IFRS Accounting in Europe

1. IFRS Accounting in Europe Thomas Oversberg Project Manager Brussels - 5. November 2007

2. Agenda • Who is EFRAG? • How do IFRSs become European law (the Endorsement Process)? • Lease Accounting in Europe

3. EFRAG - background • European Financial Reporting Advisory Group (EFRAG) • Technical group to advice European Commission (EC) on IFRS • Independent, private sector body, founded in 2001 by European organisations of preparers and users of financial statements and auditors, as well as European standard setters

4. EFRAG‘s role • Proactive contribution to the IASB and IFRIC – Comment Letters • EU Commission - Endorsement advice • Stimulate thought leadership – PAAinE • European Coordination - CFSS

5. EC – EFRAG Working Arrangement • The Working Arrangement of March 2006 formalised EFRAG‘s role as a technical advisor to the EC: "EFRAG will provide advice to the Commission on all issues in relation to the application of IFRS in the EU.” • Specifically on: • Endorsement advice • Proactive input to IASB/IFRIC

6. INSURAN WG SME JWG Fin Inst WG CONCESSION WG JV WG EFRAG‘s structure Supervisory Board User Panel Technical Expert Group (TEG) Secretariat CFSS

7. EFRAG‘s due process • Members of the TEG must not consider themselves as representing sectorial and/or national interests but shall be guided by the need to act in the European Interest. • EFRAG has an open and transparent due process, which allows all European constituents to provide input for consideration of EFRAG. • All technical discussions held in public meetings. • Invitation to comment on all EFRAG draft publications.

8. EFRAG‘s due process (cont.) • Publication of basis of conclusion for EFRAG on endorsement advice. • Publication of TEG agendas and summary minutes of its meetings. • Publication of the final endorsement advice to the Commission. • Publication of final comment letters on IASB consultation documents, and other EFRAG positions.

9. Endorsement Process • The “original” endorsement process – Endorsement with supervision • SARG – Endorsement with supervision and review of EFRAG’s advice • The future endorsement process – Endorsement with scrutiny

10. The Endorsement Process Endorsement with Supervision

12. The Endorsement Process Endorsement with SARG

13. SARG

14. The Endorsement Process Endorsement with scrutiny

16. Endorsement Situation • Until 2007, Europe has endorsed all IASB Standards and Interpretations, except: • IAS 39 – Carve Out • IFRIC 3 Emission Rights – Subsequently withdrawn by IASB • In 2007, the endorsement process was delayed due to concerns over: • IFRS 8 Operating Segments and • IFRIC 12 Service Concession Arrangements

17. Endorsement Situation (cont.) As of 16.10.2007 www.efrag.org

18. IFRS 8 – State of play • The IASB published IFRS 8 on November 30, 2006 • EFRAG issued its positive endorsement advice on January 16, 2007 • The Accounting Regulatory Committee (ARC) unanimously supported endorsement in its meeting on February 2, 2007 • The European Parliament (EP) raised some concerns on IFRS 8. • In April 2007, the EP and the European Commission (EC) agreed to carry out an impact assessment of IFRS 8.

19. IFRS 8 – State of play (cont.) • Impact assessment published by the EC in September 2007. • In October 2007 the ECON committee of the EP drafted a positive resolution, however requesting: • Review of IFRS 8 implementation in 2011 by the EC • Impact assessment on other standards and interpretations by the EC • Voting on the resolution expected in the November 2007 EP session. • Publication in Official Journal soon thereafter.

20. IFRIC 12 – state of play • The IASB / IFRIC published IFRIC 12 on November 30, 2006 • EFRAG submitted – after considerable debate – a positive endorsement advice to the EC on March 23, 2007. • Meeting between Spain and IASB on that issue. • The ARC discussed IFRIC 12 several times so far, but has not been asked by the Commission to vote on it, i.e. the EC has so far not used its right of initiative.

21. PAAinE • Pro-Active Accounting Activities in Europe (PAAinE) • OBJECTIVES: • Partnership with National standard setters • High quality proactive input to IASB(+FASB) • More consistent messages to IASB • Create debates in Europe • Involvement in the convergence work • Monitor work of IASB & FASB • Thought leadership • Better utilisation of European resources

22. PAAinE publications so far Conceptual Framework Stewardship Revenue Recognition Performance Reporting Future publications: Performance Reporting II Conceptual Framework II Equity / Liability

23. Lease Accounting in Europe • 4th Directive does not contain any specific guidance on lease accounting • European countries developed often tax driven systems (such as Germany, Belgium…). • IAS 17 increased comparability to a certain extent, but resulted in interpretation issues on terms used. • The first standard to apply “substance over form” concept.

24. Leasing – recent developments • Amendments to leasing standard as part of the annual improvements project • Leasing in the SME ED • The IASB / FASB Leasing Project

25. Annual Improvements Project • IAS 17: • Classification of leases of land and buildings • Contingent rents  EFRAG agrees with the proposed amendments. • IAS 40: • Investment property held under lease  EFRAG agrees with the proposed amendment.

26. Leasing Project • EFRAG welcomes that the IASB & FASB intents to tackle lease accounting and its current issues. • EFRAG appreciates that any future solution needs to be aligned to the framework and the assets / liabilities definitions. • EFRAG cautions to develop a conceptually perfect solution, which is not practical to implement for the vast majority of contracts and companies. • Substance of lease transactions need to be considered. • EFRAG supports convergence, but not for the sake of it, but rather to get the best accounting solutions.

27. Concluding remarks • Speaking with one voice and submitting good and thoughtful arguments towards the IASB has proven to be of utmost importance. • Providing input and comments to EFRAG ensuring that EFRAG is aware of issues and positions and able to fulfil its role European role is paramount and should be a high priority for users, preparers, standard setters and other constituents, in short: YOU.

28. EFRAG • Avenue des Arts 13-14 • 1210 Brussels • Belgium • info@efrag.org

29. www.efrag.org