ECON uses funding debate to demand that EP resolutions are considered in standard-setting and endorsement

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01 Nov, 2016

On 11 October 2016, the Committee on Economic and Monetary Affairs (ECON) of the European Parliament (EP) voted on a report that supports a proposal by the European Commission (EC) to extend the financing of the European Financial Reporting Advisory Group (EFRAG) beyond 2016. Next to supporting the continued financing of EFRAG the report, which has now become publicly available, also demands that EP resolutions are considered in standard-setting and in the endorsement process.

Regulation (EU) No 258/2014 of the European Parliament and of the Council of 3 April 2014 established a programme of EU co-financing of the International Financial Reporting Standards (IFRS) Foundation, the EFRAG, and the Public Interest Oversight Board (PIOB). The regulation formed the legal basis for the continuation of financing the IFRS Foundation and PIOB for the period 2014-2020 and of EFRAG for the period 2014-2016. The agreement limited the financing period of EFRAG to three years in view of prospective reforms that might arise from the Maystadt Report. In April 2016, the EC concluded that the governance reform of EFRAG has been successfully implemented on 31 October 2014. Consequently, the EC proposed to extend the European Union co-financing of EFRAG for the period 2017 - 2020 under the programme established by the regulation.

ECON, acting on behalf of the EP, has voted in favour of several more amendments to the EC proposal. One of them is adding the following paragraph:

From 2017, the IFRS Foundation, PIOB and EFRAG shall prepare an annual report on the implementation of Union policies in the field of financial reporting and auditing and participate regularly, at least annually, in hearings organised by the European Parliament in order to give a full account of the development of international financial reporting and auditing standards.

The report shall cover:

(a) follow-up and implementation of the recommendations and demands made in past or future resolutions of the European Parliament;

(b) whether further progress has been made as regards governance, in particular in terms of transparency, and what steps have been taken to ensure broad representation of interests and public accountability; and

(c) the identification of actions undertaken in order to enhance democratic legitimacy, transparency, accountability and integrity which, inter alia, concern public access to documents, transparency of lobby meetings as well as the prevention of conflicts of interest.

One resolution expressly mentioned is the June 2016 EP resolution that stresses that EP members see shortcomings in the governance of the IFRS Foundation and the IASB, notably in terms of transparency, prevention of conflicts of interest and diversity of Board members. The resolution also calls for a more diversified and balanced financing structure also based on fees and public sources. The resolution is backed by the feeling that the high degree of funding of the IASB's budget (14%) and of EFRAG (60%) by the European Union should mean that both organisations have to follow the European Parliament standards of democratic legitimacy, transparency, accountability and integrity.

As regards EFRAG, the report also suggests that at some future point of time it might be appropriate that the Commission submits a legislative proposal to transform EFRAG into a public agency in the long term.

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