REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the activities of the IFRS Foundation, EFRAG and PIOB in 2015
Date: 2016-09-08
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, 8.9.2016  
COM(2016) 559 final 

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 

on the activities of the IFRS Foundation, EFRAG and PIOB in 2015  

EN 

   EN 

 
 
 
 
  
 
1. 

PURPOSE AND SCOPE OF THE REPORT 

Regulation  No  258/2014  of  the  European  Parliament  and  of  the  Council,  which  extended  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. 

According  to  Article  9  (3)  of  the  Regulation,  from  2015,  the  Commission  shall  prepare  an 
annual  report  on  the  activity  of  the  beneficiaries  of  the  programme,  namely  the  the 
International  Financial  Reporting  Standards  (IFRS)  Foundation,  the  European  Financial 
Reporting  Advisory  Group  (EFRAG)  and  the  Public  Interest  Oversight  Board  (PIOB).  The 
scope of the report is further defined in Article 9 (4, 5 and 6) of the Regulation. 

The report covers the activities of the IFRS Foundation, EFRAG and PIOB in 2015. However, 
certain events that took place in 2016 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  International  Accounting  Standards  Board’s  (IASB)  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.  The  application  of  IFRS,  with  additional 
disclosure  when  necessary,  is  presumed  to  result  in  financial  statements  that  achieve  a  fair 
presentation. 

1.1.2.  The IASB’s Due Process Principles 

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 

1 The  programme  period  with  respect  to  EFRAG  runs  from  1  January  2014  until  31  December  2016.  On  13 
March 2016, the Commission proposed to extend it until 31 December 2020. 
2 OJ L 105/1, 8.04.2014 

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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.  

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 thus to seek to enhance the confidence in, and efficiency of, the 
the  IASB’s  already  extensive 
processes.  The  recommendations,  which  build  upon 
methodology  for undertaking an effects analysis, were implemented  for the first time in the 
effects analysis published with the new standard IFRS 16 Leases. 

The Commission has recently initiated a discussion on effects analysis for future IFRS with 
its fellow Monitoring Board members. This issue will be further discussed by the Monitoring 
Board in 2016. 

2.2. 

The IASB’s key achievements in 2015 

In 2015 the IASB finalised one major new Standard: IFRS 16 Leases, which was published 
in  January  2016.  In  addition,  the  IASB  continued  to  work  on  a  number  of  other  major 
projects,  in  particular  Insurance  Contracts,  the  Disclosure  Initiative  and  the  Conceptual 
Framework. 

a) 

IFRS 16 Leases 

The  Board  issued  IFRS  16  Leases,  concluding  its  decade-long  effort  to  overhaul  the 
accounting for leases. IFRS 16 is a major revision of the way in which companies account for 
leases and requires all leases to be reported on a lessee’s balance sheet as assets and liabilities. 
The new Standard aims to better reflect the actual consequences of economic transactions and 
provide much-needed transparency about companies’ lease assets and liabilities, meaning that 
off  balance  sheet  lease  financing  no  longer  goes  unrecognised.  It  is  expected  to  improve 
comparability between companies that lease and those that borrow to buy. Accompanying the 
Standard, the IASB has also published a separate and comprehensive effects analysis, which 
demonstrates that the related benefits outweigh the costs.  

In June 2016, the Commission requested EFRAG to provide its endorsement advice on IFRS 
16,  supported  by  an  impact  analysis,  including  a  cost-benefit  analysis  and  an  analysis  of 

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broader  economic  impacts.  This  impact  analysis  should  be  independent,  objective  and 
Europe-focused. 

b)  Other key project achievements 

The  IASB  has  continued  to  work  intensively  to  finalise  the Insurance  Contracts  project  and 
has  now  completed  its  technical  deliberations.  During  redeliberations,  the  IASB  has 
maintained  extensive  dialogue  with  all  interested  parties.  This  project  is  expected  to  bring 
much-needed transparency to the plethora of accounting practices currently used throughout 
the  industry.  The  new  standard  will  result  in  a  more  realistic  depiction  and  better 
comparability of financial performance of the insurance industry around the world, which is 
especially important in the current period of economic volatility. The urgency of this project 
was underlined by a recent call from the Financial Stability Board for the IASB to finalise the 
Insurance  Standard  as  soon  as  possible3.  The  IASB  expects  to  publish  the  new  Insurance 
standard at the end of 2016. 

In December 2015, the IASB published for public comment proposals to amend the existing 
insurance contracts Standard, IFRS 4 in order to to address the temporary consequences of the 
different effective dates of IFRS 9  Financial Instruments (effective date of 1 January 2018) 
and the new insurance contracts standard (which will replace IFRS 4 and have a later effective 
date).  In  this  respect, some  of  the  companies  that  issue  insurance  contracts,  have  expressed 
concerns  about  the  need  to  implement  two  significant  changes  in  accounting  on  different 
dates. They also highlighted that potential increased accounting volatility could arise in profit 
or  loss  if  the  new  requirements  for  financial  instruments  were  to  be  applied  before  the  new 
requirements  for  insurance  contracts.  Consequently,  the  proposals  of  the  IASB  in  this  area 
aim  to  address  these  concerns  and  to  balance  them  with  the  needs  of  users  of  financial 
statements. The IASB proposals envisage:  

-  permitting  entities  that  predominantly  issue  insurance  contracts  the  option  to  defer  the 
effective date of IFRS 9 Financial Instruments until 2021 (the 'deferral approach') 

- permitting entities that implement IFRS 9 with the option to remove from profit or loss some 
of the additional accounting mismatches and temporary volatility that could occur before the 
new insurance contracts standard is implemented (the 'overlay approach') 

The relevant amendments are expected to be published by the IASB in September 2017. 

2.3. 

Development of a Revised Conceptual Framework 

On  28  May  2015,  the  IASB  published  an  Exposure  Draft  proposing  changes  to  its 
Conceptual Framework. The Conceptual Framework describes concepts for general purpose 
financial reporting. Among other things, the Exposure Draft discusses prudence, reliability, 
an  entity’s  business  model,  substance  over  form  and  long-term  investment.  In  2015,  the 
IASB  received  a  large  number  of  comment  letters  on  the  Exposure  Draft  from  different 

3 http://www.fsb.org/wp-content/uploads/September-Plenary-press-release.pdf 

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stakeholders,  which  will  be  considered  by  the  IASB  when  developing  the  revised 
Conceptural Framework with a view to finalising it in early 2017. 

Prudence 

The  Exposure  Draft  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. 

In  its  comment  letter  EFRAG  welcomed  the  IASB’s  decision  to  re-introduce  prudence  into 
the Conceptual Framework and agreed with its basis for conclusions that prudence may lead 
to  asymmetry  in  the  recognition  of  assets/income  and  liability/expenses without introducing 
any  undesirable  bias  in  financial  reporting.  However,  in  EFRAG's  view,  these  conclusions 
should be made clearer and be acknowledged in the Conceptual Framework.  

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’). 

Some of the IASB’s stakeholders have expressed concerns about this change.  In response, the 
Exposure Draft 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 
Exposure  Draft  is  substantially  the  same  as  the  description  of  reliability  in  the  pre-2010 
Conceptual  Framework.  The  Exposure  Draft  describes  a  perfectly  faithful  representation  as 
complete, neutral and free from error. The enhanced discussion in the Exposure Draft 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’. 

In  its  comment  letter,  EFRAG  supported  the  Conceptual  Framework  continuing  to  identify 
faithful  representation    and  relevance  as  the  two  fundamental  qualitative  characteristics  of 
useful  financial  information.  However,  it  argued  that  the  Conceptual  Framework  should 
acknowledge  a  trade-off  between  relevance  and  faithful  representation  (or  reliability),  with 
measurement uncertainty being included in ‘faithful representation’ (or reliability). 

Business model 

The  Exposure  Draft  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 
acknowledges the role the business model should play in determining how items are measured 
for the profit or loss account and balance sheet. 

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Substance over form  

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

Long-term investment 

When  developing  the  Exposure  Draft,  the  IASB reached  the  conclusion  that  the  package  of 
proposals  in  the  Exposure  Draft  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. The Commission welcomes 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. 

Following  the  governance  reform  implemented  in  2014,  EFRAG  continued  to  carry  out 
endorsement  assessments  on  whether  IFRS  were  meeting  all  technical  criteria  of  the  IAS 
Regulation, including the true and fair view principle, and also strengthened its assessment on 
whether new or proposed financial reporting requirements were conducive to the public good. 
In  this  respect,  it  needs  to  be  stressed  that  the  Commission  intends  to  further  clarify  the 
concept of the public good criterion in the course of 20164. 

In 2015, EFRAG provided to the Commission its endorsement advice on two major standards, 
namely IFRS 15 Revenue from Contracts with Customers  and IFRS 9 Financial Instruments. 
In  finalising  the  endorsement  advice  on  IFRS  15  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. 

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 

4 http://ec.europa.eu/finance/company-reporting/docs/committees/arc/2016-06-27-european-public-good_en.pdf 

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of prudence. It also asked for an assessment of the use of fair value, including with respect to 
the  needs  of  long  term  invetsors,  and  whether  the  changes  brought  could  have  detrimental 
effects  on  financial  stability.  In  September 2015,  EFRAG  submitted  its  endorsement  advice 
on  IFRS  9  Financial  Instruments  to  the  Commission.  EFRAG’s  endorsement  advice 
concluded that IFRS 9 was conducive to the European public good, except for the impact on 
the insurance industry of applying IFRS 9 before the finalisation of the forthcoming insurance 
contracts standard. Furthermore, EFRAG concluded that the application of IFRS 9 would lead 
to prudent accounting. 

In  2015,  EFRAG  participated  in  the  IASB  consultation  process  and  issued  comment  letters 
after  public  consultation  on  other  IASB  pronouncements,  including  the  Conceptual 
Framework.  In  addition,  EFRAG  continued  discussions  on  the  IFRS  4  Insurance  contracts 
project  and  actively  participated  in  the  consultations  on  the  IASB’s  proposals  to  amend  the 
existing  insurance  contracts  standard,  IFRS  4  in  order  to  to  address  the  temporary 
consequences  of  the  different  effective  dates  of  IFRS  9  Financial  Instruments  and  the  new 
insurance contracts standard. 

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 (some of 
which are specifically aimed at users of financial statements) and undertakes special surveys5, 
publishes the results in feedback statements and publishes its final positions.  

Meetings of the EFRAG Board and EFRAG Technical Expert Group are held in public and 
the  agenda  and  summaries  of  the  meetings  are  published  on  EFRAG’s  website  as  well  as 
supporting agenda papers for meetings of the EFRAG Board. The discussions are furthermore 
supported  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. 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. 

5 In 2015, such surveys were conducted in order to support the assessment of IFRS 9 

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3.3. 

Implementation  of  the  governance  reform  following  recommendation  of  the 
Maystadt report  

The governance reform of EFRAG, which was implemented on 31 October 2014, increased 
the  legitimacy  and  representativeness  of  the  organisation  and  resulted  in  a  more  cohesive 
process for the participation of the EU in the standard setting process. It is worth highlighting 
that EFRAG reached all its conclusions in 2015 on a consensus basis without having to resort 
to voting. 

Following  its  first  year  of  operation,  the  new  Board  of  EFRAG  carried  out  its  own 
performance and effectiveness review seeking also feedback from its member organisations. 
The  review,  which  covered  a  mixture  of  strategic,  governance  and  operational  issues, 
demonstrated  that  on  balance  the  new  governance  structure  worked  well,  which  resulted  in 
inncreased credibility of the organisation. Several recommendations were adopted to further 
improve the effectiveness of EFRAG's activities in the future. In particular, the role of official 
observers  (European  Supervisory  Authorities  and  the  European  Central  Bank)  in  the  Board 
decision making process has been strengthened. 

On  30  June  2016,  the  Commission  nominated  Jean-Paul  Gauzès,  former  Member  of  the 
European Parliament, as President of the EFRAG Board. The nomination of Mr Gauzès had 
been  previously  endorsed  by  the  European  Parliament  and  the  Council.  Mr  Gauzès  was 
formally  appointed  on  1  July  2016  by  the  General  Assembly  of  EFRAG.  His  leadership  is 
expected to give a new impetus to the reformed organisation. 

The  Maystadt  report6  encouraged  EFRAG  to  pursue  its  efforts  in  order  to  produce  impact 
assessments  corresponding  to  the  needs  of  users  and  of  the  European  legislator.  In  this 
respect, EFRAG has made significant progress in developing its impact assessment capacity 
from  2016  onwards.  The  Commission  staff  has  assisted  EFRAG  in  this  process  through 
sharing  its  expertise  in  this  area.  The  impact  assessment  on  IFRS  16  Leases,  which  will  be 
included  in  the  endorsement  advice  on  this  standard,  will  be  used  as  a  pilot  case  to  further 
build EFRAG’s capabilities and experience in this area. 

On  13  April  2016  the  Commission  proposed  to  Council  and  Parliament  to  extend  the 
financing of EFRAG for the period 2017-20207. 

4. 

PIOB - DEVELOPMENTS IN THE DIVERSIFICATION OF FUNDING IN 2014 

The  PIOB  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).    In  order  to  properly  carry  out  this  important  public-interest 
function  it  should  be  financed  in  such  a  way  as  to  preserve  its  independence.  Proper 
diversification of funding sources would help not only to preserve its continuity and guarantee 
that  independence  but  also  to  reinforce  the  perception  of  independence.  In  the  field  of 

6 http://ec.europa.eu/finance/accounting/docs/governance/reform/131112_report_en.pdf 
7 https://ec.europa.eu/transparency/regdoc/rep/1/2016/EN/1-2016-202-EN-F1-1.PDF 

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international  standards  for  auditing  the  need  for  funding  diversification  was  already 
recognised  in  the  IFAC  reform  of  2003.  That  reform  paved  the  way  for  the  creation  of  the 
PIOB which, on that basis, is expected to be funded from different sources. This approach has 
always  been  defended  since  by  the  Monitoring  Group,  the  international  organisation 
responsible  for  monitoring  the  governance  reform  of  international  standard  setting  for 
auditing. 

Since its creation in 2005 until  2010, when the  Community  funding  programme  established 
by  Decision  716/2009/EC  became  operative, 
in-kind 
contributions,  was  financed  exclusively  by  IFAC.  The  EU  contribution  in  the  period  2010-
2015 has spurred a number of donors to also make their own contributions. 

the  PIOB,  apart  from  some 

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  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  2015,  as  shown  in  page  in  page  1  of  its  financial  statements,  the  PIOB  revenues 
amounted to EUR 1,532,907. IFAC provided EUR 930,154, which represents 60.67% of the 
total.  The  European  Commission  provided  EUR  312,000  (EUR  272,000  in  2014),  which 
represents 20.35% of the total. The Abu Dhabi Accountability Authority provided, as in 2014, 
EUR 120,000, which represents 7.82% of the total. IOSCO, also as in 2014, provided EUR 
100,000,  which  represents  6.52%  of  the  total.  The  Bank  for  International  Settlements, 
compared  to  2014,  reduced  its  contribution  to  EUR  23,000,  which  represents  1.50%  of  the 
total.  The  UK  Financial  Reporting  Council  provided,  as  in  2014,  EUR  40,000  which 
represents 2.60% of the total. The balance EUR 7, 753 represents interest income.  

The IFAC contribution of 60.67% of the total PIOB funding in 2015 is a little higher than in 
2014 (58.19%). This is due, primarely, to the absence of contribution from the World Bank 
(EUR 35,832 in 2014) and to the decrease in the contribution from the Bank for International 
Settlements (EUR 23,000 instead of EUR 55,000 in 2014). This seems to reflect an ongoing 
trend  all  over  the  world  for  paucity  of  public  funding  due  to  enduring  difficult  economic 
conditions. 

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 2015, this has not 
been the case and therefore, as the critical threshold stipulated in the Regulation (66.66%) has 
not  been  reached  by  the  IFAC  funding,  the  Commission  does  not  need  to  review  its  2015 
contribution to the PIOB. 

5. 

CONCLUSIONS 

IFRS Foundation 

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The two major standards issued by the IASB in 2014, namely IFRS 9 Financial Instruments 
and  IFRS15  Revenue  from  Contracts  with  Customers,  are  currently  in  the  process  of  being 
endorsed in the EU following positive assessment of these standards by EFRAG. In 2015, the 
IASB  finalised  another  major  standard:  IFRS  16  Leases,  which  was  published  in  January 
2016.  In  addition,  the  IASB  continued  to  work  on  a  number  of  other  major  projects,  in 
particular Insurance Contracts, the Disclosure Initiative and the Conceptual Framework. 

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 and 
IFRS  15  is  considered  flexible  enough  to  meet  different  business  models.  The 
Conceptual Framework gives business models more emphasis. 
reflect  the  actual  consequences  of  economic  transactions:  IFRS  15  achieves  this  and 
IFRS 16 also seeks to better reflect the actual consequences of economic transactions and 
provide much-needed transparency about companies’ lease assets and liabilities. IFRS 4 
Insurance  Contracts,  currently  finalised  by  the  IASB,  is  also  expected  to  provide  a 
realistic  depiction  and  better  comparability  of  financial  performance  of  the  insurance 
industry  across  different  consituencies.  Furthermore,  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. In EFRAG’s view, presented 
in  the  endorsement  advice,  IFRS  9  does  not  contain  any  complexity  that  may  impair 
understandability.  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. 
avoid  artificial  short-term  and  volatility  biases:  IFRS  15  is  effective  in  avoiding  such 
volatility  as  it  contains  specific  provisions  that  apply  where  there  is  uncertainty  in 
recognising future revenue. As regards IFRS 4 Insurance Contracts, EFRAG will look at 
this aspect during the endorsement process following the publication of the standard by 
the IASB. 

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  development  the 
Revised Conceptual Framework by the IASB following the comments period. 

Finally,  the  Commission  welcomes  the  comprehensive  effects  analysis,  which  accompanied 
the new standard IFRS 16 standard and invites the IASB to continue to develop their analysis 
of impact of new or amended standards. 

EFRAG 
Following  the  implementation  of  its  governance  reform  in  2014,  EFRAG  has  been  well 
equipped  to  strengthen  the  legitimacy  of  its  positions  and  significantly  contribute  to  the 
objective of Europe speaking with one voice. 

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EFRAG  continued  to  take  account  in  its  endorsement  assessments  of  whether  IFRS  were 
meeting all technical criteria of the IAS Regulation and strengthened its scope of assessment 
of  whether  new  or  proposed  financial  reporting  requirements  are  conducive  to  the  public 
good.  This  was  demonstrated  in  its  endorsement  advice  on  two  major  standards  IFRS  9 
Financial Instruments and IFRS15 Revenue from Contracts with Customers, which EFRAG 
submitted to the Commission in 2015. 

The Commission welcomes EFRAG's efforts to further develop its capacities with respect to 
the analysis of the  effects  of  standards including macro-economic effects such as effects on 
financial stability or economic development in the EU. In 2016, the Commission will continue 
to monitor the development of impact assessment capacities of EFRAG. 

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. 

PIOB 
Regarding the PIOB, the diversification of funding sources has continued as the year before 
with  the  exception  of  the  World  Bank.  The  total  portion  of  reveniue  sources  provided  by 
IFAC in 2015, as shown in page 1 of its financial statements, is 60,67% what is a little higher 
than in 2014 but still below the two-thirds threshold stipulated in the Regulation. This reflects 
the scarcity of public funding all over the world due to the prevailing public sector financial 
constraints.  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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