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CESR statement on IFRS accounting policy disclosures

  • European Union (old) Image

21 Jan 2006

The Committee of European Securities Regulators (CESR) has issued a public statement to remind European securities issuers using IFRSs of the importance of giving clear and transparent disclosure about (a) their use of any of the accounting policy options available under IFRSs and (b) their decisions regarding the determination of accounting policies in the absence of specific IFRS guidance.

CESR highlighted four specific situations where transparent disclosure will be particularly relevant for the 2005 annual financial statements because of first-time adoption of IFRSs:

  • Firstly, the endorsed IAS/IFRS themselves provide several options, in particular on first time adoption of IFRS, between two or more recognition methods and measurement bases. The standards themselves include specific disclosure requirements which have to be followed, notably on the use of options.
  • Secondly, there are areas that are not currently specifically dealt with under IFRSs (e.g. accounting for service concession arrangements, emission rights, puts on minority interests). A transparent disclosure explaining the accounting treatment selected would provide meaningful information to the users of the financial statements (see IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, paragraph 10 and seq.).
  • Thirdly, particular situations may arise where IAS/IFRS have not been fully endorsed for application in the EU. This is currently the case for some of the provisions of IAS 39 Financial Instruments: Recognition and Measurement that are directly related to the accounting treatment of portfolio hedging. These provisions have not been adopted for mandatory use in the EU pursuant to the Commission Regulation (EC) No 2086/2004 of 19 November 2004 (the so-called 'carve out' of IAS 39). It can therefore be expected that a number of companies will choose to apply the full version of IAS 39, while others may apply the amended standard endorsed by the EU. As it is likely that companies will use different accounting approaches in the area of hedge accounting and effectiveness, issuers should be transparent in explaining their policies and all the more so where the 'carve out' is used.
  • Finally, there is always a time lag between the issue of IFRS by the IASB and their mandatory application in the EU as a result of the EU endorsement process. The European Commission recently informed Member States that Regulations endorsing IFRS published in the Official Journal and entering into force after the balance sheet date but before the date the financial statements are signed, can be used by companies (but they are not obliged to) where early application is permitted in the Regulation and the related IFRS.
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