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Questions have been raised by the European Parliament about the governance structures and lack of transparency of these bodies, as well as their close links to the accounting industry. The three organisations play a key role in the development of accounting and auditing standards.
Commissioner Barnier said: "High-quality, international financial reporting and auditing rules are of vital importance not only for transparency, comparability and the smooth functioning of capital markets, but also for the economy at large.
The support of the European Parliament to renew the financing programme of the IFRS Foundation, EFRAG and the PIOB is an important step towards ensuring that these organisations continue to play a key role in the development of accounting and auditing standards and that the EU’s interests are properly taken into account in that process.
As far as EFRAG is concerned, I am particularly keen that, following last year's recommendation by Philippe Maystadt, its governance reforms are implemented adequately and without delay. I will also make sure that Parliament is properly informed on the progress achieved by EFRAG in this respect."
Main elements of the Regulation
The regulation will form the legal basis for the continuation of financing the International Financial Reporting Standards (IFRS) Foundation and the Public Interest Oversight Board (PIOB) for the period 2014-2020 and the European Financial Reporting Advisory Group (EFRAG) for the period 2014-2016.
In financial terms, the regulation proposes to contribute annually approximately €4.3 million to the IFRS Foundation (17% of its budget), €3.4 million to EFRAG (43% of its budget) and €0.3 million to PIOB (22% of its budget). The current EU financing programme for these beneficiaries was established in 2009 and will expire at the end of 2013. Consequently, it is important to formally adopt the proposed regulation as soon as possible to ensure the continuity of co-financing of these organisations by the EU.
The regulation will limit the financing period of EFRAG to three years in view of prospective reforms of this organisation following the recommendations presented on 12 November 2013 by Mr Philippe Maystadt acting as a special advisor to Commissioner Barnier (IP/13/1065). After that period, the Commission could propose to continue the financing of EFRAG on the basis of an assessment of its activities and the implementation of these reforms.
ECON chair Sharon Bowles said: "My parliamentary colleagues have done a great job in highlighting the much-needed reform of these accounting quangos, which will improve public confidence in how accounting standards are implemented in Europe. We have, for the first time, shone a light on how bodies such as the IFRS Foundation and EFRAG are constituted and governed, which has not made for pretty reading.
"Any potential conflicts of interest have to be weeded out and if they are not then the Parliament has shown that it has the power to withhold funding, which sends a powerful message. The European Commission also has a very important role to play in ensuring reform happens, and it is of vital importance that Internal Market Commissioner Michel Barnier's successor listens to the Parliament's concerns when the new Commission is appointed in the autumn."
Sven Giegold, economic and financial policy spokesman of the Greens in the European Parliament and shadow rapporteur commented on the vote: "The significant accounting rules for banks and large corporations have been designed in close, and above all one-sided, cooperation with the companies themselves. In the vague hope of global accounting standards (IFRS) Europe adopted rules from the US, which acted as an accelerant in the crisis. In particular, accounting rules that are too market-based and focused on shareholder value contradict bankruptcy protection, accuracy and financial market stability.
Under pressure from the European Parliament, now a more independent, transparent and pluralistic approach is called for in the creation of accounting rules. EFRAG and the IFRS Foundation will have to reform now. Should they refuse to do this, their tasks will have to be transferred to a public or non-profit institution and EU funding will be stopped. The European Parliament has through its annual financing decisions every opportunity to enforce these demands. In addition, we have managed to define EFRAG's role in more narrow terms. The institution may no longer torpedo regulatory proposals for rules about more tax transparency. Thus, the EU-funded lobbying against more transparency in large companies has been put to a halt. Already by the end of March 2014, the European Commission will present a report on whether EFRAG has implemented the decided reforms.
Press release (in German)
Written question (in English)