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IASB and IFRS Foundation react to EU fitness check on public reporting by companies

  • IASB (International Accounting Standards Board) (blue) Image
  • European Union Image

27 Mar 2018

On 21 March 2018, the European Commission (EC) published a consultation document 'Fitness Check on the EU Framework for Public Reporting by Companies' that seems to come with the desired result of introducing 'carve-ins' when endorsing IFRSs for use in the European Union.

As reported earlier, the document seems oddly tilted against the use of IFRSs as issued by the IASB. The Chairmen of the IASB and the IFRS Foundation have now released a press release conceding that each jurisdiction is free to do as it chooses but wondering why a jurisdiction would choose a way forward that goes against the objectives of the G20, was only recently warned against in the very same jurisdiction, and leads to a state that has been identified as less than ideal in other jurisdictions.

The press release notes that the EU, a G20 member, has always been a strong supporter of the G20 objective of achieving a single set of high-quality global accounting standards and wonders why the EU would now consider undermining this objective.

The press release also repeats that both, the EU's own Maystadt review in 2013 and evaluation of the IAS Regulation in 2015, concluded that introducing carve-ins to create EU-adapted IFRSs risked encouraging the creation of regional, rather than global standards, which would lead to increased costs of capital and reporting for European issuers and would open the door to lobbying for private interests during the endorsement process.

Finally, the press release offers evidence from other jurisdictions to refute some claims in the consultation:

  • It provides numbers proving that the EU is not an outlier in adopting IFRSs without modification.
  • Major jurisdictions that have not adopted IFRSs at all (United States) still allow the use of unmodified IFRSs for foreign issuers, while introducing carve-ins would mean a loss of that privilege.
  • In major jurisdictions that offer a choice between unmodified IFRSs and locally amended standards (Japan), no company has adopted the locally amended standards in order not to lose the enhanced comparability with international competitors and to be able to better communicate with international investors.
  • Major jurisdictions with local accounting standards that are substantially converged with IFRSs (China, India) are committed to full convergence over time as the current state is not perceived as ideal mainly due to the limited international recognition of local standards.

The press release concludes:

Again, we completely accept that it is up to the EU to adopt accounting standards as it sees fit. But we believe that the introduction of EU carve-ins to IFRS Standards is in many ways a solution looking for a problem. There is no compelling evidence to show why it is needed, while the costs to EU companies―adding accounting friction to European capital markets―would undoubtedly exceed the benefits, the opposite of what the European Capital Markets Union project has set out to achieve.

Please click to access the full press release on the IASB website.

Of the big European standard-setters, only the German ASCG has so far reacted to the launch of the consultation. It fears a "politically desired result" and notes that it is of great importance that the "business community raises its voice in this important survey and sends a clearly audible signal to Brussels". Please see the full press release on the ASCG website.

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