EU FINANCIAL REPORTING LATEST DEVELOPMENTS

©2006 EFRAG

EFRAG Moscow 31 Jan 2006

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EU FINANCIAL REPORTINGLATEST DEVELOPMENTS

NOFAFrancoise Flores, EFRAG TEG

31 Jan 2006

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FRANCE

IASB

UK

US/FASBJAPAN

GERMANY AUS

CANADA

TOWER OF BABEL

SPAIN

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IASB

US/FASB

JAPAN

CANADA

CONVERGENCE

FRANCEUK

GERMANY AUS

SPAIN

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IASB

US/FASB

JAPANCANADA

CONVERGENCE

FRANCEUK

GERMANY AUS

SPAIN

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US GAAP IAS/IFRS GAAP

GLOBAL GAAPGLOBAL GAAP

CONVERGENCE

MORE DETAILED ! JAPAN

CONVERGENCE

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EUROPE AND IFRS

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CONVERGENCECONVERGENCE

EU POLICY: CONVERGENCE

A SUCCESS CRITERION FOR THE

EU COMMISSION

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MAY UNDERMINE EUROPEAN INFLUENCE

•Europe does not sit at the table

•Europe is split in its input

•Many players try to influence the IASB

•IASB is working closely with FASB

CONVERGENCE

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EU EU REGULATIONREGULATION

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REGULATION

• Financial Reporting Strategy of the Commission

• Objectives: Integrated financial market in Europe Harmonisation of financial reporting Reduce cost of capital Increase transparency and comparability

• Endorsement mechanism with two tiers technical level (EFRAG) and political level (ARC)

Europe wishes to contribute to the development of IFRS from the earliest stage possible

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REGULATION

Cornerstones

•EU companies listed on a regulated market, including banks and insurance companies, to prepare consolidated accounts in accordance with IAS/IFRS •Option for Member States to extend to unlisted companies and to the preparation of individual accounts

•SMEs not scoped in, but option provided to Member States

IASB project for SMEs!

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REGULATION

Cornerstones

• Accounting Regulatory Committee (ARC)• political level chaired by the Commission• composed of representatives of Member States • decide on endorsement on the basis of Commission proposals

• EFRAG• Accounting technical committee • Private-sector initiative (users, preparers, accountants, SS,…) • endorsement advice to the Commission• participate actively in the standard setting process

Accompanied by the Modernisation of the 4th and 7th Accounting Directive

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REGULATION

Need for proper enforcement of IFRS

• high quality statutory audit

• strengthened co-ordination among European securities regulators (CESR)

• establish equivalent, high level enforcement of financial reporting throughout the EU

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Endorsed IFRS

To be used

Not endorsed

Not to be used?

REGULATION

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EU - STRUCTURE

EFRAG

ACCOUNTING REGULATORY COMMITTEE -ARC

EU COMMISSION

Advice

Approval

EU

PARLIAMENT

COUNCIL OF MINISTERS

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IASB

approval

EFRAG

advice

EU bureaus

EU Comm + ARC

endorses

EU review

EU-Parliament

+ C o Ministers

Endorsed

2 m 1,5m 2 m + 1m

REGULATION

Translate

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EU ENDORSEMENT CRITERIAEU ENDORSEMENT CRITERIA

TRUE AND FAIR VIEW

UNDERSTANDABLE, RELEVANT, RELIABLE AND COMPARABLE

EUROPEAN PUBLIC GOOD

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EFRAGEFRAG

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EFRAG ObjectivesEFRAG Objectives

Has been assigned main objectives:

• Proactive contribution to the work of IASB and IFRIC: Contribute to and influence IASB standard setting process BEFORE a standard is issued

• Endorsement advice to the EU Commission: Technical assessment of IFRS and IFRIC interpretation AFTER they are issued

• Advise on changes to the EU Accounting Directives

• Forum to discuss and to coordinate with NSS

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EFRAG

ADDITIONAL OBJECTIVES:

•European coordination

•Stimulate thought leadership

•Challenge IASB

•Advising on EU Accounting Directives

Memorandum of Understanding with EU Commission

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EFRAG - STRUCTUREEFRAG - STRUCTURE

TECHNICAL EXPERT

GROUP - TEG

SUPERVISORY BOARD

INSURANCE WG SME JWG REV REC WG FIWG

VENTURE CAP WG CONCESSION WG

EFRAG SECRETARIAT

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ED

IASB comment period 3 months

EFRAG draft letter

EFRAG deadline

EFRAG comment

letter

Max 2 months

EFRAG Due processEFRAG Due process

EFRAG working groups

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Founding FathersFounding Fathers

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• Business community/preparers : UNICE

• Accounting profession : FEE

• Credit sector associations : FBE, ESBG and GEBC

• Insurance : CEA

• SMEs : UEAPME and EFAA

• Stock exchanges : FESE

• Financial analysts : EFFAS

Founding FathersFounding Fathers

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EFRAG - OrganisationEFRAG - Organisation

• Office in Brussels

• Permanent staff – Full-time Chairman: Stig Enevoldsen

– Technical Director: Paul Ebling

– Assistant Technical Director: Reinhard Biebel

– 3 Project Managers

– Secretary

• Technical Experts Group (TEG)

• Working groups

• PAAinE – Pro-active Partnership Accounting in Europe

• Advisory Forum

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– Highly qualified people– Time commitment 30%-50%– Drawn from national standard setters, accountancy

profession, preparers and users– Limited in size– Accountable to the Supervisory Board– Commission and CESR observer role– Consultative Forum of Standard Setters– Transparent work process – due process observed

EFRAG Organisation - TEGEFRAG Organisation - TEG

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EFRAG Technical Expert Group (TEG)EFRAG Technical Expert Group (TEG)VOTING MEMBERS AT TEG MEETINGS• Stig Enevoldsen, Chairman Denmark Auditor• Françoise Flores France Industry• Catherine Guttmann France Insurance Advisor• Hans Leeuwerik The Netherlands Industry• Ugo Marinelli Italy Auditor / Academic• Thomas Naumann Germany Banker• Friedrich Spandl Austria Financial Analyst• Dominique Thouvenin France Auditor• Mike Ashley UK Auditor, Member of the UK ASB• Thomas Seeberg Germany Industry• Mike Starkie UK Industry

NON VOTING MEMBERS AT TEG MEETINGSChairmen of large National Standard Setters:• Harald Wiedmann GASB• Antoine Bracchi CNC• Ian Mackintosh ASB

NON VOTING OBSERVERS INVITED AT TEG MEETINGS• European Commission• CESR

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Consultative Forum of Standard SettersConsultative Forum of Standard Setters

• To bring European standard setters together to discuss technical issues

• Standard setters directly related to IASB (France, Germany and UK) and all other European Standard Setters

• Meetings on a quarterly basis

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EFRAG – Working GroupsEFRAG – Working Groups

EFRAG has established working groups on:

• SME Joint Working Group

• Service Concession Arrangements

• Revenue Recognition

• Venture Capital Investments

• Insurance Accounting

• Financial Instruments

To come:

• Reporting Performance

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EFRAG

EFRAG DRAFTS FOR COMMENT NOW:•Management Commentary •Measurement Objectives•ED 8 Operating Segments (soon)

STRONGER INPUT FROM

RUSSIA

We want your comments!

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PAAinEPAAinEProactive Accounting Proactive Accounting Activities in EuropeActivities in Europe

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PAAinE

Objectives:

•High quality proactive input to IASB(+FASB)

•Improve accounting in Europe

•Create debates in Europe

•More consistent messages to IASB

•Involvement in the convergence work

•Monitor work of IASB & FASB

•Thought leadership

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Revenue Recognition

Conceptual Framework

Pensions

Equity/Liability split

Performance Reporting

PAAinE

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FRANCE

Influence!

UK

EFRAGSWEDEN

GERMANYHOLLAND

POLAND

SPAIN

PAAinE

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Consistent applicationConsistent application

Big issue in Europe

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ROADMAPReconciliation

Work prog

ROADMAPReconciliation

Work prog

EC

ROADMAP Reconcilation Work programme

US SEC

IASB

CONSISTENT APPLICATION

FASB

ECUS SEC

IASB


FASB

US SEC

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Accounting standards

Agree work programme

Implementation / application

Use of implicit options

Interpretations

Enforcement

Roadmap

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Interpretations

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INTERPRETATIONS

PERCEIVED NEED IN EUROPE

•IS THERE REALLY A NEED?

HOW DO WE SOLVE IT, IF THERE IS A NEED?

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INTERPRETATIONS

PRINCIPLES BASED

RULE BASED

HIGH LEVEL STANDARDS DETAILED STANDARDS

FLEXIBILITY ????

NOT APPLICABLE

NOT APPLICABLE

CONSISTENT????

INTERPRETATIONS?

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Interpretation Support

Mechanism

Should a mechanism be established for Europe? A Forum?

A Roundtable?

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Forum-Roundtable

Discussion:

•Is there a need?

•Should a structure be established?

•Should it just be a discussion Forum?

•Should it be lead by – NSS? – EC? – CESR?

•Resources needed?

EU Commission proposal...

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NIC

NIC D

NIC F

IFRIC

NIC

EU COORDINATOR ”FORUM”

NIC

NIC UK NIC DK

CESR

INTERPRETATION SUPPORT

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MANY PROJECTS

MANY

CHANGES

IASB WORK PROGRAM

IASB has addressed a number of issues also in the European interest:

•IFRS 1 First time adoption•Improvements project •Fair Value Option•IFRIC 2•Convergence•…

A lot has been achieved and EFRAG wants to continue good cooperation with IASB!

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ENDORSEMENT

Europe has endorsed all existing and new IFRSs

Except for:

•IAS 39 carve outs (one carve-out still remaining)

•IFRIC 3 Emission Rights (withdrawn by the IASB)

EFRAG recommends endorsement on pure technical grounds

•Fully independent from particular interest

•EU Commission takes EFRAG views into consideration

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WWW.EFRAG.ORG

©2006 EFRAG


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THANK YOU

Documents

EU FINANCIAL REPORTING LATEST DEVELOPMENTS