The European Parliament has today backed the European Commission’s proposal on co-financing the IFRS Foundation, EFRAG and the PIOB, three organisations that play a key role in the development of accounting and auditing standards.
Internal Market and Services Commissioner Michel Barnier said “High-quality, international financial reporting and auditing rules are of vital importance not only for transparency, comparability and the smooth functioning of capital markets, but also for the economy at large.
The support of the European Parliament to renew the financing programme of the IFRS Foundation, EFRAG and the PIOB is an important step towards ensuring that these organisations continue to play a key role in the development of accounting and auditing standards and that the EU’s interests are properly taken into account in that process.
As far as EFRAG is concerned, I am particularly keen that, following last year’s recommendation by Philippe Maystadt, its governance reforms are implemented adequately and without delay. I will also make sure that Parliament is properly informed on the progress achieved by EFRAG in this respect.
I would like to thank the European Parliament – especially the rapporteur, Theodor Dumitru Stolojan, the shadow rapporteurs and Sharon Bowles, Chair of the ECON Committee for their hard work and commitment.”
Main elements of the Regulation:
The regulation will form the legal basis for the continuation of financing the International Financial Reporting Standards (IFRS) Foundation1 and the Public Interest Oversight Board (PIOB) for the period 2014-2020 and the European Financial Reporting Advisory Group (EFRAG) for the period 2014-2016.
In financial terms, the regulation proposes to contribute annually approximately 4.3 million euro to the IFRS Foundation (17% of its budget), 3.4 million euro to EFRAG (43% of its budget) and 0.3 million euro to PIOB (22% of its budget). The current EU financing programme for these beneficiaries was established in 2009 and will expire at the end of 2013. Consequently, it is important to formally adopt the proposed regulation as soon as possible to ensure the continuity of co-financing of these organisations by the EU.
The regulation will limit the financing period of EFRAG to three years in view of prospective reforms of this organisation following the recommendations presented on 12 November 2013 by Mr Philippe Maystadt acting as a special advisor to Commissioner Barnier (IP/13/1065). After that period, the Commission could propose to continue the financing of EFRAG on the basis of an assessment of its activities and the implementation of these reforms.
On 21 December 2012 the European Commission adopted a proposal to renew the multiannual programme for financing the International Financial Reporting Standards (IFRS) Foundation, the European Financial Reporting Advisory Group (EFRAG) and the Public Interest Oversight Board (PIOB) for the period 2014-2020.
At the ECOFIN Council of November 2012, Member States confirmed the EU’s commitment towards the IFRS and the convergence of international accounting standards. They also called for increased EU influence over the standard-setting process.
Given the key roles the proposed beneficiary organisations play in the development of accounting and auditing standards, their co-financing by the EU is vital to ensure that the EU’s interests are properly taken into account in that process. In order to be independent, possess the sufficient capacity and expertise to produce quality standards and input to those standards, these organisations need a sound financial basis to be able to carry out their public interest mission on a long-term basis.
International Financial Reporting Standards (IFRS) are designed as a common accounting global language – making company accounts understandable and comparable across international boundaries. The IFRS are developed by the International Accounting Standards Board based in London.
In line with the regulation on the application of international accounting standards, as of 1 January 2005, the IFRS are applicable for the consolidated accounts of listed companies in the EU. To this end, the regulation established a dedicated endorsement process under the responsibility of the European Commission together with consultative and advisory organisations, namely EFRAG – an independent organisation providing expert advice, and the Accounting Regulatory Committee (ARC) composed of representatives from Member States and chaired by the European Commission.
In March 2013, the EU Commissioner for Internal Market and Services, Michel Barnier, mandated Philippe Maystadt to examine ways of reinforcing the EU’s contribution to International Financial Reporting Standards and improving the governance of the European bodies involved in developing these standards (IP/13/242). In this respect Mr Maystadt’s final report published on 12 November 2013 (IP/13/1065) recommends, as a favoured option, reorganising the current EFRAG with a view to increasing its legitimacy and representativeness. The report is part of a broader debate on accounting standards, which also takes into consideration international developments in this field and the evaluation of the Regulation on the application of the IFRS, planned for the end of 2014.