Advanced Program in Accounting and Auditing Regulation EU – IFRS and issuers

1. Advanced Program in Accounting and Auditing Regulation EU – IFRS and issuers Kristjan-Erik Suurväli Head of Market Supervision Division 08.11.2005

4. Capitalization of share issuers Mln Eur

5. Capitalization of bond issuers Mln Eur

6. Tallinn Stock Exchange turnover and TALSE index

7. Legislative environment for IFRSAccounting Act § 17 (2) The accounting policies and presentation formats used in the preparation of financial statements by ..a company, the shares or other securities issued by which are quoted on a stock exchange in Estonia or a member state of the European Union, shall be in accordance with international financial reporting standards. (01.01.2003) Wording was changed to Regulation 1606/2002/(01.01.2005)

8. TSE Listing Rules

9. TSE Requirements for issuers

10. Prospectus directive • PD was implemented from 1.11.2005 • We have no actual practice until now • But IAS standards has been applicable from 1997

11. Issuers supervision in EFSA EFSA uses three step procedure • Entry to the market • Public issuers which are not applying for listing • Public issuers which are applying for listing • Secondary market for listed issuers • Exit • De-listing • Takeover bids

12. 1 - EFSA has the right to: • obtain information, documents and explanations from any natural or legal person and from government agencies, supervisory bodies and state and local government databases free of charge • Summon persons to EFSA • conduct distance interrogations/hearings • Use evidences collected according to foreign law • carry out on-site inspection of an issuer whose securities are traded on a regulated market or whose securities are subject to a public offer or have been subject to a public offer during the past five years

13. In course of on-site inspection EFSA has right to • Enter into all premises of issuer • Use necessary rooms and conditions for co supervision • Without any limitations to investigate documents and data carriers and make copies, transcripts of those • Monitor working processes • Obtain oral and written explanations from personnel • Issuer under on.site inspection has to appoint competent person to assist EFSA • EFSA may delegate foreign authority to carry out on-site inspection in issuer

14. 2 - EFSA has the right to: • Order assessment by expert • Order extraordinary audit • Issue precepts • Ask for removal of auditors • Make a statement on shareholders meeting

15. Listed - Q reports • Issuers are divided into assessment categories • Q reports are check-listed • Issues are grouped • Issuer specific questions • Sector wide issues • Issues are managed according to seriousness

16. Example of check-list

17. Example of check-list

18. Process • Q reports published on TSE • EFSA Check-lists & compares as well with news issued Case closed or • Query to issuer Case closed or • Meeting with auditors & TSE is informed Case closed or • EFSA a) makes on-site inspection b) issues precept c) starts misdemeanor procedure - fine d) agrees with TSE on contractual fine e) files application to start criminal prosecution

19. case – Issuer K in the nutshell 1 • Issuer K makes series of announcements on TSE, changes the dates of financial year, does not have proper organizational structure, insider lists and procedures – • EFSA suspects K is not transparent and its financial reports are inaccurate(2002 6 monthreport and 2002/2003 A report) • 14-18.10.02 & 28.10-01.11.02 FSA on-spot control in issuer Step 1 EFSA prepares action plan Step 2 Analysis of information in hand, identifying further need for information, meeting with auditors Step 3 Issuing on-site inspection letter

20. case – Issuer K in the nutshell 2 Step 4 Issuing on-site inspection letter Step 5 On-site inspection and writing the report Step 6 Issue of preliminary report for comments Step 7 analysis of comments and EFSA board takes decision on report

21. case – Issuer K in the nutshell 3 Step 7 elaboration - on-site findings • Option contract or real estate IAS 39 (43)vs IAS 18 (14) (IAS 1 § 20 (ii) and 40) • Connected persons IAS 1 and IAS 24 • Dissemination of information 26.02.03 EFSA issues precept Step 8 Amongst other things - EFSA orders K to eliminate discrepancies IAS 2003 A Report IAS 8 p 34 • option contract on real estate IAS 39; • IAS 1and 24 information on off-balance sheet item against company X; • IAS 24 informationon with connected persons.

22. case – Issuer K in the nutshell 4 28.02.03 TSE application to EFSA for information Step 9 05.03.03 EFSA submits information to TSE 19.03.03 Shareholder of K complaint to TSE and FSA Step 10 02.04.03 FSA issues precept to K to publish extraordinary audit report (agreement with K) 11.09.03 Listing and supervisory committee decision Step 11 16.03.2004 FSA starts misdemeanor procedure and issues fine – grounds in on-site inspection

23. case – timeline 1) 14-18.10.02 & 28.10-01.11.02 FSA on-site control in issuer, 2) 26.02.03 FSA issues precept 3) 28.02.03 TSE application to FSA for information 4) 05.03.03 FSA submits information to TSE 5) 19.03.03 20% shareholder complaint to TSE and FSA 5) 02.04.03 FSA issues precept 6) 11.09.03 Listing and supervisory committee decision 7) 16.03.2004 FSA starts misdemeanor procedure and issues fine 8) 06.07.2004 Decision is appealed and Tallinn City Court satisfies appeal (but no decision on IAS) 9) 04.08.2004 EFSA appeals to Supreme Court but do not get permission