The deadline for the switch-over of company accounting to International Accounting Standards (IASs) is rapidly approaching.
From 1 January 2005, more than 7,000 EU companies listed on regulated markets ? typically stock exchanges ? will be required to use endorsed International Accounting Standards (IASs) for their consolidated accounts.
The IAS Regulation was adopted by the Commission in July 2002, and unlike EU Directives, has the force of law without requiring transposition into national legislation.
While applying initially only to listed EU companies, Member States are being encouraged to extend the requirements of this Regulation to unlisted companies and annual accounts. The implementation of the ?options? provided under the IAS Regulation is still under way in most Member States and the EEA countries. The Commission is closely tracking the intentions of these countries.
Following its adoption by the Commission in July 2002, IAS are rapidly becoming the de facto world standard in accounting and many organisations have already switched to IAS as best practice.
Conversion to IAS is not without cost and requires companies to invest in new systems, and to explain the differences in financial reports due primarily to changes in accounting practices. This is a process with wide ranging implications involving company directors and management, auditors and IT specialists. Though the first IAS accounting will be required in 2005, the previous year?s accounts will also have to be converted to permit comparison.
The Regulation aims to help eliminate barriers to cross-border trading in securities by ensuring that company accounts throughout the EU are more reliable and transparent and that they can be more easily compared. Although the Commission put forward the IAS proposal long before the Enron, WorldCom and Parmalat affairs, this is one of a series of measures which will help to protect the EU from such problems.
The impact of Europe?s move to IAS extends beyond its borders. A source of frustration for many companies in Europe wanting access to US capital markets remains the requirement to reconcile their accounts to US generally accepted accounting principles (GAAP).
By signing up to international accounting standards, Europe has provided momentum for, and should benefit from, the convergence process initiated.
The IAS Regulation provides several options for Member States e.g. to permit or require the application of endorsed IAS by unlisted companies and in the preparation of annual accounts as well as consolidated ones. These are options which the Commission hopes will be taken up by many Member States and so expand the use of IAS in Europe, in particular in respect of important sectors such as banking and insurance.
To ensure appropriate political oversight, the IAS Regulation has established a new EU mechanism to assess IAS adopted by the International Accounting Standards Board (IASB), and to give them legal endorsement for use within the EU. The Accounting Regulatory Committee (ARC) chaired by the Commission and composed of representatives of the Member States, decides whether to endorse IAS on the basis of Commission proposals.
In its task, the Commission is assisted by EFRAG, the European Financial Reporting Advisory Group, a body composed of accounting experts from the private sector in several Member States. EFRAG provides technical expertise concerning the use of IAS within the European legal environment and participates actively in the international accounting standard setting process.
Still awaiting adoption are IAS 32 and 39 (Financial Instruments). The Commission will consider these IAS for endorsement as soon as the final version of IAS 39 is issued by the IASB.
Further information at: http://ec.europa.eu/internal_market/accounting/ias_en.htm#status-adoption
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