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Dear Mr. Gauzès,
We are pleased to respond to your consultation document on the ad-personam mandate on potential need for changes to the governance and funding of the European Financial Reporting Advisory Group (EFRAG) (Consultation).
Accountancy Europe welcomes the governance and funding proposals if EFRAG were to be entrusted with a standard-setting mandate for non-financial information (NFI) reporting, while the current advisory activities and respective processes in EFRAG for financial reporting remain unchanged. However, a certain level of flexibility and simplification might be needed considering the limited resources and emerging issues.
Hereinafter, we have summarised some important points of our response.
A broad and inclusive NFI Advisory Council
Accountancy Europe suggests setting up an NFI Advisory Council to act as a sounding board that is consulted on all significant decisions on NFI. It would sit in parallel to the NFI reporting standards decision making body, i.e., the newly proposed NFI Board. It could also cover some of the outreach activities to enable an agile, yet robust due process.
The NFI Advisory Council would include representatives from EFRAG member organisations, European Union (EU) institutions and authorities, EU Member States, national public authorities, key NFI stakeholders and NFI standard setters.
As a result, this NFI Advisory Council would be broad and inclusive (e.g., include more than 50 representatives), and would allow for the other NFI bodies to be small and effective. Proposed governance structure
Supervisory Board
Accountancy Europe supports establishing a Supervisory Board (i.e., an EFRAG Board as addressed in the Consultation) responsible for the overall governance and oversight of EFRAG’s financial and NFI reporting activities. It is important that this be independent, therefore, the Chairs of the two reporting boards (financial and NFI) should not be members of this body.
NFI Board
We also support establishing an NFI Board to approve NFI reporting standards. In addition, we suggest it also be the body responsible to nominate the members of the NFI technical expert group (TEG) for appointment by the Supervisory Board. The NFI Board could be composed of representatives of the member bodies of EFRAG with relevant NFI experience and competencies.
TEG for NFI reporting
We also support establishing an NFI TEG to review, discuss, and ultimately recommend NFI reporting standards for approval to the NFI Board. However, we suggest the drafting of these standards be done by the permanent staff in EFRAG, with experience in developing and writing standards.
Working Groups
Considering the variety and complexity of topics, different and specialised Working Groups could be established to address specific NFI areas. The permanent EFRAG staff developing and writing standards could consult with the specialised Working Group when drafting the related NFI reporting standard. For example, a small and medium-sized enterprise (SME) Working Group could help address the needs of SMEs and develop simplified NFI reporting standards for SME.
EU institutions and authorities could be included as observers in the NFI reporting pillar levels that best fit their relevance and expertise, as long as independence and separation of powers is maintained.
In terms of interconnectivity, the financial and NFI reporting boards and TEGs could inform and liaise operationally with one-another (e.g., by inviting members of other’s bodies to contribute in their own).
Due process for NFI reporting activities
We suggest adopting a robust due process for the NFI reporting activities of EFRAG which is agile enough to address important issues timely and is dynamic enough to adapt to changing and emerging circumstances and NFI topics.
The due process for NFI reporting standard setting would be affected by the mandate EFRAG receives and could be further simplified if EFRAG would be entrusted with endorsing future global NFI reporting standards, whilst setting NFI reporting standards important for the EU public policy objectives.
Cooperation with other standard setters and initiatives
Accountancy Europe supports a “building block” approach to NFI reporting standard setting: the base would be global standards for market transparency, achieved by the coordination, cooperation and consolidation of global NFI initiatives catalysed by the EU leadership in NFI reporting. Additional ‘blocks’ of EU NFI reporting standards could be added to that, where necessary. Under this scenario, EFRAG’s role would be to endorse global NFI reporting standards in the EU and to develop the added “block” of EU NFI reporting standards important for the EU public policy objectives.
Therefore, we suggest EFRAG to collaborate with the IFRS Foundation, CDP, the Value Reporting Foundation, the Climate Disclosure Standards Board (CDSB) and the Global Reporting Initiative (GRI), to set the respective roles and task to avoid inefficiencies (e.g., output and funding) and to timely address the urgent issues at hand.
Funding
Accountancy Europe agrees that the added tasks to be performed under the NFI reporting pillar will require significantly more human and financial resources in EFRAG. We support a public-private partnership model to standard setting by which resources are provided by the public institutions which benefit from the work of EFRAG and the private organisations that are members of EFRAG.
EFRAG’s current private sector organisations already contribute both financially and in kind to EFRAG for its financial reporting activities and should be prepared to continue to make these contributions in kind, including for EFRAG’s NFI reporting activities.
On the other hand, considering that NFI standards activities, at a minimum, will include setting a specific EU “block” of standards, the EU and its Member States should foresee an appropriate public budget. The EC should contribute by directly funding EFRAG and by influencing the main beneficiaries (e.g., Members States, preparers, users) to do so as well.
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We kindly refer to Annex 1 of this letter for our detailed responses.
Please do not hesitate to contact Hilde Blomme (hilde@accountancyeurope.eu) in case of any questions or remarks.
Sincerely,
Olivier Boutellis-Taft
Chief Executive