The European Commission has adopted a new regulation that
establishes the definition of equivalence between IFRS applied in
the EU compared with third-country GAAP. The new regulation, which
was adopted on 21 December 2007, also outlines the criteria under
which third-country GAAP would be made equivalent to IFRS in the
EU.
The EU has defined equivalence as “investor-oriented”, meaning
third-country GAAP will be considered equivalent to IFRS if
investors are likely to come to the same conclusions irrespective
of whether the financial statements are prepared using IFRS or the
GAAP in question.
European Commissioner for Internal Market and Services Charlie
McCreevy hailed the new regulation as a “crucial milestone towards
our objective of promoting the efficiency of capital markets by
establishing a common worldwide accounting language”. “Without this
regulation in place we would not be able to proceed with this key
decision on the acceptability of third-country GAAPs in the EU,”
McCreevy said.
Under the EU Prospectus and Transparency Directives, the commission
is required to determine, by the beginning of July 2008, whether a
given third-country GAAP is equivalent to IFRS. The new regulation
is part of the process towards this goal.
2009 goal
Using the definition of equivalence and the mechanism established
by the new regulation, the EC will be able to move towards
presenting proposals to the European Parliament as to which
third-country GAAP should be accepted as equivalent with effect
from 2009. Through these decisions, foreign issuers listed in the
EU will be allowed to continue preparing their accounts using their
GAAP rather than reconciling their financial statements to
IFRS.
In addition to determining which GAAPs are equivalent, the EC will
also make proposals in relation to which countries are converging
or are committed to adopting IFRS at some point in the future. In
such cases, the commission may propose to allow third-country
issuers to use their GAAPs in the EU for a transitional period
provided certain conditions are met. The EC is now awaiting
technical advice from the Committee of European Securities
Regulators on whether US, Japanese and Chinese GAAP could be
considered equivalent.
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