the risk of different interpretations of IFRSs across Europe;
- act as an early warning mechanism for contentious accounting issues; and
- facilitate cross-border consensus-building, thus minimising subsequent enforcement risks for EU issuers.
After discussion, the ARC decided to prepare a more detailed paper for the next ARC meeting that would include details on
the role and composition of the roundtable, how it would relate to the existing structure of national organisations, and draft terms of reference.
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The ARC will meet next on 7 October 2005.
July 2005: IFRIC 2 is now fully adopted in Europe
European Commission Regulation (EC) No. 1073/2005 of 7 July 2005 was published in the Official Journal of the European Union on 8 July 2005. Therefore the European Commission has now fully adopted IFRIC 2 Members' Shares in Co-operative Entities and Similar Instruments for use in Europe. Click to download the IFRIC 2 Regulation (PDF 66k).
September 2005: EU parliament adopts ISAs
On 28 September 2005, the European Parliament approved various amendments to the Eighth Company Law Directive (the 'auditing directive'). The amendments will:
- Establish a system for public oversight of the auditing profession and for cooperation between Member States' authorities.
- Require application of International Standards on Auditing (ISAs) in European auditing. ISAs are issued by the International Auditing and Assurance Standards Board of IFAC. The EC press release announcing the Parliamentary vote said "adoption of these standards will be subject to strict conditions such as their quality and whether they are conducive to the European public good" – conditions similar to those required for IFRSs under the EU Accounting Regulation.
- Create an Audit Regulatory Committee to complement the revised legislation and allow the speedy adoption of necessary implementing measures.
- Require rotation, every seven years, of the key audit partner/statutory auditor. However, compulsory rotation of audit firms was rejected.
- Provide a basis for effective and balanced co-operation between regulators in the EU and with regulators in third countries, such as the US Public Company Accounting Oversight Board (PCAOB).
- Improve the independence of auditors by requiring listed companies to set up an audit committee (or a similar body) with clear functions to perform.
Parliament also asked the Commission to present an impact study on current national auditor liability rules and an analysis on the possible limitations of the financial liability in the auditing profession. Approval by ECOFIN is required before the revisions come into force, after which Member States will have two years to implement the provisions. Click for EC Press Release (PDF 22k).
October 2005: FEE urges clarity of basis of reporting
The Federation of European Accountants (FEE) has published an analysis of responses to its April 2005 discussion paper on the reporting issues and implications for the audit report of the process of 'endorsing' IFRSs for use in Europe. FEE represents 44 professional institutes of accountants from 32 countries. Based on its analysis, FEE makes the following recommendations:
- FEE calls on the European Commission to issue authoritative guidance on how European companies should refer to their financial reporting framework. "There is a clear need for a standard wording."
- FEE recommends a change to the EC's previously suggested reference to the financial reporting framework: "Precision would be added if it were amended to: 'in accordance with IFRSs as adopted for use in the EU'". Specifically the reference to the plural of IFRSs is considered significant to highlight that standards are endorsed one by one.
- Companies are strongly encouraged to explain, in the notes to the accounts, how their accounting policies, applying IFRSs as endorsed for use in the EU, depart from full IFRS. "This will enable investors to understand the impact and to compare the results of companies within and outside the EU."
- The reference in the audit report should be the same as in the accounting policies.
- Where companies are in compliance with full IFRS, they should be encouraged to say so in their accounting policies. However, the legal financial reporting framework in the EU needs to be referred to in all cases.
This is not just a European issue because national adoptions of IFRSs elsewhere around the world have included additions, deletions, and changes to the IASB standards as well as time lags between IASB adoption and local adoption. Click for:
October 2005: 'IFRS – No Pain, No Gain?'
The European Union's internal markets Commissioner, Charlie McCreevy, enumerated the benefits of introducing IFRSs for listed companies in Europe in remarks made at the official opening of the new offices of FEE (the Federation of European Accountants) in Brussels. His speech was titled IFRS – No Pain, No Gain?. Here is an excerpt:
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A common accounting standard increases investor transparency and comparability. As users become more familiar and confident with IFRS, the cost of capital for companies using IFRS should fall. It should lead to more efficient capital allocation and greater cross-border investment, thereby promoting growth and employment in Europe.
Furthermore, we are all aware of the challenges that globalisation and a rapidly-industrialising China are bringing. Now more than ever, we need to press on with the Lisbon agenda and increase the efficiency of the European economy. A common accounting standard based on IFRS, rather than a thicket of different national standards, is therefore not a luxury, but rather an absolute necessity.
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Commissioner McCreevy cited other benefits, including:
- Benefits of IFRSs to companies internally, including reduced capital costs, better management reporting, and improved internal control systems.
- Benefits to European companies listed in the United States, including eliminating the cost of preparing a reconciliation to US GAAP, and convergence of US GAAP and IFRSs.
- Benefits to European companies globally expected to result from convergence activities in other jurisdictions, including China, Japan, Canada, and India.
Click to Download Commissioner McCreevy's Remarks (PDF 73k).
October 2005: Challenges to transition to IFRSs in Europe
Charlie McCreevy, EU Commissioner for Internal Markets and Services, spoke about proposed revisions to the Eighth Directive – commonly known as the Auditing Directive – in remarks delivered at the Global Public Policy Symposium on 20 October 2005 in London. Mr. McCreevy also spoke about global issues, including convergence of IFRSs and US GAAP. Here is an excerpt of his comments on convergence:
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We have an agreement with the SEC with the objective of removing the burdensome US GAAP reconciliation requirement for EU issuers in the US, as early as 2007, but no later than 2009. The convergence this will entail must be a two way street and it must not destabilise the IFRS platform in Europe. I would like to stress that convergence is not an invitation to standard-setters to try and advance the theoretical frontiers of accounting. I will not take on board any revolutionary new standards. This should be a practical exercise, firmly anchored in business reality, to be undertaken in the interests of users and investors. The main objective is to try and narrow the differences between the existing standards, not to make accounts even more indigestible with a whole set of new standards!
We will not be adding new carriages to the IFRS train, just as it has left the station. We need, first and foremost, to be sure that existing IFRS beds down and that we reap the benefits at home.
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Click to Download Commissioner McCreevy's Speech (PDF 88k).
November 2005: EC eliminates fair value option 'carve-out'
The European Commission has adopted a Regulation endorsing the fair value option in IAS 39 on Financial Instruments: Recognition and Measurement As Amended by the IASB in June 2005. This removes one of the two 'carve-outs' that the EC had imposed when endorsing IAS 39 for use in Europe. The amended fair value option was approved unanimously by the EU Member States at the Accounting Regulatory Committee and by the European Parliament. Adoption is
retroactive to 1 January 2005, so that companies will be able to apply the amended standard for their 2005 financial statements. Internal Market and Services Commissioner Charlie McCreevy said: "I am very pleased that the Commission has been able to eliminate the 'fair value carve-out' to IAS 39. The two IAS 39 carve-outs were always intended to be exceptional and temporary. We therefore need to press on with the technical work to find a solution on the second carve out." Click for:
November 2005: Impact of IFRSs on European credit institutions
Deloitte IFRS experts in France recently presented the results of their review of the effects of first-time adoption of IFRSs by 15 European financial institutions. The 78-slide presentation covered:
First-time Adoption of IFRSs by European Credit Institutions
- Reporting format
- Content of information published and key messages
- Impacts on equity, net income, and the Tier One ratio
- The main impacts by standard
- Business combinations and goodwill
- Share-based payment
- Employee benefits
- Scope of consolidation
- Fixed assets and leases
- Available-for-sale assets
- Debt/equity
- Day-one profit
- Hedging
- Loan provisioning
- Insurance
- Effective interest rate/Treatment of commissions
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Click to download the presentation First-time Adoption of IFRSs by European Credit Institutions (PDF 610k).
November 2005: EU formally adopts IFRSs 1 and 6; IASs 1, 16, 19, 24, 38, and 39; and IFRIC 4 and 5
By publication in the Official Journal of the European Union on 24 November 2005, Commission Regulation (EC) No 1910/2005 (PDF 123k) of 8 November 2005 has been brought into law. Regulation 1910/2005 formally adopts the latest revisions to the following International Financial Reporting Standards: IFRSs 1 and 6; IASs 1, 16, 19, 24, 38, and 39; and IFRIC Interpretations 4 and 5.
November 2005: Cooperation plan among EU banking, insurance, and securities regulators
The Committee of European Banking Supervisors (CEBS), the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) and the Committee of European Securities Regulators (CESR) have signed a joint protocol to foster co-operation and coordination in the areas of regulation, policy,
information exchange and other tasks with a common interest. The practical objectives of the joint protocol are to:
- share information in order to ensure compatible sector approaches are developed;
- exchange experiences which can facilitate supervisors' ability to cooperate;
- produce joint work or reports to relevant EU Institutions and Committees;
- reduce supervisory burdens and streamline processes; and
- ensure the basic functioning of the three Committees develops along parallel lines.
Click for Joint Protocol (PDF 34k) and Press Release (PDF 33k).
November 2005: EC begins study of limitation of auditor liability
The European Commission has formed a European Forum on Auditors' Liability to gather market players' views on limiting financial burdens for auditors. Members include Hendrik Descheemaeker, President of the Deloitte Board in Belgium. Early in 2006 the Commission will launch a study on the economic impact of alternative liability regimes, competition in the market, and availability of insurance. The forum will provide data for this study and will give feedback on proposals. The results of the study will be available in autumn 2006. The Forum is expected to complete its work by 31 December 2006. Click for:
November 2005: Report from the ARC 30 November 2005 meeting
The Accounting Regulatory Committee of the European Commission met on 30 November 2005 in Brussels. Key agenda items:
- The Commission noted that a question has arisen regarding what date should be used for the applicability of endorsed IFRS? This is especially relevant where the IASB publishes a standard before the balance sheet date of a company but it is endorsed by the EU and published in the Official Journal only after that date. The Commission informed Member States that Regulations endorsing IFRS published in the Official Journal and entering into force after the balance sheet date but before the date the financial statements are signed can be used in those financial statements if early application is permitted in the Regulation and the related IFRS.
- The ARC voted unanimously to endorse IFRS 7 Financial Instruments: Disclosures; the 'comparative disclosures' amendments to IFRS 1 and 6; the 'capital disclosures' amendment to IAS 1; the amendments to IAS 39 and IFRS 4 on financial guarantee contracts; and IFRIC 6.
- The ARC, at its 8 November 2005 meeting, voted unanimously to endorse the amendment to IAS 39 on cash flow hedge accounting of forecast intragroup transactions.
An important consequence of the above is that – assuming IFRS 7 and the various amendments are adopted by the Commission and published in the Official Journal early in 2006 – European IFRS companies can early adopt IFRS 7 and those amendments for calendar 2005 financial statements if they wish. Adoption and publication are expected by March 2006 or earlier. The Commission has posted the foregoing information in the following files:
December 2005: Speeches at FEE IFRS convergence conference
Commissioner McCreevy Speaks on EC Financial Reporting Strategy
Charlie McCreevy, the European Commissioner for Internal Market and Services, spoke about the EC Strategy on Financial Reporting: Progress on Convergence and Consistency at the European Federation of Accountants' (FEE) Seminar on International Financial Reporting Standards in Brussels on 1 December 2005. Here is an excerpt:
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It is my firm belief that accounting standards should be international and be used across the globe. We have committed to use IFRS, but other important markets – notably the US – have not yet done so.
Our interest in the acceptance of IFRS in the US is of course not purely altruistic. Today there about 250 EU issuers listed in the US using IFRS. The cost of the current US GAAP reconciliation requirement is enormous. I have heard estimates of between 1 and as much as 10 million dollars for the largest companies. And that is every year. But the story does not end here. There are many companies from other jurisdictions who also have US listings and use IFRS.
That is why I think my agreement earlier this year with the former SEC Chairman, Bill Donaldson, and the SEC roadmap to remove the US GAAP reconciliation requirement is so important. This Roadmap means that IFRS could be accepted in the US no later than 2009, or even sooner.
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Click to download Commissioner McCreevy's Remarks (PDF 74k).
Speech of Ethiopis Tafara on the reconciliation and convergence
Ethiopis Tafara, Director, Office of International Affairs of the US Securities and Exchange Commission, discussed the SEC's 'roadmap' of milestones toward elimination of the US GAAP reconciliation requirement for IFRS filers in remarks at FEE's IFRS seminar in Brussels on 1 December 2005. An excerpt:
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We do not expect full or even a finite degree of convergence before we are willing to eliminate the reconciliation requirement. What is important is that investors in the United States be able to understand financial statements prepared under IFRS. While convergence between IFRS and US GAAP will certainly help us all in reaching that goal, it is clearly possible for US investors to understand financial statements prepared using a rigorously applied system of IFRS, even if there remain differences between IFRS and US GAAP.
Accordingly, we do not expect an artificially paced standard-setting work targeted at a specific level of convergence before eliminating the reconciliation requirement. That said, before eliminating the requirement, the Commission likely will be keen to see that a robust process for converging IFRS and US GAAP is in place and active. This will help make sure that, going forward, both sets of accounting standards will converge rather than diverge. Of course, the only way to judge the effectiveness of a process is through the results it generates. This means that, before the reconciliation requirement can be eliminated, the Commission will need to review the progress of the IASB/FASB convergence project and will look for convergence of standards that reflect a sense of priority and a measure of efficiency.
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Click to download Mr. Tafara's Speech (PDF 71k)
Pervenche Beres Speaks on Greater Involvement of the EU in the IFRS Process
Pervenche Beres, Chairwoman of the committee on economics and monetary affairs in the European Parliament, spoke about
The Need for Better Involvement of the European Union in the IFRS Process at the FEE Seminar on IFRS Convergence and Consistency held in Brussels on 1 December 2005. An excerpt:
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Debates on the constitutional review of the IASB and on the (future) role of European Financial Reporting Advisory Group (EFRAG) represent an outstanding opportunity to strengthen the voice and the role of Europe, to improve the IASB corporate governance, and to make the decision making process at IASB level more balanced. We should fully take advantage of this momentum!
One of the European Parliament's very important concerns relates to the manner in which the EU is present and represented in the IASB, namely on the trustees and on the Board side. A greater transparency towards the European Parliament, especially when it comes to Commission's intended steps in this area, would be a clear asset in ensuring that the EU is represented in the IASB structures in an appropriate way.
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Click to Download Speech of Mme Beres (PDF 21k).
December 2005: New European Group of Auditors' Oversight Bodies (EGAOB)
The European Commission has formed a European Group of Auditors' Oversight Bodies (EGAOB). The goal of EGAOB is to ensure effective coordination of new public oversight systems of statutory auditors and audit firms that each EU Member State is required to establish under the October 2005 amendments to the 8th Company Law Directive. The new Group may also provide technical input to the preparation of possible measures of the Commission implementing the Directive, such as endorsement of the International Standards on Auditing or assessment of third countries' public oversight systems. Click for:
December 2005: Wording for stating compliance with IFRSs in EU
The European Commission has adopted the following wording for use in the notes to the accounts and in the audit
reports of companies subject to EU Regulation 1606/2002/EC (the 'IAS regulation'):
- "in accordance with International Financial Reporting Standards as adopted by the EU" or
- "in accordance with IFRSs as adopted by the EU".
This wording has been posted to the Commission's website as part of the Draft Summary Record for ARC 30 November 2005 (PDF 29k).
December 2005: Parliament approves strengthened accounting rules, new SME definitions
On 15 December 2005, the European Parliament voted to approve the proposal for a Directive amending the European Union's Accounting Directives. The amendments will bring improved disclosure by obliging listed EU companies to provide annually a corporate governance statement and providing more insight into the use of off-balance sheet arrangements and unusual transactions with related parties, such as the spouse of a board member. In addition, thresholds defining small and medium sized companies will be increased by 20%, which will help to reduce those companies' financial reporting burdens.
The amendment of the Accounting Directives establishes collective responsibility of board members at EU level; improves transparency about unusual related parties' transactions and off-balance sheet arrangements; and introduces an obligation for listed EU-companies to annually provide a corporate governance statement.
The amendments to the Accounting Directives will also allow Member States to remove inconsistencies between IAS 39, the renowned international accounting standard on fair value measurement, and the Accounting Directives. This is in line with the recently adopted Commission Regulation of 15 November 2005 1864/2005 (IP/05/1423) with regard to listed companies.
Thresholds (balance sheet total and net turn over) defining small and medium sized limited liability companies will be increased by 20%. This is relevant only for the Accounting Directives and not for the Commission Recommendation defining micro, small and medium sized enterprises or Community legislation associated with the Recommendation.
Each Member State must decide for itself whether it wants to use the new thresholds, which are as follows:
| Small companies | From (Euro) | To (Euro) |
| Balance sheet total | 3.650.000,00 | 4.400.000,00 |
| Net turnover | 7.300.000,00 | 8.800.000,00 |
| Medium sized companies | From (Euro) | To (Euro) |
| Balance sheet total | 14,600,000,00 | 17.300.000,00 |
| Net turnover | 29,200,000,00 | 35.000.000,00 |
Click for Press Release (PDF 87k).
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