27 March 2018

IASB and IFRS Foundation chairmen urge constituents to respond to the EC´s consultation

Chair of the IASB Hans Hoogervorst and Chair of the IFRS Foundation Trustees Michel Prada respond to the EC´s consultation on Fitness Check on the EU Framework for Public Reporting by Companies.

On 21 March 2018, the EC published for public comment a questionnaire seeking feedback on the EU framework for public reporting by companies, with a comment period open until 21 July 2018.

One of the most important questions asked in the questionnaire of the Fitness Check is whether the EU should introduce a mechanism to allow changes to be made to IFRS Standards as used in the EU, known as 'carve-ins'. This would be in addition to the EU's existing (and rarely used) powers to choose not to endorse an IFRS Standard or parts of it, known as 'carve-outs'.

It is, of course, for each jurisdiction to determine whether and how to incorporate IFRS Standards into its accounting requirements. However, the fact that the questionnaire repeatedly raises the possibility of introducing European carve-ins to IFRS Standards has surprised us for several reasons.

First, for more than 20 years the EU has been the main driving force behind the G20-endorsed goal of a single set of high-quality, global accounting standards. It is not clear why the EU would consider departing from this goal at a time when the EU is rightly concerned about global economic standards being under tremendous pressure more generally.

Second, the EU has―on two occasions in the last five years―sought feedback on the possibility of introducing a carve-in mechanism to the EU endorsement process, with both reviews cautioning against such a change.

The 2013 Maystadt Review concluded that introducing carve-ins to create EU-adapted IFRS Standards risked:

1. encouraging the creation of regional, rather than global standards;
2. increasing the cost of capital and reporting for European issuers; and
3. exacerbating excessive lobbying for private interests up to the last stage of the endorsement procedure.

The Maystadt Review also noted that 'developing a European version of IFRS Standards could prove counterproductive regarding achieving more influence over the IASB.'  According to Accountancy Europe (previously FEE), a 'binary yes or no endorsement seems to bring more powerful dissuasion than opening the possibility of modifying a standard: the IASB might be less inclined to take Europe's concerns into account if Europe can freely modify the standard itself.'

Full press release

EC´s consultation on Fitness Check on the EU Framework for Public Reporting by Companies

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