The rules, which will apply to companies listed on regulated markets and includes banks and insurance companies, will require the preparation of consolidated accounts in accordance with International Accounting Standards, by no later than 2005.
Internal Market Commissioner Frits Bolkestein said the proposal signalled ‘the beginning of a new era of transparency and the end of the Tower of Babel in financial reporting in Europe’.
‘The use of one global accounting language will greatly benefit European companies,’ he said.
‘It will help them to compete on equal terms for global capital. Investors and other stakeholders will, at last, be in a position to compare company performance against a common standard.’
And Bolkestein warned listed companies to start preparing immediately for the move to International Accounting Standards.
‘Companies should start preparing now for this change-over. Although some investment will be needed in terms of training, I am confident it will repay itself many times in the long run, notably through the reduced cost for companies of raising capital,’ he said.
The EC hopes the move will improve the efficiency of cross-border trading ensuring company accounts throughout the EU are more transparent and can be more easily compared.
Europe’s largest professional accountancy body, the ICAEW, welcomed the proposal.
ICAEW president Graham Ward, said: ‘The adoption of International Accounting Standards should be a great boon to European companies, particularly large multinationals, due to the reduced cost of compliance and raising capital.
‘Transparency of financial reporting should benefit investors who will be able to compare company performance more easily across the member states.’
He also praised the proposal for an accounting technical committee to provide technical expertise on the use of IAS within the European legal environment.
‘We are pleased that the EC has recognised the merits of establishing a technical committee to anticipate potential problems relating to the adoption of IAS in the EU. The provision of expert opinion on a timely basis should help ensure that a single financial language in Europe becomes a reality sooner rather than later.’
But senior technical partner at PwC Peter Holgate warned of the EC’s ‘get out’ clause in the form of an ‘endorsement mechanism’. This enables the EU to adopt – but potentially reject – IASs as part of European Law.
Under the proposal the EU mechanism to assess IASs adopted by the International Accounting Standards Board to give them legal endorsement for use within the EU. To facilitate this there would be an Accounting Regulatory Committee that would operate at the political level under established EU rules for decision-making by regulatory committees. The Committee, chaired by the Commission and composed of representatives of the Member States, would decide whether to endorse IAS on the basis of Commission proposals.
‘The EU needs a formal mechanism to bring IASs into European law, but that should not involve creating a local version of them in the process,’ said Holgate.
‘If the mechanism does anything other than , quite literally, endorse the IASs for use in Europe, it would be doing international harmonisation a great disservice
‘Having a different version of IASs for use in the European Union would be a huge step backwards,’ he added.
The regulation could be extended to non-listed companies and individual accounts, based on the discretion of member countries.
Just one half of UK practices have implemented a pricing structure around auto enrolment implementation and advice - with many suffering increased costs
Deloitte's north-west Europe foray; BDO, Smith & Williamson investment paths; Shelley Stock Hutter; and Wilkins Kennedy discussed by editor Kevin Reed on our Friday Afternoon Live broadcast
Accountants should alter their perspective on auto-enrolment to maximise business opportunities, according to Eric Clapton.
Kevin Reed discusses whether new accountancy group Cogital can rival the Big Four...and its likely direction of travel