Francoise Flores: 'Europa: 10 años después de la adopción de las NIIF'

Europe 10 years after IFRS first-
adoption
Françoise Flores – EFRAG TEG Chairman
Ramon Aceres Foundation –Madrid– 17 February 2015

EFRAG - Ramon Aceres Foundation Conference - Madrid - 17 February 2015
2002: « IAS Regulation »
2005: First-time
adoption

Progress towards global standards
• 2001: No major economies use international standards.
• 2012: 100+ countries require or permit IFRSs
• 2/3rds of G20 now require IFRS
Source: IASPlus / Deloitte
3
G20 Members
requiring use of IFRS
Adoption
year
Turkey 2005
U.K. 2005
France 2005
Germany 2005
Italy 2005
South Africa 2005
Australia 2007
Brazil 2010
Canada 2011
Korea 2011
Mexico 2012
Argentina 2012
Russia 2012
2007: IFRS without reconciliation for US foreign issuers

In the last 15 years…
• IASB was refounded and EFRAG was created
• EFRAG has developed from an endorsement
advice mechanism into a strong international
player
• All Europeans – and many outside Europe -
speak IFRS
• Strong involvement of all European stakeholders
and National Standard Setters in a fully
developed due process
• Concrete effects of European influence
• Fully converged standards seem out of reach at
present

Towards fully converged standards…
• 2006: convergence agreement reached
between the IASB, the FASB, the SEC et
the European Commission = joint
projects
• 2011-2012: the decision by the SEC is
expected… however will not be made

Numerous joint projects…
• Concrete output: Revenue Recognition
• Similar standards: Leases (?), Consolidation
• Bitter disappointment: Financial Instruments
• Projets that have been stopped: Debt
/Equity, Financial Statement Presentation,
Employee benefits, Derecognition,
Insurance, Conceptual Framework

Latest contributions in the
IFRS standard setting

Convergence
PAFAPAFA
GLASSGLASS
ASAF: Technical discussion forum with the IASB
A
FSB
Canada
UK Germany Spain
Australia
Japan
China

Multilateral Discussion Forum
• Creation of the l’Accounting Standard Advisory
Forum end of 2012
• 12 participants, regional groups and national
standard setters
– 3 seats for Europe, EFRAG+2 (Germany, Spain)
– 3 seats for the Americas (US, Canada, Latin
America)
– 3 seats for Asia-Oceania (AOSSG, Japan, China)
– 1 seat for Africa (PAFA represented by South Africa)
– 2 seats at large (UK, Australia)

EFRAG’s field work policy
• Effect studies/Field tests = IFRS quality
control
– Intended outcomes
– Clarity of requirements
– Operationality
• EFRAG (and National Standard Setters)
should be participants in an IASB quality
control process
• EFRAG has taken the initiative to ensure
proper quality control for Europe

Keeping the debate open: Leases
• EFRAG and NSS supplementary round of
consultation over summer with preparers
and users
– Concerns about arrangements scoped into the
lease proposals although they are service
contracts
– Preference for IASB or FASB model
– Half of the preparers surveyed prefer IAS 17
• 15 September; EFRAG Roundtable
• ASAF: discussion on boundary between
leases and services relaunched

EFRAG Early Stage Proactive activities
Either on conceptual issues…
• Bulletins on the Conceptual Framework
(with 4 NSS):
– Prudence, Stewardship, Business Model,
Asset/Liability approach,Reliability,
Complexity…
• DP on Classification of Claims
– To help structure the Debt/Equity distinction
With the distinct objective of easing
participation of all stakeholders
in those more conceptual discussions

EFRAG Early Stage Proactive Activities
…Or on more practical issues…
• DP on IFRS in Separate Financial
Statements (with ICAC, RJ and OIC)
• EFRAG Short Discussion Series
– Levies: what would have to be changed in IFRS
for a different accounting outcome
– Presentation of the reversal of acquisition ‘Step
Ups’
– Equity method: one line consolidation or
measurement basis?

We want
more influence!

EFRAG reform was announced late 2012
…Today EFRAG has become a body which is globally
recognised for its technical expertise, but the
expectations of European constituents have also
evolved.
Time has may be come to beef up EFRAG to include all
public policy considerations in the endorsement process…
Extract from speech by Olivier Guersent
Head of Cabinet of Commissioner Barnier
IFRS Foundation – EFRAG joint event – 11 October 2012

Europe’s reform in 2013
• Initiated by the EC in 2012, involvement of the
ECOFIN and the EP
• Final Maystadt report October 2013: Should IFRS
be more «European »?
• Objectives:
– To ensure that European views are presented in a
coherent, convincing and timely manner
– To make IFRS accepted by European constituents, i.e.
have them endorsed
– To test whether change is needed in the European
endorsement process
• Finance Regulation

Main recommendations in the Maystadt report
• Confirm EU IFRS policy
• Retain the current endorsement process, standard by
standard, on an adopt or reject basis
• Formalise that IFRS should not hinder economic growth or
financial stability, should be prudent
• Transform EFRAG to widen its mandate and make it a fully
representative all inclusive institution (private stakeholders,
national standard setters, European regulators)
• Adopt a consensus based decision making process for
EFRAG
• Improve interaction of EFRAG with the ARC and the EP

European IFRS endorsement process
Regulation (EC) 1606/2002
Preamble (10)
• An accounting technical committee
should provide support and expertise to
the Commission in the assessment of
international accounting standards
Article 6
• The Commission shall be assisted by an
accounting regulatory committee
ARC

Before the Maystadt reform
True and fair view principleTrue and fair view principle Conducive to the European public goodConducive to the European public good
The European Commission assisted by
An accounting technical
Committee
An accounting regulatory
Committee

Before the Maystadt reform
True and fair view principleTrue and fair view principle
Committee
EFRAG TECHNICAL STAFF
EFRAG
TECHNICAL EXPERT
GROUP:
Defines all EFRAG’s
technical positions
EFRAG
TECHNICAL EXPERT
GROUP:
Defines all EFRAG’s
technical positions
SUPERVISORY BOARD
IASB

After the Maystadt reform
True and fair view principleTrue and fair view principle Conducive to the European public goodConducive to the European public good
An accounting Regulatory
Committee
Provides advice on both technical and economical aspects
Committee

Structure after the Maystadt reform
True and fair view principleTrue and fair view principle
EFRAG Board
Determines all EFRAG positions
EFRAG Board
Determines all EFRAG positions
European public good
Financial stability
Economic growth
European public good
Financial stability
Economic growth
EFRAG TECHNICAL EXPERT
GROUP:
Provides technical advice to
the EFRAG Board
EFRAG TECHNICAL EXPERT
GROUP:
Provides technical advice to
the EFRAG Board
EFRAG TECHNICAL STAFF
Field
work
Field
work
Field
work
IASB

Composition of the Board of EFRAG
• The EFRAG Board is composed of 17 members:
– 8 representatives of European organisations
(Preparers, Auditors, Users)
– 8 representatives of NSS (France, Germany, Italy,
the UK + four others)
– 1 President nominated by the European
Commission
• European regulators are observers
• Funding EFRAG has become a condition for
nominating representatives
• EFRAG TEG becomes an advisor to the EFRAG
Board

• Roger Marshall, Chairman FRC AC (UK) – Acting President
• Chairman ANC (until the appointment: Michel Barbet-Massin)
(France)
• Hans Buysse, nominated by EFFAS
• Angelo Caso, Chairman OIC (Italy)
• Stig Enevoldsen, Member DASC (Denmark)
• Gérard Gil, nominated by EBF, ESBG, EACB
• Jorge Gil Lozano, nominated by EBF, ESBG, EACB
• Benoît Jaspar, nominated by Insurance Europe
• Liesel Knorr, Chairman ASCG (Germany)
• Erlend Kvaal, Chairman NASB (Norway),
• Patrice Marteau, nominated by BUSINESSEUROPE
• Claes Norberg, nominated by BUSINESSEUROPE
• Laurence Rivat, nominated by FEE
• Peter Sampers, Incoming Chairman DASB (Netherlands)
• Anders Ullberg, Chairman SFRB (Sweden)
• Mark Vaessen, nominated by FEE

Is this no more than another reform?

How has EFRAG’s governance evolved
over time?
• No fundamental change took place from
2001 to 2014:
– The EFRAG Supervisory Board was responsible
for oversight and funding
– A Technical Expert Group determining all of
EFRAG’s positions, deriving its legitimacy from
the independence and expertise of its members
and of EFRAG’s due process
– Working groups to provide specific expertise
– Strong involvement of National Standard Setters
– Transparency of proceedings

How has the EFRAG’s governance
evolved over time?
• 4 reforms in 13 years:
– 2003, 2008, 2012, 2014
• Seeking more influence for Europe and
more cohesiveness
• Two major drivers:
– Increased interaction with National Standard
Setters
– Increased funding

This reform of EFRAG is:
• More than an evolution, rather an
institutional overhaul…
• Implemented with a lot of continuity…

31st
October
2014
Reform entered into force

EFRAG today and tomorrow
• A private association created 13 years ago to
assist the EU IFRS policy
• Serving the European public interest
• Acknowledged as independent technical
advisor to the European Commission
• Participation of all European stakeholders,
with National Standard Setters playing a
prominent role
• Funded 50 % privately, 50% by the European
Commission

EFRAG’s main activities
• Expressing the European view in the
IFRS standard setting process
• Facilitating participation of all European
stakeholders:
– Draft comment letters
– Outreach events/ surveys
– Field tests
– Proactive work

Europe speaking with one voice
EFRAG

EFRAG’s main activities (2)
• Providing the European Commission with
endorsement advice
– Whether IFRS meet ALL endorsement
criteria of the IAS Regulation

Agenda of the new EFRAG Board
• Endorsement IFRS 15 Revenue Recognition
• Endorsement IFRS 9 Financial Instruments
• Commenting on Rate-regulated Activities
Discussion Paper
• Commenting on the Conceptual Framework
Exposure Draft
• Monitoring finalisation of :
– Insurance Project
– Leases Project
• Contributing to future steps in the Macro hedging
project
• Launching new proactive activities

What has been accomplished
so far?

New approach to endorsement
• Recommendation whether to endorse a
newly published IFRS
– Cover letter, summarising the main
conclusions and supporting arguments
– Appendix 1: Understanding the main changes
– Appendix 2: Assessing the new IFRS against
the technical criteria of the IAS Regulation
– Appendix 3: Assessing whether the new IFRS
is conducive to the European public good
– Appendix 4: Responding to specific requests of
the European Commission
NEWALREADYDONE

What does the IAS Regulation say?
• Explicit objective of the Regulation was:
to ensure a high degree of transparency
and comparability to support an efficient
functioning of capital markets (Art 1,
Aim)
This in itself is conducive to the European
public good

Is an IFRS conducive to the European
public good?
• Is the IFRS improving financial reporting,
increasing transparency, investor
protection?
• Are benefits outweighting the costs?
• Would there be negative side-effects?
– Competitive disadvantages for European
companies?
– Impact on investor and issuer behaviours that
would be negative to the European economy?
– Any impediment to economic growth or financial
stability?

IFRS 15 Revenue Recognition
• IASB published IFRS 15 in May 2014
• ARC discussion in June:
– No supplementary field test needed
– EFRAG to seek input on the effective date of 1
January 2017
• EFRAG Final Endorsement advice:
February 2015
– Positive endorsement advice, with effective date
as mandated by the IASB
– No adverse effect on the European public good
identified

IFRS 9 endorsement advice
• IFRS 9 issued in July 2014
• Draft endorsement advice expected to be
issued end of April, final endorsement
advice end of July 2015
• Specific assessments expected from
ESMA, EBA, EIOPA, ECB to assess:
– Investor protection
– Potential effects on financial stability

IFRS 9: endorsement advice
• Detailed endorsement advice request
received from the European Commission:
– Interrelationships between IFRS 4
(Insurance) and IFRS 9, relevance for long-
term investment activities
– Use of fair values
– Reliability and potential effects of the
impairment model
– Continuity of the European carve-out

Other projects
• Former EFRAG’s positions on Leases and
Insurance Contracts confirmed (November
and December 2014)
• Final comment letter on Rate-Regulated
Activities approved as proposed by EFRAG
TEG (January 2014)
• Conceptual framework: support for issues
identified/comments by EFRAG TEG
(February 2014)
• Review of ASAF: should continue, has
worked out well

Approach to EFRAG’s strategy
• The EFRAG Board will determine in
particular:
– How to better pool resources in Europe?
– How to conduct effect analyses? Scope?
Resources?
– How to make Europe’s influence stronger?
– How to ensure EFRAG’s representativeness?
– How to ensure greater cohesiveness?
– What strategy towards the US?

EFRAG receives financial support of the European Union-DG Internal Market and Services.
The contents of this presentation is the sole responsibility of EFRAG and can under no circumstances be
regarded as reflecting the position of the European Union.
www.efrag.org
Thank you
for your attention!

Francoise Flores: 'Europa: 10 años después de la adopción de las NIIF'

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