Overview on EU Accounting issues

Moscow – 27 February 2008

Jeroen Hooijer

Head of accounting Unit, EU Commission

IAS Regulation (1606/2002/EC)• Directly applicable in all EU member states (MS) - 2005• No national variations• All EU companies that are listed in the EU use endorsed

IAS/IFRS for consolidated accounts • Non-EU issuers outside the scope

• MS Option to extend the scope to:– unlisted companies (authorized by many MS)– individual accounts (authorized by few MS)

Major challenges faced in 2005

• International system• First-time application• Principles based – Professional judgment required• Complex - Integration of risk and financial analysis• Replace 25 national accounting legislation transposing

Directives and application practices• Experience of users• Scope of application

The EU endorsement process

• political and legal endorsement of IFRS• Criteria

– IFRS not contrary to “true and fair view” principle of Accounting Directives

– IFRS must be conducive to public good (competitiveness and convergence)

– IFRS must be understandable, relevant, reliable and comparable

Endorsement process

IASB

EFRAG

EuropeanCommission

ARC(Accounting RegulatoryCommittee

European Parliament

Interest groups

SARG

IASB

approval

EFRAG

advice

EU Institutions

ARC opinion

EU review

EU-Parliament

Endorsed by EC

2 m 0,75m 2 m + 3m

Translations

Time-line of endorsement

SARG advice

0,75m

Endorsement – state-of play

• All IAS and SIC, except some provisions of IAS 39, are endorsed- (a few provisions of IAS 39 related to hedge accounting

are carved out)

• New IFRS and IFRIC endorsed • New standards in the pipeline: i.a. BUSCOM - II

Need for coherent application

• clear standards• monitoring• Learning from preparers’ experience• Need for interpretations/guidance• Role of auditors and other enforcers• Studies (ICAEW, CESR): ”challenging but

successful”

Equivalence / Convergence

EU

« Equivalence »

US

« acceptance of IFRS »

IASB / FASB

« Convergence »

US “acceptance of IFRS”

• SEC ”road map” with 2007-2009 time frame:– Removal of the reconcilation requirement for EU

issuers registered with the SEC– Required:

• Progress on convergence of standards

• Consistency of application of IFRS across countries and industries

– SEC Rule of 15 Nov. 2007- IFRS recognized.– Concept release: Also US issuers to use IFRS?

US - continued

• - Application for 2007• - IFRS as adopted by the IASB• - IAS 39 – reconciliation to IFRS – (one company)• - 2 years period

Governance IASB

• Press-release 8 November 2007• US-SEC, FSA- Japan, EU Commission and

IOSCO• Independent oversight;• Monitoring body• Due process, impact assessments• Nomination process

European Structure

• Early, upstream input towards IASB• Coherent and convincing European positions• Need for strong European presence, - not a new

standard setter• How?

EU “equivalence”

• Foreseen by Transparency and Prospectus Directives

• Commission to assess whether third country GAAP’s are ”equivalent” to IFRS

• Equivalence mechanism adopted in December 2007

• Decision on GAAP’s before 2009

• Further transition-period for those converging - 2011

• Reciprocity

IFRS Global framework – EU perspective

IFRS Global framework – EU perspective

IASB

ASBJ

NSS NSS NSS

Transatlantic dialogue

Other countries

CESR EFRAG

COMMISSION

EC EPFASB

SEC

The EU approach in an international context

• The EU supports worldwide use of IFRS• IFRS has speeded up accounting reforms in major

markets • IFRS often integrated into national GAAPs• Mutual recognition in the US

Contact

• DG Internal Market & Services website:http://europa.eu.int/comm/internal_market/en/index.htm