European Commission Proposes Public Funding for Accounting and Auditing Standard Setters
In an effort to address the independent funding issue hanging over the IASB with the global acceptance of IFRS, the European Commission has proposed public funding for the Board in an effort to enhance its independence. For similar reasons, the Commission has proposed independent funding for the oversight body of the IAASB, the standard setter for international audit standards. The independence of the oversight process without any undue influence is crucial for both standard setters, said the Commission.
Since IFRS is mandated for EU listed companies, reasoned the Commission, the standards play a major role in the operation of the Single Market and of the EU's economy. Thus, the EU has a direct interest in ensuring that the process through which these standards are developed and approved delivers standards that are consistent with the public interest and enhance financial stability.
A main concern in this respect is to avoid the reliance of the standard-setter on voluntary funding from interested parties, such as auditors or listed companies. The establishment of appropriate funding arrangements is important to put an end to such reliance.
Independent funding should contribute to ensuring the independence of its standard setting and limit concerns about possible conflicts of interest. Thus, the Commission proposes a public financial contribution to the IASB budget proportionate to the EU weight in the global economy and capital market.
The financial statements of EU companies must be audited by independent auditors. According to Directive 2006/43/EC, international standards for auditing can be adopted in the EU provided a number of conditions are met, in particular that the standards have been developed with proper due process, public oversight and transparency. International standards for auditing are developed and approved by the International Auditing and Assurance Standards Boards, whose overseer is the Public Interest Oversight Board.
The key concern in this respect is to avoid the reliance of the PIOB for its funding over from interested parties which have a direct interest in auditing standards. The establishment of appropriate funding arrangements of the PIOB is important to put an end to such reliance. This should, in turn, contribute to guarantee the independence of its oversight activity and limit concerns about possible conflicts of interest. To achieve this objective, it is therefore necessary for the EU contribute fairly to the funding of the PIOB.