EFRAG Reform

2014 has been a momentous year for IFRS in Europe. 10 years after the adoption of IFRS as the common accounting language, it was time to assess the results and look at how Europe could better organise itself to maintain and increase its role in the international standard setting environment. The European Commission is currently carrying out an evaluation of the IAS Regulation.

In November 2013, Philippe Maystadt, adviser to Commissioner Barnier, published its report “Should IFRS Standards be more European?” The report confirmed that there was consensus on the commitment to global quality accounting standards and wide support for maintaining the current “standard by standard” adoption procedure, i.e. keeping the binary possible outcome of either adopting or rejecting standards. In other words, there is little appetite to come up with a new brand of ‘European IFRS’.

The IAS Regulation already requires that the adopted Standards are conducive to the European public good. The report recommended to either supplement the existing criteria by adding that standards adopted should neither endanger financial stability nor hinder the economic development of the Union; or to have the Commission issue guidelines for the interpretation of the “public good” criterion. The report also mentioned that prudence could be considered in the analysis, echoing the current debate on the reintroduction of this notion in the new Conceptual Framework.

The report also debated how to better integrate the technical perspective with the public interest perspectives to ensure that a balanced view is reported to the IASB. It was proposed to widen the mandate of EFRAG, the advisor to the European Commission on accounting matters, so that its endorsement advice be accountable of these supplementary assessments in additional to its traditional assessment on whether the standards are consistent with the true and fair view principle.

This new mandate was accompanied by a redesign of the governance of EFRAG, which has now been fully implemented. A new high-level Board was appointed with the ultimate responsibility for all EFRAG’s positions including endorsement advice. This new Board is composed of two pillars European Stakeholder Organisations) and National Standard Setters. The existing Technical Expert Group (EFRAG TEG) continues and acts as a committee providing technical advice to the new Board. The new structure of EFRAG is aimed at enhancing its legitimacy and promoting cohesiveness among various European stakeholders.

The new Board was appointed with immediate effect on 31 October and has now monthly meetings. All technical discussions are public and the supporting papers are published on the EFRAG website. In December the Board had a first discussion on the endorsement advice on IFRS 9 Financial Instruments. The European Commission request for endorsement advice to EFRAG included some wider matters for consideration including the use of fair values, convergence with US GAAP and prudence.

In another important development, the European Commission started an evaluation to assess the IFRS’s actual effects, how far they have met the IAS Regulation’s initial objectives, whether these goals are still relevant and any areas for improvement. A public consultation was launched in August to seek views from independent parties with a final deadline in November. A group of experts, including FEE, was also appointed to support the European Commission where FEE was represented. The group of experts completed its work in December. The European Commission will present its report on the evaluation to the European Parliament in 2015.

IASB Launches Investors In Financial Reporting Programme With Support From Leading Members Of The Global Investment Community

The International Accounting Standards Board (IASB) announced the launch of its Investors in Financial Reporting programme. Created with the support of some of the world’s leading asset managers and owners, the programme is designed to foster greater investor participation in the development of International Financial Reporting Standards (IFRS). The Investors in Financial Reporting programme has been developed to further extend investor participation by specifically encouraging greater involvement from the buy-side community.

Central to the Investors in Financial Reporting programme is a mutually agreed Statement of Shared Beliefs, with which:

  • the IASB and the investment community highlight the importance of high quality, transparent reporting for building trust in the capital markets and for making investment decisions;

  • the IASB publicly reaffirms its commitment to continue to seek and consider investor views in the development of new accounting standards; and

  • leading representatives from the global investment community make visible their commitment that as responsible investors they will contribute to the development of high quality financial reporting standards. That commitment involves working with the IASB to ensure that the investor perspective is articulated clearly and is considered in the standard-setting process.

Participants in the launch phase of this important initiative are Allianz Global Investors, APG Asset Management, AustralianSuper, BlackRock, Fidelity Worldwide Investment, Henderson Global Investors, Hermes Investment Management, Nomura Asset Management, PGGM Investments and UniSuper.

FEE Elects New President

The 47 member organisations of FEE (Federation of European Accountants) appointed Petr Kriz as President and Edelfried Schneider as Deputy-President for a two-year term.

“We must strive to regain trust in the accountancy profession and emphasise the valuable contribution that accountants and auditors make to the economy”, according to Petr Kriz. “Current European developments and technological progress present a unique opportunity to achieve this objective. Fostering relationships with our members and stakeholders and listening to their needs will guide FEE in this process.”

Petr KrizPetr Kriz (a member of the Chamber of Auditors of the Czech Republic, KACR and the Association of Chartered Certified Accountants, ACCA) served as Deputy President of FEE in 2013-2014 and he has chaired the Banks Working Party since 2007. Petr has long-term experience in leading audits and financial reporting advisory projects of Czech and international banks and central banks. He is a Partner with PricewaterhouseCoopers in Prague.

Edelfried SchneiderEdelfried Schneider (a member of the Institute of Public Auditors in Germany, IDW) is the managing director of HLB Germany GmbH. With extensive experience in providing tax advice and audit services to SME clients, Edelfried will greatly contribute to reinforcing FEE’s strategic coverage of SME and SMP issues and further strengthen FEE’s work on tax policy.

The FEE Members’ Assembly expressed its sincere appreciation to outgoing President Andre Kilesse for his dedication to FEE and the accountancy profession.

FEE Issues SMP Info Pack On Access To EU Finance

FEE started this series of Info Packs to help accountants in small and medium-size practices (SMPs) to best support their clients that are small and medium sized entities (SMEs) on a variety of subjects. The first two editions deal with VAT and Cross-Border Supplies and Sustainability. This Info Pack provides information on how SMPs can help their SME clients gain access to EU sources of finance.

Responses To EC Public Consultation On The Impact Of IFRS In The EU

The European Commission (EC) has published responses received to this consultation held in light of the review of the IAS Regulation. In August 2014, the EC issued a questionnaire seeking respondents’ views on the impact of International Financial Reporting Standards (IFRS) in the European Union. The results of this public consultation will feed into the EC’s review of the IAS Regulation.

IFAC Campaign For Higher Financial Reporting Standards

The International Federation of Accountants (IFAC) launched the “Accountability. Now.” campaign for higher standards of public sector information. Accountability. Now. is a campaign for higher standards of public sector information around the world. Its role is to provide the catalyst for change. It challenges governments to recognise the importance of working toward financial reporting that meets international standards.

IPSASB Publishes Public Sector Conceptual Framework

The International Public Sector Accounting Standards Board® (IPSASB®) has published its Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities (the Conceptual Framework), following the approval of the final four chapters at its September 2014 meeting.

The publication of the Conceptual Framework provides the IPSASB with the concepts that will underpin the development of International Public Sector Accounting Standards (IPSASs) and Recommended Practice Guidelines (RPGs) in the coming years. It enables the IPSASB to further improve the consistency of its standard-setting by strengthening the linkage between IPSASs. Additionally, the transparency of the concepts underpinning the development of IPSASs and RPGs enhances the IPSASB’s accountability.

The primary objective of most public sector entities is to deliver services to the public, rather than to make profits and generate a return on equity to investors. The Conceptual Framework responds to key public sector characteristics in its approach to elements (the building blocks of financial statements), the measurement of assets and liabilities, and the presentation of financial reports, while focusing on service recipients’ and resource providers’ needs for high-quality financial reporting information for both accountability and decision-making purposes.

“The publication of the Conceptual Framework is a landmark in global public sector financial reporting and is indicative of the IPSASB’s growing maturity as a global public sector standard-setter,” said IPSASB Chair Andreas Bergmann. “It reflects the unique characteristics of the public sector and puts the IPSASB in a strong position to focus on key standard-setting activities over the next few years. The IPSASB has already made sound initial progress on its social benefits project and the completion of the Conceptual Framework provides further impetus for this important initiative.”

IESBA Proposes Changes To Part C Of The Code Addressing Presentation Of Information And Pressure To Breach The Fundamental Principles

The International Ethics Standards Board for Accountants® (IESBA®, the Ethics Board) today released for public comment the Exposure Draft (ED), Proposed Changes to Part C of the Code Addressing Presentation of Information and Pressure to Breach the Fundamental Principles. The proposals respond to the need for more robust and practical guidance to help professional accountants in business (PAIBs) deal with two matters on which they most often seek assistance in practice: their responsibility to produce financial reports that are faithful representations of the economics of transactions, and pressure to breach fundamental ethical principles. Among the proposed changes are:

  • Fuller and more explicit guidance regarding PAIBs’ responsibilities when presenting information;

  • Strengthened guidance on how a PAIB can disassociate from misleading information;

  • An expanded description of pressure that may lead to a breach of the fundamental principles in the Code together with practical examples to illustrate different kinds of situations in which such pressure may arise; and

  • New guidance to assist PAIBs in identifying and responding to pressure that could result in a breach of the fundamental principles.

IESBA Launches New Web-Based Version Of The Code Of Ethics For Professional Accountants

Now there are more ways to access the Code of Ethics for Professional Accountants (the Code) developed by IESBA. The newly released, web-based 2014 Code is designed to provide enhanced access and greater ease of use and navigation. Key features of the web-based Code include the ability to:

  • Find relevant pages and sections using a powerful keyword search;

  • Display definitions of key terms within the text;

  • Navigate sequentially or by using the interactive table of contents; and

  • Access previous editions and links to translations, most of which are hosted on third-party sites.

IFAC Global SMP Survey Identifies Key Challenges Facing SMPs Globally

The biggest challenges facing small- and medium-sized accounting practices (SMPs) worldwide are complying with regulations and standards and attracting new clients, according to the 2014 IFAC® Global SMP Survey. Conducted annually, the Global SMP Survey provides unique insights into the challenges and opportunities facing SMPs around the world.

“IFAC is committed to building the capacity of SMPs worldwide, and the findings from our SMP Survey are critical to that mission,” commented IFAC CEO Fayezul Choudhury. “Understanding the challenges that SMPs and their clients face, both on a regional and global scale, helps IFAC and our member organisations better serve this important constituency and accurately represent them in our interactions with regulators, standard setters, and policy makers.” The key findings from the 2014 IFAC Global SMP Survey include:

Challenges Facing SMPs

  • Keeping up with regulations and standards (57%) and attracting new clients (58%) were identified as the two greatest challenges facing SMPs worldwide. Pressure to lower fees (51%), rising costs (50%), and differentiating from the competition (50%) were nearly tied as the next biggest challenges.

  • Attracting new clients was found to be a key concern in the Middle East (80%), but much less of a concern in North America (33%) and Australasia/Oceania (36%).

  • Regulatory concerns ranked highly at firms in Central and South America (68%), the Middle East (65%), and Europe (63%).

Challenges Facing SME Clients

  • Rising costs (67%) and economic uncertainty (66%) were identified as the top two challenges facing SME clients.

  • This was especially apparent in the Middle East and Africa, where these challenges were ranked higher than any other region.

  • Percentages in the above represent respondents rating these challenges as a “high challenge” or “very high challenge.”

Performance and Outlook

  • SMPs show promising economic growth, with 72% of firms maintaining or growing the previous year’s practice fee revenues (31% reported that practice fee revenues stayed the same, 37% reported a moderate increase, and 4% reported a substantial increase).

  • Australia/Oceania (63%), North America (56%), and Africa (55%) ranked as the top three regions reporting moderate to substantial growth in practice fee revenues.

  • Tax (48%) and advisory/consulting services (50%) were projected to be the two biggest sources of revenue growth for the year ahead. (Percentages represent respondents rating these services as “increase moderately” or “increase substantially.”)

The year-end 2014 survey, which is being undertaken in collaboration with lead researchers from the University of Dayton in the US, received 5,083 responses from 135 countries, and was conducted in 21 languages. For full results of the IFAC Global SMP Survey, expected in March 2015, please visit and subscribe to SMP updates from: www.ifac.org/SMP. Due to different response rates in different geographic areas, results may not be statistically representative of global or regional populations of SMPs. IFAC wishes to thank the many member and regional organisations that helped with translation and distribution of the survey.

The IAASB Continues Focus On Audit Quality And Strengthening Public Confidence In Financial Reporting In Its New Strategy And Work Plan

The International Auditing and Assurance Standards Board® (IAASB®) recently released its Strategy for 2015-2019 and its Work Plan for 2015-2016. The Strategy and Work Plan illustrate the IAASB’s commitment to strengthening public confidence in financial reporting and contributing to the ongoing relevance of the financial statement audit, while staying abreast of emerging developments to ensure its work addresses pertinent public interest matters relevant to its wide range of stakeholders.

The board’s five-year Strategy is underpinned by three strategic objectives that reflect a continued focus on International Standards on Auditing (ISAs) as the basis for high-quality audits, the importance of the IAASB’s standards for other services to address emerging needs of stakeholders, and the board’s intention to strengthen collaboration with others to address public interest matters relevant to its work. These objectives will guide the board’s work throughout the five-year period.

“The widespread and growing international use of the clarified ISAs underscores the importance of the IAASB continuing to focus its efforts on maintaining the quality and proportionality of these standards, and to meeting the expectations that stakeholders have regarding their application,” noted Prof. Arnold Schilder, IAASB Chairman. “As a result, the board’s initial focus in its five-year strategy is designed to address key topics relevant to audits, while at the same time monitoring other relevant developments.”

Influenced by the findings from the IAASB’s ISA Implementation Monitoring project and its extensive outreach program, the Work Plan for the next two years prioritises the most pertinent public interest issues and impacts on audit quality, including group audits, quality control, professional skepticism, and audit considerations relevant to financial institutions. The IAASB also recognises the role that its other assurance and related services standards play in addressing the needs of investors and other users as financial and integrated reporting evolves.

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