Keying on the recent report of Philippe Maystadt to the European Commission recommending that EFRAG be transformed to get the E.U. more involved in IFRS standard setting, the European Securities and Market Authority Chair Steven Maijoor said that more must be done to improve he governance of the IFRS oversight body. The first thing would be to ensure that all E.U. Member States are represented, noted the Chair, and the second thing would be to ensure the proper interaction with existing European authorities playing an important role in the area of financial reporting. In remarks at an Ernst & Young seminar on financial reporting, he said that the third principle is to ensure independence from private stakeholders’ interests which has been identified as a significant weakness of the current system. Of course, assured the ESMA Chair, this independence does not preclude in any way extensive consultations of market participants as part of the regulatory process.
European Commissioner for the Internal Market Michel Barnier asked Philippe Maystadt to compile a report on the governance framework around the E.U. endorsement mechanism for accounting standards. The Maystadt Report explored various options in relation to the body which should provide endorsement advice to the Commission, and recommended the use of the current EFRAG structure with some changes in terms of governance in order to transform it from a fully private body to a structure with
more prominent public interest elements.
IASB. The new structure would fulfill EFRAG’s current technical role, but would also be able to carry out a strategic analysis of the economic impact of the accounting standards under scrutiny, relying on adequate conceptual and technical means. The new structure would also allow EFRAG to provide the IASB and the Commission with analyses on both technical and economic considerations
The ESMA Chair believes, however, that it is important to ensure that its governance should be subject to more significant changes which should follow the three principles for enhanced E.U. involvement. He urged the Commission to ensure that these principles will be taken into consideration when putting forward its proposals.
He also emphasized that ESMA, in line with its mandate regarding financial reporting, must play an important role in financial reporting enforcement and ensure that enforceability matters are considered as part of the standard setting process. ESMA will work with the Commission to ascertain how the proposed new framework can fulfill that mandate.
With about 7000 E.U. listed companies currently using IFRSs, noted Chairman Maijoor, the E.U.’s interest needs to be reflected within the governance model of the entire IFRS Foundation, including the IASB and the Monitoring Board. Concerns raised by the European Union should be heard and dealt with, he noted, which can only be achieved with a credible and robust IFRS endorsement mechanism. This is also behind the sentiment of the European Commission in issuing the Maystadt Report offering suggestions on how the E.U. could have a more active role in setting international accounting standards.