And Françoise Flores, its Chairman, is proud of its achievements and feels it has been an influential force for good, rallying the rest of the world behind the IFRS flag. In particular she sees it as having had a parallel life alongside the International Accounting Standards Board, (IASB). EFRAG, she says 'has accompanied the adoption of IFRS in Europe and has closely monitored and assessed the development of IFRS during these ten years. We have also devoted significant efforts with our national standard setter partners to start proactive activities and hence pool European resources and energies together'.
For her the most significant point was the decision which Europe took in 2002, and which came into force in 2005, mandating the use of IFRS by all listed companies across the EU. 'When IFRS were adopted in Europe EFRAG was put in a unique position', she says. 'There was nobody just like us. And from 2009 on we can see that EFRAG had created a group which has since been seen as the model for other regional bodies around the world, like AOSSG, the Asian-Oceanian Standard-Setters Group, for example. Organisations are uniting at a regional level so that they count in the financial reporting debate. We at EFRAG have created a model and it has been proved to be relevant to other areas around the world. It has been a remarkable ten years'. She sees EFRAG as very much a catalyst for bringing regional bodies together, following the example which she sees EFRAG as having set.
Looking ahead to the next ten years she sees the EFRAG role as maintaining the pressure and providing influence. But it is in the field of influence that she sees the most activity. 'I don't think the role of EFRAG is changing, or has changed', she says. 'EFRAG remains responsible for exercising influence on behalf of Europe in the development of IFRS and assisting the European Commission on accounting matters. The period has come though, when EFRAG has the opportunity and the means to serve its first and foremost objective, to stimulate debate on accounting matters in Europe so as to make a European view emerge and influence the financial reporting debate. That is what we do in our proactive activities'.
And that means expanding that part of its role and bringing about changes in behaviours. 'It is about bringing European constituents into the heart of the financial reporting debate. Our perspective is that standard-setters have the habit of presenting proposals without inviting people to participate in the analysis of whether the changes are needed. We must ensure that the analysis of whether, and if so how, things can be improved is carried out with European constituents' input before any proposal is put forward'.
And that means collaboration as well as change. 'We are very keen on having a process of discussion papers so that people don't feel defensive about the possibility of change', she says. 'And this should help the IASB tremendously. It would mean that ideas will be at least half sold in that people will already have understood what needs to be fixed. That would be a very positive development. We explain this process in our joint discussion paper on Considering the Effects of Accounting Standards with the UK ASB. This discussion paper has attracted very wide attention. We have been receiving responses from all around the world, from Japan, Singapore, Australia, Canada, IFAC and the international firms, for example. People have realised that at the regional level and from there at global level more can be achieved. Hence the debate can be richer and more intense'.
She is looking forward to the decision from the SEC on whether, or how, the US will move to IFRS. She sees the possibility of the US moving onto IFRS as being the final piece in the jigsaw, the piece which confirms the sense of the European decision back in 2002. 'If the US comes on board the European decision which chose IFRS so boldly in 2002 would be seen as 100% successful. That decision has brought a lot of benefits', she says. 'And these benefits remain even if the US does not join'.
'And in any case FASB is already participating. They joined us to work together on our respective projects to develop a disclosure framework which aims to create a consistent framework for both US and International GAAP. They are in the mood for sharing with others. They already consider themselves as participants. An SEC decision would make that complete'.
But there is always the possibility, increasingly an outside one, that the SEC would turn the idea down. And some old-school continental Europeans might push again for the old idea of setting up a European standard-setter. Flores rules that completely out of court. 'The SEC decision is in my view not really a question of whether, it is more a question of when', she points out. 'It is difficult to imagine that in the longer run the US wouldn't adopt IFRS in one way or another. IFRS is the only possible candidate as a single set of global financial reporting standards. The idea that Europe would set standards for itself has gone. It went with the adoption of IFRS. When they were adopted it was because Europe had proved completely unsuccessful at agreeing common standards. There are lots of benefits of adopting IFRS. And extending globally is another benefit. There will be no return to European standards'.
And the changes at the helm of the IASB, with Hans Hoogervorst succeeding Sir David Tweedie, will leave the central point of the global financial reporting revolution unchanged. 'After the successful chairmanship of Sir David Tweedie I expect that Hans Hoogervorst, their new Chairman, will develop the organisation towards further success. The IASB is facing different challenges and will probably deal with them in a different manner. But I don't expect it to make any change in the objective of making IFRS global. The IASB is at a particular juncture and any changes which do come will reflect the next steps rather than the organisation being turned upside down because there has been a change of Chairman. It has more to do with getting to a new IFRS era than just because the leadership has changed.'
She sees the IASB as having become a central global institution and one which fits well with EFRAG's objectives. 'The IASB is an institution which is robust enough to stand by itself and easily adjust to a change in leadership', she says. 'As for the future for EFRAG I think we will continue to enjoy a positive and constructive relationship with the IASB and that relationship may be even enhanced. I look forward to Hans and Ian leading the organisation'.
Meanwhile she welcomes the progress being made with the current IASB projects. 'EFRAG had called for a more reasonable pace in the development of standards and so we welcome re-exposure of the proposals on revenue recognition and leases', she says. 'And we welcome forthcoming efforts to bring IFRS 9 and FASB latest decisions onto common ground. We believe that our recommendations have the potential of helping the IASB and FASB to reach this common ground and therefore are hoping that the next developments in the work on financial instruments will be positive. We hope the insurance project will be finalised on a reasonable basis without unnecessary delay. Europe needs such a standard. We have launched a series of field tests to be performed on the basis of the revised Revenue Recognition proposals. This is to help the IASB in the performance of such field tests that we have claimed for a long time should be carried out before any significant change to IFRS is finalised'.
As for the prolonged saga of the European endorsement of IFRS 9 she is determined. 'The European Commission position is well known', she points out. 'The endorsement process is in their remit. It will be considered when IFRS 9 is completed. Developments in IFRS 9 will continue and I don't see any reason why it should take years. The IASB will sustain its efforts in the project and IFRS 9 will come as a natural candidate for endorsement. The European Commission position is very clear'.
And she is equally forthright on the endorsement of future IASB projects. 'In those decisions, or amendments, that the IASB has published there are significant changes', she says. 'The most significant is what we call "the consolidation package". So far we have issued two draft endorsement advice letters assessing changes to IAS 1 and IAS 19 and they are positive. In the case of IFRS 10, 11 and 12 our analysis is still in progress'.
As for the future she wants to see a greater emphasis on consistency rather than simple activity. 'In early August we issued our preliminary views on the IASB agenda consultation', she says. 'We believe that IASB's first priority is to ensure consistency in the application of IFRS globally. We are also promoting that idea that the revision of the conceptual framework be resumed and that a period of calm be observed so people can enjoy financial reporting on a consistent basis for a while. And that would also help the IASB devote the necessary efforts to achieving consistency of application. The main focus for the IASB in the years to come should be consistency of application. Having jurisdictions adopt IFRS is not easy. But the real challenge is to have a unique set of standards being applied'.
And she sees EFRAG and the IASB moving closer in the years to come. 'Over the years the IASB's interest in EFRAG's activities has grown', she says. 'It is very much because EFRAG and European standard setters work so closely together. We have enjoyed a positive and constructive arrangement with the IASB. So if it becomes more formal it is do no more than just describing what we have already put into practice'.
Robert Bruce October 2011
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