Earlier this year, the European Commission (EC) issued a major consultation document Fitness Check on the EU Framework for Public Reporting by Companies with the aim of assessing whether the EU reporting framework remains fit for purpose.
This was an ambitious consultation, looking at the framework as a whole but also narrowing in on specific topics such as the EU endorsement process for IFRS, non-financial reporting, and the challenges and opportunities arising from digitalisation. It’s outcome is important for the UK, whatever the final Brexit settlement.
ICAEW’s submission, prepared by its Financial Reporting Faculty after wide consultation with members and other stakeholders both within and without the UK, can be found here.
Global standards without local variations
One major aspect of the consultation related to the EC’s financial reporting framework for listed companies, in particular the use of IFRS and the EU endorsement mechanism.
In responding, the Faculty drew on the insights of its 2015 report Moving to IFRS reporting: seven lessons learned from the European experience. In particular, we reiterated some of the key conclusions from the 2015 report ie, that the benefits of IFRS adoption outweigh any related costs, and the importance of keeping local variants of IFRS to a minimum.
We continue to believe that it is appropriate for the IAS Regulation to prevent the EC from modifying the content of IFRS. In our view, a move in the direction of European standards risks undermining investor confidence and damaging capital markets.
Other key issues
Other key points we made include:
Principles-based directives – we highlighted our longstanding advocacy of a high level, principles-based Accounting Directive which sets out the framework within which financial statements are produced, published etc, with accounting standards setting out the content, recognition, measurement and disclosure requirements.
Small and micro-entities - we outlined our strong reservations over the micro-entities regime, in particular concerns over the usefulness of the information included in micro-entity accounts.
Meanwhile, we strongly supported the continuation of a simpler reporting regime for small companies but highlighted continued concerns over the quality of information produced under the existing EU small companies regime, which has of course been implemented in the UK.
Electronic reporting – we reiterated our broad support for the development of a European Single Electronic Format (ESEF) but raised concerns about its current form, in particular the challenging 1 January 2020 implementation deadline.
We also pointed out that there appears to be widespread confusion and uncertainty over the forthcoming requirements.
Next steps and other information
ICAEW will be monitoring the outcome of the EC’s consultation. In the meantime, if you have any comments on the consultation or ICAEW’s response, please contact firstname.lastname@example.org or email@example.com
Our views on the financial reporting implications of Brexit can be found here.
Information on joining the Financial Reporting Faculty or participating in our policy work can be found here.