A special adviser appointed to review the European Union's role in formulating international accounting standards was scheduled to make recommendations this week on how the EU can boost its influence in the standards setting process.

Philippe Maystadt, former president of the European Investment Bank and former Belgian deputy prime minister, was tapped by internal markets commissioner Michel Barnier this spring to examine the EU's contribution to International Financial Reporting Standards (IFRS). IFRS, which became applicable to the consolidated accounts of listed companies in the EU in 2005, is an initiative aimed at creating a single, globally accepted set of accounting standards. Maystadt was expected to present his findings – and recommendations for regulatory changes – to finance ministers at the 15 Nov. ECOFIN Council meeting.

IFRS has faced much criticism and debate from within the accounting industry and governing bodies, mainly for the reliability of financial statements produced using IFRS. The European Commission is planning to review the EU regulation on the application of IFRS at the end of 2014. The commission's review will look at Maystadt's recommendations as well as data on IFRS implementation so far.

Maystadt praised the goal of a single set of standards, but said Europe needs to do more to present a consolidated, stronger position.

“The financial crisis raised the awareness of numerous economic stakeholders and political decision-makers on the potential impact of accounting standards on the results made public by companies and on the economy as a whole,” Maystadt said in a statement. “I found that the aim of a single international accounting framework, i.e. the IFRS, was largely confirmed. However, the European Union's influence in international accounting standard-setting is reduced because it is diffuse. I recommend setting up a structure that is able to carry out a strategic analysis of the economic impact of the standards and better coordinate the European positions on this matter.”

Maystadt will suggest a three-pronged approach:

·         The EU should maintain a so-called standard-by-standard adoption procedure, which would allow lawmakers the ability to accept or refuse specific standards issued by the International Accounting Standards Board (IASB). However, amendments or other changes to alter a standard or make it more flexible should be strictly controlled so as not to undermine the goal of a uniform set of standards. Maystadt believes the EU should amend its IFRS regulation to add adoption criteria, including not endangering financial stability and not hindering the economic development of the region. Alternatively, Maystadt said the commission could clarify the regulation by specifying that standards should “contribute to the public interest.”

·         Maystadt outlined three options for boosting the EU's influence in the standards-setting process. The first, which Maystadt is recommending, consists of a reorganization of the European Financial Reporting Advisory Group (EFRAG) to improve what Maystadt termed its legitimacy and representativeness. The other options are transferring the responsibilities from EFRAG to the European Securities and Markets Authority (ESMA), or creating a new agency to represent the European Union. Maystadt said because of the possibility of fast implementation and other reasons, restructuring the existing EFRAG is the best option.

·         Maystadt is proposing that the Accounting Regulatory Committee (ARC) work more closely and at an earlier stage in the process with EFRAG in order to bear greater influence on the work of both EFRAG and the IASB. The ARC is comprised of member state representatives and led by the European Commission.

Barnier said Maystadt's report was “excellent,” and hopes that his recommendations will be adopted swiftly.

“This work will allow the EU to better organize itself to ensure that the needs of its markets are fully taken into account in the international accounting debate, excessively focused these last few years on the objective of convergence with the U.S. accounting standards, the U.S. GAAP,” Barnier said in a statement.

Barnier noted that accounting rules are not just minutiae, but can have real consequences. “The experience of the last few years has shown that accounting standards are more than a mere language convention. They can have an impact on the stability of financial markets, by influencing the actors' behavior on those markets,” Barnier said.

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