ESMA sees room for improvement in EU endorsement process

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07 Nov, 2014

The European Securities and Markets Authority (ESMA) has responded to the European Commission's questionnaire seeking respondents' views on the impact of International Financial Reporting Standards (IFRS) in the European Union. ESMA believes that the responsibility for advising the European Commission on endorsement should be given further consideration and also supports new endorsement criteria to be included in the IAS Regulation.

In the response to the European Commission's questionnaire, ESMA agrees with most respondents that the adoption of IFRSs has made companies' financial statements in the EU significantly more transparent and comparable and was over all beneficial. ESMA states that continuous commitment to the use of IFRS is the most appropriate approach in the context of global markets and a growing use of IFRS around the world.

However, ESMA remains critical of the EFRAG reform and maintains that the responsibility for giving endorsement advice to the European Commission "can only be entrusted to a public body that has the duty to protect the public interest". The Maystadt report had originally recommended that the new EFRAG Board should consist of three pillars with one of them being European public institutions (ESMA, EBA, EIOPA and ECB). However, given that they believe that endorsement advice should entirely rest with public institutions, the European Supervisory Authorities and the ECB have declined full membership and will only be observers on the new Board.

ESMA also disagrees with many respondents in believing that two new endorsement criteria (that any accounting standards adopted should not jeopardise the EU's financial stability and that they must not hinder the EU's economic development) should be added to the IAS Regulation. Again, ESMA argues from a public interest and public good perspective. ESMA also adds that in pre-consultation with national enforcers, some proposed a specific consideration of transparency as part of the endorsement criteria.

Please click to download the full response (link to ESMA website). The endorsement mechanism and criteria are subject of questions 21 and 22.

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