PracticeAuditNew legislation shores up IAS gaps

New legislation shores up IAS gaps

A reformed European accounting directive will ensure that, where International Accounting Standards do not apply, financial reporting will be of the same quality and transparency.

Link: Firms ill-equipped for start of IFRS

The directive was agreed to by European Union ministers allowing member countries, which do not apply IASs to all companies, to bring in matching financial reporting, so preparing the way for like-for-like financial comparisons throughout the EU.

The European Commission said the amendments, agreed to yesterday, provided for appropriate accounting for special purpose vehicles, improved the disclosure of risks and uncertainties and increased the consistency of audit reports Europe-wide.

Essentially the legislation tidies up the situation following adoption of the IAS regulation in June 2002, which required all companies listed on a regulated market to use IAS from 2005 onwards. The Commission says that any inconsistencies had now been eliminated and EU accounting requirements had been brought into line with modern accounting theory and practice.

Brussels said the new modernising directive would make it harder for companies to ‘hide’ liabilities by setting up artificial structures which they controlled in substance but which were nominally owned by different shareholders. This was important for the proper treatment of off-balance-sheet financing, it said.

The amendments also specify that the analysis of risks and uncertainties ‘should not be restricted to financial matters’, thus encouraging disclosure of key social and environmental factors.

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