©2006 EFRAG EFRAG Moscow 31 Jan EU FINANCIAL REPORTING LATEST DEVELOPMENTS NOFA Francoise Flores, EFRAG TEG 31 Jan 2006

©2006 EFRAG EFRAG Moscow 31 Jan FRANCE IASB UK US/FASB JAPAN GERMANY AUS CANADA TOWER OF BABEL SPAIN

©2006 EFRAG EFRAG Moscow 31 Jan IASB US/FASB JAPAN CANADA CONVERGENCE FRANCE UK GERMANY AUS SPAIN

©2006 EFRAG EFRAG Moscow 31 Jan IASB US/FASB JAPAN CANADA CONVERGENCE FRANCE UK GERMANY AUS SPAIN

©2006 EFRAG EFRAG Moscow 31 Jan US GAAP IAS/IFRS GAAP GLOBAL GAAP CONVERGENCE MORE DETAILED ! JAPAN CONVERGENCE

©2006 EFRAG EFRAG Moscow 31 Jan EUROPE AND IFRS

©2006 EFRAG EFRAG Moscow 31 Jan CONVERGENCE EU POLICY: CONVERGENCE A SUCCESS CRITERION FOR THE EU COMMISSION

©2006 EFRAG EFRAG Moscow 31 Jan 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 CONVERGENCE

©2006 EFRAG EFRAG Moscow 31 Jan EU REGULATION

©2006 EFRAG EFRAG Moscow 31 Jan 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

©2006 EFRAG EFRAG Moscow 31 Jan 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!

©2006 EFRAG EFRAG Moscow 31 Jan 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 4 th and 7 th Accounting Directive

©2006 EFRAG EFRAG Moscow 31 Jan 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

©2006 EFRAG EFRAG Moscow 31 Jan Endorsed IFRS To be used Not endorsed Not to be used? REGULATION

©2006 EFRAG EFRAG Moscow 31 Jan EU - STRUCTURE EFRAG ACCOUNTING REGULATORY COMMITTEE -ARC EU COMMISSION Advice Approval EU PARLIA MENT COUNCIL OF MINISTERS

©2006 EFRAG EFRAG Moscow 31 Jan IASB approval EFRAG advice EU bureaus EU Comm + ARC endorses EU review EU-Parliament + C o Ministers Endorsed 2 m1,5m2 m+ 1m REGULATION Translate

©2006 EFRAG EFRAG Moscow 31 Jan EU ENDORSEMENT CRITERIA EU ENDORSEMENT CRITERIA TRUE AND FAIR VIEW UNDERSTANDABLE, RELEVANT, RELIABLE AND COMPARABLE EUROPEAN PUBLIC GOOD

©2006 EFRAG EFRAG Moscow 31 Jan EFRAG

©2006 EFRAG EFRAG Moscow 31 Jan 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

©2006 EFRAG EFRAG Moscow 31 Jan EFRAG ADDITIONAL OBJECTIVES: European coordination Stimulate thought leadership Challenge IASB Advising on EU Accounting Directives Memorandum of Understanding with EU Commission

©2006 EFRAG EFRAG Moscow 31 Jan EFRAG - STRUCTURE TECHNICAL EXPERT GROUP - TEG SUPERVISORY BOARD INSURANCE WGSME JWGREV REC WGFIWG VENTURE CAP WGCONCESSION WG EFRAG SECRETARIAT

©2006 EFRAG EFRAG Moscow 31 Jan ED IASB comment period 3 months EFRAG draft letter EFRAG deadline EFRAG comment letter Max 2 months EFRAG Due process EFRAG working groups

©2006 EFRAG EFRAG Moscow 31 Jan Founding Fathers

©2006 EFRAG EFRAG Moscow 31 Jan 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 Founding Fathers

©2006 EFRAG EFRAG Moscow 31 Jan 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

©2006 EFRAG EFRAG Moscow 31 Jan –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 EFRAG Organisation - TEG

©2006 EFRAG EFRAG Moscow 31 Jan EFRAG Technical Expert Group (TEG) VOTING MEMBERS AT TEG MEETINGS Stig Enevoldsen, ChairmanDenmarkAuditor Françoise FloresFranceIndustry Catherine GuttmannFranceInsurance Advisor Hans LeeuwerikThe NetherlandsIndustry Ugo MarinelliItalyAuditor / Academic Thomas NaumannGermanyBanker Friedrich SpandlAustriaFinancial Analyst Dominique ThouveninFranceAuditor Mike AshleyUKAuditor, Member of the UK ASB Thomas SeebergGermanyIndustry Mike StarkieUKIndustry NON VOTING MEMBERS AT TEG MEETINGS Chairmen of large National Standard Setters: Harald WiedmannGASB Antoine BracchiCNC Ian MackintoshASB NON VOTING OBSERVERS INVITED AT TEG MEETINGS European Commission CESR

©2006 EFRAG EFRAG Moscow 31 Jan 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

©2006 EFRAG EFRAG Moscow 31 Jan 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

©2006 EFRAG EFRAG Moscow 31 Jan

©2006 EFRAG EFRAG Moscow 31 Jan

©2006 EFRAG EFRAG Moscow 31 Jan EFRAG EFRAG DRAFTS FOR COMMENT NOW: Management Commentary Measurement Objectives ED 8 Operating Segments (soon) STRONGER INPUT FROM RUSSIA We want your comments!

©2006 EFRAG EFRAG Moscow 31 Jan PAAinE Proactive Accounting Activities in Europe

©2006 EFRAG EFRAG Moscow 31 Jan 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

©2006 EFRAG EFRAG Moscow 31 Jan Revenue Recognition Conceptual Framework Pensions Equity/Liability split Performance Reporting PAAinE

©2006 EFRAG EFRAG Moscow 31 Jan FRANCE Influence! UK EFRAG SWEDEN GERMANY HOLLAND POLAND SPAIN PAAinE

©2006 EFRAG EFRAG Moscow 31 Jan Consistent application Big issue in Europe

©2006 EFRAG EFRAG Moscow 31 Jan ROADMAP Reconciliation Work prog ROADMAP Reconciliation Work prog EC ROADMAP Reconcilation Work programme US SEC IASB CONSISTENT APPLICATION FASB EC US SEC IASB CONSISTENT APPLICATION FASB US SEC

©2006 EFRAG EFRAG Moscow 31 Jan CONSISTENT APPLICATION Accounting standards Agree work programme Implementation / application Use of implicit options Interpretations Enforcement Roadmap

©2006 EFRAG EFRAG Moscow 31 Jan Interpretations

©2006 EFRAG EFRAG Moscow 31 Jan INTERPRETATIONS PERCEIVED NEED IN EUROPE IS THERE REALLY A NEED? HOW DO WE SOLVE IT, IF THERE IS A NEED?

©2006 EFRAG EFRAG Moscow 31 Jan INTERPRETATIONS PRINCIPLES BASED RULE BASED HIGH LEVEL STANDARDS DETAILED STANDARDS FLEXIBILITY ???? NOT APPLICABLE CONSISTENT ???? INTERPRETATIONS?

©2006 EFRAG EFRAG Moscow 31 Jan Interpretation Support Mechanism Should a mechanism be established for Europe? A Forum? A Roundtable?

©2006 EFRAG EFRAG Moscow 31 Jan 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...

©2006 EFRAG EFRAG Moscow 31 Jan NIC NIC D NIC F IFRIC NIC EU COORDINATOR ” FORUM” NIC NIC UK NIC DK CESR INTERPRETATION SUPPORT

©2006 EFRAG EFRAG Moscow 31 Jan MANY PROJECTS MANY CHANGES IASB WORK PROGRAM 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!

©2006 EFRAG EFRAG Moscow 31 Jan 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

©2006 EFRAG EFRAG Moscow 31 Jan WWW. EFRAG. ORG

©2006 EFRAG EFRAG Moscow 31 Jan THANK YOU