IFRSs in Europe – Events of 2008

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January 2008: CESR consultation on equivalence of national GAAPs and IFRSs

The Committee of European Securities Regulators (CESR) has launched a consultation on the equivalence of Chinese, Japanese, and US GAAPs to IFRSs. The Consultation Paper includes CESR's draft conclusions on such equivalence. Responses to the consultation are requested by 25 February 2008. CESR will hold an open hearing on the issue at its offices in Paris on 21 January 2008. CESR will consider the views received in developing its advice to the European Commission, which CESR expects to submit by 31 March 2008. The Commission plans to make its decisions by 1 July 2008 regarding the equivalence of third country (non-EU) GAAPs under the Prospectus and Transparency Directives. Click for:

Overview of CESR's draft conclusions

United States GAAP. CESR believes US GAAP and IFRS are converging and will continue to evolve on a combined basis to an extent where they are effectively equivalent to each other and would therefore recommend that the Commission finds US GAAP equivalent to IFRS for use on EU markets.

Japanese GAAP. CESR does not necessarily believe itself in a position to comment on the [Accounting Standards Board of Japan's work] programme but has no reason to doubt that the ASBJ may well be able to achieve this objective. It is clear that if the ASBJ is successful in achieving its objectives there is no reason that CESR should not agree to Japanese GAAP being considered equivalent as at that stage all the issues identified in its 2005 advice will have been addressed. Consequently, CESR would recommend that, come June 2008, the Commission should consider Japanese GAAP equivalent, unless there is no adequate evidence of the ASBJ achieving to timetable the objectives set out in the Tokyo Agreement.

Chinese GAAP. CESR would recommend that the Commission postpones a final decision on Chinese GAAP until there is more information on the issues outlined above [essentially, assessment of implementation of new Chinese standards in 2007], because CESR believes that evidence of adequate implementation is important in the context of an outcome-based definition of equivalence.

January 2008: EC adopts an 'equivalence mechanism' to assess non-EU GAAPs

Following a favourable opinion of the European Parliament, the European Commission has adopted Regulation (EC) No 1569/2007 that sets out the way in which the Commission will assess the equivalency of 'third-country' (non-EU) GAAPs to IFRSs as adopted by the EU. If a non-EU GAAP is deemed equivalent, then foreign companies whose securities trade in EU markets would be permitted to use that GAAP in Europe without providing a reconciliation to IFRSs as adopted by the EU. The regulation adopts the following definition of 'equivalence':

Equivalence definition:
The GAAP of a third country may be considered equivalent to IFRS adopted pursuant to Regulation (EC) No 1606/2002 if the financial statements drawn up in accordance with GAAP of the third country concerned enable investors to make a similar assessment of the assets and liabilities, financial position, profit and losses and prospects of the issuer as financial statements drawn up in accordance with IFRS, with the result that investors are likely to make the same decisions about the acquisition, retention or disposal of securities of an issuer.
The Commission would determine the equivalence of a non-EU GAAP on its own initiative or if requested either by an EU member state or upon application of an authority responsible for accounting standards or market supervision of a non-EU country.
Special provisions through 31 December 2011:
The regulation provides that for a limited period ending 31 December 2011, the Commission may continue to accept non-EU GAAPs that are not currently deemed equivalent to IFRSs as adopted by the EU if either:
  1. that country's accounting standard setter has made a public commitment before 30 June 2008 to converge their standards with IFRSs before 31 December 2011 and both of the following conditions are met:
    • that country has established a convergence programme before 31 December 2008 that is comprehensive and capable of being completed before 31 December 2011, and
    • the convergence programme is effectively implemented, without delay, and the resources necessary for its completion are allocated to its implementation.
  2. that country has made a public commitment before 30 June 2008 to adopt IFRSs before 31 December 2011 and measures are in place to ensure a timely transition, or has reached a mutual recognition agreement with the EU before 31 December 2008.
Click for:

February 2008: EU Parliament committee report on the IASB

At its meeting on 29 January 2008, the Committee on Economic and Monetary Affairs of the European Parliament adopted a Report on International Financial Reporting Standards (IFRS) and the Governance of the IASB (PDF 177k). Among the conclusions in the report are:

EU involvement in standard setting
  • The tools the EU has for making its views known to the IASB (ARC and EFRAG) "do not allow it to deal on an equal footing" with countries with more centralised structures (FASB and the SEC in the United States and the ASBJ and FSA in Japan). Accordingly the report calls on the Commission to put forward a proposal for creating a more streamlined EU structure, including possibly abolishing some existing bodies.
  • The European Parliament should be involved earlier in the process for endorsing IFRSs for use in Europe.
  • Carve-outs should be a 'last resort'.
IASB structure and due process
  • 'The IASCF/IASB lack transparency, legitimacy, accountability and are not under the control of any democratically elected parliament or government'. The report recommends that 'a debate should be launched on the conditions for integrating the IASCF/IASB into the system of international governance' such as the IMF, World Bank, or OECD.
  • A public oversight body should be established to oversee the IASCF and the IASB. It should involve 'all IASCF/IASB public stakeholders including in particular legislators and supervisors'. That group would report annually 'on the functioning of international accounting standard setting' and would appoint IASCF trustees.
  • The IASB should strengthen its due process 'so that the views of all IFRS users and investors are taken into account'.
  • The process for appointing members of the IASB, SAC, and IFRIC must be improved.
  • Carve-outs should be a 'last resort'.
IASB standard setting
  • IASCF trustees should be more involved in supervising the IASB and its work plan.
  • The European Parliament should be involved 'in drafting the work plan and in setting the priorities and direction of new standard setting projects'.
  • The IASCF constitution should 'ensure that the IASB develops accounting solutions that are not only technically correct but also reflect what is necessary and possible from the point of view of all users (investors and supervisors) and preparers'.
  • IASB should carry out impact assessments for all projects.
  • An accounting standard 'should be drawn up or modified only when 'it has been ensured that there is a clear and beneficial need for it.
  • There are a number of technical issues on IASB's agenda that are of particular concern to the Committee (the report comments on these individually).
  • The IASB should limit the scope of fair-value principle.
  • The proposed IFRS for SMEs 'is far to complicated for SMEs'. The Commission should undertake a comprehensive consultation process to assess the appropriateness of applying the IFRS for SMEs in Europe.
  • The chairpersons of the IASCF and the IASB should report to the European Parliament at least once a year on such matters as work programme, staff decisions, funding, and controversial standards.

February 2008: CEBS finds Swiss and US bank supervision equal to Europe's

The European Union Capital Requirements Directive and the Financial Conglomerates Directive require EU member states' supervisors to assess whether the third country parent institutions of EU subsidiaries are subject to supervision that is 'equivalent' Europe's. To avoid duplication of work, the European Commission asked the Committee of European Banking Supervisors (CEBS) together with the Committee of European Insurance and Occupational Pensions (CEIOPS) to assess the equivalence of certain third country supervision. CEBS and CEIOPS have completed their assessments of the Swiss and United States financial regulatory authorities. The report on Switzerland concludes that the Swiss supervisory system is equivalent to Europe's. The report on the United States concludes that the banking supervisory system is equivalent to Europe's. However, because insurance regulation is at the State level in the USA, "EEA supervisory authorities must therefore conduct all equivalence assessments on a State by State and firm by firm basis". Click for:

February 2008: EC Single Market Newsletter - 'equivalence'

The European Commission has posted on its website the electronic English language version of its newsletter Single Market News 1Q 2008 (link to EC website). One article in that newsletter may be of particular interest to IAS Plus visitors: Adoption of 'Equivalence Mechanism' Paves the Way for Decisions on Third Country Accounting Standards (PDF 113k).

February 2008: Updated 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. The Regulation gave EU member states 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 updated its earlier survey of EU member states and the three EEA member countries concerning their decisions regarding the four options above. Click to download the results of the updated survey:

March 2008: CESR report on GAAP equivalence to IFRSs

On 31 March 2008, the Committee of European Securities Regulators published its advice to the European Commission on the equivalence of Chinese, Japanese, and US GAAPs to International Financial Reporting Standards. CESR's recommendations are:

  • CESR recommends the Commission find US GAAP equivalent to IFRS for use on EU markets.
  • CESR recommends the Commission consider Japanese GAAP equivalent, unless there is no adequate evidence of the Accounting Standards Board of Japan (ASBJ) achieving to timetable the objectives set out in the Tokyo Agreement.
  • CESR recommends the Commission postpone a final decision on Chinese GAAP until there is more information on the application of the new Chinese accounting standards by Chinese issuers. CESR points out that the first complete reporting period under the new Chinese standards will only be for 2007 accounting periods. Consequently there is as yet no evidence available concerning the concrete implementation of the standards by companies and auditors. CESR believes that evidence of adequate implementation is important in the context of an outcome-based definition of equivalence. However, if the Commission were minded to allow Chinese issuers to use Chinese GAAP when accessing EU markets, CESR would recommend the Commission consider accepting Chinese GAAP according to article 4 of the Commission Regulation on the mechanism, until such time as there is adequate evidence to enable a decision to be made under article 2 thereof.
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April 2008: European responses to financial markets turmoil

In his report on 1 April 2008 to the European Parliament's Committee on Economic and Monetary Affairs, Charlie McCreevy, the European Commissioner for Internal Market and Services, discussed the Latest Developments on Policy Response to Financial Turmoil (PDF 82k). He addressed a range of issues, including supervisory convergence across Europe, changes to the bank Capital Requirements Directive, and some accounting-related issues. Here are excerpts:

The issues [causing the turmoil] are known: weak internal valuation models, opaque securitisation process, business models that were built upon disproportionate maturity mismatches between assets and liabilities, weak internal controls and poor disclosure standards, to name but a few.

Improving valuation standards, in particular for illiquid assets. This work is done at international level. It has recently intensified. We are happy to hear that the International Accounting Standards Board (IASB) will present a discussion paper including considerations on fair value measurement this month. In May, a task force of the International Organisation of Securities Commissions (IOSCO) will also present its findings. This is good news. We will continue to closely monitor progress. There is a growing debate on whether fair value and mark to market measurements may have aggravated the crisis by bringing pro-cyclicality in financial statements. I want to make it clear that I believe that there are some real accounting issues and anomalies to examine, including the interface with the Capital Requirements Directive, such as the consolidation of special purpose entities or the measurement and information disclosed on risk exposures. Clearly, these and other issues – such as the impact of mark to market valuation when markets generally become illiquid and irrational – must be thoroughly analysed.

April 2008: IASC Foundation Chairman speech to EU Parliament committee

On 8 April 2008, Gerrit Zalm, Chairman of the International Accounting Standards Committee Foundation, under which the IASB operates, spoke before the Economic and Monetary Affairs Committee of the European Parliament. Among other things, his presentation outlined the Trustees' plans for a new Monitoring Group that would Monitoring Group to end the practice of self-appointment IASCF Trustees and to create a formal link to public authorities, including the European Commission. He also outlined the Trustees' plans to expand the IASB to 16 members. Click for Mr Zalm's Prepared Statement (PDF 52k).

April 2008: Third EC report on IASB and IASCF governance developments

In July 2006, the Economic and Financial Affairs Council (ECOFIN*) of the European Union asked the European Commission to monitor the governance of the IASB and IASCF and to report to ECOFIN on a regular basis. The European Commission has released its Third Report on Governance Developments in the IASB and the IASCF (PDF 51k, March 2008). The report covers developments between July 2007 and January 2008. The report comments favourably on progress that has been made in improving the governance structure, funding arrangements, due process, and representation of stakeholders in the structure. Here is an excerpt:

During the period since the publication of the Commission services's 2nd report, the IASCF and IASB have made important announcements that, if fully and effectively implemented, will enhance the accountability of the IASCF/IASB to their stakeholders and enhance the transparency of their activities.

Most significantly, there is now broad-based agreement to establish a formal public oversight structure for the IASCF. This will also lead to a reform of the appointment process for Trustees, thus abolishing the self-appointment mechanism by granting an external, independent oversight body the power to decide upon the appointment of Trustees.

The Commission services welcome the decisions taken by the IASCF to strengthen the IASB's due process, in particular by carrying out ex ante impact assessments and ex post reviews of new standards and interpretations, as well as by publishing feedback statements. The Commission services are encouraged by the project summary and feedback statement published for the Business Combinations – Phase II project and encourage the Trustees and the Board to pursue their work in this area, in particular by ensuring that impact assessments are carried out earlier in the development of standards and interpretations.

Here are links to the two earlier governance reports:
* ECOFIN comprises the Economics and Finance Ministers of the EU Member States, as well as Budget Ministers when budgetary issues are discussed. It meets once a month. It develops EU policies for capital markets and economic matters, among other things.

April 2008: European Parliament adopts report on IASB and IASCF

On 24 April 2008, by vote of 373 in favour to 21 against with 13 abstentions, The European Parliament adopted a report calling for improvements to the governance of the IASB and the IASCF "to address concerns that they may lack transparency and accountability since they are not under the control of any democratically elected parliament or government". The report was previously approved by the Parliament's Committee on Economic and Monetary Affairs in February 2008. The Parliamentary resolution adopting the report welcomes steps already taken by the IASB and the IASCF to address these issues but argues that there is more to be done. The report calls for "a debate on integrating the IASB into the system of international governance with the IMF, OECD and World Bank". That process has already begun. The Trustees of the IASCF, at their March 2008 meeting, agreed to propose creation of a Monitoring Group as a way of putting in place 'structured contacts' with public authorities with a legitimate interest in accounting standard setting:

The IASCF Monitoring Group would be responsible for approving all Trustees. Consultation international organisations would be required. It is likely that the proposed Monitoring Group would be composed of:
  • four members of the International Organization of Securities Commissions (IOSCO), represented by the Chairman of the Japan Financial Services Agency, the Chairman of the US Securities and Exchange Commission, the chair of the IOSCO Emerging Markets Committee, and the chair of the IOSCO Technical Committee;
  • the responsible member of the European Commission [currently the Commissioner for Internal Market and Services];
  • the managing director of the International Monetary Fund; and
  • the president of the World Bank.
Click to download:

May 2008: EC report on IFRSs to European Council and Parliament

The European Commission has submitted to the European Council and European Parliament a Report on the Operation of Europe's IAS Regulation (PDF 181k). That regulation, adopted in 2002, (a) required IFRSs in the consolidated financial statements of all companies listed on regulated European securities markets starting in 2005 and (b) gave member states the option to require or permit IFRSs in separate company (legal entity) statements and in the consolidated or separate statements of unlisted companies. The report contains an updated table of member states' uses of these options. The Commission analysed the consistency of application of the endorsed standards/interpretations in the EU for 2005 and reached a number of conclusions, summarised here:

  • Overall, application of IFRSs has been a challenge for all stakeholders, but it has been achieved without disrupting markets or reporting cycles.
  • There is a general perception among preparers, auditors, investors and enforcers that application of IFRSs has improved the comparability and quality of financial reporting and has led to greater transparency.
  • Most stakeholders believe that the understandability of financial statements has generally improved, except for certain areas, where there seems to be room for improvement, notably on financial instruments, business combinations and share-based payments.
  • IFRS accounts are still influenced by national accounting traditions.
  • The IFRS recognition and measurement provisions appear to have been applied more consistently and clearly than certain disclosure requirements.
  • Options allowed by IFRSs, including those related to employee benefits, borrowing costs, and joint ventures, have been used in diverse ways by companies. Options in IFRSs for early application have also been widely used. However, options to widen application of fair value measurement have not been extensively used and use of the carve-out in IAS 39 is limited to very few banks. Enforcers have expressed concern and wish the number of options available in IFRSs to be reduced in the future.
The report also includes an analysis of the functioning of the endorsement process and related administrative requirements. The report concludes with this observation:

In order to maintain the current high acceptance of IFRSs in the EU, it is important that stakeholders feel that the work programme of the IASB is addressing the right issues and that future standards/interpretations will provide suitable accounting solutions. Some stakeholders have expressed doubts about some of the accounting projects currently being prepared by the IASB. It is therefore crucial that EU institutions, Member States and stakeholders become involved in the standard-setting process as early as possible, as this enhances the quality of the work and increases the legitimacy and acceptance of future standards/interpretations. The way the IASB undertakes impact assessment in future will also be monitored carefully.

May 2008: European Commission recommendation on auditor oversight

The European Commission has issued a recommendation on 'external quality assurance for statutory auditors and audit firms auditing public interest entities'. It provides guidance to Member States for establishing an independent and effective system of inspections on the basis of the Directive on Statutory Audit.

The recommendation suggests:
  • Strengthening the role of the public oversight authorities in inspecting audit firms
  • Strengthening the independence of the inspection system and inspections teams
  • Policies and procedures for ensuring that inspectors, experts, and the management of the quality assurance system are objective and independent
  • Enhance transparency on the outcome of the inspections
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May 2008: European Commission recommends endorsement of revised IAS 23

The European Commission has published the Effect Study Report: Endorsement of IAS 23 Borrowing Costs (PDF 151k). The Commission did this study under its agreement with the European Parliament that 'effect studies' should be prepared for new accounting standards and interpretations up for endorsement in the European Union. The study is a combination of a survey of opinions expressed to the IASB, EFRAG, and the Commission and a staff analysis of the costs and benefits of applying the capitalisation model that is mandated by the revised IAS 23.

With respect to preparer opinions the report states:
  • A majority of respondents prefer the capitalisation method and/or support the endorsement of the standard.
  • Even among capital intensive companies that would be affected most by the revised IAS 23, the EC's consultation and other reports reveal that these companies generally prefer to apply the capitalisation method.
Benefits of the capitalisation model include:
  • Increased comparability because one of the current options is eliminated
  • Including borrowing costs in the cost of the assets is a better conceptual approach than expensing
Costs of adopting IAS 23 Revised:
  • For those European companies currently expensing borrowing costs, the revised IAS 23 will impose an added cost and complexity.
  • However, this affects a relatively small percentage of companies because most do not have any qualifying assets. 'The capitalisation of borrowing costs is of relevance only for those companies that are asset capital-intensive.' And 'the main part of these costs will be related to the first implementation of the revised standard and therefore not recurring.'
Commission conclusion and recommendation:
  • The revised IAS 23 should be endorsed in the European Union as the benefits of its endorsement will outweigh the costs.

June 2008: Proposal regarding 'third country' GAAPs in the EU starting 2009

The European Commission has proposed to amend the European Directive (law) on prospectuses to require that, starting 1 January 2009, 'third country' (non-European) issuers whose securities trade in a European securities market shall present their historical financial information in accordance with one of the following four sets of accounting standards:

  1. International Financial Reporting Standards (IFRSs) adopted pursuant to Regulation (EC) No 1606/2002 (known as 'IFRSs as adopted by the European Union').
  2. IFRSs as adopted by the IASB, provided that the notes to the audited financial statements that form part of the historical financial information contain an explicit and unreserved statement that those financial statements comply with IFRSs in accordance with IAS 1 Presentation of Financial Statements.
  3. Generally Accepted Accounting Principles of Japan;
  4. Generally Accepted Accounting Principles of the United States of America.
GAAPs of China, Canada, and South Korea are also acceptable until 2011. The Regulation would be immediately binding in all Member States. Click for Proposed Amendment (PDF 23k).

June 2008: EC recommendation on limiting auditor liability

The European Commission has issued a recommendation to limit civil liability for auditors and audit firms carrying out a statutory audit of the consolidated annual accounts of a European company whose securities are admitted to trading on a regulated market in a Member State. The stated aim of the recommendation is to encourage new entrants into the audit market, and to protect European capital markets by ensuring that audit firms remain viable in an environment where there is an increasing trend towards litigation and a lack of sufficient insurance cover. This recommendation identifies three methods of limitation and principles to be followed by Member States when adopting the recommendation. The three methods, all of which are actually used by Member States today, are a statutory monetary cap on liability, proportionate liability, and contractual limitation. Any other equivalent method might also be used. The liability limitation would apply in the case of negligent behaviour but not in the case of intentional misconduct by an auditor.

Deloitte responds to European Commission audit liability recommendations:

Deloitte Touche Tohmatsu commends the European Commission (EC) for its intensive consideration of the complex issue of limiting civil liability for statutory auditors and audit firms. According to the Commission's statement, the recommendation aims to encourage new entrants into the audit market and to protect European capital markets by ensuring that audit firms remain viable in an environment where there is an increasing trend towards litigation and a lack of sufficient insurance cover in the sector.

This recommendation also proposes principles to be followed by member states when adopting the recommendation, including limitations not applying in the case of intentional misconduct on the part of the auditor and a right to fair compensation by damages parties.

Deloitte believes the European Commission gave very careful consideration to issuing this recommendation, and it will help achieve the Commission's goals and objectives.

Click for the following from the European Commission:

June 2008: EC 'effect studies' on IFRIC 14 and IAS 1 recommend endorsement of those pronouncements

The European Commission has published 'effect studies' of the impact of two IASB pronouncements awaiting endorsement for use in Europe:

The Commission's effect studies relied, in turn, on effect studies undertaken by EFRAG. The Commission Services (EC staff) concluded that both pronouncements will have positive cost-benefits effects and that they should, therefore, be endorsed in the EU without delay.

June 2008: EU bank regulators report on valuing instruments in illiquid markets

The Committee of European Banking Supervisors (CEBS) has published a report on issues relating to the valuation of complex and illiquid financial instruments. The report puts forward a set of issues that should be addressed by institutions and accounting and auditing standard setters in order to improve the reliability of the values ascribed to these instruments.

The analysis focuses on the following valuation related aspects:
  • challenges for the valuation of complex financial instruments or instruments for which no active markets exist;
  • transparency on valuation practices and methodologies as well as related uncertainty; and
  • auditing of fair value estimates.
Click for:

July 2008: ECOFIN will discuss IASB governance and 'credit crunch'

The European Union's Economic and Financial Affairs Council (ECOFIN) will meet in Brussels on 8 July 2008. Their agenda includes discussion about IASB governance, and also about accounting and disclosures by financial institutions. Click for the Background Paper (PDF 166k). Here is are two excerpts:

International accounting standards – IASB Governance

The Council should adopt the conclusions on the reform currently taking place in the International Accounting Standards Board (IASB), following the public consultation launched at the end of May (11183/08). It has already considered the governance and financing of the IASB, and adopted conclusions on this subject in July 2006 and July 2007.

There are two reasons why conclusions must again be adopted this year:

  • the IASCF, the foundation responsible for appointing the members and the financing of the IASB, launched a process of constitutional review last May with a view to enhancing its own governance and that of the IASB; it proposes inter alia to set up a Monitoring Committee within the IASCF which would be responsible for ensuring that the public interest and prudential concerns are better taken into account when accounting standards are being drawn up;
  • recent financial turbulence has demonstrated the need for a reliable mechanism for drawing up international accounting standards.
Against this background, the Council aims to express a firm European position, focused in particular on the principles identified by the draft conclusions.

Financial markets – Implementation of current initiatives

The Council will review developments on current initiatives, in accordance with a 'road map' adopted at its meeting last October in order to deal more effectively with the turmoil on financial markets since August 2007. The Council should adopt conclusions on two issues in particular:

  • progress in the transparency of banks and other financial institutions regarding the valuation of their risk assets;
  • the line to be followed in Europe and at world level regarding rating agencies (11229/08).
The draft conclusions stress that prompt and full disclosure by financial institutions of their exposure to distressed assets and off-balance sheet vehicles and of their write-downs and losses is essential to bring back confidence in the markets.

The Committee of European Banking Supervisors recently drew up recommendations to give guidance to banks in evaluating their assets. According to the draft conclusions, this is a very important factor in ensuring greater consistency in the practices of financial institutions, which is essential for restoring confidence in the real situation of the market.

July 2008: ECOFIN resolution on IASB governance

The European Union's Economic and Financial Affairs Council (ECOFIN) met in Brussels on 8 July 2008. Among other things, they discussed governance of IASB and adopted ECOFIN Conclusions on IASB Governance (PDF 133k). An excerpt is below.

The Council adopted the following conclusions:

The Council welcomes the proposals that have been made in this direction by the IASCF and considers that the further reform of the IASCF and IASB's governance and public accountability should be made according to the following key principles:

  • the public accountability of the IASCF should be enhanced through the creation of an effective Monitoring Board, which should have sufficient powers to provide the necessary oversight of the IASCF; it should first ensure that Trustees effectively discharge their oversight role towards the IASB, play an active role in the selection of Trustees and approve their final selection. The members of the Monitoring Body should be able to further refer issues of public interest, including those related to financial stability and prudential requirements, and matters of overall strategy for consideration by the IASB. The Monitoring Board should thus remain in close relation with the Chairman of the Board of Trustees, who should be put in charge, under the IASC constitution, to ensure that all views and concerns of public interest representatives are fully addressed by the IASB Board;
  • the Monitoring Board should be composed of relevant authorities responsible for public interest related to the adoption and endorsement of accounting standards in their respective jurisdictions, including the global body representing authorities responsible for financial stability or key authorities involved in financial stability. The European Commission shall propose mechanisms to ensure that it represents the co-ordinated position of all relevant European institutions and bodies, and Member states;
  • the IASB must achieve greater transparency and legitimacy of its standard-setting and agendasetting processes, in particular through more systematic public consultations about the IASB's work programme, including the IASB-FASB convergence agenda and more field testing. The effectiveness of the Standards Advisory Council should be enhanced; the role of impact assessments as a mandatory part of the IASB's due process should be formalised; and, possible changes to the terms of service of IASB members should be considered, including a possible term limitation for the chairman of the IASB. The views of public authorities, in particular those charged with financial stability and prudential regulation, should be adequately reflected in the IASB's standard-setting process.
  • members of the IASB should reflect an appropriate balance of practical and technical expertise, as well as a diversity of geographical experience in order to contribute to the development of high quality, global accounting standards. The role of the EU as the largest jurisdiction applying IFRS should be properly reflected.
  • The Council emphasises the urgency of enhancing the EU's ability to contribute in a timely and consistent manner to the international accounting debate. It therefore welcomes efforts to enhance the role of the European Financial Reporting Advisory Group (EFRAG), especially in relation to timely upstream input to the IASB's agenda-setting process. EFRAG's governance arrangements should ensure a balanced representation of all European stakeholders. EFRAG should establish effective and transparent procedures ensuring that it operates in the public interest and in a manner consistent with the EU's financial reporting policy. The Council welcomes recent progress to reform EFRAG's structure of governance in this direction.

uly 2008: ARC okays endorsement of 5 IFRSs, defers on IFRIC 12

The European Commission's Accounting Regulatory Committee (ARC) met on 11 July 2008. Here are meeting highlights:

  • By formal votes, it agreed to recommend endorsement of the following pronouncements for use in the European Union: IAS 1 (revised 2007), IAS 23 (revised 2007), IFRS 2 (revised 2008), IFRIC 13, and IFRIC 14. EFRAG has also recommended that those pronouncements be adopted. They will now continue through the next step in the adoption process – the European Parliament's Regulatory Procedure with Scrutiny Committee. IFRIC 14 is effective for calendar 2008 financial years, IFRIC 13 for years beginning 1 July 2008, and the others starting in 2009.
  • IFRIC 12, which is effective for annual periods beginning on or after 1 January 2008, was discussed, but discussions will continue at the ARC's October meeting.
  • The ARC discussed the equivalence of third country GAAPs and EU-endorsed IFRSs, IASB governance, and EFRAG enhancement, but no decisions or recommendations were made.
  • Draft proposals for reorganising EFRAG were agreed and will be issued as a consultation document in third quarter 2008.
Click for the Summary Record (Notes) of the ARC Meeting (PDF 43k).

July 2008: CESR draft statement on fair value in illiquid markets

The EU Committee of European Securities Regulators has invited comment on a draft statement titled Fair Value Measurement and Related Disclosures of Financial Instruments in Illiquid Markets. The statement, when finalised, will provide guidance to preparers and auditors in the current financial market situation when preparing the next financial statements. "CESR acknowledges that the competence of setting standards, formally interpreting standards and issuing general interpretation of existing standards lies with the IASB/IFRIC. The work conducted by CESR remains under the domain of the application of current IFRS, as CESR Members' role regarding IFRS is the enforcement of financial information." CESR requessts comments by 12 September 2008. CESR intends to consider the comments received and publish a final guidance statement in October 2008. Click for:

The starting point for the measurement of financial instruments is the assessment of whether the financial instrument is traded on an active or a non active market. The measurement of financial instruments on active markets is conducted with the reference to quoted prices. If an active market does not exist, the measurement is determined by using valuation techniques that incorporate all factors that market participants would consider in setting a price, minimising entity-specific inputs. The distinction between active and non active markets is therefore important in the application of the measurement of financial instruments.

On the identification of active and non active markets the statement stresses:

  • As judgment is required, a well-documented valuation policy is needed. It should be consistent across time and across financial instruments;
  • Even if the number of transactions is relatively low compared to other markets or to the past, the market could still be active;
  • The size of the holdings of instruments is not a criterion to decide whether a market should be considered active;
  • Different pricing sources can be available in an active market, such as prices for actual transactions or for binding quotes;
  • Market quotes can only be disregarded if there is sufficient evidence that they do not constitute a reliable reference for valuation.
On the use of valuation techniques CESR highlights that:
  • It entails a significant amount of judgment;
  • The issuer should document the criteria, the assumptions and the inputs to the valuation techniques to ensure consistency;
  • Transactions conducted in a market that is not considered active can often provide the most relevant input for valuation techniques;
  • Liquidity risk and correlation risk could also be relevant in addition to the inputs to valuation techniques listed in the accounting standards;
  • The use of indices (e.g. the ABX HE index) should be approached with caution.
The draft statement then proposes some disclosure guidance.

July 2008: Public consultation on EFRAG enhancement

On 23 July 2008, the Supervisory Board of the European Financial Reporting Advisory Group (EFRAG) invited public comment on a proposal for the enhancement of EFRAG. The proposal is in response to calls for strengthening the European contribution to the work of IASB. EFRAG is seeking input on:

  • enhancing the EU's pro-active input to the IASB by building on EFRAG's structures and experience;
  • further involvement of National Standard Setters and coordination of European resources and the creation of a Planning and Resource Committee
  • enhanced governance, transparency of EFRAG and accountability to European organisations and institutions;
  • balanced involvement of European stakeholders in EFRAG;
  • a significant increase in EFRAG's human and financial resources.

The proposal envisions a new EFRAG structure as shown in the diagram below.

The structure would include:

  • A new General Assembly (GA) with a Governance and Nominating Committee. The GA would consist of representatives of major European organisations. It would meet annually to approve the budget and appoint Supervisory Board (SB) members. The Governance and Nominating Committee would make recommendations on appointments to the SB.
  • The Supervisory Board (17 members) would have responsibilities for oversight, financing, and some external liaisons (including IASCF, EC, and EP). It would also appoint members of the Technical Expert Group (TEG) and Planning and Resource Committee (PRC).
  • The PRC would coordinate EFRAG's proactive work with the IASB agenda and EFRAG technical surveys.
  • There would be a new Consultative Group, similar to SAC, to advise TEG, PRC, and SB. It would meet annually.
  • Regarding TEG, no major changes are proposed to the existing structure (9 to 12 voting members plus 3 non-voting members from major EU standard-setters).
The proposal envisions a budget for EFRAG of €3 million in 2009. That would double to €6 million in 2010, with the European Commission contributing half. EFRAG would have a technical staff of 20. The proposal envisages that the new structure will be put in place during the first half of 2009. Click to download EFRAG Enhancement Proposal (PDF 352k). Comment deadline is 22 September 2008.

August 2008: Report on implementation of EU statutory audit directive

The European Commission has published a report on where the 27 Member States stand with their implementation of the May 2006 Statutory Audit Directive, which had to be transposed into national law by 29 June 2008. Twelve Member States have completed the entire implementation of the Directive. Most of the other Member States have transposed major parts of the Directive but are still missing some important provisions. Click for:

August 2008: EC defers registration of non-EU audit firms from 30 countries

The European Commission has granted a transitional period for the registration requirements for audit firms from 30 non-EU countries. Those firms may continue their audit activities regarding non-EU companies listed on European markets without registering until 1 July 2010. However, transition will only be granted if the non-EU audit firms comply with the minimum information requirements necessary for investors in Europe. Audit firms from non-EU countries that do not fall under the transitional regime will be subject to full registration and oversight by the competent EU Member State. Click for Press Release (PDF 94k).

October 2008: 19-point plan emerges from EU G8 heads of state summit

The heads of state of the four EU G8 member states (France, Britain, Germany and Italy) met on 4 October 2008 at the Elysee Palance in Paris in a 'mini-summit' on global financial problems. The four national leaders were joined by the head of the European Central Bank and the President of the European Commission. At the end of the meeting, the leaders issued a 19-Point Plan (PDF 102k) with recommendations on various matters discussed at their meeting. Point number nine dealt with accounting:

9. We will ensure that European financial institutions are not disadvantaged vis-à-vis their international competitors in terms of accounting rules and of their interpretation. In this regard, European financial institutions should be given the same rules to reclassify financial instruments from the trading book to the banking book including those already held or issued. We urge the IASB and the FASB to work quickly together on this issue in accordance with their recent annoucement. We also welcome the readiness of the Commission to bring forward appropriate measures as soon as possible. This issue must be resolved by the end of the month.

October 2008: ECOFIN agenda includes accounting valuations

The Eurogroup and EU Economic and Finance Ministers Council is meeting in Luxembourg on 6 and 7 October 2008. The Agenda (PDF 115k) includes discussion of accounting valuation issues:

Financial stability and financial supervision
Ministers will continue discussions which took place at the Informal ECOFIN of Nice of 12-13 September 2008 on Financial Stability and Financial supervision. They will be looking at the need for a full and timely implementation of the October 2007 roadmap, and in particular the need to pursue the work to improve transparency in the banking sector and to make swift progress on accounting valuation at international level.

October 2008: ECOFIN conclusions on accounting valuations

The Eurogroup and EU Economic and Finance Ministers Council (ECOFIN) discussed accounting valuation issues at its meeting in Luxembourg on 6 and 7 October 2008. ECOFIN has adopted a broad range of Conclusions on a Coordinated EU Response to the Economic Slowdown (PDF 143k). Here is the conclusion on asset valuation:

On asset valuation, revised standards are urgently awaited from the International Accounting Standards Board; otherwise, persistent concern about the accounting treatment of assets will continue to undermine investor confidence.

8 October 2008: Additional ECOFIN conclusions on accounting

The news item immediately above reports on a conclusion that the Eurogroup and EU Economic and Finance Ministers Council (ECOFIN) reached on accounting valuation issues at its meeting in Luxembourg on 6 and 7 October 2008. ECOFIN has also published another set of conclusions titled Immediate Responses to Financial Turmoil (PDF 116k) that addresses, among many other things, several financial instruments accounting issues. Specifically, ECOFIN makes recommendations on mark-to-market valuation rules and reclassification rules for financial instruments:

We underline the necessity of avoiding any distortion of treatment between US and European banks due to differences in accounting rules. We take note of the flexibility in the application of mark to market valuation under IFRS as outlined in recent guidance from the IASB. Ecofin strongly recommends that supervisors and auditors in the EU apply this new guidance immediately. We also consider that the issue of asset reclassification must be resolved quickly. To this end, we urge the IASB and the FASB to work together on this issue and welcome the readiness of the Commission to bring forward appropriate measures as soon as possible. We expect this issue to be solved by the end of the month, with the objective to implement as of the third quarter, in accordance with the relevant procedures.

October 2008: Commissioner McCreevy urges easing accounting rules for banks

In remarks before a plenary session of the European Parliament in Brussels on 8 October 2008, Charlie McCreevy, the European Commissioner for Internal Market and Services, urged the IASB to ease accounting rules for banks under IFRSs. He said that banks should be allowed to transfer assets out of fair value through profit or loss ('trading book') into an amortised-cost-with-impairment model ('banking book') on the same basis as US GAAP allows. Under the US GAAP model, such transfers are 'rare', and the fair value at date of transfer becomes the 'deemed cost' going forward. Several news reports have suggested that Mr McCreevy proposed that the transfers should result in a bank retrospectively restating the investments back to their original historical cost at acquisition, with a corresponding increase in the bank's capital. But this is not indicated in Mr McCreevy's Prepared Remarks (PDF 72k). Here is an excerpt:

In addition we are urgently putting changes to our accounting rules to ensure Banks in the EU can avail of the same flexibility that is offered to banks in the US. Namely this will provide the option for individual banks if they want to move assets from their trading books to their banking books. This is a comitology measure which I hope the Parliament will be able to give its agreement as a matter of urgency. In the meantime I would hope that national supervisors would apply these new provisions already so that banks, who wished to, could avail of this new possibility for their third quarter results. In addition there is the IASB's acceptance of the US SEC's clarification of the use of fair value accounting when there is no active market information. This is also highly relevant for banks and should be used for third quarter reporting.

12 October 2008: European Parliament resolution on IASCF Constitution Review

On 9 October 2008, the European Parliament adopted a Resolution on the IASCF Review of the Constitution, Public Accountability, and Composition of the IASB (PDF 25k). Among other things, the Parliament:

  • 'Expresses doubts as regards the desirability of setting up the Monitoring Group at this stage, before the second phase of the consultation process of the review of the governance of the IASB is launched'
  • Calls for the Monitoring Group, if established, 'to be involved in setting the agenda for the IASB'
  • 'Deplores the fact that Parliament was not consulted about the establishment of an International Accounting Advisory Group'
  • Seeks 'political accountability' of members of the Monitoring Group
  • Believes that membership of the Monitoring Group should be permitted 'only after a commitment to introduce IFRS as the domestic standard'. [IAS Plus comment: Two of the proposed Monitoring Group members, the commissioner of the Japan Financial Services Agency and the chair of the US SEC, would not be eligible under this criterion]
  • 'Calls for a memorandum of understanding to be concluded between Parliament, the Council and the Commission so as to define the conditions of association of the legislators with the work of the monitoring group, if such a group is established at this stage'
  • 'Instructs its President to forward this resolution to the Council, the Commission, the European Central Bank, and the Committee of European Securities Regulators and the governments and parliaments of the Member States'

14 October 2008: President Barroso says EU will 'adjust EU accounting rules'

On 13 October 2008, José Manuel Durão Barroso, President of the European Commission, spoke at a summit of national parliamentary leaders in Brussels. In his remarks, he reported on a 'historic summit of the Eurogroup at the highest political level in Paris' held on the previous day. "Our unanimous message yesterday was one of commitment to act together in a decisive and coordinated way in order to restore confidence and proper functioning of the financial system...." Mr Barroso indicated that "we will this week adjust EU accounting rules in order to be sure that EU financial institutions are not disadvantaged vis-à-vis their competitors in the United States". Click to Download Mr Barroso's Remarks.

14 October 2008: EBF and Business Europe urge fair value changes

On 13 October 2008, the European Banking Federation and Business Europe issued a Joint Statement on Financial Market Turmoil (PDF 193k). One of the recommendations in the statement relates to fair value measurements:

The pro-cyclical nature of fair value measurement of financial assets appears to have worsened the impact of the crisis on financial and non-financial corporations. It is vital that accounting standard-setters take up the issue and seriously consider amending fair value accounting rules for assets in markets where liquidity suddenly disappears.

October 2008: EU is developing an 'accounting proposal'

On 14 October 2008, José Manuel Durão Barroso, President of the European Commission, spoke at a press conference in advance of the two-day meeting of the European Council (heads of state of the 27 EU member states) that will be held on 15-16 October 2008. His remarks focused on the EU's response to the global financial crisis. He noted, among other things, that today the Accounting Regulatory Committee will be considering a procedure for 'modifying accounting rules'. Click to Download Mr Barroso's Remarks (PDF 74k). The nature of the procedure or modifications is not indicated, but several press reports refer to possible relaxation of the fair value measurement rules for financial instruments. An excerpt:

We have now reached a comprehensive agreement and a detailed programme for the Euro area and the EU as a whole. A programme to restore liquidity. A programme to recapitalise banks and to protect savers and taxpayers. A programme to lay the foundations of recovery and future sustainability....

We have accelerated the procedure for modifying accounting rules. This will prevent healthy assets being undervalued. It will ensure EU companies are not at a competitive disadvantage with companies based in other jurisdictions. The Accounting Regulatory Committee will approve our proposal tomorrow, on Wednesday.

Also on 14 October 2008 (yesterday), the European Commission published FAQs on Europe's Response to the Financial Crisis (PDF 98k). The FAQ states:
The Commission has already launched fast-track procedures to adjust accounting rules in order to be sure that assets are not undervalued, confidence is not unnecessarily undermined and EU financial institutions not disadvantaged vis-à-vis their international competitors. Provided Member States and the European Parliament approve these changes quickly, this will allow the rules to be applied for the third quarter, from 1 July 2008.

October 2008: EC endorses IAS 39 reclassification amendment

On 15 October 2008, the European Commission approved, for use in Europe, the IASB's recent Amendment to IAS 39 and IFRS 7 permitting reclassification of some financial instruments out of the fair-value-through-profit-or-loss category and out of the available-for-sale category. The amendments introduce into IFRSs the same possibility of reclassifications that is already permitted under US GAAP. The Commission's endorsement has been published in the Official Journal of the European Union as Regulation (EC) No 1004/2008 (PDF 47k).

October 2008: EC Declaration on IAS 39 and IFRS 7

As noted above, on 15 October 2008 the European Commission Approved (PDF 47k), for use in Europe, the IASB's recent Reclassification Amendment to IAS 39 and IFRS 7. That approval was preceded by an extended discussion of a number of financial instruments accounting matters by the EC's Accounting Regulatory Committee (ARC, which met on 15 October 2008), by EU G8 Heads of State (who met on 4 October 2008), and by the ECOFIN (the Eurogroup and EU Economic and Finance Ministers Council, who met on 6-7 October 2008). It was also preceded by an EFRAG Recommendation and several related speeches by EC President Jose Manual Barroso (Speech #1, Speech #2, and Speech #3). Here are links to the various ARC documents:

Concurrent with the Commission's decision to approve the IAS 39 reclassification amendment, on 15 October 2008 the Commission also made the following public declaration:

COMMISSION DECLARATION
Given the turbulence in financial markets, the Commission will continue to closely monitor all accounting issues that could impact on the stability of financial institutions and financial markets and will keep under constant review the implementation of IAS 39 and IFRS 7.

The Commission will continue to work intensively with all stakeholders and will organise a meeting within the next few days* to consider other possible issues under IAS 39 and IFRS 7. The Commission will, in particular, review the issue of the fair value option, embedded derivatives, insurance questions, and any other issues in IAS 39 and IFRS 7 of concern, and requests the IASB and CESR to begin work immediately in order to find appropriate solutions in the public interest taking into account an appropriate level of transparency. The Commission will propose further amendments to IAS 39 and IFRS 7, by all legal means if necessary, by the end of October.

The Commission also considers that an in depth reflection is needed on fair value accounting, including possible procyclicality effects. The newly formed EFC group on procyclicality could be one avenue for taking forward this question expeditiously.

The Commission takes note that Member States want to have an in depth reflection on the standard-setting process.

*IAS Plus comment: This meeting is set for Tuesday 21 October 2008.

October 2008: EC stakeholders' meeting on IAS 39

In our Item Immediately Above, we noted that the European Commission has organised a meeting of 'IAS 39 Stakeholders' to discuss possible issues under IAS 39 and IFRS 7 in addition to those addressed in the IASB's recent Amendment Regarding Reclassifications. The Commission has invited participants to identify issues that should be discussed and has Posted Participants' Letters Here.

29 October 2008: EC asks IASB to amend IAS 39
The European Commission has written to the IASB asking the IASB to amend or interpret IAS 39 to ensure that the following three specific matters are addressed in time for year-end 2008 financial reports:

  • Financial assets presently classified as fair-value-through-profit-or-loss using the Fair Value Option can be classified into other categories and not measured at fair value, for the same reasons, and under the same conditions as the assets reclassified out of the held-for-trading category.
  • Clarification on whether synthetic collateralised debt obligations (CDOs) include embedded credit derivatives. Currently, IAS 39 is interpreted as requiring separation and fair value measurement for such embedded credit derivatives, whereas US GAAP does not require an embedded derivative to be recognised separately.
  • Adjustments to imparment rules applicable to available-for-sale (AFS) interest-bearing financial assets, so that AFS would be treated the same way as loans and receivables and held-to-maturity debt instruments, The effect of such a change would be to keep a portion of the fair value decline on AFS in equity rather than recognising it in profit or loss as IAS 39 currently requires.
An annex to the letter also asks for a fourth change – allowing reversal of impairment losses not only for debt securities but also for equity instruments. The Commission's Letter (PDF 249k) also states that:
Recent developments raise broader issues related to the role of fair value accounting for financial instruments which we intend to explore further with all stakeholders as a matter of urgency. This issue should also be comprehensively addressed in the context of ongoing IASB projects. There may be a need to adjust the timetable of ongoing projects to reflect the immediate needs of the current crisis.

November 2008: EC adopts consolidated text of EU-IFRSs

On 3 November 2008, the European Commission adopted the consolidated text of all International Financial Reporting Standards (IFRS) in force in the European Union (EU). The consolidated version puts together all IFRS endorsed to date – that is, those endorsed from 29 September 2003 to 15 October 2008. This action does not encompass the entire current body of IFRSs, because 14 IASB pronouncements still Remain to be Endorsed for use in the EU, and the EU has made some modifications of IAS 39. Also, EC adoption does not include the implementation guidance and bases for conclusions that the IASB issues with its Standards. The EC's new consolidated text is available in all official EU languages. All cross-references have been updated and the translations have been reviewed and 'overhauled'. Formally, the adoption of the consolidated text was done by Regulation (EC) No 1004/2008. Click for:

November 2008: EC statement on IASB FV measurement guidance

On 5 November 2008, the European Commission issued a Statement (PDF 86k) welcoming the guidance on fair value measurements recently issued by the IASB. The Commission statement said:

The European Commission welcomes the guidance on the application of fair value measurement when markets become inactive published by the International Accounting Standards Board (IASB) on 31 October 2008. The Commission considers that the IASB's position is fully consistent with the joint statement issued by the 3 European committees of supervisors and with similar guidance recently issued by the relevant US bodies.

November 2008: German Institute opposes EU IFRS suspension

On 5 November 2008, the Institut der Wirtschaftsprufer (the IDW, which is the German professional institute of registered auditors) has written to EU Commissioner for Internal Markets Charlie McCreevy strongly urging that the European Commission oppose any political move to seek a partial or full suspension of any IFRSs. In anticipation of the G20 Summit Meeting in Washington on 15 November 2008, the EU will have a summit of EU leaders today. The IDW is concerned that at both the EU summit and then the G20 summit, there will be political pressure on national leaders to discuss, and possibly make decisions on, technical accounting standards issues that should be addressed by the IASB. Click to Download the IDW Letter (PDF 395k). Here is an excerpt:

The enclosed article from the Financial Times newspaper dated November 3, 2008 infers that the French Government intends, given the current crisis experienced in financial markets, to propose that the application of International Financial Reporting Standards in the European Union be debated at the forthcoming EU summit on November 7, 2008. We have not been able to establish the accuracy of this reported information. However, we have heard, from more than one source, of rumours that the French government may be intending to seek a partial or even full suspension of specific requirements of the Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards (lAS Regulation). Such a move would mean that companies listed on the European stock markets would no longer be required to fully apply IFRS.

We would like to request you to ensure that the EU Commission resists any attempts to introduce such measures, were they to be put forward. The original aim of the lAS Regulation, to require financial reporting by companies listed on capital markets in Europe to be transparent and to be internationally accepted, as a measure to ensure the competitiveness of the capital markets in Europe, remains just as valid today. The complexity of the interrelationships between capital markets globally means that it is essential that capital market participants receive consistent information, to facilitate meaningful comparison, and thus it is essential that unified financial reporting principles be applied.

November 2008: EC working party on derivatives begins its work

The European Commission's Working Party on Derivatives held its first meeting on 5 November 2008. The goal of the group is to develop, by the end of this year, a plan for the centralised clearing of credit default swaps (CDS) across the EU. While the group will focus primarily on market operation and regulation, it intends also to focus on 'how to ensure adequate information and supervision by regulators'. The group is composed of representatives from the industry and many European regulators. Click for Meeting Report (PDF 67k).

November 2008: EU heads of state urge reform of IASB

The heads of state or government of the EU member countries met in Brussels on 7 November 2008 to discuss a coordinated EU response to the credit crisis. The meeting was also, in part, preparation for the upcoming Meeting of the G20 heads of state in Washington on 15 November. In their Report of the EU Leaders' Meeting (PDF 101k), the leaders reaffirmed their resolve to 'devise long-term ways of reforming the international financial system'. The leaders also agreed that Europe should introduce a set of 'principles on which to build a new international financial system' for discussion at the upcoming G20 meeting. The principles are:

  1. No financial institution, no market segment and no jurisdiction must escape proportionate and adequate regulation or at least oversight
  2. The new international financial system must be based on principles of accountability and transparency.
  3. The new international financial system must allow risks to be assessed so as to prevent crises.
  4. Give the IMF a central role in a more efficient financial architecture.
Relating to principle 2 above, the EU leaders said:

2. The new international financial system must be based on principles of accountability and transparency.

  • Transparency of financial transactions must be ensured by means of a more comprehensive information system, which no longer omits vast swathes of financial activity from auditable, certifiable accounts.
  • Arrangements conducive to excessive risk-taking must be overhauled, particularly debt securitisation procedures and pay policy.
  • Both prudential and accounting standards applicable to financial institutions will have to be revised to ensure that they do not contribute to creating speculative bubbles in periods of growth and make the crisis worse at times of economic downturn.
  • Standards bodies, in particular in the area of accountancy, will have to be reformed to allow a genuine dialogue with all the parties concerned, in particular prudential authorities.

The EU leaders also urged that the G20 adopt 'adopt the principle of convergence of accounting standards and review the application in the financial sector of the fair value rule in order to improve its consistency with prudential rules'.

November 2008: ARC recommends delayed use of IFRIC 12 in the EU

The European Commission's Accounting Regulatory Committee met on 6 November 2008. While the official summary record of the meeting has not yet been posted on the EC website, observers at the meeting have indicated that the ARC reached the following decision with respect to IFRIC 12 Service Concession Arrangements: The European Commission should endorse IFRIC 12 for mandatory use in Europe starting in 2010. The IASB's effective date for IFRIC 12 was annual periods beginning on or after 1 January 2008. More specifically, the ARC recommended that IFRIC 12 should be mandatory for an EU company's first financial year that begins after formal endorsement by the Commission. If endorsement happens, as expected, in January 2009, that would mean that IFRIC 12 would be effective in Europe in 2010. The ARC recommended that early application be permitted.

December 2008: Consolidated text of EU-IFRSs is now available The European Commission has made available, in the various EU languages, the consolidated text of all IFRSs in force in the European Union (EU), bringing together all IFRS endorsed from 29 September 2003 to 15 October 2008. These consolidated texts have been published in the EU Official Journal and posted:

Note that the consolidated text as adopted by the EC does not include the implementation guidance and bases for conclusions that the IASB issues with its Standards.

December 2008: EC deems some local GAAPs equivalent to IFRSs

The European Commission has adopted certain measures designating the GAAPs of the United States, Japan, China, Canada, South Korea, and India to be equivalent to International Financial Reporting Standards (IFRSs) as adopted by the EU. Because the decision on equivalence presumes that certain steps currently in process in some of these countries will be completed, the Commission intends to review the situation in China, Canada, South Korea, and India by 2011 at the latest. The Commission will also regularly monitor the ongoing status of equivalence and report to Member States and Parliament where necessary. As a result of the action taken by the Commission, non-EU companies listed on EU markets will continue to be able to file their financial statements prepared in accordance with their national GAAPs (the current provisions allowing the use of these GAAPs in the EU would otherwise have expired at the end of 2008). Click for EC Press Release (PDF 86k).

December 2008: Four standards endorsed for use in Europe

The European Commission has endorsed four standards for use in Europe. The standards were published in the Official Journal on 17 December 2008, as follows:


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