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.