January 2010: FEE paper on bank provisioning and reserving
The European Federation of Accountants (FEE) has published a paper Bank Provisioning and Reserving: A Comparison of Alternatives. The paper is intended to help clarify the meaning of particular terms used by policy-makers, banks, regulators, accountants, and others in respect of bank provisioning and reserving, "since there is not yet a common understanding of what these terms are meant to cover". The paper is also intended to assist the readers of the recently issued joint EFRAG/FEE paper Impairment of Financial Assets: The Expected Loss Model (see IAS Plus News Story of 10 Dec 2009) by providing background information and an outline of the key terms of the various approaches and models that are currently being debated. FEE's announcement also notes that the paper "may also help to better understand the current discussions on impairment in relation to the proposals of the International Accounting Standards Board (IASB) for the impairment of financial assets". Click for:
January 2010: Hearing on nomination of Michel Barnier
Two committees of the European Parliament will hold joint hearings on the nomination of Michel Barnier as Commissioner for Internal Market and Services of the European Commission. Mr Barnier has prepared Written Responses (PDF 156k) to questions posted in advance by the committees. His comments on accounting include:
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In the area of financial information, one of my priorities will be the adoption by all of our partners, including the United States, of high-quality global accounting standards, in line with the recommendations of the G20. I would also like to improve the governance of the IASB significantly. As regards SMEs, I would like to put forward an ambitious proposal for the
modernisation of accounting regulations. Lastly, with regard to the statutory audit of accounts, my priorities will be to enhance international cooperation in order to enable mutual recognition of supervisory systems in respect of [auditors], and potential adoption of the international [auditing] standards (ISA).
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The EU has set up a special Website for Commissioner Confirmation Hearings. Profiles of Mr Barnier and the other Commissioners-Designate are Here. Click for Mr Barnier's CV (PDF 76k).
January 2010: Revised CEBS guidelines on supervisory disclosure in Europe
The Committee of European Banking Supervisors (CEBS) has published revised Guidelines on Supervisory Disclosure.
CEBS'S framework for supervisory disclosure has been implemented at both EU and national levels since early 2007. This revision is the result of a public consultation in September 2009.
February 2010: Michel Barnier approved as EU Internal Market Commissioner
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The European Parliament has voted to approve the new European Commission – one Commissioner from each of the 27 EU Member States. The new Commissioners take office on 10 February 2010 for terms that end 31 October 2014. By that vote, Michel Barnier of France was approved as Commissioner for Internal Market and Services. Among other things, his responsibilities will cover accounting and auditing matters, including liaison with the International Accounting Standards Board and the IASC Foundation. Mr Barnier replaces Charlie McCreevy. Click for Mr Barnier's CV (PDF 76k).
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February 2010: European Commission conference on accounting and auditing
On 8 February 2010, the European Commission hosted a one-day conference on international developments in accounting and auditing. The morning session focused on accounting issues, and the afternoon on auditing. In the morning session, the first panel discussed national experiences in implementing IFRSs. The second panel discussed the progress made towards the adoption of IFRSs. Click for:
February 2010: New EU Commissioner comments on accounting
Michel Barnier, who took office last week as the European Commissioner responsible for Internal Market and Services, commented briefly on international accounting standards during a presentation on 16 February 2010 to the Ecofin Council (the council of economic and finance ministers of EU Member states). Mr Barnier's presentation was titled Acting Without Delay to Clean Up Financial Markets. Here is an excerpt:
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One of the strongest conclusions of the G20 was the shared commitment to reform together and to ensure convergence of accounting standards at an international level. To this end, we need to find the right balance between a faithful representation of a company's financial situation and wider financial stability. This issue will be at the centre of our discussions in the coming months.
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Click to Download Mr Barnier's Remarks (PDF 28k).
February 2010: EU Parliament hearings discuss accounting
The European Parliament's Special Committee on Financial, Economic and Social Crisis (CRIS) held a hearing on 25 February 2010 to examine financial regulation and supervision in Europe. Accounting standards were among the issues discussed.
- Bank of France governor Christian Noyer stressed 'the need for accounting standards to take account of the real risks'.
- Bettina Corves-Wunderer, CFO of Allianz Italy said that 'untransparent and insufficiently harmonised accounting standards had also led to procyclical behaviour'.
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Click to download Committee Press Release (PDF 126k).
March 2010: Possible exemption of EU micros from financial reporting
On 10 March 2010, the European Parliament voted to exempt very small companies ('micro-entities') from the existing EU-wide laws that require them to prepare annual financial statements. The Parliament's action still must be approved by the EU Council before it becomes law. If approved, it would then be up to each EU Member State to grant such exemptions. Parliament's resolution also calls for a general revision of the 4th and 7th Company Law Directives in 2010. Currently, about 7.2 million EU companies are subject to reporting rules under EU accounting directives. Of those, 5.4 million (around 75%) are 'micro-entities' primarily engaged in business at local or regional level, with little or no cross-border activity. Click for EU Parliament Press Release (PDF 109k). The European Commission is currently Consulting on the use of the IFRS for SMEs in Europe.
March 2010: DTT members respond to EC consultation on the IFRS for SMEs
The member firms of Deloitte Touche Tohmatsu (DTT) located in the European Economic Area (EEA) have submitted a joint response to the European Commission's consultation on the IFRS for Small and Medium-sized Entities. The Commission launched the consultation in November 2009 to gain an understanding of EU stakeholders' views on the IFRS for SMEs. The Commission said that the responses will assist the Commission in its ongoing review of the Accounting Directives. The firms' overall view:
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We believe that the IFRS for SMEs is suitable for widespread use within Europe and for companies of any type and size, providing such entities are preparing general purpose financial statements. IFRS for SMEs is a high quality, global, principles-based standard that has been developed by specialists from around the world through an extensive consultative process and we believe its adoption would benefit users (by increased comparability of financial statements) and preparers (through reduced costs for groups of companies and economies of scale generally) and would serve to facilitate cross-border trade, services, including accounting and audit, and movement of capital. In the European context, we believe this can contribute to making the internal market a reality for smaller businesses as well as benefit the many companies not listed on a regulated market that do operate across borders in the EU. There may also be reduced costs for Member State standard setters.
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Click to download:
March 2010: IASB Chairman addresses EU finance ministers (ECOFIN)
On 16 March 2010, IASB Chairman Sir David Tweedie addressed a meeting of the Finance and Economic Ministers of the European Union member states. He reported on the progress that the IASB has made in achieving the 2011 convergence target set out by the G20, and issues related to the financial crisis raised by the G20 and the European Union. Click to download Sir David's Prepared Statement (PDF 26k).
April 2010: CEBS 'Principles for Disclosures in Times of Stress'
On 26 April 2010, the Committee of European Banking Supervisors (CEBS) published Principles for Disclosures in Times of Stress. These guidelines are intended to help financial institutions consider lessons learned from the recent financial crisis in preparing their public financial disclosures. The principles build on the conclusions derived from the four assessments of banks' disclosures performed by CEBS. The guidelines encourage enhanced quality of disclosures without amending, duplicating, or adding to existing disclosure requirements or recommendations, such as those in IFRSs, Pillar 3, and listing rules. Click for:
April 2010: ECB concerns about fair value, convergence
Gertrude Tumpel-Gugerell, member of the Executive Board of the European Central Bank (ECB), spoke on Elements for intervention on accounting issues at a conference in Paris on Paris on 27 April 2010. Click to Download Ms Tumpel-Gugerell's Remarks (PDF 56k). Here are several excerpts in which she presents the views of the ECB on fair value measurement, impairment, and convergence:
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Fair value measurements
First, in our view fair value accounting does not provide decision-useful information to investors if the intention of an entity is to hold the assets until maturity or to settle the liabilities at their nominal amount at maturity. In these cases, recognising interim fair value changes simply heightens the volatility of the financial accounts, without providing actual 'information content'. This is typically the case for the loan book of commercial banks.
Moreover, the ECB does not agree that an entity is required to record a gain when the fair value of its own debt falls due to a decrease in its creditworthiness. The rationale being that the entity could buy back the debt and realise the profit. However, in reality and especially in times of distress, an entity does not have readily available the extra cash to buy back their debt....
Second, with regard to its application, fair value accounting poses certain operational challenges, namely when markets become illiquid and reliable market prices are no longer available. What is the use of marking-to-market when there is no market? The relevance and reliability of fair values based on market prices require a functioning market where prices adequately reflect the underlying fundamentals of the financial instrument. When the market is significantly disrupted, the use of market values may be utterly meaningless....
Hence the ECB is of the opinion that fair value measurement should only be required if it is consistent with the institution's business model and the characteristics of the particular underlying asset or liability.
Impairment of financial assets
Pre-crisis provisioning practices delayed the recognition of credit losses inherent in loans. Accounting rules require a specific trigger event, such as a default in payment to take place before allowing an entity to create provisions for credit losses. As a result, major write-offs usually accumulate during severe downturns when the inherent credit losses actually materialise, adding further stress to the financial system.
Hence, a more forward-looking provisioning methodology should be developed. This has also been a recommendation of the G20 Leaders. In this context, the ECB welcomes the recent IASB proposal for an expected cash flow approach. Despite some operational challenges that need to be resolved before its final adoption, this approach allows for a timelier recognition of expected credit losses, thereby contributing to mitigating pro-cyclicality. In this context, it should be noted that the Basel Committee has recently developed an approach which aims at reducing the complexity of the IASB�s approach. The ECB urges the IASB to work together with the Basel Committee with a view to developing a workable solution to a more forward-looking provisioning approach.
This is also a good example of where the objectives of high quality accounting and safeguarding financial stability complement each other.
On that note, let me finally underline that the ECB acknowledges the work of the IASB and welcomes the progress that has been achieved in the accounting framework. We look forward to continuing the intense dialogue with the IASB on the remaining phases of the financial instruments project, as well as other accounting areas that may be of importance from a regulatory perspective.
Convergence
For all these reasons, the ECB welcomes the ongoing efforts of the accounting standard setters to achieve fully compatible, high-quality accounting standards in a direct response to the G20 request. However, we are concerned to hear that the FASB and the IASB are still far from reaching a consensus on key accounting concepts, such as the classification and measurement of financial instruments. The IASB has confirmed a 'mixed measurement model' that measures financial instruments both at amortised cost and fair value. In contrast, the US standard setter, the FASB, is determined to move towards a 'full fair value model', claiming that only fair value provides decision-useful information to investors.
I have already mentioned in my intervention how the financial crisis has blatantly revealed the flaws with this measurement and how in certain circumstances, namely when markets are dislocated, applying full fair value accounting to the financial statements of the banking sector raises financial stability concerns and does not provide decision-useful information to investors.
Just to re-emphasise, the ECB strongly opposes a full fair value approach. In this context, convergence should not come at the expense of high-quality accounting standards.
Finally, with regard to recent assertions made by the IASB and FASB that convergence is on track, I would like to highlight that we are not so optimistic. In this regard, putting in place a reconciliation mechanism that simply discloses figures at amortised cost and fair value for each item on the balance sheet would certainly not achieve the aim of convergence.
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May 2010: Europe is 'getting impatient' on convergence
In his first speech outside of Europe since taking office as European Commissioner for Internal Market and Service, Michel Barnier spoke on 11 May 2010 in Washington about the United States and Europe jointly building a new financial framework. He said that Europe is getting impatient regarding convergence of IFRSs and US GAAP:
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And let me also briefly mention the issue of accounting standards. I appreciate that the US authorities have made progress towards convergence. But in the EU, we are getting impatient. Going forward, it is crucial that we converge further.
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Click for Mr Barnier's Remarks (PDF 152k).
June 2010: Report on EC consultation on IFRS for SMEs
In November 2009, the European Commission launched a Consultation to gain an understanding of EU stakeholders' view on the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs). The consultation period ended 12 March 2010. The Commission has now published a summary report of the 210 responses received. In addition, on 25 May 2010 the Commission held a stakeholders meeting on the review of the Accounting Directives and the IFRS for SMEs. The Commission has released the minutes of this meeting.
A key question and responses:
- Question: Do you think adoption of the IFRS for SMEs should be provided for within the EU accounting legal framework?
- Response:
- Supported by majority of Respondents from 19 Member States: BG, CY, CZ, DK, EE, EL, ES, HU, IE, LT, LU, MT, NL, PL, PT, RO, SE, SL, UK, EU Org and Registered Lobbyists
- Opposed by majority of Respondents from 6 Member States: AT, BE, DE, FR, IT, SK
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Click to download:
June 2010: European priorities for the G20 summit
Herman Van Rompuy, the President of the European Council, and Jos� Manuel Barroso, President of the European Commission,
have jointly adressed their G20 colleagues concerning EU priorities for the G20 summit in Toronto on 26-27 June 2010.
The letter urges the G20 to reaffirm its commitment to reform financial markets in a
consistent and coordinated manner on the whole range of actions agreed upon in Pittsburgh. In the area of financial reporting it says:
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On accounting
standards, we recall the need to achieve global convergence on a set of high quality standards
within the deadline agreed at Pittsburgh and the need to further improve the governance of
International Accounting Standards Board. |
Click to download the
Joint letter of the President of the European Council and the President of the European Commission (PDF
50k).
June 2010: CEBS publishes two follow-up reports on its assessment of banks' disclosures
The Committee of European Banking Supervisors (CEBS) has published Assessment of banks' transparency
in their 2009 audited annual reports and Follow-up review of banks' transparency in their 2009 Pillar 3 reports.
In its
press release, CEBS states that "This work reflects CEBS�s ongoing interest in the banks� disclosure of the impact of the crisis on their activities and financial situation."
July 2010: EU formally adopts amendments to IFRS 1 and IFRS 7
The European Union has published the Commission Regulation (EC) No 574/2010 (Amendment to IFRS 1 Limited
Exemption from Comparative IFRS 7 Disclosure for First-time Adopters and Amendment to IFRS 7 Financial Instruments: Disclosures)
endorsing the amendments adopted by the IASB on 29 Januar 2010.
Last week the European Union published the Commission Regulation (EC) No 550/2010
(Amendments to IFRS 1 Additional Exemptions for First-time Adopters) endorsing the amendments adopted by the IASB on 23 July
2009. Thus currently only five IASB pronouncements await endorsement action.
July 2010: CESR summaries of IFRS enforcement decisions The Committee of European Securities Regulators (CESR) has published its eighth 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
#8 of CESR's extracts:
- Fair value of financial instruments
- Disclosure of financial instruments
- Classification of assets and liabilities
- Impairment testing of intangible assets
- Impairment of intangible assets
- Intangible assets
- Revenue recognition
- Impairment of trade receivables
- Disclosure of financial instruments - liquidity risk
- Earnings per share
- Related party disclosures
- Presentation of the income statement
- Impairment of assets
Click to download this and earlier decision summaries:
July 2010: CESR members elect new Chair and Vice Chair
On 16 July 2010, the members of the Committee of European Securities Regulators (CESR) elected Carlos Tavares,
Chairman of the Comissão do Mercado de Valores Mobiliários at the CMVM, as Chair of CESR and Jean Guill, Director General of the
Commission de surveillance du secteur financier (CSSF), as Vice Chair of CESR. Click for
CESR
Press Release (PDF 137k).
July 2010: EU formally adopts revised IAS 24/amendment to IFRS 8 and amendments to IFRIC 14
The European Union has published the Commission Regulation (EC) No 632/2010 (Revised IAS 24 Related Party Disclosure and Amendment to IFRS 8 Operating Segments) and the Commission Regulation (EC) No 633/2010 (Amendments to IFRIC 14 Prepayments of a Minimum Funding Requirement) endorsing the amendments adopted by the IASB in November 2009. Thus currently only
three IASB pronouncements await endorsement action.
July 2010: EU formally adopts IFRIC 19
The European Union has published the Commission Regulation (EC) No 662/2010 endorsing
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments. The Interpretation applies when a debtor extinguishes a liability fully or partly by issuing equity instruments to the creditor.
IFRIC 19 addresses only the accounting by the entity that issues the equity instruments; it does not address the accounting by the creditor (lender).
Currently only
two IASB pronouncements await endorsement action.
July 2010: Updated survey on extended use of IFRSs in European Union
Since 2005, the European Union
Accounting Regulation has required that European companies listed in a European securities market must use IFRSs to prepare their consolidated financial statements. The Regulation gave EU member states the options 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 surveys of EU and EEA member states concerning their decisions regarding the four options above. Click to download the results of the updated survey:
Table on Use of IFRS Options 30 EU Member and EEA States (PDF
64k)
August 2010: CESR issues Consultation Paper on central storage of regulated information (OAMs)The Committee of European Securities Regulators (CESR) has issued a Consultation Paper Development of Pan-European Access to Financial Information
Disclosed by Listed Companies. The introduction states, in part:
The aim of an OAM network would be to provide a one stop shop for end users (investors and other users of regulate
information) looking for regulated information on listed companies. The existence of such a network would also facilitate the
provision of added value services to investors (e.g. processed information, comparative information etc.).
Download the Consultation Paper from the CESR website. Comments are due by 24 September 2010.
August 2010: CESR publishes report on trends, risks and vulnerabilities
in financial marketsThe Committee of European Securities Regulators (CESR) has published a report on trends risks, and vulnerabilities that are
directly relevant to securities markets regulators. Over the last decades, financial markets have been transformed by the rapid development of new
financial instruments, the rise of new categories of key market participants, and a supportive
technological environment. More recently, fundamental areas of the financial sectors have experienced a severe crisis. Going forward, CESR would like to
contribute more to the understanding of these trends and risks and communicate
its insights to the general public through regular reports. The
following findings, which are supported by thirteen detailed key trends, risks and vulnerabilities, are highlighted in the report:
- In light of some global positive signs [...] a tendency to downplay the severity of the current crisis may emerge,
accompanied by a reluctance to recognize the need for financial reforms. There is
therefore a risk that urgently required regulatory measures are neither fully considered
nor implemented in an appropriate way.
- In fact, there are non negligible risks of a new deterioration in securities markets ahead [...]. [However, an] improvement has apparently been fuelled by the
implementation of tough fiscal adjustment programmes in most European countries and
the authorities’ commitment to carry out stress tests in a significant number of European
financial institutions and disclose the results.
- The persistency of severe strains in the financial system was particularly evident in the
fact that banks were still relying on the ECB’s deposit facility for amounts which
significantly exceed those observed in the aftermath of the Lehman default.
- The financing requirements of countries and companies may become an issue in the near
term.
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Click for
press release
(PDF 120k). The report itself is available on
CESR's website (PDF
3,310k). We have more information on the financial crisis on our
credit crunch page.
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