EC adopts ‘equivalence mechanism’ for non-EU GAAPs

Following a favourable opinion by the European Parliament, the
European Commission (EC) has
adopted Regulation (EC) No
which sets out the method for EC to assess the equilvalency of
‘third-country’ (non-EU) GAAPs to IFRSs as adopted by the EU.

The GAAP of a third country may be considered equivalent to IFRS if the GAAP
financial statements of the third country concerned enable investors to make a
similar assessment of the assets and liabilities, financial position, profit and
losses and prospects of the issuer as IFRS financial statements.

If a non-EU GAAP is deemed equivalent, foreign companies which have
securities trading in EU markets, would be permitted to use that GAAP in Europe
without providing a reconciliation to IFRSs.

The commission would determine the equivalence of a non-EU GAAP on its own
initiative if requested, either by an EU member state or on application from an
authority responsible for a non-EU country’s accounting standards or market

Further reading:

EU may have to accept US GAAP next year

SEC scraps IFRS-GAAP reconciliation rule

Related reading

Fiona Westwood of Smith and Williamson.