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High quality financial reporting demands that accounting requirements are designed to provide relevant, reliable, understandable and comparable financial information, at an acceptable cost. Ensuring that new or revised financial reporting requirements are high quality includes evidencing or testing the following elements in practice:
(a) The needs for revised or new accounting requirements;
(b) Whether sufficient guidance is provided, so that judgement can be exercised and uncertainty as to how the standard is meant to be applied is avoided;
(c) Whether the requirements provide outcomes consistent with the objectives specified in the standard;
(d) other possible effects, upon certain circumstances;
(e) Whether implementation difficulties can be overcome at a reasonable cost;
(f) How much time is needed up to the mandatory application of the new requirements so that all preparers, auditors, regulators and users can be well prepared to manage and understand the resulting changes in financial reporting; and
(g) Whether practice after mandatory application satisfies financial information needs in accordance with the objectives set at the inception of the new or revised requirements.
This is why field work is required to achieve high quality financial reporting. The purpose of field work is to gather facts and evidence, relying on real-life examples and circumstances, drawn from all local jurisdictions in Europe. This comes in addition to getting an understanding of the economic reality that is considered and to forming a view as to whether proposed requirements would best depict it. The ultimate purpose is to help the IASB prepare accounting standards that will deliver high quality financial reporting, which, once adopted and implemented in the European Union, takes into account European specific circumstances and views. In EFRAG’s view, it is therefore part of the fulfilment of EFRAG’s mandate, and of the mandates of National Standard Setters in Europe, to contribute actively and proactively to the development of IFRS.
As EFRAG expects that National Standard Setters in Europe and EFRAG have similar mandates and objectives in the development of IFRS, EFRAG believes that cooperation between EFRAG and National Standard Setters in carrying out field work involving European constituents in a “shared due process” mode contributes to more transparency, more consistency and more efficiency. Cooperation in European field work has been and is deemed to be yet another way of best pooling together European accounting standard resources to make European influence in the development of IFRS as strong and effective as possible.
It is, however, recognised that there can be rare circumstances preventing the desired level of cooperation described above, for instance in the event of a specific confidential request of the European Commission or a national government, or if EFRAG and National Standard Setters pursue different objectives. When this occurs, pooling resources and running shared due process may not be possible and a certain level of overlap should be accepted.