ASEM IFRS SEMINARShanghai, 25-26 March 2006

IFRS implementation in the EU – experience from a Commission

perspective

Ulf LinderDeputy Head of Unit

AccountingEUROPEAN COMMISSION

Overview of session

• Introduction• European Commission: experience from the

point of view of the EU administration• EFRAG: experience from technical work at

EU level• Austria: experience from a Member State,

reactions from industry and the accounting profession

IAS Regulation (1606/2002/EC)

• Directly applicable in all Member States• Fast, no national variations

• All EU companies listed – or with listed debt - in the EU to use endorsed IAS for consolidated accounts as from 2005

• Non-EU issuers outside the scope (But: Equivalence under Prospective and Transparency Directives)

• Optional extension of the scope: – unlisted companies– individual accounts

Fitting the IAS Regulation into the existing EU Framework

• 4th and 7th Directives on accounting

• 2nd Directive on profit distribution

• The future role of the Directives

• SME accounting

• What about national GAAP?

• Tax, statistics and ”prudential filters”

Endorsement

• Objective is to get political and legal endorsement of IAS

• Criteria– IAS not contrary to “true and fair view” principle of

Accounting Directives– IAS must be conducive to public good

(competitiveness and convergence)– IAS must be understandable, relevant, reliable and

comparable

Endorsement process

IASB

EFRAG

EuropeanCommission

ARC(Accounting RegulatoryCommittee

European Parliament

Interest groups

Issues standard1

2

3

4

5

6

7

Public consultation

Recommendation to EC

Translation

Opinion

Opinion

Publication in Official Journal

1

2

34

5

6

7

Issues related to the endorsement process (1)

• Complexity and time lag of the procedure

• Translations (into 20 languages)

• No reduction in IFRS options

• IAS 39 “carve outs”– Fair value option (now resolved)

– Certain hedge accounting rules

Issues related to the endorsement process (2)

• Endorsed IFRS vs. full IFRS

• SEC likely to require full IFRS for issuers in the US (plus reconciliation)

• Year end issues – date of publication

• Audit statement: “in accordance with IFRSs as adopted by the EU”

• Consolidation of endorsed standards

Interpretations and consistent application

• Principle-based accounting requires judgements• Interpretations by IFRIC: must be timely, relevant,

and well-reasoned• Inherent tendency to issue national guidance?• Roundtable for consistent application of IFRS in the

EU– Informal and of temporary nature– IASB, CESR, EFRAG, National Standard Setters,

Auditors, Issuers,– Commission chair

Enforcement

• Role of CESR

• Coordination groups to achieve consistent enforcement decisions in the EU

• Public database

• Cooperation with the SEC and IOSCO

• US interpretations of IFRS?

Some early reactions from market participants (1)

• PWC survey of fund managers (Feb 2006): • How clear has the IFRS information been in 2005

accounts and interim statements?– VERY 11% NOT AT ALL 3%– FAIRLY 65% DON’T KNOW 5%– NOT VERY 16%

• Have the IFRS accounts for a specific company led you to:

– INVEST 21% NOT INVEST 17%– HOLD 11% SELL 22%– NO INFLUENCE 48%

Some early reactions from market participants (2)

• UK Hundred Group of finance directors: ”accounts more opaque and less useful”

• Criticism of extended use of fair valuation

• IASB rejects criticism: ”It is not our objective to get away from economic reality… There is nothing more real than the value of an asset today”.

To conclude:• IFRS has arrived for listed companies

– part of an international system– political, technical, legal and

administrative challenges– consistent application– period of stability

• Need for evaluation of published accounts• Future work on finding suitable accounting

solutions for unlisted companies and SMEs

Contacts

Commission web-site http://europa.eu.int/comm/internal_market/en/index.htm

E-mail address:

ulf.linder@cec.eu.int