The key elements of CESR's proposed mechanism for determining equivalence are:

• The process for determining equivalence should be initiated by an application to the European Commission by the national standard setter (NSS) seeking equivalent status of its accounting principles. The application should include an honest assessment of whether disclosures and measurement principles required by that country's GAAP are materially the same as IFRSs and where they are not an assessment of the differences.
  • If the NSS concludes that there are no significant differences (for example because a convergence programme has reached a point where no material differences exist any more), such GAAP may be deemed equivalent without the need of additional 'rectification disclosures'.
  • Even if the NSS concludes that there are significant differences, the third country GAAP may be considered equivalent to IFRSs if those differences can be 'rectified' at company level by non-complex disclosures. Those non-complex disclosures should be subjected to audit.
• Prior to giving any advice to the Commission, CESR would seek reactions from market users regarding the third country GAAP and the proposed rectifications via public consultation.
• An 'overall' assessment of equivalence should be made in the final instance by the European Commission via a comitology process once all other steps have been fulfilled and using the definition of equivalence CESR has already provided.
• 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 the assessment of the reliability of the audit of the financial statements should be another step in the mechanism. Compliance with the 8th Directive should be a relatively easy thing to establish about any jurisdiction that is applying for its GAAP to be recognised as equivalent.