Commission staff working document - Ex-Ante Evaluation for establishing a Community programme to support specific activities in the field of financial services, financial reporting and auditing - Accompanying document to the  proposal for a  decision of the European Parliament and the Council establishing a Community programme to support specific activities in the field of financial services, financial reporting and auditing {COM(2009) 14 final}
Date: 2009-01-23
Institutions: European Commission
Subjects: EU financing, EU programme, auditing, financial services, information technology, technical standard, vocational training

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 23.1.2009 
SEC(2009) 54 

COMMISSION STAFF WORKING DOCUMENT 

Ex-Ante Evaluation for establishing a Community programme to support specific 
activities in the field of financial services, financial reporting and auditing 

accompanying document to the  

Proposal for a  
DECISION OF THE EUROPEAN PARLIAMENT AND THE COUNCIL 
establishing a Community programme to support specific activities in the field of 
financial services, financial reporting and auditing 

{COM(2009) 14 final} 

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TABLE OF CONTENTS 

1. Ex-Ante Evaluation For Establishing A Community Programme To Support Specific 

Activities In The Field Of Financial Services, Financial Reporting And Auditing ............... 4 

1.1. 

1.2. 

1.3. 

1.4. 

1.5. 

1.6. 

Background ............................................................................................................................ 4 

Problem Definition................................................................................................................. 7 

Objectives .............................................................................................................................. 9 

Available Policy Options ..................................................................................................... 10 

Conclusion ........................................................................................................................... 19 

Follow-Up: Arrangements For Monitoring, Reporting And Evaluation.............................. 20 

2. Annex I to the Ex-Ante Evaluation: Proposed Community Funding Of The Committees Of 
Supervisors In The Field Of Financial Services (CESR, CEBS And CEOIPS) .................. 21 

2.1. 

2.2. 

2.3. 

2.4. 

2.5. 

2.6. 

Background .......................................................................................................................... 21 

Problem Definition............................................................................................................... 23 

Objectives ............................................................................................................................ 26 

Available Policy Options ..................................................................................................... 27 

Conclusion ........................................................................................................................... 36 

Follow-Up: Arrangements For Monitoring, Reporting And Evaluation.............................. 36 

3. Annex II to the Ex-Ante Evaluation: Proposed Community Funding Of The International 

Accounting Standards Committee Foundation (IASCF) ..................................................... 38 

3.1. 

3.2. 

3.3. 

3.4. 

3.5. 

3.6. 

3.7. 

Background .......................................................................................................................... 38 

Problem Definition............................................................................................................... 39 

Objectives ............................................................................................................................ 44 

Available Policy Options ..................................................................................................... 45 

Conclusion ........................................................................................................................... 52 

Follow-Up: Arrangements For Monitoring, Reporting And Evaluation.............................. 52 

Glossary Of Acronyms ........................................................................................................ 52 

4. Annex III to the Ex-Ante Evaluation: Proposed Community Funding Of The European 

Financial Reporting Advisory Group (EFRAG) .................................................................. 54 

4.1. 

4.2. 

4.3. 

4.4. 

4.5. 

Background .......................................................................................................................... 54 

Problem Definition............................................................................................................... 56 

Objectives ............................................................................................................................ 58 

Available Policy Options ..................................................................................................... 61 

Conclusion ........................................................................................................................... 70 

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4.6. 

4.7. 

Follow-Up: Arrangements For Monitoring, Reporting And Evaluation.............................. 70 

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. 

5.2. 

5.3. 

5.4. 

5.5. 

5.6. 

5.7. 

Background .......................................................................................................................... 73 

Problem definition ............................................................................................................... 78 

Objectives ............................................................................................................................ 79 

Available Policy Options ..................................................................................................... 80 

Conclusion ........................................................................................................................... 86 

Follow-Up: Arrangements For Monitoring, Reporting And Evaluation.............................. 87 

Glossary of Acronyms ......................................................................................................... 87 

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1. 

EX-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 become a reality, more efforts are still needed as 
regards the financial services sector which is indeed a key component of an efficient internal 
market.  Financial  markets  are  critical  for  the  functioning  of  modern  economies.  The  more 
integrated  they  are,  the  more  efficient  the  allocation  of  capital  and  long-running  economic 
performance  will  be.  Completing  the  internal    market  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  provide  for  the  creation  of  a  favourable  business 
environment for EU firms to operate effectively across Member States. Harmonisation of the 
rules relating, for example, to accounting and auditing is crucial in this respect.  

In  addition,  the  current  financial  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  benefits  only  within  its  own  borders.  It  also 
strengthens  the  position  of  the  European  Union  in  global  markets  by  increasing  the  world-
wide competitiveness of European firms, fostering the EU influence globally and making the 
European marketplace more attractive for investors from third countries.  

Successful  completion  and  operation  of  the  internal  market  in  the  above  outlined  areas  are 
part of the European Commission's key objectives. However, the Commission is not capable 
of  ensuring  the  achievement  of  these  objectives  by  itself  since  they  largely  depend  on  the 
performance of some other bodies, both European and international. These bodies are, among 
others, the following: 

–  Committees of Supervisors2 are independent advisory groups 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  parties  and  to  receive 
administrative  support  to  carry  out  their  missions  as  provided  for  in  the  Commission 
decisions,  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. 

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3  

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 
Committee  of  European  Securities  Regulators  (CESR),  Committee  of  European  Banking  Supervisors 
(CEBS) and Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) 
Commission  Decisions 2001/527/EC, 2004/5/EC  and 2004/6/EC  establishing  Committee  of  European 
Securities Regulators (CESR), Committee of European Banking Supervisors (CEBS) and Committee of 
European Insurance and Occupational Pensions Supervisors (CEIOPS), respectively. 

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France,  the  United  Kingdom  and  Germany.4  The  sole  purpose  of  these  structures  is  to 
provide such administrative support to the Committees. 

The Committees' mandate is threefold. First, they act as independent bodies for reflection, 
debate and advice for the Commission in the above fields. Second, they contribute to the 
consistent  and  timely  implementation  of  Community  legislation  in  the  Member  States. 
Third,  they  contribute  to  the  convergence  of  supervisory  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  their  mandate,  the  supervision  of  financial 
institutions not being 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  overall  governance  and  funding 
framework for two entities, the International Accounting Standards Board (IASB) and the 
International  Financial  Reporting  Interpretations  Committee  (IFRIC),  which  respectively 
issue  International  Financial  Reporting  Standards  (IFRS)  and  interpretations  of  such 
standards. The International Accounting Standards Board (IASB) involves a broad range of 
stakeholders  in  its  work  through  an  open  consultation  process,  including  preparers  of 
financial statements, investors, auditors and national accounting standards setters. 

Regulation  (EC)  No  1606/2002  on  international  accounting  standards  foresees  that  the 
European  Commission  may,  subject  to  certain  conditions,  decide  on  the  applicability  of 
IFRS and related interpretations to the consolidated accounts of companies with securities 
listed on a regulated market within the Community. 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 regulatory 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  financial  reporting.  Its  current  members  are 
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).  It  also  co-operates  with  national 
accounting  standards-setters  from  EU  Member  States.  The  European  Commission  is  an 
observer in several EFRAG internal committees and working groups. EFRAG was set up 
in 2001 to assist the European Commission in the endorsement of international 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  stakeholders  as  it  is 
important  to  ensure  that  the  standards  developed  at  the  international  level  reflect  the 
business reality and concerns of European firms.  

4  

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“Association Loi 1901” in France for CESR, " eingeschriebener Verein (e.V.)" in Germany for CEOIPS 
and “Limited company by guarantee and without share capital” in the UK for CEBS 
See section 2.1. of the Annex on Committees of Supervisors. 
http://www.iasb.org/About+Us/About+the+Foundation/About+Foundation.htm 
http://www.efrag.org/  

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–  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  International  Federation  of 
Accountants  (IFAC),  which  is  the  private  body  representing  accountants  and  auditors 
worldwide9.  The  PIOB  consists  of  ten  members  including  its  Chairman.  The  PIOB 
members  are  persons  nominated  by  the  Monitoring  Group  for  a  three-year  period 
according  to  a  Memorandum  of  Understanding.  The  PIOB  constituency  comprises  a 
variety  of  stakeholders:  legislators  (e.g.  the  European  Parliament,  national  legislators), 
regulators  and  supervisors  of  financial  markets  including  auditor's  oversight  bodies, 
national  standard  setters  for  accounting  and  auditing,  auditors  and  audit  profession  in 
general,  preparers  of  financial  statements  (companies),  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  international  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  Commission  in  endorsing  international  accounting 
standards (EFRAG), developing these standards (IASCF) and ensuring sound public oversight 
of processes leading to the adoption of international auditing standards, potentially applicable 
across  the  Member  States  (PIOB),  none  of  these  bodies  benefit  from  any  financial  support 
from the Community budget. This may affect their 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  organisations  under  consideration,  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  primarily  funded  by  private  bodies  since  its 
members are European associations 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 members or stakeholders in general. The Committees 
of  Supervisors  and  EFRAG  are  financed  by  all  their  members,  while  the  majority  of 

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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  World  Bank.  The  MG  observers  are:  FSF  (Financial 
Stability Forum) and IFIAR (International Forum of Independent Audit Regulators). 
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 (International Accounting Education Standards Board). 

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PIOB's  funds  are  provided  by  a  single  member,  the  International  Federation  of 
Accountants (IFAC), representing 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 international audit firms currently contribute about 
one third of the IASCF's funding, with the rest of the IASCF's funding provided mostly 
by listed companies.  

c)  Funding via cash contributions or combined with contributions in kind. As a general 
rule,  the  bodies  in  question  are  financed  via  cash  contributions.  In  the  case  of  EFRAG, 
however, about 40% of its current budget is funded via staff contributions. Also for the 
Committees  of  Supervisors,  occasional  contributions  in  kind  have  enabled  development 
of  certain  activities  (e.g.  hosting  of  an  EU  component  of  a  common  IT  system, 
organisation of trainings for free). 

A detailed analysis of the current situation for each of these bodies 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  non-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  these  bodies:  either  the  funding  is 
insufficient  or  is  non-diversified  and  provided  on  a  voluntary  basis  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 the 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 that 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 Carry 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  International  Financial  Reporting  Standards 
and  the  adoption  of  the  8th  company  law  directive  on  auditing.  As  a  result,  the  bodies 
concerned  have  become  responsible  for  an  increasing  number  of  tasks  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 delivering important pan-European projects. In the 
case of the Committees of Supervisors, this applies, for example, to the Transaction Reporting 

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Exchange  Mechanism  (TREM)10,  which  is  a  EU-wide  IT  system  necessary  for  the 
implementation  of  the  Markets  in  Financial  Instruments  Directive  (MiFID).  TREM  is  being 
established by the Committee of European Securities Regulators (CESR) which – due to its 
limited  budgetary  means  –  was  not  able  to  deliver  the  project  on  time  in  accordance  with 
MiFID.  

Generally, the Committees of Supervisors are currently unable to carry out any projects which 
reach beyond their basic activities11, even if these are fundamental to enhancing supervisory 
cooperation and convergence. The current 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  quality  of  IFRS  and,  (ii)  as  a  European 
representative, technical input to the International Accounting Standard Board. However, this 
latter  role  has  been  significantly  constrained  by  the  current  lack  of  expert  staff.  At  present, 
EFRAG is not in a position financially to recruit the number of accounting experts needed to 
manage  its  workload  and  to  take  up  new  responsibilities.  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 international standard setting process, which is at least 
equally important, does not receive sufficient priority.  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  counterparts.  Consequently,  EU  business  and  economic 
interests may be less well represented in the IASB's work. 

1.2.2.  Reliance  On  Non-Diversified  And  Voluntary  Funding  From  Interested  Parties  And 

Its Negative Consequences 

The  present  funding  arrangements  of  the  IASCF,  EFRAG  and  the  PIOB  imply  that  they 
receive  most  or  a  significant  part  of  their  funding  from  private-sector  parties  who  have  a 
direct  stake  in  the  outcome  of  their  work.    This  situation  gives  rise  to  concerns  about  the 
operational independence of these bodies, as stakeholders may use the threat to withdraw or 
reduce funding to exercise undue influence over their standard-setting or oversight work. 

IASCF, for instance still depends for about a third 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  funding  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  representing  stakeholders  with  an  interest  in  financial  reporting 
standards.  EFRAG's  financial  reliance  on  them  and  the  voting  rights  tied  to  their  financial 
contribution  raises  concerns  about  the  operational  independence  of  EFRAG  from  the  main 
organisations  interested  in  financial  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  and  Assurance  Standards  Board  (IAASB))  while 

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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. 
Cf.  the  example  of  a  common  training  programme  of  the  Committees  of  Supervisors,  Annex  on  the 
Committees of Supervisors, section 2.2.2. 

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being financed by IFAC at 93 %. In these circumstances, it appears difficult to make sure that 
independent oversight is actually ensured and to avoid risk of perceived conflict of interests 
with the audit profession represented by IFAC. 

1.3. 

Objectives 

1.3.1. 

Strategic objective 

The strategic objective to be achieved by the new  funding arrangements is to ensure stable, 
diversified, sound and adequate funding to enable the relevant bodies to carry out their EU-
related or EU public interest mission in an independent, efficient and satisfactory way. 

1.3.2.  Operational objectives  

1.3.2.1.  Avoid  reliance  of  IASCF,  EFRAG  and  the  PIOB  on  voluntary  funding  from 

interested parties, thus ensuring independence of their work. 

A  first  operational  objective  is  to  avoid  reliance  of  IASCF,  EFRAG  and  the  PIOB  on  non-
diversified, voluntary funding from interested 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 translation of such standards into EU law i.e. 
standard setting (IASCF), standard reviewing (EFRAG) or standard setting oversight (PIOB). 

1.3.2.2.  In addition to the above, promote the international acceptance of IFRS and IAS 

A  second  operational  objective  is  to  ensure  that  the  IASCF's  funding  regime  facilitates  the 
broader international acceptance of IFRS, in particular in the United States of America. This 
would  thus  advance  the  Community's  objective  of  achieving  global  acceptance  of  IFRS.  In 
practice, this implies the need to establish a funding regime that 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 current funding arrangements, funding schemes for 
the IASCF and/or EFRAG have been established 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 carry out certain projects  

A  fourth  operational  objective  is  that  the  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. 

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1.3.2.5.  Achieve the above objectives within a reasonable 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 the 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 arrangements, 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  resources  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  always  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 modification of the existing funding 
models  or  external  intervention.  Preserving  the  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 voluntary contributions from interested parties. The concerns 
around their independence will persist (Operational objective n° 1.3.2.1.).  

⇒  As  a  result  of  the  preceding  paragraph,  the  global  acceptance  of  IFRS  would  be 

undermined (Operational objective n° 1.3.2.2.). 

⇒  There  would  be  no  improvement  in  the  current  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 Member States do not, thus maintaining 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  technology  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 future (Operational objective n° 1.3.2.5.). 

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1.4.2. 

Increase in financial contributions within the existing funding model 

Considering the status quo as unsatisfactory it is necessary to first examine whether increase 
in financial contributions under the present funding 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 fulfil their public interest mandate. This section 
is not relevant for the IASCF as the main concern about its funding arrangements is not the 
amount of funding it receives but 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 would 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  finance  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  required  to  finance  the  new  needs  of  the  Committees. 
Neither is it likely that the necessary changes 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  decreased,  at  least  perceived  to  be  decreased  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  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 increase 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  201015).  Such  mechanisms  exist  only  in  a  few 
Member  States  and  would  first  need  to  be  established  across  all  European  Union  countries. 
This  would  inevitably  require  some  time.  Furthermore,  even  if  these  funding  mechanisms 
were  set  up  in  all  Member  States,  reluctance  to  levy  a  tax,  lack  of  political  willingness  to 

12  
13  

14  
15  

See section 2.4.8.2. of the annex on the Committees of Supervisors 
For example, the ECOFIN of 14 May 2008 invited the Member States to ensure that adequate resources 
are in place for supervisory authorities to perform their EU work.  
For details, refer to Annex on the Committees of Supervisors, section 2.4.2. 
See section 4.4.9. of the annex on EFRAG 

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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 funding schemes (public financing or levy over industry) 

Alternatively,  one  should  consider  a  modification  to  the  present  funding  arrangements,  in 
particular,  by  enlarging  the  membership  of  the  organisations  in  question  or  extending  the 
scope  of  contributors  to  their  budgets  (e.g.  public  funds  in  the  case  of  financing  from  the 
private sector and vice versa). This would affect the work of these 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,  responsible  for  a  specific  sector,  so  that  the 
Committees' composition and the number of their members are given a priori.  

Therefore,  the  Committees  could  only  envisage  raising  funds  from  non-member  cash 
contributions coming from financial institutions which they supervise. To reach the level 
of  Committees'  spending  needs  the  industry  contributions  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 authorities are partially financed by players of 
the private sector which they supervise. 

At the Community level, however, such a funding 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  moment.  Firstly,  it  would  require  complete  re-
shuffling  of  the  Committees'  funding  model.  Considering  the  difficult  issues  at  stake 
(agreeing on private sector financing, 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 private sector, lack of political willingness to 
create another tax-like system, could mean that these funding mechanisms could not bring 
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 contribution. This 
may  result  in  a  continuing  lack  of  level  playing  field  for  listed  companies  of  different 
nationalities.  This  makes  this  option  also  incompatible  with  the  need  to  provide  the 
Committees of Supervisors with sufficient funding within an acceptable period of time.  

⇒  In the case of the PIOB, 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  from 
EU  national  audit  oversight  bodies  has  been  discussed  at  several  meetings  of  the  AuRC 
(the Audit Regulatory Committee) 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 within the EU,  and  to the fact that it is too  early  for many 
auditors'  supervisors  recently  set  up,  as  required  by  the  8th  Company  Law  Directive,  to 
make contributions to international bodies.  

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One  could  explore  alternative  sources  of  funding  for  PIOB,  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  auditors  or  accountants. 
Such  an  arrangement  would  be  very  difficult  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 concern 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 number of individual contributions. This may also put into 
question, as is the case with IFAC, the operational independence of the PIOB.  

⇒  EFRAG's current founding members are representing and thus are financed by the main 
beneficiaries  of  EFRAG's  work:  listed  companies  and  investors.  The  other  source  of 
EFRAG's  funds,  national  funding  mechanisms  exist  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  over  the  private  sector,  lack  of  political  willingness  to  create 
another tax-like system, mean that these funding 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 their 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  allow  the  Community  to  impose  a  fee  on  private 
companies in favour of another 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  companies  with  listed  securities.  National  funding  schemes  have 
been established in only 8 Member States.16 

In order to achieve a level playing-field within the EU and to promote the independence of 
the IASB, the IASCF's funding regime 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 harmonised 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  objections  to  Community  intervention  in  direct 
taxation). 

In  the  absence  of  a  Community  legal  basis,  the  Commission  could  promote  the 
establishment of national funding schemes based in those Member States where none exist 

16 

France, Germany, Italy, Luxembourg, the Netherlands, Spain, Sweden and the United Kingdom. 

EN 

13 

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for  the  time  being.  This  approach  was  already  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  Council  Decision  establishing  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  and  voluntary  contributions  from  interested 
parties. This will enhance the independence 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 level playing and a fair burden sharing at 

EU level for all bodies concerned;  

⇒  co-financing under the EU budget can be achieved within a reasonable period of time.  

1.4.5. 

Setting up a dedicated EU Agency or body 

While  considering  options  for  installing  stable  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  subsidy  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 theoretically solve the budgetary 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 dedicated EU standard setting or oversight body 
would be neither  feasible  nor  appropriate considering 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 agencies and has decided not to make any proposals 
for a new regulatory agency until the conclusion of this exercise (end of 2009)18. In addition, 
on 21 October 2008, the European Commission set up a high level group, chaired by Jacques 

17  

18  

For  details,  refer  to  Annex  on  Committees  of  Supervisors,  section  2.4.5.,  and  Annex  on  EFRAG, 
section 4.4.5. 
For details, refer to Communication from the Commission to the European Parliament and the Council. 
European agencies – The way forward (COM(2008) 135 final). 

EN 

14 

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de  Larosière.  19  This  group  will  look  at  the  possibilities  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 evaluation an individual analysis for each entity in question was carried 
out, assessing all available options and, in particular, use of alternative sources 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  feature  more  prominently  within  their  specific 
context. Therefore, with this in mind, the criteria have been prioritized, 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 

Achievement of 
objectives 

Time needed for 
implementation 

Feasibility 

Implication for 
EU budget 

Overall 
Assessment 

High (+++) 
Medium (+/-) 
Low (- - -) 

High (+++) 
Medium (+/-) 
Low (- - -) 

Straightfroward 
(+++) 
Medium (+/-) 
Complex (- - -) 

Positive  
(+ to +++) 
Negative  
(- to - - - ) 

Positive  
(+ to +++) 
Negative  
(- to - - - ) 

OPTIONS 

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  

20  

See Speech of José Manuel Durão Barroso, President of the European Commission, 21st October 2006 
in Strasbourg: 
http://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/08/544&format=HTML&aged=0&l
anguage=EN&guiLanguage=en 
Décision  de  la  Commission  relative  à  la  mise  en  place  du  Groupe  d’experts  de  haut  niveau  sur  la 
supervision financière (C(2008) 6492).   

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15 

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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  definition  be  equal  to  zero,  feasibility  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 difficulties. It is likely that none 
of the objectives would be achieved. Time needed 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, Option 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  uncertainties  surrounding  this  solution,  there  is  no 
guarantee  that  the  objectives  would  be  achieved  (in  particular  ensuring  adequate  financial 
means  (cf.  section  1.3.2.4.)  or  ensure  fair  burden  sharing/  level  playing  field  (section 
1.3.2.3.)).  Moreover, time needed for implementation due to the complexity of the political 
and institutional issues is likely to be long, whereas time is of the essence 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,  the  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 implementation is likely to be high, whereas time is of 
the  essence  in  the  context  of  the  current  financial  crisis.  Another  drawback  would  be  the 
implication for the Community budget. For these 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, Option 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 reliance on voluntary funding from interested 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 feasible and will ensure that the current 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  independence  of  the  different  bodies  financed  would  be 
safeguarded  as  this  would  put  an  end  to  the  reliance  on  voluntary  funding  from  interested 
parties to fulfil a public and community interest mandate pursuant to Community law.  

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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 demonstrate its willingness to 
upgrade certain issues of supervision of financial 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 governance of these bodies. This will also be the 
case  in  relation  to  EFRAG  by  strengthening  its  ability  to  feed  European  views  into  the 
standard setting process within the IASCF; 

–  In  the  case  of  IASCF,  EFRAG  and  PIOB,  it  would  signal  Community  interest  in 
international  solutions  to  all  parties  concerned  and  encourage  other  public  bodies  and 
institutions to provide funds to these organisations; 

–  It would enhance the general recognition of EFRAG and PIOB; 

–  Financial  support  under  the  Community  budget  would  provide  the  chosen  beneficiaries 

with a stable solution in terms 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 established within a short to medium 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; 

–  Moreover,  the  Community  funding  programme  could  serve  as  a  framework  for  further 
urgent funding needs which may occur in the future. To this end, it would need to contain 
some flexible provisions to extend the list of beneficiaries to the Community programme, 
originally  identified  in  the  founding  Decision  (e.g.  comitology  procedure  for  new  long-
term beneficiaries).  

Therefore,  taking  into  account  limitations  of  the  other  available  options  and  the  strong 
Community interest in meeting the objectives outlined in section 1.3. in the short to medium 
term,  a  financial  contribution  to  all  analysed  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 Supervisors, IASCF, EFRAG and 
PIOB as possible eligible beneficiaries, each of these entities complies with the requirements 
laid down in the Financial Regulation because they 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  targeted  financing  of  specific  projects  via  action 

EN 

17 

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grants,  in  the  case  of  the  EFRAG,  IASCF  and  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  projects  regarding  in  particular  training  of 
personnel and information technology will put the Commission in a better position to ensure 
that  these  projects  are  delivered  in  time  and  in  a  proper  way.  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. 

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 budget by way of an operating grant constitutes the 
best solution to address the proposed funding. Indeed, the choice to provide an operating grant 
to the IASCF seems the most appropriate because, 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 mainly 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 for financing and which relate 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,  single  "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  the  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 budget by way of an operating grant constitutes the 
best solution to address the proposed funding. Indeed 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 

18 

   EN 

                                                 
⇒  Whereas some organisations work on an activity-based budgeting system, the PIOB, 
given its size and mandate, operates on a cash 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 resources and other administrative 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  Community  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 

PIOB 

3,000,000

12,000,000

300,000

1,200,000

Total amount 

5,300,000 (10,300,000 
as from 2011)

36,200,000

Finally,  management  of  such  Community  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 result 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, efficient and satisfactory way, it is considered 
important for the Community to contribute to their funding. 

Such a funding would in particular: 

EN 

19 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
⇒  Ensure  that  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 

(cid:31) 

Ensure that IASCF, EFRAG and PIOB do  not rely on non-diversified and voluntary 
funding  from  interested  parties  thus  avoiding  concerns  as  to  the  credibility  and 
independence of their standard-setting related 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 operating grant (IASCF, EFRAG and PIOB).  

It is proposed to provide the Committees of Supervisors, IASCF, EFRAG 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 Monitoring, Reporting And Evaluation 

Details of specific success criteria for use in the evaluation are set out in the annexes.  

The  proposed  Community  programme  is  intended  to  run  until  the  end  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 light 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  evaluation  will  review  the  human  and  financial 
resources allocated and the results obtained in order to verify that they were consistent with 
the  objectives.  The  evaluation  shall  be  carried  out  in  accordance  with  a  timetable  which 
enables  the  findings  of  that  evaluation  to  be  taken  into  account  for  any  decision  on  the 
renewal, modification or suspension of the programme. The evaluation shall be proportionate 
to the resources mobilized for, and the impact of, the programme. 

EN 

20 

   EN 

 
2. 

ANNEX  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 largely 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  regulations  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 legislation 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  authorities  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  representatives  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  Committees,  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  
23  

24  

25  

26 

27 

http://ec.europa.eu/internal_market/securities/docs/lamfalussy/wisemen/final-report-wise-men_en.pdf 
See annex I of the European Council conclusions of March 2001, available on: 
 http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressData/en/ec/00100-r1.%20ann-
r1.en1.html 
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  Committee  and  taking  into 
account  the  European  Parliament’s  view.  At  Level  3,  the  appropriate  advisory  committee  draws  up 
common  interpretation  guidelines  and  common  standards  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 transposition of EU legislation into national law. 
Commission  Decisions 2001/527/EC, 2004/5/EC  and 2004/6/EC  establishing  Committee  of  European 
Securities Regulators (CESR), Committee of European Banking Supervisors (CEBS) and Committee of 
European Insurance and Occupational Pensions Supervisors (CEIOPS), respectively. 
Commission  Decisions 2001/527/EC, 2004/5/EC  and 2004/6/EC  establishing  Committee  of  European 
Securities Regulators (CESR), Committee of European Banking Supervisors (CEBS) and Committee of 
European Insurance and Occupational Pensions Supervisors (CEIOPS), respectively. 
“Association Loi 1901” in France for CESR, " eingeschriebener Verein (e.V.)" in Germany for CEOIPS 
and “Limited company by guarantee and without share capital” in the UK for CEBS 

EN 

21 

   EN 

 
                                                 
The  Committees'  mandate  is  threefold.  First,  they  act  as  independent  bodies  for  reflection, 
debate  and  advice  for  the  Commission  in  the  above  fields.  Second,  they  contribute  to  the 
consistent and timely implementation of Community legislation in the Member States. Third, 
they  contribute  to  the  convergence  of  supervisory  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 their mandate, the supervision of financial institutions not being 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 occasions, as 
explained below. 

In  2007,  the  Lamfalussy  process  and  the  functioning  of  the  Committees  of  Supervisors  in 
particular were extensively evaluated by the European Institutions and various groups (see in 
particular  the  report  of  the  Inter-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  Council  Conclusions  of  4  December  2007  with  a 
roadmap on concrete actions to be implemented in 2008 and 2009. 

This  review  of  the  Lamfalussy  process  underlined  in  particular  the  urgent  necessity  to 
strengthen the functioning of the Committees, also in budgetary terms. The ECOFIN Council 
Conclusions  of  4  December  200732  underlined  in  particular  "the  importance  of  [the  three 
Committees of Supervisors] and their members having 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 financial support from the Community budget. Hence 
stakeholders and European institutions 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 supervisory convergence, provided it 
meets  existing  EU  regulatory  and  budgetary  provisions.  The  Commission  is  examining 
possible  modalities  of  contributing  to  the  financing  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 support from the EU budget for specific EU wide projects that 
are requested from [the three Committees of Supervisors]; and (ii) to study the possibilities 

28  
29  
30  

31  
32  

http://ec.europa.eu/internal_market/finances/committees/index_en.htm#interinstitutional 
COM(2007) 727 final 
The  final  FSC's  Report  on  Long  Term  Supervisory  Issues  ("Ter  Haar  Report";  FSC  4162/08)  was 
adopted in March 2008. 
(2007)0338 
Council Conclusions 15698/07 of 4 December 2007 

EN 

22 

   EN 

 
 
 
                                                 
for  EU  funding  under  the  EU  budget  of  the  development  of  tools  to  help  build  a  common 
supervisory culture by [the three Committees of Supervisors]". 

In the Council Conclusions of 14 May 2008, the ECOFIN repeated that it looks forward "to 
the Commission assessment and proposal 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  opinion  of  10  September  2008  on  the  draft  2009  EU  budget,  the  Committee  on 
Economic and Monetary Affairs of the European 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 carry out public interest missions  

The Committees of Supervisors are financed by their members who contribute annually to the 
Committees'  budgets  according  to  their  internal  rules  of  procedure  which  define  the  way 
contributions  are  calculated  and  the  modalities  of  payment.  The  contributions  are  currently 
based on the number of votes held by the respective Member State 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,  reported  that  its  total  budget  has  significantly 
increased  in  six  years  of  its  existence  and  reached  almost  € 3.5  million 34  in  2007.  Total 
expenses  of  the  Committee  of  European  Insurance  and  Occupational  Pensions  Supervisors 
(CEIOPS)  in  2004  and  200535  amounted  to  € 385.000 36  and  € 909.000 37,  respectively,  in 
comparison  to  € 1.790.000 38  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 case  of  CESR,  for  example, contributions from 
members  increased  in  one  year  from  € 2.450.001  in  2006  to  € 4.009.995  in  2007),  the 

33  

34  
35  

36  
37  
38  
39  

40  

41  

http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-/EP//NONSGML+COMPARL+PE-
407.786+02+DOC+PDF+V0//EN&language=EN  
See Annual Financial Statement in CESR Annual Report 2007, p.87 
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. 
See Annual Financial Statements in CEIOPS Annual Report 2004, p. 41 
See Financial Statements in CEIOPS Annual Report 2005, p. 65 
See Financial Statements in CEIOPS Annual Report 2007, p. 91 
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.  
See Revenue and Expenses in CEBS Annual Report 2005, p. 40. The total revenues in 2005 amounted 
to £ 1.861.000. 
See  Financial  Statement  in  CEBS  Annual  Report  2007,  p.  61.  The  total  revenue  in  2007  equalled  to 
£ 1.497.000. 

EN 

23 

   EN 

                                                 
Committees'  budgets  have  not  grown  to  the  level  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 authorities, the annual contribution to one of 
the  Committees  might  currently  represent  more  than  5%  of  their  budget  and  for  authorities 
from Member States benefiting from a high number of votes but regulating a relatively small 
financial  market  the  annual  contribution  is  perceived  as  unfair  (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 resources allow the Committees to perform their main 
tasks and to cover operational cost. By "main tasks", one should mean (i) advice on technical 
issues  (including  analysis  of  impact)  to  the  Commission  when  the  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  standards,  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 from reserves accumulated by the Committees in the 
past  and  by  additional,  voluntary  contributions  of  Committee  members  (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 operational agendas of the Committees with sufficient 
resources. This is in particular due to the following reasons: 

–  The Committees' overall budgets and thus regular cash contributions from their members 
have  significantly  increased  over  the  past  years  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  development  of  the  TREM  project  will  equal  to  about  one 
quarter of CESR's operational budget.  

–  The establishment of new frameworks at EU level 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 authorities (in particular 
in these Member States whose supervisors’ budgets are quite limited). 

The  two  main  categories  of  such  projects  are,  on  the  one  hand,  information  technology 
projects  relating  inter  alia  to  the  establishment  of  databases  for  exchange  of  information 
between  national  supervisors  (see  section  2.2.2.  with  the  example  of  TREM),  IT  systems 

42  

"A  proposed  evolution  of  EU  securities  supervision  beyond  2007"  (CESR  ref.  07-783),  p.  7; 
http://www.cesr-eu.org/popup2.php?id=4854 

EN 

24 

   EN 

                                                 
for common reporting43 and web-based frameworks for supervisory disclosure44 and, on the 
other  hand,  projects  relating  training  of  personnel,  as  inter  alia,  common  training 
programmes  for  officials  from  national  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  Mechanism"  (TREM)  is  a  key  component  in  the 
implementation of Markets in Financial Instruments Directive (MiFID). TREM is an EU wide 
IT system allowing regulators to exchange among themselves transaction reports submitted by 
firms  in  relation  to  transactions  in  instruments  admitted  to  trading  on  regulated  markets. 
Those  reports,  and  the  exchange  of  information,  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 set-up and running costs. In the absence of any EU funding, the 
project  is  currently  financed  from  CESR  reserves  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) 

(2) 

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  member).  A  "longer-term"  solution  should  be 
developed as soon as the resource situation permits.  

The  development  of  the  TREM  is  divided  into  several  subprojects.  Therefore,  the 
related  cost  can  vary  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 national supervisors 

A  practical  response  to  the  necessity  of  building  up  a  pan-European  financial  supervisory 
culture  are  common  training  programs  for  staff  from  national  supervisory  authorities  which 

43  

44  

45  

46  

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.  Communication  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). 
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.  
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) 
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 central hub (computer systems run by 
national  authorities  in  order  to  interface  between  the  central  hub  and  national  transaction  reporting 
systems).  

EN 

25 

   EN 

                                                 
are  currently  being  developed  by  the  Committees  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,  cross-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 
practice48. These programs will aim at enabling staff from national supervisory authorities to 
deepen their knowledge of EU regulatory processes, to share practical experience in their day-
to-day supervisory activities, to develop common practices and thus foster common European 
supervisory culture.  

Moreover,  as  already  mentioned  in  the  Commission  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  improving  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 network between global regulators.49" 

The  participants  to  the  trainings  will  be  charged  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  participants  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  –  40.000 50.  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 independent, efficient and 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  Committees  of  Supervisors  are  adequately  equipped 
with  the  financial  means  to  carry  out  certain  new,  strategic  projects,  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 would enable in particular:  

47  
48  
49  
50  

For more information, see e.g. CESR Annual Report 2007, p. 76 
See e.g. CEIOPS Annual Report 2007, p. 28 et seqq. 
Commission Communication on the Review of the Lamfalussy process, p. 13 
The  three  Committees  of  Supervisors  plan  to  jointly  organise  at  least  10  cross-sectoral  a  year.  In 
addition to this common work, each Committee expects to run yearly about 15 sector-specific seminars. 

EN 

26 

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–  The  development  of  training  programmes  for  officials  from  national  supervisory 
authorities both at sectoral (banking, securities and insurance) and cross-sectoral level or of 
secondment  schemes,  which  would  foster  the  emergence  of  an  European  supervisory 
culture and deepen cooperation between national supervisory authorities ; and  

–  The  development  of  heavy  and  complex  projects  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  achieved  within  a  reasonable  period  of  time 

considering their urgency in the current EU and international context  

A second operational objective 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 financial markets. (…) This experience further underscores the need to adopt 
a  globally  convergent  approach  to  regulation  and  supervision,  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 implementation 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  proposal  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  Council  of  the  European  Union  made  clear  that  "  The  current  financial 
turbulences  bring  out  the  importance  to  the  European  Union  of  a  sound,  exemplarily 
supervised  financial  system.  The  Presidency  would  therefore  like  to  make  supervision  more 
European, by stepping up coordination between national supervisors"53. 

2.4. 

Available Policy Options 

The five available policy options have been considered with a view to the achievement of the 
objectives identified in section 2.3. 

51  
52  

53  

Commission Communication on the Review of the Lamfalussy process, p. 13 
See p.16 of ECOFIN Council press release, available on 
http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressData/en/ecofin/100339.pdf 
Available on http://register.consilium.europa.eu/pdf/en/08/st11/st11204.en08.pdf 

EN 

27 

   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  expected  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 supervision 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  Supervisors  might  be  requested  to  increase  their 
annual contributions to the Committees budgets and/or to commit additional funds for specific 
projects.  

At national level, this would imply increase in budgets of national supervisory authorities, re-
allocation  of  their  budgetary  appropriations  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  development  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' members 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 Supervisory 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 experience54, 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 changes 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 

28 

   EN 

                                                 
2.4.3. 

Setting up national funding schemes 

Third, one could explore alternative sources of Committees' funding and, especially, industry 
financing. This indeed exists in certain Member States where national supervisory authorities 
are partially financed by players 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 States' authorities would not be viable for the 
moment.  Firstly,  it  would  require  complete  re-shuffling  of  the  Committees'  funding  model. 
Besides  the  main  decision  on  being  or  not  being  co-financed  from  the  private  sector,  the 
Committees' members would need to agree on a number of difficult operational issues taking 
into  account  that  different  funding  models  of  supervisory  authorities  exist  across  Member 
States (based on contributions from private sector; consisting of public money only etc.), such 
as, for example, how to avoid duplication of expenditure provided by industry nationally and 
at EU level. 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.  This  makes  this  option  also  incompatible  with  the  need  to 
provide the Committees of Supervisors with sufficient 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  Committees  of  Supervisors  is  urgent.  In  addition, 
reluctance to levy a tax, lack of political willingness to create another tax-like system, could 
mean that these funding mechanisms cannot bring 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 contribution. This may result in a continuing 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 Committees of Supervisors can be provided under 
the EU budget, within a framework of a Community funding programme.  

Such support will provide the Committees with financial means at the level which is needed 
to  finance  the  kind  of  projects  mentioned  above.  With  a  targeted  contribution  from  the 
Community  budget  the  Committees  will  be  able  to  equip  themselves  with  the  appropriate 
expert staff and technical support, required for the proper development of these projects. The 
Commission, at the same time, will monitor closely and regularly their operation and be able 
to  intervene  if  problems  occur.  This  will  strengthen  its  position  as  regards  enforcement  of 
proper implementation of these projects. 

The financial contribution from the EU budget will 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 

29 

   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 could 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 politically 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  Commission and the Committees of  Supervisors in 
2008 and 2009. These actions which are practical, necessary and achievable improvements to 
the current EU supervisory framework represent the maximum what is politically achievable 
at the moment.  

In addition, on 21 October 2008, the European Commission set up a high level group, chaired 
by Jacques de Larosière. 57 This group will look at the possibilities 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 agency 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 criteria feature more prominently.  
With this in mind, the criteria have been 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  should  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  increased  the  pressure  to  improve  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  

56  
57  

58  

59  

For details, refer to Communication from the Commission to the European Parliament and the Council. 
European agencies – The way forward (COM(2008) 135 final). 
Cf. ECOFIN Council Conclusions of 4 December 2007 and of 14 May 2008 
See Speech of José Manuel Durão Barroso, President of the European Commission, 21st October 2006 
in Strasbourg: 
http://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/08/544&format=HTML&aged=0&l
anguage=EN&guiLanguage=en 
Décision  de  la  Commission  relative  à  la  mise  en  place  du  Groupe  d’experts  de  haut  niveau  sur  la 
supervision financière (C(2008) 6492).   
Cf. section 2.1. above 

EN 

30 

   EN 

                                                 
A third priority should be the implications for the EU budget. 

1. Time needed 
for 
implementation 

High (+++) 
Medium (+/-) 
Low (- - -) 

2. Achievement 
of objectives 

3. Feasibility 

4. Implication 
for EU budget 

Overall 
Assessment 

High (+++) 
Medium (+/-) 
Low (- - -) 

Straightfroward 
(+++) 
Medium (+/-) 
Complex (- - -) 

Positive  
(+ to +++) 
Negative  
(- to - - - ) 

Positive  
(+ to +++) 
Negative  
(- to - - - ) 

- - - 

- - - 

+++ 

+++ 

+ + + 

--- 

- - - 

+++ 

- -  

-- 

+/- 

+++ 

- - - 

+++ 

-- 

- - - 

+ + + 

+ + + 

--- 

+ + + 

+++ 

+++ 

- - - 

--- 

- - - 

ASSESSMENT 

OPTIONS 

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 opinion about this option, which we discard. Option 2 (increase of 
contributions within the existing funding models), 3 (setting up national funding schemes) and 
5 (setting up dedicated EU Agency or EU body) are not feasible for political 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 significant direct budgetary and administrative cost to the Community 
budget,  it  is  the  only  policy  option  that  can  achieve  the  pursued  objectives  described  in 
section 2.4.4. We therefore have a positive opinion about this option, which we retain. 

EN 

31 

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On  the  contrary,  the  strongest  benefits  are  to  be  expected  from  option  4.  From  a  European 
perspective, a single contribution 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  compared  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-legislators  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  monitor  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 public interest objectives, Community co-funding of 
the  Committees  of  Supervisors,  via  the  European  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 beneficiaries, 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  third  parties  and  facilitate  the  operation  and  administration  of  the 
Committees,  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 
(CESR),  the  United  Kingdom  (CEBS)  and  Germany  (CEIOPS).60  These  support  structures 
qualify  as  eligible  beneficiaries  since  they  comply  with  the  requirements  laid  down  in  the 
Financial Regulation. In particular, they pursue an aim of general interest and are non-profit 
organisations. 

In the light of the objectives to be achieved by the Community funding programme, financial 
assistance provided for specific projects and activities which cannot 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 used 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 result of the Community financing 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 without share capital” in the UK for CEBS 

EN 

32 

   EN 

 
  
                                                 
the  European  budgetary  authorities  (the  Council61  and 
Accordingly, 
the  European 
Parliament62)  as  well  as  the  Commission63  consider  that  some  financial  support  for  specific 
activities (and not the running cost as such) of the legal structures supporting the Committees 
of Supervisors are appropriate. 

2.4.8.  Volume of appropriation, human resources and other administrative 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 

CESR 

CEBS 

CEOIPS 

TOTAL 

3.445.210 

2.542.00064 

1.545.224 

7.532.434 

(Source: annual reports of CESR, CEBS and CEOIPS) 

2006 

2.566.293 

2.179.00065 

1.434.087 

6.169.380 

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  officials  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 secondment programs could be further enhanced, 
aimed both at acquiring specific expertise and knowledge on certain supervisory topics 
and  also  in  acquiring  knowledge  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 Supervisors for the year 2009 at EUR 1,636,513 (not 

61  

62  

63  

64  
65  

Refer, for example, to the ECOFIN Conclusions of 14 May 2008: "(…) financial support under the EU 
Budget for specific EU-wide projects". 
Refer, for example, to the EP Report on Financial 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". 
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 (…)". 
GBP 2,017,000 converted as at 18 September 2008 
GBP 1,729,000 converted as at 18 September 2008 

EN 

33 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
covering staff secondements programs). This amount would enable to organise courses 
as follows: 

CEBS 

CEIOPS 

CESR 

Course details 

Number 
projected for 2009 

of 

courses 

Number  of  participants 
per course 

Cost  per  course  (approx, 
€) 

16 

30 

16 

60 

13 

35 

26,250 

29,357 

26,676 

30,000 

Cross-
sectoral 

10 

35 

Expected 
participants 

charge 

to 

€ 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 secondments 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  per  year  for  the  three  Committees  of 
Supervisors. The proposed funding of the Committees of Supervisors 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. 

2.  As regards the development of complex information technology projects  

The Committees of Supervisors have identified a certain number of such projects that 
could  benefit  from  co-financing  by  the  European  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  disclosure66.  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-assessments  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 

34 

   EN 

 
 
 
 
 
 
 
 
 
 
                                                 
explore  the  possibilities  to  strengthen  the  national  application  of  guidelines, 
recommendations and standards67; 

- 

Putting  in  place  IT  backing  to  the  developments  demanded  in  the  area  of 
common reporting. 

In  addition,  four  possible  IT  projects  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  mechanisms  (OAMs)  for  the 
storage of regulated information. 

Exchange of information on UCITS 

TREM Review 

2009

2010

2011

2012

2013

2014

Transaction 
reporting on OTC 
derivatives

Network of OAMs

UCITS

TREM Review

As explained in section 2.2.1. above the development of the TREM project has been 
divided  into  several  subprojects.  Therefore,  the  related  cost  can  vary  over  time  and 
amounts, on average, to between 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 would amount over a period of five years to 
EUR 1,660,000 for the  above projects  for CEBS 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 substantial 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  Supervisors  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. 

3.  In view of the above it is considered reasonable that the Community intervention for 
the period 2010-2013 in favour of the three supporting 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  

EN 

Council 

See 
4 
http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressData/en/ecofin/97420.pdf 

conclusions 

December 

2007, 

17, 

of 

p. 

available 

35 

on 

   EN 

 
 
 
                     
 
 
                                                 
2.4.8.2.  Expected impact of community funding from the EU budget over 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 below. 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 other administrative expenditure  

Taking  into  consideration  that  the  envisaged  funding  would  finance  actions,  this  will  entail 
related administrative work by the European Commission. Since DG MARKT does not have 
sufficient  administrative  resources  for  managing  such  a  significant  amount  of  money 
compared  to  our  budget  line,  there  will  be  a  need  for  some  additional  specialist  financial 
officers  and  additional  financial  training  for  existing  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.  Specifically,  it  is  concluded  that  the  best  way 
forward  is  to  co-finance  the  legal  structures  supporting  the  Committees  of  Supervisors  to 
carry  out  a  certain  number  of  actions,  as  underlined  by  the  European  Parliament  and  the 
ECOFIN Council on several occasions. Specifically, it is proposed to provide the supporting 
structures of the Committees of Supervisors 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 Monitoring, Reporting And Evaluation 

The Commission will closely monitor the application 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 ; 

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•  Evaluate the quality, relevance 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 referred to above, both in the course of their development and 

upon completion; 

•  Arrange visits to the Committees of Supervisors premises when deemed necessary to 

verify budgetary systems and controls; 

Finally, in line with current financial regulations and practices, the programme as a whole will 
be properly evaluated in order to determine its possible renewal in 2013. 

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3. 

ANNEX  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 operation of capital markets 
and of the broader economy. By ensuring 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  standards  can  also  have  important 
tax implications and regulatory impacts, notably for regulated financial institutions. 

The  Community  first  adopted  harmonised  accounting  requirements  for  limited  liability 
companies in  1978  in the form of the 4th 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 the adoption of Regulation (EC) No 1606/2002 
on international accounting standards (the IAS Regulation).70 

The adoption of the IAS Regulation took place in the context of a broader Financial Services 
Action  Plan  (FSAP)  whose  objective  was  to  promote  the  integration  of  European  capital 
markets. The use of IFRS is also required pursuant to the Transparency Directive71 and to the 
Prospectus  Directive,72  two  major  elements  of  the  EU's  securities  markets  legislation  that 
were also adopted in the context of the FSAP. 

The  IAS  Regulation  foresees  that  the  European  Commission  may,  subject  to  certain 
conditions, decide on the applicability of International Financial Reporting Standards (IFRS) 
and related interpretations to the consolidated accounts of companies with securities listed on 
a  regulated  market  within  the  Community.  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 regulatory comitology procedure. So far the Commission has adopted all IFRS in 
full, with one partial exception related to the accounting standard on financial instruments. 

The  IAS  Regulation  includes  an  option  allowing  Member  States  to  extend  the  scope  of 
application of IFRS to the annual accounts of listed companies or to the accounts of non-listed 
companies. Several Member States have taken advantage of this option, especially in relation 

68 

69 

70 

71 

72 

Directive 78/660/EC of 25 July 1978 based on Article 54 (3) (g) of the Treaty on the annual accounts of 
certain types of companies, OJ L 222, 14.8.1978, p. 11. 
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. 
Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the 
application of international accounting standards, OJ L 243, 11.09.2002, p. 1. 
Directive  2004/109/EC  of  the  Council  and  o  the  European  Parliament  of  15  December  2004  on  the 
harmonisation of transparency requirements in relation 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. 
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. 

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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  effective  operation  of  the  Single 
Market and of the EU's economy. Although the Commission can in principle refuse to adopt 
standards  that  do  not  meet  the  relevant  criteria  –  and  has  made  use  of  this  option  in  one 
occasion – this option has serious disadvantages and 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  are  consistent  with  the  public 
interest (e.g. financial stability) and with the 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 International Accounting Standards Board 
(IASB) and by the International Financial Reporting Interpretations Committee (IFRIC), two 
bodies  of  the  International  Accounting  Standards  Committee  Foundation  (IASCF).  The 
IASCF  is  a  not-for-profit  corporation  incorporated  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 and of its standard-setting bodies. 

Figure 1: IASCF current structure (simplified) 

IASCF Foundation 
(Board of Trustees) 

Reports 

Reports 

Appoints, oversees, funds 

IASB 

IFRIC 

Adopt 

IFRS 

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 IASCF's funding arrangements, a subject that has 
been repeatedly highlighted by the ECOFIN Council in its conclusions adopted in July 200674 

73 
74 

http://www.iasb.org/About+Us/About+the+Foundation/About+Foundation.htm 
http://tinyurl.com/5pb8kn 

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and July 2007.75 In its conclusions of 8 July 2008, the ECOFIN Council also referred to the 
urgent need to secure appropriate 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  form  it  might  consider  contributing  to  that 
funding."77 The pace of progress achieved in reforming the IASCF's governance, including its 
funding arrangements, is one of the elements that will influence the EP's willingness to accept 
future  IFRS.78  In  its  opinion  dated  10  September  2008,  the  Committee  on  Economic  and 
Monetary  Affairs  of  the  EP  reiterated  that  "sufficient  funding  must  be  set  aside  for  […] 
international  accounting  standard  setting,  in  particular  to  the  International  Accounting 
Standards  Committee  Foundation,  including  the  International  Accounting  Standards 
Board."79 

The IASCF has responded to the concerns expressed by the EU institutions by attempting to 
secure  and  diversify  its  funding  base.80  While  these  developments  are  welcome,  several 
aspects of the IASCF's funding system remain of concern today:81 

•  While  the  number  of  organisations  contributing  to  the  IASCF's  funding  has  grown  from 
less than 200 organisations in 2005 to several 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  from  a  specific  stakeholder  group  with  a 
major  and  direct  interest  in  shaping  the  content  of  accounting  standards.  For  example,  9 
large  financial  institutions  account  for  half  of  the  contributions  raised  in  the  US 
(Commission services calculation based on confidential data received from the IASCF.) 

75 
76 
77 

78 
79  

80 
81 
82 
83 

http://tinyurl.com/6b6gmv 
http://tinyurl.com/6y5k9u, p. 13. 
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. 
The EP participates in the adoption of IFRS through the regulatory procedure with scrutiny (PRAC). 
http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//NONSGML+COMPARL+PE-
407.786+02+DOC+PDF+V0//EN&language=EN 
http://www.iasb.org/News/Press+Releases/Update+on+Funding+for+2008.htm. 
See also the Commission's 3rd report on IASCF governance, http://tinyurl.com/66nlsj. 
Deloitte, Ernst&Young, KPMG, PriceWaterhouseCoopers. 
http://www.iasb.org/News/Press+Releases/Update+on+Funding+for+2008.htm. 

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Figure 2: Contributions to IASCF 2008 budget (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  voluntary  contributions  of  key  stakeholder 
groups  gives  rise  to  continued  concerns  about  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  Accounting  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, "Accountability 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  demands.  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) 

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continue to be available in the future: companies could withdrawn 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  institutions  referred  to  in  the  previous  section  have 
since  declared  bankruptcy,  merged  or  are  facing  serious  financial  difficulties,  thus 
threatening their continued contribution 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  schemes  have  been  established  in  only  8  Member 
States85 (in some cases still subject to final confirmation) 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 contributions for these 8 Member States. 
While  the  IASCF  continues  its  efforts  to  raise  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 establishing 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  schemes  to  withdraw  funding,  thus  threatening 
the  continuity  of  the  IASB's  operations.  There  is  clear  and  present  risk  that  such  a 
withdrawal could occur in the near future. 

85 

86 

87 

France,  Germany,  Italy,  Luxembourg,  the  Netherlands,  Spain,  Sweden  and  the  United  Kingdom.  See 
source quoted in footnote 80. 
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. 
For example, the IASCF has for some time been negotiating 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. 

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Figure  3:  Contributions  by  Member  State  (target,  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 arrangements 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  the  EP  to  endorse  one  or  more  IFRS  would  undermine  the 
implementation of the IAS Regulation, of the  Transparency Directive and 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  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  outcome  would  undermine  the  functioning  of  the 
Single Market and, in particular, of the EU's capital market. 

In addition, the European Commission has sought more fundamental reforms of the IASCF's 
governance  arrangements,  including  of  its  funding  regime,  in  order  to  address  the  concerns 

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43 

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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  Exchange  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 authorities, 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,  transparent  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 its governance arrangements. 
In order to ensure that the EU is in a position to participate in the IASCF's revised funding 
arrangements  after  the  completion  of  its  governance  reforms,  it  is  important  to  complete 
preparations within the EU – including, 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  independent  and  efficiency,  as  well  as  the  high 
quality of the accounting standards produced by the IASB. 

3.3.2.  Operational objectives  

3.3.2.1.  Avoid reliance on precarious, voluntary funding from interested parties thus ensuring 

stability and independence of the IASCF's work 

The  first  operational  objective  is  to  guarantee  the  IASCF's  financial  independence 
from  voluntary  contributions  from  parties  with  a  direct  interest  in  accounting 
standards,  while  at  the  same  time  ensuring  sound,  stable  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  international  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 stakeholders within the Internal Market 

The  second  operational  objective  is  to  reform  the  IASCF's  funding  regime  to  allow  the 
Community  to  contribute  in  a  manner  that  ensures  a  fair  burden  sharing  for  stakeholders 
throughout the EU. This could in principle be achieved by establishing non-voluntary funding 
schemes  in  all  Member  States  (involving  a  statutory  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 

89 

See the 3 Commission staff reports on governance developments in the IASB and IASCF available at 
http://ec.europa.eu/internal_market/accounting/ias_en.htm. 
See  the  consultation  document  about  the  revision  of  the  IASCF's  constitution  available  at 
http://tinyurl.com/4n7eje, in particular the creation of the Monitoring Group to oversee the IASCF. 

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3.3.2.3.  Promote the international acceptance of IFRS 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  particular  with  the  Securities  and  Exchange 
Commission  (SEC)  and  accounting  standard-setter  (FASB)  to  facilitate  the  convergence  of 
US accounting requirements with IFRS, with a view to the latter'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 would 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  bodies  must  be  funded  in  a  manner  that  ensures  their 
independence  from  those  parties  directly  affected  by  accounting  standards.91  In  practice, 
recognition of the IASB by the SEC would require all or a majority of the IASCF's funding to 
be raised through non-voluntary sources. A contribution 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 facilitating the IASB's recognition as 
a  standard-setting  body  by  the  SEC  and  supporting  the  Community's  objective  of  achieving 
global acceptance of IFRS.  

3.3.2.4.  Achieve  the  above  objectives  within  a  reasonable  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  the  context  of  the  current  financial  crisis.  In 
particular, given the anticipated timetable of the reform of the IASCF's funding arrangements 
(2010-11), it is important to complete preparations 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 parliamentary term, failing which 
the  EU  risks  being  unable  to  participate  in  the  reform  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  IASCF's  funding  arrangements  in  a  manner  that 
achieves  the  objectives  set  out  in  section  3.3.  The  remainder  of  this  section  describes  the 
available policy options. 

90 
91 

http://www.sec.gov/news/press/2008/2008-184.htm 
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 for the SEC's recognition of any accounting principles 
established by a standards-setter other than the SEC itself." 

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3.4.1. 

Status quo 

In  the  absence  of  a  policy  intervention  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 IASCF 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  direction  can  be  expected.    In  addition,  it  is  unrealistic  to  expect 
current contributors to the IASCF budget to increase their contributions, since – as shown in 
Figure 2 above – contributions to the IASCF is already struggling to meet its current funding 
target. 

The status quo, i.e. no policy intervention, therefore implies that the objectives identified in 
section 3.3. would not be achieved. This 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, 
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  triggering  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  triggering  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 outcome would undermine the functioning 
of the Single Market and, in particular, 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  minority  of  cases,  of  statutory  levies  on 
companies  with  listed  securities.  If  the  IASCF's  funding  continues  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  such  a  legal  basis,  the  Commission  could  propose  a  legal  act  requiring 
Member  States  to  finance  the  IASCF,  for  example  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 Treaty 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 being a form of direct taxation). Even assuming such a legal 
basis  for  a  statutory  levy  could  be  found  on  the  basis  of  Article  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 relation 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  combination  of  legal  and  political 
considerations. 

Alternatively,  the  Commission  could  rely  on  moral  presuasion  to  encourage  stakeholders 
(private  sector  and/or  public  authorities)  to  establish  national  funding  schemes  in  those 
Member States where none exist for the time being. This approach was already suggested in 

EN 

46 

   EN 

the conclusions of the ECOFIN Council of July 2006, and experience 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 contribution to the IASCF from the Community budget 

The  Community  could  co-finance  the  IASCF.  This  policy  option  would  achieve  the  first 
objective  (guarantee  the  IASB's  financial  independence  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 contribution from the Community alone would not be 
sufficient to achieve this (as explained below, we envisage that the Community contribution 
would amount to no more than one fourth of the IASCF's budget) and co-ordination and co-
operation among the jurisdictions with major capital markets, in particular the EU, Japan and 
USA, will be necessary to achieve the necessary reforms of the IASCF's funding regime. As 
described  above,  negotiations  towards  the  establishment  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 expected to be adopted before the end of 2008. 

This policy option would also achieve the second objective (ensure 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 moves towards implementing IFRS, it will also 
modify  its  funding  arrangements  towards  the  IASCF  by  implementing  a  non-voluntary 
contribution,  since  this  is  requirement  for  recognising  the  IASB  as  a  standard-setting  body 
pursuant to sections 108 and 109 of the Sarbanes-Oxley Act (see section 3.3.2.3. above). We 
expect other major jurisdictions to do likewise as they move towards implementing IASCF. 

Provided  a  legal  basis  can  be  adopted  under  the  current  legislature,  it  would  also  allow  the 
Community to fully participate in and contribute towards the reform of the IASCF's funding 
arrangements. This would strengthen our negotiating position in the broader discussions about 
the reform of the IASCF's governance. 

3.4.4.  Establishment of an EU accounting standard-setting agency or body 

The Community could establish a European accounting standards-setting body, either in the 
form of a private body or by establishing a Community agency, to take over 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),  International  Financial  Reporting  Standards 
(IFRS) and related Interpretations (SIC-IFRIC interpretations), subsequent amendments to 
those  standards  and  related  interpretations,  future  standards  and  related  interpretations 
issued  or  adopted  by  the  International  Accounting  Standards  Board  (IASB)."  An 
amendment  to  the  IAS  Regulation  would  therefore  be  required  in  order  to  allow  the 
Commission to adopt accounting standards developed by a body other than the IASB. Such 
an  amendment  risks  provoking  a  damaging  political  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  single  set  of  globally  accepted 
accounting  standards,  i.e.  IFRS,  in  order  to  facilitate  cross-border  investment  and  the 
integration  of  global  capital  markets  (especially  the  trans-Atlantic  capital  market).  It  is 
therefore  of  paramount  importance  to  avoid  the  emergence  of  regional  accounting 

EN 

47 

   EN 

standards  which  would 
the 
establishment  of  European  standard-setter,  be  it  private  or  public,  is  not  compatible  with 
the Community's financial reporting policy; 

this  objective.  Consequently, 

inevitably  undermine 

In  addition,  the  establishment  of  either  a  private  or  public  European  accounting  standard-
setter  is  unlikely  to  be  possible  without  Community  funding  comparable  in  amount  to  the 
financial contribution to the IASCF's funding foreseen under the preceding option (a fortiori 
in  the  case  of  an  agency,  which  would  ultimately  be  funded  entirely  from  the  Community 
budget). Moreover, the Commission's management of the financial 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 relative 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 criteria feature more prominently.  
With this in mind, the criteria have been 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  evidenced  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 international, not-for-profit corporation incorporated in 
Delaware, USA, adds a certain degree of complexity to the discussion on feasibility. Looking 
for  a  Community  solution  to  the  problems  defined  in  section  3.2.  above,  it  is  thus  a  high 
priority that the 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  (i)  the  EU  need  to  be 
prepared to take part to the reform of the IASCF funding, which is scheduled to take place in 
2010-2011 and (ii) the current financial crisis has 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  baseline  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 

48 

   EN 

ASSESSMENT 

1. Achievement 
of objectives 

2. Feasibility 

High (+++) 
Medium (+/-) 
Low (- - -) 

Straightforward 
(+++) 
Medium (+/-) 
Complex (- - -) 

3. Time needed 
for 
implementation 

High (+++) 
Medium (+/-) 
Low (- - -) 

4. Implication 
for EU budget 

Overall 
Assessment 

Positive  
(+ to +++) 
Negative  
(- to - - - ) 

Positive  
(+ to +++) 
Negative  
(- to - - - ) 

OPTIONS 

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  the  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 opinion about this option, which we discard. 

Option  2  likewise  incurs  no  direct  costs  to  the  Community  budget  but  is  not  feasible  for  a 
combination of legal and political considerations. 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  financial  reporting.  Moreover,  this  policy  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  administrative  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 

49 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
•  it  would  enhance  the  IASB's  financial  independence  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 the Community budget could be provided either: 

1. 

2. 

by contributing to the overall budget of the body (via operating grants); or 

by co-financing specific targeted activities of the body (via grants for action).  

Concerning publicity rules, the possibility of providing a grant following a call for proposal 
should be excluded from the outset since the beneficiary (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 budget by way of an operating grant constitutes the 
best solution to address the proposed funding. Indeed, the choice to provide an operating grant 
to the IASCF seems the most appropriate because, 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 beneficiary, it complies with the requirements laid 
down in the Financial Regulation because this organisation pursues an aim of general interest 
and is a non-profit organisation (legally speaking has been authorised and is regulated as a US 
not-for-profit foundation). 

3.4.7.  Volume of appropriation, human resources and other administrative 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) 

Salaries, wages and benefits 

Trustee fees 

Cost of meetings and associated travel 

(9,738) 

(496) 

(2,117) 

(2,922) 

(9,177) 

(436) 

(1,907) 

EN 

50 

   EN 

Accommodation 

Fundraising expense 

Other costs 

Changes in fair value of financial instruments 

Foreign exchange gains 
TOTAL EXPENSES 

Source: IASCF 2007 Annual Report 

(1,320) 

(1,238) 

(175) 

(667) 

(436) 

436 
(17,136) 

(72) 

(717) 

159 

3 
(16,307) 

http://www.iasb.org/About+Us/About+the+IASC+Foundation/2007+Annual+Report.htm 

The  IASCF  budget  for  2008  is  approximately  equal  to  that  for  2006.  Moreover,  we  do  not 
expect  significant  variations  in  these  expenses  since  most  of  them  are  fixed  or  highly 
predictable,  e.g.  salaries,  wages  and  benefits;  Trustee  fees;  and  accommodation  (which 
together represent over two thirds of total expenses). Some categories of expenses may show 
some volatility, e.g. the meetings and associated travel, due for example to the volatility of the 
exchange rates and the increasing international  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  with  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 share of global capital markets as 
by  far  the  primary  users  of  IFRS  are  capital  markets.  This  current  share  suggests  that  the 
Community contribution would amount 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) 

(4) 

(5) 

(6) 

no future increase in the IASCF's budget compared to the 2008 budget; 

the elimination of the voluntary contribution from the 'Big 4' international accounting 
networks; 

the eventual replacement of existing national funding schemes in EU Member States 
by a single contribution to the IASCF from the EU budget; 

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 justified by the fact that the IASCF aims to make 
its publications (mainly standards 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 difficulties for jurisdictions that are required 
to publish them in their official journals (as is the case for the EU). 

Moreover,  the  envisaged  funding  would  entail  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 additional staff and additional financial training 
for existing staff, which is estimated under section 3.4.8. of the general section of the ex ante 
evaluation. 

EN 

51 

   EN 

3.5. 

Conclusion  

In view of  the above and in order  to increase the IASCF's  independence, the stability of its 
funding  sources  and  the  quality  of  international  accounting  standards,  we  consider  that  it  is 
important that the Community contributes to the funding of IASCF. Specifically, we conclude 
that the best way forward is to co-finance the 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 IASCF 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 total of €15 million. 

The Community contribution will, among other things: (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 Monitoring, Reporting And Evaluation 

The  Commission  would  closely  monitor  the  application  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 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 deemed necessary to verify budgetary systems 

and controls. 

Finally, in line with current financial 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 Board (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 

52 

   EN 

 
IFRIC:  

International Financial Reporting Interpretations Committee 

IFRS: 

International  Financial  Reporting  Standards  (previously  referred 
International Accounting Standards or IAS) 

to  as 

JFSA: 

Financial Services Authority of Japan 

SEC 

Securities and Exchange Commission (the US securities regulator) 

EN 

53 

   EN 

 
4. 

ANNEX 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-exchange of an EU Member State have to apply 
the  international  accounting  standards  as  they  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 (IASB) 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 European Parliament and stakeholders). 

Based  on  Regulation  No.  1606/2002  (the  IAS  Regulation),  the  Commission  adopts 
international accounting standards as Community law under the comitology procedure. Before 
the  Commission  starts  the  comitology  procedure  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  international  accounting  standards.  The  endorsement  process  is 
shown in the figure below. 

(See section 4.7. for further explanation of acronyms) 

92  

93  

The IASCF is a not-for-profit corporation 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. 
"An  accounting  technical  committee  should  provide  support  and  expertise  to  the  Commission  in  the 
assessment of international accounting standards." 

EN 

54 

   EN 

 
                                                 
EFRAG94  was  set  up  in  2001  to  assist  the  European  Commission  by  providing  it  with  the 
above-mentioned  endorsement  advice.  It  is  a  private  association  representing  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 Board is related to their respective contribution 
to the financing  of EFRAG. The Commission  Services may  attend as  observers all EFRAG 
meetings.  EFRAG's  chairman  chairs  the  meetings  and  EFRAG  has  its  own  secretariat.  The 
roles  of  the  General  Assembly  and  the  Supervisory  Board  are  limited  to  the  administrative 
issues and appointment of the Technical Expert 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 standards applicable in the EU also at a stage 
earlier  than  providing  opinion  on  the  already  issued  international  accounting  standards.  It 
provides  technical  input  to  the  IASB  concerning  draft  standards,  through  issuing  comment 
letters.  In  addition,  EFRAG  has  – in  co-operation  with  the  national  accounting  standard-
setting bodies  of the Member States – increasingly 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 connection with the international 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  international  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  standards  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  attracted  growing  political  interest  as  a  way  of 
ensuring that the IASB's standard-setting process properly reflects the needs and interests of 
EU stakeholders. We live in historical times when more and more jurisdictions (including the 
US  and  China)  decide  to  move  towards  and  apply  international  accounting  standards. 
Applying  these  standards  naturally  awakes  the  desire  to  have  an  influence  on  their 

94  
95  

http://www.efrag.org/ 
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 

55 

   EN 

                                                 
development.  The  increasingly  wide  adoption  of  international  accounting  standards  at 
international  level  has  given  rise  to  concerns  that  Europe's  influence  over  the  IASB  will 
diminish given the significant resources and expertise 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 opinion dated 10 September 2008, the Committee on 
Economic and Monetary Affairs of the European Parliament reiterated that "sufficient funding 
must  be  set  aside  for  […]  international  accounting  standard  setting,  in  particular  to  the 
International  Accounting  Standards  Committee  Foundation,  including  the  International 
Accounting  Standards  Board,  and  its  European  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 organisations and by voluntary contributions of EU 
professional associations. Additionally, private or public national funding mechanisms, set up 
in certain Member States provide EFRAG with voluntary funding. EFRAG's financing needs 
to  be  reconfirmed  on  a  yearly  basis.  Part  of  EFRAG's  staff,  including  the  TEG  chairman, 
remains  on  the  payroll  of  their  current  employer  (e.g.  an  accounting  firm).  These  fragile 
arrangements may also give cause for public concerns about the operational independence of 
EFRAG from the main organisations interested in financial reporting.  

To address the concerns regarding 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  remuneration  for  their  professional  services.  The 
Commission  only  reimburses  their  costs  related  to  their  meetings.  Although  SARG's 
additional advice about the independence of EFRAG's opinion can be seen as a solution in the 
case of endorsements, a similar system of additional opinions is from a practical point of view 
totally impossible when it comes to influencing the international standard setting process (the 
"pro-active" work). Thus, independence has to be an inherent feature of the body responsible 
for the pro-active work.  

96  

97  

98  

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 
(ii) 
ECOFIN 
on 
of 
http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressData/en/ecofin/76683.pdf 

and 
available 

conclusions 

Council 

2003, 

Item 

July 

15 

7, 

5 

Report") 

February 

See in particular (i) Report of the European Parliament on International Financial Reporting Standards 
(IFRS) and the Governance of the International Accounting Standards Board (IASB) (2006/2248(INI)) 
("Radwan 
on  
available 
http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//NONSGML+REPORT+A6-2008-
0032+0+DOC+PDF+V0//EN&language=EN  and  (ii)  Written  question  n°  E-3992/08  by  Klaus  Heiner 
Lehne 
on 
http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+WQ+E-2008-
3992+0+DOC+XML+V0//EN&language=EN 
http://www.europarl.europa.eu/sides/getAllAnswers.do?reference=E-2008-3992&language=EN) 

Commission, 

(PPE-DE) 

available 

available 

answer 

2008, 

(with 

and 

11, 

the 

on 

pp 

to 

7 

http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//NONSGML+COMPARL+PE-
407.786+02+DOC+PDF+V0//EN&language=EN 

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4.2.2. 

Insufficient financial means to carry out public interest missions  

Currently,  the  European  interests  are  not  well  taken  into  account  at  the  international  level. 
International accounting standards  are developed  by bodies (IASB  and  IFRIC) in  which the 
European  interest  is  not  guaranteed.  These  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 into 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 standard setting process, problems may arise in the 
course of the endorsement procedure.  

Such  problems  were  in  the  past  temporarily  solved  by  not  endorsing  the  international 
accounting standard in question in full (referred to as "carve-outs")99. However, this solution 
can  only  be  regarded  as  temporary,  since  the  use  of  international  accounting  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 influence 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  Proactive  Accounting  Activities  in  Europe  (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 inherent features of the system: 

•  There  is  not  a  single  body  (nor  EFRAG  nor  any  of  the  national  standard  setters) 
responsible and accountable for this important 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  creating  a  truly  single  European  voice  is  fairly 

limited, since there is no continuity 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 also picked mainly on the basis of the four 
largest  Member  States'  opinion  –  thus  the  issues  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  
100  

See for example the case of IAS 39 in connection with hedge accounting. 
National standard setters can be both private non-profit or public organisations depending on the actual 
constituency. 

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do not have sufficient resources to contribute to the PAAinE initiative is likely to be 
neglected.  

To  remedy  the  limits  of  a  mechanism  functioning  on  an  ad-hoc  basis  (such  as  PAAinE),  a 
single body equipped with sufficient resources has to take up the task of developing the pro-
active input to the international standard setting 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 process. 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  2007101,  EFRAG  had  a  total  budget  of  approximately  €3.25  million,  of  which  ca.  €1.6 
million was funded via voluntary cash 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  setters),  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 basis is considered as 
"contribution in kind" to EFRAG's budget. A declaration of the experts is however not enough 
for  the  independency  credentials  of  EFRAG.  These  experts  also  need  to  be  perceived  as 
independent by the outside world. Thus an additional 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 and accountability, EFRAG's governance structure is 
currently undergoing reforms. Regular liaison with 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  consultations  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  TEG  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  solution  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. 

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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  interested  parties  thus 

ensuring credibility and independence of its work 

A  first  operational  objective  is  to  avoid  EFRAG's  reliance  on  precarious/voluntary  funding 
from  interested  parties,  thus  ensuring  credibility  and  independence  of  its  standard-setting 
related  activity  (influencing  the  standard  setting  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  organisation  relies  on  the  voluntary  contributions 
received from stakeholders interested in financial 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 voting 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  guarantee  the  operational  independence  of  EFRAG 
from inappropriate pressure coming from the business community. 

4.3.2.2.  Boost the international reputation, attractiveness and acceptance of the standards  

A  second  operational  objective  is,  in  addition  to  the  above,  to  boost  the  international 
reputation, attractiveness and acceptance 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  work,  the  European  context  will  be  taken  into 
account  in  the  course  of  developing  international  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 that 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 standards in Europe in the course of the comitology procedure102.  

In  addition,  it  will  also  ease  the  EU's  international  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  standards  fully  correspond  to  the  international 
accounting standards, decisions on whether third country accounting 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 international accounting standards in Europe. 

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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 bring the benefit of ensuring fair burden sharing. 
EFRAG  is  now  mainly  financed  by  its  members  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.  Naturally,  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 single, 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  increasing  EU  influence  in  the  IASB.  To 
build  respect  and  status,  EFRAG  needs  to  give  top  quality  advice  and  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 experts would be able to manage the workload and 
match  the  expertise  and  personnel  of  our  international  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  speaks.  The  experience  of  our  European  experts  has  to  meet 
that of their US colleagues. When trying to attract and recruit the best quality people, EFRAG 
competes  with  the  private  sector  including  leading  audit  networks.  This  implies  the  need  to 
pay competitive salaries103, which represent EFRAG's main cost. Should EFRAG not be able 
to afford to pay the best people, the objective of developing a powerful European voice would 
not be met.  

4.3.2.5.  Achieve  the  above  objectives  within  a  reasonable  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 current EU and international context.  

We  live  in  historic  times:  the  IASCF  is  currently  undergoing  major  reforms.  International 
standard  setting  processes  are  being  opened  up  and  the  representatives  and  views  of 
jurisdictions  adopting  international  accounting standards  are  welcome  and  listened  to.  If  we 

103  

Based on informal estimates, the annual salaries of accounting experts are higher than EUR 300,000. 

EN 

60 

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do  not  grab  this  opportunity  now,  we  will  not  have  the  chance  to  do  so  in  the  future. 
Currently,  we  can  claim  that  the  EU  is  the  largest  constituency  applying  the  international 
accounting standards. With more and more countries adopting them, among them such large 
countries as the US and China, it will be hard for 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 the 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 organisation'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 Commission. Also, this scenario 
has  no  implications  for  the  Community  budget,  no  additional  Community  money  has  to  be 
spent.  

However, the disadvantages clearly overshadow the advantages of this option. If the number 
of  EFRAG's  staff  is  not  increased,  the  absence  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  first  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  adoption  of  accounting  rules  within  the  European 
Community  would  come  to  a  complete  halt.  Clearly,  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  Commission  on  the  endorsement  of  the  already  issued 
standards. So the objective of developing a single and influential European accounting voice 
is not met. 

This  option  does  not  solve  the  current  problems  of  passive  adoption,  non-equivalence  and 
carve-outs either. At the same time, we would miss the historic opportunity described above 
to get involved in the international standard setting process.  

Not supporting EFRAG with Community funds would also mean that the currently ongoing 
reforms of EFRAG's governance loose ground. The system of voting rights tied to the share in 
financing would prevail. The stakeholders directly concerned by EFRAG'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. 

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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  current  problems.  EFRAG's  level  of  independence  would  if  not 
decreased,  at  least  perceived  to  be  decreased  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 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 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.  

4.4.3. 

Setting up national funding schemes (public financing or levy over industry) 

National funding mechanisms have been designed to support the various accounting standard 
setting activities (e.g. standard setting at national level, influencing the international standard 
setting process) for the benefit of the stakeholders of one particular country. The private and 
public  funding  systems  for  national  standard  setters  (i.e.  national  funding  mechanisms)  are 
equally  common104.  In  case  of  private  funding  systems,  the  accountancy  profession  and 
preparers  (industry)  together  with  the  stock  exchanges  are  the  most  common  providers  of 
funding  where  the  national  funding  system  works  on  a  non-voluntary  basis.  There  are  also 
some  cases  of  mixed  funding  systems  where  government  participates  in  a  mainly  private 
system or private contributions are paid to mainly government funded standard setters. 

However,  counting  on  the  increased  contribution  only  from  this  source  has  considerable 
disadvantages.  National  funding  mechanisms  exist  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 willingness to create another tax-like system, mean 
that these funding mechanisms cannot sufficiently increase their contribution to the work of 
EFRAG. This option also implies that the Member States would be entitled to decide on the 
level of their 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  is  not  a  feasible  option.  It  would  require  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 objective 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.  

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The grant will be designed to co-finance the functioning (basically the staff costs) of EFRAG 
(operating grants). By definition, such co-financing has no direct link to any deliverables. On 
the other hand, the Commission will contribute only to financing the actual 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 possible 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 Council and by the European Parliament.105 

The  articulation  of  a  single  European  voice  is  of  a  broader  European  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  European  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  trend  that  the  same  sets  of  accounting  rules  are 
applied more and more globally. European companies 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 – including 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  (replacing  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, proposals 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 agencies. The need for financing the pro-active 
accounting  work  is  urgent;  therefore,  this  scenario  would  lead  to  missing  our  unique 
opportunity to get involved in the 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 EFRAG funding foreseen 
under  the  preceding  option  as  an  agency  would  ultimately  be  funded  entirely  from  the 
Community budget. Moreover, the Commission's management of the financial contribution to 
and/or  co-ordination  with  an  Agency  would  imply  administrative  costs  for  the  Commission 

105  
106  

Cf. references above in section 4.1.1. 
For details, refer to Communication from the Commission to the European Parliament and the Council. 
European agencies – The way forward (COM (2008) 135 final). 

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which  would  also  be  comparable  to  that  associated  with  a  financial  contribution  to  the 
EFRAG budget.  

4.4.6. 

"Internalize" functions within the Commission 

Under  this  scenario,  the  technical  expertise  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 alia, of a technical advice which by its nature 
should be seen as independent. It is thus not desirable that the 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  considered  equally  important  in  testing  the  cost-
effectiveness of each option, however, some of these 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 attractiveness 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  stakeholders  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  other  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 

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•  Feasibility, and 

•  Implication for the EU budget. 

ASSESSMENT 

1. Achievement 
of objectives 

2. Time needed 
for 
implementation 

3. Feasibility 

4. Implication 
for EU budget 

Overall 
Assessment 

OPTIONS 

High (+++) 
Medium (+/-) 
Low (- - -) 

High (+++) 
Medium (+/-) 
Low (- - -) 

Straightforward 
(+++) 
Medium (+/-) 
Complex (- - -) 

Positive  
(+ to +++) 
Negative  
(- to - - - ) 

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 

65 

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no full guarantee exists that public interest is duly 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 have the following important advantages: 

•  it can be realized quickly enough to meet the urgent needs 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, the new Community funding programme could 
be launched as of 2010;  

•  it  would  considerably  enhance  EFRAG's  independence  from  the  stakeholders  and 
support  its  current  governance  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  institutions  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 interest 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  grants  from  the  Community  budget  and  at  the 
same  time  raising  additional  resources  from  third  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-kind contributions may 
be transformed into cash contributions); 

•  additional  cash  contributions  from  national  funding  mechanisms  and/or  the  private 

organisations that founded EFRAG; 

•  co-funding from the Community budget. 

Based on the financial rules governing the management of the Community budget, financial 
support from the Community budget could be provided 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 

66 

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In the case at hand, the aim is to finance mainly 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 for financing and which relate to activities that 
would not be the subject of the Community funding. 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) IR108. This is a non-profit organisation pursuing an aim of general interest as a 
European body representing a network of non-profit bodies active in the Member States.  

EFRAG is clearly European: it is incorporated in one of the Member States (as a non-profit 
organisation,  AISBL  under  Belgian  law),  and  its  members  are  all  European  organisations. 
Also its objectives and activities 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  representative  federations  and  associations  of  experts  and  the 
industry, non-profit national standards setter institutions 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 Commission. It should also represent the widest possible range 
of stakeholders when providing input to the international standard 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  consider  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 EFRAG without a call for proposals.  

4.4.9.  Volume of appropriation, human resources and other administrative expenditure 

At  present  the  operating  costs  of  EFRAG  are  financed  primarily  by  its  European  member 
organisations.  In  addition,  stakeholders  contribute  in-kind  to  the  operation  of  EFRAG  by 
providing  the  organisation  with  experts  who  are  on  their  payroll  but  who  work  for  EFRAG 
part-time  or  full-time.  Occasionally,  EFRAG  receives  voluntary  contributions  from 
stakeholders.  

108  

Regulation No. 2342/2002 (regulation implementing the Financial Regulation) 

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The current budget of EFRAG is presented in the following table. 

in thousand euros 

 Income Statement 

(in-kind contributions are not included) 

Members' Contributions 

Voluntary Contributions 

Total Contributions 

Personnel costs 

Office costs 

 Meeting costs 

Other costs 

Year 

2006 

1075 

0 

1075 

-886 

-114 

-26 

-117 

Year 

2007 

1338 

283 

1621 

-997 

-130 

-26 

-122 

Operating Expenses  

-1143 

-1275 

Operating Profit or Loss 

Financial Result 

NET PROFIT or LOSS 

-68 

-8 

-76 

346 

1 

347 

Source: EFRAG Annual Review 2007, April 2008 

The  table  above  shows  that  EFRAG  is  currently  a  rather  fragile  organisation,  depending  on 
some  Brussels-based  associations.  Voluntary  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  endorsement  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) 

European member organisations 

National Funding Mechanisms 

EN 

Year 

Year 

Year 

2009 

1.000 

2.000 

2010 

1.000 

2.000 

2008 

1.100 

770 

68 

   EN 

  
 
EC funding 

Total revenues 

Staff costs 

New staff 

Offices 

Other 

Total expenditures 

Net profit/loss 

0 

1.870 

-1.010 

-340 

-162 

-300 

-1.812 

58 

0 

3.000 

-1.455 

-990 

-210 

-345 

3.000 

6.000 

-5.170 

-210 

-620 

-3.000 

-6.000 

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  figures  are  all  cash-based  accounts  and  projections,  and  they 
exclude the in-kind contributions of the stakeholders and the maintained 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 reasonable that the Community intervention covers up to 
50% of the EFRAG  2010 total expenses (the  baseline  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  reduced  –  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 described 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  public  bodies  and  institutions  to  increase  their 
contributions to EFRAG. 

o  Expected impact of community funding 

The  main  sources  of  EFRAG  financing  (expressed  in  %),  after  2010  i.e.  including  the 
Community intervention, are illustrated in the pie chart below. 

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69 

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EC co-funding 
50% of cash 
budget

EFRAG budget 2010

Member 
organisations 
13% of the 
total budget

National 
Funding 
Mechanisms 
27% of total 
budget

In-kind 
contributions 
20% of 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 other administrative expenditure 

Taking into consideration that the envisaged funding would finance operating costs, this will 
entail related administrative work by the European Commission. Since DG MARKT does not 
have  sufficient  administrative  resources  for  managing  such  a  significant  amount  of  money 
compared  to  our  budget  line,  there  will  be  a  need  for  some  additional  specialist  financial 
officers  and  additional  financial  training  for  existing  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, considering the public interest role that EFRAG plays at present in the 
endorsement  of  the  international  accounting  standards  in  the  EU,  and  the  role  that  it  is 
envisaged to take up in pro-actively influencing the international standard setter, it is rational 
and important that this organisation is supported also financially by European public money in 
carrying  out  its  tasks.  Therefore,  it  is  proposed  to  provide  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) demonstrate Community interest in international 
solutions, and (iii) incite other public bodies or institutions to provide funds to EFRAG.  

4.6. 

Follow-Up: Arrangements For Monitoring, Reporting And Evaluation 

In order to make sure that the Community money 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  scheme  starts  and  the  programme  will  be 
monitored and evaluated. 

We are currently seeking governance reforms both at the IASFC and at EFRAG in order to 
ensure  that  they  operate  in  the  public  interest  and  that  all  stakeholder  groups  are  properly 

109  

http://www.efrag.org/news/detail.a3sp?id=228 

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70 

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represented.  Thus,  the  raise  in  funds  will  be  coupled  with  sufficient  reforms  both  at 
international and at European level. We envisage that the new structure and rules of procedure 
of EFRAG will take effect by the beginning of 2009. 

The Commission will closely monitor the application 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 contributed by other organizations to EFRAG's budget drop, the 
EC contribution will also be reduced proportionately to respect the 50% contribution level.  

Evaluation  should  also  include  the  assessment  of  the  quality  and  efficiency  of  EFRAG's 
technical work, and should be based on its work programme and the issued documents.  

•  Efficiency  would  be  measured  by  scrutinizing  whether  EFRAG  delivered  the 
documents (e.g., comment letters, input to the IASB's discussion papers) envisaged in 
its work-programme.  

•  Quality  could  be  measured  by  delivering  the  documents  on  time  and  possibly  by 
examining  the  percentage  of  EFRAG's  comments  taken  into  consideration  by  the 
IASB. 

Finally, in line with current financial 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 solution to make the "common European voice" in 
accounting well-founded (and funded) without 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 

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71 

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AISBL: 

Association  internationale  sans  but  lucrative  (international  not-for-
profit association) 

PAAinE: 

Proactive Accounting Activities in Europe 

TEG: 

Technical Expert Group of EFRAG 

SARG: 

Standards Advisory Review Group 

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5. 

ANNEX  IV  TO  THE  EX-ANTE  EVALUATION:  PROPOSED  COMMUNITY  FUNDING  OF 
THE PUBLIC INTEREST OVERSIGHT BOARD (PIOB)  

5.1. 

Background 

Unreliable  financial  reporting  seriously  constrains  investments  or  divestments  on  financial 
markets.  Inefficient  or  underperforming  financial  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  companies,  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  provide  a  true  and  fair  view  of  a  company’s 
financial position. 

It  was  also  decided  that  audit  services,  in  spite  of  its  own  nature  as  public  interest  activity 
should  be  provided  by  private  auditors  and  audit  firms  and  not  by  public  authorities  or 
regulatory agencies.  

In the EU, Community legislation110 requires a company’s financial statements to be audited 
by  statutory  auditors111  who  should  provide  an  independent  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 International standards for auditors 

Investors  today  increasingly  invest  or  divest,  directly  or  indirectly  (e.g.  through  investment 
funds), in companies of all sizes (whether listed or not) incorporated in foreign jurisdictions 
and, therefore, regulators, standard setters, issuers, and other stakeholders can no longer view 
financial markets from an exclusive domestic perspective.  

Auditing standards are standards to be followed by auditors when fulfilling their professional 
responsibilities in the audit of financial statements and related data. International standards for 
auditors  are  developed  by  independent  committees  of  the  International  Federation  of 
Accountants  (IFAC),  which  is  the  global,  private  organization  representing  the  accounting 
profession. The most relevant IFAC committee is the IAASB (the International Auditing and 
Assurance Standards Board)113. 

110 

111  
112  

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. 
As defined in Article 2.2 of Directive 2006/43/EC (the 8th  Company Law Directive) 
As defined in Article 2.13 of Directive 2006/43/EC (the 8th  Company Law Directive) 

EN 

73 

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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  oversight  and  transparency  subject  to  a  regulatory  comitology 
procedure (thus involving Member States and the European Parliament). 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 relevant entities of a private body, IFAC, may become EU law115. 

Investors benefit the most from an independent audit opinion when this 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 movement towards reinforcing oversight of auditors 
by public authorities. At international level a reform 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  oversight  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 responsive to the public interest.  

114  
115  

116  

117  

See specific annex of the ex ante evaluation on IASCF 
As with the IASCF, even if the standards and interpretations 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, with CENELEC in the case of 
electricity. 
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  profession,  receives  operating  and  financial  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 the European Commission. The FSF and IFIAR are 
observers. 
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  committees  form  part  of  IFAC's  Public  Interest 
Activity  Committees  (PIACs).  Consultative  Advisory  Groups  are  constituted  to  provide  advice, 
including technical advice, to each of the IAASB, IAESB 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 

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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 expanded 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  national  independent  auditors'  oversight  bodies  to  exchange 
experiences and co-ordinate activities. 

EN 

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At present, the European Commission is deeply involved in the works of the IAASB, where a 
new upgraded and modernised set of ISAs are under 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.  However,  whereas  Article  26  of  Directive 
2006/43/EC foresees the possible adoption by Comitology118 of ISAs, there is not at present a 
mandate for the European Commission to adopt standards or rules issued by the other IFAC 
committees  These  standards  and  rules,  however,  may  have  a  strong  influence  on  European 
legislation (e.g. IFAC independence rules for auditors). 

The  PIOB  started  its  operations  on  1  March  2005.  On  15  December  2005  (registered  on  8 
February  2006)  a  non-for-profit  Spanish  Foundation  offering  legal  personality  to  the  PIOB 
was  set  up  in  Madrid.  The  Foundation  is  governed  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  responsible  for  the  selection  and  appointment  of  the  PIOB 
members,  including  its  Chairman.  This  is  done  through  the  Nominating  Committee  of  the 
Monitoring  Group  which  includes  all  MG  members.  The  Nominating  Committee  makes  a 
collective decision to nominate not only individual members of the 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  Nominated  Committee  is  bound  by  a  Memorandum  of 
Understanding  (MoU)  signed  by  all  MG  members  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 PIOB Public Report, provides a mapping of the 
PIOB  work  in  the  context  of  ensuring  a  strong  "international  public  interest".  In  this 
representation,  the  international  public  interest  is  ensured  all  along  the  ongoing  flow  of 
activities that move through various phases starting by a credible  setting up of  international 
auditing standards, followed by their adoption, implementation, monitoring and evaluation in 
order  to  enhance  the  confidence  of  the  users  of  accountancy  services  (e.g.  investors)  and 
eventually of the whole financial system. 

118  
119  

As stipulated in Article 48 of Directive 2006/43/EC as amended by Directive 2008/30/EC 
In  March  2008  the  European  Commission  nominated  Sir  Bryan  Nicholson  and  Professor  Kai-Uwe 
Marten to the PIOB 

EN 

76 

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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 (IESBA) and Education (IAESB); 

–  Conferences, workshops and other events aiming at stimulating debate or raising 

awareness about international auditing standards among stakeholders; 

–  Running  of  its  Secretariat,  including  the  remuneration  of  its  members  and  the 

organisation of their missions. 

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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 setting process in IFAC is responsive to the public interest, it is 
subject to the independent oversight of a public body (the PIOB). This standard setting model 
is  supposed  to  profit  from  both:  (i)  the  knowledge  and  experience  of  the  standard  setting 
committees  of  IFAC  and  (ii)  a  public  oversight  designed  to  ensure  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 private character 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 the funding of 
the PIOB, should be sound and effective to ensure acceptance and wide  applicability of  the 
international auditing standards. 

Up to now most of the PIOB financing has come from a voluntary contribution from IFAC 
representing  about  €  942.247  out   of  the  total  budget  of  PIOB  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 Monitoring Group, IFAC and the PIOB as a transitory 
solution.  This  financial  arrangement  has  allowed  the  PIOB  to  set  up,  hire  personnel  for  its 
secretariat and to become operational from the very beginning. Once this start up period has 
been  successfully  completed,  the  focus  is  now  changing  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 conflict 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'  potential  influence  over  the  PIOB's  oversight  mission. 

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The  situation  where  an  overseer  relies  for  its  survival  on  the  voluntary  contribution  of  an 
organisation  representing  the  profession  subject  to  the  standards  it  oversees  is  not  consider 
healthy.  This  situation  undermines  the  public  perception  of  the  PIOB's  operational 
independence, an indispensable requirement, especially 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 public oversight in the field of auditing stipulates 
that: "The system of public oversight shall be adequately funded. The funding…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  accordingly  to  the  members  of  the  AuRC  (Audit 
Regulatory Committee) which is the committee created by Directive 2008/43/EC to be part of 
the comitology procedure.  

The European Commission may only adopt ISAs for application in the EU if the standards: 

•  Have  been  developed  with  due  process  (including  full  participation  of  all  interested 
parties), public oversight and transparency (i.e. open and transparent procedures have 
been followed), and are generally accepted internationally 

•  Contribute  a  high  level  of  credibility  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  transparency  have  been  respected  in  the  proposal, 
development and adoption of the international standards for auditors. 

In  addition,  the  PIOB  oversight  over  the  other  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  achieved  by  the  proposed 
funding arrangement for the PIOB are the following: 

5.3.1. 

Strategic objective 

The strategic objective is to ensure a stable, diversified, sound and adequate funding to enable 
the PIOB to carry out its public interest mission in an independent, 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 

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It  is  widely  accepted  that  the  best  way  to  achieve  independent  funding  for  the  PIOB,  or 
similar bodies, is to have a well diversified array of contributors mainly from public sources 
at global level which will reduce, accordingly, the current IFAC contribution. This is also the 
desire  of  the  PIOB  which  indicates  that:  "in  the  opinion  of  the  PIOB…it  is  in  the  public 
interest – both real and perceived- 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 and 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  international  reputation,  attractiveness  and 

acceptance of the standards  

As indicated above, because of the private character 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  the  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 reasonable period of time considering the EU 

and international context  

The last operational objective is to achieve the above objectives within a reasonable 
period  of  time.  Whereas  the  IFAC  contribution  has  always  be  considered  a  good 
solution  for  the  short  term  there  is  a  consensus  in  the  Monitoring  Group  that  a 
diversified and stable funding for the PIOB is the only 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 contributor 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 

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5.4.2.  Option 2: Contributions from national 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 from EU national audit oversight 
bodies has been discussed at several meetings of the AuRC (the Audit Regulatory Committee) 
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 within the EU, and to the fact that it is too early for many auditors' supervisors 
recently  set  up,  as  required  by  the  8th  Company  Law  Directive,  to  make  contributions  to 
international  bodies.  On  the  contrary,  they  considered  that,  given  that  the  international 
standards are of high importance the EU as a whole 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 national 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  auditors  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 question 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  those  entities.  Indeed, 
companies or stock exchanges may legitimately argue that these standards concern 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  number  of  individual  contributions.  This 
may  also  put  into  question,  as  is  the  case  with  IFAC,  the  operational  independence  of  the 
PIOB.  

5.4.4.  Option 4: Co-financing under Community budget 

Fourth,  financial  support  for  activities  of  the  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 all parties concerned.  

From  a  global  perspective,  a  contribution  from  the  Commission  may  also  incite  other 
institutions,  and  in  particular  those  represented  in  the  Monitoring  Group,  to  provide  a  fair 
portion of public funding to the PIOB. 

Finally,  Community  co-financing  will  improve  the  PIOB's  operational  independence  by 
ensuring that a substantial funding comes from public sources. 

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5.4.5.  Comparison of options 

The matrix below is used to compare the relative merits of four competing options based on a 
qualitative assessment as reliable data are not available.  

When  it  comes  to  PIOB  the  criteria  are  considered  equally  important  in  testing  the  cost-
effectiveness of each option, however, some of these 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  crucial  issue  at  the  moment  (avoid  reliance  on  voluntary  funding 
from interested parties, boost attractiveness 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-profit 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 the problems defined in 
section 5.2. above, it is thus a high priority that the 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 arrangements 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 carried out based on the following criteria: 

• 

the degree of feasibility of their implementing process;  

• 

their implications for the Community budget 

• 

the time needed for their implementation , and 

• 

the degree of achievement of the objectives above-mentioned in section 5.3.  

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ASSESSMENT 

1. Achievement 
of objectives 

2. Feasibility 

High (+++) 
Medium (+/-) 
Low (- - -) 

Straightforward 
(+++) 
Medium (+/-) 
Complex (- - -) 

3. Time needed 
for 
implementation 

High (+++) 
Medium (+/-) 
Low (- - -) 

4. Implication 
for EU budget 

Overall 
Assessment 

Positive  
(+ to +++) 
Negative  
(- to - - - ) 

Positive  
(+ to +++) 
Negative  
(- to - - - ) 

OPTIONS 

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  (option  1)  which  leaves  93%  of  the  PIOB  funding  to  IFAC 
representing  the  accountancy  and  auditing  profession  certainly  constitutes  the  worst  case 
scenario from the EU perspective as no full guarantee exists that public interest is duly taken 
into account by international setters. 

On  the  contrary,  the  strongest  benefits  are  to  be  expected  from  option  4.  From  a  European 
perspective, a single contribution from the EU budget would make much more sense for the 
following main reasons: 

– 

it would benefit from economies of scale,  

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– 

– 

– 

– 

– 

– 

– 

– 

it can be achieved within a reasonable period of time (cost-effectiveness) and it is easier 
to  put  in  place  compared  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-legislators  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 independence 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 regularly the PIOB's operations and 
be able to intervene if problems occur, 

it  enhances  the  European  stance  in  international  bodies  and  in  particular  in  those 
responsible for monitoring and setting up international standards, 

it would signal to all parties concerned the Community interest in international solutions 
and encourage other public bodies and institutions 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 public 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 budget of the body (via operating grants) or (ii) by co-financing 
specific targeted activities of the body (via grants for action).  

Concerning publicity rules, the possibility of providing a grant following a call for proposal 
should be excluded from the outset since the beneficiary (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 budget by way of an operating grant constitutes the 
best solution to address the proposed funding. Indeed the choice to provide an operating grant 
to the PIOB seems the most appropriate because:  

•  Whereas  some  organisations  work  on  an  activity-based  budgeting  (ABB)  system,  the 
PIOB, given its size and mandate, operates on a cash 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. 

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Regarding the PIOB as a possible eligible beneficiary, it complies with the requirements laid 
down in the Financial Regulation because this organisation pursues 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 resources and other administrative 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 rate), adjusted for inflation and foreign currency exchange 
movements. 

In addition to IFAC's individual 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 that in the meantime other fund providers have 
not come up with their own commitments.  

 PIOB Expenses by activity 

                              (In Euros) 

Year 

2007 

Year 

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  predictable  (e.g.  the  members'  remuneration),  other 
parts  of  the  PIOB  budget  have  far  greater  variability  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 categories 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. 

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In order to determine a precise volume of the Community contribution several 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  respected  (this  is  often  
measured either by its geographical weight, wealth share, share of global economy,  or 
share of international capital markets 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  baseline  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  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.  

The main sources of PIOB financing (expressed in %), which will result from the Community 
intervention are illustrated in the pie chart below. 

Total revenue of PIOB (with EU funding)

World Bank and 
the US Federal 
Reserve Board. 
7%

Community 
Funding 
30%

International 
Federation of 
Accountants 
(IFAC)
63%

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 leaves 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  funds  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  related  administrative  work,  which  impact  is 
estimated under section 1.4.8. of the general section of the ex ante evaluation. 

5.5. 

Conclusion 

In view of the above and in order to increase the PIOB credibility 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  contribution.  Specifically,  it  is  proposed  to 

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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) simplify funding at EU level, (ii) 
demonstrate Community interest in international solutions, and (iii) incite other public bodies 
or institutions to provide funds to the PIOB.  

5.6. 

Follow-Up: Arrangements For Monitoring, Reporting And Evaluation 

The  Commission  would  closely  monitor  the  application  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 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 when deemed necessary to verify budgetary 

systems and controls 

Finally, in line with current financial 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  international  body  comprised  of 
central  banks  and  banking  supervisory  authorities  from  certain  key  markets  that  formulates 
and encourages convergence towards broad supervisory 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, IAESB 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. 

Financial  Stability  Forum  (FSF):  the  forum  that  promotes  international  financial  stability 
improved  functioning  of  markets  and  reduced  systemic  risk  through  information  exchange, 
cooperation  in  financial  supervision  and  surveillance,  and  coordination  of  efforts.  The  FSF 
brings  together  representatives  of  national  financial  authorities  responsible  for  financial 
stability  in  significant  international  financial  centers,  international  financial  institutions, 
international regulatory and supervisory groupings, and committees of central bank experts.  

International  Auditing  and  Assurance  Standards  Board  (IAASB):  the  independent 
standard setting board that develops international standards and other pronouncements dealing 
with  auditing,  review,  other  assurance,  quality  control  and  related  services.  The  PIOB 
oversees the work of the IAASB. 

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International  Association  of  Insurance  Supervisors  (IAIS):  the  global  organization  that 
represents insurance regulators and supervisors, issues global insurance principles, standards 
and guidance papers, provides training 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  standards  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,  promoting  strong  ethical  values,  encouraging  quality 
practice,  and  supporting  the  development  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 accountancy profession is responsive to the public 
interest. 

International Forum of Independent Audit Regulators (IFIAR): a forum of national audit 
regulators  from  several  jurisdictions  that  conduct  inspections  of  auditors  and  audit  firms. 
Among  its  objectives  are  the  sharing  of  knowledge  and  practical  experience,  promotion  of 
collaboration and consistency in regulatory activity 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  international  organizations  responsible  for 
monitoring  the  implementation  of  IFAC  Reform.  The  MG  nominates  PIOB  members  and 
engages  in  dialogue  with  the  international  accountancy  profession,  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. 

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