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In practice, it will directly concern over 7,000 listed EU companies, which will have to prepare their consolidated accounts in accordance with IAS by 2005. In 2001, only 275 listed EU companies used IAS for their financial reporting but some 300 used US GAAP. However, most EU companies still use national accounting standards based upon the EU Accounting Directives rather than IAS or US GAAP. The Commission therefore recently made a proposal to update the 4th and 7th Company Law Directives.
To ensure appropriate political oversight, the Regulation establishes a new EU mechanism to assess IAS adopted by the International Accounting Standards Board (IASB), to give them legal endorsement for use within the EU. The Accounting Regulatory Committee chaired by the Commission and composed of representatives of the Member States, will decide whether to endorse IAS on the basis of Commission proposals.
The European Financial Reporting Advisory Group (EFRAG) has welcomed the decision by the EU Member States to switch over to International Accounting Standards for the purpose of financial reporting for listed companies within the EU. Göran Tidström, Chairman of the supervisory board of EFRAG, itself part of the new structure ushered in by the IAS legislation, described the EU Council of Ministers' approval of the draft Regulation as “paving the way for vastly improved and common standards throughout Europe”.
EFRAG provides technical expertise concerning the use of IAS within the European legal environment and participates actively in the international accounting standard setting process. EFRAG is confident that, in accordance with the Regulation's timetable, the endorsement of existing standards could be achieved by the end of 2002. It is also actively involved in advising the International Accounting Standards Board on projects for future standards. In its task, the Commission will be helped by EFRAG, a group composed of accounting experts from the private sector in several Member States.
Commission press release
Regulation on International Accounting Standards
Note:
EU Regulations have the force of law without requiring transposition into national legislation. Member States have the option of extending the requirements of this Regulation to unlisted companies and to the production of individual accounts.