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EU FINANCIAL REPORTING LATEST DEVELOPMENTS
NOFA Francoise Flores, EFRAG TEG 31 Jan 2006
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TOWER OF BABEL
US/FASB
JAPAN
CANADA
IASB
GERMANY
AUS
UK
SPAIN
FRANCE
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CONVERGENCE
CANADA
US/FASB
JAPAN
IASB
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CONVERGENCE
US/FASB
CANADA
JAPAN
IASB
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CONVERGENCE
US GAAP
IAS/IFRS GAAP
CONVERGENCE
GLOBAL GAAP
MORE DETAILED !
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EUROPE AND IFRS
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CONVERGENCE
EU POLICY CONVERGENCE
A SUCCESS CRITERION FOR THE EU COMMISSION
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CONVERGENCE

• 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

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EU REGULATION
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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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REGULATION
Endorsed IFRS
To be used
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EU - STRUCTURE
EU PARLIAMENT
Approval
ACCOUNTING REGULATORY COMMITTEE -ARC
EU COMMISSION
COUNCIL OF MINISTERS
Advice

EFRAG
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REGULATION
2 m
1,5m
2 m
1m
EU Comm ARC endorses
IASB approval
EFRAG advice
Translate
EU review EU-Parliament C o Ministers
EU bureaus
Endorsed
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EU ENDORSEMENT CRITERIA

TRUE AND FAIR VIEW UNDERSTANDABLE, RELEVANT,
RELIABLE AND COMPARABLE EUROPEAN PUBLIC GOOD
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EFRAG
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EFRAG 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 - STRUCTURE
SUPERVISORY BOARD
TECHNICAL EXPERT GROUP - TEG

EFRAG SECRETARIAT
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EFRAG Due process
IASB comment period 3 months
Max 2 months
EFRAG deadline
ED
EFRAG draft letter
EFRAG comment letter
EFRAG working groups
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Founding Fathers



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Founding Fathers

• 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

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EFRAG - 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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EFRAG Organisation - TEG

• 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

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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 MEETINGS
• Chairmen of large National Standard Setters
• Harald Wiedmann GASB
• Antoine Bracchi CNC
• Ian Mackintosh ASB

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Consultative 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 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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PAAinEProactive Accounting Activities 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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PAAinE
Revenue Recognition Conceptual Framework Pensions
Equity/Liability split Performance Reporting
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PAAinE
EFRAG
SWEDEN
POLAND
Influence!
GERMANY
HOLLAND
SPAIN
FRANCE
UK
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Consistent application
Big issue in Europe
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ROADMAP Reconciliation Work prog
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Roadmap

• CONSISTENT APPLICATION
• Accounting standards
• Agree work programme
• Implementation / application
• Use of implicit options
• Interpretations
• Enforcement

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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

FLEXIBILITY ????
NOT APPLICABLE
HIGH LEVEL STANDARDS
DETAILED STANDARDS
NOT APPLICABLE
CONSISTENT????
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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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INTERPRETATION SUPPORT
IFRIC
CESR
EU COORDINATOR FORUM
NIC
NIC D
NIC DK
NIC UK
NIC
NIC
NIC F
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IASB WORK PROGRAM
MANY PROJECTS
MANY CHANGES

• 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
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THANK YOU