REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the activities of the IFRS Foundation, EFRAG and PIOB in 2018 and the achievements of the Union programme.
Date: 2019-10-29
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: EU financing, EU office or agency, EU programme, audit, financial accounting, financial control, foundation, international standard, management accounting, standardised accounting system

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 29.10.2019  COM(2019) 549 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the activities  of the IFRS Foundation, EFRAG and PIOB in 2018 and the achievements of the Union programme.  
 
 
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 must 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. 

This  report  covers  the  activities  in  2018  of  the  International  Financial  Reporting  Standards 
Foundation  (IFRSF),  the  European  Financial  Reporting  Advisory  Group  (EFRAG)  and  the 
Public  Interest  Oversight  Board  (PIOB).  Certain  events  that  took  place  in  2019  are  also 
mentioned where deemed useful for the purpose of this report. 

As  a  follow-up  of  the  Stolojan3  report  and  as  required  in  Recital  (9)  of  the  Regulation 
amending  Regulation  No  258/2014,  it  also  provides  a  Commission’s  assessment  of  the 
governance  of  these  three  bodies,  in  particular  in  terms  of  the  prevention  of  conflict  of 
interest,  transparency,  diversity  of  experts,  diversity  of  funding,  public  accountability  and 
public access to documents.   

Finally,  pursuant  to  Article  9  (8)  of    Regulation  No  258/2014,  an  assessment  of  the 
achievements of the funding programme covering the period 2014-2019 is set out in the annex 
to this report. 

1.1. 

STRUCTURE OF THE REPORT 

The Report is structured as follows: 

  Section 2:  International Financial Reporting Standards Foundation  - provides an 
overview of the foundation’s  activities and an assessment of its governance in 2018;  
  Section 3: European Financial Reporting Advisory Group - provides an overview 

of EFRAG’s  activities and an assessment of its governance in 2018; 

  Section 4: Public Interest Oversight Board - provides  an overview of the PIOB’s 

activities and an assessment of its governance in 2018; 

  Section 5: Conclusions -  presents a summary of the conclusions as regards the 

relevance of the funding  programme; 

  Annex: Interim appraisal of the programme – contains a Commission assessment 
of the progress of the funding programme towards its objectives over the period 2014-

1 OJ, L 105, 8.4.2014, p.1. 
2 OJ, L 129, 19.5.2017, p.24. 
3 A8-0172/2016 Report on International Accounting Standards (IAS) evaluation and the activities of the 
International Financial Reporting Standards (IFRS) Foundation, the European Financial Reporting Advisory 
Group (EFRAG) and the Public Interest Oversight Board (PIOB) 

1 

 
 
                                                           
2019. 

2. 

INTERNATIONAL FINANCIAL REPORTING STANDARDS FOUNDATION 

2.1. 

OVERVIEW OF IFRS ACTIVITIES 

2.1.1.  STANDARD SETTING  

An  overview  of  the  International  Accounting  Standards  Board  (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.  

In  2018,  the  IFRS  Foundation  carried-out  significant  outreach  activities  to  support  and 
monitor the implementation  of  IFRS 17  Insurance Contracts.  In November 2018, the  IASB 
considered a comprehensive list of operational challenges arising from the implementation of 
the  standard  and  decided  to  consider  potential  amendments  to  ease  application.  The  Board 
tentatively  decided  to  postpone  the  application  date  of  IFRS  17  from  1  January  2021  to  1 
January 2022 and to extend the optional deferral of IFRS 9 granted to the insurance industry. 
An exposure draft was released in June 2019 with a view to finalizing a revised standard by 
the  middle  of  2020.  Meanwhile,  the  EU  endorsement  procedure  of  IFRS  17  has  been 
suspended. 

2.1.2.  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  2018,  with  regards  to  its  "Better  Communication"  project,  the  IASB 
continued  its  deliberations  about  potential  improvements  to  the  structure  and  content  of  the 
primary financial statements with a focus on the statement of financial performance. As part 
of  its  review  of  the  disclosure  requirements  in  IFRS,  it  released  an  amendment  to  improve 
relevance by applying the materiality principle and undertook two new initiatives including a 
standard level-review of the disclosure requirement of two existing standards.   

The  IASB  completed  the  post-implementation  review  of  IFRS  13  Fair  Value  Measurement 
with the conclusion that the standard had improved financial reporting without raising major 
inconsistencies  in  implementation  or  unexpected  costs.  However,  consistent  with  the 
comment letter from EFRAG, the IASB decided to include IFRS 13 within the scope of the 
above mentionned standard-level review of disclosure requirement. 

In  2018,  the  Board  launched  a  new  project  to  consider  the  implications  of  the  reform  of 
interest rate benchmarks on hedge accounting. The IASB published an exposure draft in May 
2019  to  address  the  consequences  on  the  accounting  treatment  of  existing  hedging 
relationships. As a second step the project will consider the implications of the replacement of 

2 

 
 
interest  rate  benchmarks.  The  IASB  also  undertook  a  new  research  project  on  extractive 
activities to consider a possible upgrade of the existing standard IFRS 6. 

Furthermore, the IASB carried out a public consultation about its proposed improvements to 
IAS  32  Financial  Instruments  to  clarify  the  distinction  between  financial  liabilities  and 
equities (Financial Instruments with characteristics of equity). Finally, as part of its follow-up 
of  the  post-implementation  review  of  IFRS  3  Business  Combination,  the  Board  decided  to 
explore possible simplifications to the accounting for goodwill and targeted improvements to 
the impairment test. 

Finally, the IFRS Foundation carried out an update of the IFRS taxonomy in order to reflect 
the implications of new standards and amendments4.  

2.1.3.  THE REVISED CONCEPTUAL FRAMEWORK 

The IASB issued the revised Conceptual Framework for Financial Reporting in March 2018. 
The main changes were outlined in the Commission’s 2017 Annual Report on the activities of 
the IFRS Foundation. The Conceptual Framework provides non binding guidance to the IAS 
Board  in  developing  IFRS  Standards  and  helps  preparers  and  auditors  in  interpretating 
existing  standards.  It  has  not  been  adopted  by  the  European  Union  because  IAS  1 
Presentation  of  Financial  Statements  already  states  that  the  application  of    International 
Accounting Standards and Interpretations […], with additional disclosure when necessary, is 
presumed  to  result  in  financial  statements  that  achieve  a  fair  presentation.  Accordingly,  the 
European  Commission  assessed  in  2003  that  endorsing  the  Conceptual  Framework  was 
unnecessary. 

2.2. 

GENERAL PRINCIPLES AGAINST WHICH NEW STANDARDS HAVE BEEN DEVELOPED 

2.2.1.  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).  In  2018,  the  Due  process  requirements  remained 
unchanged. However, in November 2017, the Due Process Oversight Committee undertook 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.  An  Exposure  Draft 
(ED)  was  published  in  April  2019  to  consult  about  the  proposed  changes.  One  amendment 
included in the Exposure Draft suggests allowing the IASB to publish explanatory materials 
in  order to  address implementation  questions  arising from  an issued standard but  before the 
application  date.  The  objective  is  to  support  consistent  implementation  before  the  effective 
application date. 

4 The financing provided by the European Union also supports the timely update of the IFRS 
taxonomy which in turn serves as an input to the European Single Electronic Format.   

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2.2.2.  DUE  PROCESS,  EFFECT  ANALYSIS  AND  SPECIFIC  CONSIDERATIONS  TO  BUSINESS 
MODELS,  CONSEQUENCES  ON  ECONOMIC  TRANSACTIONS,  COMPLEXITY,  SHORT-
TERMISM AND VOLATILITY 

There  was  no  major  standard  issued  in  2018  requiring  the  publication  of  a  separate  effect 
analysis report. However, the above mentioned 2019 Due Process Handbook Exposure Draft 
(ED)  suggests  amending  the  Foundation’s  Due  Process  Handbook  to  emphasize  that  the 
IASB’s effects analyses should focus on the improvements to financial reporting taking into 
account  the  implementation  costs  while  also  considering  how  increased  transparency  may 
affect  financial  stability.  The  Exposure  Draft  also  proposes  to  embed  the  effects’  analysis 
throughout  the  standard  setting  process.  As  regards  the  broader  economic  impacts  of  new 
financial  reporting  requirements,  the  proposed  amendments  highlight  that  quantitative 
assessments  are  generally  impracticable  but  that  the  Board  may  assess  specific  economic 
effects  where relevant.  This  draft amendment  does not  fully meet  the expectation  expressed 
by the European Commission as a member of the Monitoring Board as it may not sufficiently 
bridge  the  gap  between  the  limited  scope  of  the  IASB’s  impact  assessment  and  the 
endorsement  criteria  of  the  European  Public  Good  set  out  in  the  International  Accounting 
Standards (IAS) Regulation.  

2.3. 

GOVERNANCE, INTEGRITY AND ACCOUNTABILITY 

2.3.1.  OVERVIEW 

The  IFRS  Foundation  is  a  not-for-profit  corporation  under  the  General  Corporation  Law  of 
the  state  of  Delaware  (United  States)  and  operates  in  the  United  Kingdom  as  an  overseas 
company. The choice of a United States legal entity was driven by tax considerations at a time 
when  a  substantial  portion  of  the  funding  and  support  came  from  the  United  States’ 
stakeholders.  Under  this  legal  status,  the  Foundation  has  the  ability  to  locate  to  any 
jurisdiction in the world, whilst still enjoying the benefits of not-for-profit status in the United 
States, and the US tax treaties with multiple jurisdictions.  

The  IFRS  Foundation  is  governed  by  a  Board  of  22  Trustees  collectively  responsible  for 
general oversight and appointments to the IASB. The Trustees met three times in 2018. 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  twice  in  2018.  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 2018. 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. 

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2.3.2.  TRANSPARENCY RULES 

The meetings of the Board and Interpretation Committee are open to the public, the agendas 
are published and meetings can be viewed by webcast.  

With  regards  to  transparency  registers,  starting  from  December  2019  the  IFRS  Foundation 
will  publish  quarterly  a  stakeholder  engagement  register.  The  register  will    cover  all 
engagements  of  IASB  Board  Members  with  external  parties  of  more  than  30  minutes 
including physical, web-based and phone meetings.  

2.3.3.  REPRESENTATION OF STAKEHOLDERS 

Following  the  2015  "Trustees'  Review  of  Structure  and  Effectiveness",  the  geographical 
distribution of the Trustees should be representative of the world’s capital markets and subject 
to geographical balance requirement to maintain equal representation between Asia-Oceania, 
Europe and America.  

The  IFRS  Foundation  constitution  requires  the  appointment  of  6  trustees  from  each  of  the 
three  regions  plus  one  Trustee  from  Africa  and  three  trustees  from  any  area  subject  to 
maintaining  an overall  geographical  balance. Similary the criteria for appointment as Board 
member of the IASB require four members from each region, one member from  Africa and 
one member from any area.  

As  at  31  December  2018,  the  IFRS  Advisory  Council  comprised  46  organizations  with  48 
individual members. The European Commission participates as an observer. 

In october 2018, Mr Erkki Liikanen was appointed as Chair of the IFRS Foundation.  

2.3.4.  ACCOUNTABILITY TOWARDS THE EUROPEAN PARLIAMENT 
As  part  of  the  2017/827  Regulation5  a  full  account  of  the  development  of  IFRS  should  be 
provided to the European Parliament. The annual exchange of views between the Committee 
on Economic and Monetary Affairs (ECON) of the European Parliament and Mr Hoogervorst, 
Chairman of the IASB and Mr Prada, Chairman of the IFRS Foundation's trustees, took place 
on 19-20 March 2018. The Committee on Economic and Monetary Affairs (ECON) also held 
an  annual  exchange  of  views  on  26    February  2019,  in  which  Mr  Hoogervorst  and  Mr 
Liikanen  reported  on  the  ongoing  amendments  to  IFRS  17  Insurance  Contracts  and  the 
involvement of the IFRS Foundation in sustainability reporting and tax transparency. 

The IFRS Foundation consulted the Monitoring Board on the Country by Country Reporting 
(CBCR) on taxes and concluded that there was not a broad-enough wordwide political support 
for introducing additional mandatory disclosure requirements on tax transparency. However, 
the IASB is willing to consider disclosures about tax strategies as part of the ongoing project 
to revise and update the non-binding practice statement on Management Commentary, which 
provides the context within which to intepret financial statements. 

5   Recital 7 

5 

 
 
                                                           
In that regard, in April 2016 the Commission adopted a more ambitious legislative proposal6 
on the disclosure of income tax information by large multinational companies, also referred to 
as  the  Country-by-Country  Reporting  (CBCR)  of  tax  information.  The  proposal  aimed  at 
ensuring that large multinational companies with revenues above €750 million) publish their 
corporate tax payments with a breakdown per country. The European Parliament approved its 
first position on 27 March 2019. However, the European Councial has not adopted a position 
yet.  

Similarly,  as  part  of  the  exchanges  of  views,  Mr  Hoogervorst  reported  that  sustainability 
policy  objectives  had  a  broader  focus  than  financial  reporting  and  would  be  better  adressed 
trough  financial  incentives  or  taxation  rather  than  by  public  disclosures.  However,  he 
highlighted that the impact of sustainability issues on the future returns of companies would 
also be considered as part of the non-binding Management Commentary Practice Statement.  

The  Commission  will  explore  whether  alternative  standard  setting  action  should  be 
considered.  Especially,  as  part  of  its  Action  Plan  on  Financing  Sustainable  Growth,  the 
Commission  committed  itself  to  assess  the  robustness  of  the  sustainability  reporting 
requirements embedded in the Non Financial Information Directive7 within the context of its 
Fitness Check of the EU legislation on public corporate reporting. Depending on the findings, 
new initatives may be considered by the Commission to enhance corporate transparency  on 
sustainability  issues  and  long  term  value  creation.  In  addition,  in  2019  the  Commission 
supplemented  the  non-binding  guidelines  on  non-financial  reporting8  with  the  guidelines  on 
reporting  climate-related  information9  so  as  to  integrate  the  recommandations  from  the 
Financial Stability Board’s Task-Force on Climate-related Financial Disclosures. 

2.3.5.  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 
revised  conflict  of  interest  policy  was  adopted  in  2018.  It  introduces  the  principle  that  a 
Trustee  and  a  Monitoring  Board  Member  cannot  be  employed  by  the  same  organization. 
However,  it  also  empowers  the  Chair  of  the  Trustees  to  derogate  from  this  principle  in  
exceptional circumstances. 

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. 

6 Proposal for a Directive of the European Parliament and of the Council amending Directive 2013/34/EU as 
regards disclosure of income tax information by certain undertakings and branches 2016/0107/COD 
7 Directive 2014/95/EU as regards disclosure of non-financial and diversity information by certain large 
undertakings and groups 
8 C/2017/4234 
9 C/2019/4490 

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2.3.6.  BREAKDOWN OF FUNDING 

In 2018, the IFRS Foundation received a EUR 4,7 M grant from the European Union which 
makes up 18.5% of the total funding received.  

Reported  contributions  were  down  by  10.6%  in  2018  (9.7%  after  taking  into  account  the 
impact  of  exchange  rate  fluctuations).  The  most  significant  evolutions  were  driven  by  the 
international  audit  networks  (-32%),  China  (+25%)  and  the  United  States10  (-13%).  A 
breakdown  of  funding  by  main  geographical  areas  is  outlined  in  Appendix  2.  It  especially 
highlights that despite an equal representation of the EU and the US at the Board of Trustees 
(6 Trustees each) and IASB (4 board members each), the area “Americas” only contributes up 
to  6%  of  the  Foundation’s  funding  whereas  Europe  and  Asia-Oceania  made  respectively 
35.7%  and  32.7%  of  total  contributions.  The  relative  share  of  the  EU  budget  and  Member 
States  went  up  compared  to  2017  (from  32.4%  to  35.7%).  The  decrease  in  the  reported 
contributions  from  international  audit  networks  was  partially  offset  by  a  commercial 
arrangement resulting in increased licensing revenues.  

The IFRS Foundation reported a net surplus of GBP 2,9 M. The total retained surplus as at 31 
December 2018 amounted to GBP 34,4 Million.  

3. 

EUROPEAN FINANCIAL REPORTING ADVISORY GROUP  

3.1. 

EFRAG ACTIVITIES OVERVIEW  

3.1.1.  ENDORSEMENT ACTIVITIES  

The  primary  role  of  EFRAG  is  to  advise  the  European  Commission  as  to  whether  new  or 
revised  IFRS  standards  meet  the  endorsement  critera  set  by  the  IAS  Regulation  on  the 
application  of  international  accounting  standards.  Those  criteria  should  include  the 
maintenance of the requirement of a ‘true  and fair view,’  and of the European public  good. 
Field  tests,  impact  assessments  and  outreach  activities  form  a  significant  part  of  EFRAG's 
endorsement work in judging if a standard is favourable to the European public good. 

In 2018, EFRAG has been active on the endorsement advice on IFRS 17 Insurance Contracts. 
It carried out a major impact analysis on the anticipated impact of IFRS 17 consisting of an 
extensive case study with 11 insurers, a simplified case study with 49 insurers; and a detailed 
user outreach.  

In  addition,  EFRAG  commissioned  an  economic  study  to  obtain  an  economic  analysis  in 
areas such as industry trends, any potential impact on competition for capital and customers, 
and  any  potential  impact  on  offerings  of  products  and  service  by  insurers.  This  study 
contributes to EFRAG‘s impact analysis. In October 2018, the European Parliament adopted a 

10 Since 2015 the Securities and Exchanges Commission does not contribute anymore to the funding of the IFRS 
Foundation. The funding from the United States only stems from voluntary contributions from private 
organizations. 

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Motion for a Resolution on IFRS 17 which raised some concerns about the broader impacts of 
IFRS 17 on financial stability, long-term investment and the european insurance market and 
highlighted  specifical  technical  issues  for  consideration  in  the  endorsement  advice.  EFRAG 
incorporated the issues identified by the Parliament in its work plan so as to consider them as 
part of the draft endorsement advice. 

EFRAG’s  original  timetable  called  for  delivery  of  advice  to  the  Commission  by  the  end  of 
2018  but  the  project  has  since  taken  a  different  course.  EFRAG’s  case  study  and  outreach 
activities identified several concerns and the EFRAG Board decided to write to the IASB to 
highlight  some  aspects  of  IFRS  17  that,  in  EFRAG’s  view,  merited  further  consideration. 
Since then the IASB tentatively decided to amend the Standard and issued an Exposure Draft 
in June 2019 in order to address some of the concern identifed by EFRAG. EFRAG adopted 
its draft comment letter in July 2019 and launched a public consultation to gather the views 
from European constituents. The draft comment letter especially highlights that the transition 
requirements  of  IFRS  17  and  the  level  of  aggregation  applied  for  the  measurement  of  
insurance contracts still raise significant operational challenges. Both concerns were identified 
in the 2018 Motion for Resolution from the European Parliament on IFRS 17.   

In  the  course  of  2018,  EFRAG  participated  in  the  IASB  consultation  process,  and  issued 
comment  letters  after  public  consultation,  on  all  IASB  proposals  (exposure  drafts  and 
discussion papers). In June 2019, EFRAG issued its final comment letter on the Interest Rate 
Benchmark Reform which highlighted the urgency of addressing its consequences on hedge 
accounting relationships in order to allow timely endorsement by the European Union. Other 
areas  of  focus  included  the  IASB’s  projects  on  Rate-regulated  Activities,  and  Primary 
Financial Statements. 

3.1.2.  OTHER REQUESTS FOR TECHNICAL ADVICE  

Following up on a resolution from the European Parliament on IFRS 9, and responding to the 
Commission’s requests to consider the potential effects of IFRS 9 on long-term investment in 
equity  instruments  (that  were  also  highlighted  in  the  Commission’s  Action  Plan  Financing 
Sustainable  Growth),    EFRAG  published  a  Discussion  Paper  Equity  Instruments  – 
Impairment  and  Recycling  for  public  consultation.  EFRAG  also  undertook  an  academic 
literature review on IFRS 9 and long-term investment. In November 2018, EFRAG delivered 
its  advice  about  the  accounting  treatment  of  equity  instruments  under  IFRS  9  with  the 
conclusion  that  it  had  not  gathered  enough  evidence  of  a  detrimental  effect  on  (long  term) 
equity investment  decisions to  recommend  an  amendment  to  the standard in  the short term. 
However,  EFRAG  also  started  working  on  the  Commission’s  second  request  to  explore 
potential  alternative  accounting  treatments  to  fair  value  measurement  for  long-term 
investment portfolios of equity and equity-type instruments. 

Also at the request of the Commission and in line with the timetable envisaged in the March 
2018  Action  Plan  on  Financing  Sustainable  Growth,  EFRAG  established  the  European 
Corporate  Reporting  Lab@EFRAG  (European  Lab).  The  European  Lab  is  designed  to 

8 

 
 
stimulate innovation in corporate reporting through sharing good practices. The European Lab 
Steering  Group  had  its  first  meeting  in  November  2018  and  confirmed  the  first  project  on 
climate-related reporting. Following a call for candidates in  December, the first  project  task 
force on climate-related reporting was established and started its work in February 2019. The 
decision to add a project to the European Lab agenda is made by the European Lab Steering 
Group, taking into consideration input from stakeholders in a public consultation published in 
July  with deadline on 30 September 2019.  

3.1.3.  RESEARCH ACTIVITIES  

In  2018,  EFRAG  conducted  a  public  consultation  on  its  research  agenda  to  ensure  that 
EFRAG  undertakes  research  projects  which  are  most  relevant  for  Europe.  The  public 
consultation provided insight into the priorities among European constituents for this essential 
part  of  EFRAG’s  activities.    Resulting  from  this  consultation  EFRAG  started  three  new 
research  projects  at  the  end  of  2018  on  Better  Information  on  Intangible  Assets;  Crypto 
Assets;  and  Variable  and  Contingent  Payments.  As  part  of  its  research  work  EFRAG  also 
published  a  Discussion  Paper  Non-exchange  Transfers:  A  role  for  Societal  Benefit?    and 
advanced  its  work  on  pension  plans  with  the  support  of  its  Pensions  Plan  Advisory  Group. 
Through its Academic Panel and Academic Network EFRAG enhanced its cooperation with 
academics. 

As regard EFRAG’s influence in the debate on International Financial Reporting Standards, it 
is  worth  mentioning  that  ahead  of  the  IASB  Discussion  Paper  Financial  Instruments  with 
Characteristics of Equity (FICE), the EFRAG Secretariat conducted as a pilot an early stage 
analysis  following  up  its  call  that  impact  analyses  should  be  carried  out  throughout  the 
standard setting process  rather than only at  the end. EFRAG  conducted extensive outreache 
with National Standard Setters and user-oriented outreache as part of the consultation on the 
Draft Comment  Letter to  assess the wider  effects and potential unintended consequences of 
changes to rules on FICE reporting, in order to reduce the risk of problems emerging in the 
endorsement phase if the IASB were to proceed to a standard. EFRAG Secretariat published a 
working paper on the early-stage analysis at the end of February 2019. 

3.2. 

GOVERNANCE, TRANSPARENCY AND PUBLIC ACCOUNTABILITY 

3.2.1.  GOVERNANCE  OF  EFRAG  FOLLOWING  RECOMMENDATION  OF  THE  MAYSTADT 

REPORT 

The  governance  reform  of  EFRAG  which  was  implemented  on  31  October  2014,  has 
enhanced  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 

9 

 
 
the  European  Parliament  and  the  Council.  Mr  Gauzès’  mandate  has  been  renewed  for    a 
further three-year term, starting on 1 July 2019.   

The  European  Supervisory  Authorities  and  the  European  Central  Bank  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.  

It is worthwhile highlighting that the EFRAG Board reached all its conclusions in 2018 on a 
consensus  basis  without  having  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  report11  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 2018 review, 
which covered a mixture of strategic, governance and operational issues, demonstrated that on 
balance the governance structure worked well, which resulted in increased credibility for the 
the 
organisation.  Some  recommendations  were  adopted 
effectiveness of EFRAG's activities in the future.  

improve  further 

to  further 

In  2017,  EFRAG  commissioned  an  audit  of  the  perceptions  of  external  stakeholders  of 
EFRAG’s  visibility  and  effectiveness 
independent  agency 
FleishmanHillard.  Their  final  report  published  in  March  2018  confirmed  the  positive 
influence  of  EFRAG's  work  on  stakeholders,  the  progress  brought    on  the  visibility  and 
credibility  of  EFRAG  by  the  communication  team  put    in  place  under  the  leadership  of  the 
EFRAG  Board  President  and    identified  visibility  as  one  of  the  areas  for  continuous 
improvement.   

  carried  out  by  an 

As regards potential situation of conflicts of interest, there are no issues to mention. 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  situations  where  conflicts  or 
perceptions of conflict may arise, that would: discourage free discussion; result in decisions or 
actions that are not in the best interest of the European public at large or of EFRAG; or give 
the perception that EFRAG has acted improperly. EFRAG Board members and EFRAG staff 
sign yearly declarations. 

3.2.2.  TRANSPARENCY RULES 

Since  its  establishment,  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 

11 Should IFRS Standards be more “European”? Report by Philippe Maystadt – October 2013 

10 

 
 
                                                           
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 is essential to ensuring that new IFRS respond to Europe’s needs.  

EFRAG’s  legitimacy  is  built  on  transparency,  governance,  due  process  (which  may  include 
field tests, impact analyses and outreaches), public accountability and thought leadership. 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 
especially  aimed at  users  of financial statements), undertakes special surveys, and publishes 
the  results  in  feedback  statements  and  publishes  final  positions.  EFRAG  contributes  to 
evidence-based standard setting by undertaking quantitative studies that inform the discussion 
on EFRAG’s comment  letters and endorsement advice and which  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 held in public and available by 
webcast  since  March  2018.  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,  EFRAG  TEG  and  EFRAG  CFSS  are  publicly  available.  Since  March  2018 
these  public  meetings  can  be  accessed  by  webcast  allowing  stakeholders  to  watch  the 
discussions not only real time but also after the meetings have been held.  The discussions of 
EFRAG  TEG  are  supported  by  input  received  from  EFRAG  CFSS  (the  forum  of  national 
accounting  standard  setters)  and  the  specialised  EFRAG  Working  Groups  and  Advisory 
Panels. 

The EFRAG Board receives a regular report of all meetings between EFRAG personnel and 
other  parties  (other  than  routine  administrative  meetings).  These  reports  in  aggregated  form 
are included in the final grant reports that EFRAG submits to the Commission.  

EFRAG  publishes  an  annual  review  providing  full  transparency  on  its  governance  and 
financial structure and the main activities in  the  year concerned. The  Annual  Review  2018 
was published on 25 April 2019. 

Overall,  the  EFRAG  Governance  is  marked  by  a  good  transparency  of  information  flow 
among  the  main  stakeholders.  EFRAG  has  also  shown  its  commitment  to  engage  with  the 
Commission in order to achieve even higher standards of transparency than it was applying in 
the  past.  As  evidence  of  their  commitment  to  the  task,  on    9  July  2019  the  EFRAG  Board 
approved  a  Policy  on  the  EFRAG  Public  Transparency  Register  which  consists  of  the 
publication on its website of all meetings and conferences of the President of the Board, the 
TEG Chairman and the CEO of EFRAG. The Transparency Register started on 1 September 
and the first version will be put on their website later in the autumn 2019. EFRAG gave an 
undertaking  to  the  Commission  that  it  will  maintain  a  public  register  on  its  website  that  is 
regularly updated and covers the calendar year.    

11 

 
 
3.2.3.  BROAD  REPRESENTATION  AND  PUBLIC  ACCOUNTABILITY  OF  EFRAG’S 

GOVERNANCE STRUCTURE  

Overall  the  approach  to  the  governance  structure  of  EFRAG  in  promoting  broad 
representation of interests and public accountability has been positive. 

The EFRAG Board receives a regular report of all meetings between EFRAG personnel and 
other  parties  (other  than  routine  administrative  meetings).  These  reports  in  aggregated  form 
are  included  in  the  final  grant  reports  that  EFRAG  submits  to  the  Commission.  EFRAG  is 
ready to engage with the Commission to achieve even higher standards of transparency than it 
is  currently  applying  to  give  further  insight  in  meetings  of  the  EFRAG  leadership  with 
external stakeholders in the context of EFRAG’s public interest mission. 

EFRAG strives for a proper geographical, professional background and gender balances in its 
Board, Technical Expert Group (EFRAG TEG) and its Working Groups and Advisory Panels 
and  the  European  Lab  Steering  Group  and  its  project  task  forces.    The  requirements  are 
included  in  the  EFRAG  Internal  Rules  for  a  maximum  number  of  members  of  the  same 
nationality  in  the  EFRAG  Board  and  EFRAG  TEG  and  these  requirements  have  also  been 
applied for the establishment for the first European Lab Steering Group. In addition, there are 
requirements for proper balance in terms of professional background and gender.  

The  members  of  the  EFRAG  Board  are  nominated  by  the  EFRAG  Member  Organisations 
according  to  a  system  put  in  place  following  the  Maystadt  recommendations.  For  EFRAG 
TEG and its Working Groups and Advisory Panels and of the European Lab Steering Group 
and its project task forces calls for candidates are issued and widely disseminated.  

The  number  of  applications  differs  widely    but  there  is  in  particular  a  shortage  in  female 
candidates and candidates from Central and Eastern Europe. However, EFRAG has been able 
to attract for the European Lab Steering Group and its project task force a higher number of 
female candidates and candidates from Central and Eastern Europe (see situation in details per 
31 December 2018  in Appendix 4). 

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 should remain 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. 

3.2.4.  EARLY STAGE INVOLVEMENT OF THE EUROPEAN PARLIAMENT AND THE COUNCIL 

EFRAG  exchanges  views  with  the  European  Parliament’s  ECON  IFRS  Permanent  Team  to 
allow Members of the European Parliament to give input to EFRAG’s activities and to update 
them  on  EFRAG’s  main  activities  in  all  stages  of  the  process.  One  meeting  took  place  in 
March 2018 to exchange views on EFRAG’s activities and notably on IFRS 17. The European 
Parliament  issued  a  Resolution  of  3  October  2018  on  IFRS  17.  An  exchange  of  views  that 
took  place  with  the  EFRAG  Board  President  and  the  EFRAG  Technical  Expert  Group 
(EFRAG TEG) Chairman with ECON in its public meeting on 17 May 2018. 

12 

 
 
EFRAG is always invited by the Commission to attend the Accounting Regulatory Committee 
(ARC)  meetings  and  at  the  request  of  the  Commission  gives  presentations  at  each  of  these 
meetings  of  work  in  progress  and  its  opinions  on  particular  topics.  This  allows  the  ARC  to 
exchange  views  with  EFRAG  and  to  give  early  input.  The  ARC  discusses  the  endorsement 
advice  request  letters  before  they  are  submitted  to  EFRAG  to  ensure  that  all  European  
interests are addressed. 

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

3.2.5.  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,  nine 
National Organisations, plus the European Commission.  

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

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 
form of free secondments. 

In  2019,  EFRAG  is  seeking  to  broaden  its  membership  base  and  to  widen  its  geographical 
representation.  In  particular,  it  will  be  reviewing  its  finance  structure  aiming  at  a  long-term 
sustainable  finance  structure  following  a  request  from  Accountancy  Europe  to  reduce  its 
membership  contribution  as  from  2019  onwards  and  the  possible  financial  implications  if 
Financial Reporting Council, the regulator in the UK and Ireland for auditors, accountants and 
actuaries was to withdraw due to Brexit. 

1.  PUBLIC INTEREST OVERSIGHT BOARD 

4.1. 

ACTIVITIES OVERVIEW   

The  global  architecture  of  standard  setting  in  the  field  of  audit,  assurance,  ethics  and 
education  consists  of  a  three-tier  structure  made  up  of  standard  setting  boards  (SSB) 
supported by the  International Federation of Accountants (IFAC), the independent oversight 
(PIOB), and accountability to a monitoring body of public authorities (Monitoring Group). 

The PIOB is an independent external body, consisting of 10 members including its Chairman 
(the Commission has nominated 2 EU members of the 10) which oversees 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 

13 

 
 
Education  Standards  (IESs).  The  standard  setting  structure  is  a  result  of  the  2003  IFAC 
Reforms12,  which  were  developed  as  a  response  to  high-profile  corporate  collapses  and 
failures  in  financial  reporting  and  auditing  in  a  number  of  countries.  A  key  reform  was  the 
establishment  of  the  PIOB,  aimed  at  increasing  the  confidence  of  investors  and  others  by 
overseeing  that  the  activities  of  the  standard  setting  Boards  related  to  auditing  are  properly 
responsive to the public interest.  

The overall task of the PIOB is to guarantee that due process, oversight and transparency are 
respected  and  that  the  public  interest  is  safeguarded  all  around  the  process  comprising  the 
proposal, development and adoption of international standard for auditors in the framework of 
the  International  Federation  of  Accountants.  This  remains  critically  important,  as  also 
demonstrated by recent audit scandals (eg. Carillion’s failure in the UK).  

The  PIOB  also  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 2018, the PIOB13  has regularly  communicated  with  the Standard setting boards under its 
oversight (International Auditing and Assurance Standards Board (IAASB); the 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.  

The PIOB has also actively participated in the Monitoring Group’s discussions on the reform 
of  the  current  governance  and  oversight  model  of  international  audit-related  standards  and 
contributed to the development of a “Public Interest Framework” that would aim at providing 
a better mechanism for assessing how the public interest is captured throughout the standard 
setting process. The foreseen reform has been subject of an extensive public consultation14 by 
the Monitoring Group and the feedback15 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.   

The main achievements during the year were the approval of “ISA 540, Auditing Accounting 
Estimates, Including Fair Value Accounting Estimates and Related Disclosures”, the release 

12 IFAC is the private body representing accountants and auditors worldwide. 
13  14th PIOB Public Report  approved in 2018: 
http://www.ipiob.org/media/files/attach/2018PIOB_Report.pdf 
14 https://www.iosco.org/ 
15  https://www.iosco.org/about/monitoring_group/pdf/2018-05-31-Monitoring-Group-Summary-of-
Feedback.pdf 

14 

 
 
                                                           
 
of  the  Restructured  and  Revised  Code  of  Ethics,  and  the  completion  of  its  last  piece:  
Inducements. All the standards approved by the PIOB in 2018 are shown in the table below. 

PIOB 
BOARD 
MEETING 
March 

SSB 
IESBA 

March 

IESBA 

June 

IESBA 

September 

IAASB 

September 

IAESB 

STANDARD 
“International  Code  of  Ethics  for  Professional  Accountants 
(including  International  Independence  Standards)”  –  (The 
“Restructured and Revised Code”) 
“Revisions pertaining to Safeguards in the Code” 

“Revisions  to  the  Code  pertaining  to  the  Offering  and 
Accepting of Inducements” 
“International  Standards  on  Auditing  -  ISA  540  (Revised)  – 
Auditing Accounting Estimates and Related Disclosures” 
“International  Education  Standard  -  IES  7  (Revised)  – 
Continuing Professional Development” 

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.  

As regards potential situation of conflicts of interest, PIOB members and staff need to abide 
by the PIOB Code of Conduct.  The first  principle of the PIOB Code of  Conduct  states that 
Board members and staff must not become involved in any matter in relation to which their 
judgement may be affected by a conflict of interest. Every year, each Board member signs a 
declaration of absence of conflicts of interest. No conflicts of interests have been reported by 
any of the PIOB´s Board members in 2018. 

The  Code  also  requires  Board  members  and  staff  to  conduct  themselves  in  a  manner  that 
befits their status as members of an international organization that is focused on protecting the 
Public Interest by behaving in a manner consistent with integrity, impartiality and discretion.  

4.3. 

DEVELOPMENTS IN THE DIVERSIFICATION OF FUNDING IN 2018 

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 

15 

 
 
 
 
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 an in-kind contribution by Spain (i.e. the rental of the Madrid office, which was valued 
in 2018 at EUR 128,154). 

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, but it is been very challenging to find other public sponsors.  

The  EU  is  the  second  biggest  donor  to  the  PIOB.  In  year  2017,  PIOB’s  revenue  (monetary 
and  in-kind  contributions)  amounted  to  EUR 1,784,154.  IFAC  provided  EUR  1,059,807  or 
59.40%, whereas the EU contribution was EUR 325,000 or 18.21% 

In  year  2018,  PIOB’s  revenue  (monetray  and  in-kind  contributions)  amounted  to  EUR 
1,825,620  and  the  EU  contribution  was  EUR  331,000  or  18.13%.  IFAC  contributed  EUR 
1,135,302 or 62.18%.  

The breakdown of the monetary contributions of the organisations is reported in Appendix 5. 

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 must propose to limit its 
annual contribution for that year to a maximum of EUR 300,000. In  year 2018 (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 2018 contribution to the PIOB. 

5. 

CONCLUSIONS  

In  2018,  the  Union  funding  programme  remains  fully  justified  in  the  context  of  the  EU's 
efforts  to  establish  a  Capital  Markets  Union  and  to  safeguard  financial  stability.  The  three 
beneficiaries  (EFRAG,  the  IFRSF  and  the  PIOB)  have  been  in  line  with  the  annual  work 
programme set out in the annex to Commission Implementing Decision 2018.  At this point 
there are no reasons to question the relevance of the programme for the remaining period of 
the current financial perspective.   

As regards EFRAG, the Commission has in particular appreciated the comprehensive effects 
analysis  initiated by EFRAG's in order to support its future endorsement advice on IFRS 17 
Insurance  Contracts  and  its  key  role  played  to  influence  the  discussion  on  Financial 
Instruments  with  Characteristics  of  Equity  within  the  IASB.  In  addition,  the  creation  of  the 
European  Corporate  Reporting  Laboratory  at  the  request  of  the  Commission  represents  a 

16 

 
 
 
logical  extention  of  its  mandate  to  provide  valuable  inputs  to  the  European  Commission  on 
best practices on non-financial reporting.  

As for the IFRS Foundation, the International Accounting Standard Board undertook actions 
to  address  the  concerns  arising  from  the  pre-implementation  phase  of  IFRS  17  through  a 
deferral of the implementation date and targetted amendments to the standard. With regards to 
sustainability  and  tax  transparency  disclosures,  the  Foundation  is  leaning  toward  a  non 
binding  approach  as  part  of  its  project  on  Management  Commentaries  to  the  financial 
statements. Finally, the 2018 breakdown of funding of the Foundation highlights that the gap 
between the financial contributions and the representation of jurisdictions within the board of 
Trustees and the IASB board has further widened  from an already unbalanced situation with 
an especially low share of funding from the “Americas” region  which  additionaly decreased  
in 2018 by 10%. 

The PIOB’s independent oversight function exists to provide assurance to investors and others 
that  audit-related  standard  setting  has  taken  place  in  the  public  interest.  Although  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, independent oversight will remain  one of 
the key features of any future governance model. Moreover, efforts to diversify the funding of 
the PIOB should continue in the meantime. 

17 

 
 
 
 
 
Appendix 1 – Summary of IFRS activities in 2018 

Standard 

IASB Issue 
date 

Application 
date 

Publication 
date 
Official 
Journal 

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

20/06/2016 

01/01/2018 

27/02/2018 

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 

03/04/2018 

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 

24/10/2018 

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

12/10/2017 

01/01/2019 

26/03/2018 

Amendment to IAS 28 – Long Term Interest in Associates 
and Joint Ventures 

12/10/2017 

01/01/2019 

11/02/2019 

Annual improvements 2015-2017 

12/12/2017 

01/01/2019 

15/03/2019 

Amendments to IAS 19 – Plan Amendment, Curtailment 
or Settlement 

07/02/2018 

01/01/2019 

14/03/2019 

Amendments to references to the Conceptual Framework 
in IFRS Standards 

29/03/2018 

Amendments to IFRS 3 – Definition of a business 

22/10/2018 

Amendments to IAS 1 and IAS 8 – Definition of material 

31/10/2018 

18 

 
 
 
 
 
 
 
 
 
2017 

Projects reported in 
grant applications 
Better communication project 
Primary Financial 
Statements 

Disclosure Initiative – 
Principles of 
disclosures 

Disclosure Initiative - 
Definition of 
materiality 
(Amendment to IAS 1 
and 8) 

Disclosure Initiative – 
Targeted Standards-
level Review of 
Disclosures 

Disclosure initiative – 
Accounting Policies 

Research projects 
Business combination 
under Common 

2018 

2019 

Comments 

Work Plan  Work Plan  Work Plan  Targeted improvement of the structure and content of the primary 

Work Plan  Discussion 

paper – 
30/03/2017 

Exposure 
Draft – 
14/09/2017 

Project 
summary 
published 
on 03/2019 

Issued on 
31/12/2018 

financial statement. 

Research project designed to improve disclosure requirements.  

Project completed. 

Work Plan  Project designed to test the disclosure requirements of IFRS 13 
Fair Value Measurement and IAS 19 Employee Benefits against 
the new guidance principles defined by the IASB.  

Work Plan  Project designed to improve the disclosures pertainining to 

accounting policies by applying the materiality principle. 

Work Plan  Work Plan  Work Plan  Aims at reducing the diversity in accounting for business 

combinations under common control. 

19 

 
 
 
 
 
 
 
Control 
Post-implementation 
review of IFRS13 

Discount rate 

Work Plan  Projected 
summary 
published 
12/2018 
Work Plan  Work Plan  Project 

summary 
published 
02/2019 

The review aimed at assessing the impact of IFRS13 "Fair Value 
Measurement" on financial reporting. It started in 2017 with a 
request for information. 

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

Dynamic Risk 
Management 

Work Plan  Work Plan  Work Plan  Macro Hedging research plan that aims at devising an accounting 

Work Plan  Work Plan  Work Plan  Research project to ensure the timely recognition of goodwill 

model to report the effect of hedging and dynamic risk 
management. Discussion paper expected in 2019. 
Clarification for the presentation of financial instruments with both 
liability and equity features. Aims at clarifying the requirements of 
IAS32 Financial instruments - presentation.  

impairment. Aims at improving the requirements of IAS36.  
Project completed.  

Work Plan  Work Plan  Discussion 

Financial Instruments 
with Characteristics 
of equity 
Goodwill and 
impairment 
Share-based payment  Work Plan  Completed  Projected 
summary 
10/2018 

paper 
06/2018 

Rate regulated 
activities 
Conceptual 
framework 

Work Plan  Work Plan  Work Plan  The project aims at accounting for the effect of rate regulations 

Exposure 
Draft – 
28/05/2015 

Ongoing 

Issued in 
March 
2018 

when companies pricing policies are regulated. 
Project completed. 

20 

 
 
 
Extractive activities 

Work Plan  Research project to consider an upgrade of IFRS 6 – Exploration 

for and Evaluation of Mineral Ressources 

Work plan  Exposure 

Draft 
26/03/2018 

Exposure 
Draft  - 
12/09/2017 

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 
(Amendment to IAS 
1) 
Definition of a 
business (Amendment 
to IFRS 3) 
Fees in the 10 percent 
test for Derecognition 
(Amendment to IFRS 
9) 
Improvements to 

Exposure 
Draft – 
10/02/2015 

Work plan 

Exposure  Project 

Work plan  Clarifications on the distinction between accounting policies and 

estimates. 

Designed to lower the impracticability threshold regarding 
retrospective application of voluntary changes in accounting 
policies. 

Work plan  Work Plan  Clarifications when third parties have rights to make particular 

decisions about a company's defined benefit plan 

Work Plan  Clarification of the classification of debts with renewal options. An 

amendment is expected in 2019. 

Clarification between the definition of "business" and "group of 
asset" 

Issued on 
22/10/2018 

Work Plan  Work plan  Clarifications of fees and costs to be considered when assessing the 

de-recognition of a financial liability 

Project terminated following the feedback from the Exposure Draft 

21 

 
 
 
 
 
 
 
 
 
 
 
IFRS 8 - Operational 
segments 
IAS16 - Proceeds 
before Intended Use 

Taxation in Fair 
Value Measurements 
(Amendments to IAS 
41) 
IBOR Reform and the 
Effects on Financial 
Reporting 
Onerous Contracts – 
Cost of fulfilling a 
contract (Amendment 
to IAS 37) 
Pension benefits that 
depend on Asset 
Returns 
Subsidiary as a First-
time Adopter 
(Amendments to 
IFRS 1) 

Draft – 
29/03/2017 
Exposure 
Draft  – 
20/06/2017 

consultation.  

summary 
02/2019 
Work plan  Amendment to prohibit deducting sales proceeds from the cost of 

an item of property 

Work plan  Amendment designed to narrow down the scope of an existing 
exemption in IAS 12 not to recognize deferred taxes upon the 
initial recognition of an asset or liability.  

Work Plan  Project designed to address the consequences of the IBOR reform 

on financial reporting. 

Exposure 
draft 
13/12/2018 

Project designed to clarify the definition of “unavoidable costs” in 
determining whether a contract is onerous 

Work Plan  Research project to consider the possibility to amend IAS 19 

Employee benefits with regards to pension benefits that depend on 
asset returns. 

Work Plan  Clarification of IFRS 1 as regards the calculation of the cumulative 

translation adjustment upon the first adoption of IFRS by a 
subsidiary. 

22 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Appendix 2 – Breakdown of the 2018 funding of the IFRS Foundation 

Breakdown of funding of the IFRS Foundation 
Financial contributors 

Contribution 
2018 

Contribution 
2017 

Contribution 
2016 

Number of 
trustees 

Evolution at constant 
exchange rate 

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

24.0% 
18.5% 
17.3% 
32.7% 
6.1% 
0.6% 
0.8% 

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% 

2018/2017 

2017/2016 

-31.8% 
2.0% 
-4.0% 
7.4% 
-10.8% 
0.0% 
-15.7% 
-9.7% 

-0.3% 
2.0% 
1.0% 
-2.4% 
-17.0% 
-53.3% 
-2.4% 
-2.1% 

7 
8 
6 
1 
0 
22 

23 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Appendix 3 – Breakdown of the 2018 funding of EFRAG 

CONTRIBUTIONS                  000 EUR 

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 16 
TOTAL CONTRIBUTIONS 
Source: EFRAG 

2018 

2017 

2016 

300 
125 
75 
75 
75 
75 
25 

300 
125 
75 
75 
75 
75 
25 

300 
125 
75 
75 
75 
75 
25 

15 

15 

15 

765 

765 

765 

350 
350 
350 
290 
100 
50 
50 
50 
10 
1600 
2885 
 5250 

350 
350 
350 
290 
100 
50 
50 
50 
15 
1605 
2593 
4963 

350 
350 
350 
290 
100 
50 
50 
0 
15 
1555 
2432 
4752 

16 Grant contributions as at 31st July 2019 (provisional for 2018 grant contribution). 

24 

 
 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
                                                           
Appendix 4 : Gender balance information in EFRAG per 31 December 2018 

Group 

Percentage 
male 

Percentage 
female 

Percentage Central 
and Eastern 
Europe 

Number of 
nationalities 

EFRAG Board 

76% 

24% 

0% 

EFRAG TEG 

87%  (from  1 
April 
2019 
81%) 

13%  (from  1 
April 
2019 
19%) 

(from  1  April 

6% 
2019 0%) 

10  (from  1  April  2019 
8) 

79% 

21% 

2% 

Between 6 and 14 

59% 

41% 

12% 

52% 

48% 

13% 

13 

13 

EFRAG TEG 
working groups 
and Advisory 
Panels 

European Lab 
Steering Group 

European Lab 
Project Task Force 

Source: EFRAG 

25 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Appendix 5  

PIOB Budget Diversification 

In 2012, the PIOB  conducted a fundraising  exercise in  close coordination with  the MG and 
IFAC. As a consequence, in the following years the PIOB achieved a diversified funding base 
that  includes  sources  other  than  IFAC.  In  2018,  the  PIOB  received  contributions  that 
amounted to EUR 1,636,302 from the following contributors: 

 

International Federation of Accountants: EUR 1,135,302  

  European Commission: EUR 331,000  

 

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

  Financial Reporting Council: EUR 40,000  

  Bank for International Settlements: EUR 30,000  

2018 contributions %  

3% 2% 

6% 

20% 

International Federation of
Accountants (IFAC)

European Commission (EC)

International Organization of
Securities Commissions
(IOSCO)

Financial Reporting Council

Bank for International
Settlements (BIS)

69% 

26 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annex 

Interim appraisal of the programme  

1. 

EXECUTIVE SUMMARY 

This  annex  represents  an  interim  appraisal  of  the  funding  programme  to  support  specific 
activities  in  the  field  of  financial  reporting  and  auditing.  It  assesses  the  progress  of  the 
programme towards its objectives over the period 2014-2019.  

It  appraises  the  overall  pertinence  and  coherence  of  the  Programme,  the  effectiveness  of  its 
execution and the overall and individual effectiveness of the beneficiaries’ work programme 
in terms of achieving the objective referred to in Article 2 of Regulation 258/2014 to improve 
the conditions for an efficient functioning of the internal market by supporting the transparent 
and independent development of international financial reporting and auditing standards. 

The assessment finds that the funding programme contributed to the intended objective during 
the  period  under  review  and  remains  both  relevant  in  light  of  the  changes  in  the  European 
framework for corporate reporting and consistent with other political priorities pursued by the 
European Union.  

However, the interim appraisal also identifies new challenges that have emerged as part of the 
European Action Plan on Financing Sustainable Growth, which will require stricter scrutiny 
of sustainability impacts as part of the endorsement activities of EFRAG. This to compensate 
the  fact  that  the  IFRS  Foundation  limits  its  considerations  on  IFRS  standard  setting  to 
reporting  financial  performance  without  a  mandatory  assessment  of  the  broader  impact  of 
IFRS on the economy, or sustainability. 

The interim appraisal observes that this new policy objective has already widened the scope 
of the endorsement and research activities of EFRAG which recently undertook two major ad 
hoc projects upon the request of the Commission in order to assess the consequences of IFRS 
standards  on  long  term  equity  investements  and  identify  possible  improvements  in  order  to 
foster long-termism in investment behaviour. As regards the PIOB, the Commission services 
evoke the need to arrive at a more diversified fund base. 

In conclusion, the Commission Services found that  the  current  EU co-financing has, so  far, 
met the expectations and should be continued in the next multiannual financial framework of 
2021-2027. It should especially secure appropriate funding to enable EFRAG to carry out its 
new additional mission on sustainability.    

27 

 
 
 
 
2. 

INTRODUCTION 

2.1. 

PURPOSE OF THE INTERIM ASSESSMENT 

Article  9,  paragraph  8  of  Regulation  258/2014  requires  the  Commission  to  submit  to  the 
European Parliament and to the Council a report on the achievements of the Union Program to 
support specific activities in the field of financial reporting and auditing for the period 2014-
2020.  The  report  shall  appraise  at  least  the  overall  pertinence  and  coherence  of  the 
programme, the effectiveness of its execution and the overall and  individual  effectiveness of 
the  beneficiaries’  work  programmes  in  supporting  the  transparent  and  independent 
development of international financial reporting and auditing standards.  

2.2. 

THE  EUROPEAN  UNION  PROGRAMME  TO  SUPPORT  SPECIFIC  ACTIVITIES  IN  THE 
FIELD OF AUDITING AND FINANCIAL REPORTING 

The  programme  is  co-financing  the  activities  of  three  organisations:  the  International 
Financial  Reporting  Standards  Foundation  (IFRS  Foundation),  the  European  Financial 
Reporting  Advisory  Group  (EFRAG)  and  the  Public  Interest  Oversight  Board  (PIOB).  It 
contributes  to  the  achievement  of  the  policy  objectives  of  the  Union  in  relation  to  financial 
reporting  and  auditing.  The  IFRS  Foundation  develops  international  financial  reporting 
standards  (IFRSs)  via  its  International  Accounting  Standards  Board  (IASB),  while  EFRAG 
provides the European Commission  with  endorsement advice on new or  modified standards 
and monitors the standard setting activities undertaken by the IASB to ensure that European 
interests  are  safeguarded.  The  PIOB  conducts  oversight  of  three  Standard  Setting  Boards 
supported  by  the  International  Federation  of  Accountants  (IFAC)  in  the  areas  of  audit  and 
assurance, education, and ethics.  

In  the  field  of  financial  reporting,  the  programme  complements  the  IAS  Regulation,  which 
requires  companies  with  securities  listed  on  an  EU  regulated  market  to  prepare  their 
consolidated financial statements according to International Financial Reporting Standards. 

The programme has a financial envelope EUR 57 007 000 for the period 2014-2020, broken 
down as follows: 

IFRS Foundation:  

 
  EFRAG:  
  PIOB:   

EUR 31 632 000 
EUR 23 134 000 
EUR   2 241 000 

28 

 
 
 
 
Funding  is  provided  to  the  three  beneficiaries  by  means  of  operating  grants  which  are 
implemented through direct management with annual work programmes.   

2.3. 

OBJECTIVES OF THE PROGRAMME 

In the  field  of financial  reporting, the main operational  objectives outlined in  the recitals  of 
Regulation 258/2014 establishing the programme include: 

  Ensuring comparability and transparency of company accounts throughout the Union; 
  Fostering the convergence of accounting standards used internationally with the ultimate 

objective of achieving a single set of accounting standards; 

  Ensuring  that  the  interests  of  the  Union  are  adequately  taken  into  account  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 take into account 
the impact of standards on financial stability and the economy.  
Increasing the financial independence of the beneficiaries from the private sector and ad 
hoc sources, thereby raising their capacity and credibility. 

 

  Overseeing  the  process  leading  to  the  adoption  of  International  Auditing  Standards  and 

other public interest activities of the International Federation of Accountants. 

  Fostering  transparency  and  the  involvement  of  stakeholders  in  the  standard  setting  and 

endorsement process17. 

2.4. 

IMPLEMENTATION OF THE UNION PROGRAMME 

The  Commission  is  responsible  for  the  content  of  the  work  programmes  of  the  European 
Union Programme to support specific activities in the field of auditing and financial reporting.   

However, according to the constitution of the IFRS Foundation, the International Accounting 
Standard Board has full discretion in developing and pursuing its technical agenda subject to 
consulting the Trustees and the Advisory Council of the Foundation and carrying out a public 
consultation every five years. This implies that the European Commission can only follow the 
work programme determined by the IASB.   

Each year, the Commission monitors the implementation of the Union programme as well as 
the use of the grants awarded, through: 

(i) 

(ii) 

Preparing  annual  reports  on  the  activities  of  the  beneficiaries  IFRS  Foundation, 
EFRAG and the PIOB and 
Taking  annual  financing  decisions,  which  provides  an  assessment  of  the  work 
programmes of the beneficiaries based on the detailed rules set by Article 110 of 
Regulation (EU, Euratom) 2018/1046 ('the Financial Regulation'),  

17 Recital 15 of regulation 258/2014 

29 

 
 
                                                           
3. 

SCOPE OF THE INTERIM APPRAISAL  

The  interim  appraisal  addresses  the  following  questions  in  accordance  with  Article  9.8  of 
Regulation 258/2014: 

  Effectiveness:  how  successful  the  overall  programme  and  the  work  programme  of 
each  individual  beneficiary  have  been  in  achieving  or  progressing  towards  their 
objectives? 

  Pertinence:  are  the  objectives  of  the  programme  still  relevant,  whether  in  terms  of 

completeness (new needs), or accuracy (changes in, or disappearance of needs)? 

  Coherence: to what extent is the programme consistent with other EU policies, or are 

there inconsistencies between the activities undertaken by the beneficiaries? 

The assessment has been based on the following data sources: 

  annual  reports  as  well  as  supporting  documents  that  the  beneficiaries  provide  to  the 

European Commission on a yearly basis; 

  data  and  input  collected  by  the  Commission  in  the  various  Supervisory  Board 
meetings, in which it participates as an observer, to discuss and clarify funding issues; 
financial statements and the auditor's reports of the beneficiaries; 

 
  visits arranged to the three beneficiaries' premises to verify the financial systems and 

 

controls. 
forthcoming fitness check on the EU framework for public reporting by companies in 
2019 

  evaluation of  Regulation 1606/2002 (‘IAS Regulation’) in 201518 
  ex-ante evaluation of the Union Programme in 201219. 

Approach  

This appraisal follows the requirements of Article 9.8 of Regulation 258/2014.  It  covers the 
period 2014 until 2019, but not the remaining period (i.e. until end 2020).   

The report adopts a retrospective approach. It does not consider possible policy alternatives. 
That  was  done  as  part  of  the  impact  assessment  supporting  the  Commission  Proposal  for  a 
Single Market Programme 2021-202720. 

18 COM (2015) 301 final 
19 COM (2012) 782 final 
20 SWD (2018) 320 final appendix 8  

30 

 
 
                                                           
4. 

RESULTS OF THE APPRAISAL 

4.1. 

EFFECTIVENESS OF THE OVERALL PROGRAMME 

Whereas detailed assessments of progress are provided in the Commission annual reports, this 
section  aims  at  providing  insights  about  whether  the  activities  of  the  IFRS  Foundation, 
EFRAG  and  the  PIOB  continued  to  contribute  to  meeting  the  objectives  of  the  programme 
during the period evaluated.  

Key findings 

The  funding  programme  has  enabled  the  three  beneficiaries  to  develop  standards  which 
enhance  the  transparency  and  comparability  of  financial  information  about  financial 
instruments, revenue recognition, and lease contracts. The ongoing “Better Communication” 
project  of  the  IFRS  Foundation  is  an  example  to  further  improve  comparability  by 
strengthening  consistency  in  the  definition  of  key  performance  indicators  and  in  the 
presentation of financial statements. 

The programme contributed to the global acceptance of IFRS as a reference set of high quality 
accounting standards.  

EFRAG has provided the European Commission with qualitative endorsement advice on new 
or modified standards and monitors the standard setting activities undertaken by the IASB to 
safeguard  European  interests.  In  that  respect  the  Union  programme  has  contributed  to 
strengthening the capacity of EFRAG to carry out EU wide impact assessments of the broader 
economic consequences of new IFRS standards.   

With  regard  to  the  financial  independence  of  the  beneficiaries,  their  funding  diversification 
has  increased  their  credibility  and  technical  capacity.  However,  the  objective  to  secure 
national financing regimes proportionate to a country’s gross domestic product to finance the 
IFRS  Foundation  has  not  been  achieved.  The  implementation  of  the  Maystadt  reform  has 
broadened  the  constituency  of  EFRAG  and  contributed  to  better  coordination  between 
European stakeholders in the field of financial reporting.  

The beneficiaries IFRSF and EFRAG have implemented robust due process rules and are on 
track to set up transparency registers. 

As regards the PIOB, the EU grant has helped to attract other public sponsors and to ensure a 
minimum level of independency from IFAC and the auditing profession. 

31 

 
 
4.2. 

INDIVIDUAL EFFECTIVENESS OF THE BENEFICIARIES 

IFRS Foundation 

4.2.1.  KEY ACHIEVEMENTS OF THE IFRS FOUNDATION 

improving  and  supporting 

Following  a  public  consultation,  the  2015-2020  Work  Programme  established  by  the 
the 
International  Accounting  Standard  Board  aims  at 
implementation  of existing standards and enhancing the way the information  is  disclosed in 
the financial statements. Over the period 2014-2018, the IFRS Foundation issued four major 
standards including: IFRS 15 - Revenue from Contracts with Customers, IFRS 9 - Financial 
Instruments, IFRS 16 - Leases and IFRS 17 - Insurance Contracts. Furthermore, in December 
2018,  on  the  basis  of  the  taxonomy  maintained  by  the  IFRS  Foundation,  the  European 
Commission  adopted  the  Regulatory  Technical  Standard  on  the  specification  of  a  European 
single  electronic  reporting  format  (ESEF)  which  from  2020  onward  requires  issuers  of 
securities  listed  on  an  EU  regulated  market  to  prepare  their  IFRS  Financial  Statements  in 
iXBRL format. 

4.2.2.  HOW  EFFECTIVE  THE  IFRS  FOUNDATION  HAS  BEEN 
PROGRESSING TOWARDS THE INTENDED OBJECTIVES SO FAR? 

IN  ACHIEVING  OR 

Key findings 

Ensuring comparability and transparency of company accounts throughout the Union  

The  2015  report  from  the  Commission  to  the  European  Parliament  and  the  Council  on  the 
evaluation  of  Regulation  n°1606/2002  (the  “IAS  Regulation”),  concluded 
the 
introduction of IFRS within the European Union had increased the transparency of financial 
statements through improved quality and disclosures and led to greater comparability between 
financial statements within and across industries.  

that 

Over the period 2014-2018, the IFRS Foundation issued major standards and pursued research 
projects designed to enhance the comparability and transparency of IFRS financial statements. 

IFRS  15  Revenue  from  Contracts  with  customers  was  issued  in  May  2014  and  amended  in 
2015 in order to provide additional clarifications and ease its operational implementation. The 
initial standard was developed jointly with the US Financial Accounting Standard Board with 
a  view  to  streamlining  one  revenue  recognition  model  applicable  to  all  contracts  with 
customers  and  clarifying  the  requirements  of  the  previous  IAS  8  Revenue  and  IAS  11 
Construction  contracts  standards  by  introducing  additional  implementation  guidance.  The 
standard  has  been  applicable  in  Europe  since  1  January  2018  and  is  expected  to  strengthen 
comparability  between  IFRS  and  US  GAAP  while  enhancing  consistent  implementation  by 
companies through the implementation guidance. 

IFRS  9  Financial  Instruments  is  designed  to  improve  the  accounting  treatment  of  lending 
instruments  and  to  ensure  timely  recognition  of  expected  credit  losses  by  implementing  a 

32 

 
 
forward-looking  impairment  model.  It  also  aims  at  better  aligning  the  hedge  accounting 
requirements  with  companies’  risk  management  practices  while  also  improving  disclosures. 
This is expected to reduce non GAAP information and to enhance transparency about the use 
of  financial  instruments  for  the  purpose  of  risk  mitigation.  The  standard  is  applicable  for 
annual period beginning after 1 January 2018. 

IFRS 16 Lease Contracts significantly expands the scope of lease contracts for which separate 
recognition of lease assets and liabilities is required in the financial statements of the lessee. 
The standard was devised with a view to strengthening the comparability of financial leverage 
across companies and the transparency on cash flows arising from lease contracts. Mandatory 
application in Europe started on 1 January 2019. 

IFRS  17  Insurance  Contracts  aims  at  providing  a  harmonized  accounting  treatment  for 
insurance  contracts  thus  significantly  improving  the  comparability  of  financial  statements 
across  insurance  and  reinsurance  companies.  The  standard  also  requires  the  use  of  current 
estimates and the timely recognition of expected losses with a view to enhancing transparency 
about  insurance  and  financial  risks  embedded  in  insurance  contracts.  It  also  aims  at 
streamlining a revenue recognition model similar to IFRS 15 so as to improve cross industries 
comparability.    

Finally  as  part  of  the  Better  Communication  project,  the  IFRS  Foundation  is  considering 
possible improvements to the presentation of IFRS Financial Statements in order to improve 
the  comparability  of  performance  indicators.  A  public  consultation  outlining  the  IASB’s 
proposals is expected in 2019.  

The Commission services therefore assess that the IFRS Foundation standard setting activities 
have  contributed  to  enhancing  the  transparency  and  comparability  of  financial  statements 
thereby enhancing the efficient functioning of the EU capital market.  

Fostering the convergence of accounting standards used internationally with the ultimate 
objective of achieving a single set of accounting standards 

From 2014 to 2018, the international use and acceptance of IFRS has kept progressing with 
thirty  additional  jurisdictions,  mainly  from  Africa,  requiring  the  use  of  IFRSs.  The  2018 
survey  carried  out  by  the  IFRS  Foundation  on  the  use  of  IFRS  Standards  around  the  world 
highlights  that  out  of  166  jurisdictions  surveyed  87%  require  the  use  of  IFRS  at  least  for 
publicly accountable companies. However, some major capital markets (Japan, United States) 
do  not  require  IFRS  but  only  allow  it  for  national  or  foreign  issuers  whereas  other  major 
jurisdictions  such  as  China  and  India  have  only  implemented  convergence  programme  of 
national  accounting  standards  towards  IFRS  that  may  not  ensure  full  consistency  with  the 
standards  as  issued  by  the  IASB.  Furthermore,  although  the  joint  standard-setting  program 
between  the  IASB  and  FASB  has  achieved  substantial  convergence  on  revenue  recognition 
and lease contracts, it has been discontinued for financial instruments and insurance contracts. 

As  a  consequence,  despite  some  limitations,  the  Union  programme  has  contributed  to  the 
international acceptance of IFRS as a worldwide reference model for financial reporting. 

33 

 
 
Ensuring that the interests of the Union are adequately taken into account 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 take into account the impact of 
standards on financial stability and the economy.  

According to the constitution of the IFRS Foundation, the International Accounting Standard 
Board has full discretion in developing and pursuing its technical agenda subject to consulting 
the  Trustees  and  the  Advisory  Council  of  the  Foundation  and  carrying  out  a  public 
consultation  every  five  years.  The  European  Union  is  represented  in  the  IFRS  Foundation 
only  as  a  member  of  the  Monitoring  Board  and  an  observer  of  the  Standards  Advisory 
Council which implies that it has no direct influence in the standard setting choices. 

As a consequence, the views of European stakeholders have to be reported according to the 
procedures  set  in  the  IFRS  Foundation  Due  Process  Handbook  (DPH),  which  especially 
requires the International Accounting Standard Board to gain insights on the likely effects of 
its standard setting proposals and to publish an effect analysis for each exposure draft or final 
standard.  However,  the  requirements  of  the  Due  Process  Handbook  focus  on  the 
improvements to financial reporting and on the assessment of the likely compliance costs for 
both users and preparers, which leaves aside broader impacts of IFRS on financial stability, 
the economy, or sustainability.  

In  2013,  the  IFRS  Foundation  set  up  an  advisory  body  (the  Effects  Analysis  Consultative 
Group) to help the IASB strengthen its methodology for effects analysis. In that regards, some 
progress was achieved in the “Effects Analysis” supporting the issuance of IFRS 16  Leases, 
which considered specifically economic concerns about the impact of the standard on the cost 
of borrowing for companies, debt covenants (capitalizing on the findings from a study carried 
out  by  EFRAG),  the  regulatory  capital  requirements  of  banks  and  access  to  finance  for 
smaller  companies.  In  2019,  the  IFRS  Foundation  launched  a  public  consultation  as  part  of 
the review of its Due Process Handbook which suggests clarifying that the Effects Analysis 
should  be  explicitly  embedded  through  out  the  Standard  setting  process  of  the  IASB  and 
consider the likely benefits of new IFRS standards on long-term financial stability. However, 
it does not require the Board to assess the possible broader economic or other consequences of 
a change in financial reporting.   

With regard to the principle of true and fair view, in March 2018, the IASB issued the revised 
Conceptual Framework for Financial Reporting which provides non-binding guidance to the 
Board  in  developing  IFRS  Standards.  Though  not  endorsed  by  the  European  Union,  the 
Conceptual Framework defines the qualitative characteristics of useful  financial information 
and  therefore  provides  a  conceptual  background  conducive  to  the  principle  of  true  and  fair 
view.  The  revised  framework  clarifies  that  the  information  provided  should  help  users  in 
assessing management's stewardship of an entity's economic resources and specifies that the 
exercise  of  prudence  (defined  as  the  exercise  of  caution  when  making  judgments  under 
reporting. 
the 
conditions 

uncertainty) 

faithfulness 

financial 

supports 

of 

of 

34 

 
 
Increase the financial independence of  the beneficiaries from the private  sector  and ad hoc 
sources, thereby raising their capacity and credibility. 

Evolution of the IFRS Foundation resources 

Amounts in million GBP 

2018 

2017 

2016 

2015 

2014 

Funding contribution received 

22,0 

25,1 

24,1 

21,3 

22,6 

Revenues from publications 

Net income 

Contributions from international 
accounting firms 

8,6 

2,9 

5,4 

6,6 

8,7 

8,7 

6,1 

3,2 

7,7 

5,8 

2,7 

7,0 

5,5 

3,7 

6,4 

Average headcounts 

142 

134 

137 

139 

136 

Breakdown of funding of the IFRS Foundation 
Financial contributors 

2018 

2017 

2016 

2015 

2014 

International accounting Firms 

European Commission 
EU Member States (excluding 
UK) 

United Kingdom 

Total European Union 

Asia/ Oceania 

Americas 

Africa 

Other 

24.0% 

18.5% 

13.6% 

3.6% 

35.8% 

32.7% 

6.1% 

0.6% 

0.8% 

34.7% 

16.5% 

12.4% 

3.5% 

32.4% 

25.6% 

5.8% 

0.5% 

0.9% 

31.3% 

15.6% 

11.9% 

3.5% 

31.0% 

29.0% 

6.6% 

1.2% 

0.9% 

33.0% 

15.4% 

12.6% 

4.1% 

32.2% 

25.2% 

7.9% 

0.9% 

0.8% 

28.5% 

13.6% 

12.7% 

3.8% 

30.2% 

24.5% 

15.0% 

0.8% 

1.0% 

The  funding  of  the  IFRS  Foundation  is  primarily  achieved  through  voluntary  contributions 
from  jurisdictions (normally determined as a percentage of the  gross  domestic product) and 
international  accounting  firms.  This  mechanism  generates  volatility  in  the  Foundation’s 
revenues. Thus the stability of reported total contributions between 2014 and 2018 obscures a 
significant decrease of the contributions from the United States (from 15% in 2014 to 6.1% of 
total  funding  in  2018)  partially  offset  by  the  increased  financial  support  from  the  European 
Union (from 13.5 to 18.5%) and China (from 8 to 11%).  Over  the  period  2014-2018,  the 
Foundation constantly reported positive earnings thus strengthening its financial position by a 
GBP  21  Million  accumulated  reserve.  It  also  significantly  increased  its  self-generated 
revenues from publication and licensing activities. However, it still relies on the contributions 
from international accounting networks to achieve a breakeven financial position.  

Foster  transparency  and  the  involvement  of  stakeholders  in  the  standard  setting  and 
endorsement process 

35 

 
 
 
  
  
The  2015  Commission  Staff  Working  Document  supporting  the  report  on  the  evaluation  of 
Regulation n°1606/2002 on the application of International Accounting Standards found that 
the IFRS Foundation operates under well-developed and transparent procedures with regards 
to  its  standard  setting  activities21.  An  overview  of  the  procedures  is  outlined  in  the  yearly 
report from the Commission on the activities of the IFRS Foundation. A significant overhaul 
of the Foundation’s Due Process Handbook was adopted in February 2013.  

Over the period 2014-2018, the due process requirements remained substantially unchanged. 
However  the  IASB  completed  its  second  and  third  post-implementation  reviews  of  IFRS 
Standards  with  IFRS  3  Business  Combinations  and  IFRS  13  Fair  Value  measurement.  The 
reviews  highlighted  some  implementation  challenges  arising  from  IFRS  3  especially  as 
regards the complexity of goodwill accounting as well as some concerns about the disclosure 
requirements  of  IFRS  13.  Those  findings  are  currently  addressed  through  targeted  research 
projects included in the work plan of the Foundation. In 2017 the IFRS Foundation Trustees 
commissioned an external study about the perception of the foundation by stakeholders. The 
results highlighted strong appraisal for its independence and transparency22.  

With  regards  to  transparency  registers,  starting  from  December  2019  the  IFRS  Foundation 
will  quarterly  publish  a  stakeholder  engagement  register.  The  register  will  cover  all 
engagements of IASB Board Members with external parties of more than 30 minutes.  

EFRAG 

4.2.3.  KEY ACHIEVEMENTS OF EFRAG 

From 2014 to 2018, EFRAG implemented its internal reform in line with the recommendation 
from  the  Maystadt  report  of  October  2013,  which  was  completed  in  July  2016  with  the 
appointment  of  Jean-Paul  Gauzes  as  EFRAG  Board  President.  EFRAG  also  continued  to 
carry  out  endorsement  assessments  on  whether  IFRS  meet  the  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 are conducive to the public good. 
In particular, it is worth mentioning the following key achievements: 

  EFRAG’s work on the endorsement advice on IFRS 17 Insurance Contracts underpinned 
by  in-depth  impact  analysis  consisting  of  an  extensive  case  study  with  11  insurers;  a 
simplified case study with 49 insurers; and a user outreach; 

  endorsement advice on IFRS 16 Leases in 2017; 

  EFRAG’s impact analysis (as a pilot) of the IASB Discussion Paper Financial Instruments 

with Characteristics of Equity (FICE);  

  a Research Project on the consequences of IFRS 9 on long term investments, and 

21 SWD (2015) 120 final page 58 
22 https://www.ifrs.org/-/media/feature/groups/trustees/ifrs-reputation-research-report-jul-2017.pdf?la=en 

36 

 
 
                                                           
 
 

the establishment of a European Lab in September 2018 to consider in its activities and its 
implication in the developments in the corporate reporting, digitalisation and sustainable 
finance areas.  

In  2019,  to  date,  EFRAG's  work  programme  was  largely  driven  by  the  IASB’s  standard 
setting agenda. The endorsement activity of EFRAG remains important, especially in light of 
the  IASB’s  decision  to  consider  amendments  to  IFRS  17  which  requires EFRAG  to  issue  a 
comment  letter  on  the  amendments  while  considering  the  implications  on  its  draft 
endorsement  advice  of  the  standard.  Furthermore  it  maintains  its  active  contribution  to  the 
Action  Plan  on  Sustainable  Growth  by  carrying  on  its  research  activities  on  the  accounting 
treatment  of  equity  instruments  with  a  view  to  identifying  possible  alternative  accounting 
treatments to the fair value measurement of portfolios of equity and equity type instruments. 
Finally, EFRAG closely follows up the IASB’s research activities pertaining to goodwill and 
impairment, the presentation of financial statements and the disclosure requirements.    

The European Corporate Lab set up in 2018 will stimulate innovation in the field of corporate 
reporting  in  light  of  the  European  Commission’s  action  plan  on  Financing  Sustainable 
Growth.  Following  a  call  for  candidates  in  December  2018,  the  first  project  task  force  was 
established and operational in February 2019. 

4.2.4.  HOW  EFFECTIVE  EFRAG  HAS  BEEN  IN  ACHIEVING  OR  PROGRESSING  TOWARDS 

THEIR OBJECTIVES SO FAR? 

Even if difficult to fully translate into measurable indicators, the progress of EFRAG is real in 
delivering  on  its  mandate  of  providing  respected  advice  to  the  European  Commission  and 
representing the European view on financial reporting in the international arena. 

Key findings 

Ensuring the interests of the Union 

Looking  at  the  quality  and  influence  of  the  outputs  produced  so  far  by  EFRAG,  there  are 
indications of the high quality of the activities performed. In the past five years, EFRAG has 
delivered  full  public  good  assessments  and  impact  analyses  on  major  standards.  EFRAG’s 
research work has been  essential to  the part of Europe’s contribution  to  the development  of 
international accounting standards by taking into account the stakeholders’ priorities. Over the 
last  ten  years,  EFRAG  has  published  more  than  700  documents  to  improve  the  IFRS. 
Stakeholders have confirmed EFRAG’s value and effectiveness.  

EU influence on IASB standard setting  

The quality of EFRAG's due process underpinned by its research agenda based on evidence, 
its commitment to consultation  and its responsiveness on all  IASB projects from the outset 
has  certainly  increased  its  influence  in  the  debate  on  International  Financial  Reporting  over 
the  period  assessed.  Moving  beyond  inputs  to  the  IASB's  agenda,  EFRAG  has  conducted 
more  own-initiative  work  providing  an  opportunity  to  reflect  on  the  future  direction  of 

37 

 
 
standard-setting  and  financial  reporting.  EFRAG  was  able  to  ensure  that  specific  European 
circumstances  were  properly  considered  before  key  decisions  were  taken  by  the  IASB. 
EFRAG's  work  projects  on  dynamic  risk  management23  and  accounting  for  goodwill24  are 
good illustrations of EFRAG’s influence on the IASB (even though they have not yet led to 
concrete standard setting activities by the IASB). 

Independence of EFRAG 

The financing structure of EFRAG is based on a private-public funding model with a majority 
of  the  contribution  coming  from  the  EC.  Over  a  period  of  5  years,  only  the  European 
Commission's funding slightly changes. It is at maximum 60% of the eligible expenses but the 
actual costs declared by  EFRAG are  different  each  year and thus  the total  funding changes. 
The contributions from national organisations make up around one third of the total funding 
of EFRAG. Out of this amount, 82% stems from four Member States but they have not led to 
dominant  influence  over  EFRAG.  On  balance,  the  new  governance  structure  and  the 
diversification of its funding resulting from the Maystadt reform worked well and has resulted 
in increased credibility and standing without impairing the independence of the organisation. 

Foster transparency and enhance governance of EFRAG 

This  is  an area of  continuous improvement. The overall results of actions taken by EFRAG 
with regard to transparency and governance were very positive.  

Key findings 

  The EFRAG Board reached all its conclusions on a consensus basis without having resort 

to majority voting. 

  The transparency of the public due process that has further developed.  
  A  more  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 
many different perspectives are properly taken into account by EFRAG. 

  Performance  and  effectiveness  review  of  its  own  members  under  the  oversight  of  the 
EFRAG  General  Assembly  on  an  annual  basis  demonstrated  that  on  balance  the 
governance structure worked well. 

  There were no observed issues as regards conflicts of interest. 
  All meetings of the EFRAG Board, EFRAG Technical Expert Group (EFRAG TEG) and 
EFRAG Consultative  Forum of Standard Setters  (EFRAG CFSS) are held in  public and 
webcasted since March 2018. 

  Agenda, summaries of the meetings and supporting agenda papers for important meetings 

are published on EFRAG’s website.  

  EFRAG publishes draft positions for public consultations, undertakes field tests and other 

23 Dynamic Risk Management – How do banks manage interest rate risks? January 2017 
24 Goodwill impairment test : Can it be improved? Feedback statement of March 2018 

38 

 
 
                                                           
forms of effect analyses, organises outreach events. 

  However, two reservations remain: 

o  regarding the ability to capture the full breadth of stakeholders’ views in Europe 

(e.g. small users); 

o  mandatory transparency register on meetings with external stakeholders is not yet 

in place but is well underway. 

The PIOB  

4.2.5.  KEY ACHIEVEMENTS OF THE PIOB 

During the entire period, the PIOB has closely liaised with the standard setting boards under 
its oversight, their three Consultative Advisory Groups, the Compliance Advisory Panel and 
the  Nominating  Committee  and  IFAC  leadership.  The  critical  input  from  the  PIOB  has 
sharpened the discussions on the development of new international standards on auditing and 
has  thus  contributed  to  standards  that  are  more  responsive  to  the  public interest  than  would 
otherwise have been the case.  

4.2.6.  HOW  EFFECTIVE  HAS  THE  PIOB  BEEN  IN  ACHIEVING  OR  PROGRESSING  TOWARDS 

ITS OBJECTIVES SO FAR? 

The EU grant to the PIOB has been indispensable to ensure a minimum level of independence 
vis-à-vis IFAC and the audit profession in general.  

4.3. 

 ARE THE OBJECTIVES OF THE PROGRAMME STILL RELEVANT, WHETHER IN TERMS 
OF COMPLETENESS (NEW NEEDS), OR ACCURACY (CHANGES IN, OR DISAPPEARANCE 
OF NEEDS)? 

Key findings 

The objectives of the programme remain largely valid even though achieving a single set of 
international accounting standards does not seem achievable anymore in the short and middle 
term. However, the Commission Services assess that securing the international acceptance of 
IFRS Standards remains beneficial for entities that wish to raise capital in foreign jurisdictions 
or  that  have  significant  cross-border  activities.  In  addition,  the  need  to  improve  the 
allocational efficiency of capital markets toward financing sustainable growth highlights that 
the  long-term  financing  of  EFRAG  should  be  secured  in  order  to  allow  it  to  carry  out 
sustainability assessments of IFRS standards and foster best practices in the area of corporate 
reporting and extra-financial information.  

Ensuring comparability and transparency of company accounts throughout the Union; 

The relevance of the funding programme primarily stems from the IAS Regulation adopted in 
2002  as  part  of  the  EU  Financial  Reporting  Strategy.  The  2000  Communication  from  the 

39 

 
 
Commission  to  the  Council  and  the  European  Parliament25  highlighted  that  the  existing 
Accounting Directives did not meet the needs of companies that wish to raise capital on pan-
European  or  international  securities  markets  because  of  the  diversity  of  accounting 
approaches as a result of the optionalities embedded in the Accounting Directives as well as 
of different levels of enforcement throughout the EU. 

In  that  regard,  the  2015  evaluation  of  the  Regulation  1606/2002  (‘IAS  Regulation’), 
highlighted  that  IFRS  have  made  EU  capital  markets  more  efficient  by  making  companies' 
financial  statements  more  transparent  and  easier  to  compare.  Furthermore,  since  2013  the 
Accounting  Directives  have  not  been  amended  whereas  under  the  IAS  Regulation  the  EU 
adopted  the  new  IFRS  standards  IFRS  15  Revenue  from  contracts  with  customers,  IFRS  9 
Financial instruments and IFRS 16 Leases. As a consequence, the relevance of IFRS standard 
as  a  single  set  of  accounting  standard  for  entities  listed  on  a  regulated  market  has  further 
increased  as  compared  to  the  Accounting  Directives.  The  Commission  services  therefore 
asses that the objectives of the European funding program remain valid.  

Fostering  the  convergence  of  accounting  standards  used  internationally  with  the  ultimate 
objective of achieving a single set of accounting standards 

Considering the limitations outlined in the previous section about effectiveness and especially 
the  discontinuation  of  the  joint  standard  setting  programme  between  the  International 
Accounting Standard Board and the US Financial Accounting Standard Board, the objectives 
of achieving a single set of international accounting standards does not seem achievable in the 
foreseeable future. However, in 2016, the United States Securities and Exchange Commission 
allowed around 525 foreign issuers (of which around 125 EU issuers26) to file annual financial 
statements  prepared  in  accordance  with  IFRS,  which  contributes  to  the  international 
acceptance  of  IFRS  in  other  jurisdictions.  Furthermore,  the  objective  of  fostering  the 
convergence  of  accounting  standards  remains  relevant  for  jurisdictions  that  have  chosen  to 
substantially  converge  their  national  accounting  standards  with  IFRS  such  as  the  People’s 
Republic of China.  

Accordingly, the Commission Services acknowledge that further progress in the use of IFRS 
is  unlikely  in  the  short  term.  Securing  the  international  acceptance  of  IFRS  though  remains 
beneficial  for  EU  companies  that  wish  to  raise  capital  in  foreign  jurisdictions  or  with 
significant foreign operations in jurisdictions that require or authorize the use of IFRS. 

Ensuring that the interests of the Union are adequately taken into account in the international 
standard-setting process.  

This policy objective directly stems from the choice to delegate the responsibility for setting 
financial  reporting  requirements  to  an  independent  non-governmental  organization  without 
direct  accountability  toward  the  European  Union.  The  IFRS  Foundation’s  governance  relies 
on  a  strict  apportionment  of  the  membership  of  the  Board  of  Trustees  and  the  International 
Accounting  Standard  Board  based  on  geographical  criteria.  In  2015,  the  Foundation  carried 
out  a  public  consultation  about  the  geographical  distribution  of  its  governance.  Some 
stakeholders including the European Commission argued that membership should reflect the 

25 COM (2000) 359 final 
26 https://www.sec.gov/divisions/corpfin/internatl/foreigngeographic2015.pdf 

40 

 
 
                                                           
commitment  to  adopt  IFRS  and  the  relative  share  in  the  funding  contribution  to  the 
Foundation. However, the Foundation reaffirmed that membership 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,  considering  the  lack  of  progress  towards  establishing  a  governance 
structure  reflecting  the  actual  use  of  IFRS  by  jurisdictions  and  their  contributions  to  the 
funding of the Foundation, the Commission Services assess that the policy objective to secure 
a more appropriate oversight of the activities of the Foundation remains essential both before 
adoption  and  throughout  the  standard  setting  process.  This  especially  implies  that  the 
EFRAG’s  mandate,  to  influence  upstream  the  debate  on  International  Financial  Reporting 
Standards remains a cornerstone of the programme with a view to contributing to evidence-
based standard-setting through quantitative impact assessments.  

Increase the financial independence of  the beneficiaries from the private  sector  and ad hoc 
sources, thereby raising their capacity and credibility. 

Over the period covered by the assessment, the IFRS Foundation constantly reported profits 
and  accumulated  reserves  sufficient  to  cover  fifteen  months  of  operating  expenses27.  It  also 
increased  its  recurring  self-generated  revenues  from  licensing  agreements.  However,  the 
Trustees  of  the  IFRS  Foundation  were  unsuccessful  in  implementing  a  stable  contribution 
scheme based on the gross domestic product of jurisdictions. As a consequence, the majority 
of the Foundation’s funding continues to rely on voluntary annual funding. Furthermore, over 
the period the US Securities Exchange Commission discontinued its financial support to the 
Foundation,  thus  increasing  the  relative  share  of  funding  from  international  accounting 
networks,  which  made  up  almost  one  third  of  the  Foundation’s  total  funding  from  2015  to 
2017 and 24% in 201828. 

With  regard  to  EFRAG,  the  diversification  of  its  funding  and  its  governance  structure 
resulting  from  the  Maystadt  reform  have  increased  the  credibility  of  EFRAG  as  an 
organisation working in the European public interest. So far they had a positive impact on the 
way  EFRAG  influences  IFRS.  Today,  its  funding  structure  is  mainly  based  on  the  EU  and 
national  organisations’  contributions  representing  85%  of  its  financial  resources.  However, 
with  Brexit  and  the  potential  withdrawal  of  the  UK  regulator  (FRC),  the  financial 
independence  of  EFRAG  will  become  more  relevant  to  secure  its  capacity  to  carry  out  its 
mandate. 

As  regards  the  PIOB,  there  is  a  diversification  of  funding  sources,  with  a  substantial 
contribution from IFAC but below the two-thirds threshold, as stipulated in the Regulation. 

As  a  consequence,  overall  the  Commission  services  assess  that  securing  the  financial 
independence of the beneficiaries remain a relevant objective. 

Oversee the process leading to the adoption of International Standards on Auditing and other 
public interest activities of the International Federation of Accountants. 

27 According to its 2018 financial statements. 
28 This reduction in 2018 stems to a significant extent from a new licensing arrangement which leads to 
recognizing licensing revenues instead of a voluntary financial contribution 

41 

 
 
 
                                                           
The PIOB is responsible for monitoring the due process of the international standard setting 
process in the areas of audit and assurance, education, and ethics.  

The ISAs are - directly or indirectly - used in all EU Member States. A well-functioning PIOB 
is  needed  to  oversee  the  standard  setting  boards  in  order  to  ensure  that  new  or  amended 
standards are developed in the public interest i.e. responsive to stakeholder needs, accountable 
and  transparent  as  well  as  aligning  the  priorities  of  the  audit  profession  with  those  of  all 
stakeholders (including investors and other users of financial statements).  

Foster  transparency  and  the  involvement  of  stakeholders  in  the  standard  setting  and 
endorsement process. 

The Commission Services assess that securing fair and transparent consultation of interested 
parties remains a cornerstone of the standard-setting and endorsement processes to ensure that 
the views from all European stakeholders are adequately taken into account at all stage of the 
beneficiaries’ due process.  

Have new needs arisen?  

The Commission Services identified two main new needs relevant to the Union Programme: 
the increasing demand for electronic access to financial information and the need to improve 
the allocational efficiency of capital markets toward financing sustainable growth. 

The demand for electronic access to financial information 

In  2013  the  Transparency  Directive  was  amended  to  require  by  1  January  2020  the 
preparation of annual financial reports in a single electronic reporting format with a view to 
facilitating  cross-border  investment  and  allowing  investors  to  easily  access  regulated 
information.  The  Regulatory  Technical  Standard  on  the  European  Single  Electronic  Format 
was adopted on 29 May 2019 by the European Commission and establishes that the taxonomy 
to  be  used  to  mark-up  IFRS  consolidated  financial  statements  shall  be  an  extension  of  the 
IFRS taxonomy maintained by the IFRS Foundation. 

The  IFRS  Taxonomy  reflects  the  presentation  and  disclosure  requirements  of  IFRS  and  is 
updated annually by the Foundation. Following a public consultation run in 2015, the Trustees 
issued  an  annex  to  the  Due  Process  Handbook  of  the  Foundation  in  June  2016  in  order  to 
reflect the necessary maintenance of the IFRS taxonomy. It especially provides that updates of 
the taxonomy are carried out  upon adoption of a new standard or amendment after a public 
consultation launched at the latest after the publication of the final standard. 

 Improving the allocational efficiency of capital markets toward financing sustainable growth 

Over  the  period  considered  by  the  assessment,  the  agreement  on  the  UN  Sustainable 
Development Goals (2015) and the Paris Agreement on climate change (2016) have put the 
transition  to  a  sustainable  economy  high  on  the  political  agenda,  and  have  contributed  to  a 

42 

 
 
growing  focus  on  the  sustainability  of  businesses  and  investments.  This  has  in  turn  put 
emphasis  on  improving  corporate  transparency  on  sustainability  issue  and  raised  new 
concerns about the impact of IFRS Standards. Especially, the 2018 report of the High Level 
Expert Group on financing a sustainable European economy highlighted that IFRS standards 
might not be conducive to long-term investment. 

As  a  consequence,  as  part  of  its  2018  Action  Plan  on  Financing  Sustainable  Growth,  the 
European  Commission  asked  EFRAG  to  consider  possible  improvements  to  the  accounting 
treatment of long-term investments in equity instruments and committed itself, to request an 
assessment of the impact of new or revised IFRS standards on sustainable investments, where 
appropriate.  This  initiative  aims  at  preventing  IFRS  accounting  treatments  contributing  to 
disincentives to the allocation of long term funding needed for the transition to a sustainable 
economy. 

In 2019 the IASB Chair highlighted that the IFRS Foundation was not equipped to enter the 
field  of  sustainability  reporting  and  should  focus  on  the  financial  information  needs  of 
investors.  However  he  acknowledged  that  sustainability  issues  might  have  an  impact  on 
financial reporting and suggested that, when financially material, sustainability considerations 
might be addressed through an overhaul of the Management Commentary Practice Statement. 
The  practice  statement  provides  non-binding  guidance  about  the  background  information 
within  which  to  intepret  financial  statements.  This  especially  includes  insights  into  the 
company’s strategy and the progress made towards its implementation. 

As  a  consequence,  the  decision  from  the  IASB  not  to  consider  sustainability  impacts  in 
developing IFRS Standards implies that the scope of the endorsement activities carried out by 
EFRAG  will  widen  in  order  to  ensure  that  this  dimension  of  the  European  Public  Good  is 
adequately safeguarded. In that regard, EFRAG already issued in 2018 two pieces of technical 
advice  on  possible  improvements  to  the  requirements  of  IFRS  9  Financial  Instruments  for 
long  term  investments  in  equity  instruments  and  will  keep  working  on  possible  alternative 
accounting treatments to the fair value measurement of equity and equity like instruments in 
the future. 

In addition, as the activities of EFRAG in relation to non-financial information reporting will 
represent a logical extension of its mandate in the future, they should have adequate funding.  
Therefore,  it  will  be  worthwhile  that  the  future  Single  Market  Programme  (SMP),  which 
depends  on  the  negotiations  of  the  next  MFF,  encompasses  flexible  funding  arrangements 
ensuring that these activities be also covered. 

4.4. 

TO  WHAT  EXTENT  THE  PROGRAMME  WAS  CONSISTENT  WITH  OTHER  EU  POLICIES 
OR  ARE  THERE  INCONSISTENCIES  BETWEEN  THE  ACTIVITIES  UNDERTAKEN  BY  THE 
BENEFICIARIES (COHERENCE)? 

Key findings 

43 

 
 
The  activities  of  the  beneficiaries  are  consistent  and  fully  in  line  with  the  EU  objective  to 
strengthen the Capital Markets Union.  

Consistency between the activities undertaken by the beneficiaries 

In  the  field  of  financial  reporting,  the  EU  Funding  programme  is  designed  to  secure  the 
promotion  of  a  single  set  of  international  financial  reporting  standards  and  to  safeguard  the 
interests of European citizens and EU public policy objectives. The consistency between these 
two  potentially  contradictory  objectives  therefore  relies  on  the  ability  of  EFRAG  to  engage 
with  the  IASB  as  early  as  possible  in  the  standard  setting  process  in  order  to  address  the 
concerns  from  European  stakeholders.  In  that  regard,  the  report  assesses  that  EFRAG  has 
been  successful  in  its  mandate  to  timely  influence  the  IASB  ahead  of  the  endorsement  of  a 
new  standard.  However,  it  also  highlights  that  the  mandate  of  EFRAG  may  become 
increasingly  challenging  in  the  future  because  the  IASB  does  not  explicitly  consider 
sustainability issues in developing IFRS Standards and is not required to assess systematically 
the  consequences  of  introducing  a  new  accounting  standard  beyond  the  improvement  to 
financial reporting and the likely costs of implementation. 

Based  on  our  analysis,  adequate  consideration  should  be  given  to  the    difference  in  focus 
between the broader 'public good ' notion of the Union set out in the IAS Regulation and the 
narrower IASB focus of qualitative improvement of financial, especially against the broader 
objective  of  EU  transition  towards  a  more  sustainable  economy.  This  may  warrant  some 
additional flexibility in the endorsement procedure of IFRS Standards issued by the IASB by 
allowing  in  well-defined  circumstances  to  amend  specific  provisions  of  a  new  standard  or 
interpretation that would contradict the EU broader policy objectives. 

Consistency with other public policy objectives 

In the area of financial reporting, the Union programme is  designed to complement the IAS 
Regulation and to ensure that new accounting standards issued by the IFRS Foundation meet 
the  endorsement  criteria  before  adoption  by  the  European  Union.  As  a  consequence,  it  also 
indirectly contributes to the broader objectives of safeguarding the efficient and cost-effective 
functioning of the Union capital markets and reinforcing the freedom of movement of capital 
in the internal market. Furthermore, the analysis in the section on relevance highlights that the 
programme remains fully consistent with the architecture of the EU’s frameworks for public 
reporting  by  companies  which  is  based  on  a  fundamental  differentiation  between  the 
requirements applicable to listed and non-listed entities. Actually achieving and maintaining a 
harmonized  financial  reporting  framework  for  capital  market  oriented  companies  remains 
essential for the realisation of the integrated market for financial services in the context of the 
Capital Market Union. 

The existence of an independent audit oversight  body has given investors (and the public at 
large) comfort that auditing standards are of high quality and developed in the public interest. 
The EU grant is warranted by the wide use of the IAASB’s international standards of audit in 

44 

 
 
EU Member States. However, despite some initial progress and improved diversity in funding 
of the PIOB, it is concerning that the number of other public sponsors has remained limited 
and  more  recently  even  slightly  decreased.  It  therefore  remains  a  challenge  to  secure  a 
diversified funding model for the PIOB that can rely on funding not only from auditors, but 
also from users/investors, regulators and international organisations, in order to be sustainable 
in the medium-long term future. At the same time, without the continued help of the EU and 
other  public  sponsors,  the  PIOB  would  return  to  the  situation  before  2010,  when  it  was 
financially completely dependent on IFAC. This would be a serious step back, undermine the 
credibility of the entire governance and oversight system  and risks reduce public confidence 
in the IAASB’s auditing standards. 

45