Recently the new team at EFRAG faced a heavy agenda as formal advice was developed for the EU Commission on the final batch of IASB’s ‘stable platform’ standards and initial, and then final, comments were drafted for IASB on its continuing flow of exposure drafts.
The most important and time consuming of the topics on which EFRAG was called upon to give its formal advice on adoption of the IASB standard was financial instruments. In December 2003 the IASB had published IAS 39 Financial Instruments: Recognition and Measurement, followed in March 2004 by an amendment dealing with fair value hedge accounting for a portfolio hedge of interest rate risk. The standard was strongly resisted by much of the European banking industry, despite the significant efforts made over the previous year by IASB to develop a less burdensome hedge accounting regime.
The voting on this standard in June by EFRAG’s Technical Experts Group reflected the division of opinion in the EU. Support for adoption was insufficient to enable FRAG to recommend adoption.
In these circumstances, EFRAG’s letter recommended neither adoption nor rejection but, instead, set out the arguments on either side. One member set out a detailed exposition of how, in her view, the standard should be modified in the short term.
The Commission took soundings in July from the Accounting Regulatory Committee (ARC), the body comprising officials from member states that has the chief responsibility for determining the outcome of the adoption or rejection decision, from which it was clear that there was insufficient support for adoption. It therefore prepared an amended version, deleting certain words and sentences so as to enable companies to adopt the hedge accounting that some of them, particularly financial services companies, desired.
In mid September the Commission asked EFRAG to review the amended version to identify whether it contained technical flaws that would prevent it from achieving its intended effect. EFRAG immediately placed the draft on its website to seek comments from its constituency and convened a special meeting one week later to consider the comments. Despite the lack of time, 18 comments were received, including a detailed commentary from the ASB. EFRAG wrote to the Commission setting out its concerns on the technical flaws and also went on to express concerns over the potentially far-reaching side effects and the lack of due process with which the amended version had been developed. The letter, as well as comment letters received, can be viewed on the EFRAG website (www.efrag.org). The final outcome on the adoption of IAS 39 is reported on page 1.
EFRAG has also over the past few months launched a number of proactive projects, addressing topics known to be on the IASB's agenda but not yet set out in detailed proposals. These projects are Revenue Recognition, Measurement and Concessions. ASB is playing an active role in each of these projects. EFRAG has also participated actively in a joint group with FEE and other parties to study the IASB preliminary views on accounting by SMEs.
In September there took place the first meeting of an EFRAG Advisory Forum, a new body to enable certain important topics to be considered at a general rather than purely technical level by senior individuals drawn from all sides of the financial reporting constituency. The subject for the first meeting was Reporting Financial Performance. Some 70 participants attended, led by a panel of twelve with a balanced representation of preparers, users and auditors of financial statements. The main paper was prepared and presented by Allan Cook, EFRAG member and former Technical Director of the ASB. As expected, the discussion ranged widely. Reactions by participants are currently being assessed with a view to planning meetings on other topics of general interest.
