EN    EN EN 
EN    EN  COMMISSION OF THE E UROPEAN COMMUNITIES 
Brussels, 23.1.2009 
SEC(2009) 54 
  
COMMISSION STAFF WORKING DOCUMENT 
Ex-Ante Evaluation for establishing a Co mmunity programme to support specific 
activities in the field of financial se rvices, financial reporting and auditing 
  
accompanying document to the  
 
Proposal for a  
DECISION OF THE EUROPEAN PARLIAMENT AND THE COUNCIL 
establishing a Community programme to suppo rt specific activities in the field of 
financial services, financia l reporting and auditing 
{COM(2009) 14 final} 
EN 2   EN TABLE OF CONTENTS 
 
1. Ex-Ante Evaluation For Establishing A Co mmunity Programme To  Support Specific 
Activities In The Field Of Financial Serv ices, Financial Reporting And Auditing............... 4 
1.1. Background..................................................................................................................... ....... 4  
1.2. Problem Definition............................................................................................................. .... 7 
1.3. Objectives ..................................................................................................................... ......... 9  
1.4. Available Policy Options ..................................................................................................... 10  
1.5. Conclusion ..................................................................................................................... ...... 19  
1.6. Follow-Up: Arrangements For Monitoring, Reporting And Evaluation.............................. 20  
 
2. Annex I to the Ex-Ante Evaluation: Propos ed Community Funding Of The Committees Of 
Supervisors In The Field Of Financial Services (CESR, CEBS And CEOIPS) .................. 21 
2.1. Background..................................................................................................................... ..... 21  
2.2. Problem Definition............................................................................................................. .. 23 
2.3. Objectives ..................................................................................................................... ....... 26  
2.4. Available Policy Options ..................................................................................................... 27  
2.5. Conclusion ..................................................................................................................... ...... 36  
2.6. Follow-Up: Arrangements For Monitoring, Reporting And Evaluation.............................. 36  
 
3. Annex II to the Ex-Ante Evaluation: Propos ed Community Funding Of The International 
Accounting Standards Committee Foundation (IASCF) ..................................................... 38 
3.1. Background..................................................................................................................... ..... 38  
3.2. Problem Definition............................................................................................................. .. 39 
3.3. Objectives ..................................................................................................................... ....... 44  
3.4. Available Policy Options ..................................................................................................... 45  
3.5. Conclusion ..................................................................................................................... ...... 52  
3.6. Follow-Up: Arrangements For Monitoring, Reporting And Evaluation.............................. 52  
3.7. Glossary Of Acronyms ........................................................................................................ 52  
 
4. Annex III to the Ex-Ante Evaluation: Pr oposed Community Funding Of The European 
Financial Reporting Advisory Group (EFRAG) .................................................................. 54 
4.1. Background..................................................................................................................... ..... 54  
4.2. Problem Definition............................................................................................................. .. 56 
4.3. Objectives ..................................................................................................................... ....... 58  
4.4. Available Policy Options ..................................................................................................... 61  
4.5. Conclusion ..................................................................................................................... ...... 70  
EN 3   EN 4.6. Follow-Up: Arrangements For Monitoring, Reporting And Evaluation.............................. 70  
4.7. Glossary Of Acronyms ........................................................................................................ 71  
 
5. Annex IV to the Ex-Ante Evaluation: Proposed  Community Funding Of The Public Interest 
Oversight Board (PIOB)....................................................................................................... 73  
5.1. Background..................................................................................................................... ..... 73  
5.2. Problem definition ............................................................................................................. .. 78 
5.3. Objectives ..................................................................................................................... ....... 79  
5.4. Available Policy Options ..................................................................................................... 80  
5.5. Conclusion ..................................................................................................................... ...... 86  
5.6. Follow-Up: Arrangements For Monitoring, Reporting And Evaluation.............................. 87  
5.7. Glossary of Acronyms ......................................................................................................... 87  
 
EN 4   EN 1. E X-ANTE EVALUATION FOR ESTABLISHING A COMMUNITY PROGRAMME TO 
SUPPORT SPECIFIC ACTIVITIES IN THE FIELD OF FINANCIAL SERVICES , 
FINANCIAL REPORTING AND AUDITING  
1.1. Background 
A single market, where people, goods, services  and capital move around as freely as within 
one country, is the core of today's European Union and one of its greatest achievements.  
Whilst in most fields the internal market has be come a reality, more effo rts are still needed as 
regards the financial services sector which is in deed a key component of an efficient internal 
market. Financial markets are critical for th e functioning of modern economies. The more 
integrated they are, the more efficient th e allocation of capital and long-running economic 
performance will be. Completing the internal  mark et in financial services is thus a crucial 
part of the overriding objective of achieving  more and better jobs in a more dynamic, 
innovative and attractive Europe. 
At the same time, it is also necessary to pr ovide for the creation of  a favourable business 
environment for EU firms to operate effectiv ely across Member States. Harmonisation of the 
rules relating, for example, to  accounting and auditing is crucial in this respect.  
In addition, the current financ ial crisis has put the issues of supervision of financial 
institutions and of accounting standards at  the centre of the EU's political agenda1.   
An efficient single market does not bring bene fits only within its own borders. It also 
strengthens the position of the European Unio n in global markets by increasing the world-
wide competitiveness of European firms, fost ering the EU influence globally and making the 
European marketplace more attractive fo r investors from third countries.  
Successful completion and operatio n of the internal market in the above outlined areas are 
part of the European Commission's key objectiv es. However, the Commission is not capable 
of ensuring the achievement of these objectives by itself sin ce they largely depend on the 
performance of some other bodies, both Europe an and international. These bodies are, among 
others, the following: 
– Committees of Supervisors2 are independent advisory gr oups established by Commission 
Decisions3 and made up of the national supervisors competent in the field of securities, 
banking and insurance in each Member State.  The Commission decisions setting up the 
Committees of Supervisors do not provide the Committees with a legal personality on the 
European level. However, to be able to contract with third pa rties and to receive 
administrative support to carry out their missions as provid ed for in the Commission 
decisions, the members of each Committee of Supervisors have set up support structures 
with legal personality in each Member Stat e where these committees are situated, i.e. 
                                                 
1  See for instance Conclusions from the Spring European Council, Brussels 13-14 March 2008, para. 30 
et seq., available on http://register.consilium.europa.eu/pdf/en/08/st07/st07652-re01.en08.pdf  
2  Committee of European Securities Regulators (CESR), Committee of European Banking Supervisors 
(CEBS) and Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) 
3  Commission Decisions 2001/527/EC, 2004/5/EC and 2004/6/EC establishing Committee of European 
Securities Regulators (CESR), Committee of Europe an Banking Supervisors (CEBS) and Committee of 
European Insurance and Occupational Pensions Supervisors (CEIOPS), respectively. 
EN 5   EN France, the United Kingdom and Germany.4 The sole purpose of th ese structures is to 
provide such administrative support to the Committees. 
The Committees' mandate is threefold. First, th ey act as independent bodies for reflection, 
debate and advice for the Comm ission in the above fields. S econd, they contribute to the 
consistent and timely implement ation of Community legislat ion in the Member States. 
Third, they contribute to the convergence of supervisor y practices throughout the 
Community and promote cooperation in each of  the above fields, for instance via the 
exchange of information. The Committees of Supervisors act independently when carrying 
out the second and the third aspect of th eir mandate, the supervision of financial 
institutions not bei ng an EU competence per se . Convergence and supervisory cooperation 
are missions of EU public interest, as acknowledged by the ECOFIN Council and the 
European Parliament on several occasions5. 
– International Accounting Standards Committee Foundation (IASCF)  is a not-for-
profit corporation incorporated in the State of  Delaware, USA. Its operating office is based 
in London, United Kingdom6. The IASCF provides the ov erall governance and funding 
framework for two entities, the Internationa l Accounting Standards Board (IASB) and the 
International Financial Reporting Interpreta tions Committee (IFRIC), which respectively 
issue International Financial Reporting Sta ndards (IFRS) and interpretations of such 
standards. The International Accounting Standards Board (IASB ) involves a broad range of 
stakeholders in its work through an open co nsultation process, in cluding preparers of 
financial statements, investors, auditors  and national accounting standards setters.  
Regulation (EC) No 1606/2002 on internationa l accounting standards foresees that the 
European Commission may, subject to certain conditions, decide on the applicability of 
IFRS and related interpretations to the consol idated accounts of companies with securities 
listed on a regulated market within the Commun ity. Pursuant to this Regulation, IFRS have 
been in force in the EU since 2005. New standards are periodically adopted by the 
Commission, subject to a regul atory comitology procedure.  
– European Financial Reporting Advisory Group (EFRAG)7 is a Belgian law non-profit 
international association ("IVZW/AISBL") set up in Brussels by the main European professional associations interested in fi nancial reporting. Its current members are 
BUSINESSEUROPE (European Business Federa tions), FEE (European Federation of 
Accountants), CEA (European Insurance Organisation), EBF (European Banking Federation), ESBG (European Savings Banks  Group), EACB (European Association of 
Co-operative Banks), EFAA (European Fede ration of Accountants and Auditors) and 
EFFAS (European Federation of Financial Anal ysts). It also co-operates with national 
accounting standards-setters from  EU Member States. The Eu ropean Commission is an 
observer in several EFRAG internal comm ittees and working groups. EFRAG was set up 
in 2001 to assist the European Commission in the endorsement of in ternational accounting 
standards by providing advice on the technical quality of such  standards. EFRAG is also 
gradually taking up the role of  pro-actively influencing the development of international 
accounting standards. This role is seen as crucial by all European stak eholders as it is 
important to ensure that the standards developed at the international level reflect the business reality and concerns of European firms.  
                                                
 
4  “Association Loi 1901” in France for CESR, " eingeschriebener Verein (e.V.)" in Germany for CEOIPS 
and “Limited company by guarantee and w ithout share capital” in  the UK for CEBS 
5  See section 2.1. of the Annex on Committees of Supervisors. 
6 http://www.iasb.org/About+Us/About+th e+Foundation/About+Foundation.htm  
7 http://www.efrag.org/   
EN 6   EN – Public Interest Oversight Body (PIOB)  is a non-for-profit Spanish Foundation set up in 
Madrid. The key partners of the PIOB are the Monitoring Group (MG), which is the body 
representing international regulators and institutions8, and the Internatio nal Federation of 
Accountants (IFAC), which is the private body representing accountants and auditors 
worldwide9. The PIOB consists of ten member s including its Chairman. The PIOB 
members are persons nominated by the Mo nitoring Group for a three-year period 
according to a Memorandum of Understanding. The PIOB constituency comprises a variety of stakeholders: legi slators (e.g. the European Par liament, national legislators), 
regulators and supervisors of financial ma rkets including auditor's oversight bodies, 
national standard setters for accounting and auditing, auditors and audit profession in 
general, preparers of financial statements (com panies), users of financial statements (e.g. 
investors, analysts, researchers, suppliers), academics.  
PIOB's role is to guarantee that due process, oversight and transparency are respected in 
the proposal, development and adoption of inte rnational standard for auditors in the 
framework of the International Federation of Accountants (IFAC ). The Foundation is 
governed by a Board of Trustees in which each member of the PIOB is a trustee.  
Despite their major roles in contributing to more  efficient supervision in the EU (Committees 
of Supervisors), assisting the European Co mmission in endorsing in ternational accounting 
standards (EFRAG), developing these standards (IASCF) and ensuring sound public oversight 
of processes leading to the adopt ion of international auditing standards, po tentially applicable 
across the Member States (PIOB), none of th ese bodies benefit from any financial support 
from the Community budget. This may affect th eir capacity to comply with their respective 
missions which are decisive for the functioning of  the internal market. The current evaluation 
therefore examines whether and to what extent Community funding is appropriate. 
The current models of financing, among the or ganisations under consid eration, are varied. 
The funding models are, in principle, the following:  
a) Funding via contributions from public or  private sources, either European or 
international . The Committees of Supervisors in the financial services sector are 
financed by their members, who are supervisory authorities of Member States (i.e. public 
entities). EFRAG, on the contrary, is pr imarily funded by private bodies since its 
members are European associa tions representing the industry. The IASCF and the PIOB 
are also financed from the private sector and the contributions to their budgets come from 
professional organisations and/or stakeholders  both within and outside the EU. Moreover, 
models combining public and private money also  exist. This applies, for example, to 
EFRAG whose activities are to a certain extent co-financed via national funding 
mechanisms (NFMs) in Member States which may use funds from both public and private sources.  
b) Funding via contributions from memb ers or stakeholders in general . The Committees 
of Supervisors and EFRAG are financed by a ll their members, while the majority of 
                                                
 
8  The members of the MG are: the European Commission, IOSCO (International Organization of 
Securities Commissions), BCBS (Basel Committee on Banking Supervision), IAIS (International 
Association of Insurance Supervisors) and the Wo rld Bank. The MG observers are: FSF (Financial 
Stability Forum) and IFIAR (International Forum of Independent Audit Regulators). 
9  The PIOB oversees IFAC from the public interest point of view. By implication, the following three 
independent committees of IFAC can also be considered PIOB partners: the IAASB (International 
Auditing and Assurance Standards Board), the IESBA (International Ethics Standards Board for 
Accountants) and the IAESB (Internationa l Accounting Education Standards Board). 
EN 7   EN PIOB's funds are provided by a single me mber, the International Federation of 
Accountants (IFAC), representi ng auditors and accountants from all over the world. The 
IASCF is not a membership organisation and is currently financed by external 
stakeholders, mostly on a voluntary basis and with the detailed modalities varying from one country to another. The four main intern ational audit firms curre ntly contribute about 
one third of the IASCF's funding, with the re st of the IASCF's f unding provided mostly 
by listed companies.  
c) Funding via cash contributions or co mbined with contributions in kind . As a general 
rule, the bodies in question are financed via cash contribu tions. In the case of EFRAG, 
however, about 40% of its curre nt budget is funded via sta ff contributions. Also for the 
Committees of Supervisors, occasional contributions in kind have enabled development of certain activitie s (e.g. hosting of an EU com ponent of a common IT system, 
organisation of trainings for free). 
A detailed analysis of the curren t situation for each of these bodi es is set out in  the Annexes, 
establishing any shortcomings that need to be addressed with a view to ensuring the efficient 
functioning of the European single market. 
1.2. Problem Definition 
Proper implementation of some key European Union policies is at risk, either (i) because 
of insufficient financial means to carry out certain projects (Committees of Supervisors, 
EFRAG) or (ii) because of reliance on no n-diversified, and voluntary funding from 
interested parties (IASCF, EFRAG, PIOB ) – see Annexes for more detail.   
The issue of funding is at the heart of the problem for thes e bodies: either the funding is 
insufficient or is non-diversifie d and provided on a voluntary ba sis by interested parties, 
leading to concerns about the independence of  the work of the relevant bodies. A clear, 
adequate and  stable funding solution for the above bodies is therefore necessary (i) to support 
EU supervisory convergence and cooperation, as underlined by th e European Parliament and 
the ECOFIN Council on several occasions and (ii)  to support the European financial sector 
and the European industry at large by ensuring th at investors, creditors and other stakeholders 
have access to timely, reliable and relevant information about the financial condition of 
companies.   
1.2.1. Insufficient Financial Means To Ca rry Out Public Interest Missions 
The financial, accounting and auditing sectors have gone through major regulatory changes 
over the last few years, notably with the implementation of the Financial Services Action Plan, the setting-up of the Lamfalussy process for the regulation and supervision of the financial sector, the endorsement  in the EU of Internationa l Financial Reporting Standards 
and the adoption of the 8
th company law directive on a uditing. As a result, the bodies 
concerned have become responsible for an in creasing number of task s of major political 
priority. However, very often, the funding which these bodies benefit from has been 
insufficient to allow them to fulfil their missions in a fully satisfactory way.  
This situation causes serious difficulties in deliv ering important pan-Euro pean projects. In the 
case of the Committees of Supervisors, this appl ies, for example, to the Transaction Reporting 
EN 8   EN Exchange Mechanism (TREM)10, which is a EU-wide IT system necessary for the 
implementation of the Markets in Financial In struments Directive (MiFID). TREM is being 
established by the Committee of European Securi ties Regulators (CESR) which – due to its 
limited budgetary means – was not able to de liver the project on time in accordance with 
MiFID.  
Generally, the Committees of Supervisors are curre ntly unable to carry out any projects which 
reach beyond their basic activities11, even if these are fundament al to enhancing supervisory 
cooperation and convergence. The cu rrent situation has a negative impact on the quality of the 
work carried-out by the bodies concerned. EFRAG, for example,  is expected to provide (i) 
advice to the Commission on the technical qua lity of IFRS and, (i i) as a European 
representative, technical input to the International Accounting Standard Board. However, this 
latter role has been significantl y constrained by the current lack of expert staff.  At present, 
EFRAG is not in a position fina ncially to recruit the number of  accounting experts needed to 
manage its workload and to take up new res ponsibilities. The current resources of EFRAG 
allow it only to fulfil its task of providing the European Commission with endorsement 
advice. European technical input to the internatio nal standard setting proc ess, which is at least 
equally important, does not receive sufficient pr iority.  EFRAG's contribution to IASB work 
(and thereby that of European market players) is  thus less influential in  comparison to those of 
its American, Japanese and other counterpart s. Consequently, EU business and economic 
interests may be less well represented in the IASB's work. 
1.2.2. Reliance On Non-Diversified And Volunt ary Funding From Interested Parties And 
Its Negative Consequences 
The present funding arrangement s of the IASCF, EFRAG and the PIOB imply that they 
receive most or a significant part of their f unding from private-sector parties who have a 
direct stake in the outcome of their work.  Th is situation gives rise to concerns about the 
operational independence of these bodies, as stak eholders may use the th reat to withdraw or 
reduce funding to exercise undue influence over their standard-setting or oversight work. 
IASCF , for instance still depends for about a thir d of its funding on the four big world-wide 
audit firms, who are precisely responsible for enforcing the accounting rules developed by the 
IASCF. Most of the rest of the IASCF's f unding is provided on a voluntary basis by listed 
companies that are the primary users of IFRS. 
EFRAG  has been mainly financed by voluntary contributions from the main European 
industry associations representin g stakeholders with an inte rest in financial reporting 
standards. EFRAG's financial re liance on them and the voting ri ghts tied to their financial 
contribution raises concerns about the operati onal independence of EFRAG from the main 
organisations interested in fi nancial reporting, whereas this organisation should act in the 
general European public interest. 
The PIOB  oversees the standard setting activities of IFAC in the field of auditing (via one of 
its Committees, the International Auditing a nd Assurance Standards Board (IAASB)) while 
                                                 
10  TREM is an EU wide IT system which is being established by the Committee of European Securities 
Regulators (CESR) in accordance with the Markets in Financial Instruments Directive (2004/39/EC). For details, please refer to Annex on the Committees of Supervisors, section 2.2.1. 
11  Cf. the example of a common training programme of the Committees of Supervisors, Annex on the 
Committees of Supervisors, section 2.2.2. 
EN 9   EN being financed by IFAC at 93 %. In these circum stances, it appears difficult to make sure that 
independent oversight is actually ensured and to avoid risk of perceived conflict of interests 
with the audit professi on represented by IFAC. 
1.3. Objectives 
1.3.1. Strategic objective 
The strategic objective to be achieved by the ne w funding arrangements is to ensure stable, 
diversified, sound and adequate f unding to enable the relevant bodies to carry out their EU-
related or EU public interest mission in an  independent, efficien t and satisfactory way. 
1.3.2. Operational objectives  
1.3.2.1. Avoid reliance of IASCF, EFRAG a nd the PIOB on voluntary funding from 
interested parties, thus ensu ring independence of their work. 
A first operational objective is to avoid reli ance of IASCF, EFR AG and the PIOB on non-
diversified, voluntary funding from in terested parties such as audit firms. Such reliance raises 
concerns of possible conflicts of interest. There is thus a need to ensure the independence of 
their standard-setting related activity before the tr anslation of such standards into EU law i.e. 
standard setting (IASCF), standard  reviewing (EFRAG) or standa rd setting oversight (PIOB). 
1.3.2.2. In addition to the above, promote the international acceptan ce of IFRS and IAS 
A second operational objective is to ensure th at the IASCF's funding re gime facilitates the 
broader international accep tance of IFRS, in particular in the United States of America. This 
would thus advance the Communi ty's objective of achieving global acceptance of IFRS. In 
practice, this implies the need to establish a funding regime th at is non-voluntary, transparent 
and stable. 
1.3.2.3. Ensure fair burden sharing/ level playing field within the EU for the financing of 
IASCF and EFRAG  
A third operational objective is to eliminate or mitigate concerns about free-riding or unfair 
burden-sharing within the EU. Under the curr ent funding arrangements, funding schemes for 
the IASCF and/or EFRAG have been establishe d in only a minority of Member States. This 
situation raises concerns of equity, as stakeholders in some Member States bear the cost of funding, while those in other Member States do not . There is therefore a need to ensure that 
the funding regime is reformed to eliminate or mitigate such concerns. 
1.3.2.4. Ensure that Committees of Supervisors and EFRAG are adequately equipped with 
the financial means to ca rry out certain projects  
A fourth operational objective is that th e Committees of Supervisors and EFRAG are 
adequately equipped with the financial means to  carry out certain new, strategic projects, 
which significantly exceed the current funding arrangements. 
EN 10   EN 1.3.2.5. Achieve the above objectives within a r easonable period of time considering the EU 
and international context. 
A fifth operational objective is to ensure that  the establishment of  satisfactory funding 
arrangements reflects the urgency dictated by th e overall policy context. The need for urgent 
solutions in relation to funding has recently been underlined by the ECOFIN Council for the 
Committees of Supervisors, the IASCF and EFRAG.  
Moreover, the reform of the funding regime of the IASCF and of EFRAG should be seen 
within the broader initiative to  enhance their governance arrange ments, which are expected to 
be finalised and/or implemented during 2009. In the case of EFRAG, the need for additional 
resources is also driven by the broader international acceptance of IFRS, in particular in major 
jurisdictions that can mobilise significant resour ces to participate in the IASB's standard-
setting work. In this context, the EU must ensure that it has the means to appropriately 
influence international accounting developments.  
In relation to PIOB, IFAC contribution has alwa ys be considered as a short term solution 
only. 
1.4. Available Policy Options 
1.4.1. Status quo As examined in detail in the Annexes, under the present circumstances, the shortcomings 
described in section 1.2. could not be solved without a modifi cation of the existing funding 
models or external intervention. Preserving th e status quo would therefore imply that the 
given operational objectives, and hence the strategic objective will not be achieved: 
⇒ IASCF, EFRAG and PIOB would continue to rely for most, or at least a significant 
part, of their funding on voluntar y contributions from interested parties. The concerns 
around their independence will persis t (Operational objective n° 1.3.2.1.).  
⇒ As a result of the preced ing paragraph, the global acce ptance of IFRS would be 
undermined (Operational objective n° 1.3.2.2.). 
⇒ There would be no improvement in the curre nt situation in relation to free-riding 
within the EU. Stakeholders in some Member States would continue to bear the cost of 
funding, while those in other Me mber States do not, thus ma intaining a situation were 
there is no level playing field and no fair  burden sharing at EU level (Operational 
objective n° 1.3.2.3.). 
⇒ The Committees of Supervisors and EFRAG would not be given the possibility, at 
least in a foreseeable future to take on new strategic tasks (certain projects relating to 
training of personnel and information tec hnology in the case of the Committees of 
Supervisors, pro-active work in relation to  IASCF for EFRAG) (Operational objective 
n° 1.3.2.4.). 
⇒ To conclude, the status quo would not enable  to achieve any of the above operational 
objectives within the foreseeable fu ture (Operational objective n° 1.3.2.5.). 
EN 11   EN 1.4.2. Increase in financial contributions  within the exist ing funding model 
Considering the status quo as unsatisfactory it is necessary to first ex amine whether increase 
in financial contributions under the present fundi ng models would be viable and could help to 
resolve some of the existing problems. This solution should indeed be considered where 
bodies have been lacking financial means to fu lfil their public interest mandate. This section 
is not relevant for the IASCF as the main c oncern about its funding arrangements is not the 
amount of funding it receives bu t the origin of its funding. 
Ensuring adequate resources for the functioning of the Committees of Supervisors  could be 
achieved by two kinds of actions. The members of the Committees would either need to pay 
considerably higher annual contributions to  the Committees' budgets (i.e. almost a 30% 
increase on the basis of the request for contribution put forward by the Committees12) or 
commit additional funds for specific projects, or there could be a combination of both. This 
would require changes to budgetary  provisions of the Committees' charters. At the same time, 
the national funding mechanisms wo uld need to be adjusted.  
Despite the encouragement for higher financial commitments by national authorities to their 
work within the Committees of Supervisors13, the room for manoeuvre is limited. Difficult 
budgetary discussions have already taken place. As a result of the significant increase in their 
regular contributions over the past years14, the Committees' members are no longer able or 
willing to provide additional funds to fina nce specific projects. Under the current 
circumstances, it is therefore unlikely that all Committees’ members would be able to provide the contributions at a level which is require d to finance the new needs of the Committees. 
Neither is it likely that the necessary change s at both Committees' and national levels would 
be implemented in a foreseeable future. 
As regards the EFRAG , an increase in the contributions of  its member organisations could be 
envisaged . However this option would not solve the current problems. EFRAG's level of 
independence would if not be de creased, at least perceived to be decreased by the general 
public. In addition, since EFRAG's independence w ill have to be increased in line with its 
public interest activities, individual stakeholde rs currently financing EFRAG will have to give 
up much of their existing influence in EFRAG. In this context, it does not seem reasonable to 
expect them to double their current amount of  contribution to EFRAG's budget. From all 
discussions within the Supervisory Board of  EFRAG and with several of the member 
organisations, it is clear that they are not willing or are not in a position to increase their contributions by such a degree that it would make  a real difference, i.e. be enough for carrying 
out the pro-active work properly 
One could also envisage an in crease in contributions via the national funding mechanisms, but 
this would mean considerably higher annual contributions from their part (up to 160% 
increase on the basis of the projections for 2010
15). Such mechanisms exist only in a few 
Member States and would first need to be es tablished across all Eur opean Union countries. 
This would inevitably require some time. Furt hermore, even if these funding mechanisms 
were set up in all Member States, reluctance to levy a tax, lack of political willingness to 
                                                 
12  See section 2.4.8.2. of the annex on the Committees of Supervisors 
13  For example, the ECOFIN of 14 May 2008 invited th e Member States to ensure that adequate resources 
are in place for supervisory author ities to perform their EU work.  
14  For details, refer to Annex on the Committees of Supervisors, section 2.4.2. 
15  See section 4.4.9. of the annex on EFRAG 
EN 12   EN create another tax-like system, would not ensure  sufficient funding nor lead to an appropriate 
increase in EFRAG's budget.  
1.4.3. Setting up national fundi ng schemes (public financing or levy over industry) 
Alternatively, one should cons ider a modification to the pr esent funding arrangements, in 
particular, by enlarging the membership of th e organisations in question or extending the 
scope of contributors to th eir budgets (e.g. public funds in the case of financing from the 
private sector and vice versa). Th is would affect the work of th ese organisations in different 
ways: 
⇒ As regards the Committees of Supervisors , enlargement of their membership would be 
impossible as a matter of principle. The members of the Committees are exclusively 
supervisory authorities of Member States, re sponsible for a specific sector, so that the 
Committees' composition and the number of their members are given a priori .  
Therefore, the Committees could only envi sage raising funds fr om non-member cash 
contributions coming from financial institutions  which they supervise. To reach the level 
of Committees' spending needs the industry co ntributions would need to amount to one 
quarter or even one third of  the Committees' budgets. This indeed exists in certain 
Member States where national supervisory auth orities are partially fi nanced by players of 
the private sector which they supervise. 
At the Community level, however, such a f unding model combining private money levied 
by way of a tax with public contributions  coming from budgets of Member States' 
authorities would not be viable for the mome nt. Firstly, it would require complete re-
shuffling of the Committees' funding model. Considering the difficult issues at stake 
(agreeing on private sector fina ncing, different existing models), this is highly unlikely to 
be achieved at the present juncture taking into account that in accordance with the 
Committees' internal rules unanimous decision of all members would be needed to this 
end.  
In addition, reluctance to levy a tax over the priv ate sector, lack of po litical willingness to 
create another tax-like system, could mean th at these funding mechanisms could not bring 
up sufficient funding for the Committees of Superv isors. This option also implies that the 
Member States would be entitled to decide on the level of their nati onal contribution. This 
may result in a continuing lack of level play ing field for listed companies of different 
nationalities. This makes this option also in compatible with the need to provide the 
Committees of Supervisors with sufficient f unding within an acceptable period of time.  
⇒ In the case of the PIOB , in order to avoid excessive de pendence on a single contributor 
(IFAC), some other possible sources of funding  have been discussed with Member States. 
In particular the possibility of having cont ributions from the EU national ministries 
(Economy, Finance, or Justice), supervisors of banks or of securities  markets, and from 
EU national audit oversight bod ies has been discussed at several meetings of the AuRC 
(the Audit Regulatory Committ ee) and of the EGAOB (the European Group of Auditors' 
Oversight Bodies). Questions were raised related to the inherent difficulties to agree on the geographical distribution with in the EU, and to the fact that it is too early for many 
auditors' supervisors recently set up, as required by the 8
th Company Law Directive, to 
make contributions to international bodies.  
EN 13   EN One could explore alternative sources of f unding for PIOB, and especially industry 
financing. This indeed could be the case wh ere the funding in certain Member States 
might come from large companies or national associations of auditors or accountants. 
Such an arrangement would be very diffi cult to set up and run, even assuming a 
reasonable co-operation from those entities. Indeed, companies or stock exchanges may 
legitimately argue that these standards concer n the audit profession and not them and that 
therefore there is not any evident reason to  act as a donor.  Moreover, such a complex 
funding system would not benefit from economies of scale and can not be considered as 
cost-effective given the large num ber of individual contributi ons. This may also put into 
question, as is the case with IFAC, the operational independence of the PIOB.  
⇒ EFRAG's  current founding members are representin g and thus are fina nced by the main 
beneficiaries of EFRAG's work: listed compan ies and investors. The other source of 
EFRAG's funds, national funding mechanisms exist currently only in some Member 
States. Setting these up is time-consum ing, whereas the need for a sound EU 
representation at the interna tional accounting level is urge nt. And even if such funding 
mechanisms were set up in al l Member States, this solution would not lead to an 
appropriate increase in EFRAG's budget.  
Reluctance to levy a tax over the private sector, la ck of political wil lingness to create 
another tax-like system, mean that these f unding mechanisms cannot sufficiently increase 
the contribution to the work of EFRAG. This  option also implies that the Member States 
would be entitled to decide on the level of th eir national contribution. This may result in a 
continuing lack of level playing field for listed companies of different nationalities. 
While Member States are reluctant to increase the levies on national levels, imposing an 
EU-wide tax-like levy would require unanimous support from the Member States. There is 
no provision in the Treaty that would allo w the Community to impose a fee on private 
companies in favour of anothe r private body or association.  
⇒ In the case of IASCF , existing national funding mechanisms  in EU Member States take 
the form either of privately- arranged voluntary funding schemes or, in a minority of cases, 
of statutory levies on compan ies with listed securities. National funding schemes have 
been established in only 8 Member States.16 
In order to achieve a level pl aying-field within the EU and to promote the independence of 
the IASB, the IASCF's funding re gime would need to ensure non-voluntary contributions 
shared on an equitable basis by stakeholders in  all Member States. This could in principle 
be achieved by establishing a national funding scheme based on a statutory levy in each 
Member State. 
Such national funding schemes would require a legal basis in either national or 
Community law. However, the adoption of a ha rmonised statutory levy is not feasible for 
a combination of legal and political considerations  (lack of an explicit legal basis for such 
a proposal in the EC Treaty, political object ions to Community intervention in direct 
taxation). 
In the absence of a Community legal ba sis, the Commission could promote the 
establishment of national fundi ng schemes based in those Memb er States where none exist 
                                                 
16 France, Germany, Italy, Luxembourg, the Netherlands, Spain, Sweden and the United Kingdom. 
EN 14   EN for the time being. This approach was alr eady suggested in the conclusions of the 
ECOFIN Council of July 2006, and experience has shown that it has not been successful 
in meeting our objectives. 
1.4.4. Co-financing under the Community budget 
The financial contribution from the EU budget will provide a stable and clear source of 
funding for the Committees of Supervisors,  IASCF, EFRAG and PIOB. Based on the 
proposal for a European Parliament and Coun cil Decision establis hing a new Community 
programme, a new permanent budget line will be created to this end.  
A financial contribution from the EU budget will  eliminate or mitigate the reliance of the 
IASCF, EFRAG and PIOB on non-diversified a nd voluntary contributions from interested 
parties. This will enhance the indepe ndence of each of these three bodies; 
⇒ as a result of the preceding paragraph, the global acceptance of IFRS and ISAs would be 
promoted; 
⇒ Committees of Supervisors and EFRAG would be given the possibility to take on new 
strategic tasks corresponding to growing expectations; 
⇒ co-financing under the EU budget will ensure a le vel playing and a fair burden sharing at 
EU level for all bodies concerned;  
⇒ co-financing under the EU budget can be achie ved within a reasonable period of time.  
1.4.5. Setting up a dedicated EU Agency or body 
While considering options for installing st able budgetary arrangements the Commission 
services looked into the issue of Community agencies. Agencies are granted an autonomous 
budget, which is financed entirely or partially from a Community subsi dy set aside for this 
purpose in the general budget of the European Union.  
This subsidy element from the Community budget,  combined with agency's independence and 
accountability to the EU institutions, could th eoretically solve the budge tary problems of the 
bodies under consideration since it would provide them with a stable, regular funding from a 
public source.  
However, in the case of the established international bodies ( IASCF, PIOB ), transforming 
them into Community agencies or creating a de dicated EU standard se tting or oversight body 
would be neither feasible nor appropriate consid ering the international character of IFRS or 
ISAs. As regards the Committees for Supervisors  and EFRAG  this would be, at the present 
juncture, not politically feasible17. Indeed, the Commission intends to launch a horizontal 
evaluation of the existing EU regulatory agenci es and has decided not to make any proposals 
for a new regulatory agency until the c onclusion of this exercise (end of 2009)18. In addition, 
on 21 October 2008, the European Commission se t up a high level group, chaired by Jacques 
                                                 
17  For details, refer to Annex on Committees of Supervisors, section 2.4.5., and Annex on EFRAG, 
section 4.4.5. 
18  For details, refer to Communication from the Commission to the European Parliament and the Council. 
European agencies – The way fo rward (COM(2008) 135 final). 
EN 15   EN de Larosière. 19 This group will look at the possibilitie s to strengthen cross-border financial 
supervision and the Commission will await its recommendations that are foreseen for the 
spring 2009 European Council.20 As a result, the outcome of these discussions should not be 
pre-empted. 
1.4.6. Comparison of options 
As part of the present evaluati on an individual analysis  for each entity in question was carried 
out, assessing all available options  and, in particular, use of alternative s ources of financing.  
The criteria used for the comparison of options  have been considered  equally important in 
testing the cost-effectiveness of each option. However, for each body concerned by the 
funding proposal, some of these criteria feat ure more prominently within their specific 
context. Therefore, with this in mind, the criteria have been pr ioritized, rather than weighted, 
as explained in each of the comparison of  options section of the four annexes. 
The major findings are compared in the below table: 
ASSESSMENT  
 
 
 
 
 
 
OPTIONS  Achievement of 
objectives  
 
High (+++) 
Medium (+/-) 
Low (- - -) 
 Time needed for 
implementation  
 
High (+++) 
Medium (+/-) 
Low (- - -) 
 Feasibility  
 
 
Straightfroward 
(+++) 
Medium (+/-) 
Complex (- - -) 
 Implication for 
EU budget  
 
Positive  
(+ to +++) 
Negative  
(- to - - - ) Overall 
Assessment  
 
Positive  
(+ to +++) 
Negative  
(- to - - - ) 
 
Option 1  
Status Quo 
  
 
- - -  
 
- - -  
 
+ + +  
 
+++  
 
- - 
 
 
Option 2  
Increase 
contributions 
within the 
existing funding 
models 
  
 
 
 
- - -  
 
 
 
+ + +  
 
 
 
- -   
 
 
 
+++  
 
 
 
- -  
 
Option 3  
Setting up 
national funding 
schemes 
  
 
 
+/-  
 
 
+ + +  
 
 
- - -  
 
 
+++  
 
 
- - 
 
Option 4  
Setting up 
dedicated EU 
Agency or EU 
body 
  
 
 
+++  
 
 
+ + +  
 
 
- - -  
 
 
---  
 
 
+/- 
                                                 
19  See Speech of José Manuel Durão Barroso, President of the European Commission, 21st October 2006 
in Strasbourg: 
http://europa.eu/rapid/pressReleasesAction.do?r eference=SPEECH/08/544&format=HTML&aged=0&l
anguage=EN&guiLanguage=en 
20  Décision de la Commission relative à la mise en place du Groupe d’experts de haut niveau sur la 
supervision financière (C(2008) 6492).   
EN 16   EN  
Option 5  
Co-financing 
under the 
Community 
budget 
  
 
 
+ + +  
 
 
- - -  
 
 
+ + +  
 
 
----  
 
 
+ + + 
 
Status quo (Option 1 ): even if by definition, and on the positive side, time needed for 
implementation would by definiti on be equal to zero, feas ibility would not raise any 
difficulties, and there would be no implication for the Community budget, Option 1  would 
achieve none of the objectives, which is enough to disqualify it (see section 1.4.1. above).  
Increase of contributions under the current funding arrangements  (relevant for the 
Committees of Supervisors and EFRAG) (Option 2) : on the positive side, one should 
consider the absence of impact of Option 2 for the Community budget. On the negative side, 
feasibility is likely to be low,  considering the current funding di fficulties. It is likely that none 
of the objectives would be achieved. Time need ed for implementation due to the complexity 
of the issue is likely to be long, whereas time is  of the essence in the context of the financial 
crisis. For these reasons, Opti on 2 is to be disregarded. 
The assessment of Option 3  (Setting up national funding schemes) is similar to Option 2. 
On the positive side, one should consider the absence of impact of Option 3 for the Community budget. On the negative side, feasibility is likely to be even lower than Option 2, 
due, inter alia , to likely political resistance among some  Member States to the creation of a 
new levy-like system at EU level or possible institutional obstacles (cf. for instance IASCF). 
As a result of the political and legal uncerta inties surrounding this solution, there is no 
guarantee that the objectives w ould be achieved (in particular  ensuring adequate financial 
means (cf. section 1.3.2.4.) or ensure fair bu rden sharing/ level playing field (section 
1.3.2.3.)).  Moreover, time needed for implementa tion due to the complexity of the political 
and institutional issues is likely to be long, whereas  time is of the essenc e in the context of the 
financial crisis. For these reasons , Option 3 is to be disregarded. 
For Option 4 , i.e. Setting up of a dedicated EU Agency (Level 3 Committees, EFRAG) (not 
relevant for international organisations such as IASCF or PIOB – see section 1.4.5. for further 
explanations), the assessment is as follows: on the positive side, th e objectives would be 
achieved. On the negative side, feasibility is low due to the current Commission approach on 
agencies. As a result, time needed for implemen tation is likely to be high, whereas time is of 
the essence in the context of the current fina ncial crisis. Another dr awback would be the 
implication for the Community budget. For thes e reasons, Option 4 is to be disregarded. 
Co-financing under the Community budget (Option 5)  presents the drawback of its impact 
on the Community budget. On the other hand, Opti on 5 presents several advantages. It would 
allow the achievement of all the objectives outlined in section 1.3. In particular, it would bring clarity by avoiding relian ce on voluntary funding from intere sted parties in relation to 
IASCF, EFRAG and PIOB and by ensuring a level playing field for contributions in the EU. 
Option 5 is also technically feas ible and will ensure that the cu rrent situation is improved in 
short to medium term, which is crucial as time is essential in the context of the current financial crisis. The credibility and independenc e of the different bodies financed would be 
safeguarded as this would put an end to th e reliance on voluntary f unding from interested 
parties to fulfil a public and community intere st mandate pursuant to Community law.  
EN 17   EN In addition, a contribution from the EU budget would be appropriate for the following 
reasons: 
– In the context of the current financial crisis , the EU would demonstr ate its willingness to 
upgrade certain issues of supervision of fi nancial institutions and accounting standards; 
–  In relation to international organisations  such as IASCF and the PIOB, a Community 
funding programme will strengthen the position of the European Union, notably in the 
context of the current discussions on the gover nance of these bodies. Th is will also be the 
case in relation to EFRAG by strengthening its ability to feed European views into the 
standard setting proces s within the IASCF; 
– In the case of IASCF, EFRAG and PIOB , it would signal Community interest in 
international solutions to all parties con cerned and encourage other public bodies and 
institutions to provide f unds to these organisations; 
– It would enhance the general r ecognition of EFRAG and PIOB; 
– Financial support under the Community budget w ould provide the chosen beneficiaries 
with a stable solution in te rms of budgetary planning; 
– At the same time, the Community funding would also allow for some flexibility, especially 
if the beneficiaries are financed via action grants (see below). In these cases, the EU contributions would be easily adjustable with respect to actual needs and level of priority; 
– Community co-funding can be esta blished within a short to me dium period of time. If the 
founding Decision is adopted by the co-l egislators in 2009, the new Community 
programme could be launched as of 2010; 
– Moreover, the Community fundi ng programme could serve as  a framework for further 
urgent funding needs which may occur in the fu ture. To this end, it would need to contain 
some flexible provisions to extend the list of  beneficiaries to the Community programme, 
originally identified in th e founding Decision (e.g. comitology procedure for new long-
term beneficiaries).  
Therefore, taking into account limitations of the ot her available options  and the strong 
Community interest in meeting the objectives ou tlined in section 1.3. in the short to medium 
term, a financial contribution to all anal ysed bodies coming from the Community budget 
(Option 5) seems to be the most appropriate solution.  
1.4.7. Method of implementation for the selected option 
Regarding the legal support structures to the Committees of Supervisor s, IASCF, EFRAG and 
PIOB as possible eligible beneficiaries, each of  these entities complies with the requirements 
laid down in the Financial Regulation because th ey all pursue an aim of general interest and 
are non-profit organisations. Legally speaking each of these entities has been incorporated and 
is regulated under, respectively French/German and UK law (Committees of Supervisors), US 
law (IASCF),  Belgian law (EFRAG) and Spanish law (PIOB) as  not-for-profit organisations. 
In practical terms of implementation , financial support from the Community budget can be 
provided via action or operating grants. Whereas  the funding concerns of the Committees of 
Supervisors could be best addressed by target ed financing of specific projects via action 
EN 18   EN grants, in the case of the EFRAG, IASCF a nd PIOB proportional EU contribution to their 
budgets would be more appropriate via operating grants21.  
Specific requirements with regard to EU funding  of each potential beneficiary as well as the 
most appropriate method of implementation have  been described in detail in the annexes and 
are summarised below. 
1.4.7.1. Committees of Supervisors  Targeted Community financing for specific proj ects regarding in particular training of 
personnel and information technology will put th e Commission in a better position to ensure 
that these projects are delivered in time a nd in a proper way. The implementation of the 
project will be monitored in detail in lin e with the project description submitted by the 
Committee(s) and agreed with the Commission. 
1.4.7.2. IASCF 
In view of the public policy objectives and the type of beneficiary, it is considered that a 
direct financial contribution from the EU budge t by way of an operating grant constitutes the 
best solution to address the proposed funding. Indeed, the choice to provide an op erating grant 
to the IASCF seems the most appropriate becau se, unlike a grant for action, which helps to 
co-finance a one-off action over a given period of time, an operating grant allows co-
financing of the whole institution's functioning from a much broader perspective. 
1.4.7.3. EFRAG 
In the case at hand, the aim is to finance main ly the pro-active work of  EFRAG; therefore the 
option of co-financing EFRAG via action grants has also to be considered. However, the 
activities of EFRAG are highly interdependent. The same experts do the pro-active work and 
the tasks related to endorsement advice. Therefore, it seems almost impossible to determine which costs should be considered as eligible fo r financing and which rela te to activities that 
would not be the subject of the Community  funding. Consequently, EFRAG can be co-
financed only via an operating grant. 
Developing and representing an influential, si ngle "European accounting voice" is clearly a 
pan-European project that should be able to count on the support of the European Community. 
Top-quality European accounting experts have  to be recruited and employed by EFRAG in 
order to be able to match the experience of th e international standard setters and efficiently 
represent the European interests.  
1.4.7.4. PIOB 
In view of the public policy objectives and the type of beneficiary, it is considered that a 
direct financial contribution from the EU budge t by way of an operating grant constitutes the 
best solution to address the proposed funding. I ndeed the choice to provide an operating grant 
to the PIOB seems the most appropriate because: 
                                                
 
21  For details, refer to Annexes on Committees of Supervisors (section 2.4.7.), IASCF (section 3.4.6.), 
EFRAG (section 4.4.8.) and PIOB (section 5.4.6.). 
EN 19   EN ⇒ Whereas some organisations work on an activity-based budgeting system, the PIOB, 
given its size and mandate, operates on a cas h budget basis which is not conceived for 
the monitoring of the implementation of specific activities; 
⇒ Unlike a grant for action, which helps to co-finance a one-off action over a given 
period of time, an operating grant allows  co-financing of the whole institution's 
functioning from a much broader perspective. 
 
1.4.8. Volume of appropriations, human resour ces and other administr ative expenditure 
In view of estimations realised on the basis of, as the case may be, current or projected 
expenses of the different bodies (see relevant  annexes for further explanations), it is 
considered reasonable that the yearly Comm unity intervention for the period 2010-2013 
amounts to the following amounts: 
 
  
Yearly contribution (in 
EUR)  
Total contribution (in EUR) 
over the 2010-2013 period 
 
 
3 Committees of 
Supervisors 
 2,000,000 8,000,000
 
IASCF 
 5,000,000 (as from 2011) 15,000,000
 
EFRAG 
 3,000,000 12,000,000
 
PIOB 
 300,000 1,200,000
 
Total amount 
  
5,300,000 (10,300,000 
as from 2011) 
36,200,000
 
Finally, management of such Commun ity programme would entail related administrative 
work by the services of the European Commission . It is estimated that 12 additional posts 
for officials in the financial field would need to  be created as the resu lt of the management of 
the programme in operational units, in the financial unit and in the Internal audit capability of 
the Directorate-General Internal Market and Services. 
1.5. Conclusion 
In view of the above and to ensure stable, diversified, sound and adequate funding to enable 
the Committees of Supervisors, IASCF, EFRAG and PIOB to carry out their EU-related or 
EU public interest mission in an independent, e fficient and satisfactory way, it is considered 
important for the Community to  contribute to their funding. 
Such a funding would in particular: 
EN 20   EN ⇒ Ensure that Committees of Supervisors a nd EFRAG are adequately equipped with the 
financial means to carry out certain new, stra tegic projects, which significantly exceed the 
current funding arrangements 
 Ensure that IASCF, EFRAG and PIOB do not rely on non-diversified and voluntary 
funding from interested parties thus avoidi ng concerns as to the credibility and 
independence of their standard-setting relate d activity before the translation of these 
standards into Community law. 
Specifically, it is concluded that the best way forward is to co-finance the Committees of 
Supervisors, IASCF, EFRAG and PIOB either  by way of an action grant (Committees of 
Supervisors) or by way of an opera ting grant (IASCF, EFRAG and PIOB) .  
It is proposed to provide the Committees of Supervisors, IASCF, EF RAG and PIOB with a 
total sum of EUR 5,300,000 (10,300,000 as from 2011) per year for the 2010–2013 period, 
making a total of EUR 36,200,000. 
1.6. Follow-Up: Arrangements For Moni toring, Reporting And Evaluation 
Details of specific success criteria for use in  the evaluation are set out in the annexes.  
The proposed Community programme is intende d to run until the e nd of the financial 
perspectives 2007-2013.  Prior to the end of the financial perspectives, i.e. before 2012, the 
programme as a whole will be evaluated to determine whether the funding arrangements 
should be continued after 2013 and, if so, to provide an evidence -base for the submission of a 
proposal for renewal, with appropriate amendments  if necessary, in the li ght of the experience 
gained during the previous programme operations.  An  article to this effect will be included in 
the proposal. 
 More specifically, and as provided for in the implementing rules applicable to the general 
budget of the European Communities, the evalua tion will review the human and financial 
resources allocated and the results obtained in or der to verify that they were consistent with 
the objectives. The evaluation shall be carri ed out in accordance with a timetable which 
enables the findings of that evaluation to be  taken into account fo r any decision on the 
renewal, modification or suspension of the pr ogramme. The evaluation shall be proportionate 
to the resources mobilized for, and the impact of, the programme. 
EN 21   EN 2. A NNEX I TO THE EX-ANTE EVALUATION : PROPOSED COMMUNITY FUNDING OF 
THE COMMITTEES OF SUPERVISORS IN THE FIELD OF FINANCIAL SERVICES 
(CESR,  CEBS  AND CEOIPS) 
2.1. Background 
Whilst the EU has equipped itself with a largel y harmonised prudential framework in the field 
of financial services, the effective, day-to-day  implementation of such rules and supervision 
of financial institutions and markets remains a Member State prerogative.  Already in its final 
report of 200122, the Committee of Wise Men on the Regulation of European Securities 
Markets remarked that " existing rules and regula tions are implemented differently and […] 
therefore inconsistencies occur in the treatment of the same type of business, which threatens 
to violate the pre-requisite of neutrality of supervision ". The Stockholm European Council of 
March 2001 endorsed this recommendation and called for " National regulators and the 
Regulators Committee [to] play an important role in  the transposition process [of EU 
legislation]  by securing more effective cooperation between supervisory authorities, carrying 
out peer reviews and promoting best practice, so  as to ensure more consistent and timely 
implementation of Community legi slation in the Member States "23 
 
As a result, the Lamfalussy process24, first launched in 2001 in the securities sector and 
extended in 2005 to banking and insurance, provides for stronger cooperation between 
national supervisory authoritie s and convergence in the day- to-day application of EU 
directives. This has to be achieved by the Committees of Supervisors, established by 
Commission Decisions25 and consisting of high level repr esentatives from Member States' 
supervisory authorities competent in the field of securities, banking and insurance in each 
Member State. The three Level three Committees26 do not have legal personality on the 
European level. However, in order to be able to  contract with third parties and facilitate the 
operation and administration of the Commit tees, the members of each Committee of 
Supervisors have set up support structures with legal personality in each Member State where 
these committees are situated, i.e. France, the United Kingdom and Germany27.  
                                                 
22  http://ec.europa.eu/internal_market/securities/docs/la mfalussy/wisemen/final-report-wise-men_en.pdf  
23  See annex I of the European Council conclusions of March 2001, available on: 
 http://www.consilium.europa.eu/ueDocs/cms_D ata/docs/pressData/en/ec/00100-r1.%20ann-
r1.en1.html  
24  The Lamfalussy process is a 4-level regulatory approach for adoption, implementation and enforcement 
of legislation and implementing measures in the financial services area. At Level 1, framework 
legislation setting out the core principles is adopted by co-decision after a full consultation process. At Level 2, technical implementing measures are adopted by the Commission, on the advice of the relevant 
advisory committee, after a binding vote of the competent comitology Co mmittee and taking into 
account the European Parliament’s view. At Level 3, the appropriate adviso ry committee draws up 
common interpretation guidelines and common sta ndards and compares regulatory practice in the 
various Member States to foster supervisory convergence and cooperation. Level 4 is where the 
Commission enforces the timely and correct transp osition of EU legislation into national law. 
25  Commission Decisions 2001/527/EC, 2004/5/EC and 2004/6/EC establishing Committee of European 
Securities Regulators (CESR), Committee of Europe an Banking Supervisors (CEBS) and Committee of 
European Insurance and Occupational Pensions Supervisors (CEIOPS), respectively. 
26 Commission Decisions 2001/527/EC, 2004/5/EC and 2004/6/EC establishing Committee of European 
Securities Regulators (CESR), Committee of Europe an Banking Supervisors (CEBS) and Committee of 
European Insurance and Occupational Pensions Supervisors (CEIOPS), respectively. 
27 “Association Loi 1901” in France for CESR, " eingeschriebener Verein (e.V.)" in Germany for CEOIPS 
and “Limited company by guarantee and w ithout share capital” in  the UK for CEBS 
EN 22   EN The Committees' mandate is threefold. First, they  act as independent b odies for reflection, 
debate and advice for the Commission in the above fields. Second, they contribute to the 
consistent and timely implementation of Commun ity legislation in the Member States. Third, 
they contribute to the convergence of supe rvisory practices throughout the Community and 
promote cooperation in each of the above fields, for instance vi a the exchange of information. 
The Committees of Supervisors act independently when carryi ng out the second and the third 
aspect of their mandate, the supervision of fina ncial institutions not being an EU competence 
per se . Convergence and supervisory cooperation are missions of EU public interest, as 
acknowledged by the ECOFIN Coun cil and the European Parliame nt on several occasions, as 
explained below. 
In 2007, the Lamfalussy process and the functi oning of the Committees of Supervisors in 
particular were extensively evaluated by the Eu ropean Institutions an d various groups (see in 
particular the report of the Inte r-institutional Monitoring Group (IIMG)28, the Commission  
Communication on the Review of the Lamfalussy process29, the report of the sub-group of the 
Financial Services Committee of the Council of Ministers 30 and the Resolution on financial 
services policy of the European Parliament31). These contributions triggered a debate at 
political level which resulted in ECOFIN C ouncil Conclusions of 4 December 2007 with a 
roadmap on concrete actions to be implemented in 2008 and 2009. 
 This review of the Lamfalussy process underlin ed in particular the urgent necessity to 
strengthen the functioning of the Committees, al so in budgetary terms. The ECOFIN Council 
Conclusions of 4 December 2007
32 underlined in particular " the importance of [the three 
Committees of Supervisors] and their members hav ing adequate means to fulfil their tasks in 
terms of EU supervisory convergence and cooperation ".  
 Although the Committees provide for a European structure for financial supervision across 
Member States they do not receive any fina ncial support from the Community budget. Hence 
stakeholders and European inst itutions argued in the recent evaluations that an EU funding for 
some activities of the Committees of Supervisors is worth considering.  
 In its Communication on the Lamfalussy review, the Commission stated that "some financial 
assistance may be appropriate to  encourage European supervisor y convergence, provided it 
meets existing EU regulatory and budgetary provisions. The Commission is examining 
possible modalities of contributing to the fi nancing of both specific projects stemming from 
legal obligations under existing directives and of cross-sectoral training schemes for EU 
supervisors in a first instance and non-EU supervisors subsequently" . 
Accordingly, the ECOFIN Council invited the Commission in its Conclusions of 4 December 
2007 "(i) to consider financial s upport from the EU budget for sp ecific EU wide projects that 
are requested from [the three Committees of Super visors]; and (ii) to study the possibilities 
                                                
 
28  http://ec.europa.eu/internal_market/finance s/committees/index_en.htm#interinstitutional  
29  COM(2007) 727 final 
30  The final FSC's Report on Long Term Supervisory Issues ("Ter Haar Report"; FSC 4162/08) was 
adopted in March 2008. 
31  (2007)0338 
32  Council Conclusions 15 698/07 of 4 December 2007 
EN 23   EN for EU funding under the EU budget of the de velopment of tools to help build a common 
supervisory culture by [the th ree Committees of Supervisors]" . 
In the Council Conclusions of  14 May 2008, the ECOFIN repeat ed that it looks forward "to 
the Commission assessment and proposal concer ning financial support under the EU Budget 
for specific EU-wide projects that are requested  from the EU Committees of Supervisors and 
for developing supervisory tools and for building a common supervisory culture" . 
In its opinion of 10 September 2008 on the draft 2009 EU budget, the Committee on 
Economic and Monetary Affairs of the Eu ropean Parliament reiterated that " sufficient funding 
must be set aside for a financial contribution to the functioning of the three Lamfalussy level 3 
committees "33. 
The present report responds to these requests and examines whether and to what extent 
Community funding is appropriate.  
2.2. Problem Definition 
2.2.1. Insufficient financial means to ca rry out public interest missions  
The Committees of Supervisors ar e financed by their members w ho contribute annually to the 
Committees' budgets according to their internal rules of pro cedure which define the way 
contributions are calculated and the modalities of payment. The contributions are currently 
based on the number of votes held by th e respective Member St ate in the Council. 
Since their establishment in 2001 and 2004, the Committees have been obliged to 
considerably uplift their resources in order to match the broadening scale of tasks which they 
are expected to carry out. The Committee of European Securities Regulators (CESR), which 
is the original Committee of Supervisors, re ported that its total budget has significantly 
increased in six years of its exis tence and reached almost € 3.5 million34 in 2007. Total 
expenses of the Committee of European Insu rance and Occupational Pensions Supervisors 
(CEIOPS) in 2004 and 200535 amounted to € 385.00036 and € 909.00037, respectively, in 
comparison to € 1.790.00038 in 200739. The Committee of European Banking Supervisors 
(CEBS) spent in 2005 which was its first full operational year about £ 1.6 million 40 compared 
to over two million pounds41 in 2007.  
Despite the efforts of their members (in the cas e of CESR, for example,  contributions from 
members increased in one year fro m € 2.450.001 in 2006 to € 4.009.995 in 2007), the 
                                                 
33  http://www.europarl.europa.eu/sides/ge tDoc.do?pubRef=-/EP//NONSGML+COMPARL+PE-
407.786+02+DOC+PDF+V0//EN&language=EN  
34  See Annual Financial Statement in  CESR Annual Report 2007, p.87 
35  2004 being a setting up period for CEIOPS, a certain amount of costs related to the first months of 
establishment were incurred, which were charged to CEIOPS only in 2005. 
36  See Annual Financial Statements in  CEIOPS Annual Report 2004, p. 41 
37  See Financial Statements in CEIOPS Annual Report 2005, p. 65 
38  See Financial Statements in CEIOPS Annual Report 2007, p. 91 
39  At the same time, the total revenues increased from € 760.079,31 in 2004 and € 1.674.171,30 in 2005 to 
€ 1.790.000,00 in 2007.  
40  See Revenue and Expenses in CEBS Annual Repor t 2005, p. 40. The total revenues in 2005 amounted 
to £ 1.861.000. 
41  See Financial Statement in CEBS Annual Report 2007, p. 61. The total revenue in 2007 equalled to 
£ 1.497.000. 
EN 24   EN Committees' budgets have not grown to the leve l which is required to cover the (real or 
desired) expenditures of the Committees, due to the incapacity or unwillingness of these members to commit additional funds. For small au thorities, the annual co ntribution to one of 
the Committees might currently represent more than 5% of their budget and for authorities 
from Member States benefiting from a high numb er of votes but regulating a relatively small 
financial market the annual co ntribution is perceived as unf air (see for example CESR's 
contribution to the Lamfalussy review 
42). It is estimated that together the three Committees of 
Supervisors currently lack in total about €3 milli on a year to reach the level of their spending 
needs (for details see below). 
At the present juncture, the available resource s allow the Committees to perform their main 
tasks and to cover operational cost. By "main ta sks", one should mean (i) advice on technical 
issues (including analysis of impact) to the Commission when th e Commission drafts 
legislative proposals and implementing measures and (ii) contribution to a consistent and 
timely implementation of the Community law as well as to convergence of supervisory practices (via the issuance of non-binding st andards, guidelines and recommendations). 
However, there is an increasing necessity to develop new, sizeable projects which 
significantly exceed current funds.  
So far, such projects have been financed fr om reserves accumulated by the Committees in the 
past and by additional, voluntary contribu tions of Committee me mbers (e.g. yearly 
contributions paid for the development of a Transaction Reporting Exchange Mechanism 
(TREM) (see section 2.2.2. below) in addition  to regular member's fees, organisation and 
hosting of seminars within the training project). 
This approach, however, has reached its limits. It  has led to situations where it has been very 
difficult to provide projects beyond the operation al agendas of the Committees with sufficient 
resources. This is in particul ar due to the following reasons: 
– The Committees' overall budgets and thus regul ar cash contributions from their members 
have significantly increased over the past y ears along with the extension of Committees' 
tasks. As a result, the Committees' members are no longer able or willing to provide 
additional funds. 
– Development of such projects requires sizeable resources. It is estimated, for example, that 
in 2008 the funds needed for de velopment of the TREM proj ect will equal to about one 
quarter of CESR's operational budget.  
– The establishment of new frameworks at EU le vel coincides frequently with the setting up 
of the national level of such frameworks. So  the Community and national systems compete 
for the same resources within the budgets of national supervisory aut horities (in particular 
in these Member States whose supe rvisors’ budgets are quite limited). 
The two main categories of such projects are, on the one hand, in formation technology 
projects relating inter alia to the establishment of databases for exchange of information between national supervisors (see section 2.2.2. with the exam ple of TREM), IT systems 
                                                
 
42  "A proposed evolution of EU securities supe rvision beyond 2007" (CESR ref. 07-783), p. 7; 
http://www.cesr-eu.org/popup2.php?id=4854  
EN 25   EN for common reporting43 and web-based frameworks for supervisory disclosure44 and, on the 
other hand, projects relating training of pe rsonnel, as inter alia, common training 
programmes for officials from na tional supervisory authorities 45 (see example under 
section 2.2.3. below) and staff secondment schemes. 
2.2.2. Information technology projects  
The "Transaction Reporting Exchange Mechan ism" (TREM) is a key component in the 
implementation of Markets in Financial Instrume nts Directive (MiFID). TREM is an EU wide 
IT system allowing regulators to exchange am ong themselves transaction reports submitted by 
firms in relation to transactions in instrume nts admitted to trading on regulated markets. 
Those reports, and the exchange of informati on, are envisaged within Article 25(3) of the 
MiFID46.  
TREM is being established by the Committee of  European Securities Regulators (CESR). Its 
financing is divided between se t-up and running costs. In the absence of any EU funding, the 
project is currently financed from CESR rese rves and additional, direct contributions by 
CESR members. However, as described above, it has been very difficult to ensure sufficient 
resources for the creation and operation of the TREM. 
(1) This has resulted in significant delays in  delivering the project  on time. Moreover, 
under present circumstances, CESR was able  and decided to put in place only an 
"interim solution" which is based on the use of an existing infrastructure (i.e. the EU component is hosted by a CESR membe r). A "longer-term" solution should be 
developed as soon as the resource situation permits.  
(2) The development of the TREM is divided into several subprojects. Therefore, the 
related cost can va ry over time and amounts, on average, to between EUR 500 
thousand to EUR 1 million a year. 
2.2.3. Projects relating to training of  staff of nati onal supervisors 
A practical response to the ne cessity of building up a pan-Eu ropean financial supervisory 
culture are common training programs for staff from national supervis ory authorities which 
                                                
 
43  As highlighted in the Commission's 2007 evaluation of the Lamfalussy process development of 
common reporting standards (ie reporting duties of financial institutions to their respective supervisors) is one of the Commission's priorities (cf. Communicatio n on Lamfalussy review, chapter 4.5, p. 12). 
The up to now result has not lived up to the expectations (see ibid, chapter 4.1, p. 7). 
44  For example, article 144 of the Capital Requirement Directive (CRD) includes the requirement for 
supervisors to disclose information regarding the implementation of the CRD in national law and the 
use made of a range of national options and discretions  in this Directive. To facilitate its consistent 
implementation CEBS has developed a web-based mechanism for supervisory disclosure. A similar provision has been included in the proposal for the Solvency II Directive in the insurance sector.  
45  In its 2007 evaluation of the Lamfalussy process, the Commission acknowledged the important role of 
training programmes and staff exchanges between supervisors in the development of a common 
supervisory culture (cf. Communication of Lamfalussy review, chapter 4.1, p.7) 
46  The basic components of TREM are (i) a central hub (computer system facilitating exchange of files 
between national authorities) and (ii)  29 local interfaces to this ce ntral hub (computer systems run by 
national authorities in order to interface between the central hub and national transaction reporting 
systems).  
EN 26   EN are currently being developed by the Committ ees of Supervisors. A few pilot seminars47, 
hosted by Committee members, took place in late 2007 and early 2008.  
Organisation of events in two main areas is  foreseen. Firstly, cros s-sectoral training co-
developed and co-delivered by all three Committees of Supervisors which will be launched in 2009. Secondly, sectoral training programs of each Committee building upon their present 
practice
48. These programs will aim at enabling staff from national supervisory authorities to 
deepen their knowledge of EU re gulatory processes, to share pr actical experien ce in their day-
to-day supervisory activities, to develop comm on practices and thus foster common European 
supervisory culture.  
Moreover, as already mentioned in the Commis sion Review of the Lamfalussy process, it 
would be beneficial from the EU perspective if these programs were gradually extended to 
involve supervisors from third countries: "Their participation in the training programmes 
would be aimed at raising awareness and impr oving their knowledge of the EU regulatory 
system and therefore helping to promote the EU 's regulatory approach as international best 
practice to build a sustainable ne twork between global regulators.49" 
The participants to the trainings will be char ged as the preparation of the pilot seminars 
showed that participants can afford to pay €500 – 600 for a 2-da y seminar, taking into account 
other expenses to be borne by the participan ts such as accommodation, travel expenses. 
However, these fees will  not cover all the running cost of these programs, as the cost of a 2-
day seminar for 35 participants is estimated at € 30 – 40.00050. The Committees of 
Supervisors will therefore need to raise additional funds if these programs are to be delivered. 
2.3. Objectives 
2.3.1. Strategic objective The strategic objective to be achieved by the proposed funding arrangement is to ensure 
stable, diversified, sound and adequate funding to enable the Committees  of Supervisors to 
carry out certain projects in an inde pendent, efficient a nd satisfactory way. 
2.3.2. Operational objectives  
2.3.2.1. Ensure that Committees of Supervisors are adequately equipped with financial means  
A first operational objective is that the Commi ttees of Supervisors are adequately equipped 
with the financial means to carry out certain  new, strategic project s, which significantly 
exceed the current funding arrangements. 
– Increase in financial means of the Committees  of Supervisors will improve their output, 
both in qualitative and quantitative terms. In the light of the problems outlined in section 
2.2. above, additional funding woul d enable in particular:  
                                                
 
47  For more information, see e.g. CESR Annual Report 2007, p. 76 
48  See e.g. CEIOPS Annual Re port 2007, p. 28 et seqq. 
49  Commission Communication on the Review of the Lamfalussy process, p. 13 
50  The three Committees of Supervis ors plan to jointly organise at least 10 cross-sectoral a year. In 
addition to this common work, each Co mmittee expects to run yearly a bout 15 sector-spe cific seminars. 
EN 27   EN – The development of training programmes for officials from national supervisory 
authorities both at sectoral (b anking, securities and in surance) and cross-sectoral level or of 
secondment schemes, which would foster th e emergence of an European supervisory 
culture and deepen cooperation between national supervisory authorities ; and  
– The development of heavy and complex pr ojects aimed at supervisory convergence, 
involving substantial IT development costs, such  as in the case of TREM (see above), IT 
systems for common reporting or web-based frameworks for supervisory disclosure. 
2.3.2.2. The above objectives should be achieve d within a reasona ble period of time 
considering their urgency in the current EU and international context  
 A second operational object ive is to achieve the above objectives within a reasonable 
period of time considering their urgency in  the current EU and international context. 
As concluded in the 2007 Commission's evaluation of the Lamfalussy process51, the recent 
turmoil on financial markets "has clearly demonstrated growing interconnectivity and 
globalisation of fi nancial markets. (…) This experience further underscores the need to adopt 
a globally convergent approach to regulation and supervisi on, with sound prudential rules 
and a consistent approach to supervision."  The Committees of Supervisors have a key role to 
play in this respect.  
Reflecting this sense of urgency from a political  point of view, the ECOFIN Council asked for 
concrete progress by the end of 2008 in the impl ementation of the Lamfalussy roadmap in the 
conclusions of its meeting of 14 May 2008: " The Council STRESSES the need for full and 
timely implementation of the roadmap agreed in December 2007 on the Lamfalussy review, 
including financial supervision, to achieve further concrete results by the end of 200852." 
Among the initiatives to  be implemented (cf. section 2.1. above), the ECOFIN Council 
specifically referred to the " Commission assessment and propos al concerning financial 
support under the EU Budget for specific EU-wide projects that are requested from the EU 
Committees of Supervisors and for developing supervisory tools and for building a common 
supervisory culture".  
In its work programme in the economic and financial field (established together with the 
forthcoming Czech and the Swedish Presidencies –released in June 2008), the French Presidency of the Counc il of the European Uni on made clear that " The current financial 
turbulences bring out the importance to the European Union of a sound, exemplarily 
supervised financial system. The Presidency w ould therefore like to make supervision more 
European, by stepping up coordina tion between national supervisors "
53. 
2.4. Available Policy Options 
The five available policy options have been cons idered with a view to the achievement of the 
objectives identifie d in section 2.3. 
                                                 
51  Commission Communication on the Review of the Lamfalussy process, p. 13 
52  See p.16 of ECOFIN Council press release, available on 
http://www.consilium.europa.eu/ueDocs/cms_D ata/docs/pressData/en/ecofin/100339.pdf 
53  Available on http://register.consilium. europa.eu/pdf/en/08/st11/st11204.en08.pdf 
EN 28   EN 2.4.1. Status quo 
First, it could be decided that there will be no increase in Committees' budgets.  
Since the Committees of Supervisors are – financially – hardly in a position to carry out 
properly any sizeable projects it can be exp ected that while preserving the status quo 
development of European supervisory culture will be put at risk or, at least, significantly 
slowed down. Obviously, this will hamper the process of convergence in national supervisory 
practice and will not remedy the high cost of s upervision across the European Member States.  
Moreover, a funding model based to a certain extent on ad hoc voluntary contributions does 
not match the requirement for a stable budgetary solution.  
2.4.2. Increase contributions within  the existing funding models 
Second, members of the Committees of Supervis ors might be requested to increase their 
annual contributions to the Comm ittees budgets and/or to commit additional funds for specific 
projects.  
At national level, this would imply increase in budgets of national superv isory authorities, re-
allocation of their budgetary appr opriations or, in the case of  some Member States, even 
require changes in national legislation. At the Committees' level, changes to budgetary provisions of the Committees' charters might be  necessary, in particular, if the current 
voluntary ad hoc contributions to the developm ent of specific projects were to become 
binding. 
Considering the expanding role of the Committees and the scope of their responsibilities it is 
certainly appropriate that the Committees' memb ers assign more resources to their work. This 
was indeed addressed by the ECOFIN which –in a complementary way to financial support 
from the EU budget – invited in  its Conclusions of 14 May "each Member State to ensure that 
adequate resources are in place at the national level for Financial Superv isory Authorities to 
perform their tasks, taking account of the EU dimension and their contribution to the work of 
the EU Committees of Supervisors" . 
However, as described above, the Member States' authorities are currently not able or willing 
to pay considerably more for the work of the Committees' of Supervisors. At the same time, as shown by recent experience
54, it would be extremely difficult to find a consensus among 
the national supervisors on any changes to the Committees' funding model.  
All in all, it is highly unlikely that, in a short to medium term, the Committees' members 
would increase their contributions  to the level which is required to finance the needs of the 
Committees. Neither is it likely that the change s at Committees' and national levels which are 
necessary to ensure stability of Committees' funding would be implemented quickly. 
                                                 
54  The strain of funding the TREM, for example, has led CESR's members to re-open this very contentious 
issue. In this debate, some Member States which have relatively small financial markets but a large 
population have complained about the funding formula which is based on the latter criterion only. 
EN 29   EN 2.4.3. Setting up national  funding schemes 
Third, one could explore altern ative sources of Committees' f unding and, especially, industry 
financing. This indeed exists in certain Member  States where national supervisory authorities 
are partially financed by pl ayers of the private sector which they supervise. 
At the EU level, however, such a funding model combining private money with public 
contributions coming from budgets of Member Stat es' authorities would not be viable for the 
moment. Firstly, it would requi re complete re-shuffling of the Committees' funding model. 
Besides the main decision on be ing or not being co -financed from the private sector, the 
Committees' members would need to agree on a nu mber of difficult operational issues taking 
into account that different funding models of supervisory authorities exist across Member 
States (based on contributions from private sect or; consisting of public money only etc.), such 
as, for example, how to avoid dup lication of expenditure provided by industry nationally and 
at EU level. This is highly unlikely to be ach ieved at the present junc ture taking into account 
that in accordance with the Committees' intern al rules unanimous decision of all members 
would be needed to this end. This makes this  option also incompatib le with the need to 
provide the Committees of Supervisors with suffi cient funding within an acceptable period of 
time.  
Secondly, setting up national funding mechanisms  up is time-consuming, whereas the need 
for a strengthening of the funding of the Committ ees of Supervisors is urgent. In addition, 
reluctance to levy a tax, lack of political wil lingness to create another tax-like system, could 
mean that these funding mechanisms cannot br ing up sufficient funding for the Committees of 
Supervisors. This option also implies that the Member States would be entitled to decide on 
the level of their national contri bution. This may result in a c ontinuing lack of level playing 
field for listed companies of  different nationalities. 
2.4.4. Co-financing under the Community budget 
Fifth, financial support for activities of the Co mmittees of Supervisors can be provided under 
the EU budget, within a framework of a Community funding programme.  
Such support will provide the Committees with fi nancial means at the level which is needed 
to finance the kind of projects mentioned ab ove. With a targeted contribution from the 
Community budget the Committees will be able to  equip themselves with the appropriate 
expert staff and technical suppor t, required for the proper devel opment of these projects. The 
Commission, at the same time, will monitor closel y and regularly their operation and be able 
to intervene if problems occur. This will stre ngthen its position as regards enforcement of 
proper implementation of these projects. 
The financial contribution from the EU budget w ill also provide a stable source of funding. 
Based on the European Parliament and Council  Decision establishing a new Community 
programme, DG MARKT will create a new permanent budget line to this end. 
It can be achieved within a reasonable period of time. If the founding Decision is adopted by 
the co-legislators in 2009, the new Community  programme could be launched as of 2010.  
EN 30   EN 2.4.5. Setting up a dedicated EU Agency 
Fourth, a dedicated EU Agency for financial services could be established, Such Agency 
would be granted an autonomous budget which c ould be partially financed from a Community 
subsidy set aside for agencies in the general budget of the European Union.  
However, the creation of an Agency would be po litically not feasible at the present juncture. 
Given that the Commission intends to launch a horizontal evaluation of regulatory agencies, 
proposals for new regulatory agencies will not be decided upon until the conclusion of this 
exercise (end of 2009)55. Additionally, following the in-depth  evaluation of the Lamfalussy 
process in 2007, the ECOFIN Council56 agreed on a number of concrete actions to be 
implemented by the Member States, the Commi ssion and the Committees of Supervisors in 
2008 and 2009. These actions which are practical, necessary and achievable improvements to 
the current EU supervisory fram ework represent the maximum what is politically achievable 
at the moment.  
In addition, on 21 October 2008, the European Commission set up a hi gh level group, chaired 
by Jacques de Larosière. 57 This group will look at the possibil ities to strengthen cross-border 
financial supervision and the Commission will await its recommendations that are foreseen for the spring 2009 European Council.
58 As a result, the outcome of these discussions should 
not be pre-empted.  For the time being, the agen cy model can therefore not be regarded as a 
possible option to improve the current situation within an acceptable period of time.  
2.4.6. Comparison of options 
The criteria used for the comparison of options are considered equally important in testing the 
cost-effectiveness of each option. However, some of these criter ia feature more prominently.  
With this in mind, the criteria have be en prioritized, rather than weighted.  
The criteria of the achievement of the objectives  (ensure adequate financial means ) and the 
time needed for implementation  should be given an equal first priority .  
Indeed, the first priority shoul d be to answer the requests from both ECOFIN Council and 
European Parliament to the Commission to come  forward with a solution to the issue of 
adequate funding of the Committees of Supervisors by the end of 200959. In addition, the 
current financial crisis has in creased the pressure to impr ove supervisory cooperation and 
convergence at EU level urgently.  
A second priority  should be the criteria of feasibility  (from a legal and or  political point of 
view), considering the numerous  stakeholders involved and the specific legal status of the 
Committees of supervisors under Community law.  
                                                 
55  For details, refer to Communication from the Commission to the European Parliament and the Council. 
European agencies – The way fo rward (COM(2008) 135 final). 
56  Cf. ECOFIN Council Conclusions of 4 December 2007 and of 14 May 2008 
57  See Speech of José Manuel Durão Barroso, President of the European Commission, 21st October 2006 
in Strasbourg: 
http://europa.eu/rapid/pressReleasesAction.do?r eference=SPEECH/08/544&format=HTML&aged=0&l
anguage=EN&guiLanguage=en 
58  Décision de la Commission relative à la mise en place du Groupe d’experts de haut niveau sur la 
supervision financière (C(2008) 6492).   
59  Cf. section 2.1. above 
EN 31   EN A third priority should be the implications for the EU budget. 
 
ASSESSMENT  
 
  
 
  
OPTIONS
 1. Time needed 
for 
implementation  
 
High (+++) 
Medium (+/-) 
Low (- - -) 
 2. Achievement 
of objectives  
 
High (+++) 
Medium (+/-) 
Low (- - -) 
 3. Feasibility  
 
 
Straightfroward 
(+++) 
Medium (+/-) 
Complex (- - -) 
 4. Implication 
for EU budget  
 
Positive  
(+ to +++) 
Negative  
(- to - - - )  Overall 
Assessment  
 
Positive  
(+ to +++) 
Negative  
(- to - - - ) 
 
Option 1  
Status Quo 
  
  
- - -  
  
- - -  
  
+++  
  
+++  
  
- -  
 
Option 2  
Increase 
contributions 
within the 
existing 
funding models 
  
  
+ + +  
  
---  
  
- - -  
  
+++  
  
-- 
 
Option 3  
Setting up 
national 
funding 
schemes 
  
 
+/-  
 
+++  
 
- - -  
 
+++  
 
-- 
 
Option 4  
Co-financing 
under the 
Community 
budget 
  
 
- - -  
 
+ + +  
 
+ + +  
 
---  
 
+ + + 
 
Option 5  
Setting up 
dedicated EU 
Agency or EU 
body 
  
 
+++  
 
+++  
 
- - -  
 
---  
 
- - - 
 
Option 1 (status quo) would not  achieve the objectives set out in section 2.4.1. and we 
therefore have an adverse opini on about this option, which we discard. Option 2 (increase of 
contributions within the existing funding models ), 3 (setting up nationa l funding schemes) and 
5 (setting up dedicated EU Agency or EU body) are not feasible for politi cal considerations in 
the short to medium term, and we therefore have an adverse opinion about these options, 
which we similarly discard.  
Although option 4 - a Community contribution to  the activities of the Committees of 
Supervisors– carries a significan t direct budgetary and administra tive cost to the Community 
budget, it is the only policy op tion that can achieve the pursu ed objectives described in 
section 2.4.4. We therefore have a positive opi nion about this option, which we retain. 
EN 32   EN On the contrary, the strongest benefits are to be expected from option 4. From a European 
perspective, a single contribu tion from the EU budget would make  much more sense for the 
following main reasons: 
– it can be achieved within a reasonable period of time (cost-effectiveness)  
– it is easier to put in place co mpared to the other options which require lengthy and 
difficult discussions with all the stakeholders at the political and practical levels. If the 
funding Decision were adopted by the co-l egislators in 2009, the new Community 
funding programme could be launched as of 2010,  
– it would be easier to handle once in place, 
– the Commission will be able to monito r closely and regularly the Committee of 
Supervisors initiatives covered by the action grants and be able  to intervene if problems 
occur, 
In summary then, in terms of the pursued pub lic interest objectives, Community co-funding of 
the Committees of Supervisors, via the Europ ean Commission, clearly represents the less 
risky solution and would most likely yield the most positive returns.  
 
2.4.7. Methods of implementation for selected option 
Regarding the Committees of Supervisors as possible eligible benefici aries, it shall be noted 
that these Committees do not have legal personality  on a European level. However, in order to 
be able to contract with thir d parties and facilitate the ope ration and administration of the 
Committees, the members of each Committee of Supervisors have set up support structures 
with legal personality in each Member State wh ere these committees are situated, i.e. France 
(CESR), the United Kingdom (C EBS) and Germany (CEIOPS).60 These support structures 
qualify as eligible beneficiaries since they comp ly with the requirements laid down in the 
Financial Regulation. In particul ar, they pursue an aim of gene ral interest an d are non-profit 
organisations. 
  
In the light of the objectives to be achieved by the Commun ity funding programme, financial 
assistance provided for specific projects and activities which ca nnot be delivered without any 
EU funding is appropriate. Moreover, by awarding grants for targeted projects the 
Commission will be in a better position to enforce that these projects are delivered in time and 
in a proper way. Such action grants should be us ed exclusively by the support structures of the 
Committees to finance actions specified in the financing program. These action grants will by 
no mean interfere with the scope of the mandate of the Supervisory Committees as such. The implementation of the project will be monitored in detail in line with the project description 
submitted by the Committee(s) and agreed with the Commission. It will be stated in the grant 
themselves that all liabilities to arise as a re sult of the Community fi nancing will be born by 
the recipients. 
                                                
 
60  “Association Loi 1901” in France for CESR, " eingeschriebener Verein (e.V.)" in Germany for CEOIPS 
and “Limited company by guarantee and w ithout share capital” in  the UK for CEBS 
EN 33   EN Accordingly, the European budgetary authorities (the Council61 and the European 
Parliament62) as well as the Commission63 consider that some fina ncial support for specific 
activities (and not the running cost  as such) of the legal struct ures supporting the Committees 
of Supervisors are appropriate. 
 
2.4.8. Volume of appropriation, human resour ces and other administr ative expenditure 
At present the operating costs of the Committees of Supervisors are financed almost entirely 
by their members on an annual basis and based on the number of votes held by the respective 
Member State in Council meetings. 
 
Expenses (EUR)  
2007  
2006 
 
CESR  
3.445.210  
2.566.293 
 
CEBS  
2.542.00064  
2.179.00065 
 
CEOIPS  
1.545.224  
1.434.087 
 
TOTAL  
7.532.434  
6.169.380 
(Source: annual reports of CESR, CEBS and CEOIPS) 
 
2.4.8.1. Volume of appropriation 
1. As regards projects relating to training of personnel  
The Committees of Supervisors intend to co-develop and co-deliver cross-sectoral 
training programs for official s from national supervisory authorities. In addition to 
these cross-sectoral training programs, each  Committee of Supervisors could further 
build upon its long standing tradition of its  members facilitating trainings for other 
members. In addition, bilateral staff sec ondment programs could be further enhanced, 
aimed both at acquiring specific expertise a nd knowledge on certain supervisory topics 
and also in acquiring know ledge and exchanging experiences on more general 
supervisory policies and practices.    
The needs in respect of projects fostering a common supervisory culture  have been 
estimated by the Committees of Supervisor s for the year 2009 at EUR 1,636,513 (not 
                                                 
61  Refer, for example, to the ECOFIN Conclusions of 14 May 2008: "(…) financial support under the EU 
Budget for specific EU-wide projects ". 
62  Refer, for example, to the EP Report on Financ ial Services Policy ((2007)0338), paragraph 55, which 
suggests that the Committees of Supervisors come up with: "concrete plans  for cooperation and 
implementation of agreed measures, possibly drawing on EU budgetary resources ". 
63  Refer, for example, to the Commission Communication on the Lamfalussy review, p. 13: "(…) 
financing of both specific projects  stemming from legal obligations under existing directives and of 
cross-sectoral training schemes (…)".  
64  GBP 2,017,000 converted as at 18 September 2008 
65  GBP 1,729,000 converted as at 18 September 2008 
EN 34   EN covering staff secondements programs). This amount would enable to organise courses 
as follows:  
 
 CEBS 
 CEIOPS CESR Cross-
sectoral 
Course details 
 
Number of courses projected for 2009 
 16 16 13 10 
Number of participants 
per course 30 60 35 35 
 
 
Cost per course (approx, €) 26,250 29,357 26,676 30,000 
  
Expected charge to participants  € 500-1000 Nil € 600 € 500-600 
(Source: CEBS, CESR and CEOIPS) 
It has been estimated by the Committees of Supervisors that the needs for funding of 
the development of training and secondment s projects would amount  over a period of 
five years to EUR 2,500,000 for CESR , EUR 4,470,000 for CEBS and EUR 4, 
470,000 for CEIOPS, so a total of EUR 11,440,000. 
In view of this estimation it is considered reasonable that the Community intervention 
for the period 2010-2013 covers at least part of the 2009 expenses (the baseline year). 
This represents a sum of EUR 1,040,000 p er year for the three Committees of 
Supervisors . The proposed funding of the Committ ees of Supervisors would be part 
of a Community Programme which is intende d to last for four years (2010-2013) in 
order to be aligned with the durat ion of the financial perspectives. 
2. As regards the development of comp lex information technology projects  
The Committees of Supervisors have identi fied a certain number of such projects that 
could benefit from co-financing by the Eu ropean Commission and at the same time 
can be specifically defined and sufficiently separated from other Committees’ activities. Such projects are as follows: 
- CEBS and CEIOPS initiated some time ago on the delivery of a CEBS and 
CEIOPS website on supervisory disclosure
66. It is envisaged that in future this 
disclosure framework will be enhanced, which will lead to additional IT development costs
; 
- Development of an IT-tool for self-a ssessments by CEBS and CEOIPS in the 
context of peer reviews, in line with the request of the ECOFIN Council to 
                                                 
66  Cf. section 2.3. above.  
EN 35   EN explore the possibilities to  strengthen the national application of guidelines, 
recommendations and standards67; 
- Putting in place IT backing to the deve lopments demanded in the area of 
common reporting. 
In addition, four possible IT project s destined at improving cooperation and 
implement EU rules have been identified as possible CESR projects  to be financed by 
the EU budget: 
 
- Exchange of transaction reports  on OTC Derivatives in TREM 
- EU electronic network of officially appointed mech anisms (OAMs) for the 
storage of regulated information. 
 
- Exchange of information on UCITS 
 - TREM Review 
                     2014
TREM ReviewUCITS2013
Network of OAMsTransaction 
reporting on OTC 
derivatives2009 2010 2011 2012
 
As explained in section 2.2.1. above the deve lopment of the TREM project has been 
divided into several subprojects. Therefor e, the related cost can vary over time and 
amounts, on average, to betw een EUR 500,000 to EUR 1,000,000 a year. 
It has been estimated by the Committees of Supervisors that the needs for funding of 
the development of the above IT projects w ould amount over a period of five years to 
EUR 1,660,000 for the above projects for CE BS and CEIOPS together, and to EUR 
3,510,000 for the four projects identified  by CESR, so a total of EUR 5,170,000. 
In view of this estimation it is considered reasonable that the Community intervention 
for the period 2010-2013 covers a subs tantial amount of these costs. This represents 
a sum of EUR 960,000 per year for the three Committees of Supervisors . The 
proposed funding of the Committees of Supe rvisors would be pa rt of a Community 
Programme which is intended to  last for four years (2010-20 13) in order to be aligned 
with the duration of the financial perspectives. 
 
3. In view of the above it is considered re asonable that the Community intervention for 
the period 2010-2013 in favour of the three s upporting structures to the Committees of 
Supervisors amounts to EUR 2,000,000 per year , in the two areas under consideration 
(building a common supervisory culture and carrying out complex projects involving 
IT development costs). 
                                                 
67  See Council conclusions of 4 December 2007, p. 17, available on 
http://www.consilium.europa.eu/ueDocs/cms_D ata/docs/pressData/en/ecofin/97420.pdf 
EN 36   EN 2.4.8.2. Expected impact of community funding from the EU budget ove r the budget of the 
Committees of Supervisors 
The main sources of financing (expressed in  %), which will result from the Community 
intervention, are illustrated in the pie chart belo w. On the basis of 2007 figures, it is estimated 
that the proposed funding of the Committees  of Supervisors under the Programme will 
amount to 18.5% of their sources of financing. 
Members (77%)
Other income
(4,5%)
EU budget
funding (18,5%)
 
(Based on data contained in CEBS, CESR and CEOIPS Annual reports, 2007) 
 
2.4.8.3. Impact on human resources and ot her administrative expenditure  
Taking into consideration that the envisaged funding would finance actions, this will entail 
related administrative work by the Europ ean Commission. Since DG MARKT does not have 
sufficient administrative res ources for managing such a significant amount of money 
compared to our budget line, there will be a n eed for some additional specialist financial 
officers and additional financial training for ex isting staff, which is estimated under section 
1.4.8. of the general section of the ex ante evaluation.  
2.5. Conclusion 
In view of the above and to ensure that the Committees of Supervisors are adequately 
equipped with the financial means to carry out certain new, strategic projects, which significantly exceed the current funding arrangements, it is considered important for the Community to contribute to their funding. Speci fically, it is concluded that the best way 
forward is to co-finance the legal structur es supporting the Committees of Supervisors to 
carry out a certain number of actions, as unde rlined by the European Parliament and the 
ECOFIN Council on several occa sions. Specifically, it is pr oposed to provide the supporting 
structures of the Committees of Supervis ors the sum of EUR 2,000,000 per year for the 2010–
2013 period, making a total of EUR 8,000,000. 
2.6. Follow-Up: Arrangements For Moni toring, Reporting And Evaluation 
The Commission will closely monitor the applica tion and evaluate the impact of the proposed 
funding to make sure that the money has been used in accordance with the principles of 
economy and cost-effectiveness. To  this end, the Commission will: 
• Analyse the Committees of Supervisors Annual Reports; 
 
• Evaluate the Financial Statements and the Auditor's Report ; 
EN 37   EN  
• Evaluate the quality, relevan ce and the usefulness of the trainings/ staff secondments 
offered, notably via a systematic survey of the satisfaction of the participants to the 
trainings and/ or staff secondments; 
 
• Evaluate the IT projects refe rred to above, both in the cour se of their development and 
upon completion; 
 
• Arrange visits to the Committees of Superv isors premises when deemed necessary to 
verify budgetary systems and controls; 
 
Finally, in line with current fina ncial regulations and practices, the programme as a whole will 
be properly evaluated in order to determine its possible renewal in 2013. 
EN 38   EN 3. A NNEX II TO THE EX-ANTE EVALUATION : PROPOSED COMMUNITY FUNDING OF 
THE INTERNATIONAL ACCOUNTING STANDARDS COMMITTEE FOUNDATION 
(IASCF) 
3.1. Background 
Accounting standards play a critical role to ensure the effective ope ration of capital markets 
and of the broader economy. By en suring that investors, creditors and other stakeholders have 
access to reliable and relevant information about the financial condition of companies, accounting standards inter alia  allow companies to  raise funds and facilitate contractual 
relations with their suppliers and customers. Accounting standa rds can also have important 
tax implications and regulatory impacts, notably for regulated financial institutions. 
The Community first adopted harmonised ac counting requirements for limited liability 
companies in 1978 in the form of the 4
th company law directive on annual accounts.68 This 
was followed in 1984 by the 7th company law directive on consolidated accounts.69 After 
almost 20 years which saw no major changes to the Community's accounting legislation, a 
major breakthrough was made in 2002 with th e adoption of Regula tion (EC) No 1606/2002 
on international accoun ting standards (the IAS Regulation).70 
The adoption of the IAS Regulation took place in the context of a broade r Financial Services 
Action Plan (FSAP) whose objective was to pr omote the integration of European capital 
markets. The use of IFRS is also requir ed pursuant to the Transparency Directive71 and to the 
Prospectus Directive,72 two major elements of the EU's s ecurities markets legislation that 
were also adopted in the context of the FSAP. 
The IAS Regulation foresees that the Eur opean Commission may, subject to certain 
conditions, decide on the applicability of Inte rnational Financial Re porting Standards (IFRS) 
and related interpretations to the consolidated  accounts of companies with securities listed on 
a regulated market within the Community. Pursua nt to this Regulation, IFRS have been in 
force in the EU since 2005. Ne w standards are periodically adopted by the Commission, 
subject to a regulatory comitology procedure. So far the Commission has adopted all IFRS in 
full, with one partial exception related to th e accounting standard on financial instruments. 
The IAS Regulation includes an option allowi ng Member States to extend the scope of 
application of IFRS to the annua l accounts of listed companies or to the accounts of non-listed 
companies. Several Member States have taken a dvantage of this option, especially in relation 
                                                 
68 Directive 78/660/EC of 25 July 1978 based on Article 54 (3) (g) of th e Treaty on the annual accounts of 
certain types of companies, OJ L 222, 14.8.1978, p. 11. 
69 Council Directive 83/349/EEC of 13 June 1983 based on the Article 54 (3) (g) of the Treaty on 
consolidated accounts, OJ L 193, 18.7.1983, p. 1. 
70 Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the 
application of international accounting st andards, OJ L 243, 11.09.2002, p. 1. 
71 Directive 2004/109/EC of the Council and o the Eu ropean Parliament of 15 December 2004 on the 
harmonisation of transparency requirements in relati on to information about issuers whose securities are 
admitted to trading on a regulated market and amending Directive 2001/34/EC, OJ L 390, 31.12.2004, 
p. 39. 
72 Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the 
prospectus to be published when securities are offered to the public or admitted to trading and 
amending Directive 2001/34/EC, OJ L 345, 31.12.2003, p. 64. 
EN 39   EN to regulated financial institutions, including two Member States that require the use of IFRS 
for all limited liability companies. 
The incorporation of IFRS into Community law and into the national law of Member States 
means that these standards play a major role to ensure the effectiv e operation of the Single 
Market and of the EU's economy. Although the Co mmission can in princi ple refuse to adopt 
standards that do not m eet the relevant criter ia – and has made use of this option in one 
occasion – this option has serious disadvantages a nd is only to be used as a last resort. The 
Community therefore has a direct  interest to ensure that the process through which these 
standards are developed delivers  accounting standards that ar e consistent with the public 
interest (e.g. financial stability) and with th e Community's legal framework. One aspect that 
must be considered in this context is the funding of the standard-setting process. 
IFRS and related interpretations are issued by the Internatio nal Accounting Standards Board 
(IASB) and by the International Financial Reporting Interpretations Committee (IFRIC), two bodies of the International Accounting St andards Committee Foundation (IASCF). The 
IASCF is a not-for-profit corporation incorpor ated in the State of  Delaware, USA. Its 
operating office is based in London, United Kingdom.
73 It provides the overall governance 
and funding framework for the IASB and IFRIC.  Figure 1 shows a simplified diagram of the 
current structure of the IASCF a nd of its standard-setting bodies. 
 
 
3.2. Problem Definition 
3.2.1. Reliance on non-diversified, voluntary and precarious funding from interested 
parties and its negative consequences 
There are long-standing concerns about the IASC F's funding arrangements, a subject that has 
been repeatedly highlighted by the ECOFIN Co uncil in its conclusions adopted in July 200674 
                                                 
73 http://www.iasb.org/About+Us/About+th e+Foundation/About+Foundation.htm  
74 http://tinyurl.com/5pb8kn  IASCF Foundation 
(Board of Trustees) 
IASB IFRIC Appoints, oversees, funds Reports Reports 
IFRS Adopt Figure 1: IASCF current structure (simplified) 
EN 40   EN and July 2007.75 In its conclusions of 8 July 2008, the ECOFIN Council  also referred to the 
urgent need to secure appr opriate funding for the IASCF.76 The European Parliament (EP) has 
also criticised the IASCF's current funding arrangement and called on "the Community to 
examine under what conditions and in what fo rm it might consider contributing to that 
funding."77 The pace of progress achieved in reform ing the IASCF's governance, including its 
funding arrangements, is one of the elements th at will influence the EP's willingness to accept 
future IFRS.78 In its opinion dated 10 Septem ber 2008, the Committee on Economic and 
Monetary Affairs of the EP reiterated that " sufficient funding must be set aside for […] 
international accounting standar d setting, in particular to the International Accounting 
Standards Committee Foundation, including th e International Accounting Standards 
Board. "79 
The IASCF has responded to the concerns expr essed by the EU institutions by attempting to 
secure and diversif y its funding base.80 While these developments are welcome, several 
aspects of the IASCF's funding sy stem remain of concern today:81 
• While the number of organisa tions contributing to the IASCF's funding has grown from 
less than 200 organisations in 2005 to se veral thousands in 2008, the Foundation remains 
dependent on the voluntary contributions of  four major international audit networks82 for 
about one third of its funding83 (see Figure 2). Funding from some jurisdictions is also 
dominated by a limited number of companies fr om a specific stake holder group with a 
major and direct interest in shaping the c ontent of accounting standa rds. For example, 9 
large financial institutions account for half of the contributions raised in the US 
(Commission services calcula tion based on confidential data received from the IASCF.) 
     
                                                
 
75 http://tinyurl.com/6b6gmv  
76 http://tinyurl.com/6y5k9u , p. 13. 
77 See paragraph 16 of the EP's Resolution on International Financial Reporting Standards (IFRS) and the 
Governance of the International Accounting Standards Board (IASB) adopted on 24 April 2008, http://tinyurl.com/6ddah5
. 
78 The EP participates in the adoption of IFRS th rough the regulatory procedure with scrutiny (PRAC). 
79  http://www.europarl.europa.eu/sides/getD oc.do?pubRef=-//EP//N ONSGML+COMPARL+PE-
407.786+02+DOC+PDF+V0//EN&language=EN 
80 http://www.iasb.org/News/Press+Releas es/Update+on+Funding+for+2008.htm . 
81 See also the Commission's 3rd report on IASCF governance, http://tinyurl.com/66nlsj . 
82 Deloitte, Ernst&Young, KPMG , PriceWaterhouseCoopers. 
83 http://www.iasb.org/News/Press+Releas es/Update+on+Funding+for+2008.htm . 
EN 41   EN Figure 2: Contributions to IASCF 2008 budg et (target and committed per source) 
Source: data submitted by IASCF 
 
Notes: 
1. funding from the European Union is currently arranged at national (Member State) level. 
2. Data current as of 16 January 2008. 
The IASCF's financial dependence on the vol untary contributions of key stakeholder 
groups gives rise to continued concerns a bout the latter's potential influence over the 
IASB's standard-setting process. This situation undermines the IASB's operational 
independence, an indispensable requirement in the case of the EU as the standards issued 
by the IASB are bound to become EU law.  Similar concerns about the funding 
arrangements of the US Financial Accoun ting Standards Board (FASB) led to the 
enactment of a non-voluntary funding regime pursuant to the Sarbanes-Oxley Act of 
2002.84 In addition, there is no guarantee that these voluntary funding contributions will 
                                                 
84 See for example Walter Mattli and Tim Büthe, "Acc ountability in Accounting? The Politics of Private 
Rule-Making in the Public Interest", Working Paper 12, School of Public Policy Working Paper Series, University College London (December 2004), available at http://tinyurl.com/5fsw5j
: "Business can 
resort to a variety of strategies to push its dema nds. For thirty years, the funding of the [FASB] was 
raised by the FAF [the Financial Accounting Foundation, the US counterpart to the IASCF] from voluntary donations. The bulk of this funding for FASB came from business groups. When dissatisfied 
with FASB decisions, business often reminded the agent on whom the Board’s continuing existence 
depended. However, this has now changed. In the wake of recent accounting scandals, questions were 
raised in Congress and beyond about the impact of the funding structure on the independence of FASB 
as a regulatory agent. In August 2003, a new funding structure, initiated under the Sarbanes-Oxley Act, was implemented. Under the new scheme, FASB’s budget is paid by mandatory contributions of some 
7,500 publicly listed companies. This change from voluntary to mandated funding has removed one 
important means of pressure from business." (pp. 14-5) 
 
EN 42   EN continue to be available in the future: companies could wit hdrawn funding in protest at the 
adoption of accounting standards they do not favour or due to financial difficulties. For 
example, several of the US financial institutio ns referred to in the previous section have 
since declared bankruptcy, merged or are facing serious financial difficulties, thus threatening their continued cont ribution to the IASCF's budget. 
• Funding of the IASCF raised within the EU is currently arranged at national (Member 
State) level. To date, national funding scheme s have been established in only 8 Member 
States
85 (in some cases still subject to final conf irmation) either through privately-arranged 
voluntary funding schemes or, in a minority of  cases, via statutory levies on companies 
with listed securities.86 Figure 3 shows the target contribu tions for these 8 Member States. 
While the IASCF continues its efforts to ra ise funding from additional Member States, 
little or no progress has been made. Moreover, based on informal contacts with the IASCF, 
Member States and European stakeholders our assessment is that no significant progress 
can be expected towards establ ishing national funding schemes in  all Member States in the 
foreseeable future.87 This situation raises concerns of equity (stakeholders in some Member 
States bear the cost of IASCF funding, while those in other Member States do not) which 
may lead some existing national funding sche mes to withdraw funding, thus threatening 
the continuity of the IASB's operations. Ther e is clear and presen t risk that such a 
withdrawal could occur in the near future. 
                                                 
85 France, Germany, Italy, Luxembourg, the Netherlands, Spain, Sweden and the United Kingdom. See 
source quoted in footnote 80. 
86 Mandatory levies on listed companies exist in Italy, Spain and the United Kingdom. The Netherlands 
initially planned to introduce a mandatory levy but has so far not able to identify a legal basis to do so 
following advice from the government's legal service. 
87 For example, the IASCF has for some time been nego tiating with stakeholders in Austria, Denmark and 
Finland, which were initially expected to contribute towards the 2008 budget. These contributions have 
so far not been confirmed and the IASCF currently does not expect them to materialise. 
EN 43   EN Figure 3: Contributions by Member State (ta rget, does not represent actual money 
disbursed to the IASCF) 
Source: IASCF website (absolute figures may not fully correspond to those shown in Figure 2 due to different 
cut-off dates). 
Failure to reform the IASCF's funding arrange ments risks undermining the acceptability and 
legitimacy of IFRS in the EU, which could in turn lead to the non-endorsement of IFRS for 
use in the EU. A refusal by th e EP to endorse one or more IFRS would undermine the 
implementation of the IAS Regulation, of the Tr ansparency Directive a nd of the Prospectus 
Directive, possibly triggering a damaging political  debate about the continued appropriateness 
of IFRS as a whole for the EU. Failure to achieve a satisfactory reform of the IASCF's 
funding arrangements also risks triggering th e withdrawal of funding from one or more 
national funding schemes in EU Member States, leaving the IASB with inadequate resources 
to fulfil its standard-setting role. Either outcome would unde rmine the functioning of the 
Single Market and, in particular , of the EU's capital market. 
In addition, the European Comm ission has sought more fundam ental reforms of the IASCF's 
governance arrangements, including  of its funding regime, in or der to address the concerns 

EN 44   EN expressed by the Community legislators.88 For example, in the context of the ongoing review 
of the IASCF's constitution, the Commission services are currently negotiating with counterparts in the US Securities and Exch ange Commission (SEC) and in the Financial 
Services Authority of Japan (JFSA ), as well as with the IASCF,  to establish an international 
Monitoring Board composed of public authoritie s, including the European Commission, that 
would inter alia  review the ongoing adequacy of  the IASCF's funding arrangements.
89 This is 
expected to lead to the establishment of a non-voluntary, transparen t and stable funding 
platform for the IASCF and the IASB towards which the EU would need to contribute. The 
IASCF is expected, no later than 1 January  2009, to amend its constitution in order to 
formally recognise the role of this future international body in it s governance arrangements. 
In order to ensure that the EU  is in a position to  participate in the IASCF's revised funding 
arrangements after the comple tion of its governance reforms, it is important to complete 
preparations within the EU – in cluding, if necessary to create a legal basis – for this financial 
commitment as soon as possible.  
3.3. Objectives 
3.3.1. Strategic objective The strategic objective to be achieved by the proposed funding arrangement is to ensure 
stable, diversified, sound and adequate funding to enable the IASCF to carry out its public 
interest mission in a way that ensures its inde pendent and efficiency, as well as the high 
quality of the accounting sta ndards produced by the IASB. 
3.3.2. Operational objectives  
3.3.2.1. Avoid reliance on precarious, voluntary funding from interested part ies thus ensuring 
stability and independence of the IASCF's work 
 The first operational obj ective is to guarantee the IA SCF's financial independence 
from voluntary contributions from parties with a direct interest in accounting standards, while at the same  time ensuring sound, stab le and sustainable funding 
arrangements. For the reasons explained in section 3.2., this in practice implies that the IASCF's funding should rely mainly  on non-voluntary contributions. In 
particular, the IASCF should in future no longer rely on voluntary contributions 
from the four major inter national accounting networks which currently contribute 
US$8 million per annum. This funding needs to be replaced from new sources. 
3.3.2.2. Ensure a level playing field for all st akeholders within th e Internal Market 
The second operational objective is to reform the IASCF's funding regime to allow the 
Community to contribute in a manner that en sures a fair burden shar ing for stakeholders 
throughout the EU. This could in  principle be achieved by es tablishing non-voluntary funding 
schemes in all Member States (involving a st atutory levy on all listed companies in each 
Member State or a direct contribution from  the Member States' national budgets) or by a 
direct contribution from the Community budget. 
                                                
 
88 See the 3 Commission staff reports on governance developments in the IASB and IASCF available at 
http://ec.europa.eu /internal_market/acco unting/ias_en.htm . 
89 See the consultation document about the revision of the IASCF's constitution available at 
http://tinyurl.com/4n7eje , in particular the creation of the M onitoring Group to oversee the IASCF. 
EN 45   EN 3.3.2.3. Promote the international acceptance of IF RS in the world's major capital markets 
A third operational objective is  to support the Community's financial reporting strategy, 
which seeks to promote the international use and acceptance of IFRS, in  particular in the 
world's major capital markets. 
This is particularly relevant  in relation to the USA. The EU has implemented a multi-annual 
joint work programme with the US, in part icular with the Secu rities and Exchange 
Commission (SEC) and accounting standard-setter (FASB) to facilitate the convergence of 
US accounting requirements with IFRS, with a view to the latte r's eventual implementation in 
the US. Consequently, the US SEC has recently adopted a roadmap towards the full 
implementation of IFRS by US listed companies by 2015.90 
The full implementation of IFRS in the US woul d require the SEC to recognise the IASB as a 
standard-setting body pursuant to the Sarbanes-Oxley Act, which inter alia  mandates that 
recognised standard-setting bodi es must be funded in a manner that ensures their 
independence from those parties direct ly affected by accounting standards.91 In practice, 
recognition of the IASB by the SE C would require all or a majori ty of the IASCF's funding to 
be raised through non-voluntary sources. A cont ribution from the Community budget to the 
IASCF's budget (our preferred policy option as described below) would align the latter with 
the requirements set out in the Sarbanes-Oxley Act, thus facil itating the IASB's recognition as 
a standard-setting body by the SEC and supporti ng the Community's objective of achieving 
global acceptance of IFRS.  
3.3.2.4. Achieve the above objectives within a re asonable period of time considering their 
urgency in the current EU and international context  
A final operational objective is to achieve the abovementioned objectives  within a reasonable 
period of time considering their urgency in th e context of the current financial crisis. In 
particular, given the anticipated timetable of the reform of the IASC F's funding arrangements 
(2010-11), it is important to complete preparatio ns within the EU – including, if necessary to 
create a legal basis – for this commitment as soon  as possible. If an EU legal basis needs to be 
created, it needs to be adopted before the end of the current parliame ntary term, failing which 
the EU risks being unable to pa rticipate in the refo rm of the IASCF's funding regime, thus 
putting at risk the achievement of the objectives set out in section 3.3.2.1. to 3.3.2.3. 
3.4. Available Policy Options 
It is therefore necessary to reform the IA SCF's funding arrangemen ts in a manner that 
achieves the objectives set out in section 3.3. The remainder of  this section describes the 
available policy options. 
                                                 
90 http://www.sec.gov/news/press/2008/2008-184.htm  
91 This issue was for example raised on 14 November 2007 by US Senator Christopher Dodd, Chairman 
of the US Senate Committee on Banking, Housing and Urban Affairs, and Senator Jack Reed, 
Chairman of the Subcommittee on Securities, Insurance and Investment, in a letter to the Chairman of 
the SEC, in which they stated that "The IASB's lack of independent funding sources is troubling and 
inconsistent with the framework set by Congress fo r the SEC's recognition of any accounting principles 
established by a standards-setter other than the SEC itself." 
EN 46   EN 3.4.1. Status quo 
In the absence of a policy in tervention by the Community, we  judge that Member States 
and/or the private sector would not be able to  undertake a co-ordinated initiative to enhance 
the IASCF's funding. While the IA SCF continues its efforts to raise funding from additional 
Member States, little or no progress has been made in the last year towards establishing 
national funding schemes in all Member States. Moreover, based on informal contacts with 
Member States and with European stakeholders  it is our assessment is that no significant 
further progress in this directio n can be expected.  In additi on, it is unrealistic to expect 
current contributors to the IASCF budget to incr ease their contributions, since – as shown in 
Figure 2 above – contributions to  the IASCF is alrea dy struggling to meet  its current funding 
target. 
The status quo, i.e. no policy in tervention, therefore im plies that the objec tives identified in 
section 3.3. would not be achieved. This risks u ndermining the acceptability and legitimacy of 
IFRS in the EU, which could in turn lead to the non-endorsement of IF RS for use in the EU, 
in particular due to a refusal by the EP to endorse one or more IFRS. Such a development 
would undermine the implementation of the IAS Regulation, of the Transparency Directive 
and of the Prospectus Directive, possibly tr iggering a damaging political debate about the 
continued appropriateness of IFRS  as a whole for the EU. Failure  to achieve the objectives 
identified in section 3.3. would also risk tr iggering the withdrawal of funding from one or 
more national funding schemes in EU Member States, leaving the IASB with inadequate 
resources to fulfil its standard-setting role. Either out come would undermine the functioning 
of the Single Market and, in part icular, of the EU's capital market. 
3.4.2. Establishment of national funding schemes in  all Member States (public financing or 
levy on industry) 
Existing national funding mechanisms in EU Member  States take the form  either of privately-
arranged voluntary funding schemes or, in a mi nority of cases, of statutory levies on 
companies with listed securitie s. If the IASCF's funding conti nues to rely on such national 
funding schemes, as explained in section 3.3., such schemes should provide for non-voluntary 
contributions to the IASCF's budget. This in turn  implies the need for a statutory (legal) basis 
for these funding schemes. 
In order to create su ch a legal basis, the Commission could propose a legal act requiring 
Member States to finance the IASCF, for ex ample via a statutory levy on companies with 
listed securities. This option was assessed by the Commission services as far back as 2005. The conclusion is that the Treat y does not provide an explicit legal basis to require Member 
States to finance the IASCF nor to impose a mandatory levy on listed companies across the 
EU (a levy on listed companies be ing a form of direct taxation) . Even assuming such a legal 
basis for a statutory levy c ould be found on the basis of Ar ticle 308 TEC, adoption of the 
relevant legal act would require unanimity in the Council. This is highly unlikely to be achieved for political reasons with no direct re lation to the IASCF, i.e. the negative position 
of a number of Member States  about Community intervention in fiscal matters. The adoption 
of a harmonised statutory levy is  thus not feasible for a comb ination of legal and political 
considerations. 
Alternatively, the Commission could rely on moral presuasion to encourage stakeholders 
(private sector and/or public authorities) to establish nati onal funding schemes in those 
Member States where none exist for the time being. This approach wa s already suggested in 
EN 47   EN the conclusions of the ECOFIN  Council of July 2006, and expe rience has shown that it has 
not been successful in meeting our objectives. In practice, this approach is therefore 
equivalent to the status quo  (see section 3.4.1. above). 
3.4.3. Direct financial cont ribution to the IASCF from the Community budget 
The Community could co-finance  the IASCF. This policy op tion would achieve the first 
objective (guarantee the IASB's financial inde pendence from stakeholders with a direct 
interest in accounting standards while at the same time ensure sound, stable and sustainable 
funding arrangements) if all or a majority of the IASCF's funding were drawn from non-
voluntary or public funds. A financial contribu tion from the Community alone would not be 
sufficient to achieve this (as explained below,  we envisage that th e Community contribution 
would amount to no more than one fourth of  the IASCF's budget) and co-ordination and co-
operation among the jurisdictions w ith major capital markets, in particular the EU, Japan and 
USA, will be necessary to achieve the necessa ry reforms of the IASCF's funding regime. As 
described above, negotiations towards the estab lishment of a Monitoring Board that would 
inter alia  review the IASCF's funding arrangments  are currently ongoing and the necessary 
changes to the IASCF's constitution are expe cted to be adopted before the end of 2008. 
This policy option would also achieve the second objective (ens ure a level playing field for 
stakeholders throughout the EU), while it would also facilitate  the IASB's recognition as a 
standard-setting body by the SEC. As the US mo ves towards implementing IFRS, it will also 
modify its funding arrangements towards the IASCF by implementing a non-voluntary 
contribution, since this is requirement for r ecognising the IASB as a standard-setting body 
pursuant to sections 108 and 109 of the Sarb anes-Oxley Act (see section 3.3.2.3. above). We 
expect other major jurisdictions to do likewis e as they move towards implementing IASCF. 
Provided a legal basis can be a dopted under the current legislatur e, it would al so allow the 
Community to fully participate in and contri bute towards the reform of the IASCF's funding 
arrangements. This would strengt hen our negotiating position in the broader discussions about 
the reform of the IASCF's governance. 
3.4.4. Establishment of an EU accoun ting standard-setting agency or body 
The Community could establish a European ac counting standards-set ting body, either in the 
form of a private body or by establishing a Commun ity agency, to take ov er the role currently 
performed by the IASB. However, this approach has two major disadvantages: 
– Article 2 of the IAS regulation specifically defines international accounting standards as 
"International Accounting Standards (IAS), In ternational Financial Reporting Standards 
(IFRS) and related Interpretations (SIC-IFRIC in terpretations), subsequent amendments to 
those standards and related interpretations, fu ture standards and related interpretations 
issued or adopted by the Internationa l Accounting Standards Board (IASB)." An 
amendment to the IAS Regulation would ther efore be required in order to allow the 
Commission to adopt accounting standards deve loped by a body other than the IASB. Such 
an amendment risks provoking a damaging polit ical debate and in our judgment would 
stand no chance of being adopted by the co-legislators; 
– the EU's financial reporting policy aims at achieving a si ngle set of globally accepted 
accounting standards, i.e. IFRS, in order to facilitate cross-borde r investment and the 
integration of global capital markets (especiall y the trans-Atlantic capital market). It is 
therefore of paramount importance to a void the emergence of regional accounting 
EN 48   EN standards which would inevitably underm ine this objective. Consequently, the 
establishment of European standard-setter, be  it private or public, is not compatible with 
the Community's financial reporting policy; 
In addition, the establishment of either a private or public  European accounting standard-
setter is unlikely to be po ssible without Community funding comparable in amount to the 
financial contribution to th e IASCF's funding foreseen under the preceding option ( a fortiori  
in the case of an agency, wh ich would ultimately be funded entirely from the Community 
budget). Moreover, the Commission' s management of the financia l contribution to and/or co-
ordination with a European standard-setting body would imply administrative costs for the 
Commission which would also be comparable to that associated with a financial contribution 
to the IASCF's budget. From the Commission's point of view, this policy option therefore 
does not present any significant budgetary or administrative advantages compared to the 
preceding option. 
3.4.5. Comparison of options 
The matrix below is used to compare the relati ve merits of four competing options based on a 
qualitative assessment as reliable data are not available.  
The criteria used for the comparison of options are considered equally important in testing the 
cost-effectiveness of each option, however, some of these criteri a feature more prominently.  
With this in mind, the criteria have be en prioritized, rather than weighted.  
In the case of IASCF, one should consider as a first priority  the need to achieve the 
objectives  set out for the IASCF, as this is the most crucial issue at the moment (avoid 
reliance on voluntary funding from interested parties, ensure a level playing field, promote 
IFRS internationally) as evid enced also in the ongoing debate on the governance of the 
IASCF.  
A second priority  should be the criteria of feasibility  (from a legal and or  political point of 
view). The fact that the IASCF is an internati onal, not-for-profit corpor ation incorporated in 
Delaware, USA, adds a certain degree of complexity to the discussion on feasibility. Looking 
for a Community solution to th e problems defined in section 3.2. above, it is thus a high 
priority that the option retained at EU level be viable from a le gal and political point of view. 
A third priority  should be the time needed for implementation  as (i) the EU need to be 
prepared to take part to the reform of the IASCF funding, wh ich is scheduled to take place in 
2010-2011 and (ii) the current financial crisis ha s put accounting standards at the top of the 
EU political agenda. 
A fourth priority  should be the implications for the EU budget . 
The option "status quo" scenario (option 1) used as the base line with no budgetary 
intervention from the Community is compared to the three other options based on the three 
following main criteria: 
• the degree of effectiveness of their implementing process;  
• their impact on costs for the EU; and 
• the level of risk of not reaching the objectives above-mentioned in section 3.3.  
Table 1: Summary of policy options 
EN 49   EN ASSESSMENT  
 
  
 
  
OPTIONS
 1. Achievement 
of objectives  
 
High (+++) 
Medium (+/-) 
Low (- - -) 
 2. Feasibility  
 
 
Straightforwar d 
(+++) 
Medium (+/-) 
Complex (- - -) 
 3. Time needed 
for 
implementation  
 
High (+++) 
Medium (+/-) 
Low (- - -) 
 4. Implication 
for EU budget  
 
Positive  
(+ to +++) 
Negative  
(- to - - - ) Overall 
Assessment  
 
Positive  
(+ to +++) 
Negative  
(- to - - - ) 
 
Option 1  
Status Quo 
 - - - +++ ---- +++ - - 
 
Option 2  
Setting up 
national 
funding 
schemes 
 +/- - - - +++ +++ - - 
 
Option 3  
Co-financing 
under the 
Community 
budget 
 +++ +++ ---- ---- +++ 
 
Option 4  
Setting up 
dedicated EU 
Agency or EU 
body 
 +++ - - - +++ ---- - - - 
 
The preceding analysis is summarised in Table 1. Option 1 incurs no direct costs to the 
Community budget. However, it leaves th e IASCF's funding regime unchanged, does not 
provide any guarantees about the stability or independence of this funding regime and would 
not achieve the objectives set out in section 3.3. This option thus carries unacceptable political 
risks. We therefore have an adverse opi nion about this option, which we discard. 
Option 2 likewise incurs no direct costs to th e Community budget but is not feasible for a 
combination of legal and political consideratio ns. This option thus also carries unacceptable 
political risks. We therefore also have an  adverse opinion about this option, which we 
similarly discard. 
Option 4 is inconsistent with the Community's  legal framework and with the Community's 
policy in the field of financia l reporting. Moreover, this po licy option does not present any 
significant budgetary or administrative advantages  compared to the option 3 (our preferred 
policy option). 
Although option 3 – a Community contribution to the IASCF's budget – carries significant 
direct budgetary and ad ministrative costs to the Community  budget, it is the only policy 
option that can achieve the pursued objectives described in  section 3.3. We therefore have a 
positive opinion about this option, which we retain for the following reasons: 
EN 50   EN • it would enhance the IASB's financial indepe ndence from stakeholders with a direct 
interest in accounting standards while at the same time ensure sound, stable and sustainable 
funding arrangements; 
• it would ensure a level playing field for stakeholders throughout the EU; 
• it would facilitate the IASB's recognition as  a standard-setting body and the acceptance of 
IFRS in other major capital markets, in particular the US; 
• it would strengthen the Community's negotiating position in  the broader discussions about 
the reform of the IASCF's governance. 
3.4.6. Method of implementation for the selected option 
As the Community's financing of the IASCF would not entail a purchase of goods and 
services, the most appropriate means to finance the IASCF would be via a grant. 
As a general rule, financial support from th e Community budget could be provided either: 
1. by contributing to the ov erall budget of the body (via  operating grants); or  
2. by co-financing specific targ eted activities of the body (via grants for action).  
Concerning publicity rules, the pos sibility of providing a grant following a call for proposal 
should be excluded from the outset since the benefi ciary (the IASCF) is in a situation of legal 
monopoly in accordance with Article 168 of the Implementing Rules to the Financial 
Regulation. 
In view of the public policy objectives and the type of beneficiary, it is considered that a 
direct financial contribution from the EU budge t by way of an operating grant constitutes the 
best solution to address the proposed funding. Indeed, the choice to provide an op erating grant 
to the IASCF seems the most appropriate becau se, unlike a grant for action, which helps to 
co-finance a one-off action over a given period of time, an operating grant allows co-
financing of the whole institution's functioning from a much broader perspective. 
Regarding the IASCF as a possible eligible bene ficiary, it complies with the requirements laid 
down in the Financial Regulation because this organisation pursue s an aim of general interest 
and is a non-profit organisation (l egally speaking has been authorised and is regulated as a US 
not-for-profit foundation). 
3.4.7. Volume of appropriation, human resour ces and other administr ative expenditure 
The IASB's expenses for 2006 and 2007 are shown in Table 2. 
Table 2: IASCF expenses for 2007 and 2006 
EXPENSES 2007 ( £’000) 2006 ( £’000)  
Direct cost of sales from publications  & related activities (2,623) (2,922) 
Salaries, wages and benefits (9,738) (9,177) 
Trustee fees (496) (436) 
Cost of meetings and associ ated travel (2,117) (1,907) 
EN 51   EN Accommodation (1,320) (1,238) 
Fundraising expense (175) (72) 
Other costs (667) (717) 
Changes in fair value of financial instruments (436) 159 
Foreign exchange gains 436 3 
TOTAL EXPENSES  (17,136)  (16,307)  
Source: IASCF 2007 Annual Report 
http://www.iasb.org/About+Us/About+the+ IASC+Foundation/2007+Annual+Report.htm 
The IASCF budget for 2008 is approximately equa l to that for 2006. Moreover, we do not 
expect significant variations in these expens es since most of them are fixed or highly 
predictable, e.g. salaries, wages and benefi ts; Trustee fees; and accommodation (which 
together represent over two thirds of total expe nses). Some categories of expenses may show 
some volatility, e.g. the meetings and associated travel, due for ex ample to the volatility of the 
exchange rates and the increasing internationa l adoption of IFRS (which would imply more 
travel needs). 
Based on these historical figures, the budgetary and administrative impact of our preferred 
policy option may be estimated as follows . The IASCF's budget for 2008 amounts to £16 
million, i.e. about €21 million at current exchange  rates (this is the IASCF's funding target). 
Subject to future negotiations w ith our international counterparts and relevant international 
organisations, we believe the most appropriate contribution key to the IASCF's budget likely 
to reflect a fair burden sharing should be linked to the EU's shar e of global capital markets as 
by far the primary users of IFRS are capital ma rkets. This current share suggests that the 
Community contribution would amo unt to no more than one fourth of the IASCF's budget, i.e. 
between €5 million to €7 million. This calcul ation is based on the following assumptions: 
(3) no future increase in the IASCF's budget compared to the 2008 budget; 
(4) the elimination of the volunt ary contribution from the 'Big  4' international accounting 
networks; 
(5) the eventual replacement of existing nati onal funding schemes in EU Member States 
by a single contribution to th e IASCF from the EU budget; 
(6) the gradual loss of income from the sale  of IASCF publications  (about 30% of the 
IASCF's income in 2007), since the IASCF has stated that it  aims to fully fund itself 
from external contributions. This is justifie d by the fact that the IASCF aims to make 
its publications (mainly standa rds and related interpretations) available free of charge 
given their legal status in many jurisdictions. The current copyright/licensing regime 
for these publications creates a number of diffi culties for jurisdictions that are required 
to publish them in their official j ournals (as is the case for the EU). 
Moreover, the envisaged funding would enta il additional administrative work by the 
European Commission. DG MARKT currently does not have sufficient administrative 
resources to manage such a significant amount of money compared to our current budget line. 
There will consequently be a need for some a dditional staff and additional financial training 
for existing staff, which is estimated under sec tion 3.4.8. of the general section of the ex ante 
evaluation. 
EN 52   EN 3.5. Conclusion  
In view of the above and in or der to increase the IASCF's inde pendence, the stability of its 
funding sources and the quality of international accounting standards, we consider that it is 
important that the Community contributes to th e funding of IASCF. Specifically, we conclude 
that the best way forward is to co-finance th e IASCF and accordingly reduce the contribution 
from the 'Big 4' accounting networks as well as  the IASCF's reliance on income from the sale 
of publications. Specifically, it is  proposed to provide the IASC F with a financial contribution 
in the form of an operating grant for a sum of  no more than €5 million per year for the 2011–
2013 period, making a to tal of €15 million. 
The Community contribution will, among other th ings: (i) increase the IASCF's independence 
from voluntary contributions by stakeholders with  a direct interest in  accounting standards; 
(ii) simplify funding and ensure a level playing field at EU level; and (iii) promote the 
international adoption of IFRS in  other major capital markets. 
3.6. Follow-Up: Arrangements For Moni toring, Reporting And Evaluation 
The Commission would closely monitor the app lication and evaluate the impact of the 
proposed funding to make sure that the money has been used in accordance with the principles of economy and cost-effectiven ess. To this end, the Commission will: 
• analyse the IASCF annual reports; 
• evaluate the financial statements and the auditor's report; 
• discuss matters with other fund providers; 
• use the Monitoring Board meetings, in which the Commission will be a member, to discuss 
and clarify funding issues; 
• arrange visits to the IASCF premises when d eemed necessary to verify budgetary systems 
and controls. 
Finally, in line with current fina ncial regulations and practices, the programme as a whole will 
be properly evaluated in order to determine its possible renewal in 2013. 
3.7. Glossary Of Acronyms 
ECOFIN: Economic and Financial Affairs Council 
EP:  European Parliament 
FASB: Financial Accounting Standards Boar d (the US accounting standards-setter) 
FSAP:  Financial Services Action Plan IAS: International Accounting Standards (now  referred to as International Financial 
Reporting Standards or IFRS) 
IASCF: International Accounting Standards Committee Foundation IASB:  International Accounting Standards Board 
EN 53   EN IFRIC:  International Financial Reporting Interpretations Committee 
IFRS: International Financial Reporting Standards (previously referred to as 
International Accounting Standards or IAS) 
JFSA: Financial Services  Authority of Japan 
SEC  Securities and Exchange Commi ssion (the US securities regulator) 
EN 54   EN 4. A NNEX III TO THE EX-ANTE EVALUATION : PROPOSED COMMUNITY FUNDING OF 
THE EUROPEAN FINANCIAL REPORTING ADVISORY GROUP (EFRAG) 
4.1. Background 
Since 2005, all companies listed in a stock-excha nge of an EU Member State have to apply 
the international accounting standards as th ey are adopted in the European Union by 
regulations. New standards are adopted by the Commission as and when they are published by 
the International Accounting Standards Board (IA SB) or the International Financial Reporting 
Interpretations Committee (IFRIC), (two bodies of the International Accounting Standards 
Committee Foundation (IASCF)92) and subject to a regulatory  comitology procedure (thus 
involving the Member States, the Europ ean Parliament and stakeholders). 
Based on Regulation No. 1606/2002 (the IA S Regulation), the Commission adopts 
international accounting standard s as Community law under the co mitology procedure. Before 
the Commission starts the comitology proce dure on adopting new standards, DG Internal 
Market invites – in accordance with recital (10) of the IAS regulation93 – the European 
Financial Reporting Advisory Group (EFRAG) to  provide its (non-binding) advice on the 
technical soundness of new intern ational accounting standards. The endorsement process is 
shown in the figure below. 
 
(See section 4.7. for further explanation of acronyms) 
                                                 
92  The IASCF is a not-for-profit corp oration incorporated in the State of  Delaware, USA. In a nutshell, the 
IASB is in charge of setting the IFRS, the IFRIC is in charge of issuing consistent interpretations of 
such standards. They both function under the umbrella of the IASCF. For more information about the 
IASCF, IASB and IFRIC, see annex of the ex ante evaluation on the proposed community funding for the IASCF. 
93  "An accounting technical committee should provide support and expertise to the Commission in the 
assessment of international accounting standards." 
EN 55   EN EFRAG94 was set up in 2001 to assist the Europ ean Commission by providing it with the 
above-mentioned endorsement advice. It is a private association re presenting the main 
European parties interested in financial reporting (EFRAG's "founding fathers"). EFRAG is 
located in Brussels and it was formed as a non-profit association in accordance with the 
Belgian law of 25 October 1919.  
4.1.1. Context 
EFRAG has been mainly financed by its founding fathers95. The number of votes they have in 
the General Assembly and in the Supervisory Bo ard is related to their respective contribution 
to the financing of EFRAG. The Commission Se rvices may attend as observers all EFRAG 
meetings. EFRAG's chairman chairs the meetin gs and EFRAG has its own secretariat. The 
roles of the General Assembly and the Supervis ory Board are limited to the administrative 
issues and appointment of the Technical Expe rt Group (TEG) members. The TEG is the core 
of EFRAG's professional work. Any decision  and advice on the international accounting 
standards is taken by the TEG , which acts independently.  
EFRAG is involved in defining the accounting sta ndards applicable in th e EU also at a stage 
earlier than providing opinion on the already issued internati onal accounting standards. It 
provides technical input to the IASB concerning draft standa rds, through issuing comment 
letters. In addition, EFRAG has – in co-ope ration with the nationa l accounting standard-
setting bodies of the Member States – increasingl y developed its role as a platform used by 
European stakeholders to provide  upstream input to the IASB.  
Thus, at present, the objectives of EFRAG fall in two main categories:  
(a) advising the European institutions in conn ection with the inte rnational accounting 
standards: providing technical opinions to the European Institutions confirming or rejecting international accounting standards and related interpretations for application in the European Union, and helping them in their assessment of 
possible non-conformity of the internat ional accounting standards with the EU 
law (i.e. the "original" objective ), and 
(b) influencing the IASB on behalf of EFRAG stakeholders before a new standard is 
issued, commenting draft standard s via comment letters (i.e. the pro-active 
work ). 
There are parallels between the role of EFRAG and the national (accounting) standard setters 
but EFRAG is not a European standard setter.  
The above-described upstream input has attrac ted growing political interest as a way of 
ensuring that the IASB's standa rd-setting process properly reflect s the needs and interests of 
EU stakeholders. We live in hist orical times when more and mo re jurisdictions  (including the 
US and China) decide to move towards a nd apply international accounting standards. 
Applying these standards naturally awakes th e desire to have an influence on their 
                                                
 
94  http://www.efrag.org/  
95  EFRAG's founding organisations are the following: BUSINESSEUROPE  (European Business 
Federations), FEE (European Federation of Accountants), CEA (European Insurance Organisation), 
EBF (European Banking Federation), ESBG (European Savings Banks Group), EACB (European 
Association of Co-operative Banks), EFAA (European Federation of Accountants and Auditors) and 
EFFAS  (European Federation of Financial Analysts). 
EN 56   EN development. The increasingly wide adoptio n of international accounting standards at 
international level has given rise to concerns  that Europe's influe nce over the IASB will 
diminish given the significant resources and expe rtise that other jurisdictions, especially the 
US, can mobilise. These concerns have been  expressed several times by the Council of 
Ministers96, the European Parliament97 and by Member States in the Accounting Regulatory 
Committee as well. For instance, in its opi nion dated 10 September 2008, the Committee on 
Economic and Monetary Affairs of the Eu ropean Parliament reiterated that " sufficient funding 
must be set aside for […] international accounting standard setting, in particular to the 
International Accounting Standards Committe e Foundation, including the International 
Accounting Standards Board, and its Eur opean voice through the European Financial 
Reporting Advisory Group "98. 
4.2. Problem Definition 
In the present situation we  face the following problems. 
4.2.1. Reliance on non-diversified, voluntary and precarious funding from interested 
parties and its negative consequences 
EFRAG has been financed by its member organi sations and by voluntary contributions of EU 
professional associations. Additionally, private or public national funding mechanisms, set up 
in certain Member States provide EFRAG w ith voluntary funding. EFRA G's financing needs 
to be reconfirmed on a yearly basis. Part of EFRAG's staff, incl uding the TEG chairman, 
remains on the payroll of their current employ er (e.g. an accounting firm). These fragile 
arrangements may also give cause for public co ncerns about the operat ional independence of 
EFRAG from the main organisations interested in financial reporting.  
To address the concerns regard ing whether EFRAG's endorsement advice is independent, the 
Standards Advisory Review Group (SARG) was set up by a Commission decision of 2006. 
The members of this group receive no remune ration for their professional services. The 
Commission only reimburses th eir costs related to thei r meetings. Although SARG's 
additional advice about the independence of EFRA G's opinion can be seen as a solution in the 
case of endorsements, a similar system of additi onal opinions is from a practical point of view 
totally impossible when it comes to influencing th e international standard setting process (the 
"pro-active" work). Thus, inde pendence has to be an inherent  feature of the body responsible 
for the pro-active work.  
                                                 
96  See in particular (i) ECOFIN Council conclusions of 8 July 2008, pp 12-13, available on 
http://www.consilium.europa.eu/ueDocs/cms _Data/docs/pressData/en/ecofin/101742.pdf  and (ii) 
ECOFIN Council conclusions of 15 July 2003, Item 7, available on 
http://www.consilium.europa.eu/ueDocs/cms_D ata/docs/pressData/en/ecofin/76683.pdf 
97  See in particular (i) Report of the European Pa rliament on International Financial Reporting Standards 
(IFRS) and the Governance of the International A ccounting Standards Board (IASB) (2006/2248(INI)) 
("Radwan Report") 5 February 2008, pp 7 and 11, available on  http://www.europarl.europa.eu/sides/getDoc.d o?pubRef=-//EP//NONSG ML+REPORT+A6-2008-
0032+0+DOC+PDF+V0//EN&language=EN  and (ii) Written question n° E-3992/08 by Klaus Heiner 
Lehne (PPE-DE) to the Commission, available on 
http://www.europarl.europa.eu/sides/getD oc.do?pubRef=-//EP//TEXT+WQ+E-2008-
3992+0+DOC+XML+V 0//EN&language=EN  (with answer available on 
http://www.europarl.europa.eu/sides/getAllAns wers.do?reference=E-2008-3992&language=EN)  
98  http://www.europarl.europa.eu/sides/getD oc.do?pubRef=-//EP//N ONSGML+COMPARL+PE-
407.786+02+DOC+PDF+V0//EN&language=EN 
EN 57   EN 4.2.2. Insufficient financial means to ca rry out public interest missions  
Currently, the European interests are not well ta ken into account at th e international level. 
International accounting standard s are developed by bodies (IASB and IFRIC) in which the 
European interest is not guaranteed. Thes e standards are endorsed in the European 
Community after having taken into account many views and interests from stakeholders. If 
then the European view was not well taken in to account at the level of the IASB/IFRIC, due 
to lack of resources that would allow to set up and maintain some kind of think-tank that is 
able to properly influence the international sta ndard setting process, pr oblems may arise in the 
course of the endorsement procedure.  
Such problems were in the past temporarily solved by not endors ing the international 
accounting standard in question in fu ll (referred to as "carve-outs")99. However, this solution 
can only be regarded as temporary, since the use of international ac counting standards in 
Europe will fulfil its function only if it corresponds entirely  to the international accounting 
standards issued by the IASB/IFRIC as used elsewhere in the world. 
The real solution is thus not to create a maze  of carve-outs but to make sure that the 
accounting standards that we are about to endorse properly reflect the interest of the European 
stakeholders. Consequently, we have to influe nce the standard-setting process at the earliest 
stage possible. 
In order to create a European representation at the level of the international standard setting as 
quickly as possible, the Proact ive Accounting Activities in Eur ope (the PAAinE) initiative 
was launched in 2005. Through this initiative , EFRAG and the national standard setters100 of 
the largest Member States pool some of their resources in order to stimulate a debate in Europe on the most important international accounting standards under development. 
PAAinE is a coordination mechanism, which aims at the largest extent possible to ensure that 
the messages Europe gives to the IASB are consistent – however, this is constrained by circumstances which are inhere nt features of the system: 
• There is not a single body (nor EFRAG nor  any of the national standard setters) 
responsible and accountable for this importa nt proactive work: the national standard 
setters share the leadership of pro-active projects on an ad-hoc basis with EFRAG. 
Thus, different projects are led by different groups.  
• More importantly, the possibility of creatin g a truly single Europ ean voice is fairly 
limited, since there is no continu ity in the work of PAAinE. 
• Not all Member States are always interested  in contributing to a particular pro-active 
project. So, the necessary resources may not be put up for some still important 
projects.  
• The issues with which the PAAinE deals is al so picked mainly on th e basis of the four 
largest Member States' opinion – thus the i ssues affecting other Member States are 
less likely to be dealt with. In the system  of PAAinE, which is based on the voluntary 
coordination of Member States' resources, the interest of the other Member States that 
                                                
 
99  See for example the case of IAS 39  in connection with hedge accounting. 
100  National standard setters can be both private non-profit or public organisations depending on the actual 
constituency. 
EN 58   EN do not have sufficient resources  to contribute to the PAAinE  initiative is likely to be 
neglected.  
To remedy the limits of a mechanism functioni ng on an ad-hoc basis (such as PAAinE), a 
single body equipped with sufficient resources has to take up th e task of developing the pro-
active input to the international standard se tting process and replace PAAinE. Considering the 
urgency of such an activity, it is rational to  build on the existing bodies, namely EFRAG.  
However, the current resources of EFRAG allow it only to fulfil its task of providing the 
European Commission with endorsement advice.  Its resources are not  sufficient enough to 
cover the additional, at least equally important task of feeding the European views into the international standard setting pr ocess. If EFRAG is to take up new responsibilities (i.e. pro-
active work at the external international level) , it needs to be provided with more resources.  
In 2007
101, EFRAG had a total budget of approximately €3.25 million, of which ca. €1.6 
million was funded via voluntary ca sh contributions from its members and the rest via staff 
contributions from various resources. All TEG members, as well as members of the 
specialized working groups work without any charge for EFRAG. They are paid by the 
organisation employing them – national standards setters (basically the French, German, the 
UK, the Italian and the Swedish standard sett ers), organisations from the accountancy and 
audit profession, preparers, users and academic institutions. This contribution by delegating 
experts for free to take part in the work of EFRAG on an independent ba sis is considered as 
"contribution in kind" to EFRAG's budget. A decl aration of the experts is however not enough 
for the independency credentials of EFRAG. Th ese experts also need to be perceived as 
independent by the outside world. Thus an additi onal financing of EFRAG will be partly used 
to put certain current experts on EFRAG's payroll, whereas the other part will go to an increase in the number of its staff. 
EFRAG's stakeholder base needs to  be expanded to better reflect the public interest. In order 
to ensure an increased public oversight an d accountability, EFRAG's gove rnance structure is 
currently undergoing reforms. Regular liaison wi th the European Commission will be put in 
place at relevant levels; the meetings of EFRAG's bodies will be open to the public. 
Nomination processes will be open and wider cons ultations will be held than in the past. 
Greater transparency will be ensured also through regular reports in addition to the annual reports – among others to the Accounting Regulatory Committee and the relevant European institutions. The national standard setters will continue to participate in the professional work 
of EFRAG as non-voting members of the TE G and the newly set-up body (Planning and 
Resource Committee) responsible for the pro-active work.  
4.3. Objectives  
Further to the above-described issues, a solu tion has to be found that meets the following 
strategic and operational objectives. 
                                                
 
101  2007 is the most recent year for which we have final financial data. 
EN 59   EN 4.3.1. Strategic objective 
The strategic objective to be achieved by the proposed funding arrangement is to ensure 
stable, diversified, sound and adequate funding to  enable EFRAG to carry out its European 
public interest mission in an independent, efficient and satisfactory way.  
4.3.2. Operational objectives  
4.3.2.1. Avoid reliance of on precarious/voluntary funding from interest ed parties thus 
ensuring credibility and i ndependence of its work 
A first operational objective is to avoid EF RAG's reliance on precarious/voluntary funding 
from interested parties, thus ensuring credibility and independence of its standard-setting related activity (influencing the standard sett ing process and reviewing the newly issued 
standards) before the endorsement of  these standards in the EU law. 
For the credibility of a single European accounting voice it is indispensable that EFRAG is 
perceived as independent. Currently, the orga nisation relies on the vo luntary contributions 
received from stakeholders interested in fina ncial reporting. Their financial commitment often 
needs to be re-confirmed on an annual basis. These stakeholders that have a direct interest in 
the result of EFRAG's work have also voti ng and appointment rights in the governing bodies 
of the organisation. Making the financing of EFRAG more independent from the voluntary 
contributions of interested parties can guara ntee the operational independence of EFRAG 
from inappropriate pressure coming from the business community. 
4.3.2.2. Boost the international re putation, attractiveness and accep tance of the standards  
A second operational objective is, in addition to the above, to boost the international 
reputation, attractiveness and accep tance of the standards set by the IASB/IFRIC and part (or 
bound to become part) of the EU acquis . 
When EFRAG is successful in its pro-active wor k, the European context will be taken into 
account in the course of developing internatio nal accounting standards. This means that the 
European Community will play an active role in  the international standard setting process – 
instead of passively being bound to  adopt accounting standards th at are designed for the need 
of other jurisdictions, companies with backgrounds  different from that of the European ones.  
As a result of the envisaged enhancement of EFRAG, there will be no need for the above-
described carve-outs in the future, which is  indispensable for the acceptability of the 
international accounting standard s in Europe in the course of the comitology procedure
102.  
In addition, it will also  ease the EU's interna tional relations in the field of accounting. The 
argument for accepting the European entities financial reports in third countries will be well-founded. This applies in particular to the US, where a number of large European players raise 
funds. As a bonus, if European accounting sta ndards fully correspond to the international 
accounting standards, decisions on whether third country accoun ting practices are equivalent 
to those of the EU will be more easily taken. 
                                                
 
102  Member States (through the Accounting Regulatory Committee) as well as the European Parliament 
have to consent to the endorsement of in ternational accounting standards in Europe. 
EN 60   EN 4.3.2.3. Ensure fair burden sharing within the EU in the financing of EFRAG 
A third operational objective is to ensure fair  burden sharing within  the EU in EFRAG's 
financing. 
Putting in charge one single European body to represent the European interest at the 
international standard setting level will also br ing the benefit of ensuring fair burden sharing. 
EFRAG is now mainly financed by its memb ers and the contributions provided by the 
Member States' national funding mechanisms  come mainly only from the four largest 
constituencies. The current PAAinE mechanism works also on the basis of contributions only 
from the largest Member States, which circumstance puts unintentionally the others in an unfair free-rider position. Natu rally, financing means greater influence – thus the current 
PAAinE cannot be regarded as a truly European voice as it represents only those Member 
States that actually put up the money for a particular pro-active project. 
EFRAG taking up the pro-active work will be able  to represent the interest of all Member 
States – not only the largest ones that can raise sufficient funds to also individually operate a 
lobby-procedure at the IASB/IFRIC. Thus, a sing le, truly European voice could be developed. 
4.3.2.4. Ensure that the relevant bodies are adequately equipped with the financial means to 
carry out EU or EU-related public interest mandates or activities  
A fourth operational objective is that EFRAG is  adequately equipped with the financial means 
to carry out its EU public interest mandate of pro-actively influencing the international 
standard setting process. 
Technical competence would be the best way of in creasing EU influenc e in the IASB. To 
build respect and status, EFRAG needs to give  top quality advice a nd provide technically 
sound opinions. EFRAG needs to expand in order to arrive at a solid basis and have a critical 
mass of experts. Only a critical mass of expe rts would be able to manage the workload and 
match the expertise and personnel of our intern ational counterparts. We need professionals 
that are appropriate for this work both in quantity and quality. At the same time, it is not only 
the quantity of staff that matters. We need the best people to be able to speak the technical 
language that the IASB/IFRIC sp eaks. The experience of our European experts has to meet 
that of their US colleagues. When trying to at tract and recruit the best  quality people, EFRAG 
competes with the private sector including lead ing audit networks. This implies the need to 
pay competitive salaries
103, which represent EFRAG's main cost. Should EFRAG not be able 
to afford to pay the best people, the objectiv e of developing a powerful European voice would 
not be met.  
4.3.2.5. Achieve the above objectives within a re asonable period of time considering their 
urgency in the current EU and international context  
A fifth operational objective is to achieve the above objectives within a reasonable period of 
time considering their urgency in the cu rrent EU and international context.  
We live in historic times: the IASCF is cu rrently undergoing major reforms. International 
standard setting processes are being opened up and the re presentatives and views of 
jurisdictions adopting international accounting standards are welcome a nd listened to. If we 
                                                 
103  Based on informal estimates, the annual salaries  of accounting experts are higher than EUR 300,000. 
EN 61   EN do not grab this opportunity now, we will not have the chance to do so in the future. 
Currently, we can claim that th e EU is the largest constituency applying the international 
accounting standards. With more and more co untries adopting them, among them such large 
countries as the US and China, it will be hard fo r Europe even to maintain its positions and it 
most likely will not be able to increase its influence.  
Therefore, we need to react quickly. EFRAG's reform process began in time to allow it to 
react to the changes in the international environment adequately. But these governance reforms have to be matched by th e necessary financial support.  
4.4. Available Policy Options  
4.4.1. Status quo Under this scenario, EFRAG continues to be financed by its founding organisations and the 
national funding mechanisms operating in some of  the Member States. The Community is not 
involved in the organi sation's financing.  
This option's greatest advantage is that is easy to be realized since things can continue to go 
on without any further action from  the side of the European Co mmission. Also, this scenario 
has no implications for the Community budget, no additional Community money has to be spent.  
However, the disadvantages clear ly overshadow the advantages of this option. If the number 
of EFRAG's staff is not increased, the absen ce or leave of one colleague may make it 
impossible to continue work on a whole project,  as they have no back -ups. Also, considering 
that the same people have to work on issuing the endorsement advice and developing the pro-
active input at the same time, clearly the firs t would be prioritised. This prioritising is 
understandable if we consider that providing the Commission with endorsement advice is 
EFRAG's original objective as agreed by their founding (and funding) organisations. 
Providing endorsement advice is even a task which is  more measurable, visible and also, more 
pressing since if this is not done, the adopt ion of accounting rules within the European 
Community would come to a complete halt. Cl early, in case of a collision of duties, less 
attention and time would be left for the pro-active work. It is even possible that from time to 
time the pro-active projects underway have to be set aside in order to be able to manage the 
workload of advising the European Commissi on on the endorsement of the already issued 
standards. So the objective of developing a single and influential Eu ropean accounting voice 
is not met. 
This option does not solve the current problem s of passive adoption,  non-equivalence and 
carve-outs either. At the same time, we woul d miss the historic opport unity described above 
to get involved in the internati onal standard setting process.  
Not supporting EFRAG with Community funds w ould also mean that the currently ongoing 
reforms of EFRAG's governance loose ground. The sy stem of voting rights tied to the share in 
financing would prevail. The stakeholders di rectly concerned by EFR AG's advice could keep 
their influence on the organisation's work. 
The absence of Community funding would also be seen by others as demonstrating the 
weakness and the low-standing of EFRAG. Thus , in the end, this scenario would worsen 
EFRAG's current reputation and status as opposed to just not improving it. 
EN 62   EN 4.4.2. Increase contributions within  the existing funding models 
EFRAG could ask for an increase in the contributions of its member organisations . This 
option would not solve the curr ent problems. EFRAG's level of  independence would if not 
decreased, at least perceived to be decreas ed by the general public. In addition, since 
EFRAG's independence will have to be increased in line with its public interest activities, 
individual stakeholders currently financing EFRAG will have to give up much of their 
existing influence in EFRAG. In this context, it does not seem reasonable to expect them to 
double their current amount of c ontribution to EFRAG's budget. Fr om all discussions within 
the Supervisory Board of EFRAG and with severa l of the member organisations, it is clear 
that they are not willing or in a position to increa se their contributions by such a degree that it 
would make a real difference, i.e. be enough fo r carrying out the pro-active work properly.  
4.4.3. Setting up national fundi ng schemes (public financing or levy over industry) 
National funding mechanisms have been design ed to support the various accounting standard 
setting activities (e.g. standard se tting at national level, influenc ing the international standard 
setting process) for the benefit of the stakeholders of one particular country. The private and 
public funding systems for national standard se tters (i.e. national f unding mechanisms) are 
equally common104. In case of private funding syst ems, the accountancy profession and 
preparers (industry) together with the stock exchanges are the most common providers of 
funding where the national funding system work s on a non-voluntary basis. There are also 
some cases of mixed funding sy stems where government partic ipates in a mainly private 
system or private contributions are paid to  mainly government funded standard setters. 
However, counting on the increased contributi on only from this source has considerable 
disadvantages. National funding mechanisms exis t currently only in some Member States. 
Setting these up is time-consuming, whereas the need for a sound EU representation at the 
international accounting level is urgent. And even if such funding mechanisms were set up in 
all Member States, this solution would not lead  to an appropriate increase in EFRAG's budget. 
Reluctance to levy a tax, lack of political wi llingness to create anothe r tax-like system, mean 
that these funding mechanisms cannot sufficientl y increase their contribution to the work of 
EFRAG. This option also implies that the Memb er States would be en titled to decide on the 
level of their national co ntribution. This may result in a cont inuing lack of level playing field 
for listed companies of different nationalities. 
While Member States are reluctant to increase the levies on national levels, imposing an EU-
wide tax-like levy is not a f easible option. It would requ ire unanimous support from the 
Member States. There is no provision in the Treaty that would allow the Community to 
impose a fee on private companies in favour of another private body or association.  
4.4.4. Co-financing under the Community budget 
A grant agreement without a call for tender is a solution worth considering. Following Article 
108 of the Financial Regulation, grants can be used to finance the functioning of a body which 
pursues an aim of general European interest or has an objec tive forming part of a European 
Union policy .  
                                                 
104  In Northern Europe standard setters are primarily financed by the private sector; whereas in Southern 
Europe, there is public financing.  
EN 63   EN The grant will be designed to co-finance the f unctioning (basically the staff costs) of EFRAG 
(operating grants). By definition, such co-finan cing has no direct link to any deliverables. On 
the other hand, the Commission will contribute onl y to financing the act ual costs incurred by 
EFRAG without allowing for a profit margin. 
This option has clear advantages. Co-funding from  the European Union will ensure that the 
missing resources can be brought up to achieve the objectives above and a stable solution 
providing for continuity in the funding of EFRAG. This option is  a clear and straight-forward 
solution to the current funding problems. It is po ssible to extend the grant in time and transfer 
it into long-term financing. The independence and thus the credibility of EFRAG will be 
enhanced, while a level playing field will be ensured for all listed companies irrespective of their nationalities. 
This option enjoys the support of the European  Parliament and the Council as highlighted 
several times by the ECOFIN Counc il and by the European Parliament.
105 
The articulation of a single European voice is of a broader Eur opean interest, thus, 
coordinated actions at European level should be  able to count on support from the European 
budget.  
4.4.5. Setting up a dedicated EU Agency or body 
Setting up a European standard setter  would imply that European companies have to compile 
their financial reports on the basis of Eur opean accounting standards. If these accounting 
standards are truly European, they will differ from those applied in other parts of the world. Thus, Europe would not benefit from the tren d that the same sets of accounting rules are 
applied more and more globally. European compan ies would have to prepare several sets of 
financial report if they wish to  raise funds outside of Europe. In addition, this idea lacks the 
support of all parties involved – includi ng the Member States and the Commission.  
Establishing a new agency  could also be an option to be  considered. The Commission would 
set up an Advisory Accounting Agency (repl acing EFRAG), financed directly from the 
Community budget. This agency would take over all current tasks of EFRAG. However, the 
feasibility of setting up an agency is doubtful. Given that the Commission intends to launch a 
horizontal evaluation of regulatory agencies, pr oposals for a new regulatory agency will not 
be decided upon until the conclusion  of this exercise (end of 2009)
106. There is thus currently 
a general moratorium on the creation of new ag encies. The need for financing the pro-active 
accounting work is urgent; ther efore, this scenar io would lead to  missing our unique 
opportunity to get involved in th e international accounting standard  setting at the right time. 
Later we may not have the chance to do so. 
In addition, the establishment of an agency is unlikely to be possible without Community 
funding comparable in amount to the financial contribution to the EF RAG funding foreseen 
under the preceding option as an agency would ultimately be funded entirely from the Community budget. Moreover, the Commission's ma nagement of the financial contribution to 
and/or co-ordination with an Agency would im ply administrative cost s for the Commission 
                                                
 
105  Cf. references above in section 4.1.1. 
106  For details, refer to Communication from the Commission to the European Parliament and the Council. 
European agencies – The way fo rward (COM (2008) 135 final). 
EN 64   EN which would also be comparable to that asso ciated with a financial contribution to the 
EFRAG budget.  
4.4.6. "Internalize" functions within the Commission 
Under this scenario, the technical expertis e provided by EFRAG would be carried out 
internally by the services of the European Commission. 
Besides the difficulties this scenario would represent from a human resources point of view 
(as it would imply a substantial recruitment of accounting experts) , it is not desirable as the 
Commission would find itself in the situation where it would have to take the decision to 
endorse accounting standards on the basis, inter a lia, of a technical advice which by its nature 
should be seen as independent. It  is thus not desirable that th e missions of EFRAG are carried 
out "in-house" by the Commission. 
4.4.7. Comparison of options 
The table below is used to compare the relative merits of the above options based on a 
qualitative assessment as reliable data are not available.  
In the case of EFRAG the criteria are consid ered equally important in testing the cost-
effectiveness of each option, however, some of th ese criteria feature more prominently.  With 
this in mind, the criteria have been prioritized, rather than weighted.  
One should consider as a first priority  the need to achieve the objectives  set out for EFRAG, 
as this is the most crucial issue at the moment (avoid reliance on voluntary funding from 
interested parties, ensure fair burden sharing in financing, boost attr activeness and acceptance 
of IFRS, ensure adequate financial means to  carry out EU public interest mandate) as 
evidenced also in the debate on the EFRAG's missions within the European Parliament and 
the ECOFIN Council107.  
A second priority  should be the time needed for implementation  as (i) EFRAG's reform 
process need to be speeded up to allow the EU to react to the current changes at international level in relation to IASCF (see specific annex) and (ii) the current financial crisis has put 
accounting standards at the top of the EU political agenda. 
A third priority  should be the criteria of feasibility  (from a legal and or political point of 
view), considering the numerous stakeholde rs involved and the role of EFRAG in the 
endorsement process.  
A fourth priority  should be the implications for the EU budget . 
The option "status quo" (option 1)  used as the baseline with  no budgetary intervention from 
the Community is compared to the five ot her options based on the four following main 
criteria: 
• The degree of achieving the objectives described above,  
• Time needed for implementation, 
                                                
 
107  See section 4.1.1. above 
EN 65   EN • Feasibility, and 
• Implication for the EU budget. 
 
ASSESSMENT  
 
 
OPTIONS  1. Achievement 
of objectives  
 
 
High (+++) 
Medium (+/-) 
Low (- - -) 2. Time needed 
for 
implementation  
 
High (+++) 
Medium (+/-) 
Low (- - -) 3. Feasibility  
 
 
Straightforward  
(+++) 
Medium (+/-) 
Complex (- - -) 4. Implication 
for EU budget  
 
Positive  
(+ to +++) 
Negative  
(- to - - - )  Overall 
Assessment  
 
Positive  
(+ to +++) 
Negative  
(- to - - - ) 
 
Option 1  
Status Quo 
  
- - -  
- - -  
+++  
+++  
- - 
 
Option 2  
Increase 
contributions 
within the 
existing 
funding models 
  
- - -  
- - -  
- - --  
+++  
- - 
 
Option 3  
Setting up 
national 
funding 
schemes 
  
+/-  
+ + +  
- - - +++  
- - 
 
Option 4  
Co-financing 
under the 
Community 
budget 
  
+++  
- - -  
+++  
- - -  
+++ 
 
Option 5  
Setting up 
dedicated EU 
Agency or EU 
body 
  
+++  
+++  
- - -  
+++  
- - 
 
Option 6  
Internalizing 
EFRAG's 
functions 
within the 
Commission 
  
- - -  
+/-  
+/-  
++  
- - 
 
The "status quo" scenario (option 1), which leaves the funding of EFRAG to its private 
member organisations can be assessed as the worst case scenario from the EU perspective as 
EN 66   EN no full guarantee exists that public interest is du ly taken into account by international standard 
setters. 
On the contrary, the strongest benefits are to be expected from option 4. Providing EFRAG 
with co-funding from the EU budget would ha ve the following important advantages: 
• it can be realized quickly  enough to meet the urgent need s and it is easier to put in 
place compared to the other options which are lengthy if they can be realized at all, 
but in many cases practically impossible to  be realized. If the funding Decision were 
adopted by the co-legislators in 2009, th e new Community funding programme could 
be launched as of 2010;  
• it would considerably enhance EFRAG's independence  from the stakeholders and 
support its current governan ce reforms that aim at increasing EFRAG's public 
oversight and accountability, 
• it provides a more stable  source of funding also in the long-term compared to 
annually approved member contributions,  
• it would increase EFRAG's general recognition  and give its opinion the necessary 
weight and importance at the international scene, 
• it would signal to all parties concerned the EU public interest  and role of EFRAG 
and encourage other public bodies and in stitutions to contribute to EFRAG's 
financing. 
In sum, Community co-funding of EFRAG clearly represents the quickest  solution which is 
also in line with EFRAG's public intere st activities and international role. 
 
4.4.8. Method of implementation for the selected option 
Further to the above, the optimal  solution combines certain of the above options. The solution 
could be co-financing EFRAG via operating gr ants from the Community budget and at the 
same time raising additional resources from th ird parties. EFRAG is attempting to mobilise 
the following additional resources: 
• staff allocations by national accounting standard  setters, either detached to EFRAG or 
to participate in joint working groups (in the long-run these in-k ind contributions may 
be transformed into cash contributions); 
• additional cash contributions  from national funding mechan isms and/or the private 
organisations that founded EFRAG; 
• co-funding from the Community budget. 
Based on the financial rules governing the mana gement of the Community budget, financial 
support from the Community budget could be provide d either in the form  of operating grants 
(i.e. contributing to the overall budget of a body)  or in the form of action rants (i.e. co-
financing specific targeted  activities of a body).  
EN 67   EN In the case at hand, the aim is to finance main ly the pro-active work of  EFRAG; therefore the 
option of co-financing EFRAG via action grants has also to be considered. However, the 
activities of EFRAG are highly interdependent. The same experts do the pro-active work and 
the tasks related to endorsement advice. Therefore, it seems almost impossible to determine which costs should be considered as eligible fo r financing and which rela te to activities that 
would not be the subject of the Community fund ing. Consequently, it is rational to co-finance 
EFRAG via an operating grant. 
EFRAG, as a possible eligible beneficiary, complies with the requirements laid down in 
Article 162 (b) IR
108. This is a non-profit organisation pursuin g an aim of general interest as a 
European body representing a network of non-pr ofit bodies active in the Member States.  
EFRAG is clearly European : it is incorporated in one of th e Member States (as a non-profit 
organisation, AISBL under Belg ian law), and its members are all European organisations. 
Also its objectives and activit ies are focused on Europe: EFRAG facilitates the development 
of pan-European accounting standards.  
EFRAG represents a network of non-profit organisations  active in the Member States. Its 
member organisations are repres entative federations and asso ciations of experts and the 
industry, non-profit national standards setter ins titutions that are active in the Member States 
are among its partners. EFRAG represents its members when it expresses views on various 
fora about the European accounting policies and takes into account its members' interests when advising the European Co mmission. It should al so represent the widest possible range 
of stakeholders when providing input to th e international standa rd setting process. 
Therefore, as a body pursuing an aim of general European interest both  in the term's legal 
sense and in its everyday meaning, we consid er that EFRAG is eligible for receiving 
operating grants from the European budget. 
Since EFRAG is in a de facto monopoly position as described in  Article 168 1(c) IR, these 
grants may be awarded to EFRA G without a call for proposals.  
4.4.9. Volume of appropriation, human resour ces and other administr ative expenditure 
At present the operating costs of EFRAG are financed primar ily by its European member 
organisations. In addition, stak eholders contribute in-kind to the operation of EFRAG by 
providing the organisation with experts who ar e on their payroll but who work for EFRAG 
part-time or full-time. Occasionally, EFR AG receives voluntary contributions from 
stakeholders.  
                                                
 
108  Regulation No. 2342/2002 (regulation implementing the Financial Regulation) 
EN 68   EN The current budget of EFRAG is pr esented in the following table. 
in thousand euros  
 Income Statement 
(in-kind contributions are not included)  Year Year 
  2006 2007 
Members' Contributions 1075 1338 
Voluntary Contributions 0 283 
Total Contributions 1075 1621 
Personnel costs -886 -997 
Office costs -114 -130 
 Meeting costs -26 -26 
Other costs -117 -122 
Operating Expenses  -1143 -1275 
Operating Profit or Loss -68 346 
Financial Result -8 1 
NET PROFIT or LOSS -76 347 
Source: EFRAG Annual Review 2007, April 2008 
The table above shows that EFRAG is current ly a rather fragile organisation, depending on 
some Brussels-based associations. Voluntar y contributions may determine whether the 
organisation's budget is in surplus or in the red and this may affect as a minimum the 
perception of its independence.  The figures above show the past/current situation, when 
EFRAG is mainly engaged in giving endorse ment advice to the European Commission as 
stipulated in the IAS Regulation.  
For the future, when EFRAG has to expand  in order to accommodate its role as a 
representative of the singe European accounting voice, supposing that the Community co-
financing will be in place by 2010, the following budget plans have been drawn up (see in the  
table below).  
in thousand euros  
Budget forecast  
(excluding in-kind 
contributions)  Year Year Year 
 2008 2009 2010 
European member organisations 1.100 1.000 1.000 
National Funding Mechanisms 770 2.000 2.000 
EN 69   EN EC funding 0 0 3.000 
Total revenues 1.870 3.000 6.000 
Staff costs -1.010 -1.455 -5.170 
New staff -340 -990   
Offices -162 -210 -210 
Other -300 -345 -620 
Total expenditures -1.812 -3.000 -6.000 
Net profit/loss 58 0 0 
Source: Informal discussions with EFRAG on 3 June 2008 
As the figures show clearly, the increase in the budget will be spent on staff costs. Since these 
depend on the actual pace of recruitment, these figures cannot be set precisely, and thus the 
exact amount of the EC contribution cannot be predicted.  
Please note that the above fi gures are all cash-based acc ounts and projections, and they 
exclude the in-kind contributions of the stakeholders and the ma intained in-kind contributions 
of the national standard setters. Based on the data received from EFRAG, these are estimated 
to reach approximately €1.5 million  annually. 
o Volume of appropriation 
Further to the above, it is considered reasonabl e that the Community intervention covers up to 
50% of the EFRAG 2010 total expenses (the ba seline year). Taking into consideration both 
only the cash elements of EFRAG's budget, this co-financing will represent approximately a 
sum of €3 million per year. The current contribu tion of the European member organisations 
and national standard setters would not be re duced – they would be maintained or even 
increased. Moreover, the proposed EFRAG co -funding would be part  of a Community 
programme which is intended to last for four years (2010–2013) in order to be aligned with 
the duration of the financial perspectives. As descri bed earlier, it is expected that this level of 
Community funding would signal  to all parties concerned the Community interest in 
international solutions and encourage other pub lic bodies and institutions to increase their 
contributions to EFRAG. 
o Expected impact of community funding 
The main sources of EFRAG financing (expre ssed in %), after 2010 i.e. including the 
Community intervention, are illustrated in the pie chart below. 
EN 70   EN EFRAG budget 2010
EC co-funding 
50% of cash 
budget
In-kind 
contributions 
20% of total 
budgetNational 
Funding 
Mechanisms 
27% of total 
budgetMember 
organisations 
13% of the 
total budget
 
Source: Strengthening the European Contribution to the International 
Standard-setting Process – Proposals for public consultation, July 2008109 
o Impact on human resources and ot her administrative expenditure 
Taking into consideration that the envisaged funding would finan ce operating costs, this will 
entail related administrative work by the European Commi ssion. Since DG MARKT does not 
have sufficient administrative resources for managing such a signifi cant amount of money 
compared to our budget line, there will be a n eed for some additional specialist financial 
officers and additional financial training for ex isting staff, which is estimated under section 
1.4.8. of the general section of the ex ante evaluation. 
4.5. Conclusion 
In view of the above, consideri ng the public interest role that EFRAG play s at present in the 
endorsement of the international accounting st andards in the EU, and the role that it is 
envisaged to take up in pro-activ ely influencing the international standard setter, it is rational 
and important that this organi sation is supported also financia lly by European public money in 
carrying out its tasks. Theref ore, it is proposed to prov ide EFRAG from 2010 with a co-
financing of up to 50% of its annual cash budget via operating grants. This would mean an 
annual amount of approximately €3 milli on per year for the period of 2010-2013.  
The Community contribution will, inter alia: (i) provide a stable  funding that enables EFRAG 
to carry out its public interest activities (ii) de monstrate Community interest in international 
solutions, and (iii) incite other public bodies or  institutions to provide funds to EFRAG.  
4.6. Follow-Up: Arrangements For Moni toring, Reporting And Evaluation 
In order to make sure that the Community mone y is spent to the purposes it was targeted at 
and in a cost-effective way, we envisage that  EFRAG's current governance reforms will be 
realized before the Community co-funding sc heme starts and the programme will be 
monitored and evaluated. 
We are currently seekin g governance reforms both at the IASFC and at EFRAG in order to 
ensure that they operate in the public interest and that al l stakeholder gr oups are properly 
                                                 
109  http://www.efrag.org/ne ws/detail.a3sp?id=228  
EN 71   EN represented. Thus, the raise in funds will be coupled with sufficient reforms both at 
international and at European le vel. We envisage that the new structure and rules of procedure 
of EFRAG will take eff ect by the beginning of 2009. 
The Commission will closely monitor the applica tion and evaluate the impact of the proposed 
funding to make sure that the money has been used in accordance with the principles of 
economy and cost-effectiveness. To  this end, the Commission will: 
• analyse the EFRAG annual reports; 
• evaluate the financial statements and the auditor's report; 
• discuss matters with other fund providers; 
• use the Supervisory Board meetings, in which the Commission will be an observer, to 
discuss and clarify funding issues; 
• arrange visits to the EFRAG premises when deemed necessary to verify budgetary systems 
and controls. 
Should the level of funding c ontributed by other organizati ons to EFRAG's budget drop, the 
EC contribution will also be reduced proportiona tely to respect the 50 % contribution level.  
Evaluation should also include the assessment of the quality and effi ciency of EFRAG's 
technical work, and should be based on its work programme and the issued documents.  
• Efficiency  would be measured by scrutiniz ing whether EFRAG delivered the 
documents (e.g., comment letters, input to th e IASB's discussion pa pers) envisaged in 
its work-programme.  
• Quality  could be measured by delivering th e documents on time and possibly by 
examining the percentage of EFRAG's co mments taken into consideration by the 
IASB. 
Finally, in line with current fina ncial regulations and practices, the programme as a whole will 
be properly evaluated in order to determine its possible renewal in 2013. 
We do not see any feasible and appropriate solu tion to make the "common European voice" in 
accounting well-founded (and funded) wit hout sufficient Community support. 
 
4.7. Glossary Of Acronyms 
EFRAG:  European Financial Reporting Advisory Group 
IASB: International Accounting Standards Board IFRIC: International Financial Reporting Interpretations Committee 
IASCF: International Accounting Standards Committee Foundation 
EN 72   EN AISBL: Association internationale sans  but lucrative (int ernational not-for-
profit association) 
PAAinE: Proactive Accounting Activities in Europe TEG: Technical Expert Group of EFRAG SARG: Standards Advisory Review Group 
EN 73   EN 5. A NNEX IV TO THE EX-ANTE EVALUATION : PROPOSED COMMUNITY FUNDING OF 
THE PUBLIC INTEREST OVERSIGHT BOARD (PIOB)   
5.1. Background 
Unreliable financial reporting se riously constrains investment s or divestments on financial 
markets. Inefficient or underperforming fi nancial markets carries out a heavy toll on 
companies and other productive actors, having as  a result a significant negative impact on the 
whole economy. 
5.1.1. Audit as a public interest activity 
Many decades ago it became mandatory for comp anies, in many jurisdictions all over the 
world, to have their financial statements audited.  The purpose of an audit is to give reasonable 
assurance to the public, notably to shareholders and other investors, that  financial statements 
are free from material misstatements and prov ide a true and fair view of a company’s 
financial position. 
It was also decided that audit services, in spit e of its own nature as public interest activity 
should be provided by private auditors and au dit firms and not by public authorities or 
regulatory agencies.  
In the EU, Community legislation110 requires a company’s financia l statements to be audited 
by statutory auditors111 who should provide an indepe ndent opinion about a company's 
financial position, as reflected in  the financial statements. This will be particularly important 
in the case of auditing public interest entities112 (e.g. listed companies, banks and insurance 
companies).  
5.1.2. Need for Internati onal standards for auditors 
Investors today increasingly invest  or divest, directly or indi rectly (e.g. through investment 
funds), in companies of all sizes (whether listed  or not) incorporated in  foreign jurisdictions 
and, therefore, regulators, standa rd setters, issuers, and other st akeholders can no longer view 
financial markets from an excl usive domestic perspective.  
Auditing standards are standards to be followe d by auditors when fulfilling their professional 
responsibilities in the audit of financial stat ements and related data . International standards for 
auditors are developed by independent comm ittees of the International Federation of 
Accountants (IFAC), which is the global, pr ivate organization repr esenting the accounting 
profession. The most relevant IFAC committee is the IAASB (the International Auditing and 
Assurance Standards Board)113. 
                                                 
110 Fourth Council Directive 78/660 /EEC of 25 July 1978 on the annual accounts of certain types of 
companies; Seventh Council Directive 83/349/EEC of 13 June 1983 on consolidated accounts; Council 
Directive 86/635/EEC of 8 December 1986 on the annual and consolidated accounts of banks and other 
financial institutions; Council Directive 91/674/EEC of 19 December 1991 on the annual and 
consolidated accounts of  insurance undertakings. 
111  As defined in Article 2.2 of Directive 2006/43/EC (the 8th  Company Law Directive) 
112  As defined in Article 2.13 of Directive 2006/43/EC (the 8th  Company Law Directive) 
 
EN 74   EN Article 26 of Directive 2006/43/EC (the 8th Company Law Directive) foresees the possibility 
of adopting international auditing standards (ISAs ) in the EU if developed and adopted with 
proper due process, public ove rsight and transparency subj ect to a regulatory comitology 
procedure (thus involving Member States and the European Parliame nt). As in the case of the 
IASCF114 and as a result of the 8th Company Law Directive, this is a rare situation where the 
standards enacted by the rele vant entities of a private body, IFAC, may become EU law115. 
Investors benefit the most from an independent  audit opinion when th is opinion is based on 
high quality standards. The financial scandals  which took place a few years ago (e.g. Enron 
and WorldCom in the US or Parmalat in Italy)  called into question the work of auditors and 
their independence. This created a global moveme nt towards reinforcing oversight of auditors 
by public authorities. At international level a re form of IFAC was deemed necessary. As part 
of such reform, the Monitoring Group116 in co-operation with IFAC, decided to create the 
PIOB (Public Interest Oversight  Board) to carry out the overs ight of the standard setting 
activities of, inter alia, the IAASB117. The main objective of the PIOB is to ensure that IFAC 
standard setting activities are respon sive to the public interest.  
                                                 
114  See specific annex of the ex ante evaluation on IASCF 
115  As with the IASCF, even if the standards and inte rpretations enacted by the IFAC are applicable to the 
audit industry, their potential transformation into EU  law means that we are not in a context of EU 
industry self-regulation/ standardization as this is  the case, for instance, w ith CENELEC in the case of 
electricity. 
116  The Monitoring Group (MG) is the international organization responsible for monitoring the 
implementation of IFAC Reform. The MG nominates PIOB members and engages in dialogue with the 
international accountancy professi on, receives operating and financ ial reports from the PIOB, and 
updates the PIOB regarding significant events in the regulatory environment. The members of the MG are the BCBS, IAIS, IOSCO, the World Bank and th e European Commission. The FSF and IFIAR are 
observers. 
117  The PIOB also carries out the oversight of the two other standard setting committees of IFAC, namely, 
the International Ethics Standards Board for Accountants (IESBA) and the International Accounting 
Education Standards Board (IAESB). These three co mmittees form part of IFAC's Public Interest 
Activity Committees (PIACs). Consultative Adviso ry Groups are constituted to provide advice, 
including technical advice, to each of the IAASB, IA ESB and IESBA. Regular interaction between each 
CAG and its respective standard setting board is part of the board’s formal consultation processes. The 
PIOB oversees the work of each CAG.  
EN 75   EN 
 
Source: Third public report of the PIOB, page 10 – May 2008 
 
In the US the Sarbanes-Oxley Act in  2002 was adopted. At EU level the 8th Company Law 
Directive of 1984 was modernised and expande d in 2006 (Directive 2006/43/EC) to require, 
among other things, the creation of national public oversight bodies and of publicly controlled 
external quality assurance systems for auditors. At world level a new forum denominated IFIAR has been created by nati onal independent auditors' oversight bodies to exchange 
experiences and co-ordinate activities. 
EN 76   EN At present, the European Commi ssion is deeply involved in the works of the IAASB, where a 
new upgraded and modernised set of ISAs are unde r development,  and to a lesser extent  in 
the works of the IESBA, where a new Code  of Ethics for auditors, including new 
independence rules, is under discussion. Howe ver, whereas Articl e 26 of Directive 
2006/43/EC foresees the possi ble adoption by Comitology118 of ISAs, there is not at present a 
mandate for the European Commission to adopt st andards or rules issued by the other IFAC 
committees These standards and rules, however , may have a strong influence on European 
legislation (e.g. IFAC indepe ndence rules for auditors). 
The PIOB started its operations on 1 Marc h 2005. On 15 December 2005 (registered on 8 
February 2006) a non-for-profit Spanish Foundati on offering legal personality to the PIOB 
was set up in Madrid. The Foundation is govern ed by a Board of Trustees in which each 
member of the PIOB is a trustee. As the PIOB  members were chosen for a period of three 
years, the PIOB has been renewed in March 2008 for another three-year period.  
The Monitoring Group (MG) is re sponsible for the selection a nd appointment of the PIOB 
members, including its Chairman. This is done through the Nominating Committee of the 
Monitoring Group which includes all MG me mbers. The Nominating Committee makes a 
collective decision to nominate not only individual members of th e PIOB but also the entire 
Board in order to guarantee that the PIOB as a whole is appropriately qualified to complete its 
mission satisfactorily. Two119, out of the ten, PIOB members were appointed by the European 
Commission in February 2008. The Nominate d Committee is bound by a Memorandum of 
Understanding (MoU) signed by all MG member s on 9 April 2008. In the name of the 
European Commission the MoU was signed by Internal Market Commissioner Charlie 
McCreevy.  
The PIOB has a small full time secretariat made up of the Secretary-General, an assistant and 
two advisors. For the 10 PIOB members, it is a part-time job. To compensate for the time 
dedicated to the organisation, the PIOB members receive in total an annual stipend of 
$375.000 ($150.000 for the Chairman + $25.000 for each of the other members).  
The diagram below, extracted from the Third PI OB Public Report, provides a mapping of the 
PIOB work in the context of ensuring a str ong "international public interest". In this 
representation, the internationa l public interest is ensure d all along the ongoing flow of 
activities that move th rough various phases starting by a cred ible setting up of international 
auditing standards, followed by their adoption, implementation, monitoring and evaluation in 
order to enhance the c onfidence of the users of accountancy  services (e.g. investors) and 
eventually of the whole financial system. 
                                                 
118  As stipulated in Article 48 of Directive 2006/43/EC as amended by Directive 2008/30/EC 
119  In March 2008 the European Commission nominated Sir Bryan Nicholson and Professor Kai-Uwe 
Marten to the PIOB 
EN 77   EN 
 
Source: Third Public Report of the PIOB, page 22 – May 2008 
 
Main PIOB activities include the following:  
– Activities related to the implementation and monitoring of due process in the 
development and adoption of international auditing standards issued or under preparation by the IAASB; 
– Activities related to the implementation and monitoring of due process in the 
development and adoption of other IFAC public  interest activities  such as those in 
the field of Ethics (IESB A) and Education (IAESB); 
– Conferences, workshops and other events ai ming at stimulating debate or raising 
awareness about international audi ting standards among stakeholders; 
– Running of its Secretariat,  including the remunerati on of its members and the 
organisation of their missions. 
  
EN 78   EN 5.2. Problem definition 
5.2.1. Reliance on non-diversified and voluntary funding from interested parties and its 
negative consequences 
To guarantee that the standard se tting process in IFAC is responsiv e to the public interest, it is 
subject to the independen t oversight of a public body (the PI OB). This standard setting model 
is supposed to profit from both: (i) the knowle dge and experience of the standard setting 
committees of IFAC and (ii) a public oversight designed to ensu re that public interest is 
safeguarded all around the process comprising the proposal, development and adoption of 
international standards for auditors. However, and because of the priv ate character of IFAC, 
the Monitoring Group members considered importa nt from the very beginning to make sure 
that the governance rules of th e new standard setting arrangement, including the funding of 
the PIOB, should be sound and eff ective to ensure acceptance a nd wide applicability of the 
international auditing standards. 
Up to now most of the PIOB financing has come from a vol untary contribution from IFAC 
representing about € 942.247 out  of the total budget of PI OB in 2007, i.e. €1.008.021 (see 
contributions in % from all parties involved  in the pie chart below).  
 
Total revenue of PIOB in 2007 (without EU funding)
World Bank and 
the US Federal 
Reserve Board. 
7%
International 
Federation of 
Accountants 
(IFAC)
93% 
Source: Third public report of the PIOB (May 2008) 
 
This has always been considered by the Monito ring Group, IFAC and the PIOB as a transitory 
solution. This financial arrangement has allowe d the PIOB to set up, hire personnel for its 
secretariat and to become operational from th e very beginning. Once this start up period has 
been successfully completed, the focus is now ch anging towards having a funding system 
more compatible with the public function to be performed by this body. Specifically, given the particular mandate of the PIOB, it is considered essential to ensure its financial independence and to avoid, in particular, any real or perceived risk of c onflict of interests with 
the audit profession.  
Indeed, the PIOB's financial dependency on the voluntary contribution of IFAC gives rise to 
continued concerns about the latter's' potentia l influence over the PIOB's oversight mission. 
EN 79   EN The situation where an overseer relies for its survival on the voluntary  contribution of an 
organisation representing the prof ession subject to the standards it oversees is not consider 
healthy. This situation undermines the publ ic perception of the PIOB's operational 
independence, an indispensable requirement, especi ally in the case of the EU as the standards 
issued by the IFAC are bound to become EU law. 
Linking public oversight with independent funding is a traditional policy measure also 
enshrined in Community legislation. For instance, Article 32(7) of the 8th Company Law 
Directive when referring to the principles of pub lic oversight in the field of auditing stipulates 
that: "The system of public oversight shall be ad equately funded. The fund ing…shall be secure 
and free from any undue influence by statutory auditors and audit firms". The same principles 
are repeated in the same Directive in Article 29.1(c) and (b) when referring to external quality 
assurance systems and they are further developed in Articles 8 and 9 of the 2008 Commission 
Recommendation on Quality Assurance120.  
Recital 14 of Directive 2006/43/EC foresees that before the start of the adoption process of an 
ISA, the Commission conducts review in order to  verify whether the requirements set out in 
the Directive have been met and to report a ccordingly to the members of the AuRC (Audit 
Regulatory Committee) which is th e committee created by Directiv e 2008/43/EC to be part of 
the comitology procedure.  
The European Commission may only adopt ISAs fo r application in the EU if the standards: 
• Have been developed with due process (inc luding full participation of all interested 
parties), public oversight and transparency (i .e. open and transparent procedures have 
been followed), and are genera lly accepted internationally 
• Contribute a high level of cr edibility and quality to the annual or consolidated 
accounts 
• Are conducive to the European public good 
In order for the Commission to carry out this task, the PIOB's  help will be of fundamental 
importance. Indeed, the PIOB in view of its special mandate will be uniquely positioned to 
ensure that due process, oversight and transp arency have been respected in the proposal, 
development and adoption of the inte rnational standards for auditors. 
In addition, the PIOB oversight over the othe r standard setting activities of IFAC (e.g. 
IESBA) is also beneficial to the EU and to the Member States. 
5.3. Objectives 
The main strategic and operational objectives expected to be achi eved by the proposed 
funding arrangement for the PIOB are the following: 
5.3.1. Strategic objective 
The strategic objective is to ensu re a stable, diversified, sound and adequate funding to enable 
the PIOB to carry out its public  interest mission in an indepe ndent, efficient and satisfactory 
way. 
                                                 
120  Commission Recommendation 2008/362/EC of 6 May 2008 on external quality assurance for statutory 
auditors and audit firms auditing public interest entities 
EN 80   EN It is widely accepted that the best way to achieve independent funding for the PIOB, or 
similar bodies, is to have a well diversified ar ray of contributors mainly from public sources 
at global level which will reduce, accordingly, th e current IFAC contribution. This is also the 
desire of the PIOB which indicates that: "in the opinion of the PI OB…it is in the public 
interest – both real and perc eived- that the current funding arrangements be diversified and 
expanded…"121. 
 
5.3.2. Operational objectives 
5.3.2.1. Avoid excessive reliance of the PIOB on voluntary funding from interested parties 
thus ensuring credibility a nd independence of its work 
 As explained above, at present most of  the PIOB funding comes from IFAC which 
represents the accountancy profession. One key objective, therefore, is to avoid any 
real or perceived risk of conflict of interest with other parties such as IFAC. 
5.3.2.2. In addition to the above, boost the inte rnational reputation, attractiveness and 
acceptance of the standards  
As indicated above, because of the private ch aracter of IFAC, the Monitoring Group members 
considered important from the very beginning to  make sure that the governance rules of the 
new standard setting arrangement, including th e funding of the PIOB, should be sound and 
effective to ensure acceptance and wide applicability of the international auditing standards bound to become part of the EU acquis . 
5.3.2.3.  Achieve the above objectives within a r easonable period of time considering the EU 
and international context  
 The last operational objective is to ac hieve the above objectives within a reasonable 
period of time. Whereas the IFAC contri bution has always be considered a good 
solution for the short term there is a consensus in the Monitoring Group that a diversified and stable fundi ng for the PIOB is the onl y reasonable way forward. 
5.4. Available Policy Options 
The following four options have been considered  with a view to compare how the objectives 
identified in section 5.3. are fulfilled and whether they constitute good value for money. 
5.4.1. Option 1: Status Quo 
First, it could be decided to keep the status quo and not take  any funding action.  
Under this option IFAC, representing auditors and accountants from all over the world, will 
continue providing most of the funds to the PIOB. While this has been considered as a 
successful funding method for the short term, it risks damaging the image of the PIOB. 
Moreover, the heavy reliance on a single contribu tor should always be considered more risky 
than funding coming from a more diversified basis.  
                                                
 
121  Page 5 of the First Annual Public Report of the PIOB – May 2006 
EN 81   EN 5.4.2. Option 2: Contributions from natio nal funding schemes (public sources) 
Second, in order to avoid excessive dependence on a single contributor (IFAC), some other 
possible sources of funding have  been discussed with Member  States. In particular the 
possibility of having contributions from the EU  national ministries (Economy, Finance, or 
Justice), supervisors of banks or  of securities markets, and fr om EU national audit oversight 
bodies has been discussed at several meetings  of the AuRC (the Aud it Regulatory Committee) 
and of the EGAOB (the European Group of Auditors' Oversight Bodies).  
Questions were raised related to the inhere nt difficulties to ag ree on the geographical 
distribution within the EU, and to the fact that it is too early for many auditors' supervisors recently set up, as required by the 8
th Company Law Directive, to make contributions to 
international bodies. On the contrary, they c onsidered that, given that the international 
standards are of high importance the EU as a wh ole and not only in specific Member States, it 
would make much more sense and would be much more cost-effective to have a single 
contribution from the EU budget. 
5.4.3. Option 3: Contributions from nationa l funding schemes (private sources) 
Third, one could explore alternative sources of funding, and especially industry financing. 
This indeed could be the case where the funding in certain Member States might come from 
large companies or national associations of aud itors or accountants. As in the case of point 
5.4.2., this possibility was also discussed at several meetings of the AuRC (the Audit 
Regulatory Committee) and of the EGAOB (the  European Group of Auditors' Oversight 
Bodies).  
This solution may solve the ques tion of concentration of donors,  but not the perception of a 
possible influence from industry. Moreover, such  an arrangement would be very difficult to 
set up and run, even assuming a reasonable co -operation from thos e entities. Indeed, 
companies or stock exchanges may legitimately argue that these standards concern the audit profession and not them and that therefore ther e is not any evident reason to act as a donor.  
Moreover, such a complex funding system would not benefit from economies of scale and can 
not be considered as cost-effective given the large number of indivi dual contributions. This 
may also put into question, as is the case wi th IFAC, the operational independence of the 
PIOB.  
5.4.4. Option 4: Co-financing under Community budget 
Fourth, financial support for activities of th e PIOB can be provided under the EU budget, 
within the framework of a Community funding programme. 
Such support to the PIOB funding will signal to other international actors that the European 
Union is engaged in finding global solutions for the benefit of a ll parties concerned.  
From a global perspective, a contribution fr om the Commission may also incite other 
institutions, and in particular those represented in the Monito ring Group, to provide a fair 
portion of public funding to the PIOB. 
Finally, Community co-financing will improv e the PIOB's operational independence by 
ensuring that a substantial fundi ng comes from public sources. 
EN 82   EN 5.4.5. Comparison of options 
The matrix below is used to compare the relati ve merits of four competing options based on a 
qualitative assessment as reliable data are not available.  
When it comes to PIOB the criteria are consid ered equally important in testing the cost-
effectiveness of each option, however, some of th ese criteria feature more prominently.  With 
this in mind, the criteria have been prioritized, rather than weighted.  
One should consider as a first priority  the need to achieve the objectives  set out for the 
PIOB, as this is the most cr ucial issue at the moment (a void reliance on voluntary funding 
from interested parties, boost attr activeness and acceptance of ISAs).  
A second priority  should be the criteria of feasibility  (from a legal and or  political point of 
view). The fact that the PIOB is  an international, not-for-prof it organisation in charge of the 
oversight of an international standard setter  adds a certain degree of complexity to the 
discussion on feasibility. When considering a Community solution to th e problems defined in 
section 5.2. above, it is thus a high priority that th e option retained at EU level be viable from 
a legal and political point of view. 
A third priority  should be the time needed for implementation  as the Monitoring Group 
has always considered the current funding arra ngements for the PIOB as a non-durable, short 
term solution. 
A fourth priority  should be the implications for the EU budget . 
The option "status quo" scenario (option 1) is used  as the baseline to be compared to the other 
three options. The comparison is carrie d out based on the following criteria: 
• the degree of feasibility of their implementing process;  
 
• their implications fo r the Community budget 
 
• the time needed for their implementation  , and 
 
• the degree of achievement of the objectiv es above-mentioned in section 5.3.  
EN 83   EN  
 
ASSESSMENT  
 
  
 
  
OPTIONS
 1. Achievement 
of objectives  
 
High (+++) 
Medium (+/-) 
Low (- - -) 
 2. Feasibility  
 
 
Straightforwar d 
(+++) 
Medium (+/-) 
Complex (- - -) 
 3. Time needed  
for 
implementation  
 
High (+++) 
Medium (+/-) 
Low (- - -) 
 4. Implication 
for EU budget  
 
Positive  
(+ to +++) 
Negative  
(- to - - - ) 
 Overall 
Assessment  
 
Positive  
(+ to +++) 
Negative  
(- to - - - ) 
 
Option 1  
Status Quo 
IFAC 
continuous 
providing 
most of the 
funding 
 _ _ _ + + + _ _ _ + + + _ _ 
 
Option 2  
Setting up 
national 
funding 
schemes 
(public 
sources) 
 +/- _ _ _ + + + + + + -- 
 
Option 3  
Setting up 
national 
funding 
schemes 
(private 
sources) 
 --- _ _ _ + + + +++ -- 
 
Option 4  
Co-financing 
under the 
Community 
budget 
 + + + + + + --- ---- + + + 
 
The "status quo" scenario (opt ion 1) which leaves 93% of the PIOB funding to IFAC 
representing the accountancy a nd auditing profession certainly constitutes the worst case 
scenario from the EU perspective as no full guaran tee exists that public in terest is duly taken 
into account by inte rnational setters. 
On the contrary, the strongest benefits are to be expected from option 4. From a European 
perspective, a single contribu tion from the EU budget would make  much more sense for the 
following main reasons: 
– it would benefit from economies of scale,  
EN 84   EN – it can be achieved within a reasonable period of  time (cost-effectivene ss) and it is easier 
to put in place compared to the other op tions which require lengthy and difficult 
discussions with all the stakeh olders at the political and pr actical levels. If the funding 
Decision were adopted by the co-legisla tors in 2009, the new Community funding 
programme could be launched as of 2010,  
– it would be easier to handle once in place, 
– it would preserve PIOB's operational indepe ndence from the audit profession by ensuring 
that a significant portion of its funding comes from public sources, 
– it provides  a more stable source of funding to the PIOB as the money comes from the 
public sector, in comparison for instance with  numerous contributions from the industry 
or from IFAC,  
– the Commission will be able to monitor closely and regula rly the PIOB's operations and 
be able to interven e if problems occur, 
– it enhances the European stance in interna tional bodies and in particular in those 
responsible for monitoring and set ting up international standards, 
– it would signal to all parties concerned the Community interest in international solutions 
and encourage other public bodies and instit utions to provide funds to the PIOB,  
– it would enhance the reputation of the PIOB by international standard users, securities 
issuers and investors, 
In summary then, in terms of the pursued pub lic interest objectives, Community co-funding of 
the PIOB, via the European Commission, clearly represents the less risky solution and would 
yield the most positive returns.  
5.4.6. Method of implementation for the selected option 
As a general rule, financial support from the Community budget could be provided either (i) 
by contributing to the overall budge t of the body (via operating gran ts) or (ii) by co-financing 
specific targeted activ ities of the body (via grants for action).  
Concerning publicity rules, the pos sibility of providing a grant following a call for proposal 
should be excluded from the outset since the benefi ciary (the PIOB) is in a situation of legal 
monopoly in accordance with Article 168 of the Implementing Rules to the Financial 
Regulation. 
In view of the public policy objectives and the type of beneficiary, it is considered that a 
direct financial contribution from the EU budge t by way of an operating grant constitutes the 
best solution to address the proposed funding. I ndeed the choice to provide an operating grant 
to the PIOB seems the most appropriate because:  
• Whereas some organisations work on an activity-based budgeti ng (ABB) system, the 
PIOB, given its size and mandate , operates on a cash budget ba sis which is not conceived 
for the monitoring of the implementation of specific activities; 
 
• Unlike a grant for action, which helps to co-f inance a one-off action ov er a given period of 
time, an operating grant allows co-financing of the whole institution's functioning from a much broader perspective. 
 
EN 85   EN Regarding the PIOB as a possible eligible beneficiary, it complies with the requirements laid 
down in the Financial Regulation because this organisation pursue s an aim of general interest 
and is a non-profit organisation (legally speaking has been authorised and is regulated as a 
Spanish not-for-profit foundation). 
5.4.7. Volume of appropriations, human resour ces and other administr ative expenditure 
At present the operating costs of the PIOB  are contributed primarily by IFAC under an 
existing five year commitment to provide up to an annual amount of USD 1.500.000 (about 
EUR 942.247 at current exchange ra te), adjusted for inflation and foreign currency exchange 
movements. 
In addition to IFAC's indivi dual contribution, PIOB is provided with a further EUR 65.774 in 
targeted funding received from the World Bank and the US Federal Reserve Board.  
Furthermore, IFAC has recently agreed with  the Monitoring Group to re-denominate its 
existing annual funding commitment of USD 1.500.000  into Euros and to extend it for a 
further five years (i.e. until 2015), provided th at in the meantime other fund providers have 
not come up with their own commitments.  
 PIOB Expenses by activity Year Year 
                              ( In Euros) 2007 2006 
   
Board-related operating costs   
            Oversight Programme 551.951 461.171
            External relations Program 208.574 132.589
            Foundation Board Meetings 57.198 85.900
Other start-up and ongoing operating costs 190.298 214.119
   
Total Expenses  1.008.021 893.779
Source: Based on data contained in Third Public Report of the PIOB, page 28 - May 2008 
Whereas some costs are fixed or highly predic table (e.g. the members' remuneration), other 
parts of the PIOB budget have far greater variabili ty which cannot be fully predicted or 
confidently priced in advance. These concern notably: 
• The inflation which affects almost every budget category; 
• The variability of certain cate gories of costs (e.g. the total travel needs are difficult to 
foresee) due in particular to the volatility  of the Euro/United States Dollars (USD) 
exchange rate. 
 
EN 86   EN In order to determine a precise volume of the Community contribution se veral considerations 
have to be taken into account. In particular: 
• The amount to be proposed has to be proportionate to the pursued objectives, 
• The EU weight in international affairs has to be fairly respect ed (this is often  
measured either by its geographical weight, w ealth share, share of global economy,  or 
share of international capital market s what makes a proportion between 1/4th and 1/3rd 
of the total), 
• The possible PIOB budget fluctuations have  to be properly taken into account.   
In view of the above, it is considered reasonable that the Community intervention covers up to 
30% of the PIOB 2007 total expenses (the base line year). This represents approximately a 
sum of €300.000 per year which would reduce accordingly, by the same amount, the IFAC 
contribution. Moreover, the proposed PIOB co-funding would be pa rt of a Community 
programme which is intended to last for four years (2010–2013) in order to be aligned with 
the duration of the financial perspectives.  
The main sources of PIOB financing (expresse d in %), which will result from the Community 
intervention are illustrated in the pie chart below . 
Total revenue of PIOB (with EU funding)
Community 
Funding 
30%
International 
Federation of 
Accountants 
(IFAC)
63%World Bank and 
the US Federal 
Reserve Board. 
7%
 
Source: Based on data contained in the Third Public Report of the PIOB, page 28 - May 2008 
Whereas the proposed 30% of EU funding still leav es IFAC providing more than half of total 
funding, it is expected that such a level of  Community commitment would encourage other 
public bodies and institutions to provide f unds to the PIOB to the point where IFAC 
contribution is not so relevant. 
Finally, in terms of workload implications  for the European Commission services, the 
proposed funding will certainly entail some re lated administrative work, which impact is 
estimated under section 1.4.8. of the gene ral section of the ex ante evaluation. 
5.5. Conclusion 
In view of the above and in or der to increase the PIOB credibil ity and ensure its key role in 
supporting audit quality, it is considered important  for the Community to contribute fairly to 
the funding of PIOB. Specifically, it is concluded that the best  way forward is to co-finance 
the PIOB, and accordingly reduce the IFAC cont ribution. Specifically, it is proposed to 
EN 87   EN provide the PIOB the sum of  EUR 300.000 per year for the 2010–2013 period, making a total 
of EUR 1.2 million. 
The Community contribution will , among other things: (i) simplif y funding at EU level, (ii) 
demonstrate Community interest in internationa l solutions, and (iii) in cite other public bodies 
or institutions to provide  funds to the PIOB.  
5.6. Follow-Up: Arrangements For Moni toring, Reporting And Evaluation 
The Commission would closely monitor the app lication and evaluate the impact of the 
proposed funding to make sure that the money has been used in accordance with the principles of economy and cost-effectiven ess. To this end, the Commission will: 
• Analyse the PIOB Annual Public Reports 
• Evaluate the Financial Statements and the Auditor's Report  
• Discuss matters with other fund providers 
• Use the Monitoring Group meetings, where the Commission is a member, to discuss 
and clarify funding issues 
• Arrange visits to the PIOB premises wh en deemed necessary to verify budgetary 
systems and controls 
 
Finally, in line with current fina ncial regulations and practices, the programme as a whole will 
be properly evaluated in order to determine its possible renewal in 2013. 
5.7. Glossary of Acronyms  
Basel Committee on Banking Supervision (BCBS ): the internationa l body comprised of 
central banks and banking supervisory authoritie s from certain key markets that formulates 
and encourages convergence towards broad superv isory standards, guidelines and statements 
of best practice.  
Consultative Advisory Group (CAG ): the group constituted to provide advice, including 
technical advice, to each of the IAASB, IAES B and IESBA. Regular in teraction between each 
CAG and its respective standard setting board is part of th e board’s formal consultation 
processes. The PIOB oversees  the work of each CAG. 
Financial Stability Forum (FSF):  the forum that promotes international financial stability 
improved functioning of markets and reduced sy stemic risk through information exchange, 
cooperation in financial supervision and survei llance, and coordination of efforts. The FSF 
brings together representatives of national fi nancial authorities responsible for financial 
stability in significant international financial centers, international financial institutions, international regulatory and supervisory groupi ngs, and committees of central bank experts.   
International Auditing and Assurance Standards Board (IAASB):  the independent 
standard setting board that develops interna tional standards and othe r pronouncements dealing 
with auditing, review, other a ssurance, quality control and related services. The PIOB 
oversees the work of the IAASB. 
EN 88   EN International Association of Insurance Supervisors (IAIS):  the global organization that 
represents insurance regulators and supervisors, issues global insuranc e principles, standards 
and guidance papers, provides trai ning and support on related issues, and promotes effective 
insurance supervisory regimes.  
International Accounting Education Standards Board (IAESB):  the independent standard 
setting board that develops international st andards and other pronouncements dealing with 
education, practical experience and tests of professional competence for accreditation, and the 
nature and extent of continuing professional education for professional accountants. The 
PIOB oversees the work of the IAESB. 
International Ethics Standards Board for Accountants (IESBA):  the international 
standard setting board that develops ethical  standards and other pronouncements for use by 
professional accountants. The PIOB oversees the work of the IESBA.  
International Federation of Accountants (IFAC): the global organization representing the 
accountancy profession. IFAC is committed to protecting the public interest by developing 
high quality international standards, promoti ng strong ethical values , encouraging quality 
practice, and supporting the de velopment of all sectors of the profession around the world. 
The IAASB, IAESB and IESBA are three of IFAC ´s independent standard setting boards.  
IFAC Reform:  the introduction in 2003 of processes for oversight and monitoring designed 
to strengthen IFAC international standard setting, achieve convergence to international 
standards and ensure that the international accountanc y profession is responsive to the public 
interest. 
International Forum of Independent Audit Regulators (IFIAR):  a forum of national audit 
regulators from several jurisdictions that cond uct inspections of auditors and audit firms. 
Among its objectives are the sharing of knowledge  and practical experience, promotion of 
collaboration and consistency in regulatory ac tivity and engagement with other organizations 
with an interest in audit quality. 
International Organization of Securities Commissions (IOSCO):  the cooperative forum 
for securities regulatory agencies  and international standard setter for securities markets. 
Monitoring Group (MG):  the regulatory and internationa l organizations responsible for 
monitoring the implementation of IFAC Refo rm. The MG nominates PIOB members and 
engages in dialogue with the international accountancy profe ssion, receives operating and 
financial reports from the PIOB, and updates the PIOB regarding significant events in the regulatory environment. Members of the MG  are the BCBS, IAIS, IOSCO, the World Bank 
and the European Commission. The FSF and IFIAR are observers.