The process underlying the agreement of EU governments that listed companies should use EU adopted International Financial Reporting Standards (IFRS) in their group financial statements is encountering considerable difficulty.

First, there is the question of speed. Of the 36 standards which the IASB has indicated will be mandatory from 1 January 2005, one remains to be published - the 'exemption' standard relating to mineral exploration activities. Of the rest, only 14 have been adopted by the EU. Thirteen of the adopted standards date from before the IASB was established; the other - IFRS 1 - deals with first-time adoption of IFRS, but has since been amended by later standards, so will presumably need reconsideration in Europe if we are to use the official version in 2005. Two of the adopted standards have recently been brought forward by the IASB for more important amendment - IAS 30 on financial disclosures (see page 2) and IAS 19 on employee benefits (see page 3).

Twenty-one standards remain to be adopted. The 13 standards revised by the IASB and published in December 2003 (on currency translation, fixed assets and inventory, for example) are still under consideration in Europe The delay here results from EU enlargement; until 1 May 2004, the Commission could not start the translations into the nine new official EU languages needed before the adoption process can happen. Hopefully, Europe's translators are now hard at work.

The remaining 8 standards were published by the IASB in March 2004. They include some which the ASB considers fundamental to good financial reporting - on share options and financial instruments, for example. Principal among these is IAS 39, critical to regulating off-balance sheet reporting and to ensuring that the impact of derivatives is captured in financial statements. On this standard, at least, the problem at European level appears to be one of an unwillingness to accept the IASB's solution on full reporting of gains and losses on all derivatives.

At an intergovernmental meeting this month, some member states indicated their reluctance to adopt IAS 39 without amendment. The Commission is now urgently considering whether European amendments might be made. If so, these seem likely to be designed to permit the deferral as assets of losses incurred in hedging core deposits and to include a ban on the 'fair value option'. Under pressure from Europe, the IASB has issued an exposure draft to restrict the fair value option (see page 2); few constituents, however, seem to be in favour of the proposed restrictions. Many will argue that the fair value option is needed to ensure sensible accounting in much of the financial sector - and not least for insurance unit-linked products, investment trusts and liabilities funding trading books.

The ASB continues to believe that the IASB's standards should be adopted without amendment for use in Europe With this in mind, it will be particularly important that, if the Commission is to suggest amendments to the IASB's standard, there is a full and open process of consultation to allow all to consider the potential impact of its proposals.