European Financial Reporting Advisory Group (EFRAG) Issues

A report of EFRAG's Supervisory Board (SB) on November 2009 is available on the EFRAG website at: http://www.efrag.org/news/detail.asp?id=480 The SB met again on 19 January, but no report of that meeting was available at the time of going to press. We understand that the SB considered recommendations from EFRAG's Nominating Committee for the appointments and re-appointments to EFRAG's Technical Experts Group (TEG), including a new TEG Chairman.

The ASB continues to work with EFRAG and other major European standardsetters on proactive issues which fall within the remit of the Planning and Resources Committee (PRC) of EFRAG. Ian Mackintosh is a member of the PRC. The PRC held its latest meeting on 26 January, where the agenda items included the status of current proactive projects, proposals for new projects and a discussion of a proposed research strategy for proactive work.

As reported in Inside Track 59, a research paper 'Performance Reporting: A European Discussion Paper' was issued in March 2009. The paper explores some fundamental issues about the presentation of financial performance. The ASB responded to the DP in December, welcoming its issue as a contribution to the performance reporting debate, and agreeing with the views that:

• performance is a complex, multifaceted issue that cannot be encompassed in one or a few numbers;
• key lines are very important;
• requiring one or two statements of performance is peripheral as long as the key lines that meet user needs are reported.

On alternative models for disaggregating performance, the ASB supports a model based on a split of operating, investing and financing activities. The ASB's response is available on the FRC website at: http://www.frc.org.uk/asb/publications/other.cfm?cat=74.

European Commission

The European Commission is currently reviewing the 4th and 7th Company Law Directives (usually referred to as the Accounting Directives). It issued a report on 21 October summarising the responses to its February 2009 consultation. The report, which is available at : http://ec.europa.eu/internal_market/accounting/sme_accounting/review_directives_en.htm contains a detailed analysis of the 105 substantive responses and does not give an indication of the likely direction the Commission will take on the review.

In the meantime, the European Commission has launched (on 17 November), a public consultation on the IFRS for SMEs, with a deadline for comments of 12 March 2010. The aim of the Commission document is to seek views of EU constituents on the IFRS for SMEs: it does not contain any views or comments on whether it is compatible with the current Accounting Directives, but simply notes that the Commission Services are working on this issue with EFRAG and other experts. The ASB plans to submit a response. The consultation document can be accessed at: http://ec.europa.eu/internal_market/consultations/2009/ifrs_for_sme_en.htm.

EFRAG has been asked by the Commission to consider compatibility issues. EFRAG has set up an SME Working Group to assist the TEG in this exercise. The SME Working Group is preparing a paper which looks at IFRS for SMEs section by section, and highlights where there are (a) differences between its provisions and those in the Directives; and (b) potential conflicts between them.

EU Endorsement of IFRS

Any new or revised IFRS or IFRIC Interpretation has first to be endorsed for use in the EU before it can be applied by EU-listed companies in their consolidated financial statements under a process first set out in Regulation 1606/2002, and as amended in Regulation 297/2008.

During January, EFRAG issued its latest report showing the status of endorsement for application in the EU of each IFRS and IFRIC Interpretation. The report can be downloaded from the EFRAG website at: http://www.efrag.org/news/detail.asp?id=470. There are currently 7 IASB pronouncements awaiting European Commission endorsement for use in Europe:

Standards

• IFRS 9 Financial Instruments

Interpretations

• Amendment to IFRIC 14 Prepayments of a Minimum Funding Requirement
• IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments

Amendments

• Improvements to IFRSs (Issued 16 April 2009)
• Amendments to IFRS 2 Group Cash-settled Share-based Payment Transactions
• Amendments to IFRS 1 Additional Exemptions for First-time Adopters
• IAS 24 Related Party Disclosures.