Bolkestein Speaks To ICAEW On Accounting Standards

by Robin Pilgrim, LawAndTax-News.com, London

05 March 2004

Speaking at the annual dinner for the Institute of Chartered Accountants in England and Wales (ICAEW) on Tuesday, the EU's Internal Market Commissioner, Frits Bolkestein addressed the highly topical issue of accounting and auditing standards within the European Union.

Suggesting that the collapse of Parmalat had demonstrated that the EU was right not to be complacent following several earlier corporate governance scandals in the United States, Mr Bolkestein told ICAEW members that:

"This evening I should like to focus on three issues which are an integral part of this changing environment and which I know are of particular interest to you: firstly, International Financial Reporting Standards or, as they are otherwise known, International Accounting Standards (IAS); secondly, EU measures on statutory audit post-Parmalat; and thirdly, EU/US relations in this area."

"Firstly, International Financial Reporting Standards. The Commission has promoted a strategy based on a principles-based approach to financial reporting, designed to reflect economic reality and give a true and fair view of the financial position and the performance of a company. At the heart of our strategy is the application, from 1 January 2005, of International Accounting Standards. I remain firmly committed to this strategy. The necessary laws have been adopted and intensive work is now underway across Europe to translate our vision into reality."

Speaking with regard to the tax implications of IAS, the Internal Market Commissioner explained that:

"Here in the UK a great deal of work is already under-way, indeed your Institute prepared a very useful discussion paper on these implications in August naturally from an UK perspective. My interest necessarily goes a little wider. I strongly believe that EU companies need a common consolidated tax base for their EU-wide activities. Accounting and taxation are, of course, closely linked, and I therefore think that it is well worth examining how these common accounting standards might help us to create such a common tax base," continuing:

"I know the issue is complicated. Many accountants have already told me how difficult it will be, and if it is difficult for accountants then I'm sure it will be even more difficult for politicians like myself to get to grips with the matter. However, the Internal Market needs a common tax base and with the introduction of common accounting standards we have a golden opportunity to make some progress in this direction."

Turning to the issue of EU action in the auditing and corporate governance field post-Parmalat, Mr Bolkestein revealed that:

"We have fine-tuned our corporate governance and statutory audit strategies in the light of recent events. The first proposal to be made in mid-March will concern auditing. This proposal will update existing EU arrangements. It will strengthen controls over the audit profession. It will include: full responsibility of the group auditor for consolidated accounts; obligatory independent audit committees for listed companies; stricter auditor rotation requirements and strengthened sanctions. We are also accelerating work on directors' responsibility for company accounts and disclosure in company accounts of off-shore special purpose vehicles."

Finally, speaking on the possibilities for trans-Atlantic corporate governance and auditing co-operation, the EU Commissioner announced that he had begun to see "the light at the end of the tunnel" with regard to the US Sarbanes-Oxley Act, of which he had previously been critical.

Mr Bolkestein went on to stress the need for a two way "co-operative approach" between the two blocs in order to avoid duplication of oversight, and to minimise conflicts of law in this area.

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