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users and preparers of accounts. The mechanism should be a means of fostering common
understanding of adopted international accounting standards in the EU community.63
The European Commission is advised on IFRS by the European Financial Reporting
Advisory Group (EFRAG). In addition to EFRAG, the European Commission seeks
approval from its member states through the Accounting Regulatory Committee.
EFRAG is a private sector body established by the European organisations prominent
in European capital markets, e.g. Accountancy Europe (formerly: Federation of
European Accountants (FEE)) and the European Banking Federation. In addition to
advising the European Commission on endorsement of IFRS, EFRAG is the mechanism
by which Europe as a whole can participate in the global debate on accounting standards
and it coordinates European responses to IASB proposals. EFRAG plays a proactive role
issuing discussion papers, field-test reports and feedback statements on outreach
events. The objective of the proactive work is to involve European stakeholders at an
early stage in identifying necessary improvements to financial reporting so as to
influence the IASB. EFRAG’s activities also include assessments of whether the IASB’s
proposals and IFRS requirements are conducive to the European public good. This
includes the interaction with economic concerns, such as financial stability and growth.
The EFRAG Board includes, in equal numbers, representatives of European stakeholder
organisations and national standard setters and is led by the President of the EFRAG
Board, who is nominated by the European Commission. The EFRAG Board is
responsible for all EFRAG positions and operates on the basis of a consensus-based
decision-making process with the objective of Europe speaking with one voice. The
European Commission, the European supervisory authorities and the ECB participate
in the EFRAG Board in an observer capacity. The EFRAG Board takes all its decisions
after considering the advice of the EFRAG Technical Expert Group (EFRAG TEG) and
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the results of EFRAG’s due process, and after hearing from the Accounting Regulatory
Committee and making all assessments deemed relevant from a political perspective.
Concerns have been expressed about the EU endorsement process but to date, apart
from the carve out from IAS 39 – Financial Instruments: Recognition and
Measurement – and the decision not to endorse IFRS 14 – Regulatory Deferral
Accounts,64 all IASB standards which are currently effective have ultimately been
endorsed. However, there are standards and a number of Interpretations Committee
interpretations that have had delayed application dates. The most notable is the
effective date for IFRS 10 – Consolidated Financial Statements, IFRS 11 – Joint
Arrangements, IFRS 12 – Disclosure of Interests in Other Entities, IAS 27 – Separate
Financial Statements – and IAS 28 – Investments in Associates and Joint Ventures –
for which the European Commission permitted a one-year deferral to the mandatory
effective date set by the IASB.
Another departure from the requirements of IASB standards arose from the
endorsement of Applying IFRS 9 Financial Instruments with IFRS 4 Insurance
Contracts (Amendments to IFRS 4) as the regulation contains an additional deferral
option not included in the original standard.65 A financial conglomerate is allowed to
elect that none of its entities operating in the insurance sector apply IFRS 9 –
Financial Instruments – in the consolidated financial statements for financial years
beginning before 1 January 2021 when certain conditions are met. The European
Commission added this deferral option as it considers that the amendments to IFRS 4
– Insurance Contracts – are not sufficiently broad in scope to meet the needs of all
significant insurance entities in the EU especially when those are operating within a
financial conglomerate.
In 2014, the European Commission started an evaluation of the Regulation on the
application of IFRS to assess whether:
• the Regulation achieved its objective in an efficient and effective manner;
• the criteria that all new IFRS should meet to become EU law are appropriate and
whether the process for adoption of standards works properly; and
• the governance structure of the bodies developing the standards and advising the
European Commission is appropriate.
The evaluation mainly included a public consultation, an informal expert group, and a
review of literature on the impact of the mandatory adoption of IFRS in the EU and on
the performance of IFRS during the financial crisis. The results were included in a report
issued on 18 June 2015. The key findings showed that IFRS was successful in creating a
common accounting language for capital markets and that there is still no well-defined
alternative to IFRS. The evidence from the evaluation also showed that the objectives
of the Regulation remain relevant. Companies that responded to the public consultation
were mostly positive about their experience of using IFRS and in most cases, benefits
outweighed costs. Investors also largely supported IFRS for improving the transparency
and comparability of financial statements. Most stakeholders considered that the
process through which IFRS become part of EU law works well.
However, the report identified room for improvement in some areas. Amongst others,
it was noted that the coherence of standards with EU laws should continue to be
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assessed during standard development and endorsement. In addition, the European
Commission announced that it will look at whether the powers of the European
supervisory authorities are sufficient and will consider measures to simplify the
endorsement process. Furthermore, the European Commission suggested that the IASB
strengthen its impact analysis and consider the needs of long-term investors when
developing standards.
The European Commission followed up on this issue in March 2017 when it launched a
public consultation on the operation of the European Supervisory Authorities (ESAs)
one of which is the European Securities and Markets Authority (ESMA).66 The
consultation document suggested that the review of the ESAs’ operation might also be
used to streamline the endorsement process in the EU and that this could be achieved
by giving ESMA an advisory role in the endorsement process. The feedback from
numerous stakeholders, however, was not favourable for the proposals and a vast
majority of the respondents were of the view that there is no reason to change the
current endorsement process or the role of EFRAG.67 In addition, stakeholders
emphasised that a clear separation of powers between standard setting and enforcement
should be maintained to avoid conflicts of interest.
On 31 January 2018, the High-Level Expert Group (HLEG) on Sustainable Finance,
established by the European Commission, published its final report setting out strategic
recommendations for a financial system that supports sustainable investments.68 In this
report, the HLEG recommends the European Commission to change the Regulation:
• ‘to specify tha
t international accounting standards should only be adopted if they
are conducive to the European public good, including its sustainability and long-
term investment objectives; and
• to provide the power to the EU to adjust specific aspects of IFRS standards
adopted by the IASB before transposing them into EU law. This would remove
the anomaly of the EU being the only constituency currently forgoing such a
possibility and can be confined to cases where key overarching EU policy goals
would otherwise be compromised.’
Reference to the HLEG report has been made when the European Commission
launched in March 2018 a consultation document ‘Fitness Check on the EU Framework
for Public Reporting by Companies’ (the Consultation Document) which generally seeks
stakeholder views on whether the EU framework for public reporting by companies is
fit for purpose.69 The objectives of this fitness check are:
• to assess whether the EU public reporting framework is overall still relevant for
meeting the intended objectives, adds value at the European level, is effective,
internally consistent, coherent with other EU policies, efficient and not
unnecessarily burdensome;
• to review specific aspects of the existing legislation as required by EU law; and
• to assess whether the EU public reporting framework is fit for new challenges (such
as sustainability and digitalisation).
The Consultation Document states that the above-mentioned European Commission’s
evaluation of the Regulation in 2015 showed that the use of IFRS in the EU has
significantly increased the credibility of IFRS and its use worldwide.
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However, the current level of commitment to IFRS by third country jurisdictions would
differ significantly and that very few of the major capital markets and large jurisdictions
have made the use of IFRS as issued by the IASB mandatory. The European Commission
then concludes that as a result, the level of global convergence achieved is sub-optimal
compared to the initial objective on global use. The Consultation Document also
addresses the issue that the current endorsement process prevents the EU from
modifying the content of the standards issued by the IASB. The European Commission
claims this fact has raised concerns, citing the report of the HLEG, that this lack of
flexibility would prevent the EU from reacting if these standards were to pose an
obstacle to broader EU policy goals such as long-term investments and sustainability.
The questionnaire in the Consultation Document therefore asks respondents whether
it is still appropriate that the Regulation prevents the European Commission from
modifying the content of IFRS, given the different levels of commitment to require IFRS
as issued by the IASB around the globe. Responses were due by July 2018 and the
analysis of the response letters will likely not be publicly available before 2019.
4.2.2 Russia
Stand-alone financial statements are required to be prepared by all legal entities in
accordance with Russian Accounting Principles (RAP). Most of RAP are substantially
based on IFRS, although some IFRSs have no comparable RAP standard and some RAP
standards that are based on IFRS have not been updated for recent changes.
However, Russian Federal Law On consolidated financial statements (the Law) requires
mandatory application of IFRS for the preparation and presentation of consolidated
financial statements by certain Russian entities, including credit institutions, insurance
companies, listed companies, non-state pension funds, management companies of
investment funds, mutual funds and non-state pension funds, and clearing institutions.
In addition, pursuant to the Law, the Russian government issued a regulation that
required certain state unitary enterprises and state-owned public joint stock companies
to present their consolidated financial statements in accordance with IFRS. Russian
entities that are otherwise in the scope of the Law but have no subsidiaries are also
required to present their IFRS financial statements in addition to their single entity
financial statements prepared under RAP. Credit institutions and listed companies are
required to present their half-year interim consolidated financial statements under IFRS
for interim purposes.
Credit institutions and listed companies are also required to present their half-year
interim consolidated financial statements under IFRS for interim purposes.
There is an IFRS endorsement process in Russia. Individual IFRSs (standards and
interpretations) become mandatory starting from the effective date specified in the
IFRS or from the date of its endorsement if it is later. IFRSs can be voluntarily
applied after they are endorsed but before their effective date. In practice, the time
period between the IASB issuing a new or amended standard and its endorsement
in Russia is not significant, which allows Russian companies to early adopt IFRSs
and amendments.
The IFRS endorsement process involves an analysis of the Russian language text of an
IFRS, provided by the IFRS Foundation, by the National Organization for Financial
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Accounting and Reporting Standards Foundation (NOFA), an independent, non-
commercial organisation identified by the Ministry of Finance of the Russian Federation
(Ministry of Finance). NOFA performs an analysis of an individual IFRS’s suitability for
the Russian financial reporting system. NOFA advises the Ministry of Finance whether
an IFRS should be endorsed as issued by the IASB or whether certain requirements
should be ‘carved out’ to meet the needs of the financial reporting system in Russia. The
Ministry of Finance, after consultation with the Central Bank of the Russian Federation,
makes the final decision on endorsement and publication of an IFRS.
At the time of writing, the Ministry of Finance endorsed, without any ‘carve outs’, all
IFRSs effective from 1 January 2018. IFRS 16 – Leases, IFRS 17 – Insurance Contracts –
and IFRIC 23 – Uncertainty over Income Tax Treatments – were also endorsed and,
therefore, are available for early adoption by Russian companies.
4.3 Americas
4.3.1 US
See 3.2 above for a discussion of the status of US adoption of IFRS.
4.3.2 Canada
For publicly accountable enterprises, the Accounting Standards Board (AcSB) adopted
IFRS as Canadian GAAP for fiscal years beginning on or after 1 January 2011, with
some deferrals for certain types of entities, which have now expired, and with the
exception of pension plans and benefit plans that have characteristics similar to
pension plans. Such plans follow the accounting standards for pension plans issued by
the AcSB as of 1 January 2011, rather than IAS 26 – Accounting and Reporting by
Retirement Benefit Plans.
The definition of ‘publicly accountable enterprises’ is essentially the same as ‘publicly
accountable entity’ in IFRS for SMEs. Canadian publicly accountable enterprises that
are registered with the US SEC are permitted to apply US accounting standards rather
than IFRS. SEC registered Canadian entities operating in industries dominated by US
<
br /> entities tend to favour US accounting standards over IFRS. In addition, securities
regulators have indicated that they will consider permitting the use of US standards by
Canadian rate-regulated entities that file with Canadian securities commissions even if
they are not SEC registered. A number of these entities have been granted permission
to use US standards.
For non-publicly accountable enterprises and not-for-profit organisations, the AcSB has
developed new bases of accounting that are derived from Canadian standards rather than
IFRS, although IFRS is also available for use by those entities on a voluntary basis.
The adoption of IFRS in Canada for publicly accountable enterprises means that the
AcSB has effectively ceased to make final decisions on most matters affecting the
technical content and timing of implementation of standards applied to publicly
accountable enterprises in Canada. The AcSB’s plans for incorporating new or amended
IFRS into Canadian standards include reviewing all IASB documents issued for
comment. As part of this process, the AcSB seeks the input of Canadian stakeholders by
issuing its own ‘wraparound exposure draft’ of the IASB proposals, together with a
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document highlighting the key elements of the IASB proposals that are particularly
relevant to Canadian stakeholders. In addition, the AcSB may perform outreach
activities such as public roundtables. Any changes to IFRS must be approved by the
AcSB before becoming part of Canadian GAAP.
While the AcSB retains the power to modify or add to the requirements of IFRS, it
intends to avoid changing IFRS when adopting them as Canadian GAAP. Accordingly,
the AcSB does not expect to eliminate any options within existing IFRS. As issues
relevant to Canadian users of financial information arise in the future, the AcSB will
work to resolve them through the Interpretations Committee or the IASB. In the event
that a resolution by the Interpretations Committee or IASB is not possible, the AcSB
will stand ready to develop additional temporary guidance.
The AcSB has an IFRS Discussion Group to provide a public forum to discuss the
application of IFRS in Canada and to identify matters that should be forwarded to the