Andreas Rauter, UNIQA REPARIS Workshop, Vienna March 15, 2006 Enforcement of IFRS - the view of an institutional investor the view of an institutional investor

2 Investors Position  “Usefulness for Decision-Making” Reporting on past periods not the only focus Valuation questions at B/S date include more and more judgement on future cash-flows Value of future cash-flows have to consider risk and uncertainty Judgement on “Usefulness of Financial Information” is complex

3 Existing Practice  No harmonized Monitoring & Enforcement  different EU Stock-Exchanges have different approaches and mechanism for ensuring adequate financial reporting.  Stock-Exchange-Regulators do not have the focus on Quality and “Decision-usefulness” of IFRS-Reporting  Enforcement Steps are usually only taken in case of complains and introduced court actions  Enforcement steps are taken quite late – often too late to limit the risk or loss of investors

4 Relevance of Accounting Figures  Basis for key financials and expected return  IPO starts with business plans to be tracked  expectations have to true up in true performance in subsequent years or a clear and timely  Reassess the Gap between Net Asset Value per share and listed Stock Price  Changes in estimates and risks have to be considered  Accurate information is the underlying basis  Financial Reporting is more and more driven by assessing the future development and relevant risks

5 Threats of miss-leading Financial Information  Wrong basis for decisions  Inaccurate Profits/Equity stated  economic development not transparent or reflected in Financial Information  No intervention against fraud and error on a timely basis without court action  Loss of confidence in the capital markets

6 The Role of the Auditor  Sound and proof technical skills to assess “Decision-usefulness”  but “Principle-based” IFRS cause sometimes different interpretations and Accounting recognition of similar transactions  Not “fully” independent from Audit client

7 The Role of the Stock-Exchanges  ensure active capital markets  transparent and timely information  discipline in ensuring high quality level for investors relations  no arbitrary utilization of information

8 Examples of potential Problems  Mud-slinging / anonymous Notifications  trigger event for intervention  pre-selection by staff members  Qualification and independence of staff & executives  Big Four loan-staffing?

9 Enforcement Authorities: Expectations  Independent institutional Oversight  Free of contractual obligations with reporting entities  Independence from International Networks, Private Associations and Standard-Setters  Intervention in case of Infringements  Efficient Monitoring to take measures right in time  No extra-burden for companies by excessive reporting requests and monitoring interventions

10 Enforcement Authorities: Major Challenges  Guarantee independence from State / Listed Companies / Stock-Exchange / Audit firms  Ensure best practice of IFRS understanding and level of tolerance  Ensure technical skills of key personnel

11 Summary  Expectations:  Harmonised Enforcement upon Europe  effective measures and intervention  Useful Information - fair and timely presented  Stable trust in capital markets

Thank you!