The Commission presents a report on the evaluation of Regulation (EC) N° 1606/2002 on the application of international accounting standards (IAS Regulation) as part of the Regulatory Fitness and Performance Programme (REFIT). The objective of adopting International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) for use in the EU was to improve the efficient functioning of the EU capital markets and the internal market.

The objective of the IAS Regulation was to harmonise the financial reporting of listed companies by ensuring a high degree of transparency and comparability of their financial statements in order to enhance the efficient functioning of EU capital markets and of the internal market. The Regulation attached importance to IFRS becoming globally accepted.

Method: the Commission conducted the evaluation by seeking the views of stakeholders through a public consultation, an informal expert group and the Accounting Regulatory Committee (ARC) which comprises representatives of all Member States. The evaluation sought to compare the situation under the IAS Regulation with what would have been the case if IFRS had not been adopted. The evaluation was generally from the perspective of the EU as a whole, without systematic analysis of the interaction of the Regulation with national legislation. The evaluation does not touch upon auditing.

Findings and next steps : the Commission is satisfied with the overall quality of the evaluation and in that context finds the overall results adequately supported by the evidence despite limited availability of quantitative data. The key findings showed that the objectives of the Regulation have been met . The Commission services and the European Financial Reporting Advisory Group (EFRAG) assess the effects of a standard at EU level. It appears that the reform of EFRAG in the period under review is perceived as important in strengthening the EU voice in the development of IFRS. The reform took effect on 31 October 2014 when the amended EFRAG Statutes and Internal Rules came into force. It involved establishing a new Board of EFRAG, its new decision-making body, with balanced representation of public and private interests, with a view to strengthening the legitimacy of its positions and contributing to the objective of Europe speaking with one voice.

Nevertheless, the Commission feels that there are opportunities to improve the way in which the provisions of the IAS Regulation are applied and has identified a number of practical steps which could be taken.

1) Functioning of the IAS Regulation

the existing scope of the Regulation and the options given to Member State are appropriate. The Commission recalls that as part of the Green Paper on Building a Capital Markets Union, it asked whether there is value in developing a common EU level, high quality and simplified accounting standard for SMEs listed on Multilateral Trading facilities (MTFs); the Commission supports IFRS as global standards and continues to urge the United States SEC to adopt IFRS for use by its domestic companies. It considers that commitment to IFRS should be evidenced by establishing permanent financial contributions to fund the IFRS Foundation, proportionate to a contributor country's GDP; the effectiveness of the Regulation depend on the quality of the standards themselves which should continue to be appropriately assessed during their development and endorsement. In particular, any interaction between the IAS Regulation and other EU law should be considered. The Commission will examine the case for strengthening EU rules relating to dividend distribution; the Commission encourages Member States to apply ESMA enforcement guidelines . It will look at whether the powers of the European Supervisory Authorities, including ESMA, are sufficient and whether more efficient approaches towards supervisory and market reporting could be helpful for market participants; to ensure simplification of legislation and coherence , the Commission will consider a codification exercise of the legislation endorsing IFRS in the medium term, after adoption of some major pending standards.

2) Endorsement process

the Commission will ensure that its requests to EFRAG for endorsement advice include specific concerns, including matters of public good, on a case by case basis. The involvement of Member States at an earlier stage of the process will help to inform the Commission staff of any concerns and EFRAG’s reformed governance structure will enhance its ability to address the matters raised. the Commission encourages EFRAG to develop its capacities with respect to the analysis of the effects of standards including macro-economic effects.

3) Governance arrangements for the relevant organisations

the Commission calls on the IFRS Foundation to refocus its attention from issues of internal organisation to discussing matters of public interest that could be referred to the IFRS Foundation. the IASB is urged to strengthen their impact analyses, to consider the specific needs of investors with different investment time horizons and to provide specific solutions, in particular to long-term investors, when developing their standards.

In order to ensure that the objective of strengthening the EU's influence on the development of international accounting standards is met, the Commission will continue to closely monitor the follow-up of the reform and will report yearly.

COM(2015)0301
EUR-Lex

This Commission staff working document evaluates, in detail, Regulation (EC) N° 1606/2002 on the application of International Accounting Standards (IAS).

It draws conclusions on the findings of the evaluation, on the Regulation’s endorsement criteria and on governance aspects, and maps out a way forward. The working document is organised by topics covered in the IAS Regulation.

It main findings were as follows:

Possible extension of the scope : while stakeholders do not see an immediate need for change, about a third acknowledged that extension of the use of IFRS beyond the present mandatory scope could be explored in certain areas to achieve greater harmonisation where possible, to inform investors but also to save costs. However, practical issues that Member States could have difficulties in overcoming were highlighted. These concerned taxation, company law, capital maintenance and variable remuneration. Also, there was an increased need for Member States to assess the impact of IASB developments at national level. A potential need to align certain European directives was also stressed.

Enforcement : feedback from the public consultation suggested that there is generally little appetite for EU legislation on penalties and enforcement activities. Some experts thought that ESMA’s role could be strengthened through ‘soft law’ leaving Member States some discretion as to how they achieve enforcement, especially now that the system is more mature. The feedback revealed no critical difference in enforcement among Member States.

Global standards : the IAS Regulation envisaged IFRS becoming global standards which would benefit EU companies. Stakeholders believed that the EU’s decision to adopt IFRS provided a major impetus to the credibility and acceptance of IFRS globally.

Simplification and codification : within the IAS Regulation, IFRS adopted by the EU have been codified in a legally-binding Commission Regulation amended for each new standard and amendment. Twice yearly, the Commission draws up a non-binding consolidated version of current standards in all EU languages. Evidence shows a need for improved translations for certain languages, practical difficulties in the consolidation of the standards and some discrepancies between IASB and the EU consolidated texts. An official codification of all IFRS by the Commission could therefore represent a useful exercise. As regards coherence , the document noted that the IAS Regulation interacts with other EU regulations and directives. The Commission is committed to help address any points of friction in the interactions between the IAS Regulation and the Accounting Directive. Thus far, adequate interpretation and transposition methods by the Member States have enabled such points to be overcome.

Endorsement criteria : the document suggested that two other criteria could be added as components of public good: that the standards should not endanger financial stability and must not hinder the economic development of the Union. Alternatively it suggested issuing a Communication giving guidelines for the interpretation of the public good criterion. The Commission, together with EFRAG, should produce guidance for improving the understanding of the endorsement criteria.

Governance : to recall, the IFRS Foundation is an independent organisation setting accounting standards for more than 100 countries. Hence, it needs strong governance arrangements to ensure public accountability. In response to demand from stakeholders, including European concerns, the IASB is developing its Conceptual Framework which will improve financial reporting by providing a complete and updated set of concepts to use in their future work. The IFRS Foundation is bound by its Constitution to review its organisational structure every five years. Past reviews significantly improved its governance. The next review will present an opportunity to tackle the issue of the Foundation’s funding and decision-making process, including the role of the Monitoring Board.

Overall cost/benefit assessment : there seems to be broad agreement among stakeholders responding to the public consultation and the expert group that, on the whole, the benefits of IFRS outweigh the costs. From that perspective, the IAS Regulation appears to be an effective contribution to its stated objectives of greater transparency, comparability and better-functioning capital markets.

EUR-Lex
SWD(2015)0120

In accordance with specifications set out in Regulation (EC) No 1606/2002 - the IAS Regulation, the Commission is required to review and report upon the Regulation’s operation.

To recall, the IAS Regulation places an obligation on European companies, whose securities are admitted to trading on a regulated market in the EU, to prepare their consolidated accounts in conformity with IAS/IFRS and SIC/IFRIC international accounting standards. The main findings of the report are as follows :

Effective use of the IFRS in the EU: in 2005 the number of IFRS adopters, whose securities were admitted to trading on a regulated market in the EU, stood at 7 365, of which 5 534 were equity issuers. By 31 December 2005 the following standards and interpretations had been endorsed: IAS 1 to 41, IFRS 1 to 6, SIC 7 to 32 and IFRIC 1 to 5, excluding those superseded or abolished before or after that date. Additional standards and interpretations were endorsed in 2006 (IFRS 7 and IFRIC 6 to 9) and 2007 (IFRS 8 and IFRIC 10 and 11), along with amendments to previously endorsed standards. Some standards (IFRS 6), amendments to standards (on IAS 39) and interpretations (IFRIC 4 and 5) endorsed in 2005 could be applied as from 1 January 2006. It was also possible to apply IFRS 7, IFRIC 6 and amendments to some standards endorsed on 11 January 2006 to 2005 financial statements. CESR’s members have undertaken a full review of 1 410 companies’ 2005 IFRS financial statements and a thematic review of an additional 920 companies’ 2005 IFRS financial statements. They have set up a database in which 85 enforcement decisions had been entered by the end of August 2007.

Application of IFRS in the EU: the overall application of the IFRS has been challenging for all stakeholders. Nevertheless it has been achieved without disrupting markets or reporting cycles. This is a major achievement. Overall, stakeholders report that applying IFRS has improved the comparability and quality of financial reporting and has led to greater transparency. The flexible approach to IFRS implementation has tailored the application of the Regulation to the individual accounting environment of each Member State. Understanding of the financial statements has generally improved – other than in certain areas such as financial instruments, business combinations and share-based payments, where there seems to be room for improvement. IFRS accounts remain influenced by national accounting traditions. One reason for this is a lack of experience and accounting doctrine. IFRS recognition and measurement provisions appear to have been applied more consistently and clearly than certain disclosure requirements. Options allowed by IFRS, including those related to employee benefits, borrowing and costs and joint ventures, have been widely used. However, use of the carve-out in IAS 39 is limited to very few banks. Specific concerns have been identified by the CESR in certain areas, such as business combinations, financial instruments, non-current assets, disclosure on accounting policies, estimates and assumptions. Enforcers recommend improving disclosure relating to pension schemes and share-based payments plus further streamlining of the balance sheet and income statement formats Few technical accounting issues have been referred to the Roundtable for the consistent application of IFRS in the EU. On a final point, academics have started to analyse the impact of IFRS on securities markets but it is still too early to report on any findings.

Conclusions: the report notes that the first year of IFRS mandatory application in the EU has been generally positive albeit that regulatory changes and lack of experience have posed a challenge for first-time users. The IFRS has been applied consistently across the EU and the level of consistency between IFRS accounts is likely to increase over time as preparers and auditors gain greater experience in applying the new accounting framework.

The EU endorsement process ensures technical quality and political legitimacy. The endorsement system is flexible. Thus, for example, it has already been amended to include SARG, new working methods in EFRAG and new committee procedures. In order to maintain this momentum it is important that stakeholders feel the right issues are being prioritised. As a result, the report urges the EU institutions, the Member States and interested parties to become involved in the standard setting process as early as possible.

COM(2008)0215
EUR-Lex

32003R1725
OJ L 261 13.10.2003, p. 0001-0420

Regulation 2002/1606
OJ L 243 11.09.2002, p. 0001-0004

T5-0094/2002
OJ C 047 27.02.2003, p. 0025-0062 E

T5-0094/2002

Debate in Parliament

A5-0070/2002

A5-0070/2002

2401

CES0934/2001
OJ C 260 17.09.2001, p. 0086

EUR-Lex
OJ C 154 29.05.2001, p. 0285 E
COM(2001)0080

EUR-Lex
COM(2001)0080