EN Official Journal of the European Union CE 70/96

(2004/C 70 E/099)

WRITTEN QUESTION E-2414/03

by Peter Skinner (PSE) to the Commission

(21 July 2003)

Subject: IAS application to companies not incorporated in the EU

According to the IAS Regulation (Article 4), companies governed by the law of a Member State that also have securities admitted to trading on an EU regulated market will have to prepare their consolidated accounts in conformity with IAS as of January 2005. The Regulation allows (Article 5) EU countries to apply IAS to other companies. According to CESR's consultation paper of June 2003 on disclosure requirements for prospectus, financial information must have been prepared according to IAS Regulation, or IAS as applicable, or if not applicable, to local GAAP. The proposed Transparency Directive covers all issuers that have securities trading on an EU-regulated market and implies that IAS may be applicable although exemptions could be made on the basis of equivalent reporting.

Could the Commission clarify whether, under the IAS Regulation, Prospectus and Transparency Directives, non-EU incorporated companies with securities admitted to trading on an EU-regulated market are obliged to reconcile their accounts to IAS or if such reconciliation is subject to an equivalence test? Is the Commission aware of any EU country that wishes to require IAS reconciliation for non-EU domiciled companies?

Answer given by Mr Bolkestein on behalf of the Commission

(4 September 2003)

Regulation (EC) No 1606/2002 of the Parliament and of the Council of 19 July 2002 on the application of international accounting standards (1) applies only to companies governed by the law of a Member State. Companies not governed by the law of a Member State are outside the scope of this Regulation. Therefore, this legislative text does not address the issue of disclosure obligations for non Union issuers with securities admitted to trading on an Union regulated market. Article 5 only provides an option to Member States with respect to certain Union companies.

Regarding the first question, it should be noted that the issue of disclosure obligations related to financial information of non Union issuers with securities admitted to trading on an Union regulated market is currently dealt with by the Securities Law Directives. The codified Directive 2001/34/EC of the Parliament and of the Council of 19 July 2001 on the admission of securities to official stock exchange listing and on the information to be published on those securities (2) contains the Union legal requirements on this issue. This Directive allows Member States to impose more stringent or additional conditions to the ones laid down in the Directive itself.

In the context of listing particulars (prospectus), it is specified in items 5.1.5 and 5.1.3 of Annex 1 Schedule A and B, that if the financial statements of an issuer do not comply with Community legislation on accounting standards and do not give a true and fair view of the issuer's assets and liabilities, financial position and profits and losses, more detailed and/or additional information must be given. It is also important to note that disclosure obligations for wholesale markets such as ‘eurobonds’ are defined at national level and not at Community level for the time being.

The same obligation is imposed for periodic reporting (Articles 67 and 80 paragraphs 3 for annual accounts). For half yearly reporting, Member States' competent authorities may require information from third country issuers equivalent to that required from companies based in their own jurisdiction (Article 76 paragraph 4).

These obligations apply to non Union issuers and represent the Union legal requirement for reconciliation of non Union issuers' accounts with the national accounting standards of a given Member State.

In practice, these obligations have been applied in various ways by Members States because of their different understandings and assessments, whether or not a given set of third country accounting standards provides a ‘true and fair view’, as defined by Community legislation.

For instance, in France, a reconciliation is imposed upon non Union issuers on a case-by-case basis in the context of a prospectus but no reconciliation is required for periodic reporting, whereas in the United Kingdom (UK), an equivalent standard to UK Generally Agreed Accounting Principles is required in the context of a prospectus. In the UK, UK GAAP, US GAAP and IAS are the accepted accounting standards for annual and half yearly accounts. However, derogations under certain conditions are possible.

It is also important to note that Union issuers are obliged to present a reconciliation of their financial statements according to US GAAP when seeking a listing of their securities on a US exchange.

Turning to the second question, the Commission has no indication of how Member States will apply in practice the existing Community disclosure obligations to third country issuers when the IAS Regulation enters into force. It is, however, unlikely that Member States will consider any accounting standards in the world as acceptable when raising capital on their territory. For the time being, the Commission believes that Members States will maintain their national practices that derive from existing Community legislation until the implementing measures of the new prospectus Directive and the proposed transparency Directive are adopted.

The new prospectus Directive and the proposed transparency Directive should bring more consistency and harmonisation regarding the financial information to be disclosed by third country issuers who wish to raise capital within the Union. It will also cover securities aimed at wholesale investors. The content of the implementing measures of the prospectus Directive is not yet known and the proposed transparency Directive is in the early stages of the co-decision procedure.

(1) OJ L 243, 11.9.2002.

(2) OJ L 184, 6.7.2001.