1. REPARIS Workshop Vienna
15 March 2006
Enforcement of IFRS in listed companies: The Implications for the Accountancy Profession
Erich Kandler
Chairman FEE Company Law and Corporate Governance Working Party
Member of FEE Financial Reporting Policy Group

2. FEE 44 Member Bodies of professional accountants From 32 countries
With over members
Website:

3. Background
October FEE Discussion Paper on a Financial Reporting Strategy within Europe
May FEE Study – Enforcement Mechanisms in Europe
April FEE Discussion Paper on Enforcement of IFRS in Europe
June IAS Regulation – Central role of the Commission, CESR and Member States

4. Background
October CESR - Proposed SOP – Principles of Enforcement of Accounting Standards in Europe
March CESR Standard n° 1: Enforcement of Standards on Financial Information in Europe
7 October 2003 Draft Standard n° 2: Coordination of Enforcement Activities
10 October 2003 FEE Round Table on Enforcement

5. Background
November 2003 FEE Discussion Paper European Enforcement Coordination Coordination at European Level of National Enforcement Mechanisms and how an interpretation mechanism should work post 2005
December 2003 CESR Recommendation of Additional Guidance Regarding the Transition to IFRS

6. Background
February 2004 Call of CESR on accountancy profession in relation to 2003 year-end audit
22 April Standard No. 2: Coordination of Enforcement Activities
28 October CESR Paper: The Role of CESR at “Level 3” under the Lamfalussy Process

7. Background
December 2005 FEE Communication to Member Bodies: Reference to the Financial Reporting Framework in the EU in Accounting Policies and in the Audit Report and Applicability of Endorsed IFRS
(after FEE Discussion Paper and Analysis of Responses earlier in 2005)
January CESR Public Statement on clear and transparent disclosure when making use of any options

8. What was the picture back in 2001?
2001 FEE Study Enforcement Mechanisms in Europe
Oversight systems differ widely:
Stock exchange
Regulator
Governmental department
Review Panel
Most countries:
No enforcement of financial statements
Not much review of substance or systematic review
Foreign listings: usually relied on enforcements body in the home country

9. Framework for High Quality Financial Reporting
Proper financial accounting standards
Preparation by an effective and well resourced internal company accounting function
Internal audit and informed review by directors, Audit Committees or Supervisory Boards
Proper approval procedures of financial information by the body responsible within the company
External audit and external review subject to appropriate quality assurance systems

10. Framework for High Quality Financial Reporting
Effective enforcement bodies
Stock Exchanges with supportive listing agreements
Sponsors, advisers and investment bankers committed to high quality financial reporting
Investors, analysts, rating agencies and the financial press: clear ethical obligations to raise issues of dubious financial reporting
Auditors that can cope with the challenge to enforce principles

11. FEE Discussion Paper European Enforcement Coordination 2003: Views on interpretation and implementation
Avoid making separate European rules
Enforcing existing standards
Consultation arrangements with IASB, IFRIC, EFRAG, SEC and other enforcement bodies
Enforcement bodies should not reduce existing flexibility contained in IFRS
No court interpretations of accounting standards
Clear distinction between enforcement and standard setting

12. Consistency
“… consistent application does not mean identical application; it means acceptable by reference to the standards…”
FEE Position Paper

13. Consistency Consistent Application of IFRS: critical importance
Effective implementation of IFRS in practice: SEC condition for elimination of reconciliation requirement
EC/SEC Roadmap – confirmation February 2006
Second half 2006 SEC staff analysis financial statements foreign issuers

14. Consistency Consistent Application of IFRS – An Auditor´s Challenge
First year of implementation of IFRS in real life
Little industry peer comparison is available
but
Capital markets will get better information than they did in the past
More comparability
It must be expected that it will take some time to achieve and demonstrate success in consistent application (and audits)

15. Consistency Consistent Application of IFRS
Essential to recognise that IFRS principle-based standards should respect reasonable judgments by both preparers and auditors – not necessarily identical decisions
Co-ordination within EU and beyond essential among market participants and regulators especially
IFRIC’s role as the only authoritative interpreter of IFRS

16. Consistency Consistent Application of IFRS
Each of the parties involved in the financial reporting chain has to fulfil its role in achieving consistent application of IFRS
The accountancy profession is ready to assume its fair share by
Ensuring high quality audits through training and
Maintaining independence in fact and appearance as well as
Raising awareness at the board level

17. Initiatives by the Accountancy Profession
July 2005 EFRAG Supervisory Board “Discussion Paper on Achieving Consistent Application of IFRS in the EU”
September 2005 EFRAG Advisory Forum
EC Informal Roundtable

18. Initiatives by the Accountancy Profession
FEE Position Paper
Financial Reporting: Convergence, Equivalence and Mutual Recognition
March 2006
FEE Seminar 1 December 2005 “IFRS Convergence and Consistency”

19. Some good news…
FEE has always supported global, principle-based standards
IFRS is a major step forward
Capital markets will get better information than they did in the past

20. REPARIS Workshop Vienna
15 March 2006
Enforcement of IFRS in listed companies: The Implications for the Accountancy Profession
Erich Kandler
Chairman FEE Company Law and Corporate Governance Working Party
Member of FEE Financial Reporting Policy Group