Equivalence
On 21 December, the European Commission adopted a Regulation (1569/2007) that sets out the basis on which third-country (ie non EU) GAAPs can be found equivalent to IFRS as adopted by the EU. This affects non- EU issuers that list in EU Member States. In essence, third-country GAAPs may be considered equivalent if investors could make similar assessments of the financial statements drawn up under those GAAPs as those drawn up under IFRS. As a transitional measure, the Commission will be entitled to allow third-country issuers to use their GAAPs in the EU for a transitional period ending in 2011 at the latest, provided those countries are converging with IFRS or the respective third country intends to adopt IFRS.
In determining whether a third country GAAP is equivalent, the Commission has first to consult the Committee of European Securities Regulators (CESR). On that issue, CESR has published, on 18 December, a consultation paper entitled 'CESR's advice on the equivalence of Chinese, Japanese and US GAAP', with a deadline for responses of 25 February. CESR's proposed advice on the 3 GAAPs being considered is to recommend:
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that the Commission finds US GAAP equivalent to IFRS for use on EU markets;
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that, come June 2008, the Commission should consider Japanese GAAP equivalent, unless there is no adequate evidence of the Accounting Standards Board of Japan (ASBJ) making progress under the August 2007 Tokyo Agreement it signed with the IASB to accelerate convergence between Japanese GAAP and IFRS; and
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that the Commission postpones a final decision on Chinese GAAP. CESR notes that the new Chinese standards look substantially similar to IFRS, but there is – as yet – no evidence of their 'concrete' implementation (the first full reporting period under the new standards is for companies with 31 December 2007 year-ends).
The consultation paper can be accessed from the CESR website at: http://www.cesr-eu.org/index.php?page=home_details&id=259.
European Commission and EU Endorsement of IFRS
The European Commission is at present preparing an evaluation report on how IFRS adoption in the EU has worked in practice, which will be based on the ICAEW's report for the Commission 'EU Implementation of IFRS and the Fair Value Directive' that was published in October 2007 (and reported on in Inside Track 53).
The Commission has also decided that, as part of the process of endorsing IFRS for use in the EU, there needs to be a report on the potential impact of any new IFRS or IFRIC Interpretation (referred to as an 'effects study'), which will be submitted to the Accounting Regulatory Committee (ARC) and the European Parliament (EP). This follows the impact analysis on the adoption of IFRS 8 (referred to in Inside Track 53), which was endorsed for use in the EU in November 2007. The Commission is undertaking effects studies on two IASB pronouncements: IAS 23 Borrowing Costs and IFRIC 12 Service Concession Arrangements and in December 2007 issued questionnaires seeking views on the potential impacts of both. The Commission is planning to submit reports on both to the ARC and the EP in spring 2008.
