First European Commission report on the activities of the IFRS Foundation, EFRAG and PIOB
13 Sep 2016
In April 2014 a regulation of the European Union came into force establishing a Union programme to support specific activities in the field of financial reporting and auditing for the period of 2014-20. The regulation forms the legal basis for the co-financing of the IFRS Foundation, EFRAG and PIOB. According to the regulation, the Commission must prepare an annual report on the activity of the beneficiaries of the programme. The first report is now available.
On the activities the of the IFRS Foundation the report's conclusion are as follows (the IFRS 4 references are to be read as references to the new insurance contracts standard replacing IFRS 4 and expected as IFRS 17 within the next six months):
In respect of whether IFRS:
- take due account of different business models: IFRS 9 explicitly recognises the importance of business models in determining measurement of financial instruments and IFRS 15 is considered flexible enough to meet different business models. The Conceptual Framework gives business models more emphasis.
- reflect the actual consequences of economic transactions: IFRS 15 achieves this and IFRS 16 also seeks to better reflect the actual consequences of economic transactions and provide much-needed transparency about companies’ lease assets and liabilities. IFRS 4 Insurance Contracts, currently finalised by the IASB, is also expected to provide a realistic depiction and better comparability of financial performance of the insurance industry across different consituencies. Furthermore, the Conceptual Framework will introduce the concept of substance over form, which is important for portraying economic transactions appropriately.
- are not overly complex: IFRS 9 is a complex standard however it has introduced simplifications in the accounting for financial instruments. In EFRAG’s view, presented in the endorsement advice, IFRS 9 does not contain any complexity that may impair understandability. IFRS 15 is more complex than the standard it replaces but this is justifiable as the previous standard was no longer appropriate to reflect the complexity of modern day business transactions.
- avoid artificial short-term and volatility biases: IFRS 15 is effective in avoiding such volatility as it contains specific provisions that apply where there is uncertainty in recognising future revenue. As regards IFRS 4 Insurance Contracts, EFRAG will look at this aspect during the endorsement process following the publication of the standard by the IASB.
The Commission also reiterates its support for the re-introduction of the concept of prudence into the Conceptual Framework and welcomes the comprehensive effects analysis, which accompanied IFRS 16.
As regards EFRAG, the Commission notes that the organisation has been well equipped to strengthen the legitimacy of its positions and significantly contribute to the objective of Europe speaking with one voice. EFRAG's assessment of whether new or proposed financial reporting requirements are conducive to the public good is lauded.
As regards PIOB, the Commission notes that it will continue monitoring the funding developments and will cooperate with other interested stakeholders to ensure that the PIOB benefits from a clear, stable, diversified and adequate funding system.
Please click to access the full report on the European Commission's website.