PracticeAuditEuropean regulator lays out proposals

European regulator lays out proposals

The European body responsible for financial regulation has set out proposals for EU-wide coordination on the enforcement of international accounting standards, sparking fears it could create a power struggle over interpretation.

Link: IAS special

The committee of European securities regulators (CESR) has claimed that it is ‘insufficient’ to adopt IASB standards, due to come into effect across the European Union in 2005, without robust and consistent enforcement.

It has put forward a set of proposals for consultation that would establish the coordination of enforcement activities across Europe.

Part of the plan involves the development of a database of decisions taken by national bodies that would set out the principles on which decisions have been taken. This will, according to CESR, help shape the reactions for future cases across Europe where comparable situations have occurred.

But while the aim of greater coordination has been welcomed, there are concerns that the approach could shift the power base in Europe’s favour and away from the standard setter.

‘With the development of the database, we have to ensure that we don’t end up with an SEC-type board making all the decisions,’ said Nigel Sleigh-Johnson, head of financial reporting at the ICAEW. ‘We don’t want a situation where Europe is effectively interpreting international accounting standards instead of the International Financial Reporting Interpretations Committee (IFRIC).’

Any potential move to take powers away from the IFRIC would be watched closely by Paul Volcker, chairman of the trustees at the International Accounting Standards Committee Foundation, which oversees the IFRIC.

A spokeswoman for CESR denied that the situation was likely to happen.

‘This is precisely what CESR set out not to do,’ she said.

‘The whole purpose of the proposals is to coordinate the activities of national enforcers, not to duplicate the work of bodies that already exist.’

Draft Standard 2 on financial information – coordination of enforcement activities – aims to shape the way national regulators approach the issue of enforcement. It includes proposals for the establishment of ‘European enforcers coordinating sessions’ where CESR would discuss issues with non-securities regulators.

It would mean interaction with various bodies throughout Europe, including stock exchanges and the UK’s Financial Reporting Review Panel.

The proposals on coordination follow up on a standard passed by CESR in April, which developed a common definition and established the scope of what is considered enforcement activities, while setting out methods for enforcement and the types of action to take when an infringement is discovered.

These could include requests for reconciliation or corrective note, restatement, suspension from trading or delisting.

Email Paul_Grant@vnu.co.uk

CESR’S PROPOSALS:

The committee’s draft rule sets out a number of key proposals.

To enable the coordination mechanism to work, CESR will set up ‘coordination sessions’ to discuss decisions and experiences with non-securities regulators such as the UK’s Financial Reporting Review Panel.

The proposals also establish that existing decisions by EU national enforcers should be taken into account. It wants to set up a database of decisions taken, which national enforcers can then refer to when looking at comparable cases.

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