Overview on EU Accounting issues Moscow – 27 February 2008

1. Overview on EU Accounting issues Moscow – 27 February 2008 Jeroen Hooijer Head of accounting Unit, EU Commission

2. 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)

3. 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

4. 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

5. Endorsement process IASB European Commission European Parliament EFRAG SARG ARC (Accounting Regulatory Committee Interest groups

6. Time-line of endorsement 2 m 0,75m 0,75m 2 m + 3m ARC opinion IASB approval EFRAG advice Translations EU review EU-Parliament SARG advice EU Institutions Endorsed by EC

7. 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

8. 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”

9. Equivalence / Convergence EU « Equivalence » IASB / FASB « Convergence » US « acceptance of IFRS »

10. 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?

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

12. 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

13. European Structure • Early, upstream input towards IASB • Coherent and convincing European positions • Need for strong European presence, - not a new standard setter • How?

14. 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

15. IFRS Global framework – EU perspective IFRS Global framework – EU perspective IASB Other countries COMMISSION FASB EC EP ASBJ SEC Transatlantic dialogue CESR EFRAG NSS NSS NSS

16. 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

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