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EC report on IFRSs to European Council and Parliament

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08 May 2008

The European Commission has submitted to the European Council and European Parliament a Report on the Operation of Europe's IAS Regulation.

That regulation, adopted in 2002, (a) required IFRSs in the consolidated financial statements of all companies listed on regulated European securities markets starting in 2005 and (b) gave member states the option to require or permit IFRSs in separate company (legal entity) statements and in the consolidated or separate statements of unlisted companies. The report contains an updated table of member states' uses of these options. The Commission analysed the consistency of application of the endorsed standards/interpretations in the EU for 2005 and reached a number of conclusions, summarised here:
  • Overall, application of IFRSs has been a challenge for all stakeholders, but it has been achieved without disrupting markets or reporting cycles.
  • There is a general perception among preparers, auditors, investors and enforcers that application of IFRSs has improved the comparability and quality of financial reporting and has led to greater transparency.
  • Most stakeholders believe that the understandability of financial statements has generally improved, except for certain areas, where there seems to be room for improvement, notably on financial instruments, business combinations and share-based payments.
  • IFRS accounts are still influenced by national accounting traditions.
  • The IFRS recognition and measurement provisions appear to have been applied more consistently and clearly than certain disclosure requirements.
  • Options allowed by IFRSs, including those related to employee benefits, borrowing costs, and joint ventures, have been used in diverse ways by companies. Options in IFRSs for early application have also been widely used. However, options to widen application of fair value measurement have not been extensively used and use of the carve-out in IAS 39 is limited to very few banks. Enforcers have expressed concern and wish the number of options available in IFRSs to be reduced in the future.
The report also includes an analysis of the functioning of the endorsement process and related administrative requirements. The report concludes with this observation:

In order to maintain the current high acceptance of IFRSs in the EU, it is important that stakeholders feel that the work programme of the IASB is addressing the right issues and that future standards/interpretations will provide suitable accounting solutions. Some stakeholders have expressed doubts about some of the accounting projects currently being prepared by the IASB. It is therefore crucial that EU institutions, Member States and stakeholders become involved in the standard-setting process as early as possible, as this enhances the quality of the work and increases the legitimacy and acceptance of future standards/interpretations. The way the IASB undertakes impact assessment in future will also be monitored carefully.

Click to view Report on the Operation of Europe's IAS Regulation (PDF 181k).

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