REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the activities of the IFRS Foundation, EFRAG and PIOB in 2017
Date: 2018-10-19
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: EU financing, EU office or agency, audit, financial accounting, financial control, foundation, insurance contract, international standard, management accounting, standardised accounting system

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 19.10.2018  COM(2018) 705 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the activities of the IFRS Foundation, EFRAG and PIOB in 2017  
 
 
PURPOSE AND SCOPE OF THE REPORT 

1. 
Pursuant  to  Regulation  No  258/20141  of  the  European  Parliament  and  of  the  Council 
establishing  a  Union  programme  to  support  specific  activities  in  the  field  of  financial 
reporting and auditing as amended by Regulation 2017/8272, the Commission shall prepare an 
annual report on the activities of the beneficiaries of the programme.  

The  objective  of  this  Union  programme  is  to  improve  the  conditions  for  the  efficient 
functioning of the internal market by supporting the transparent and independent development 
of international high-quality financial reporting and auditing standards. 

Accordingly,  this  report  covers  the  activities  of  the  International  Financial  Reporting 
Standards  (IFRS)  Foundation,  the  European  Financial  Reporting  Advisory  Group  (EFRAG) 
and  the  Public  Interest  Oversight  Board  (PIOB)  in  2017.  However,  certain  events  that  took 
place in 2018 are also mentioned where it was deemed useful for the purpose of this report. 

2. 

IFRS FOUNDATION 

2.1. 

Overview of IFRS activities 

1.1.1.  Standard setting  

An overview of the IASB standard-setting activities, including the work of the IFRS 
Interpretations Committee (IFRIC), and ongoing endorsement procedures is outlined in 
Appendix 1 of this report. 

1.1.2.  Research projects 

Following a consultation carried out in 2015, the 2017-2021 work plan of the IASB aims 
at  improving  and  supporting  existing  standards,  promoting  better  communication  and 
supporting implementation. In 2017, with regards to its "Better Communication" project, 
the IASB released a discussion paper; an exposure draft and a practice statement that are 
intended  to  strengthen  the  relevance  of  disclosures  by  focusing  on  materiality.  The 
"Discount  rate"  and  "Share-based  payments"  research  projects  were  completed  without 
leading to significant amendments of existing standards. Consistent with the requirement 
of its Due Process Handbook, the IASB also launched the Post-implementation review of 
IFRS  13  Fair  value  measurement,  which  has  been  applicable  from  1  January  2013 
onwards, in order to consider and follow-up on implementation issues.  

1 OJ, L 105, 8.4.2014, p.1. 

2 OJ, L 129, 19.5.2017, p.24. 

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In addition, five exposure drafts pertaining to narrow-scope amendments were issued. The 
financing provided by the European Union also covers the project dedicated to the timely 
update  of  the  IFRS  taxonomy  that  serves  as  an  input  to  the  European  Single  Electronic 
Format.   

1.1.3.  The revised Conceptual Framework 

The  IASB  issued  the  revised  Conceptual  Framework  for  Financial  Reporting  in  March 
2018.  It  does  currently  not  fall  under  the  scope  of  the  endorsement  procedure  which 
relates  only  to  IFRS  standards  and  interpretations.  The  revised  conceptual  framework 
complements  the  existing  standards  and  are  designed  to  help  understanding  and 
interpreting  IFRS  standards.  The  revised  framework  clarifies  that  the  information 
provided should help users in assessing management's stewardship of an entity's economic 
resources. It also specifies that the exercise of prudence, defined as the exercise of caution 
when  making  judgments  under  conditions  of  uncertainty,  supports  the  faithfulness  of 
financial  reporting  but  should  not  lead  to  misstatements  resulting  from  an  asymmetrical 
treatment between assets and liabilities.  

The revised framework does not refer to the concept of “reliability”, it states that a trade-
off  may  need  to  be  found  between  “relevance”  and  “faithfulness  of  representation”. 
Consistently, the definition of an asset and a liability is amended on the likelihood of the 
future expected economic benefits. This may broaden the scope of economic transactions 
included  in  the  financial  statements  subject  to  the  trade-of  between  relevance  and 
uncertainty.  

2.2. 

General principles against which new Standards have been developed 

1.1.4.  General principles 

The due process requirements of the IASB are outlined in the Due Process Handbook. Its 
application in practice is overseen by a dedicated committee of Trustees known as the Due 
Process Oversight Committee (DPOC). The main principles include: 

•  transparency:  technical  meetings  are  open  to  the  public,  records  of  meetings  and 
technical  documentation  considered  by  the  IASB  are  broadcasted  on  the 
Foundation's website (https://www.ifrs.org/) ; 

•  full  and  fair  consultation:  as  a  minimum,  the  mandatory  steps  for  any  proposal 
include  one  public  meeting  and  a  public  consultation.  The  board  also  has  to 
consider on a "comply or explain basis" additional consultations such as publishing 
discussion  papers,  setting  up  advisory  groups,  organizing  public  hearings  or 
performing fieldwork. Comment letters received by the IASB are made public.  
•  accountability: the Board has to carry out an effect analysis of its new requirements 
including  both  the  benefits  to  financial  reporting  in  terms  of  comparability, 
relevance and usefulness and the costs induced for both preparers and users. New 

2 

 
 
standards are supported by a Basis for Conclusions explaining the rationale of the 
decisions and the responses to the comments received during public consultations.  

In November 2017, the Due Process Oversight Committee decided to undertake a review of the 
Due Process Handbook with an expected finalization by 2020. The scope of the review includes 
reflecting  developments  to  the  Effect  Analysis  process  following  a  consultation  of  the  IFRS 
Advisory Council.  

In  2017,  the  IFRS  Foundation  commissioned  an  external  study  about  its  perception  by 
stakeholders.  The  results  highlighted  strong  appraisal  for  its  independence  and  transparency  but 
mixed views as regards the balance between responsiveness and quantity of due process. 

1.1.5.  Due  process,  effect  analysis  and  specific  considerations  to  business  models, 
transactions,  complexity,  short-termism  and 

consequences  on  economic 
volatility 

The  main  standard  issued  in  2017  is  IFRS  17  Insurance  Contracts.  It  originated  from  a 
2007 Discussion Paper followed by two Exposure Drafts published in 2010 and 2013. The 
IASB  also  carried  out  four  rounds  of  testing.  The  last  external  review  in  2016  involved 
twelve participants from the insurance industry and aimed to identify interpretation issues 
and operational difficulties arising from six specific requirements of the standard.  

In  February  2017,  the  Monitoring  Board  stressed  that  new  standards  should  be 
underpinned by solid effects analysis. The IFRS 17 effects analysis was published in May 
2017 in conjunction with the final standard. While the European Commission welcomes 
this  publication,  it  also  considers  that  it  would  be  preferable  to  integrate  the  effects 
analysis  systematically  into  the  IASB  standard  setting  process  thereby  shaping  the 
outcome of the standard as opposed to publishing an “ad-hoc” effects analysis at the end 
of  the  standard  setting  process.  The  effects  analysis  stressed  that  the  requirements  of 
applying  current  assumptions  and  timely  recognizing  expected  losses  would  enhance 
transparency while the options granted by IFRS 17 would enable insurers to report asset 
and liabilities consistently with their business model. This consistency in applying current 
measurement  to  both  assets  and  liabilities  was  deemed  to  mitigate  concerns  about  short 
termism and volatility. The effects analysis indicated that compliance costs would likely 
be material  but  with  significant  variability across jurisdictions reflecting  the diversity of 
pre-existing  national  practices  including  whether  or  not  National  GAAPs  currently 
foresees the use of Fair Value or current prices. With regard to complexity, a simplified 
approach was granted for short term contracts in order to provide operational relief. The 
effects analysis also considered the interplay of IFRS 17 with the Solvency II regulatory 
framework. It concluded also that the additional requirements of IFRS 17 on performance 
reporting  would  likely  require  insurers  to  develop  additional  systems.  As  regards  the 
impact  on  the  insurance  markets,  the  effects  analysis  concluded  that  the  improved 
transparency  might  provide  better  information  and  indirectly  contribute  to  changes  in 
pricing or product design but that no direct impact had been identified.  

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Overall, the publication is a significant improvement in the due process of the IASB. Yet, 
the analysis of the effects of the standard on the insurance market still heavily relies on the 
assumption  that  accounting  standards  are  neutral  and  "do  not  affect  the  underlying 
economic  reality  within  the  business".  Moreover,  the  effects  analysis  on  the  insurance 
market is qualitative, not quantitative.  As a consequence, the actual impact on economic 
transactions in the EU may not be fully clear.  

The European Commission submitted in 2017 a discussion paper to the Monitoring Board 
with a view to enhancing the IASB's impact assessment methodology in general. Further 
dialogue on enhancing the impact assessment was included as part of the 2018 Monitoring 
Board Work Plan.  

2.3. 

Governance, integrity and accountability 

1.1.6.  Overview 
The IFRS Foundation is governed by a Board of 223 Trustees collectively responsible for 
general oversight and appointments to the IASB. The Trustees met 3 times in 2017. The 
Trustees  designation  is  subject  to  an  apportionment  by  geographical  origin  and  to  prior 
approval  by  the  Monitoring  Board,  which  is  designed  to  provide  a  link  with  Public 
Authorities.  The  European  Commission  is  member  of  the  Monitoring  Board.  The 
Monitoring Board met once in 2017. The IASB has 14 members appointed by the trustees 
subject  to  geographical  balance  requirements.  IASB  members  are  appointed  for  a  five-
year  term  renewable  once.  The  IASB  is  responsible  for  the  standard  setting.  It  held  11 
board  meetings  during  2017.  The  Trustees  also  appoint  the  14  members  of  the  IFRS 
Interpretation  Committee  (IFRIC)  dedicated  to  interpreting  the  application  of  IFRS 
Standards  and  providing  guidance  on  financial  reporting  issues.  Additionally,  the  IFRS 
Advisory Council provides a forum for participation by organizations and individuals. Its 
members are appointed by the trustees and shall be consulted by the Board on decisions 
pertaining to major projects. 

1.1.7.  Transparency rules 

The  meetings  of  the  Board  and  Interpretation  Committee  are  open  to  the  public,  the 
agendas are published and the meetings are webcasted.  

When members of the IFRS Foundation meet with stakeholders outside the framework of 
the Due Process Handbook, no formal record is kept. 

1.1.8.  Representation of stakeholders 

As part of the "Trustees' Review of Structure and Effectiveness" that the IFRS Foundation 
carries-out  every  five  years,  a  public  consultation.  The  last  was  launched  in  2015.  The 

3 As at January 1st 2018 

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consultation  sought  feedback  on  the  geographical  distribution  of  the  Trustees.  Some 
stakeholders including the European Commission argued that Trustee membership should 
reflect the commitment to adopt IFRS and the relative share in the funding contribution to 
the  Foundation.  However,  the  Trustees  reaffirmed  that  membership  of  the  Board  of 
Trustees and the IASB should be representative of the world's capital markets and subject 
to geographical balance requirements to maintain equivalent representation between Asia-
Oceania, Europe and America.  

As a consequence, the geographical distribution of the Trustees was only slightly amended 
in  December  2016  by  merging  the  North  and  South  Americas  categories  into  a  single 
"Americas" and increasing the number of Trustees without geographical assignment from 
2 to 3. Additionally, the number of Board Members was reduced from 16 to 14.  

As at 31 December 2017, the IFRS Advisory Council comprised 43 organizations with 49 
individual members. The European Commission participates as an observer. 

At a meeting held in November 2017, the Board of the Trustees extended Michel Prada's 
term  as  Chair  of  the  Trustees  for  maximal  one  year,  pending  the  appointment  of  his 
successor. Mr Prada’s assignment would otherwise have ended on 31 December 2017. 

1.1.9.  Accountability towards the European Parliament 
As  part  of  the  2017/827  Regulation4  a  full  account  of  the  development  of  IFRS  to  the 
European  Parliament  should  be  provided.  The  annual  exchange  of  views  between  the 
ECON Committee of the European Parliament  and Mr. HOOGERVORST, Chairman of 
the IASB and Mr. PRADA, Chairman of the IFRS Foundation's trustees, took place on 26 
January  2017.  The  ECON  committee  also  held  an  annual  exchange  of  views  on  19-20  
March 2018, in which they discussed the issue of the IASB's involvement in the country 
by  country  reporting  on  taxes.  Hans  Hoogervorst  reported  that  the  IASB  will  seek  the 
views of the Monitoring Board.  

1.1.10. Prevention of conflict of interests 

The Trustees of the IFRS Foundation are appointed for a 3 years term renewable once and 
must commit to act in the public interest. Following a request from the Monitoring Board, 
a conflict of interest policy is being developed to prevent that a Trustee could come from 
the same organization as a member of the Monitoring Board. 

Only three members of the  IASB may be part-time members.  Full-time  Board members 
are  required  by  the  IFRS  Foundation  constitution  to  sever  all  employment  relationships 
and ties that might affect their independence. Neither secondment from an employer nor 
rights to reintegrate with the former employer are allowed. 

4   Recital 7 

5 

 
 
                                                           
1.1.11. Breakdown of funding 

In 2017, the  IFRS Foundation received a 4.6 M€ grant  from the European Union which 
makes  up  16,5%  of  the  total  funding  received.  As  part  of  the  Multiannual  Financial 
Framework, this amount may be revised each year. 

Though reported contributions from stakeholders were up by 4, 2% in 2017, after taking 
into account the impact of exchange rate fluctuations, they turn-out to be down by 2%. In 
particular  Saudi  Arabia  (-100%),  Nigeria  (-100%),  Brazil  (-34%)  and  the  United  States    
(- 25%)  have  decreased  their  contributions.  As  a  consequence  whist  the  Americas  make 
up 27% of the Trustees membership they only pay 6% of the total contributions. 

The IFRS Foundation reported a net profit of 8.7 M GBP. The total retained surplus as at 
31  December  2017  mounted  to  31.5  Million  GBP.  The  main  contributors  to  the 
Foundation are reported in appendix 2. 

3. 

EFRAG 

3.1. 

EFRAG activities overview  

1.1.12. Endorsement advice and Impact assessment  

EFRAG  advises  the  European  Commission  on  whether  new  or  revised  IFRS  standards 
meet  the European interest  in  the international  standard-setting process.   Those interests 
should include the notion of ‘prudence’, the maintenance of the requirement of a ‘true and 
fair view,’ and of the European public good. Impact assessment now forms a significant 
part of EFRAG's endorsement work in judging if a standard is favourable to the European 
public good. 

For the endorsement advice on IFRS 16 Leases in 2017, EFRAG conducted its first fully-
fledged  impact  analysis  (economic  and  behavioural  impact)  underpinned  by  a  robust 
macro-economic impact assessment as part of its enlarged public good mandate.  This has 
served  as  a  pilot  case  to  further  build  EFRAG’s  impact  assessment  capability.    EFRAG 
completed  also  its  endorsement  advice  on  Applying  IFRS  9  Financial  Instruments  with 
IFRS 4 Insurance Contracts (Amendments to IFRS 4). Due to risk of unintended negative 
consequences for European competitiveness, the Commission proposed a European ‘top-
up’ which extends the option to defer IFRS 9 to financial conglomerates that do not meet 
the IASB's predominance criterion.  

In October 2017, the European Commission also requested EFRAG’s endorsement advice 
on IFRS 17 Insurance Contracts, by the end of 2018. In its request the Commission, after 
consulting the Accounting Regulatory Committee (ARC), identified a number of specific 
issues including European public good that need to be analysed by EFRAG. In particular, 
an  assessment  of  the  potential  effects  on  financial  stability,  competitiveness  and  the 

6 

 
 
impact  on  the  European  insurance  market  was  asked.  EFRAG  started  its  endorsement 
advice work in 2017 but the main part of the work will take place in 2018.  

An  important  element  of  the  impact  analysis  is  a  detailed  case  study  on  the  anticipated 
impact  of  IFRS  17  on  a  sample  of  European  insurance  groups.  Other  elements 
underpinning the impact analysis include a detailed outreach with users; an investigation 
of existing trends in the insurance industry and a simplified case study aimed at smaller 
and  medium-sized  insurers  that  are  not  participating  in  the  detailed  case  study.  EFRAG 
aims at publishing its draft endorsement advice for public consultation in September 2018. 

In the course of 2017, EFRAG participated in the IASB consultation process and issued 
comment  letters  after  public  consultation  on  all  IASB  proposals  (exposure  drafts  and 
discussion papers).  

1.1.13. Other requests for technical advice  

Following up on a resolution from the European Parliament with the adoption of IFRS 9, 
the Commission requested in May 2017 EFRAG’s technical advice on the requirements of 
IFRS 9 Financial Instruments on the accounting for equity instruments from a long-term 
investment perspective. 

In  phase  one,  EFRAG  was  requested  to  collect  quantitative  data  on  the  current  level  of 
equity  instruments  held  by  long-term  investors,  their  accounting  classification  and  the 
potential effect of the new requirements on their behaviour in order to assess whether the 
requirements could negatively affect long-term investment.  

In  phase  two,  EFRAG  was  asked  to  develop  an  analysis  of  potential  alternatives  to  the 
IFRS 9’s requirements non-recycling of equity instruments measured at fair value through 
other  comprehensive  income.  EFRAG  launched  in  July  2017  a  public  consultation  to 
collect quantitative data and commissioned an academic literature review from a European 
academic  team.  EFRAG  published  a  report  on  the  first  phase  of  the  project  in  January 
2018. 

1.1.14. Research activities  

The topics of EFRAG’s research work were selected taking into account the results of a 
public  consultation  in  2015.  The  public  consultation  provided  insight  into  the  research 
priorities  among  European  constituents.  EFRAG  will  issue  a  new  research  agenda 
consultation  in  the second quarter of 2018.  EFRAG is  strongly  committed to  evidence-
based research.  As part of its research activities in 2017, EFRAG published a Study on 
“Dynamic Risk Management - How do banks manage interest rate risk?” and a Discussion 
Paper “Goodwill Impairment Test: Can it be improved?”. 

7 

 
 
EFRAG also  has  active  research projects  on:  transactions other than exchanges  of equal 
value;  accounting  for  hybrid  pension  plans;  and  implications  of  the  current  interest  rate 
environment. 

3.2. 

Governance, transparency and public accountability 

1.1.15. 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 IASB standard setting process. The 
governance  reform  was  completed  in  July  2016  with  the  official  appointment  by  the 
EFRAG  General  Assembly  of  Jean-Paul  Gauzès,  former  Member  of  the  European 
Parliament, as EFRAG Board President following the nomination of the Commission and 
as endorsed by the European Parliament and the Council.  

The  ESAs  and  the  ECB  have  opted  to  be  official  observers  with  speaking  rights  in  the 
EFRAG Board. Their input has been carefully considered in arriving at EFRAG positions 
and they have made an important contribution to EFRAG’s impact analysis notably in the 
area of financial stability.  

The  EFRAG  Board  reached  all  its  conclusions  in  2017  on  a  consensus  basis  without 
having to resort to voting. In 2017, the first rotation of the EFRAG Board took place and a 
new  Board  was  appointed.  In  the  spirit  of  the  Maystadt  report,  an  observer  seat  was 
created for European organisations representing private investors (“end users”). 

The  EFRAG  Board  carries  out  a  performance  and  effectiveness  review  of  its  own 
members under the oversight  of the EFRAG General  Assembly on an annual  basis. The 
2017  review  covered  a  mixture  of  strategic,  governance  and  operational  issues.  It 
demonstrated that on balance the new governance structure worked well and has resulted 
in increased credibility for the organisation. A number of recommendations were adopted 
to further improve the effectiveness of EFRAG's activities in the future.  

EFRAG  publishes  an  annual  review  providing  full  transparency  on  its  governance  and 
financial structure and the main activities in the year concerned. The 2017 annual review5 
was published on 21 March 2018. 

The EFRAG’s Internal Rules set out requirements on conflicts of interest and the EFRAG 
Board  has  a  Conflict  of  Interest  Policy  for  Board  members  that  is  published  on  the 
EFRAG website. The objective of the policy is to ensure the credibility of EFRAG as an 
organisation  working  in  the  European  public  interest.  The  policy  is  intended  to  avoid 

5 http://www.efrag.org/About/AnnualReports 

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situations where conflicts or perceptions of conflicts of interest may arise that could result 
in decisions or actions that are not in the best interest of the European public at large, or, 
give  the  perception  that  EFRAG  has  acted  improperly.  EFRAG  Board  members  and 
EFRAG staff sign yearly declarations. 

Finally, an independent audit on EFRAG’s visibility and effectiveness took place during 
the  second  half  of  2017.  The  report  published  in  March  2018  provided  a  current 
perspective on the organisation’s strengths and areas for improvement.  Overall, the report 
confirmed  the  high  quality  of  EFRAG’s  work  while  suggesting  visibility  as  one  of  the 
areas for improvement as well as the need to join the wider debate on corporate reporting.  
The  implementation  of  EFRAG’s  communication  strategy,  and  a  communication  team 
under  the  leadership  of  the  EFRAG  Board  President,  will  bring  further  progress  on  the 
visibility and credibility of EFRAG. 

1.1.16. Transparency rules 

Since  its  establishment  and  following  the  reform  above  mentioned,  EFRAG  has  put  in 
place  a  transparent  public  due  process  that  has  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  in  determining  EFRAG’s  positions.  This  was  essential  to 
ensuring that new IFRS Standards respond to Europe’s needs.  

For  example,  as  part  of  its  due  process,  EFRAG  1)  published  draft  positions  for  public 
consultation,  2)  undertook  field  tests  and  other  forms  of  effect  analyses,  3)  organised 
outreach events (some of which are especially aimed at users of financial statements) and 
4) undertook special surveys.   

EFRAG  also  contributed  to  evidence-based  standard  setting  by  undertaking  quantitative 
studies that inform the discussion6 on EFRAG’s comment letters and endorsement advice.  
Quantitative studies are gradually becoming a more important part of EFRAG’s research 
work. 

Meetings  of  the  EFRAG  Board,  EFRAG  Technical  Expert  Group  (EFRAG  TEG)  and 
EFRAG Consultative Forum of Standard Setters (EFRAG CFSS) are now held in public 
and  the  agenda  and  summaries  of  the  meetings  are  published  on  EFRAG’s  website. 
Furthermore,  the  supporting  agenda  papers  for  the  meetings  of  the  EFRAG  Board  and, 
from  January  2017  for  the  meetings  of  EFRAG  TEG  and  EFRAG  CFSS  are  publicly 
available. Since March 2018, these public meetings are webcasted allowing stakeholders 
to  watch  the  discussions  not  only  real  time  but  also  after  the  meetings  have  been  held.  

6 For example on the EFRAG Secretariat Paper on IFRS 16 Quantitative Assessments of Accounting Impacts and 
the Quantitative Study What do we really know about goodwill and impairment? and EFRAG’s report on the 
findings of the first phase of the Research Project on Equity Instruments: Impairment and Recycling. 

9 

 
 
                                                           
The discussions of EFRAG TEG are supported by input received from EFRAG CFSS and 
the specialised EFRAG Working Groups.  

1.1.17. Broad  representation  and  public  accountability  of  EFRAG’s  governance 

structure  

The input received from the EFRAG User Panel is essential for the work of EFRAG. The 
diversified composition of the User panel as well as the EFRAG Board and EFRAG TEG, 
both  in  terms  of  geographical  and  professional  background  ensures  that  all  different 
perspectives are properly taken into account by EFRAG. 

However,  although  the  overall  results  of  these  actions  were  very  positive,  some 
reservation remains regarding the ability to capture the full breadth of stakeholders’ views 
in Europe. EFRAG will explore how it could be more pro-active in seeking feedback from 
stakeholders less closely involved in  EFRAG s’ work but affected by it, or from groups of 
stakeholders outside EFRAG’s immediate sphere. 

1.1.18. Early stage involvement of the European Parliament and the Council 

EFRAG has also enhanced it relationship with the European Parliament and notably with 
the  European  Parliament’s  ECON  IFRS  Permanent  Team  chaired  by  MEP  Theodor 
Stolojan. Meetings allow the EP to provide input to EFRAG’s activities and being updated 
on EFRAG’s main activities in all stages of the standard setting process. 

In March 2017, the IFRS team met with EFRAG to discuss EFRAG’s endorsement advice 
on  IFRS 16  Leases and  EFRAG’s  forthcoming  endorsement advice process  on  IFRS 17 
Insurance  contracts.  EFRAG  also  presented  its  work  on  bringing  European  views  to  the 
international  debate.  EFRAG was also  invited to the October 2017 meeting of the  IFRS 
team to provide an update on EFRAG’s process to deliver endorsement advice on IFRS 17 
Insurance contracts; the implementation of the Stolojan Report and the post-endorsement 
work of IFRS 9 Financial Instruments. In these meetings, EFRAG asked the IFRS team 
how it could help to facilitate the early involvement of the Parliament in the development 
of EFRAG’s endorsement advice on IFRS 17. 

In addition, EFRAG was invited by the European Commission to attend the Accounting 
Regulatory  Committee  (ARC)  meetings  composed  of  representatives  of  the  Member 
States and gave in each meeting presentations of endorsement work in progress and other 
topics. This allowed the ARC to directly exchange views with EFRAG and to give early 
input.  The  ARC  discussed  the  Commission’s  draft  requests  for  endorsement  advice  to 
ensure that all issues relevant to member States were addressed. 

Receiving input from  the Parliament  and  ARC at  an early stage has allowed EFRAG to 
include relevant issues in its draft comment letter or draft endorsement advice for public 
consultation. 

10 

 
 
1.1.19. Diversification and balance of EFRAG’s financing structure  

EFRAG is  a publicly  and privately  funded organisation working  in  the European public 
interest.  EFRAG  has  the  legal  form  of  an  AISBL  (Belgian  international  non-profit 
organisation).  EFRAG’s  Member  Organisations  comprise  eight  European  Stakeholder 
Organisations and nine National Organisations.  

To  further  enhance  its  financial  structure  and  broaden  its  membership  base,  EFRAG 
published  a  call  for  expressions  of  interest  in  March  2017.  Instituto  de  Contabilidad  y 
Auditoria de Cuentas (ICAC) - the Spanish National Standard Setter - joined EFRAG as a 
National  Organisation in October 2017 to deepen EFRAGs’ connection with the Spanish 
finacial  reporting  community.  EFRAG  will  continue  to  work  on  the  extension  of  its 
membership base and is seeking a wider geographical representation. 

In  addition  to  cash  funding,  EFRAG  receives  contributions  in  kind  provided  by  the 
members of EFRAG TEG, the EFRAG Board, the Working Groups and Advisory Panels 
as well as in the form of free secondments. 

The  breakdown  of  the  cash  contributions  by  member  organisations  is  reported  in 
Appendix 3. 

4. 

PIOB 

4.1. 

Activities overview   

The  PIOB  is  responsible  for  overseeing  the  standard  setting  on  auditing,    ethics  and 
education  for  accountants.  The  relevant  standards  are  the  International  Standards  on 
Auditing  (ISA),  the  Ethics  standards  for  accountants,  and  the  International  Education 
standards  (IESs).  The  standard  setting  structure  was  introduced  after  the  collapse  in 
confidence  in  capital  markets  marked  by  the  Enron  affair  and  the  demise  of  Arthur 
Andersen.  Of  particular  importance  are  the  International  Standards  on  Auditing  (ISAs), 
which are directly or indirectly used by most statutory auditors.  

The overall task of the PIOB is to ensure that those standards are developed in the public 
interest. The Commission has nominated two of the 10 PIOB members. 

The  PIOB  approves  the  nominations  of  the  members  of  the  standard  setting  boards,  it 
agrees with their strategies and work plans, it monitors the development of the standards 
and  verifies  that  all  elements  mentioned  in  the  public  consultations  are  duly  taken  into 
account.  Where  needed,  the  PIOB  recommends  steps  to  ensure  that  the  standards 
effectively respond to the public interest.  

In 2017, the PIOB has regularly communicated with the Standard setting boards under its 
oversight  (International  Auditing  and  Assurance  Standards  Board  (IAASB);  the 

11 

 
 
 
International Accounting Education Standards Board (IAESB) and the International Ethics 
Standards Board for Accountants (IESBA), their three Consultative Advisory Groups, the 
Compliance Advisory Panel and the Nominating Committee and IFAC leadership.  

In  2017,  the  PIOB  has  also  carried  out  two  outreach  events.  The  first  took  place  on 
9 February in New Delhi, India, and was hosted by the Institute of Chartered Accountants 
of India (ICAI) under the title “Global Audit Oversight: Reconciling the Perception Gap”. 
The second was a discussion on the Impact of Technology on Audit organized in Madrid 
on  30  June.  The  PIOB,  together  with  the  Monitoring  Group,  has  also  invested  in  the 
development of a Public Interest Framework that aims at providing a better mechanism for 
assessing how the public interest is captured throughout the standard setting process.  

4.2. 

Governance and accountability 

The  members  of  the  PIOB  are  appointed  by  the  Monitoring  Group  which  is  ultimately 
responsible for the overall governance arrangements in the field of international standards 
on  auditing,  assurance,  ethics  and  education.  The  Monitoring  Group,  of  which  the 
European Commission is a member, monitors how the PIOB carries out its public interest 
role with particular regard to the PIOB's oversight of the standard setting process. 

On  9  November  2017,  the  Monitoring  Group  issued  a  public  consultation  on  
"Stengthening  the  governance  and  oversight  of  the  international  audit-related  standard-
setting boards in the public interest"7.  The Monitoring Group received 179 responses and 
published  a  summary  of  the  feedback  on  IOSCO's  website  on  31  May  2018  8,  which 
shows  widespread  support  among  stakeholders  for  reform  in  order  to  increase 
accountability  and  transparency  in  audit-related  standard  setting.  There  is  also  support 
from all stakeholder groups for a public interest framework that is embedded throughout 
the  standard  setting  process.  On  the  basis  of  the  feedback  received  and  further  outreach 
activities,  the  Monitoring  Group  intends  to  publish  a  White  Paper  on  the  future 
governance structure towards the end of 2018. The Public Interest Framework, developed 
together with the PIOB,  will be one of the core elements thereof. 

The White Paper will also contain questions about the the composition and role of PIOB 
under the future  governance model.  In  general,  respondents  support  strong independent 
oversight  and  it  has  been  suggested  to  entrust  the  PIOB  with  additional  tasks  (e.g.  
approval of strategic plans).  

7 https://www.iosco.org/ 
8  https://www.iosco.org/about/monitoring_group/pdf/2018-05-31-Monitoring-Group-Summary-of-
Feedback.pdf 

12 

 
 
                                                           
 
4.3. 

Developments in the diversification of funding in 2017 

The  funding  of  the  PIOB  is  designed  as  to  preserve  its  independence  in  fact  and 
appearance.  To  achieve  the  public  interest  objective,  proper  diversification  of  stable 
funding  sources  would  help  not  only  to  preserve  its  continuity  but  also  to  guarantee  the 
PIOB’s independence. The importance of funding diversification was already recognised 
in  the  IFAC  (International  Federation  of  Accountants)  reform  of  2003  which  was  at  the 
origin of the current international standard setting system, including the PIOB. 

Since  its  creation  in  2005  until  2010  when  the  Community  funding  programme 
established  by  Decision  716/2009/EC  became  operative,  the  PIOB  was  financed 
exclusively by IFAC (apart from some in-kind contributions by Spain (the PIOB is based 
in Madrid)). 

The  funds  made  available  by  IFAC  in  a  given  year  constitute  a  maximum  guaranteed 
contribution  which  is  made  available  to  the  PIOB  without  any  further  interference  from 
IFAC. The non-IFAC contributions substitute and thus reduce the IFAC contribution for 
that  specific  year.  Ideally  the  IFAC  funding  portion  of  the  total  PIOB  annual  expenses 
should be less than half of the total. 

The  EU  contribution  in  the  period  2010-2016  has  encouraged  other  potential  donors  to 
make  also  their  own  contributions.  In  year  2016,  the  PIOB  revenues  amounted  to 
EUR 1,563,565. IFAC provided EUR 914,758 which represents 58.50% of the total.  

In year 2017, the EU contribution was EUR 325,000 which represents 20,37% of the total. 
IFAC contributed EUR 1.059.807 which represents  66,45% of the total. The breakdown 
of the cash contributions of other organisations is reported in Appendix 4. 

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 2017 (as 
in 2014-2016), this has not been the case. 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 2017 contribution to the PIOB. 

5. 

CONCLUSION  

In  2017  the  Union  funding  programme  remains  fully  relevant  in  the  context  of  the  EU's 
efforts  to  establish  a  Capital  Markets  Union  and  to  safeguard  financial  stability.  The  three 
benificiaries  (EFRAG,  the  IFRSF  and  the  PIOB)  delivered  on  their  mission  to  defend  the 
European public interest and play a major role in the functionning of the internal market.   

However,  although  the  overall  results  of  these  actions  were  positive  in  terms  of 
implementation modalities, there does appear to be scope for improvement.  The Commission 

13 

 
 
 
will  engage  with  the  beneficiaries  in  2018  in  order  to  ensure  (even)  higher  standards  of 
transparency,  in  particular  with  regard  to  the  establishement  of  mandatory  transparency 
registers on meetings with external stakeholders.  

As regard the EFRAG, the Commission has appreciated  the comprehensive effects  analysis, 
which  supported  EFRAG's  endorsement  advice  on  the  new  or  revised  IFRS  Standards.  The 
Commission encourages EFRAG to  continue developing its capacities in  this area to  ensure 
that endorsed IFRS Standards are fit for Europe. 

As  for  the  IFRS  Foundation,  as  member  to  the  Monitoring  Board,  the  Commission  has 
initiated a dialogue with  the Trustees and the  IASB in  order to  enhance the effects  analysis 
methodology in particular in terms of scope, timing and method. This will especially include 
monitoring  the  Trustee's  review  of  the  IFRS  Due  Process  Handbook,  with    an  expected 
finalization  by  2020.  In  addition,  as  part  of  the  2015  "Trustee's  review  of  Structure  and 
Effectiveness  of  the  Foundation",  the  significance  of  capital  markets  was  confirmed  as  the 
overarching criterion for representation of stakeholders in the Board of Trustees. The Trustees 
assume  responsibility  for  the  funding    of  the  Foundation9  which  is  based  on  voluntary 
contributions  from  jurisdictions,  normally  computed  as  a  percentage  of  the  total  gross 
domestic product using the most recent International Monetary Fund data. However, the 2017 
breakdown of contributions by jurisdictions reflect a widening gap between the representation 
in the Board of Trustees and the financial contributions from “their” jurisdictions. As a result, 
the  Commission  believes  it  is  necessary  to  review  the  adequacy  and  appropriateness  of  the 
Trustee's  arrangements  as  foreseen  in  the  Monitoring  Board  2018  work  plan  to  monitor 
closely  the  efforts  undertaken  by  jurisdictions  that  currently  do  not  meet  their  expected 
contributions. 

The PIOB, it is playing a pivotal role in developing a Public Interest Framework that should 
be  embedded  throughout  the  entire  standard  setting  process  in  the  field  of  audit.  The 
composition  and  role  of  the  PIOB  is  likely  to  evolve  in  the  coming  years  pursuant  to  the 
reform  process  launched  by  the  Monitoring  Group.  However,  independent  oversight  will 
inevitably also be one of the key features of any future model. Moreover, efforts to diversify 
the funding of the PIOB should continue in the meantime. 

9 Article 13 (a) of the Constitution of the IFRS Foundation 

14 

 
 
 
 
 
 
 
 
 
                                                           
Appendix 1 – Summary of IFRS activities in 2017 

Standard 

IASB Issue 
date 

Application 
date 

Publication 
date 
Official 
Journal 

IFRS16 - Leases 

13/01/2016 

01/01/2019 

09/11/2017 

Amendments to IAS 12 Recognition of Deferred Tax 
Assets for Unrealised Losses 

19/01/2016 

01/01/2017 

09/11/2017 

Amendments to IAS 7 Disclosure Initiative 

29/01/2016 

01/01/2017 

09/11/2017 

Clarifications to IFRS 15 Revenue from Contracts with 
Customers   

12/04/2016 

01/01/2018 

09/11/2017 

Amendments to IFRS 2 - Clarifications of Classification 
and Measurement of Share-based Payments  

20/06/2016 

01/01/2018 

27/02/2018 

Applying IFRS 9 Financial Instruments with IFRS 4 
Insurance Contracts (Amendments to IFRS 4) 

12/09/2016 

01/01/2018 

09/11/2017 

Annual Improvements to IFRS Standards 2014-2016 

08/12/2016 

01/01/2017 

08/02/2018 

IFRIC 22 Foreign Currency Transactions and Advance 
Consideration 

08/12/2016 

01/01/2018 

Amendments to IAS 40: Transfers of Investment Property 

08/12/2016 

01/01/2018 

15/03/2018 

IFRS17 – Insurance contracts 

18/05/2017 

01/01/2021 

IFRIC 23 - Uncertainty over Income Tax Treatments 

07/06/2017 

01/01/2018 

Amendments to IFRS 9 Financial Instruments - 
Prepayment Features with Negative Compensation 

12/10/2017 

01/01/2019 

Amendment to IAS28 – Long Term Interest in Associates 
and Joint Ventures 

12/10/2017 

01/01/2019 

Annual improvements 2015-2017 

12/12/2017 

01/01/2019 

15 

 
 
 
 
 
 
 
 
Projects reported in grant 
applications 

Better communication project 

Disclosure Initiative – 
Principles of disclosures 

Disclosure Initiative - 
Definition of materiality 
(Amendment to IAS1 and 8) 

2017 

2018 

Comments 

Work plan  Discussion 

paper – 
30/03/2017 

Exposure 
Draft – 
14/09/2017 

Research project designed to improve 
disclosure requirements. 

Clarification of the definition of 
materiality 

Disclosure Initiative – 
Materiality Practice Statement 

Work plan 

Issued – 
14/09/2017 

Project completed with the release of 
"Making Materiality Judgements" 

Primary Financial Statements  Work Plan  Work Plan  Targeted improvement of the 

structure and content of primary 
financial statement 

Research projects 

Business combination under 
Common Control 

Post-implementation review of 
IFRS13 

Discount rate 

Work Plan  Work Plan  Aims at reducing the diversity in 

accounting for business combinations 
under common control. Such 
transactions are not addressed by 
IFRS Standards.  

Work Plan  The review aims at assessing the 

impact of IFRS13 "Fair Value 
Measurement" on financial reporting. 
It started in 2017 with a request for 
information. 

Work Plan  Work plan  Research plan on the use of discount 
rate trough-out IFRS Standards. The 
project was closed in March 2017. A 
research summary is expected in 
2018. 

Dynamic Risk Management 

Work plan  Work Plan  Macro Hedging research plan that 

aims at devising an accounting model 
to report the effect of hedging and 
dynamic risk management. 
Discussion paper expected in 2019. 

16 

 
 
 
 
Financial Instruments with 
Characteristics of equity 

Goodwill and impairment 

Work Plan  Work Plan  Clarification for the presentation of 

financial instruments with both 
liability and equity features. Aims at 
clarifying the requirements of IAS32 
– Financial instruments. A discussion 
paper is expected in 2018. 

Work Plan  Work Plan  Research project to ensure the timely 
recognition of goodwill impairment. 
Aims at improving the requirements 
of IAS36. A discussion paper is 
expected in 2018. 

Share-based payment 

Work plan  Completed  The research project was completed 

in May 2016 and led to narrow-scope 
amendments. A research summary is 
expected in 2018. 

Rate regulated activities 

Work Plan  Ongoing  The project aims at accounting for the 

effect of rate regulations when 
companies pricing policies are 
regulated. 

Conceptual framework 

Exposure 
Draft – 
28/05/2015 

Ongoing  The new Conceptual Framework is 
expected by March 2018 

Maintenance projects – Narrow scope amendments 

Accounting policies and 
Accounting Estimates 
(Amendments to IAS 8) 

Accounting policies changes 
(Amendment to IAS 8) 

Availability of a refund 
(Amendments to IFRIC14) 

Classification of liabilities 

Exposure 
Draft  - 
12/09/2017 

Clarifications on the distinction 
between accounting policies and 
estimates. 

Work plan  Designed to lower the 

impracticability threshold regarding 
retrospective application of voluntary 
changes in accounting policies. 

Work plan  Clarifications when third parties have 

rights to make particular decisions 
about a company's defined benefit 
plan 

Exposure 
Draft – 

Clarification of the classification of 
debts with renewal options. An 

17 

 
 
 
 
 
 
(Amendment to IAS 1) 

10/02/2015  amendment is expected in 2018. 

Definition of a business 
(Amendment to IFRS 3) 

Fees in the 10 percent test for 
Derecognition (Amendment to 
IFRS 9) 

Improvements to IFRS 8 - 
Operational segments 

Amendment to IAS19 – Plan 
Amendment, Curtailment or 
Settlement 

IAS16 - Proceeds before 
Intended Use 

Work plan  Clarification between the definition 

of "business" and "group of asset" 

Work Plan  Clarifications of fees and costs to be 

considered when assessing the de-
recognition of a financial liability 

Exposure 
Draft – 
29/03/2017 

Clarification of the definition of 
"chief operating decision maker" and 
improvement of disclosure 
requirements. 

Issued – 
08/02/2018 

Clarification of accounting 
requirements when a plan 
amendment, curtailment or settlement 
occurs. 

Exposure 
Draft  – 
20/06/2017 

Amendment to prohibit deducting 
sales proceeds from the cost of an 
item of property 

18 

 
 
 
 
 
 
 
 
Appendix 2 – Breakdown of the 2017 funding of the IFRS Foundation 

Breakdown of funding of the IFRS Foundation 
Financial contributor  

Contribution 
2017 

Contribution 
2016 

International accounting Firms 
European Commission 
EU Member States 
Asia/ Oceania 
Americas 
Africa 
Other 
Total  
Source: IFRS Foundation 

34,7% 
16,5% 
15,9% 
25,6% 
5,8% 
0,5% 
0,9% 

31,3% 
15,6% 
15,4% 
29,0% 
6,6% 
1,2% 
0,9% 

Number of 
trustees as at 
January 1st 
2018 

Evolution at 
constant 
exchange rate 

-0,3% 
2,0% 
1% 
-2,5% 
-17,0% 
-53,3% 
-2,4% 
-2,1% 

7 
8 
6 
1 
0 
22 

19 

 
 
 
 
 
 
 
 
Appendix 3 – Breakdown of the 2017 funding of EFRAG 

CONTRIBUTIONS                  000 EUR 

2017 

2016 

European Stakeholder Organisations 
Accountancy Europe 
BUSINESSEUROPE 
INSURANCE EUROPE 
European Banking Federation 
(EBF) 
European Savings and Retail 
Banking Group (ESBG) 
European Association  of Co-
operative Banks (EACB) 
European Federation of 
Accountants and Auditors  for 
SMEs (EFAA) 
European Federation of 
Financial Analysts Societies 
(EFFAS) 
Total  
National Organisations 
France 
Germany 
UK 
Italy 
Sweden 
Denmark 
Netherlands 
Spain 
Luxembourg 
Total  
European Commission 

TOTAL CONTRIBUTIONS 
Source: EFRAG 

300 
125 
75 
75 

75 

75 

25 

15 

765 

350 
350 
350 
290 
100 
50 
50 
50 
15 
1605 
2,624 

4,994 

300 
125 
75 
75 

75 

75 

25 

15 

765 

350 
350 
350 
290 
100 
50 
50 
0 
15 
1555 
2,432 

4,752 

20 

 
 
 
 
 
 
 
Appendix 4  

PIOB Budget Diversification 

In 2012, the PIOB conducted a fundraising exercise in close  coordination with the MG 
and IFAC. As a consequence, in 2013, 2014, 2015, 2016 and 2017, the PIOB achieved a 
diversified  funding  base  that  includes  sources  other  than  IFAC.  In  2017,  the  PIOB 
received  contributions  that  amounted  to  1,594,836  euros  from  the  following 
contributors: 

  International Federation of Accountants: 1,059,807 euros 

  European Commission: 325,000 euros 

  International Organization of Securities Commissions (IOSCO): 100,000 euros 

  Financial Reporting Council: 40,000 euros 

  Abu Dhabi Accountability Authority: 35,000 euros 

  Bank for International Settlements: 35,000 euros 

  Interest income: 29 euros 

2017 Contributions 

International Federation of
Accountants (IFAC)

European Commission
(EC)

International Organization
of Securities Commissions
(IOSCO)
Financial Reporting
Council

Abu Dhabi Accountability
Authority (ADAA)

Bank for International
Settlements (BIS)

2% 2% 

3% 

6% 

20% 

66% 

21