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January 2007: EU IFRS regulation now applies to Bulgaria, Romania
Bulgaria and Romania became members of the European Union as of 1 January 2007. As a result, the EU regulation requiring the use of IFRSs by all listed companies in their consolidated financial statements became applicable in those two countries. Bulgaria had already required IFRSs for its listed companies, and Romania had required IFRSs for all large companies.
February 2007: Commission announces members of Standards Advice Review Group (SARG)
The European Commission has announced the members of its Standards Advice Review Group (SARG). The Group's task will be to assess whether the endorsement advice given by the EFRAG is well balanced and objective. The group will deliver its advice to the Commission normally within three weeks. The final advice will be published on the Commission's website. Members of the SARG are:
- Josef Jilek
- Elisabeth Knorr
- Carlos Soria Sendra
- Herve Stolowy
- Enrico Laghi
- Jan Klaasen
- Geoffrey Mitchell
Click for EC Announcement in the 6 February 2007 Official Journal of the European Union (PDF 73k).
February 2007: ARC recommends endorsement of IFRS 8, IFRICs 10 and 11
At its meeting on 2 February 2007, the European Commission's Accounting Regulatory Committee (ARC) voted to recommend that the EC endorse IFRS 8, IFRIC 10, and IFRIC 11 for use in Europe. The ARC will consider IFRIC 12 at its 16 March 2007 meeting. Click for Summary Votes at ARC 2 Feb 07 Meeting (PDF 13k).
February 2007: EC interpretations on consolidated and separate statements
At the 2 February 2007 meeting of the European Commission's Accounting Regulatory Committee, the Commission presented two final interpretive opinions dealing respectively with the meaning of 'annual accounts' and the possibility to issue annual
accounts prepared in accordance with IFRS before consolidated ones. Both relate to application of the requirements of IAS 27 Consolidated and Separate Financial Statements within the European Union:
- If a parent company in the EU is not required by the Seventh Directive to prepare consolidated accounts, can it issue IFRS 'annual accounts' (its own separate financial statements) in conformity with IFRSs? In almost all circumstances, if a company is a parent, IAS 27 requires the preparation of consolidated financial statements. Under IAS 27, the parent's separate financial statements are an additional set of financial statements not required by IAS 27. The Commission has concluded, however, that the Seventh Directive takes precedence in Europe in determining when consolidated statements must be prepared. Therefore, if the Seventh Directive does not require consolidated financial statements, a parent company can prepare its separate financial statements using IFRSs. The Commission's view is that "the IAS 27 requirements to prepare consolidated accounts do not apply." Click for Commission's Opinion (PDF 25k).
- Can a company that prepares both individual and consolidated accounts in accordance with IFRSs adopted for use in Europe issue the individual accounts before issuing the consolidated accounts? In rejecting an agenda topic in March 2006, the IFRIC concluded that separate financial statements issued before consolidated financial statements could not be considered to comply with IFRSs, because separate financial statements are required by IAS 27 paragraph 42 to identify the consolidated financial statements to which they relate. However, the European Commission has concluded that the interpretation under the EU IAS Regulation is different. If a company chooses or is required to prepare its annual accounts in accordance with IFRSs
as adopted by the EU, it is permitted to prepare and file them independently from the preparation and filing of its consolidated accounts – and thus in advance – where the national law transposing the Directives requires or
permits separate publication. Click for Commission's Opinion (PDF 25k).
March 2007: ICAEW studies IFRS implementation in Europe
The European Commission has asked the Institute of Chartered Accountants in England and Wales (ICAEW) to analyse the implementation of IFRSs across the EU. The project team, which is led by David Cairns, is reviewing the IFRS consolidated financial statements of 200 stock exchange listed companies. The project team would like help in identifying non-listed companies that have published IFRS consolidated financial statements or IFRS legal entity financial statements. It also is keen to hear from EU companies (or their auditors) that have used fair value accounting for financial instruments in national GAAP financial statements (as permitted by the Fair Value Directive). The ICAEW study will also incorporate the views of preparers, users, and auditors of IFRS financial statements as well as the experiences of securities and other regulators. David Cairns is keen to hear from EU companies that have implemented IFRSs, auditors who have audited IFRS financial statements, and investors, lenders and analysts who have had to use IFRS information. Further information about the project, including contact details, can be found on the Project's Web Page.
March 2007: PCAOB Chairman, EU Commissioner discuss auditor oversight
Mark Olson, Chairman of the US Public Company Accounting Oversight Board, and Charlie McCreevy, EU Commissioner for Internal Market and Services, met on 6 March 2007 to discuss steps to enhance cooperation between the PCAOB and European auditor oversight bodies and advance collaborative efforts in 2007. Chairman Olson and Commissioner McCreevy agreed to launch "roadmap discussions on cooperation between the PCAOB and EU regulators". They have mandated their staff to commence work and will review progress at their next meeting. The goal is to enable the PCAOB and EU auditor regulators that have independent and rigorous oversight systems to move toward full mutual reliance by 2009. Both sides will take stock and review progress in October 2007. Click for PCAOB Press Release (PDF 59k). An excerpt:
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Currently, there are over 760 non-US firms from 83 countries registered with the PCAOB, including approximately 265 firms located in the European Union, some portion of which will be subject to inspection. Once registered with the PCAOB, non-US firms meeting certain criteria are subject to the inspection requirements of the Sarbanes-Oxley Act. Similarly, under the European Union's new Directive on Statutory Auditors, certain non-European audit firms will be required to be inspected by European regulators unless their home-country system is considered to be equivalent to the public oversight requirements set forth in the Directive
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March 2007: Commission adopts company transparency regulations
The European Commission has adopted measures supplementing the EU Transparency Directive. The goal of these supplementary measures is to "improve the quality of information available to investors on companies' performance and financial position as well as on changes in major shareholdings". The new regulations relate to:
- issuers' disclosure of financial information in half-yearly reports;
- investors' disclosure of major holdings;
- minimum standards for the pan-European dissemination of regulated information to the public; and
- minimum requirements for accepting equivalence of third-country regulations in respect of some elements of the Directive.
Member States are required to write the Transparency Directive into their national laws by 20 January 2007, and the implementing measures a year later. The Commission has also launched a consultation on the design of a possible network of national mechanisms to store regulated financial information, as envisaged by the Transparency Directive.
Click for:
March 2007: CESR report on 'equivalence' of CA, JP, US GAAPs
The Committee of European Securities Regulators (CESR) has published a report that responds to a request from the European Commission for information about three matters:
- CA, JP, US work plans. The work plans and timetables of the Canadian, Japanese, and US accounting standard setters toward convergence with IFRSs. CESR did not evaluate the progress toward convergence but, rather, collected information "available from public sources".
- Equivalence definition. A recommended definition of equivalence. CESR concludes that "the criteria for deciding equivalence should be that investors should be able to make a similar decision irrespective of whether they are provided with financial statements based on IFRSs or on third country [non-EU] GAAP". However, CESR notes that the definition is only one part of the framework for assessing equivalence. Equivalence also requires reliable (a) "filters at country levels for ensuring market confidence", (b) audit assurance, and (c) enforcement to ensure that the non-EU GAAPs are applied and complied with properly.
- Use of 'third country' GAAPs. A summary of which third country (non-EU) GAAPs are currently used in the EU regulated markets. CESR found that at least 33 different non-EU national GAAPs are used on EU regulated exchanges. Click for Table Derived from CESR Report (PDF 17k). CESR also identified around 130 non-EU issuers using Member States' GAAPs, such as UK GAAP. CESR did not find any legal requirements in EU Member States to reconcile non-EU GAAPs with IFRSs.
Click to Download the Entire Report (PDF 866k), which is titled CESR's advice to the European Commission on the work programmes of the Canadian, Japanese and US standard setters, the definition of equivalence and the list of third country GAAPs currently used on the EU capital markets.
March 2007: EC accounting strategy for 2008 will focus on SMEs
In a speech yesterday to the European Parliament's Legal Affairs Committee, Charlie McCreevy, the European Commissioner for Internal Market and Services, outlined the Commission's internal market policy strategy for 2008. He noted that the strategy focuses on three areas – patents, company law, and accounting and auditing – and that the accounting strategy focuses on SMEs. Click for Commissioner McCreevy's Remarks (PDF 83k). An excerpt:
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It should not come as a surprise that we need to reduce the administrative burdens in the areas of company law, accounting and auditing. The basic features of the market have changed: new technologies, the introduction of the Euro, enlargement, globalisation and demographic developments have dramatically affected the overall context of European integration and brought about considerable pressure to adapt. The legal environment has also evolved with the adoption of international standards in the field of accounting and auditing and the development of the jurisprudence of the Court of Justice....
In the field of accounting and auditing, we are focusing on the possibilities of reducing costs for SMEs. Of course, we need to keep improving the quality of accounting and auditing in the EU. However, the existing rules demand administrative work which companies, and particularly small and medium-sized ones, find sometimes unnecessarily burdensome. Our job is to reconcile these different interests in the best possible way.
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April 2007: IFRS matters discussed at ARC's 16 March 2007 meeting
The European Commission has posted a summary of the discussions at the Accounting Regulatory Committee and Contact Committee on 16 March 2007. Click to Download the ARC Meeting Summary (PDF 59k). Presented below is a brief summary of selected IFRS-related matters discussed.
- IFRIC 12 Service Concession Arrangements. Views of ARC members were divided regarding whether the ARC should recommend endorsement, including possibly some type of transitional modification of IFRIC 12 for use in Europe. The ARC decided to continue consideration of endorsement at its 6 June 2007 meeting. Meanwhile ARC members were invited to put their views in writing by 30 April 2007.
- Effective dates of IFRSs. The Commission Services presented the issue of suitable wording for the date of application of IFRSs and IFRICs adopted in Commission Regulations. Two alternatives were discussed. Member States appeared to unanimously support the following approach for the 'date of applicability' clause in the endorsing Commission Regulations endorsing IFRSs and IFRICs: The endorsed IFRS or IFRIC should apply to the company's first financial year beginning after a specific date.
- Roundtable for Consistent Application of IFRSs in Europe. The Commission Services reported on discussions at the three Roundtable meetings that have taken place to date (May and September 2006, January 2007). Twenty-six issues have been discussed of which five have been concluded as being of common concern regarding consistent application of IFRS in Europe.
- CESR experience in IFRS implementation. The Committee of European Securities Regulators (CESR) will publish, in 'early summer', a report giving a general overview of issues. Another report with information on about 20 enforcement decisions taken by EU Regulators is expected to be published by the end of March 2007. Some CESR members have also
issued reports on IFRS application at a national level.
- IFRS branding. The ARC discussed an IASB plan to modify IAS 1 to require companies to disclose any differences between full IFRSs and the company's reporting framework if that framework is based on, but not fully compliant with, full IFRSs. The ARC considered such matters as:
- >Whether the differences between IFRSs as adopted by the EU and full IFRSs are likely to be so material that they merit a disclosure in the accounts.
- Whether the SEC's requirement for reference to full IFRSs is in accordance with the principle of the mutual recognition of EU-US accounting standards.
- Whether there is a need for a standard formulation for those companies using the carve out (a standardised description of the differences).
- Equivalence of IFRSs and Third-Country GAAP. The Commission Services described the key points to be covered in its first report to the European Securities Committee and European Parliament under the two legislative measures adopted in late 2006. It will describe the work timetables towards convergence to IFRSs in Canada, Japan, and the US.
- Simplification of accounting rules for small and medium-sized entities (SMEs) – possible revision of the 4th and 7th Directives. The ARC discussed a range of issues relating to SMEs, including introduction of a category of 'micro entities' and relieving small entities of any requirement to publish annual accounts. Regarding the IASB's Proposed IFRS for SMEs: "The majority of Member States confirmed that the exposure draft of the IFRS SME standard would not be suitable for most SMEs in Europe, as it does not contain enough simplifications. Member States also explicitly expressed their opposition to making a future SME standard binding for non-listed companies in the EU."
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April 2007: Minutes of first SARG meeting posted
The European Commission has posted the minutes of the first meeting of the Standards Advice Review Group (SARG), which was held on 2 March 2007 in Brussels. The SARG's role is to assess whether the endorsement advice given by the EFRAG is well balanced and objective. The SARG will deliver its advice to the Commission normally within three weeks. The final advice will be published on the Commission's website. Click to download Minutes of SARG 2 March 2007 Meeting (PDF 32k). These minutes describe the EC's process for endorsing IFRSs as follows:
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Endorsement process starts as soon as COM receives a new IFRS standard or IFRIC interpretation from the IASB. COM then asks EFRAG for its endorsement opinion and notifies members of the Standards Advice Review Group that the endorsement advice has
been requested indicating the approximate time of its delivery. Upon delivery of EFRAG's final opinion on endorsement, Standards Advice Review Group has three weeks to give its advice to the Commission. In exceptional circumstances this may be extended to four weeks.
The role of the Group is to assess whether EFRAG's opinion on endorsement is well-balanced and objective.
After COM receives EFRAG's opinion and advice of SARG, it will draft the endorsing Regulation, with standard or interpretation in its Annex. Together with all required documents it will be sent for consultation with other Commission services – so-called Inter-service consultation.
COM will also send this Regulation to members of the Accounting Regulatory Committee and schedule a meeting of the Accounting Regulatory Committee to vote on proposal for endorsement. Accounting Regulatory Committee (ARC) is composed of representatives from Member States and is chaired by the Commission.
The role of ARC is to ensure the formal representation of Member States interests in the endorsement process under so-called Comitology procedure. Accounting Regulatory Committee approves implementing measures by qualified majority.
Draft implementing measures should be also sent to the European Parliament two months
before the meeting. After the meeting, the EP has another one month to consider whether the
Commission has exceeded its implementing powers.
These comitology rules will be modified in the future. IAS Regulation will be amended to
include a new 'regulatory procedure with scrutiny'. Under this new procedure the
Commission will, after obtaining Accounting Regulatory Committee's favourable opinion,
submit the draft measure for scrutiny by the EP and the Council. The new procedure will
extend the time for EP and Council to react to 3 months, unless a fast track procedure will be
adopted.
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Next SARG meetings are 12 April 2007 (focus on IFRIC 12, minutes not yet published) and 3 July 2007.
April 2007: Extracts of European IFRS enforcement decisions
The Committee of European Securities Regulators (CESR) has published extracts from its database of enforcement decisions taken by EU National Enforcers participating in European Enforcers Co-Ordination Sessions (EECS). EU National Enforcers of financial information monitor and review financial statements and consider whether they comply with IFRSs and other applicable reporting requirements, including relevant national law. Click for:
April 2007: Commissioner McCreevy comments on IFRSs
European Commissioner Charlie McCreevy recently addressed a meeting of the Hundred Group of Finance Directors
on the subject of International Financial Reporting Standards (IFRSs) and their implementation in the European Union. Click to download Commissioner McCreevy's Remarks (PDF 102k). Excerpts:
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The Commission welcomes the various steps already taken by CESR (Committee of European Securities Regulators) to ensure an EU wide approach [to consistent implementation of IFRSs]. The Commission has also set up an informal 'Roundtable' to assist. This Roundtable is a forum where all interested parties can discuss practical application problems relating to IFRS. Issues of widespread concern can, if necessary, be referred to IFRIC for interpretation. However, it is clear that we do not want an EU body providing interpretations and guidance. This runs counter to the whole philosophy of worldwide principles-based standards....
My firm view is that the principles-based nature of IFRS must be maintained. The convergence agenda must not be used to introduce US rules-based GAAP by the back door. In order to try and ensure a balanced evolution, we are insisting on proper
consultation on the convergence programme and projects between the IASB and the FASB. We have made it clear that joint convergence projects must be subject to full due process with all stakeholders.
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April 2007: CEBS proposes to amend its IFRS Guidelines
The Committee of European Banking Supervisors (CEBS) has invited comments on proposed amendments to its
Guidelines on Financial Reporting. Those Guidelines are intended to be used by banking groups when preparing their financial reports based on IASs/IFRSs as required by the Supervisory Authorities within the European Union. The Guidelines were originally approved in December 2005 and revised in December 2006. One of the proposed amendments to the Guidelines on Financial Reporting incorporates the option recently added to IAS 19 Employee Benefits to allow entities the option of recognising actuarial gains and losses in full in the period in which they occur, outside profit or loss, in a statement of recognised income and expense. The current Guidelines do not provide for this option. The CEBS is also proposing a number of other changes. Responses are requested by 20 May 2007. Click for:
April 2007: CESR consults on national GAAP IFRS equivalence
The Committee of European Securities Regulators (CESR) is seeking technical advice on a mechanism for
determining the equivalence of the generally accepted accounting principles of non-EU countries with IFRSs. Under EU law, non-EU ('third country') issuers trading on an EU-regulated market must, starting in 2009, follow either EU-endorsed IFRSs or their national GAAP if that GAAP has been deemed equivalent to IFRSs. The decision on whether a national GAAP is equivalent rests with the European Commission. The Commission has asked CESR for advice regarding the definition of equivalence and a mechanism for determining equivalence. CESR has invited comments on its proposed mechanism.
The key elements of CESR's proposed mechanism for determining equivalence are:
- The process for determining equivalence should be initiated by an application to the European Commission by the national standard setter (NSS) seeking equivalent status of its accounting principles. The application should include an honest assessment of whether disclosures and measurement principles required by that country's GAAP are materially the same as IFRSs and where they are not an assessment of the differences.
- If the NSS concludes that there are no significant differences (for example because a convergence programme has reached a point where no material differences exist any more), such GAAP may be deemed equivalent without the need of additional 'rectification disclosures'.
- Even if the NSS concludes that there are significant differences, the third country GAAP may be considered equivalent to IFRSs if those differences can be 'rectified' at company level by non-complex disclosures. Those non-complex disclosures should be subjected to audit.
- Prior to giving any advice to the Commission, CESR would seek reactions from market users regarding the third country GAAP and the proposed rectifications via public consultation.
- An 'overall' assessment of equivalence should be made in the final instance by the European Commission via a comitology process once all other steps have been fulfilled and using the definition of equivalence CESR has already provided.
- For the purposes of establishing equivalence, CESR assumes that third country GAAPs are properly applied including the provision of any rectifying disclosures necessary. CESR further assumes that the necessary filters for ensuring market confidence are in place for third country issuers using or participating in the EU capital markets.
- Finally, CESR considers that the assessment of the reliability of the audit of the financial statements should be another step in the mechanism. Compliance with the 8th Directive should be a relatively easy thing to establish about any jurisdiction that is applying for its GAAP to be recognised as equivalent.
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Comments are requested by 8 May 2007. Click to download:
April 2007: UK-US will share information on application of IFRSs
The United Kingdom Financial Reporting Council (FRC), the US Securities and Exchange Commission (SEC), and the UK Financial Services Authority (FSA) have signed a protocol for implementing the Work Plan that was agreed in August 2006 between the SEC and the Committee of European Securities Regulators (CESR) for sharing information on the application of International Financial Reporting Standards by issuers listed in the UK and the US. The staff of the FRC and the SEC will share, on a confidential basis, information on the application of IFRSs in the financial statements of issuers listed in the UK and registered with the SEC. The FRC is charged with reviewing issuers' published financial statements in the UK. Click for:
April 2007: European Parliament resolution opposing IFRS 8
The Economic and Monetary Affairs Committee of the European Parliament has proposed a Parliamentary resolution that:
- expresses significant concerns about the adoption of IFRS 8 Operating Segments in Europe;
- calls on the European Commission to urgently carry out an in-depth impact assessment before endorsing the standard; and
- states that, should the Commission fail to carry out the assessment, Parliament will carry out its own impact assessment.
Among the Committee's concerns about IFRS 8 are the following:
- Changing from IAS 14 to IFRS 8 is a move "from a regime which clearly defines how listed EU companies should define and report on segments to an approach that permits management itself to define operating segments as management finds suitable and which furthermore requires a lower level of disclosure".
- IFRS 8 should, but does not, include a defined measure of segment profit or loss, as IAS 14 does.
- IFRS 8 does not require companies to use IFRS measures in their disclosures about operating segments, which may have a negative impact on the comparability of financial information and thus may pose difficulties for users (for example, investors).
- Adopting IFRS 8 would "import into EU law an alien standard [SFAS 131] without having conducted any impact assessment".
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Click to download the Draft Resolution (PDF 89k) proposed by the Economic and Monetary Affairs Committee of the European Parliament. Voting on the resolution was postponed until the Parliament's September meeting.
April 2007: European Commission report on IASB/IASCF governance
The European Commission has posted on its website a report on Governance Developments in the IASB and IASCF (PDF 49k). The report was submitted to the EU's Economic and Financial Affairs Council (ECOFIN). The report had been prepared in December 2006. The report acknowledges that "significant improvements have been made in the IASC/IASB governance structures", but also highlights the following "main areas where further improvement is desirable":
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- Firstly, concerning the governance structure of the IASCF/IASB, the Commission believes that further amendments would improve the accountability of the Board and of the Trustees to their constituents, in particular those jurisdictions which apply IFRS.
- Secondly, as regards the IASB's due process with stakeholders, strengthened consultation procedures are necessary, in particular for IFRIC. In particular, the IASB should explain, preferably in writing, the reasons for not taking into account comments made by stakeholders. In addition, the credibility of standards would be further enhanced by impact assessment and field testing procedures.... [Also] the IASB could usefully intensify its informal liaison relationships with national standards setters and preparers....
- Thirdly, on the issue of adequate representation of stakeholders in governing bodies of the IASCF/IASB, the composition of these bodies should ensure adequate representation and experience from countries and regions committed to use of IFRS.
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April 2007: EU President Barroso speaks on EU/US convergence
In a Speech at the New York Stock Exchange (PDF 51k) yesterday, Jose Manuel Barroso, President of the European Commission, discussed transatlantic relations and next week's EU-US Summit in Washington. Mr Barroso spoke of the need to address existing, unnecessary barriers posed by divergent regulations and to avoid the emergence of new ones. He referred specifically to Transatlantic accounting and auditing issues:
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It is my hope that by 2009, we will jointly be in a position to recognise the equivalence of accounting standards between the EU and US. This will reduce costs and make it easier for companies to list themselves wherever they see fit.
It is my hope the EU and the US will quickly reach a point where we can rely on each other's auditing oversights' systems and avoid burdensome and costly duplicative work and even conflicts of law.
It is my hope that we will be able to look closely at how we regulate securities' markets in the EU and the US. We share the same goals: adequate investor protection and market integrity. If we find that these goals are effectively met on both sides of the Atlantic, we should reflect on the conditions that could allow the mutual recognition of our rules.
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April 2007: CESR-SEC discuss IFRS-US GAAP and information sharing
The heads of the US Securities and Exchange Commission and the Committee of European Securities Regulators (CESR) met on 27 April 2007 in Brussels to take stock of progress on the SEC and CESR Joint Financial Reporting Work Plan that was published in August 2006, and to discuss future collaboration. The discussion focused on developments in the United States and the European Union with respect to IFRSs and US GAAP issues. The chairs of the SEC and CESR also agreed in principle, subject to final approval by their respective bodies, to a template for bilateral protocols between the SEC and each of CESR's member jurisdictions covering the confidential exchange of information regarding dual-listed issuers. Click for SEC Press Release (PDF 37k).
June 2007: EU adopts IFRIC 10 and IFRIC 11 for use in Europe
The European Union has published two Commission Regulations in the Official Journal of the EU, thereby adopting IFRIC 10 and IFRIC 11 for use in Europe:
- Regulation (EC) No 610/2007 (PDF 45k) amending Regulation (EC) No 1725/2003 of 01 June 2007 adopting IFRIC 10 Interim Financial Reporting and Impairment.
- Regulation (EC) No 611/2007 (PDF 53k) amending Regulation (EC) No 1725/2003 of 01 June 2007 adopting IFRIC 11 IFRS 2 – Group and Treasury Share Transactions.
June 2007: European Commission seeks input on IFRS 8 Operating Segments
The European Commission is conducting a public consultation regarding the endorsement of IFRS 8 Operating Segments before finalising a report on the potential impact of endorsement for submission to the European Parliament in September 2007. The Commission seeks input from a broad range of constituents, including preparers, users, auditors, standard setters, and academics, via a questionnaire that it has posted. Responses to the questionnaire are due by 29 June 2007. Click to Download the Questionnaire (PDF 33k). The eight questions to which the Commission is seeking responses are set out below:
- Question 1: Please indicate whether you submitted comments to IASB and/or EFRAG during their
consultations.
- Question 2:
- a) Do you think information prepared under the management approach on which IFRS 8 is based is more relevant, reliable, comparable, understandable and useful than information prepared under IAS 14?
- b) Do you think that information prepared under the management approach improves the true and fair representation of business activities?
- c) Are you of the opinion that segment information based on the management approach provides greater accuracy for measuring individual segments and ultimately results in greater forecast precision than segment information based on IAS 14?
- Question 3:
- a) Do you assess that cost for preparation of information is lower under IFRS 8 than under IAS 14?
- b) Do you think that the cost/benefit balance of replacing IAS 14 by IFRS 8 is positive (e.g. lower cost outweighing the potentially lower quality of information provided or potentially higher quality of information provided outweighing higher cost)?
- Question 4: Do you consider that the principles on which IFRS 8 is based, in particular the fact that
information for segment reports should be prepared through the eyes of the 'chief
operating decision maker', would pose problems on established EU practices, e.g. in the
area of corporate governance?
- Question 5: Do you agree with the argument that IFRS 8 requires smaller listed companies to report a
segment by segment analysis of their business including commercial sensitive
information with the effect that competitiveness of smaller listed companies in the EU
will be harmed? Please provide reasons for your view and indicate how far that
constitutes a change compared to the requirements of IAS 14.
- Question 6:
- a) Do you believe that the lack of mandatory requirements for full segment information on a geographical basis in IFRS 8 gives sufficient reason for a non-endorsement decision?
- b) Do you believe that other mandatory requirements for segment information are missing in IFRS 8 (compared to IAS 14)? If yes, which ones?
- Question 7: Can you provide any information that has been generated by field studies, research work,
internal analysis carried out in your organisation, jurisdiction?
- Question 8: If you have any further comments on this consultation please provide them to us .
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June 2007: CESR proposal for assessing IFRS 'equivalence'
The Committee of European Securities Regulators (CESR) has submitted to the European Commission recommendations for a mechanism for determining the equivalence of the generally accepted accounting principles of third countries (non-EU countries) to IFRSs as adopted in the EU. The key elements in CESR's proposal are:
- The national standard setter (and/or another suitable public body) in a country seeking equivalent status should assess whether that country's required disclosures, measurement and recognition principles, and financial statement presentation are materially the same as IFRSs and where they are not, assess the differences.
- If there are no significant differences between the third country GAAP and IFRSs, such GAAP may be deemed equivalent without the need for additional rectification disclosures.
- Even if significant differences exist, the third country GAAP may be considered equivalent to IFRSs if those differences identified can be rectified at company level by non-complex disclosures. Those additional non-complex disclosures should be subject to audit.
- Prior to giving any advice to the Commission on whether to accept an equivalence assessment, CESR would seek reactions from market users regarding the third country GAAP and the proposed rectifications via public consultation.
- Once all other steps have been fulfilled, and using the definition of equivalence CESR has already provided, an 'overall' assessment of equivalence should be made in the final instance by the European Commission via a comitology process.
- For the purposes of establishing equivalence, CESR assumes that third country GAAPs are properly applied including the provision of any rectifying disclosures necessary. CESR further assumes that the necessary filters for ensuring market confidence are in place for third country issuers using or participating in the EU capital markets.
- Finally, CESR considers that an assessment of the reliability of the audit conducted on the financial statements of issuers using an equivalent GAAP should be a step in the mechanism.
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In addition to its proposed mechanism for determining equivalence, CESR suggests the European Commission considers extending the existing transitional measures for those GAAPs currently converging to IFRS if certain conditions are met. Should the Commission adopt such transitional measures, CESR would recommend they not be extended beyond 2012. A CESR study earlier this year found that at least 33 different non-EU national GAAPs are used on EU regulated exchanges. Click to download:
June 2007: CEBS plans for maintaining guidelines based on IFRSs
In our News Story of 22 April 2007, we reported that the Committee of European Banking Supervisors (CEBS) invited comments on proposed amendments to its Financial Reporting Guidelines (FINREP) (PDF 381k). Those Guidelines are used by European banks in preparing their supervisory reports based on IFRSs. The CEBS has recently published an Updated Report to the EU Financial Services Committee (FSC) (PDF 1,107k)
indicating that CEBS does not plan to add any major new reporting guides "in the next several years". However CEBS plans to update the guidelines annually, as necessary, to reflect changes to IFRSs.
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In response to the industry's request, no major new requirements are planned in the next few years, in order to avoid undue
repetitive implementation costs (although CEBS will keep the FINREP framework up to date with changes on IFRS/IAS, so that
institutions do not have to use two frameworks: one that is IFRS compliant, and the other that is not. As a rule of thumb, these types of changes will be made on an annual basis).
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June 2007: Some concern about the SEC's reconciliation proposal
In a joint press release, two leaders of the committee within the European Parliament that has responsibility for oversight of accounting matters have expressed some concern about the way the SEC has proposed to eliminate the required reconciliation to US GAAP for foreign registrants that use IFRSs. They want to "ensure that the role legislators play in international accounting standard setting is not undermined.". Click to Download the Press Release (PDF 72k).
June 2007: Minutes of ARC meeting 6 June 2007
We have posted the Minutes of the Accounting Regulatory Committee Meeting of 6 June 2007 (PDF 59k). Topics discussed included:
- IFRIC 12 Service Concession Arrangements
- Equivalence of IFRS and National GAAPs
- IFRS 8
- Standards Advice Review Group Activity
- Relationship between IAS Regulation and 4th and 7th Directives
- IASB Governance and Funding
- Simplification of Accounting Rules for SMEs
June 2007: European paper on stewardship as a financial reporting objective
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The European Financial Reporting Advisory Group (EFRAG) and a number of other European accounting standard-setters – under the lead of the UK Accounting Standards Board (ASB) – have today published a brief paper discussing the rationale for including stewardship, or directors' accountability to shareholders, as a separate objective of financial reporting. The paper notes that the IASB and FASB proposed in their July 2006 Discussion Paper (DP) Preliminary Views on an Improved Conceptual Framework for Financial Reporting that the converged framework should specify only one objective of financial reporting, that of 'decision-usefulness' for resource allocation. They argued that this objective 'encompasses providing information useful in assessing management's stewardship'. The European paper seeks to demonstrate that: |
- there is a broad consensus amongst the majority of the respondents that the stewardship/accountability objective should be a separate objective of financial reporting;
- stewardship/accountability is linked to agency theory and is a broader notion than resource allocation as it focuses on both past performance and how the entity is positioned for the future. It should therefore be retained as a separate objective of financial reporting to ensure that there is appropriate emphasis on company performance as a whole and not just on potential future cash flows; and
- stewardship/accountability has implications for financial reporting which can be demonstrated by way of examples.
Click to Download the Paper (PDF 1,021k).
July 2007: ECOFIN will discuss IASB governance and funding
The European Union Council of Economy and Finance Ministers (ECOFIN) will meet on Tuesday 10 July 2007 in Brussels. On the Agenda of the ECOFIN Meeting (PDF 123k), among other matters, is the "governance and funding of the International Accounting Standards Board (IASB) and International Accounting Standards Committee Foundation (IASCF)". The Ministers are expected to adopt a broad range of conclusions on governance, addressing such matters as
- IASB consideration of comments from the Roundtable on Consistent Application of IFRSs in the EU
- ex-ante impact analyses for new standards and ex-post analyses of the impact and functioning of issued standards and interpretations
- geographical balance in all key committees of the IASB/IASCF structure
These and other related matters were addressed in a Report on Governance Developments in the IASB and IASCF (PDF 49k) published by the Commission in April and submitted to ECOFIN. That report acknowledges that "significant improvements have been made in the IASC/IASB governance structures" but also highlights a number of "main areas where further improvement is desirable".
July 2007: Report to ECOFIN on IASB governance and funding
The staff of the European Commission has released its second report on governance and funding developments in the IASB and the International Accounting Standards Committee Foundation. Click to Download the EC Report (PDF 122k, June 2007). Presented below are the report's conclusions.
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The Commission welcomes recent announcements of the IASCF/IASB and the steps taken in order to address governance concerns. In particular, the Commission welcomes measures taken to establish a more effective interface between the Trustees and the IASB, and to put in place a framework to provide impact assessment studies for new standards, the commitment to provide appropriate feedback to comment letters, abolition of the IFRIC agenda Committee, reinforcement of administrative capacities of IFRIC and ongoing analysis of efficiency of SAC.
However, it remains to be seen how the IASCF/IASB will apply these changes in practice, in particular on impact assessment, feedback to comment letters and on SAC, so as to guarantee proper due process and accountability towards stakeholders. It is also very important that the comments from the Roundtable on consistent application of IFRS are taken into account in work of the IASB on standards and interpretations.
The Commission also considers that in addition to ex-ante impact assessments, it is equally important that the IASB makes a proper ex post analysis of already adopted standards and interpretations to determine whether their functioning in practice is appropriate and whether they provide relevant information to users.
As regards the legitimacy of the endorsement process for IFRSs and IFRICs in the EU, it is important that Member States and the European Parliament are informed about intention of the IASB to adopt new standards at early
stages. The Commission therefore invites members of the Board to appear regularly (2 or 3 times a year) before Member States and the European Parliament to present standards, which are on its work programme.
As concerns implementation of new funding scheme, the Commission is encouraged that the collection of funding from private sources is proceeding well. Nonetheless, the Commission urges those Member States which have not acted yet to do so rapidly and underlines the importance of proper diversification of sources and full participation of all interested jurisdictions.
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July 2007: IASB tells Econ Committee that it will conduct post-implementation reviews of standards
Bertrand Collomb, Vice Chairman of the International Accounting Standards Committee Foundation, appeared before the Open Coordinators Meeting of the Economic and Monetary Affairs Committee of the European Parliament
in Brussels on 10 July 2007.
Mr Collomb reported that the IASB will undertake post-implementation reviews of all entirely new IFRSs, major interpretations, and major amendments to existing standards after two full years of implementation. Such reviews would focus on important issues identified as contentious as part of the development of standards and any significant unexpected costs or problems encountered by preparers in implementing the provisions of the standard or by users in analysing the information. This requirement will be in place for any new IFRSs or major amendments to existing standards and major interpretations adopted by the IASB with an effective date beginning on or after 1 January 2009. As part of this process, the IASB will undertake reviews on IFRS 8 Operating Segments, IFRIC 12 Service Concession Arrangements, and any standard to emerge on the business combinations phase two project. Click to Download Mr Collomb's Presentation (PDF 39k).
July 2007: New CEBS guidelines on financial reporting
The Committee of European Banking Supervisors (CEBS) has published final amendments to its Guidelines
for the Implementation of the Framework for Consolidated Financial Reporting (FINREP). The guidelines had been released for public consultation on 20 April 2007 (see our News Story of 22 April 2007).The Guidelines are intended to be used by banking groups when preparing their financial reports based on IASs/IFRSs as required by the Supervisory Authorities within the European Union. The Guidelines were originally approved in December 2005 and revised in December 2006. In announcing the revised Guidelines, CEBS noted:
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CEBS would like to reaffirm again the linkages between the Guidelines and the disclosure requirements established in the International Financial Reporting Standards. This principle is a basic underpinning for CEBS to set up a framework that reduces the reporting burden on supervised institutions but nevertheless allows supervisors to fulfil their prudential responsibilities. In this context, CEBS will monitor future developments in the standards to check whether they have an impact on the current version of the Guidelines.
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September 2007: EU Parliament committee discusses endorsement of IFRS 8
In a presentation to the Committee on Economic and Monetary Affairs of the European Parliament, Charlie McCreevy, the European Commissioner for Internal Market and Services, discussed the endorsement of IFRS 8 Operating Segments for use in the European Union. He presented the Commission's analysis of IFRS 8 and expressed the hope that the Parliament will agree with the Commission that endorsement of IFRS 8 should go ahead. An excerpt from Mr McCreevy's remarks is below. Click to download:
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I am therefore pleased to present our 'Analysis of Potential Effects' on the introduction of IFRS 8 in the EU. Our report is based on a wide-ranging consultation to which more than 200 organisations replied. It focuses on the issues discussed in
ECON last April.
The report concludes that adoption of IFRS 8 would have positive cost-benefit effects. This is in line with the clear majority of answers to our consultations and with most views expressed in discussions with stakeholders. In particular, the report concludes that:
- The use of the 'management approach' in IFRS 8 has an overall positive effect on the quality of segment information, whose usefulness and relevance would increase.
- The increased usefulness and relevance of segment information based on the management approach outweigh concerns expressed about the comparability of financial reports.
- IFRS 8 appropriately addresses the global needs of users of financial statements' for geographical disclosures and, in practice, would not reduce this information by comparison with the 'old standard' IAS 14.
- IFRS 8 does not create problems relating to corporate governance in the EU.
- IFRS 8 provides appropriate segment reporting rules for smaller listed companies. It is in the interest of smaller listed companies to provide the same information as larger companies as the information needs of investors are do not substantially differ according to company size.
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October 2007: CEBS study on adjustments to IFRSs for regulatory reports
The Committee of European Banking Supervisors (CEBS) has published an analysis of adjustments European banks in 28 countries have made to reported IFRS measurements for the purpose of computing bank regulatory capital. CEBS calls these adjustments 'prudential filters'. CEBS adopted the 'prudential filters' 2004. CEBS will present and discuss the report and its conclusions at a public hearing scheduled for 16 October 2007.
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"The analysis shows that the implementation of the prudential filters has improved over time and that a very high level of compliance with the CEBS guidelines has been achieved amongst members.... As concerns the quantitative part of the analysis, the data collected shows that prudential filters moderately reduce total eligible own funds by 0.9% and result in a 5.2% decrease in original own funds, mainly owing to the AFS equity instrument filter recommended by CEBS."
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The CEBS 'prudential filter' adjustments include:
- The boundary between debt and equity. Shares in co-operative entities and certain preferred shares that are liabilities under IFRSs are converted to equity for regulatory capital purposes.
- The boundary between debt and equity. An embedded derivative that constitutes an equity component of a compound financial instrument under IFRSs is classified as part of the liability for regulatory capital purposes.
- Available-for-sale (AFS) instruments. Under IFRSs, all AFS instruments are measured at fair value, with value changes recognised in equity subject to loss recognition for impairments.
- AFS equities. Under IFRSs, all AFS instruments are measured at fair value, with value changes recognised in equity subject to loss recognition for impairments. Under the CEBS guidelines, unrealised losses on AFS equities are deducted, after tax, from original own funds and unrealised gains are only partially be included in additional own funds before tax.
- AFS loans and receivables. Under CEBS guidelines, unrealised gains and losses, apart from those related to impairment, are 'neutralised' (reversed) in own funds after tax.
- Other AFS assets, (for example debt securities and financial instruments subject to interest rate risk). Under CEBS guidelines, a bank may choose to classify these either (a) as equities or (b) as loans and receivables.
- Cash flow hedges. There should be a consistent treatment of gains and losses resulting from a transaction whereby a cash flow hedge is created for an available for sale instrument: if the gains on the hedged item are recognised in additional own funds, so should the results of the corresponding cash flow hedging derivative.
- Loan losses. As a general principle, no regulatory adjustments should be made to impairment losses. Impairment related to credit risks should always be taken into account via the profit and loss account and therefore deducted from original own funds.
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October 2007: Report on first year implementation of IFRSs in EU
The Institute of Chartered Accountants in England and Wales (ICAEW) has published a report for the European Commission on the first year of implementation across the EU of International Financial Reporting Standards and the Fair Value Directive. The study includes a detailed review of the 2005 financial statements of 200 companies from 25 EU member states.
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Principal Components of the ICAEW Study of IFRS Implementation in the EU |
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- analysis of the legal implementation of the IAS Regulation and the Fair Value Directive based on questionnaires sent to interested parties in all member states and subsequent work to try to resolve conflicting responses;
- review of surveys and other literature on EU implementation of IFRS;
- roundtables, principally involving preparers and auditors of IFRS financial statements, held in Dusseldorf, London, Madrid, Paris, Rome and Warsaw and used to test and explore the preliminary findings from our other work;
- an on-line survey which generated usable responses from statistically valid samples of 51 investors, 162 preparers and 141 auditors across 23 member states covering understanding and use of IFRS financial statements, their preparation and
audit, and the incremental costs to companies of applying IFRS;
- a review of regulators' statements on EU implementation of IFRS and selected published correspondence between the SEC and EU companies;
- an academic research paper on the relevance of IFRS information in explaining market prices and stock returns of French, Italian, Spanish and UK publicly traded companies;
- the application of the EU Common Methodology to assess the costs of the IAS Regulation;
- detailed technical analysis of the IFRS consolidated financial statements of a sample of 200 EU publicly traded companies;
- high level technical analysis of IFRS consolidated financial statements of 18 EU non-publicly traded companies; and
- high level technical analysis of IFRS legal entity financial statements of 50 companies.
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Sections of the ICAEW Report on Implementation of IFRSs in the EU |
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- Objectives, terms and approach
- Implementation of the Fair Value Directive
- Implementation of the IAS Regulation
- Views of preparers, users and auditors
- The role of regulators
- The reaction of securities markets
- Costs of implementing IFRS
- IFRS consolidated financial statements of EU publicly traded companies
- IFRS consolidated financial statements of EU non-publicly traded companies
- IFRS legal entity financial statements
- First-time adoption of IFRS
- Fair presentation and accounting policies
- Financial statements presentation
- Fair value accounting
- The use of other options in IFRS
- Consolidated financial statements
- Banks
- Insurance companies
- Extractive industries
- Service concessions
- Intangible assets
- Defined benefit pension plan disclosures
- Share-based payments
- Financial instruments
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Click to download:
October 2007: European study on ownership rules for auditing firms
The Internal Market Directorate of the European Commission has published an independent study on the ownership rules that apply to audit firms and the consequences of those rules on audit market concentration. The study analyses whether changes to the ownership rules of audit firms might help increase the number of international players in the audit market. At present, the European Statutory Audit Directive requires that auditors hold a majority of the voting rights in an audit firm and control the management board. Click to download the EC Press Release (PDF 88k). Click here for Links to Download the Report and an annex of relevant legislative requirements in 18 EU member states.
Key conclusions of the study:
- The audit market for major listed companies is dominated by the Big Four audit firms. For the smaller audit firms, important investments might be necessary over years to expand and to enter the international audit market.
- Analysis of an investment model developed to assess such potential expansion plans indicates that an audit firm owned by external investors, instead of auditors, might take more easily the decision to expand into the market of large audits. One of the reasons is that existing ownership structures may be estimated to increase audit firms' cost of raising capital by perhaps as much as 10%.
- Nevertheless, restrictions on access to capital appear to represent only one of several potential barriers to entry. There are other barriers which also play an important role: reputation, the need for international coverage, international management structures, and liability risk. The impact of liability risk on the cost of capital can be significant and may lead to capital rationing.
- There may also be good reasons for audit firms to stick to their current structures: for example, to retain their human capital. From the regulatory point of view, existing ownership structures have been justified by the necessity to protect independence of audit firms. However, the analysis of the decision-making processes in large audit firms indicates that alternative ownership structures are unlikely to impair auditor independence in practice. Specific conflicts of interest could be dealt with through the establishment of appropriate safeguards.
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November 2007: The role of accounting in a single European market
Charlie McCreevy, the European Commissioner for Internal Market and Services, made a presentation titled Striving for a Single European Market – The Role of Accounting at the Congress of German Public Auditors in Berlin on 7 November 2007. Click to Download Commissioner McCreevy's Remarks (PDF 87k). Here are a few excerpts. With respect to accounting standards Commissioner McCreevy commented:
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A cornerstone for building an integrated single European capital market is the system of accounting standards. For companies to be able to raise capital throughout Europe, and for investors to compare company performance across borders, we need a common reporting language. Some years ago the EU set the course for building an integrated European capital market. We had come to a point where our financial reporting practices no longer met the new requirements for integrated markets. We had to rethink our approach. Finally, we decided to move to International Accounting Standards. That move was bold and visionary.
The changeover to IFRS did not come easy. It took a huge effort from our listed companies, auditors and regulators to adapt to the new accounting environment.
Now, more than two years later we can look back and see how it has gone. A number of studies have been carried out on the first year of IFRS implementation. One of them was issued very recently – that undertaken by the Institute of Chartered Accountants of England and Wales (ICAEW) at the request of the Commission. This study concludes that IFRS implementation has been 'challenging but successful'. Other studies, including the one issued by CESR on the first year of enforcement, convey the same message. Research also shows that the overall quality of accounts and disclosures have improved and that the changeover to IFRS has been achieved without disturbance to the market.
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With respect to the possible adoption of International Standards on Auditing (ISAs) in Europe, Commissioner McCreevy said:
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We are currently considering the merits of introducing ISAs in Europe. Before the end of this year, my services will launch a study on the costs and benefits of introducing ISA's as well as any potential differences with US standards. Once we have some results we shall be able to reassess the situation.
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November 2007: EU Parliament will vote on endorsement of IFRS 8
The European Parliament will vote on Wednesday 14 November 2007 on a Draft Resolution (PDF 98k) that would endorse IFRS 8 Operating Segments for use in Europe. While endorsing IFRS 8, the draft resolution expresses a number of concerns, reservations, and regrets.
November 2007: EU Parliament will vote on 'equivalence'
The European Parliament will vote on Wednesday 14 November 2007 on a Draft Resolution (PDF 121k) that would amend the European Accounting Regulation to allow a non-European company listed on a European regulated securities market to continue to use its national GAAP ('third country' GAAP), rather than IFRSs, in either of the following two cases:
- the third country authority responsible for the national accounting standards concerned has made a public commitment before 30 June 2008 to converge those standards with International Financial Reporting Standards before 31 December 2011 and both the following conditions are met:
- (a) the third country authority responsible for the national accounting standards concerned has established a convergence programme before 31 December 2008 that is comprehensive and capable of being completed before 31 December 2011;
- (b) the convergence programme is effectively implemented, without delay, and the resources necessary for its completion are allocated to its implementation.
- the third country authority responsible for the national accounting standards concerned has made a public commitment before 30 June 2008 to adopt International Financial Reporting Standards before 31 December 2011 and
effective measures are taken in the third country to secure the timely and complete transition to International Financial Reporting Standards by that date, or have reached a mutual recognition agreement with the EU before 31
December 2008.
The decision on equivalence of a country's GAAP to IFRSs will be made by the Commission on a country by country basis, but a further condition is imposed: "The decision of the Commission will have to imply in all cases the right for EU issuers to use in any third-country IFRS as adopted in the EU." Thus it would seem, based on this Resolution, that US companies listed in Europe could not continue to use US GAAP unless the US SEC allows European companies to use 'IFRSs as adopted in the EU'. As of March 2007, the equity securities of 102 US companies and the debt securities of 131 US companies traded in European regulated securities markets.
November 2007: EU Parliament endorses IFRS 8 for use in Europe
The European Parliament voted on Wednesday 14 November 2007 by show of hands in favour of a Draft Resolution (PDF 98k) endorsing IFRS 8 Operating Segments for use in Europe. While endorsing IFRS 8, the draft resolution expresses a number of concerns, reservations, and regrets. Here is the link to the Report of the Vote.
November 2007: EU Parliament resolution on procedure for endorsing IFRSs
In November 2006, the European Parliament amended the process for endorsing IFRSs for use in Europe by adding a new step that requires the European Commission to submit its endorsement proposals to a Committee of the Parliament, known as the Regulatory Procedure with Scrutiny Committee (click here for Details). At its meeting last week, the Parliament considered whether to give the Commission the authority to decide on the applicability of IFRSs "in exceptional and duly justified cases and on imperative grounds of urgency" without the normal 'regulatory procedure with scrutiny' methodology, that is, to allow IFRS endorsements without involvement of the Parliament itself. The Parliament decided not to give the Commission this authority. Instead, the resolution adopted by the Parliament called on all parties to act expeditiously on endorsements. Here is the Parliament Resolution (PDF 110k). An excerpt:
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In view of the fact that the application of the regulatory procedure with scrutiny within the usual deadlines could in certain exceptional situations make it difficult to adopt newly issued accounting standards, amendments to existing accounting standards or interpretations of existing accounting standards in time for them to be applied by companies for the relevant financial year, the Commission, the Council and the European Parliament should act speedily in order to ensure that those standards and interpretations are adopted in a timely manner so as not to undermine investor understanding and thus confidence.
Regulation (EC) No 1606/2002 [the EU IAS Regulation] should therefore be amended accordingly,
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November 2007: IFRS 8 is officially adopted in Europe
On 22 November 2007, the European Union published in the Official Journal of the EU the Commission Regulation (EC) No 1358/2007 (PDF 85k) amending Regulation (EC) No 1725/2003 as of 21 November 2007 to adopt certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council (the IAS Regulation). With that Regulation, IFRS 8 Operating Segments is adopted for use in Europe.
November 2007: EU-US cooperation in financial reporting and auditing
On 27 November 2007l, Charlie McCreevy, European Commissioner for Internal Market and Services, spoke on EU-US Cooperation on Reporting Standards, Audit Oversight, and Regulation at the European Federation of Accountants' Conference on Audit Regulation in Brussels. Among other things, Commissioner McCreevy:
- took a strong stand against future EU 'carve-outs from IFRSs';
- suggested that further changes in IASB governance and processes are needed, but with those changes there should be no need for the EU to 'endorse' each IFRS for use in Europe;
- said that the pace of change in IFRSs should be slowed;
- opposed requiring US GAAP companies trading in EU securities markets to present a reconciliation from US GAAP figures to IFRS amounts; and
- urged the EU and the US to rely on each other's enforcement, supervision, and inspections of audit firms.
Presented below are several excerpts from Mr McCreevy's remarks. Click to Download the Commissioner's Entire Presentation (PDF 72k).
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On whether the SEC should accept IFRSs 'as adopted in the EU'
And still I hear some voices who say this is a poor outcome [SEC dropping the reconciliation for those who use IFRSs as adopted by the IASB]. They think the SEC should have accepted an EU brand of IFRS along with IFRS as adopted by the International Accounting Standards Board or IASB. I am not sure if these critics
suffer from amnesia. Let us not forget the facts here. We in Europe have decided to go for IFRS because we rightly believed in the virtues of having a single accounting language. And when I say 'we' I mean all of us, including the Council of Ministers and the European Parliament. We have been preaching this gospel to our US counterparts for the last five years – asking them with indefatigable stamina to accept IFRS. And we have been very successful apostles indeed. Not only has the US decided to accept IFRS for our firms, they even envisage allowing their firms to use them. So let us be serious here. We have got what we have been asking for. One hundred per cent.
On IASB governance and eliminating the need for EU 'endorsement' of IFRSs
I spent the first 18 months in office fighting against those who wanted an EU standards setter because they were so unhappy
with the IASB. Members of Parliament were lobbied in order to modify proposed standards. That is how we ended up with the carve-out for IAS 39. Since then, there have been improvements in IASB governance and more is needed.
One of the cornerstones of my strategy is that we must be able to accept any future standards without any serious problems. The endorsement of accounting standards needs to disappear from the political limelight. It should not necessarily be a high profile political issue. Therefore, we must make sure that the new standards reflect the real needs of stakeholders. In more concrete words, we need to have a close look at the standard setting process by the IASB: more transparency, better consultations, impact analyses at an early stage, thorough field-testing of any new
standards to avoid unwanted or even unexpected consequences. But above all new standards only where they are really necessary – I shall be very vigilant on that in the future.
On acceptance of US GAAP in EU securities markets without reconciliation to IFRSs
Now it will be Europe's turn to accept accounts in US GAAP. This decision will have to be taken next year. And it is certainly my intention to propose that no reconciliation to IFRS will be needed for companies filing their accounts under US
GAAP. This is the only sensible way forward.
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December 2007: CESR publishes summaries of IFRS enforcement decisions
The Committee of European Securities Regulators (CESR) has published its second batch of extracts from its confidential database of enforcement decisions taken by EU national enforcers of financial information.
From time to time, CESR publishes extracts of selected decisions as a source of information to foster appropriate and consistent application of IFRSs in the EU.
Topics covered in batch #2 of CESR's extracts:
- Amortisation of intangible assets with finite lives included in goodwill
- Excise tax on fuel
- Recognition of negative goodwill
- Deferred tax asset
- Valuation of offshore rigs at the transition date
- Use of the fair value option
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- Segment reporting
- Method of amortising intangible assets
- Change in accounting for employee benefits
- Identification of the acquirer in a business combination
- Real estate projects
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December 2007: CEBS report on Basel Pillar 3 addresses IFRS 7 disclosures
The Committee of European Banking Supervisors (CEBS) has published the findings of a survey on regulatory implementation of disclosures by banks and other credit institutions under EU Directive 2006/48/CE, which transposes the Basel Pillar 3 requirements into EU legislation. The rationale underlying Pillar 3 is that adequate disclosure should allow market participants to assess an entity's capital adequacy. To this end institutions need to disclose information on the scope of application, capital, risk exposures, and risk assessment processes at the highest level of consolidation. The report notes as an 'area of concern' the interrelationship between Pillar 3 disclosures and accounting disclosures under IFRS 7.
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"Dealing with the relationship with accounting is of great importance to ensure that the accounting and Pillar 3 disclosures are to the largest extent consistent or at least not such that they lead to major inconsistency problems."
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The survey found that, at the moment, EU countries have refrained from taking measures (either official or informal) in this respect, though many countries indicated that disclosures made in the public financial statements as a result of IFRS 7 do not need to be repeated for the purpose of Pillar 3 compliance. Two countries said that they may issue guidance on this
matter. Click for:
21 December 2007: European Commission proposals on statutory audits
On 19 December 2007, Charlie McCreevy, the EU Commissioner for Internal Market and Services, released details of Planned Revisions to the Statutory Audit Requirements (PDF 80k) in the European Union. The existing Statutory Audit Directive, also known as the 8th Company Law Directive, was adopted in May 2006. It sets out a framework of principles that Member States are required to implement into their national legislation by 29 June 2008. It also envisages that the European Union will continue to focus on some specific policy areas, such as auditor liability, International Standards on Auditing, inspections of audit firms, and relations with third (non-EU) countries.
Commissioner McCreevy announced his plans regarding the 8th Directive in six areas:
- Auditor liability. Recommendation in first quarter 2008 asking Member States to limit auditor liability. Each Member State would decide the means by which liability is limited – for instance, a liability cap, proportionate liability, or contractual arrangements between the auditor and the audited firm. Liability would not be limited in cases involving wilful misconduct by auditors.
- Restrictions on ownership of audit firms. Public consultation will be launched in the first quarter of 2008.
- Audit quality and inspections. Independent inspections of audit firms that audit listed companies are needed. However, before this could be required, more independent inspectors with sufficient expertise are needed. Meanwhile, the EU should give more responsibilities to the public oversight bodies and, for a transitional period, allow professional bodies and practitioners to take part in the inspection process, with a limited role under the supervision of independent inspectors.
- Implementation of the Statutory Audit Directive. Publish a 'scoreboard' in Spring 2008 showing where Member States stand in implementing the 8th Directive, particularly as regards the establishment of independent public auditor oversight.
- International Standards on Auditing (ISAs). Article 26 of the Statutory Audit Directive allows the Commission to make ISAs mandatory for the European Union. However, the Commissioner's intention is not to make a decision on ISAs at this stage but to look at this issue again towards the end of 2008 – following completion of the IAASB's Clarity Project and studies that the EU will undertake.
- Co-operation with 'third countries'. Under the 8th Directive, Member States are required to register all auditors from outside the EU that audit companies listed in EU markets and to subject them to their systems for overseeing domestic audit firms. However, the Directive allows Member States to exempt auditors from non-EU countries whose oversight system is considered equivalent to the EU system. In January 2008, Commissioner McCreevy will propose transitional measures to allow audit firms from such non-EU countries to continue without registration until 1 January 2011. By then, the EU will complete equivalency assessments of these non-EU oversight systems.
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December 2007: Commissioner updates EU Parliament on accounting matters
In a presentation to the European Parliament's Economic and Monetary Committee in Brussels on 18 December 2007, EU Commissioner for Internal Markets and Services Charlie McCreevy updated the committee on four topics – the EU-US regulatory dialogue, financial turmoil, single market, Single European Payments Area (SEPA). The first topic included an update on accounting matters (below). Click to download Commissioner McCreevy's Presentation (PDF 92k).
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Accounting
On November 15, the US Securities and Exchange Commission took the major decision to allow foreign issuers to file accounts under IFRS without reconciliation to US standards. We have always wanted this. All EU companies listed in the US will benefit. One estimate puts the savings at €2.5bn – and this just for EU companies. This is clear evidence of the benefits of international regulatory dialogues! We must continually make sure that new standards reflect the real needs of
stakeholders. We need to continue to press for improvements in the IASB standard setting process. To avoid unwanted or even unexpected consequences. That means more transparency. Better consultations. Impact analysis at an early stage. Thorough field-testing of any new standards. And rigorous management. We need standards only when they are necessary.
We also need to strengthen further the public accountability of the IASB. That is why last month we issued a statement together with the US SEC, the Japanese Financial Services Authority and IOSCO on key issues where action is needed.
Next year it will be the EU's turn to take the decision to accept US GAAP – and other well developed third country GAAPs. We are working hard together with European securities regulators to determine whether those GAAPs are equivalent to IFRS. We will make a serious and balanced decision – taking into account the competitiveness and attractiveness of our capital markets. As regulators we must help financial markets to function as friction-free as possible.
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December 2007: Notes from the ARC meeting of 20 November 2007
The European Commission has posted to its website the Summary Record (PDF 34k) of the meeting of the Accounting Regulatory Committee (ARC) on 20 November 2007. Topics discussed by the ARC at that meeting included:
- IFRS 8 Operating Segments. Has now been fully endorsed for use in the EU.
- IFRIC 12 Service Concession Arrangements. Commission is conducting an impact assessment, which should be finished by March 2008. An endorsement decision is expected by 'mid-2008'.
- Directive 2006/46/EC and IAS 24 Related Party Transactions. Are they consistent?
- Review of the operation of the IAS Regulation and the Fair Value Directive. The Commission has already published a Report on IAS Implementation Prepared by the ICAEW. A report on implementation of the fair value directive is being prepared.
- Equivalence: IFRSs and Third-country GAAPs. "The Commission Services agreed that EU oversight over IASB needs to be improved as the EU is the main user of the IASB's products.... The Commission Services invited Member States to present ideas in this respect, as regards both the emerging debate on governance of the IASB and the need to strengthen the ability of EU to influence IASB decisions."
The next ARC meeting is scheduled for 5 February 2008.
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