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CESR proposal for assessing IFRS 'equivalence'

  • European Union (old) Image

06 Jun 2007

The Committee of European Securities Regulators (CESR) has submitted to the European Commission recommendations for a mechanism for determining the equivalence of the generally accepted accounting principles of third countries (non-EU countries) to IFRSs as adopted in the EU.

The key elements in CESR's proposal are:
  • The national standard setter (and/or another suitable public body) in a country seeking equivalent status should assess whether that country's required disclosures, measurement and recognition principles, and financial statement presentation are materially the same as IFRSs and where they are not, assess the differences.
  • If there are no significant differences between the third country GAAP and IFRSs, such GAAP may be deemed equivalent without the need for additional rectification disclosures.
  • Even if significant differences exist, the third country GAAP may be considered equivalent to IFRSs if those differences identified can be rectified at company level by non-complex disclosures. Those additional non-complex disclosures should be subject to audit.
  • Prior to giving any advice to the Commission on whether to accept an equivalence assessment, CESR would seek reactions from market users regarding the third country GAAP and the proposed rectifications via public consultation.
  • Once all other steps have been fulfilled, and using the definition of equivalence CESR has already provided, an 'overall' assessment of equivalence should be made in the final instance by the European Commission via a comitology process.
  • For the purposes of establishing equivalence, CESR assumes that third country GAAPs are properly applied including the provision of any rectifying disclosures necessary. CESR further assumes that the necessary filters for ensuring market confidence are in place for third country issuers using or participating in the EU capital markets.
  • Finally, CESR considers that an assessment of the reliability of the audit conducted on the financial statements of issuers using an equivalent GAAP should be a step in the mechanism.
In addition to its proposed mechanism for determining equivalence, CESR suggests the European Commission considers extending the existing transitional measures for those GAAPs currently converging to IFRS if certain conditions are met. Should the Commission adopt such transitional measures, CESR would recommend they not be extended beyond 2012. A CESR study earlier this year found that at least 33 different non-EU national GAAPs are used on EU regulated exchanges. Click to download:

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