REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the activities of the IFRS Foundation, EFRAG and PIOB in 2014
Date: 2015-09-17
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: EU financing, EU office or agency, EU programme, financial accounting, financial control, financial market, international standard, management accounting, single market, standardised accounting system

EUROPEAN 
COMMISSION 

Brussels, 17.9.2015  
COM(2015) 461 final 

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 

on the activities of the IFRS Foundation, EFRAG and PIOB in 2014  

EN 

   EN 

 
 
 
 
  
 
1. 

PURPOSE AND SCOPE OF THE REPORT 

Regulation  No  258/2014  of  the  European  Parliament  and  of  the  Council,  which  extends  a 
Union programme to support specific activities in the field of financial reporting and auditing 
for the period from 1 January 2014 to 31 December 20201, came into force on 9 April 2014 
following its publication in the Official Journal2. 

The general objective of the Union programme is to improve the conditions for the effective 
functioning of the internal market by supporting the transparent and independent development 
of international financial reporting and auditing standards.  

The Regulation stipulates the beneficiaries of the programme. 
In the field of financial reporting these are: 
— the European Financial Reporting Advisory Group (EFRAG),  
— the International Financial Reporting Standards (IFRS) Foundation 
In the field of auditing, the beneficiary is:  
— the Public Interest Oversight Board (PIOB). 

According  to  Article  9  (3)  of  the  Regulation,  from  2015,  the  Commission  shall  prepare  an 
annual report on the activity of the IFRS Foundation as regards the development of IFRS, of 
PIOB and of EFRAG. The scope of the report is further explained in Article 9 (4, 5 and 6) as 
follows: 

•  with regard to the IFRS Foundation, the report shall cover: 

(a) its activity and in particular the general principles against which new standards have 
been  developed. The  report  shall  also  cover whether IFRS take due account of different 
business models, reflect the actual consequences of economic transactions, are not overly 
complex, and avoid artificial short-term and volatility biases. 

(b) Following the issuance of the revised Conceptual Framework, the report shall address 
any  changes  that  have  been  introduced  in  the  Conceptual  Framework,  with  a  particular 
focus on the concepts of prudence and reliability. 

•  with regard to EFRAG, the report shall cover:  

(a)  whether  EFRAG  in  its  technical  work  on  international  accounting  standards  takes 
appropriate account of the requirement of Article 3(2) of Regulation (EC) No 1606/2002, 
in particular, in assessing whether new or amended IFRS are consistent with the ‘true and 
fair view’ principle and conducive to the European public good; 

(b)  whether  EFRAG  in  its  technical  work  on  IFRS  provides  adequate  assessment  of 
whether draft, new or amended international accounting standards developed by the IASB 
are  evidence-based,  respond  to  the  Union’s  needs,  taking  into  account  the  diversity  of 
accounting and economic models and views in the Union; and  

1 The programme period with respect to EFRAG (European Financial Reporting Advisory Group) runs from 1 
January 2014 to 31 December 2016. 
2 OJ L 105/1, 8.04.2014 

2 

 
 
                                                            
(c)  EFRAG’s  progress  in  the  implementation  of  its  governance  reforms,  taking  into 
account  developments  following  the  recommendations  set  out  in  the  special  advisor’s 
report. 

•  with  regard  to  PIOB,  the  report  shall  cover  developments  in  the  diversification  of 

funding3.  

The report covers the activities of the IFRS Foundation, EFRAG and PIOB in 2014. However, 
certain events that took place in 2015 were also mentioned where it was deemed useful for the 
purpose of this report. 

2. 

IFRS FOUNDATION 

2.1. 

General principles against which new Standards have been developed 

1.1.1.  The IASB’s Principle of Fair Presentation 

IAS 1, Presentation of Financial Statements, requires financial statements to present fairly the 
financial  position,  financial  performance  and  cash  flows  of  an  entity.  Fair  presentation 
requires the faithful representation of the effects of transactions, other events and conditions 
in  accordance  with  the  definitions  and  recognition  criteria  for  assets,  liabilities,  income  and 
expenses  set  out  in  the  Conceptual  Framework.  According  to  IAS  1,  the  application  of 
International  Financial  Reporting  Standards  (IFRSs),  with  additional  disclosure  when 
necessary, is presumed to result in financial statements that achieve a fair presentation, which 
in view of a number of stakeholders is equivalent to a true and fair view. IFRSs seek to reflect 
economic performance, with a focus on transparency so that the economic circumstances are 
clear to investors. 

The  IASB’s  due  process  requirements  for  developing  new  Standards  are  built  on  the 
principles of transparency, full and fair consultation and accountability. 

Transparency 

Meetings  of  the  IASB  (as  well  as  the  IFRS  Interpretations  Committee)  to  discuss  technical 
issues  are  open  to  the  public,  recorded  and  broadcast  live  via  webcast.    The  technical  Staff 
Papers for these meetings are made available on the IFRS Foundation website, together with 
recordings  and  webcasts  of  the  meetings.  Summaries  of  the  decisions  reached  in  these 
meetings are also published. 

Full and fair consultation 

The  IASB  also  operates  on  the  principle  that  wide  consultation  with  interested  parties 
enhances  the  quality  of  its  Standards.  This  consultation  can  be  carried  out  through  various 
means,  including  individual  meetings  and  fieldwork.  Some  consultation  procedures  are 

3  If  funding  by  the  IFAC  in  a  given  year  reaches  more  than  two-thirds  of  the  total  annual  PIOB  funding,  the 
Commission shall propose to limit its annual contribution for that year to a maximum of EUR 300 000. 

3 

 
 
 
                                                            
mandatory e.g. exposing for public comment a draft of any proposed new Standard, proposed 
amendment to a Standard or proposed Interpretation - with minimum comment periods. 

Accountability 

The  IASB  is  committed  to  the  principle  of  accountability  and  assesses  the  likely  costs  and 
benefits,  or  effects,  of  proposed  new  requirements  throughout  the  development  of  a  new  or 
amended Standard. The IASB’s views on the likely effects are approved and published by the 
IASB.   

In November 2014, the IASB published the report of the Effects Analysis Consultative Group, 
which had been established to advise the IASB on best practice in the assessment of the likely 
effects of a new Standard and, in doing so, to seek to enhance the confidence in, and 
efficiency of, the processes. The recommendations include strengthened analysis and close 
contacts with all stakeholders, including national  standard setters and supervisors. They are in 
the process of being implemented. 

2.2. 

The IASB’s key achievements in 2014 

In 2014 the IASB issued two major new Standards: IFRS 9 Financial Instruments and IFRS 15 
Revenue from Contracts with Customers. In addition, the IASB continued to work on a number 
of other major projects, in particular Leases, Insurance Contracts and the Conceptual Framework 
(which is considered in section 2.3).  

a) 

IFRS 9 Financial Instruments 

The IASB issued IFRS 9 Financial Instruments in July 2014 following the due process. This 
standard completed the IASB's response to the financial crisis. IFRS 9 includes a new model 
for classification and measurement, a forward-looking ‘expected loss’ impairment model and 
a substantially reformed approach to hedge accounting:  

•  The  classification  of  financial  assets  determines  how  they  are  measured.  The  new 
approach will be driven by the cash flow characteristics of a financial asset and the entity's 
business model. It is a "mixed measurement model" including the use of fair values and 
historic costs.   

•  During  the  financial  crisis,  the  delayed  recognition  of  credit  losses  on  loans  (and  other 
financial instruments) was identified as a weakness in existing accounting standards.  The 
new impairment model has taken a long time to develop and is the IASB's answer to G20 
criticisms  of  the  existing  standard,  that  it  delivered  too  little,  too  late  in  loan  loss 
provisions. The IASB's new, expected loss impairment model is expected to result in more 
timely  recognition  of  expected  credit  losses  based  not  only  on  backwards  looking 
information (as in the present standard) but also current and forward-looking information 
as well. 

•  The new hedge accounting model aligns the accounting treatment with risk management 

activities, enabling entities to reflect these activities in their financial statements. 

4 

 
 
 
 
 
EFRAG  has  published  a  draft  endorsement  advice  for  public  consultation.  The  European 
Commission expects EFRAG to finalise its endorsement advice on IFRS 9 in the second half 
of 2015.  This will assess the standard against the criteria in the IAS Regulation  including the 
‘true and fair view’  principle  and whether the standard is conducive to the European public 
good. The analysis will also explicitly consider business models, volatility, and prudence. The 
endorsement process will continue until early 2016.   

Following endorsement, entities complying with IFRSs would be expected to apply the new 
standard from 1 January 2018 although earlier application is likely to be permitted as in the 
IASB  text.  The  lengthy  time  allowed  for  implementation  is  largely  due  to  the  substantial 
changes introduced by the new loan loss model.  

b)  IFRS 15 Revenue from Contracts with Customers 

Current  standards  for  recognising  revenue,  IAS  18  Revenue  and  IAS  11  Construction 
Contracts,  were  issued  more  then  20  years  ago  and  are  now  widely  seen  as  incomplete  and 
outdated.  These  two  standards  were  completed  over  the  years  with  a  dozen  of  related 
interpretations. 

The IASB issued its new revenue recognition standard, IFRS 15 Revenue from Contracts with 
Customers, in May 2014. The new standard, which will replace the previous standards (IAS 
11  and  18)  and  interpretations  in  that  area,  was  developed  jointly  with  the  US  Financial 
Accounting  Standards  Board  (FASB).  IFRS  15  seeks  to  improve  the  financial  reporting  of 
revenue and improve comparability of the top line in financial statements globally. The core 
principle of the new Standard is for companies to recognise revenue to depict the transfer of 
goods or services to customers in amounts that reflect the consideration (that is, payment) to 
which the company expects to be entitled in exchange for those goods or services. The new 
Standard  will  also  result  in  enhanced  disclosures  about  revenue,  provide  guidance  for 
transactions  that  were  not  previously  addressed  comprehensively  (for  example,  service 
for  multiple-element 
revenue  and  contract  modifications)  and 
arrangements. 

improve  guidance 

The  endorsement  process  of  IFRS  15  is  currently  ongoing.  EFRAG's  endorsement  advice 
concludes that the standard meets all relevant criteria, including the one on European public 
good. In particular, EFRAG found that benefits of IFRS 15 are likely to outweigh associated 
costs.  

c)  Other key project achievements in 2014 

The objective of the Leases project, which is a project the IASB is working on jointly with its 
US counterpart, the FASB, is to improve the quality and comparability of financial reporting 
by  providing  greater  transparency  about  an  entity’s  leverage  and  the  assets  it  uses  in  its 
operations.  The  IASB  and  the  FASB  have  reached  agreement  on  almost  all  aspects  of  this 
project – and, in particular, the requirement for lessees to recognise assets and liabilities for 
all leases, with some exemptions. Lease liabilities will include only economically unavoidable 
5 

 
 
 
 
 
payments.  Many  investors  think  that  the  current  omission  of  such  assets  and  liabilities  can 
materially  depress  the  leverage  reported  by  some  companies.  This  new  accounting 
requirement  will,  when  finalised,  therefore  represent  a  significant  change  in  financial 
reporting. The IASB intends to publish the final Standard on Leases by the end of 2015. 

The  objective  of  the  Insurance  Contracts  project  is  to  bring  transparency  to  the  plethora  of 
accounting  practices  currently  used  throughout  the  industry.  The  IASB  published  a  revised 
ED  Insurance  Contracts  in  June 2013.  Feedback  on  the  ED  suggested  broad  support  for  the 
principle  of  current  value  measurement  of  insurance  contracts  that  incorporates  all  of  the 
available  information  in  a  way  that  is  consistent  with  observable  market  information. 
However,  there  were  also  areas  of  disagreement,  in  particular  about  performance  reporting, 
and  concerns  about  complexity.  The  IASB  has  now  largely  concluded  its  deliberations 
relating  to  non-participating  contracts4  but  continues  to  consider  the  accounting  model  for 
contracts  with  participating  features.  The  IASB  intends  to  complete  its  deliberations  in  the 
next few months and proceed to publication of the final Standard thereafter.   

2.3. 

Development of a Revised Conceptual Framework 

On  28  May  2015,  the  IASB  published  an  Exposure  Draft  (ED)  proposing  changes  to  its 
Conceptual Framework. The Conceptual Framework describes concepts for general purpose 
financial  reporting.  These  concepts  will  assist  the  IASB  to  develop  and  revise  Standards, 
preparers of financial statements to develop and select accounting policies, and all parties to 
understand  and  interpret  the  Standards.    Among  other  things,  the  ED  discusses  prudence, 
reliability,  stewardship,  an  entity’s  business  model,  substance  over  form  and  long-term 
investment. 

Prudence 

The ED proposes to reintroduce prudence into the Conceptual Framework. 

Prudence is described as the exercise of caution when making judgements under conditions of 
uncertainty. It is acknowledged that prudence may lead to asymmetry in recognition of assets 
/ income and liabilities  / expenses. It is also worth noting that, although the term ‘prudence’ 
was taken out of the Conceptual Framework in 2010, the IASB has maintained that prudence 
is reflected in their standards. It is likely that there will be further debate around this topic to 
assess whether the exposure draft meets consituents' expectations.  

Reliability 

Prior  to  2010,  the  Conceptual  Framework  identified  reliability  as  a  characteristic  of  useful 
financial information.  However, in 2010, the IASB replaced the notion of reliability with the 
notion  that  useful  financial  information  should  faithfully  represent  what  it  purports  to 
represent (‘faithful representation’). 

4 Contracts where policyholders are not participants in the interest and capital gains earned by the insurer on 
premiums paid. 

6 

 
 
 
 
 
                                                            
Some of the IASB’s stakeholders have expressed concerns about this change.  In response, the 
ED  seeks  to  address  aspects  of  what  the  IASB  believes  stakeholders  were  seeking  in 
expressing their concerns about reliability. The description of faithful representation in the ED 
is  substantially  the  same  as  the  description  of  reliability  in  the  pre-2010  Conceptual 
Framework. The ED describes a perfectly faithful representation as complete, neutral and free 
from error.  

The enhanced discussion in the ED explains the factors that enable users to rely on financial 
information  to  provide  a  faithful  representation  of  what  it  purports  to  depict.  In  the  IASB’s 
view,  this  makes  it  unnecessary  to  reintroduce  the  term  ‘reliability’.  Nevertheless,  some 
stakeholders  (potentially  including  EFRAG  although  they  will  not  finalise  their  comment 
letter until the autumn) may continue to believe that it would be better to reintroduce the term 
reliability more explicitly. 

Business model 

The ED identifies how financial statements can be made more relevant if the IASB considers, 
when  developing  its  Standards,  how  an  entity  conducts  its  business  activities.  This  change, 
which  is  in  the  direction  of  EFRAG's  position,  acknowledges  the  role  the  business  model 
should play in determining how items are measured for the profit or loss account and balance 
sheet. 

Substance over form  

The ED reintroduces substance over form which is welcomed as it is necessary to portray the 
economic consequences of transactions.  

Long-term investment 

When developing the ED, the IASB reached the conclusion that the package of proposals in 
the  ED  provides  sufficient  tools  to  enable  the  IASB  to  consider  appropriately  both  the 
information  needs  of  long-term  investors  and  how  an  entity  should  account  for  long-term 
investments. We welcome the explicit consideration that the IASB has given to this topic and 
will  pay  attention  to  the  question  of  whether  long-term  investors  agree  with  the  IASB's 
thinking on this matter. 

3. 

3.1. 

EFRAG 

Consideration  of  the  true  and  fair  view  principle  and  strengthening  EFRAG’s 
assessments of impact of new IFRS on the public good 

EFRAG provides its input throughout the standard setting process by commenting on IASB 
pronouncements  and  by  providing  proactive  work  to  stimulate  a  debate  in  Europe  on 
important  accounting  issues.  The  commenting  and  proactive  activities  are  essential  for 
ensuring  that  European  views  on  the  development  of  financial  reporting  are  properly  and 
clearly  articulated  in  the  standard  setting  process  with  the  objective  that  the  resulting 
standards are fit for Europe. 

7 

 
 
 
 
Before  the  implementation  of  the  governance  reform,  EFRAG  focused  its  endorsement 
assessments on whether IFRS were meeting all technical criteria of the IAS Regulation, i.e. 
whether  they  would  provide  relevant,  reliable,  comparable  and  understandable  financial 
reporting  and  were  not  contrary  to  the  true  and  fair  view  principle  set  in  the  Accounting 
Directive  and  the  former  4th  and  7th  Company  Law  Directives.  In  addition,  EFRAG  also 
provided the Commission with an assessment of the cost/benefit trade-off of any  new  IFRS 
pronouncement  that  the  Commission  could  use  to  support  its  endorsement  decision. 
Following  recommendations  in  the  Maystadt  report,  EFRAG  has  also  strengthened  its 
assessment on whether new or proposed financial reporting requirements are conducive to the 
public good. This will include the interaction with financial stability and economic growth. 

The Maystadt report also recommended that EFRAG in providing endorsement advice could 
be asked to analyse more thoroughly the compliance with prudence. In this respect, the Board 
of  EFRAG  has  discussed  the  basis  on  which  it  would  provide  an  explicit  assessment  of 
prudence in the endorsement process.  Similarly, in the context of the public consultation on 
the  IASB  Conceptual  Framework  it  has  discussed  how  to  reintroduce  prudence  in  a 
meaningful  way.      The  preliminary  conclusion  is  that  prudence  should  encompass  both  the 
exercise of a degree of caution in making judgments under conditions of uncertainty and the 
notion  that  it  may  be  appropriate,  under  some  circumstances,  to  have  asymmetry  in 
recognition of gains and losses. 

In  its  request  for  endorsement  advice  concerning  IFRS  9  Financial  Instruments,  the 
Commission  after  consulting  the  Member  of  the  Accounting  Regulatory  Committee  (ARC) 
idenfied a number of specific issues, including public good issues, that needed to be analysed 
by EFRAG. In particular it asked for an assessment of this standard in the light of the concept 
of prudence. It also asked for an assessment of the use of fair value and whether the changes 
brought could have detrimental effects on financial stability. EFRAG started working on the 
draft  endorsement  advice  already  in  2014.  It  issued  a  draft  endorsement  advice  on  4  May 
2015  where  it  seeks  stakeholders`  views  both  on  its  assessment  of  the  Standard  against  the 
technical  criteria  in  the  EU  and  on  its  assessment  of  whether  IFRS  9  is  conducive  to  the 
European public good. 

During  2014  EFRAG  started  the  preparation  of  the  endorsement  advice  of  another  major 
standard5  IFRS  15  Revenue  from  Contracts  with  Customers.  The  draft  endorsement  advice 
included an open question to constituents as to whether they had reasons to believe that IFRS 
15 would not be conducive to the European public good. In finalising the endorsement advice 
the EFRAG Board took into account the feedback of constituents and considered that the new 
standard  was  conducive  to  the  European  public  good  as  it  found  that  IFRS  15  could  be 
expected  to  have  a  positive  impact  on  the  cost  of  capital  whereas  it  had  not  identified  any 
potential negative effect for the European economy. The final endorsement advice issued in 
March 2015 included this assessment. 

5 In 2014 EFRAG provided its endorsement advice with respect to several other (smaller) projects.  

8 

 
 
                                                            
In  2014  EFRAG  participated  in  the  IASB  consultation  process  and  issued  comment  letters 
after public consultation on all IASB pronouncements, including the Conceptual Framework. 
In  addition  EFRAG  continued  discussions  on  the  Leases  project  and  the  IFRS  4  Insurance 
contracts project. 

3.2. 

Consideration of the diversity of accounting and economic models and views in 
the European Union 

Since  its  establishment  EFRAG  has  put  in  place  a  transparent  due  process  that  was  further 
developed over time. This due process allows all European constituents to put forward their 
views for consideration by EFRAG and ensures that the diversity of accounting and economic 
models  and  views  in  Europe  are  taken  into  account  and  that  the  new  IFRS  respond  to  the 
Union's  needs.  As  part  of  its  due  process  EFRAG  publishes  draft  positions  for  public 
consultation,  undertakes  field  tests  and  other  forms  of  effect  analyses,  organises  outreach 
events  and  undertakes  special  surveys,  publishes  the  results  in  feedback  statements  and 
publishes its final positions. In 2014 EFRAG issued comment letters and feedback statements 
on all IFRS proposals. 

Meetings of the EFRAG Board and EFRAG Technical Expert Group (TEG) are held in public 
and the agenda and summaries of the meetings are published on EFRAG’s website as well as 
the  supporting  agenda  papers  for  the  EFRAG  Board  meetings.  The  discussions  are 
furthermore informed by input received from EFRAG Consultative Forum of Standard Setters 
and  the  specialised  EFRAG  Working  Groups.  The  input  received  from  the  EFRAG  User 
Panel  is  essential  to  the  work  of  EFRAG.  This  input  is  reinforced  by  hearing  more  broadly 
from  users  thanks  to  the  User  Outreach  Programme  launched  in  2012.  The  diversified 
composition of these groups as well as the EFRAG Board and EFRAG TEG both in terms of 
geographical  and  professional  background,  in  addition  to  the  due  process  ensures  that  all 
different perspectives are properly taken into account by EFRAG. 

field  work 

(including  surveys/desk 

tests6;  and 
EFRAG  conducts 
workshops/interviews) at various stages of the standard setting process, in coordination with 
National Standard Setters in Europe7. These field tests are intended to evaluate the effects of 
proposed  changes,  as  part  of  EFRAG's  due  process  and  contribution  to  the  final  standards 
being under preparation. EFRAG’s field work contributes to evidence-based standard setting. 

research; 

field 

6 These involve testing the application of proposed, pre-final and final requirements to existing contracts and 
transactions in order to assess the quality of the outcomes and/or the understandability of the requirements 
and the conditions of implementation. 
7 In particular those of France, Germany, Italy and the UK 

9 

 
 
 
 
                                                            
3.3. 

Implementation  of  the  governance  reform  following  recommendation  of  the 
Maystadt report  

In July 2014, the Commission submitted a report to the European Parliament and the Council8 
on  the  progress  achieved  in  the  implementation  of  the  reform  of  EFRAG.  The  Commission 
came to a favourable conclusion regarding the progress made to date. 

The reform involved a fundamental revision of the EFRAG Statutes and the EFRAG Internal 
rules  to  incorporate  a  new  governance  structure,  which  increased  the  legitimacy  and 
representativeness of EFRAG. The revised EFRAG Statutes and EFRAG Internal Rules were 
approved  on  16  June  2014  with  an  effective  date  of  31  October  2014.  The  period  between 
June  and  the  end  of  October  was  used  to  nominate  EFRAG  Board  Members  who  were 
appointed on 31 October 20149. On the same day EFRAG enlarged its membership10 and the 
new  governance  structure  became  operational  with  the  EFRAG  Board  holding  monthly 
meetings as of November 2014. The President of the Board is nominated by the Commission 
after  consulting  the  European  Parliament  and  the  Council.  Currently,  one  of  the  Board 
Members acts as the President pending the formal appointment.  

The EFRAG Board takes all its decisions on a consensus basis after considering the results of 
EFRAG’s due process. The Commission, European Supervisory Authorities and the European 
Central  Bank  have  been  contributing  to  the  discussions  of  the  Board  as  observers.  The 
Commission ensures that the Accounting Regulatory Committee provides input to EFRAG or 
requests specific assessments where it is needed. 

4. 

PIOB - DEVELOPMENTS IN THE DIVERSIFICATION OF FUNDING IN 2014 

It is widely accepted that bodies carrying out a public-interest function should be financed in 
such a way as to preserve their independence.  The PIOB which is in charge of overseeing the 
process leading to the adoption of International Standards on Auditing (ISAs) and other public 
interest  activities  of  IFAC  (The  International  Federation  of  Accountants)  is  one  of  such 
bodies.  Proper  diversification  of  funding  sources  helps  not  only  to  guarantee  that 
independence  but  also  to  reinforce  the  perception  of  their  independence.  In  the  field  of 
statutory  audit  the  need  for  funding  diversification  was  recognised  internationally  since  the 
IFAC  reform  of  2003,  which  envisaged  the  creation  of  the  PIOB,  and  it  has  always  been 
defended by the Monitoring Group, the international organisation responsible for monitoring 
the governance reform of IFAC. 

Since its creation in 2005 until  2010, when the  Community  funding  programme  established 

8  http://ec.europa.eu/transparency/regdoc/rep/1/2014/EN/1-2014-396-EN-F1-1.Pdf 
9  An  acting  EFRAG  Board  President  was  selected  among  the  new  EFRAG  Board  members  pending  the 
nomination of a President by the European Institutions. 
10 Currently EFRAG has sixteen members: European Stakeholder Organisations: BUSINSESSEUROPE, EACB, EBF, 
EFAA,  EFFAS,  ESBG,  FEE  and  Insurance  Europe;  National  Organisations:  Denmark,  France,  Germany,  Italy, 
Netherlands, Norway, Sweden and the UK. 

10 

 
 
 
 
                                                            
the  PIOB,  apart  from  some 

in-kind 
by  Decision  716/2009/EC  became  operative, 
contributions,  was  financed  exclusively  by  IFAC.  The  funds  made  available  by  IFAC  in  a 
given  year  constitute  a  maximum  IFAC  guaranteed  contribution  which  is  made  available  to 
the  PIOB  without  any  further  interference  from  IFAC.  The  EU  contribution  in  the  period 
2010-2014 has spurred a number of donors to also make their own contributions. The purpose 
of non-IFAC contributions is to substitute and thus to reduce the IFAC contribution for that 
specific year. Ideally the IFAC funding portion of the total PIOB annual expenses should fall 
below 50%. 

In year 2014 the PIOB expenses amounted to EUR 1,502,850. IFAC provided EUR 874,540 
which represents 58% of the total. The European Commission provided EUR 272,000 which 
represents 18% of the total. The ADAA (the Abu Dhabi Accountability Authority) provided 
EUR  120,000  which  represents  8%  of  the  total.  IOSCO  provided  EUR  100,000  which 
represents  7%  of  the  total.  The  BIS  (the  Bank  for  International  Settlements)  provided  EUR 
55,000  which  represents  4%  of  the  total.  The  UK  FRC  (Financial  Reporting  Council) 
provided EUR 40,000 which represents 3% of the total. The balance EUR 5, 478 represents 
interest income. 

Article 9.5 of the Regulation stipulates that if funding by IFAC in a given year reaches more 
than two-thirds of the total annual PIOB funding, the Commission shall  propose  to  limit  its 
annual contribution for that year to a maximum of EUR 300,000. In year 2014, this has not 
been  the  case  because  both  (i)  the  IFAC  contribution  has  been  lower  than  two-thirds  of  the 
total  annual  PIOB  funding,  and  (ii)  the  Commission  contribution  has  been  lower  than  EUR 
300,000,  namely  EUR  272,000.  Therefore,  as  the  critical  threshold  stipulated  in  the 
Regulation  has  not  been  reached  by  the  IFAC  funding,  the  Commission  does  not  need  to 
review its annual contribution to the PIOB.  

5. 

CONCLUSIONS 

IFRS Foundation 

In 2014, the IASB finalised two major standards that are of fundamental importance for users 
of  financial  statements,  namely  IFRS  9  Financial  Instruments  and  IFRS15  Revenue  from 
Contracts with Customers and made significant progress in other important projects. IFRS 15 
seeks  to  provide  companies  with  more  complete  and  up-to-date  guidance  on  revenue 
recognition.  Following  positive  assessment  of  the  standard  by  EFRAG,  its  endorsement 
process  is  currently  ongoing.  As  far  as  IFRS  9  Financial  Instruments,  EFRAG  issued  a 
positive draft endorsement advice on 4 May 2015 and is expected to finalise it in the second 
half of 2015. 

In respect of whether IFRS: 
• 

take  due  account  of  different  business  models:  IFRS  9  explicitly  recognises  the 
importance  of  business  models  in  determining  measurement  of  financial  instruments. 
EFRAG's  final  endorsement  advice  will  assess  whether  the  standard  achieves  this 
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• 

• 

• 

successfully. IFRS 15 is considered flexible  enough  to  meet  different  business  models. 
The Conceptual Framework (see below) gives business models more emphasis. 
reflect  the  actual  consequences  of  economic  transactions:  EFRAG  is  currently  in  the 
process  of  assessing  this  aspect  for  IFRS  9,  with  a  particular  focus  on  the  timely  
recognition  of  impairment  losses  on  loans;  IFRS  15  achieves  this and,  as  noted  below, 
the Conceptual Framework will introduce the concept  of  substance  over  form  which  is 
important for portraying economic transactions appropriately. 
are  not  overly  complex:    IFRS  9  is  a  complex  standard  however  it  has  introduced 
simplifications in the accounting for financial instruments and IFRS 15 is more complex 
than the standard it replaces but this is justifiable as the previous standard was no longer 
appropriate to reflect the complexity of modern day business transactions. Moreover, the 
standard  replaces  both  a  standard  and  interpretations  so  the  new  requirements  are 
organised in one place. 
avoid artificial short-term and volatility biases: the endorsement process for IFRS 9 will 
address  this  question.  However,  IFRS  15  is  effective  in  avoiding  such  volatility  as  it 
contains  specific  provisions  that  apply  where  there  is  uncertainty  in  recognising  future 
revenue. 

As far as the Conceptual Framework is concerned, the Commission reiterates its support to the 
re-introduction of the concept of prudence and will closely follow the developments following 
the  publication  of  the  Exposure  Draft  in  2015.  As  mentioned  in  the  recent  Commission 
evaluation report on the IAS Regulation11,  it has also invited the IASB to consider the specific 
needs of investors with different investment time horizons and to provide specific solutions, in 
particular  to  long-term  investors,  when  developing  their  standards.  Finally,  the  Commission 
urges the IASB to strengthen their analysis of impact and to better coordinate with EFRAG. 

EFRAG 
In 2014, the governance reform of EFRAG has been implemented. It involved establishing a 
new Board of EFRAG, its new decision-making body, with balanced representation of public 
and private interests. As a result, EFRAG is now well equipped to strengthen the legitimacy 
of  its  positions  and  significantly  contribute  to  the  objective  of  Europe  speaking  with  one 
voice. 

EFRAG  took  account  in  its  endorsement  assessments  of  whether  IFRS  were  meeting  all 
technical  criteria  of  the  IAS  Regulation.  Following  its  goverance  reform,  EFRAG  has 
stregnthened  its  scope  of  assessment  of  whether  new  or  proposed  financial  reporting 
requirements  are  conducive  to  the  public  good.  In  that  context  the  Commission  welcomes 
EFRAG's  willingness  to  further  develop  its  capacities  with  respect  to  the  analysis  of  the 
effects  of  standards  including  macro-economic  effects  such  as  any  detrimental  effects  on 
financial stability or economic development in the EU. 

11 http://ec.europa.eu/finance/accounting/docs/ias-evaluation/20150618-report_en.pdf 

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Thanks to its extensive due process, EFRAG was in a position to provide adequate assessment 
of  whether  draft,  new  or  amended  international  accounting  standards  responded  to  the 
Union’s needs while taking into account the diversity of accounting and economic models and 
views in the EU. This activity proved particularly important in the development phase of new 
standards  by  the  IASB  where  EFRAG  has  played  a  key  role  in  ensuring  the  Union’s  needs 
and interests are taken into account. 

PIOB 
Regarding the PIOB, the diversification of funding sources has progressed significantly. The 
total portion provided by IFAC is 58%; not far away from the ideal benchmark of less than 
50%  and  is  also  well  below  the  two-thirds  threshold  stipulated  in  the  Regulation.  For  the 
coming years,  the  Commission will  continue  monitoring  the  funding  developments and will 
cooperate  with  other  interested  stakeholders,  in  particular  with  other  Monitoring  Group 
members,  to  ensure  that  the  PIOB  benefits  from  a  clear,  stable,  diversified  and  adequate 
funding  system  so  that  it  can  accomplish  its  public  interest  mission  in  an  independent  and 
efficient manner. 

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