2006/891/EC: Commission Decision of 4 December 2006 on the use by third country issuers of securities of information prepared under internationally accepted accounting standards (notified under document number C(2006) 5804)
Date: 2006-12-04
Institutions: European Commission
Subjects: consolidated account, dissemination of information, official market, securities, standardised accounting system, stock-exchange listing, third country

L 343/96

EN

Official Journal of the European Union

8.12.2006

COMMISSION DECISION

of 4 December 2006

on the use by third country issuers of securities of information prepared under internationally
accepted accounting standards

(notified under document number C(2006) 5804)

(2006/891/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(3)

Having regard to the Treaty
Community,

establishing the European

Having regard to Directive 2004/109/EC of
the European
Parliament and of the Council of 15 December 2004 on the
harmonisation of transparency requirements in relation to infor-
mation about issuers whose securities are admitted to trading
on a regulated market and amending Directive 2001/34/EC (1),
and in particular the second subparagraph of Article 23(4)
thereof,

Whereas:

requirements or

However, Article 23(1) of Directive 2004/109/EC permits
the competent authority of the home Member State to
exempt a third country issuer from certain requirements
of the Directive, including the requirements of Articles 4
reports,
and 5 on annual and half-yearly financial
provided that the law of the third country lays down
equivalent
such an issuer complies
with requirements of the law of a third country that
the home Member State
the competent authority of
In addition, Article 23(2) of
considers as equivalent.
Directive
transitional
a
2004/109/EC
exemption for issuers whose registered office is in a
from the
third country. Such issuers
in
to prepare their
requirement
accordance with Article 4 or 5 of that Directive prior
to the financial year starting on or after 1 January 2007,
provided that those financial statements are prepared in
accordance with internationally accepted standards as
referred to in Article 9 of Regulation (EC) No
1606/2002.

are
financial

statements

provides

exempt

(1)

(2)

international

Regulation (EC) No 1606/2002 of
the European
Parliament and of the Council of 19 July 2002 on the
accounting standards (2)
application of
requires companies governed by the law of a Member
State, whose securities are admitted to trading on a
regulated market in any Member State to prepare their
consolidated accounts in accordance with adopted inter-
national accounting standards now commonly referred to
as International Financial Reporting Standards (IFRS) for
each financial year starting on or after 1 January 2005.

Likewise,

Article 4 of Directive 2004/109/EC requires that where
an issuer is required to prepare consolidated accounts,
the audited financial statements should comprise such
consolidated accounts prepared in accordance with IFRS
adopted pursuant to Article 3 of Regulation (EC) No
1606/2002.
Directive
2004/109/EC on half-yearly financial reports requires
that the condensed set of financial statements of issuers
required to prepare consolidated accounts should be
prepared in accordance with these standards. These
requirements apply to all
issuers whose securities are
admitted to trading on a regulated market, regardless of
whether
situated in the
registered office
Community or in a third country.

Article

their

of

is

5

(4)

(5)

the aims of

Since the adoption of Regulation (EC) No 1606/2002,
many countries have adopted IFRS directly into their
national accounting standards. This clearly demonstrates
this Regulation, namely to
that one of
encourage the increasing convergence of accounting
standards so that IFRS are accepted internationally and
are truly global standards, is being fulfilled. Accordingly,
it is appropriate that third country issuers should be
exempt from the obligation to prepare annual financial
statements
in
accordance with IFRS, as required by Articles 4 and 5
of Directive 2004/109/EC,
are
prepared in accordance with the national accounting
standards of a third country and if, in accordance with
IAS 1 Presentation of Financial Statements, they contain
an explicit and unreserved statement that they comply
with IFRS.

statements

statements

half-yearly

financial

those

or

if

In its advice delivered in June 2005, the Committee of
European Securities Regulators (CESR), established by
Commission Decision No 2001/527/EC (3), considered
the Generally Accepted Accounting Principles
that
Japan and the United States, each
(GAAP) of Canada,
to IFRS adopted
taken as a whole, are equivalent
(EC) No
pursuant
such as additional
1606/2002,
disclosures
supplementary
financial statements.

to Article
subject
and

of Regulation

to remedies,

in some

instances

3

(1) OJ L 390, 31.12.2004, p. 38.
(2) OJ L 243, 11.9.2002, p. 1.

(3) OJ L 191, 13.7.2001, p. 43.

(6)

(7)

(8)

8.12.2006

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Official Journal of the European Union

L 343/97

the

and

(ASBJ)

In January 2006,

the Accounting Standards Board of
In January 2005,
Japan
International Accounting
Standards Board (IASB) announced their agreement to
launch a joint project
to reduce differences between
IFRS and Japanese GAAP and launched a joint work
programme in March 2005 towards the convergence of
Japanese GAAP with IFRS.
the
Accounting Standards Board of Canada publicly stated
its objective to move to a single set of globally
accepted high-quality standards for public companies
and concluded that this objective is best accomplished
by converging Canadian accounting standards with IFRS
within five years. In February 2006, the IASB and the US
Financial Accounting Standards Board published a
memorandum of understanding which outlines a work
programme for convergence between IFRS and US GAAP
with a view to fulfilling one of the US Securities and
Exchange Commission's (SEC) conditions that need to
be met before it will lift the reconciliation requirement
for foreign issuers using IFRS that are registered with the
SEC, by 2009 at the latest.

It is important, however, that the quality of the principle-
based IFRS financial reporting is preserved, that the IFRS
standards are consistently implemented, that appropriate
legal certainty is provided for companies and investors
and that equal treatment of financial statements on a
worldwide basis is offered to EU companies. The future
assessment of equivalence should be based on a detailed
technical
the differences
between IFRS and third country accounting standards,
these
as well as on the concrete implementation of
GAAP
the
to IFRS. The progress of
convergence process should be closely examined before
any decision on equivalence is taken.

and objective

analysis of

compared

that is converging with IFRS, provided that the national
authority responsible has made a public commitment to
this effect and established a work programme. In order to
ensure that
the exemption is available only in cases
where these conditions are satisfied, the third country
should be required to provide evidence that
issuer
satisfies
the national
authority has made a public statement and established
a work programme. To ensure consistency within the
Community, CESR should co-ordinate the competent
authorities' assessment as to whether those conditions
are satisfied in respect of individual third country GAAPs.

authority that

competent

the

also closely monitor

(10) During that two-year period, the Commission should not
only pursue an active dialogue with the relevant third
authorities but
country
the
in the convergence between IFRS and the
progress
GAAPs of Canada, Japan, the United States, and other
third countries
that have established a convergence
programme,
in order to ensure that it is in a position
to take a decision on equivalence at least six months
the Commission
before 1 January 2009.
will actively monitor ongoing progress in the work by
the relevant third country authorities to eliminate any
requirement
the
financial markets of
third country to reconcile
financial statements prepared using IFRS. At the end of
the additional
the
Commission will have to be such that community and
non-EU issuers should be on equal footing.

transitional period,

for Community

the decision of

In addition,

accessing

issuers

a

(11)

In light of the efforts of the accounting standard setters
in Canada, Japan and the United States to converge with
IFRS, it is appropriate, for a two-year transitional period
while standard setters and regulators pursue an active
the convergence process continues and the
dialogue,
progress report
to allow third country
issuers to prepare their annual financial statements and
half-yearly financial statements in accordance with the
accounting standards of Canada,
Japan or the United
States.

is completed,

(9) Whilst many countries have adopted IFRS directly into
their national GAAP, other countries are converging
national GAAP to IFRS over a period of time. In the
light of this, it is appropriate, for a maximum two-year
transitional period, also to allow such third country
issuers to continue preparing their annual and half-
yearly financial statements in accordance with a GAAP

The Commission should keep the European Securities
Committee
regularly
and the European Parliament
informed of the progress made towards the elimination
of reconciliation obligations and of the process towards
convergence. Accordingly, the Commission shall report
to the European Securities Committee and the European
Parliament before 1 April 2007 on the timetable
envisaged by national accounting authorities of Canada,
Japan and the United States for the convergence.
In
addition, before 1 April 2008 and after consulting
CESR, the Commission should report to the European
Securities Committee and the European Parliament on
the evaluation of the GAAPs of third countries used by
issuers which are not required to prepare their annual
and half-yearly financial statements in accordance with
IFRS prior to financial years starting on or after 1 January
2009. Lastly, before 1 January 2008, and after appro-
priate consultation with CESR, the Commission should
ensure that there is a definition of equivalence which is
used for the determination of the equivalence of third
country GAAP, on the basis of
an equivalence
mechanism set up to that end.

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Official Journal of the European Union

8.12.2006

(12)

in this Decision are in
The measures provided for
accordance with the opinion of the European Securities
Committee,

HAS ADOPTED THIS DECISION:

Article 1

Prior to financial years starting on or after 1 January 2009, an
issuer whose registered office is in a third country may prepare
its annual consolidated financial statements and half-yearly
consolidated financial
in accordance with the
accounting standards of a third country provided that one of
the following conditions is met:

statements

(a)

the notes to the financial statements contain an explicit and
unreserved statement that they comply with International
Financial Reporting Standards in accordance with IAS 1
Presentation of Financial Statements;

(b) the financial statements are prepared in accordance with the
Generally Accepted Accounting Principles of either Canada,
Japan or the United States of America;

(c)

the financial statements are prepared in accordance with the
Generally Accepted Accounting Principles of a third country
other than Canada, Japan or the United States of America,
and the following conditions are satisfied:

(i) the third country authority responsible for the national
accounting standards in question has made a public
commitment, before the start of the financial year to
which the financial statements relate, to converge those
Financial Reporting
standards with
Standards;

International

(ii) that authority has established a work programme which
towards

intention to progress
demonstrates
convergence before 31 December 2008; and

the

(iii) the issuer provides evidence that satisfies the competent
authority that the conditions in (i) and (ii) are met.

Article 2

1.
By 1 April 2007, the Commission shall present to the
European Securities Committee and the European Parliament a
first report on the work timetable of the authorities responsible
for national accounting standards in the US, Japan and Canada
for the convergence between IFRS and the Generally Accepted
Accounting Principles of those countries.

The Commission shall closely monitor, and regularly
2.
inform the European Securities Committee and the European
Parliament about the amount of progress in the convergence
between International Financial Reporting Standards and the

Japan
Generally Accepted Accounting Principles of Canada,
and the United States of America and of progress on the elim-
ination of reconciliation requirements that apply to Community
issuers in those countries.
inform the
European Securities Committee and the European Parliament
immediately if the process is not proceeding satisfactorily.

In particular,

it shall

3.
The Commission shall also regularly inform the European
Securities Committee and the European Parliament about the
regulatory discussions and the amount of
development of
progress in the convergence between International Financial
Reporting Standards and the Generally Accepted Accounting
Principles of
third countries mentioned in paragraph (c) of
Article 1 and progress towards the elimination of any reconci-
liation requirements. In particular, the Commission shall inform
the
European
Parliament immediately if the process is not proceeding satis-
factorily.

European Securities Committee

and

the

4.
In addition to the obligations under paragraphs 2 and 3,
the Commission shall engage in and maintain a regular dialogue
with third country authorities and, before 1 April 2008 at the
latest, the Commission shall present a report to the European
Securities Committee and to the European Parliament on the
progress in convergence and progress towards the elimination
of any reconciliation requirements that apply to Community
rules of a third country covered by
issuers under
the
(c) of Article 1. The Commission may
paragraph (b) or
request or require another person to prepare the report.

At

least

six months before 1 January 2009,

the Generally Accepted Accounting Principles of

5.
the
Commission shall ensure a determination of the equivalence
third
of
countries, pursuant
to a definition of equivalence and an
equivalence mechanism that it will have established before 1
January 2008 in accordance with the procedure referred to in
Article 27(2) of Directive 2004/109/EC. When complying with
this paragraph,
the
the Commission shall
Committee of European Securities Regulators on the appropri-
ateness of the definition of equivalence, equivalence mechanism
and the determination of the equivalence that is made.

consult

first

Article 3

This Decision is addressed to the Member States.

Done at Brussels, 4 December 2006.

For the Commission

Charlie McCREEVY
Member of the Commission