In June the European Commission put forward its proposal for modernising the accounting directives (including the banking and insurance directives). According to the Commission's announcement at the time, the proposal would bring existing EU rules into line with best practice and would complement the International Accounting Standards (IAS) Regulation requiring listed companies to use IASs from 1 January 2005.

Introducing the amendments, the Commission said that they would allow appropriate accounting for special purpose vehicles, improve the disclosure of risks and uncertainties and increase the consistency of audit reports across the EU.

The significance of this project has to be seen in the context of the options available to member states to extend the scope of the Regulation on IASs beyond the consolidated accounts of listed companies. In the UK, the Department of Trade and Industry is currently consulting on which, if any, of these options it should introduce in this country. Updating the directives along the lines proposed will significantly improve the ability of EU national standard setters to align their standards with IASs.

The ASB is committed to the international convergence process and will seek to bring its own standards into line with IASs, maintaining divergences only when there is a particularly strong argument to do so. The result is that if the Government decides that national standards should be retained for some or all entities outside the mandatory application of the Regulation, those entities will still be subject to a reporting regime that is very similar to that applicable to the consolidated accounts of listed companies. The problems of two tier GAAP will have been largely avoided.

The Commission’s proposal has now completed its stages through the Council of Ministers, although there have been some amendments on the way - in particular the inclusion of the Bank Accounts Directive.

The next stage is for the European Parliament to consider the proposal, taking as their starting-point the original Commission proposal without the Council’s amendments. It is expected that the proposal will be taken up again in the Council of Ministers early next year.

The Commission’s proposals can be downloaded from www.europa.eu.int/comm/internal_market/en/company/account/news/index.htm

The DTI’s consultation on the use of IAS can be obtained from www.dti.gov.uk/cld/current.htm