06 June 2007

CESR advice on equivalence of third countries GAAP

CESR published its advice to the Commission on a mechanism for determining the equivalence of the generally accepted accounting principles of third countries. CESR provides in this advice a mechanism for determining equivalence of the generally accepted accounting principles of third countries to IFRS, as adopted in the EU.

CESR proposes among others that the national standard setter should assess whether the disclosures, measurement and recognition principles, and financial statement presentation required by the third country GAAP concerned, are materially the same as IFRS. If there are no significant differences, such GAAP may be deemed equivalent without the need for additional rectification disclosures. Even in cases where there are significant differences under the two sets of accounting principles, the third country GAAP may be considered equivalent to IFRS if those differences identified can be rectified at company level by non-complex disclosures.

Prior to giving any advice to the Commission on whether to accept an equivalence assessment, CESR would seek reactions from market users regarding the third country GAAP and the proposed rectifications via public consultation.

An 'overall' assessment of equivalence should be made in the final instance by the Commission via a comitology process once all other steps have been fulfilled and using the definition of equivalence CESR has already provided.

CESR finally considers that an assessment of the reliability of the audit conducted on the financial statements of issuers using an equivalent GAAP should be a step in the mechanism. The assessment of the audit filter is dealt with exclusively through the assessment of compliance with the 8th Directive, including any transitional measures the Commission may introduce.

CESR recommends that the transitional agreements should not be extended beyond 2012.

Press release
CESR technical advice

© Graham Bishop