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EU FINANCIAL REPORTING LATEST DEVELOPMENTS

EU FINANCIAL REPORTING LATEST DEVELOPMENTS. NOFA Francoise Flores, EFRAG TEG 31 Jan 2006. TOWER OF BABEL. US/FASB. JAPAN. CANADA. IASB. GERMANY. AUS. UK. SPAIN. FRANCE. AUS. GERMANY. SPAIN. UK. FRANCE. CONVERGENCE. CANADA. US/FASB. JAPAN. IASB. AUS. GERMANY. SPAIN. UK.

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EU FINANCIAL REPORTING LATEST DEVELOPMENTS

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  1. EU FINANCIAL REPORTING LATEST DEVELOPMENTS NOFA Francoise Flores, EFRAG TEG 31 Jan 2006

  2. TOWER OF BABEL US/FASB JAPAN CANADA IASB GERMANY AUS UK SPAIN FRANCE

  3. AUS GERMANY SPAIN UK FRANCE CONVERGENCE CANADA US/FASB JAPAN IASB

  4. AUS GERMANY SPAIN UK FRANCE CONVERGENCE US/FASB CANADA JAPAN IASB

  5. JAPAN CONVERGENCE US GAAP IAS/IFRS GAAP CONVERGENCE GLOBAL GAAP MORE DETAILED !

  6. EUROPE AND IFRS

  7. CONVERGENCE EU POLICY: CONVERGENCE A SUCCESS CRITERION FOR THE EU COMMISSION

  8. 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

  9. EU REGULATION

  10. 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

  11. 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!

  12. 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

  13. 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

  14. Not endorsed Not to be used? REGULATION Endorsed IFRS To be used

  15. EU - STRUCTURE EU PARLIAMENT Approval ACCOUNTING REGULATORY COMMITTEE -ARC EU COMMISSION COUNCIL OF MINISTERS Advice EFRAG

  16. 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

  17. EU ENDORSEMENT CRITERIA TRUE AND FAIR VIEW UNDERSTANDABLE, RELEVANT, RELIABLE AND COMPARABLE EUROPEAN PUBLIC GOOD

  18. EFRAG

  19. 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

  20. EFRAG • ADDITIONAL OBJECTIVES: • European coordination • Stimulate thought leadership • Challenge IASB • Advising on EU Accounting Directives Memorandum of Understanding with EU Commission

  21. INSURANCE WG SME JWG REV REC WG FIWG CONCESSIONWG VENTURE CAP WG EFRAG - STRUCTURE SUPERVISORY BOARD TECHNICAL EXPERT GROUP - TEG EFRAG SECRETARIAT

  22. EFRAG Due process IASB comment period 3 months Max 2 months EFRAG deadline ED EFRAG draft letter EFRAG comment letter EFRAG working groups

  23. Founding Fathers

  24. 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

  25. 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

  26. 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

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

  28. 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

  29. 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

  30. EFRAG • EFRAG DRAFTS FOR COMMENT NOW: • Management Commentary • Measurement Objectives • ED 8 Operating Segments (soon) • STRONGER INPUT FROM • RUSSIA We want your comments!

  31. PAAinEProactive Accounting Activities in Europe

  32. 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

  33. PAAinE Revenue Recognition Conceptual Framework Pensions Equity/Liability split Performance Reporting

  34. PAAinE EFRAG SWEDEN POLAND Influence! GERMANY HOLLAND SPAIN FRANCE UK

  35. Consistent application Big issue in Europe

  36. CONSISTENT APPLICATION CONSISTENT APPLICATION US SEC EC EC US SEC US SEC ROADMAP Reconciliation Work prog ROADMAP Reconcilation Work programme IASB IASB FASB FASB ROADMAP Reconciliation Work prog

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

  38. Interpretations

  39. INTERPRETATIONS • PERCEIVED NEED IN EUROPE • IS THERE REALLY A NEED? HOW DO WE SOLVE IT, IF THERE IS A NEED?

  40. INTERPRETATIONS? INTERPRETATIONS PRINCIPLES BASED RULE BASED FLEXIBILITY ???? NOT APPLICABLE HIGH LEVEL STANDARDS DETAILED STANDARDS NOT APPLICABLE CONSISTENT????

  41. Interpretation Support Mechanism Should a mechanism be established for Europe? A Forum? A Roundtable?

  42. 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...

  43. INTERPRETATION SUPPORT IFRIC CESR EU COORDINATOR ”FORUM” NIC NIC D NIC DK NIC UK NIC NIC F NIC

  44. 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!

  45. 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

  46. WWW.EFRAG.ORG

  47. THANK YOU

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