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September 14, 2008

EC director warns accounting is a sensitive issue

Europe is at crossroads and needs to address a number of audit and accounting issues quickly, according to EC Internal Markets director Pierre Delsaux.

Speaking at the FEE SME/SMP Congress in Denmark this month, Delsaux had three main messages to impart. The first was that the EC wants more co-operation with SMPs.

The second was that to reduce complexity, there needs to be co-operation between the EC, parliament and member states. The third focused on member states’ transposition of the Eighth Company Law Directive, with Delsaux saying states should stick to what was agreed to at commission level.

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From left to right: Nordic Federation of Accountants secretary Bjorn Markland, FEE president Jacques Potdevin and FSR president Kurt Gimsing

Delsaux said accounting is a sensitive topic and a difficult issue, however there were three positive points. The first was that moves in the US towards adopting IFRS “show our decision was right”.

The second was progress by the European Financial Reporting Advisory Group [EFRAG]. “EFRAG is even more fundamental now that the US is moving to IFRS. Now the US will put a lot of resources into influencing the [International Accounting Standards Board – IASB],” Delsaux said.

“The EU needs to do the same or we will lose out; and to influence the IASB we need a strong EFRAG.”

The third positive point was progress on the governance of the IASB. Delsaux said he hopes the final solution will include more influence for bodies such as the EU.

The association between complexity and accounting was one difficult issue, Delsaux said. An action plan the commission launched in 2007 seeks to reduce administrative burdens on businesses in the EU by 25 percent by 2012. A study published in July this year predicted that if small companies were excluded from the requirements of the Fourth Company Law Directive, it would meet a quarter of the 2012 target. Delsaux conceded that the study was of cost, not benefits, but said that when politicians hear such figures there is pressure.

ISAs were another topic Delsaux touched on. He said the EC is analysing the costs and benefits. “At this stage, there is no formal decision because we don’t know the content of the ISAs,” he said.

“We are not going to make mistakes as we have in the past by saying we are going to adopt standards when we don’t know what they are.”

The commission does believe it is best to have one global set of standards.

“If, and this is a big ‘if’, the results of the clarity project are favourable, then we are likely to move forward,” he said.

One aspect of audit where the commission is stalled is ownership of audit firms. Last December, the commission said it would issue a consultation document in the first quarter of this year. That was delayed to June, however the document has still not appeared.

Delsaux said the commission is still reflecting on its position on that issue.

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