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Room for interpretation in IFRS: The Kiss of Death or Road to Success for IFRS?

Prof. Dr. S. J. Maijoor (AFM)Prof. Dr. S. J. Maijoor (AFM)

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Room for Interpretation in IFRS; Room for Interpretation in IFRS; CESR’s Response & Role in the New Accounting Era.CESR’s Response & Role in the New Accounting Era.

Two main topics:Two main topics:

1.1. CESR Co-ordination mechanismCESR Co-ordination mechanism

2.2. Is there a need for a European Is there a need for a European IFRS interpretation mechanism?IFRS interpretation mechanism?

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Room for Interpretation in IFRS; Room for Interpretation in IFRS; CESR’s Response & Role in the New Accounting Era.CESR’s Response & Role in the New Accounting Era.

1.1. CESR Co-ordination mechanismCESR Co-ordination mechanism

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1. CESR Co-ordination system

A. Key actors in the process of getting and applying A. Key actors in the process of getting and applying IFRS in the EUIFRS in the EU

B. Some specific elements of the IFRS frameworkB. Some specific elements of the IFRS framework

C.The description of the CESR co-ordination mechanism C.The description of the CESR co-ordination mechanism

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A.A. Key actors in the process of setting and applying IFRS in the EU:Key actors in the process of setting and applying IFRS in the EU:

Standard setting process

EU Court ofJustice

-Interpretation Of EU Law

EU CommissionAnd Parliament

-Endorsementdecision-Publication in OJ

ARC

EFRAG

IASB - IFRIC

National StandardSetters

Academics, AuditFirms (tech.dep.)

-Endorsement opinion

-Endorsementadvise

-Standards andInterpretations-Technical corrections

-Local interpretations

-Accounting doctrine

Standard application process

CESR-EECS -Enforcement decisions-Database-Co-operationwith SEC-Endorsement

National courts -Casesettlement

Competent authorities

-National ex-postenforcement-National ex-anteenforcement

Market participants

-Users of inform.-Market discipline

Auditors -Audit opinion

Issuers -Preparation ofFin. statements

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1. CESR Co-ordination system

1. Formal IASB Standards and IFRIC Interpretations

B. The European financial reporting framework and the role of some specific elements of the IFRS framework

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1. CESR Co-ordination system

1. Formal IASB Standards and IFRIC Interpretations

2. Technical corrections

B. The European financial reporting framework and the role of some specific elements of the IFRS framework

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1. CESR Co-ordination system

B. The European financial reporting framework and the role of some specific elements of the IFRS framework

1. Formal IASB Standards and IFRIC Interpretations

2. Technical corrections

3. Local (national) interpretations

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1. CESR Co-ordination system

B. The European financial reporting framework and the role of some specific elements of the IFRS framework

1. Formal IASB Standards and IFRIC Interpretations

2. Technical corrections

3. Local (national) interpretations

4. Clarifications of standards-interpretations

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1. CESR Co-ordination system

B. The European financial reporting framework and the role of some specific elements of the IFRS framework

1. Formal IASB Standards and IFRIC Interpretations

2. Technical corrections

3. Local (national) interpretations

4. Clarifications of standards-interpretations

5. Auditors' opinions

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1. CESR Co-ordination system

B. The European financial reporting framework and the role of some specific elements of the IFRS framework

1. Formal IASB Standards and IFRIC Interpretations

2. Technical corrections

3. Local (national) interpretations

4. Clarifications of standards-interpretations

5. Auditors' opinions

6. Enforcement decisions

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1. CESR Co-ordination system

B. The European financial reporting framework and the role of some specific elements of the IFRS framework

1. Formal IASB Standards and IFRIC Interpretations

2. Technical corrections

3. Local (national) interpretations

4. Clarifications of standards-interpretations

5. Auditors' opinions

6. Enforcement decisions

7. Market discipline

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Standards application

Issuers

Auditor

EUNationalenforcers

CESR-

EECSIFRIC

IFRICclarifi-cations

IFRICinterpre-tations

Standard setting (endorsement)

IASBIFRIC

EFRAG(advise to

EC)

EU-Comm.

EU-Parliament

EndorsedStandardsAndInterpre-tations(EU Law)

ARC

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1. CESR Co-ordination system

Issuers

Auditors

EU National enforcers

CESR - EECS

IFRIC

IFRIC Clarifications

IFRICinterpre-tations

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1. CESR Co-ordination system

C. The description of the CESR co-ordination mechanism The description of the CESR co-ordination mechanism

Key principles of the mechanism:Key principles of the mechanism:

• Discussion of enforcement decisions and experiences Discussion of enforcement decisions and experiences within a formal within a formal structurestructure• All supervisory bodies take into account the existing All supervisory bodies take into account the existing decisions taken decisions taken by EU National Enforcersby EU National Enforcers• Development of a database as practical reference tool Development of a database as practical reference tool (not a book of (not a book of rules!)rules!)

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1. CESR Co-ordination system

C. The description of the CESR co-ordination mechanism The description of the CESR co-ordination mechanism

Current thoughts on enhancement of the co-ordination process:Current thoughts on enhancement of the co-ordination process:

• Particular issues caused by the transition to IFRSParticular issues caused by the transition to IFRS

• Interactions with other EU stakeholdersInteractions with other EU stakeholders

• Operational co-operation with third countries securities Operational co-operation with third countries securities regulatorsregulators

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1. CESR Co-ordination system

C. The description of the CESR co-ordination mechanism The description of the CESR co-ordination mechanism

EECS: The European Enforcers' Coordination Sessions:EECS: The European Enforcers' Coordination Sessions:

• Include all enforcers on financial information in EU (also Include all enforcers on financial information in EU (also non-CESR non-CESR members)members)

• Bimonthly meetings with persons representing 27 Bimonthly meetings with persons representing 27 countriescountries

• Discussing the decisions taken or to be taken by local Discussing the decisions taken or to be taken by local enforcersenforcers

• Agenda committee EECSAgenda committee EECS

• EECS DatabaseEECS Database

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1. CESR Co-ordination system

C. The description of the CESR co-ordination mechanism The description of the CESR co-ordination mechanism

EECS Database: Database of enforcement decisions.EECS Database: Database of enforcement decisions.

• Collection of all relevant European enforcement Collection of all relevant European enforcement decisionsdecisions

• Both action and non-action decisions of enforcementBoth action and non-action decisions of enforcement

• Both ex-ante and ex-post decisions includedBoth ex-ante and ex-post decisions included

• Not a rule book of interpretations!!Not a rule book of interpretations!!

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1. CESR Co-ordination system

C. The description of the CESR co-ordination mechanism The description of the CESR co-ordination mechanism

EECS Database, member obligationsEECS Database, member obligations

• Timely input of new decisionsTimely input of new decisions

• Consultation of database on taking a decisionConsultation of database on taking a decision

• Take into account existing decisionsTake into account existing decisions

• Consult peers in cases of apparently contradicting Consult peers in cases of apparently contradicting decisionsdecisions

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Room for Interpretation in IFRS; Room for Interpretation in IFRS; CESR’s Response & Role in the New Accounting Era.CESR’s Response & Role in the New Accounting Era.

2. Is there a need for a European IFRS interpretation mechanism?

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2. Is there a need for a European IFRS interpretation mechanism?

Some of CESR initial views:Some of CESR initial views:

• Reaching appropriate level of consistency is of high Reaching appropriate level of consistency is of high importanceimportance

• Already existing complex landscape in EUAlready existing complex landscape in EU

• Gaining experience with new reporting environment in Gaining experience with new reporting environment in due timedue time

• No need for additional institute in absence of convincing No need for additional institute in absence of convincing needsneeds

• Balancing of the cost and benefits of a new mechanismBalancing of the cost and benefits of a new mechanism

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2. Is there a need for a European IFRS interpretation mechanism?

Important elements to keep in mind:Important elements to keep in mind:

1.1. The importance of preserving fundamental characteristics of The importance of preserving fundamental characteristics of IFRSIFRS

- international- international- principle based- principle based

2.2. Desire to provide EU players with more guidance for applicationDesire to provide EU players with more guidance for application- what is the level of consistency required?- what is the level of consistency required?

3.3. What is the role of third country issuers going to be on What is the role of third country issuers going to be on enforcement and interpretations of IFRS?enforcement and interpretations of IFRS?

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Room for interpretation in IFRS:

The Kiss of Death?The Kiss of Death?

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Room for interpretation in IFRS

Or:Or:

Road to Success? Road to Success?