1 IFRS Accounting in Europe Thomas Oversberg Project Manager Brussels - 5. November 2007

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IFRS Accounting in Europe

Thomas Oversberg

Project Manager

Brussels - 5. November 2007

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Agenda Who is EFRAG? How do IFRSs become European law (the

Endorsement Process)? Lease Accounting in Europe

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EFRAG - background European Financial Reporting Advisory

Group (EFRAG) Technical group to advice European

Commission (EC) on IFRS Independent, private sector body, founded

in 2001 by European organisations of preparers and users of financial statements and auditors, as well as European standard setters

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EFRAG‘s role Proactive contribution to the IASB and

IFRIC – Comment Letters EU Commission - Endorsement advice Stimulate thought leadership – PAAinE European Coordination - CFSS

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EC – EFRAG Working Arrangement The Working Arrangement of March 2006

formalised EFRAG‘s role as a technical advisor to the EC:

"EFRAG will provide advice to the Commission on all issues in relation to the application of IFRS in the EU.”

Specifically on: Endorsement advice Proactive input to IASB/IFRIC

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Technical Expert Group

(TEG)

Supervisory Board

EFRAG‘s structure

CFSS

User Panel

Secretariat

INSURAN WG SME JWG

JV WG

Fin Inst WG

CONCESSION WG

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EFRAG‘s due process Members of the TEG must not consider

themselves as representing sectorial and/or national interests but shall be guided by the need to act in the European Interest.

EFRAG has an open and transparent due process, which allows all European constituents to provide input for consideration of EFRAG.

All technical discussions held in public meetings. Invitation to comment on all EFRAG draft

publications.

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EFRAG‘s due process (cont.) Publication of basis of conclusion for

EFRAG on endorsement advice. Publication of TEG agendas and summary

minutes of its meetings. Publication of the final endorsement

advice to the Commission. Publication of final comment letters on

IASB consultation documents, and other EFRAG positions.

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Endorsement Process The “original” endorsement process –

Endorsement with supervision SARG – Endorsement with supervision and

review of EFRAG’s advice The future endorsement process –

Endorsement with scrutiny

The Endorsement Process

Endorsement with Supervision

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The Endorsement Process

Endorsement with SARG

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SARG

The Endorsement Process

Endorsement with scrutiny

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Endorsement Situation Until 2007, Europe has endorsed all IASB

Standards and Interpretations, except: IAS 39 – Carve Out IFRIC 3 Emission Rights – Subsequently

withdrawn by IASB In 2007, the endorsement process was

delayed due to concerns over: IFRS 8 Operating Segments and IFRIC 12 Service Concession Arrangements

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Endorsement Situation (cont.)

As of 16.10.2007

www.efrag.org

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IFRS 8 – State of play The IASB published IFRS 8 on November 30, 2006 EFRAG issued its positive endorsement advice on

January 16, 2007 The Accounting Regulatory Committee (ARC)

unanimously supported endorsement in its meeting on February 2, 2007

The European Parliament (EP) raised some concerns on IFRS 8.

In April 2007, the EP and the European Commission (EC) agreed to carry out an impact assessment of IFRS 8.

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IFRS 8 – State of play (cont.) Impact assessment published by the EC in

September 2007. In October 2007 the ECON committee of the EP

drafted a positive resolution, however requesting: Review of IFRS 8 implementation in 2011 by the EC Impact assessment on other standards and

interpretations by the EC Voting on the resolution expected in the

November 2007 EP session. Publication in Official Journal soon thereafter.

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IFRIC 12 – state of play The IASB / IFRIC published IFRIC 12 on November

30, 2006 EFRAG submitted – after considerable debate – a

positive endorsement advice to the EC on March 23, 2007.

Meeting between Spain and IASB on that issue. The ARC discussed IFRIC 12 several times so far,

but has not been asked by the Commission to vote on it, i.e. the EC has so far not used its right of initiative.

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PAAinE Pro-Active Accounting Activities in Europe

(PAAinE) OBJECTIVES:

Partnership with National standard setters High quality proactive input to IASB(+FASB) More consistent messages to IASB Create debates in Europe Involvement in the convergence work Monitor work of IASB & FASB Thought leadership Better utilisation of European resources

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PAAinE publications so far

Conceptual Framework

Stewardship Revenue Recognition

Performance Reporting

Future publications:

Performance Reporting II

Conceptual Framework II

Equity / Liability

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Lease Accounting in Europe 4th Directive does not contain any specific

guidance on lease accounting European countries developed often tax driven

systems (such as Germany, Belgium…). IAS 17 increased comparability to a certain

extent, but resulted in interpretation issues on terms used.

The first standard to apply “substance over form” concept.

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Leasing – recent developments Amendments to leasing standard as part

of the annual improvements project Leasing in the SME ED The IASB / FASB Leasing Project

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Annual Improvements Project IAS 17:

Classification of leases of land and buildings Contingent rents EFRAG agrees with the proposed amendments.

IAS 40: Investment property held under lease EFRAG agrees with the proposed amendment.

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Leasing Project EFRAG welcomes that the IASB & FASB intents to tackle

lease accounting and its current issues. EFRAG appreciates that any future solution needs to be

aligned to the framework and the assets / liabilities definitions.

EFRAG cautions to develop a conceptually perfect solution, which is not practical to implement for the vast majority of contracts and companies.

Substance of lease transactions need to be considered. EFRAG supports convergence, but not for the sake of it, but

rather to get the best accounting solutions.

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Concluding remarks Speaking with one voice and submitting good

and thoughtful arguments towards the IASB has proven to be of utmost importance.

Providing input and comments to EFRAG ensuring that EFRAG is aware of issues and positions and able to fulfil its role European role is paramount and should be a high priority for users, preparers, standard setters and other constituents, in short: YOU.

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EFRAG

Avenue des Arts 13-14 1210 Brussels Belgium info@efrag.org

36www.efrag.org