Accountancy Europe response to ad personam mandate on non-financial reporting standard setting

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19 Nov, 2020

Accountancy Europe has responded to the request of the President of the EFRAG Board to share views on the future governance and framework of EFRAG in the context of possible changes to non-financial reporting by companies.

Accountancy Europe especially raises points around the governance, structure and financing of the European Financial Reporting Advisory Group (EFRAG) that need to be considered if a standard-setter for non-financial information were to be established under the umbrella of EFRAG.

As before in its paper on interconnected standard-setting for corporate reporting, Accountancy Europe points out that standard-setting needs to follow the principles of legitimacy, independence, transparency, public accountability, due process, and balance and notes that:

Particularly, a multi-stakeholder involvement guarantees high quality and balanced standards; whereas independence affects the public perception of standard setting and resultantly, legitimacy.

Applying these principles to a possible standard-setter for non-financial information (NFI), the comment letter makes the following suggestions:

  • setting up a new body within EFRAG to address NFI standards activities;
  • providing adequate governance and oversight to the NFI standards activities body (distinct from the governance and oversight of the financial reporting activities);
  • ensuring connectivity between NFI and financial activities within the EFRAG where appropriate;
  • providing adequate governance and oversight of the EFRAG organisation as a whole;
  • enlarging the EFRAG General Assembly;
  • setting up a new NFI EFRAG Advisory Council; and
  • reforming the EFRAG European Reporting Lab.

The comment letter also emphasises the other on-going initiatives in the field and especially notes the work of CDP-CDSB-GRI-IIRC-SASB as well as the IFRS Foundation consultation towards a comprehensive reporting system. Accountancy Europe proposes that EFRAG uses the NFI standards from these initiatives as a basis upon which to add regional (EU) requirements and only develops separate standards if it becomes clear that a global solution will not be timely available as broad market acceptance also depends on leveraging to the maximum possible the relevant work of recognised NFI frameworks and standards organisations.

On financing, the comment letter makes clear that that the more demands are put on EFRAG, the more human and financial resources will be needed. To this end, stable funding from both the private sector (financially and, in particular, in kind) and from the European Commission is required, both for the EFRAG ac­tiv­i­ties related to financial reporting and the ones related to the wider corporate reporting including NFI reporting.

Please click to access the full comment letter on the website of Accountancy Europe.

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