Document ID: 32005R0211

COMMISSION REGULATION (EC) No 211/2005
of 4 February 2005
amending Regulation (EC) No 1725/2003 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council as regards International Financial Reporting Standards (IFRS) 1 and 2 and International Accounting Standards (IASs) No 12, 16, 19, 32, 33, 38 and 39
(Text with EEA relevance)
THE COMMISSION OF THE EUROPEAN COMMUNITIES,
Having regard to the Treaty establishing the European Community.
Having regard to Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards (1), and in particular Article 3(1) thereof,
Whereas:
(1)
By Commission Regulation (EC) No 1725/2003 (2), certain international standards and interpretations that were extant at 1 September 2002 were adopted.
(2)
On 19 February 2004, the International Accounting Standards Board (IASB) published International Financial Reporting Standard (IFRS) 2 Share-based Payment. IFRS 2 requires for the first time that companies reflect in their income statements the effects of share-based payment transactions, including expenses associated with transactions in which share options are granted to management and employees. In the past, transactions in which share options were granted to employees were not recognized in the company’s income statements but were disclosed in the notes not affecting reporting of earnings to capital markets.
(3)
The consultation with technical experts in the field confirms that IFRS 2 meet the technical criteria for adoption set out in Article 3 of Regulation (EC) No 1606/2002, and in particular the requirement of being conducive to the European public good.
(4)
IFRS 2 does not specify which valuation models should be used. Instead, it only describes the factors that should be at least taken into account when estimating the fair value of share based payments. This was done on purpose in order not to prevent the development of appropriate measurement techniques which hitherto do not exist for all forms of share based payments (e.g. non tradable long term employee stock options). New alternative methods might be developed in the future to accommodate the needs of companies, auditors and investors. In particular, newly listed companies or companies without a sufficient track record might have difficulties to estimate future share prices.
(5)
The Commission took note of the criticism about the complexity of IFRS 2 Share-based Payment that were advanced from several concerned parties during the consultation process. The Commission is aware of the remaining technical issues of this standard and the related concerns regarding their economic impact. The Commission recognizes that, in view of the potential impact, such as on employee stock option schemes, and the possible implications for the competitiveness of EU companies, the application should be regularly monitored. However, endorsement is in the interest of European capital markets and European investors. The Commission will therefore monitor the future effects of IFRS 2 on European companies and review the applicability of the standard by July 2007 at the latest.
(6)
The Commission recalls that Regulation (EC) No 1606/2002 (the IAS Regulation) of 19 July 2002 requires that for each financial year starting on or after 1 January 2005, companies governed by the law of a Member State shall prepare their consolidated accounts in conformity with the international accounting standards adopted in accordance with the procedure laid down in Article 6(2) if, at their balance sheet date, their securities are admitted to trading on a regulated market of any Member State within the meaning of Article 1(13) of Council Directive 93/22/EEC of 10 May 1993 on investment services in the securities field (3).
(7)
The adoption of IFRS 2 implies, by way of consequence, amendments to other international accounting standards in order to ensure consistency between international accounting standards. Those consequential amendments are affecting International Financial Reporting Standard (IFRS) No 1, International Accounting Standards (IASs) Nos 12, 16, 19, 32, 33, 38 and 39.
(8)
Regulation (EC) No 1725/2003 should therefore be amended accordingly.
(9)
The measures provided for in this Regulation are in accordance with the opinion of the Accounting Regulatory Committee,
HAS ADOPTED THIS REGULATION:
Article 1
The Annex to Regulation (EC) No 1725/2003 is amended as follows:
1.
International Financial Reporting Standard (IFRS) 2 Share-based Payment is inserted in the Annex to Regulation (EC) No 1725/2003;
2.
the adoption of IFRS 2 implies, by way of consequence, amendments to IFRS 1, to International Accounting Standards (IASs) No 12, 16, 19, 32, 33, 38 and 39 in order to ensure consistency between international accounting standards;
3.
the text for insertion is set out in the Annex to this Regulation
Article 2
This Regulation shall enter into force on the third day following its publication in the Official Journal of the European Union.
This Regulation shall be binding in its entirety and directly applicable in all Member States.
Done at Brussels, 4 February 2005.

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