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Progress and Challenges of IFRS Adoption in Europe

This article discusses the progress made in the adoption of IFRS in Europe over the past 10 years and the challenges that still exist. It also highlights the involvement of various countries and organizations in the standard-setting process.

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Progress and Challenges of IFRS Adoption in Europe

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  1. Europe 10 years after IFRS first-adoption Françoise Flores – EFRAG TEG Chairman Ramon Aceres Foundation –Madrid– 17 February 2015

  2. 2002: « IAS Regulation » 2005: First-time adoption EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  3. Progress towards global standards 3 • 2001: No major economies use international standards. • 2012: 100+ countries require or permit IFRSs • 2/3rds of G20 now require IFRS 2007: IFRS withoutreconciliation for US foreignissuers Source: IASPlus / Deloitte EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  4. In the last 15 years… • IASB wasrefounded and EFRAG wascreated • EFRAG has developedfrom an endorsementadvicemechanisminto a strong international player • All Europeans – and manyoutside Europe - speak IFRS • Stronginvolvement of all Europeanstakeholdersand National Standard Setters in a fullydeveloped due process • Concreteeffects of European influence • Fullyconverged standards seem out of reach at present EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  5. Towardsfullyconverged standards… • 2006: convergence agreement reachedbetween the IASB, the FASB, the SEC et the European Commission = joint projects • 2011-2012: the decision by the SEC isexpected… howeverwill not be made EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  6. Numerous joint projects… • Concrete output: Revenue Recognition • Similar standards: Leases(?), Consolidation • Bitter disappointment: Financial Instruments • Projets that have been stopped: Debt /Equity, Financial StatementPresentation,Employeebenefits, Derecognition, Insurance, Conceptual Framework EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  7. Latest contributions in the IFRS standard setting EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  8. Convergence Japan A UK Germany Spain F B S Canada China Australia PAFA GLASS ASAF: Technical discussion forum with the IASB EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  9. Multilateral Discussion Forum • Creation of the l’Accounting Standard Advisory Forum end of 2012 • 12 participants, regional groups and national standard setters • 3 seats for Europe, EFRAG+2 (Germany, Spain) • 3 seats for the Americas (US, Canada, Latin America) • 3 seats for Asia-Oceania (AOSSG, Japan, China) • 1 seat for Africa (PAFA represented by South Africa) • 2 seats at large (UK, Australia) EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  10. EFRAG’sfieldworkpolicy • Effectstudies/Field tests = IFRS quality control • Intendedoutcomes • Clarity of requirements • Operationality • EFRAG (and National Standard Setters) shouldbe participants in an IASB quality control process • EFRAG has taken the initiative to ensureproperquality control for Europe EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  11. Keeping the debate open: Leases • EFRAG and NSS supplementary round of consultation over summer with preparers and users • Concerns about arrangements scoped into the lease proposals although they are service contracts • Preference for IASB or FASB model • Half of the preparers surveyed prefer IAS 17 • 15 September; EFRAG Roundtable • ASAF: discussion on boundary between leases and services relaunched EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  12. EFRAG Early Stage Proactive activities Either on conceptual issues… • Bulletins on the Conceptual Framework (with 4 NSS): • Prudence, Stewardship, Business Model, Asset/Liability approach,Reliability, Complexity… • DP on Classification of Claims • To help structure the Debt/Equity distinction With the distinct objective of easing participation of all stakeholders in those more conceptual discussions EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  13. EFRAG Early Stage Proactive Activities …Or on more practical issues… • DP on IFRS in Separate Financial Statements (with ICAC, RJ and OIC) • EFRAG Short Discussion Series • Levies: what would have to be changed in IFRS for a different accounting outcome • Presentation of the reversal of acquisition ‘Step Ups’ • Equity method: one line consolidation or measurement basis? EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  14. Wewant more influence! EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  15. EFRAG reformwasannouncedlate 2012 …Today EFRAG has become a body whichisglobally recognised for itstechnical expertise, but the expectations of Europeanconstituents have also evolved. Time has maybe come to beef up EFRAG to include all public policyconsiderations in the endorsementprocess… Extractfrom speech by Olivier Guersent Head of Cabinet of Commissioner Barnier IFRS Foundation – EFRAG joint event – 11 October 2012 EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  16. Europe’sreform in 2013 • Initiated by the EC in 2012, involvement of the ECOFIN and the EP • Final Maystadt report October 2013: Should IFRS be more «European »? • Objectives: • To ensurethatEuropeanviews are presented in a coherent, convincing and timelymanner • To make IFRS accepted by Europeanconstituents, i.e. have themendorsed • To test whether change isneeded in the Europeanendorsementprocess • Finance Regulation EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  17. Main recommendations in the Maystadt report • Confirm EU IFRS policy • Retain the currentendorsementprocess, standard by standard, on an adopt or reject basis • Formalise that IFRS should not hindereconomicgrowth or financialstability, shouldbe prudent • Transform EFRAG to widenits mandate and makeit a fullyrepresentative all inclusive institution (privatestakeholders, national standard setters, European regulators) • Adopt a consensus baseddecisionmakingprocess for EFRAG • Improve interaction of EFRAG with the ARC and the EP EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  18. European IFRS endorsement process Regulation (EC) 1606/2002 Preamble (10) • An accounting technical committee should provide support and expertise to the Commission in the assessment of international accounting standards Article 6 • The Commission shall be assisted by an accounting regulatory committee ARC EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  19. Before the Maystadt reform The European Commission assisted by An accountingtechnical Committee An accountingregulatory Committee True and fairviewprinciple Conducive to the European public good EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  20. Before the Maystadt reform The European Commission assisted by An accountingtechnical Committee SUPERVISORY BOARD EFRAG TECHNICAL EXPERT GROUP: Defines all EFRAG’s technical positions IASB True and fairviewprinciple EFRAG TECHNICAL STAFF EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  21. After the Maystadt reform The European Commission assisted by An accountingRegulatory Committee An accountingtechnical Committee Providesadvice on bothtechnical and economical aspects True and fairviewprinciple Conducive to the European public good EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  22. Structure after the Maystadt reform The European Commission assisted by EFRAG Board Determines all EFRAG positions IASB True and fairviewprinciple European public good Financial stability Economicgrowth EFRAG TECHNICAL EXPERT GROUP: Provides technical advice to the EFRAG Board Field work Field work EFRAG TECHNICAL STAFF EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  23. Composition of the Board of EFRAG • The EFRAG Board iscomposed of 17 members: • 8 representatives of European organisations (Preparers, Auditors, Users) • 8 representatives of NSS (France, Germany, Italy, the UK + four others) • 1 Presidentnominated by the European Commission • Europeanregulators are observers • Funding EFRAG has become a condition for nominatingrepresentatives • EFRAG TEG becomes an advisor to the EFRAG Board EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  24. •Roger Marshall, Chairman FRC AC (UK) – Acting President• Chairman ANC (until the appointment: Michel Barbet-Massin) (France)• Hans Buysse, nominated by EFFAS• Angelo Caso, Chairman OIC (Italy) •StigEnevoldsen, Member DASC (Denmark) • Gérard Gil, nominated by EBF, ESBG, EACB• Jorge Gil Lozano, nominated by EBF, ESBG, EACB• Benoît Jaspar, nominated by Insurance Europe• Liesel Knorr, Chairman ASCG (Germany) • ErlendKvaal, Chairman NASB (Norway), • Patrice Marteau, nominated by BUSINESSEUROPE• Claes Norberg, nominated by BUSINESSEUROPE• Laurence Rivat, nominated by FEE • Peter Sampers, Incoming Chairman DASB (Netherlands) • Anders Ullberg, Chairman SFRB (Sweden) • Mark Vaessen, nominated by FEE EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  25. Is this no more thananotherreform? EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  26. How has EFRAG’sgovernanceevolved over time? • No fundamental change took place from2001 to 2014: • The EFRAG Supervisory Board wasresponsible for oversight and funding • A Technical Expert Group determining all of EFRAG’s positions, derivingitslegitimacyfrom the independence and expertise of itsmembers and of EFRAG’s due process • Working groups to providespecific expertise • Stronginvolvement of National Standard Setters • Transparency of proceedings EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  27. How has the EFRAG’sgovernanceevolved over time? • 4 reforms in 13 years: • 2003, 2008, 2012, 2014 • Seeking more influence for Europe and more cohesiveness • Two major drivers: • Increased interaction with National Standard Setters • Increasedfunding EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  28. This reform of EFRAG is: • More than an evolution, rather an institutionaloverhaul… • Implementedwith a lot of continuity… EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  29. Reformenteredinto force 31st October 2014 EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  30. EFRAG today and tomorrow • A private association created 13 years ago to assist the EU IFRS policy • Serving the European public interest • Acknowledged as independenttechnicaladvisor to the European Commission • Participation of all European stakeholders, with National Standard Setters playing a prominent role • Funded 50 % privately, 50% by the European Commission EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  31. EFRAG’s main activities • Expressing the Europeanview in the IFRS standard setting process • Facilitating participation of all Europeanstakeholders: • Draft comment letters • Outreachevents/ surveys • Field tests • Proactive work EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  32. Europe speakingwith one voice EFRAG EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  33. EFRAG’s main activities (2) • Providing the European Commission withendorsementadvice • Whether IFRS meetALL endorsementcriteria of the IAS Regulation EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  34. Agenda of the new EFRAG Board • Endorsement IFRS 15 Revenue Recognition • Endorsement IFRS 9 Financial Instruments • Commenting on Rate-regulatedActivities Discussion Paper • Commenting on the Conceptual Framework ExposureDraft • Monitoring finalisation of : • Insurance Project • Leases Project • Contributing to future steps in the Macro hedgingproject • Launching new proactive activities EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  35. What has been accomplishedso far? EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  36. New approach to endorsement • Recommendationwhether to endorse a newlypublished IFRS • Coverletter, summarising the main conclusions and supporting arguments • Appendix 1: Understanding the main changes • Appendix 2: Assessing the new IFRS against the technicalcriteria of the IAS Regulation • Appendix 3: Assessingwhether the new IFRS isconducive to the European public good • Appendix 4: Responding to specificrequests of the European Commission ALREADY DONE NEW EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  37. Whatdoes the IAS Regulationsay? • Explicit objective of the Regulationwas: to ensure a high degree of transparency and comparabilityto support an efficient functioning of capital markets (Art 1, Aim) This in itselfisconducive to the European public good EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  38. Is an IFRS conducive to the European public good? • Is the IFRS improvingfinancialreporting, increasingtransparency, investor protection? • Are benefitsoutweighting the costs? • Wouldtherebenegativeside-effects? • Competitivedisadvantages for Europeancompanies? • Impact on investor and issuerbehavioursthatwouldbenegative to the Europeaneconomy? • Anyimpediment to economicgrowth or financialstability? EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  39. IFRS 15 Revenue Recognition • IASB published IFRS 15 in May 2014 • ARC discussion in June: • No supplementary field test needed • EFRAG to seek input on the effective date of 1 January 2017 • EFRAG Final Endorsement advice: February 2015 • Positive endorsement advice, with effective date as mandated by the IASB • No adverse effect on the European public good identified EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  40. IFRS 9 endorsementadvice • IFRS 9 issued in July 2014 • Draftendorsementadviceexpected to beissued end of April, final endorsementadvice end of July 2015 • Specificassessmentsexpectedfrom ESMA, EBA, EIOPA, ECB to assess: • Investor protection • Potentialeffects on financialstability EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  41. IFRS 9: endorsementadvice • Detailedendorsementadvicerequestreceivedfrom the European Commission: • Interrelationshipsbetween IFRS 4 (Insurance) and IFRS 9, relevance for long-terminvestmentactivities • Use of fair values • Reliability and potentialeffects of the impairment model • Continuity of the Europeancarve-out EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  42. Otherprojects • Former EFRAG’s positions on Leases and InsuranceContractsconfirmed (November and December2014) • Final comment letter on Rate-RegulatedActivitiesapproved as proposed by EFRAG TEG (January 2014) • Conceptualframework: support for issues identified/comments by EFRAG TEG (February 2014) • Review of ASAF: should continue, has worked out well EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  43. Approach to EFRAG’sstrategy • The EFRAG Board willdetermine in particular: • How to better pool resources in Europe? • How to conducteffect analyses? Scope? Resources? • How to makeEurope’s influence stronger? • How to ensureEFRAG’srepresentativeness? • How to ensuregreatercohesiveness? • Whatstrategytowards the US? EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

  44. Thankyou for your attention! www.efrag.org EFRAG receives financial support of the European Union-DG Internal Market and Services. The contents of this presentation is the sole responsibility of EFRAG and can under no circumstances be regarded as reflecting the position of the European Union. EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015

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