IFRS chair endorses EU fitness check on standards

In his first speech as chairman of the IFRS foundation trustees, Erkki Liikanen has welcomed the outcome of the EU ‘fitness check’ on IFRS standards, and the emphasis on not requesting ‘carve outs’ from International Accounting Standards Board (IASB) requirements

Speaking at a European Commission conference on the future of corporate reporting which focused on whether the EU legislative framework for corporate reporting needs to be adapted to better serve the capital markets and the EU economy, Liikanen referenced the recent EU fitness check report, which saw responses from close to 400 organisations.

‘From an IFRS standards and financial reporting perspective, the report shows that things are working well. People see the benefits of global standards and seem comfortable with the existing endorsement process. Not everything is perfect, but there is not much support for substantive change,’ he said.

The fitness check stated: ‘A majority of respondents supported the status quo as regards the EU IFRS endorsement process, and cautioned against “EU carve-ins” that could lead to “EU-IFRSs”, a situation that could be detrimental to EU companies active globally and to foreign investments into the EU.

‘Those who were in favour of “EU carve-ins” did not see why the EU should not enjoy this power whilst other jurisdictions do. Some of them argued that “carve-in” powers would increase the Union’s ability to influence the IASB standard-setting process compared to the current "yes-no" endorsement process.’

Responding to these comments, Liikanen said: ‘This topic of influence is an important one and should not be dismissed. Every major jurisdiction sets out to influence the international agenda, and this is naturally relevant also for the EU.

‘The EU signed up to IFRS standards from the very beginning, has been a strong and vocal supporter of IFRS standards as the global standard, and the EU has endorsed pretty much every standard the IASB has ever issued. So, I completely understand the desire to be highly influential in a process to create standards that are mandated for use across the EU.’

However, he cautioned against ‘carve outs’ as they could result distort the discussion, saying ‘Why to focus on the arguments of those who want anyhow to opt out at the end of the process?’

Liikanen said: ‘Rather than opt-outs, the best way for the EU to influence the IASB is through the quality of its work and the persuasiveness of its arguments. My role as chairman of the trustees is to make sure the IASB has the right people, the right processes and transparency in its decision-making so that the best arguments are the ones that win the day.’

In his speech Liikanen also acknowledged concerns raised in the fitness check about non financial reporting and sustainability reporting in particular, saying this was an area where the EU ‘has a real opportunity to be a catalyst for change’.

He pointed out that IASB is midway through a project to update its management commentary practice statement. ill reflect new developments in integrated and sustainability reporting, and particularly the growing interest in long-term value creation. A consultative group for this project was created this year, and it includes representatives from EFRAG, ESMA and several European standard-setters. An exposure draft is planned for publication in 2020.

In conclusion, Liikanen said: ‘If there is one message that I want you to take away from my remarks today, it is a desire to continue the excellent cooperation between the IFRS Foundation and the EU. IFRS standards are a great example of EU leadership in establishing rules for global finance.’

Erkki Liikanen’s speech is here

Summary Report of the Public Consultation on the Fitness Check on the EU framework for public reporting by companies is here

Report by Pat Sweet

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