EN
03/10762
COMMISSION OF THE EUROPEAN COMMUNITIES
Brussels, 7.5.2003
Proposal for a
COMMISSION REGULATION
adopting certain international accounting standards
in accordance with
Regulation (EC) No 1606/2002 of the European Parliament and of the Council
EN
EXPLANATORY MEMORANDUM
1.
THE IAS REGULATION
On 14 September 2002, Regulation (EC) No 1606/2002 (the IAS Regulation)1 entered into
force. This Regulation requires that for each financial year starting on or after 1 January 2005,
companies governed by the law of a Member State shall prepare their consolidated accounts
in conformity with the international accounting standards adopted in accordance with the
procedure laid down in Article 6(2) if, at their balance sheet date, their securities are admitted
to trading on a regulated market of any Member State within the meaning of Article 1(13) of
Council Directive 93/22/EEC of 10 May 1993 on investment services in the securities field.
The IAS Regulation represents a significant step towards the European Union’s political
objective of creating the conditions necessary for the realisation of an integrated, efficient
capital market by 2005 – as required by successive European Councils. It ensures a much
higher level of comparability of financial statements throughout the Internal Market than is
achievable through the use of minimum, equivalent requirements. It will improve competition
and greatly facilitate the free movement of capital – essential elements of the EU capital
market.
By requiring the application of adopted IAS, the quality of financial statements will be
dramatically improved and there will be an increasing degree of comparability throughout the
Union.
The endorsement mechanism
The IAS Regulation requires that the measures necessary for the implementation of the
Regulation should be adopted in accordance with Council Decision 1999/468/EC of 28 June
1999 laying down the procedures for the exercise of implementing powers conferred on the
Commission2 and with due regard to the declaration made by the Commission in the
European Parliament on 5 February 2002 concerning the implementation of financial services
legislation.
1
2
OJ L 243, 11.9.2002, p.1-4
OJ L 184, 17.7.1999, p. 23
2
The IAS Regulation requires that international accounting standards can only be adopted if:
–
they are not contrary to the principle set out in Article 2(3) of Directive 78/660/EEC
and in Article 16(3) of 83/349/EEC and are conducive to the European public good
and,
–
they meet the criteria of understandability, relevance, reliability and comparability
required of the financial information needed for making economic decisions and
assessing the stewardship of management.
In making its decision, an accounting technical committee should provide support and
expertise to the Commission in the assessment of international accounting standards.
By way of initial adoption, Article 3(3) of the IAS Regulation requires that the Commission
decide on the applicability within the Community of the international accounting standards in
existence upon entry into force of the IAS Regulation.
In preparation for such adoption, on 19 March 2002 the European Commission requested the
technical opinion of the European Financial Reporting Advisory Group (EFRAG) on the
international accounting standards extant at that date.
EFRAG responded to this request in a letter dated 19 June 2002, noting that:
“In our opinion the current standards meet the requirements of the Regulation of the
European Parliament and of the Council on the application of International
Accounting Standards by EU listed companies from 2005 onwards that:
i. they are not contrary to the true and fair principle set out in Article 2(3) of the 4th
Directive (78/660/EEC) and Article 16(3) of the 7th Directive (83/349/EEC), and
ii. they meet the criteria of understandability, relevance, reliability and comparability
required of the financial information needed for making economic decisions and
assessing the stewardship of management.”
Additionally, on 30 May 2002 (ie before the IAS Regulation came into force) the
International Accounting Standards Board issued an amendment to IAS 19 Employee benefits.
Consequently, this amendment also forms part of the international accounting standards in
existence upon entry into force of the IAS Regulation.
Accordingly, on 9 July 2002 the European Commission requested a similar technical opinion
from the EFRAG on that amendment. On 4 October 2002 EFRAG responded, recommending
endorsement of that amendment in accordance with the IAS Regulation.
The Commission has reviewed and considered the technical opinions of EFRAG.
In addition, the Commission has considered carefully the additional criteria set out in Article
3 of the IAS Regulation that the international accounting standards be ‘conducive to the
European public good’. In considering these criteria, the Commission had regard to the needs
of the many parties which have an interest in high quality, transparent financial reporting,
including the needs of both the preparers and the users of financial statements.
3
The Commission has concluded that all of the standards extant at the date of entry into force
of the IAS Regulation satisfy the criteria set out in Article 3 of the IAS Regulation.
However, the Commission has also considered the current improvements projects of the
International Accounting Standards Board that propose to amend many existing standards.
International accounting standards resulting from the finalisation of these proposals will be
considered for adoption once those standards are final. The existence of these proposed
amendments to existing standards does not impact upon the Commission’s decision to
endorse all existing standards, except in the cases of International Accounting Standard (IAS)
32 Financial Instruments: Disclosure and presentation and IAS 39 Financial Instruments:
Recognition and measurement and a small number of Interpretations of these standards issued
by the Standing Interpretations Committee (the "related interpretations"). These related
interpretations are SIC 5 Classification of financial instruments – Contingent settlement
provisions, SIC 16 Share Capital – Reacquired own equity instruments (Treasury shares) and
SIC 17 Equity – Costs of an equity transaction.
The existence of high quality standards dealing with the disclosure, presentation, recognition
and measurement of financial instruments (including derivatives) is important to the European
capital market.
However, in the cases of IAS 32 and 39, the degree of amendment currently being considered
is so important that it is appropriate not to adopt the extant versions of these standards at this
time. As soon as the current improvement project is complete and revised standards issued,
the Commission will consider, as a matter of priority, the endorsement of the revised IAS 32
and 39 standards and related Interpretations of the Standing Interpretations Committee,
further to the IAS Regulation. This will ensure that any revised standards dealing with the
disclosure, presentation, recognition and measurement of financial instruments (including
derivatives) that are endorsed are available by 2005 when the requirement to apply adopted
international accounting standards further to the IAS Regulation becomes applicable.
Accordingly, at this time the Commission has decided to adopt all extant international
accounting standards except for IAS 32, IAS 39 and the related interpretations.
Given that the introduction of IAS requires substantial investment from enterprises in terms of
training and adaptation of information systems and will have a significant impact on
enterprises’ financial reporting, the Commission is considering a set of measures to ensure
that the opportunities presented by the introduction of IAS in reducing the administrative
reporting burden for European enterprises are fully exploited. The measures will relate to the
evaluation of the impact on financial information of the changeover to IAS, the streamlining
of reporting requirements, and ways to improve harmonisation and promote the use of
information technology tools for such reporting.
2.
PUBLICATION
In accordance with Article 3(4) of the IAS Regulation, adopted international accounting
standards shall be published in full in each of the official languages of the Community, as a
Commission Regulation, in the Official Journal of the European Union.
This is achieved by including the full text of the adopted standards as an annex to the
Commission Regulation.
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3.
TIMETABLE
Article 3(3) of the IAS Regulation requires that, at the latest by 31 December 2002, the
Commission shall, in accordance with the procedure laid down in Article 6(2), decide on the
applicability within the Community of the international accounting standards in existence
upon entry into force of this Regulation.
Upon the entry into force of the IAS Regulation, work began to procure the high quality
translations to publish the adopted international accounting standards in the Official Journal
as is required by Article 3(4) of the IAS Regulation. This work is now complete and the
necessary high quality translations became available on 28 April 2003.
Accordingly, and consistent with Recital 11 of the IAS Regulation which stated that ‘The
endorsement mechanism should act expeditiously on proposed international accounting
standards’, swift adoption is now essential.
4.
DESCRIPTION OF ARTICLES
Article 1 adopts the relevant international accounting standards in accordance with Article 6
of Regulation (EC) No 1606/2002. The relevant international accounting standards are
annexed to the Regulation.
Article 2 specifies the date of entry into force of the Regulation.
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Proposal for a
COMMISSION REGULATION
adopting certain international accounting standards
in accordance with
Regulation (EC) No 1606/2002 of the European Parliament and of the Council
THE COMMISSION OF THE EUROPEAN COMMUNITIES,
Having regard to the Treaty establishing the European Community.
Having regard to Regulation (EC) No 1606/2002 of the European Parliament and of the
Council of 19 July 2002 on the application of international accounting standards 3, and in
particular Article 3(3) thereof,
Whereas:
(1)
Regulation (EC) No 1606/2002 requires that for each financial year starting on or after
1 January 2005, publicly traded companies governed by the law of a Member State
shall under certain conditions prepare their consolidated accounts in conformity with
international accounting standards as defined in Article 2 of that Regulation.
(2)
The Commission, having considered the advice provided by the accounting technical
committee, has concluded that the international accounting standards in existence on
14 September 2002 meet the criteria for adoption set out in Article 3 of Regulation
(EC) No 1606/2002.
(3)
The Commission has also considered the current improvements projects that propose
to amend many existing standards. International accounting standards resulting from
the finalisation of these proposals will be considered for adoption once those standards
are final. The existence of these proposed amendments to existing standards does not
impact upon the Commission’s decision to endorse the existing standards, except in
the cases of IAS 32 Financial Instruments: Disclosure and presentation, IAS 39
Financial Instruments: Recognition and measurement Financial Instruments:
Recognition and measurement and a small number of interpretations related to these
standards, SIC 5 Classification of financial instruments – Contingent settlement
provisions, SIC 16 Share Capital – Reacquired own equity instruments (Treasury
shares) and SIC 17 Equity – Costs of an equity transaction.
(4)
The existence of high quality standards dealing with financial instruments, including
derivatives, is important to the Community capital market. However, in the cases of
IAS 32 and IAS 39, amendments currently being considered may be so considerable
that it is appropriate not to adopt these standards at this time. As soon as the current
improvement project is complete and revised standards issued, the Commission will
3
OJ L 243, 11.9.2002, p.1-4
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consider, as a matter of priority, the adoption of the revised standards further to
Regulation (EC) No 1606/2002.
(5)
Accordingly, all international accounting standards in existence on 14 September 2002
except IAS 32, IAS 39 and the related interpretations should be adopted.
(6)
The measures provided for in this Regulation are in accordance with the Accounting
Regulatory Committee's opinion.
HAS ADOPTED THIS REGULATION:
Article 1
The international accounting standards set out in the Annex are hereby adopted.
Article 2
This Regulation shall enter into force on the third day following that of its publication in the
Official Journal of the European Union.
This Regulation shall be binding in its entirety and directly applicable in all Member States.
Done at Brussels, […]
For the Commission
[…]
Member of the Commission
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ANNEX
Table of Content
INTERNATIONAL ACCOUNTING STANDARDS
IAS No
Title
IAS 1
Presentation of Financial Statements (revised 1997)
IAS 2
Inventories (revised 1993)
IAS 7
Cash Flow Statements (revised 1992)
IAS 8
Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies (revised 1993)
IAS 10
Events After the Balance Sheet Date (revised 1999)
IAS 11
Construction Contracts (revised 1993)
IAS 12
Income Taxes (revised 2000)
IAS 14
Segment Reporting (revised 1997)
IAS 15
Information Reflecting the Effects of Changing Prices (reformatted 1994)
IAS 16
Property, Plant and Equipment (revised 1998)
IAS 17
Leases (revised 1997)
IAS 18
Revenue (revised 1993)
IAS 19
Employee Benefits (revised 2002)
IAS 20
Accounting for Government Grants and Disclosure of Government Assistance (reformatted 1994)
IAS 21
The Effects of Changes in Foreign Exchange Rates (revised 1993)
IAS 22
Business Combinations (revised 1998)
IAS 23
Borrowing Costs (revised 1993)
IAS 24
Related Party Disclosures (reformatted 1994)
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IAS 26
Accounting and Reporting by Retirement Benefit Plans (reformatted 1994)
IAS 27
Consolidated Financial Statements and Accounting for Investments in Subsidiaries (revised 2000)
IAS 28
Accounting for Investments in Associates (revised 2000)
IAS 29
Financial Reporting in Hyperinflationary Economies (reformatted 1994)
IAS 30
Disclosures in the Financial Statements of Banks and Similar Financial Institutions (reformatted 1994)
IAS 31
Financial Reporting of Investments In Joint Ventures (revised 2000)
IAS 33
Earnings Per Share (1997)
IAS 34
Interim Financial Reporting (1998)
IAS 35
Discontinuing Operations (1998)
IAS 36
Impairment of Assets (1998)
IAS 37
Provisions, Contingent Liabilities and Contingent Assets (1998)
IAS 38
Intangible Assets (1998)
IAS 40
Investment Property (2000)
IAS 41
Agriculture (2001)
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INTERPRETATIONS OF THE STANDING INTERPRETATIONS COMMITTEE
SIC no.
Title
SIC-1
Consistency – Different Cost Formulas for Inventories
SIC-2
Consistency – Capitalisation of Borrowing Costs
SIC-3
Elimination of Unrealised Profits and Losses on Transactions with Associates
SIC-6
Costs of Modifying Existing Software
SIC-7
Introduction of the Euro
SIC-8
First-Time Application of IASs as Primary Basis of Accounting
SIC-9
Business Combinations - Classification either as Acquisitions or Unitings of Interests
SIC-10
Government Assistance - No Specific Relation to Operating Activities
SIC-11
Foreign Exchange – Capitalisation of Losses Resulting from Severe Currency Devaluations
SIC-12
Consolidation - Special Purpose Entities
SIC-13
Jointly Controlled Entities – Non-Monetary Contributions by Venturers
SIC-14
Property, Plant and Equipment - Compensation for the Impairment or Loss of Items
SIC-15
Operating Leases – Incentives
SIC-18
Consistency – Alternative Methods
SIC-19
Reporting Currency – Measurement and Presentation of Financial Statements under IAS 21 and IAS 29
SIC-20
Equity Accounting Method - Recognition of Losses
SIC-21
Income Taxes – Recovery of Revalued Non-Depreciable Assets
SIC-22
Business Combinations – Subsequent Adjustment of Fair Values and Goodwill Initially Reported
SIC-23
Property, Plant and Equipment – Major Inspection or Overhaul Costs
SIC-24
Earnings Per Share – Financial Instruments and Other contracts that May be Settled in Shares
SIC-25
Income Taxes – Changes in the Tax Status of an Enterprise or its Shareholders
SIC-27
Evaluating the substance of transactions involving the legal form of a lease
SIC-28
Business combinations – “Date of exchange” and fair value of Equity instruments
SIC-29
Disclosure – Service concession arrangements
SIC-30
Reporting currency – Translation from measurement currency to presentation currency
SIC-31
Revenue – Barter transactions involving advertising services
SIC-32
Intangible Assets – Website Costs
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SIC-33
Consolidation and equity method – Potential voting rights and allocation of ownership interests
Any appendices to those standards and interpretations are not considered as part of those
standards and interpretations and shall therefore not be reproduced.
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