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In June 2000, the Commission of the European Communities issued a communication to the European Council and the European Parliament in which it urged enactment of a regulation adopting the International Accounting Standards (IAS) as the primary financial reporting framework in the European Union (Communication of 13 June 2000 – available at http://europa.eu.int/eur-lex). IAS are promulgated by the International Accounting Standards Board (IASB), the successor body to the International Accounting Standards Committee (IASC).
The Commission argued that uniform reporting requirements were crucial to an efficient, transparent, and competitive EU securities market, which in turn would foster growth and employment in the EU.
In May 2001, the Commission delivered a formal proposal for enactment of EU legislation on this head (Proposal of 21 May 2001 for a Regulation of the European Parliament and the Council on the Application of International Accounting Standards – Document 501PC0080, available at: http://europa.eu.int/eur-lex → English → Legislation in preparation).
2. Legislative Proposal Of 21 May 2001
The highlights of the May 2001 proposal are as follows:
- In an integrated European securities market, listed companies (companies whose securities are traded on a regulated market in the EU) must publish their financial statements on the basis of a single set of financial reporting standards.
- In order to build a fully integrated capital market by 2005 at the latest, the Community must act now to bring about a much higher level of comparability of financial statements throughout the Internal Market. The resulting improvement in competition and facilitation of the free movement of capital are essential to completion of the EU's capital markets.
- Accordingly, all listed EU companies shall be required to prepare their financial reports in accordance with IAS starting in 2005 at the latest. However, this requirement will only apply to the parts of IAS that are specifically adopted by the EU ("adopted IAS").
- Member States will have the option of permitting or requiring the application of adopted IAS by unlisted companies. Hence, Member States can require uniform application of adopted IAS throughout important sectors, such as the banking or insurance industries, regardless of whether companies are listed or not.
- An endorsement mechanism will be set up for purposes of adopting IAS and setting the timetable for implementation. A review clause will permit an assessment of the overall approach proposed.
- Only a regulation enacted by the European Parliament and European Council can ensure the uniformity necessary to achieve the objective of a single set of EU accounting standards. Hence, the Commission does not intend to enact IAS by way of a directive, which would have to be transposed into national law, thus creating potential for delay and inconsistent implementation in the various EU Member States.
- The regulation will enter into force immediately, but provide for a transitional period during which Member States and companies will make the changes necessary for transition to IAS. During this transitional period Member States are free to permit compliance with IAS on an optional basis or to require compliance with IAS in advance of the EU-wide final compliance deadline of 2005.
- The existing accounting directives (4th and 7th Directives) will continue to exist in revised form to maintain a base level of comparability for all limited liability companies and all non-listed companies in the EU.
- An EU Accounting Regulatory Committee will be established to help shape the future development of EU accounting standards.
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