The European Commission has published a strategy for future financial reporting in Europe, intended to eliminate remaining barriers to cross-border trading in securities, in particular by recommending that there be one set of accounting standards so that company accounts throughout the European Union are more transparent and more comparable, improving investor protection and reducing the costs of raising capital.
The strategy is a key element in the creation of an integrated market in financial services that is the aim of the Financial Services Action Plan adopted in May 1999. The Lisbon Summit explicitly insisted on the importance of the comparability of financial reporting in the creation of an efficient, deep and liquid securities market in Europe.
The Commission believes that the adoption of International Accounting Standards (IAS) are the way forward. They will come forward before the end of 2000 with proposals which will require all EU companies listed on any regulated market to prepare consolidated accounts in accordance with International Accounting Standards.
The rules would apply from 2005 at the latest. Member States would be allowed to extend the requirement to unlisted companies. Transparency and comparability are of particular importance for financial institutions, so the policy will also cover listed banks and insurance companies.
Internal Market Commissioner Frits Bolkestein said: "The costs of differences in financial reporting methods can be extremely onerous for investors and other stakeholders. Adoption of the proposals we have announced in this Communication should result in the removal of the fragmentation in financial reporting that prevails in Europe today. It signals Europe's firm intention to remove accounting differences as a step forward towards developing integrated, deep and liquid capital and financial services markets to improve capital raising efficiency while preserving investor protection."
In order to provide legal certainty on the standards that should be used in the EU, the legislative proposal would also establish an endorsement mechanism with a two-tier structure - consisting of a technical level and a political level - at EU level to confirm the standards that will have to be applied. Details on the legal status and decision-making procedures of this mechanism are being finalised and will be included in the Commission's proposal.
The Commission believes the EU should move closer to global accounting standards. Europe alone cannot write the rules for financial reporting in the global capital market; however it wishes to contribute to the elaboration of these rules from the earliest stage possible.
The proposals will complement the Commission's forthcoming measures to modernise existing Directives on the issue of Prospectuses and to introduce a single passport for European issuers of securities. Access to EU securities markets would be secured through a common registration system based on comparable market information, including one set of international accounting standards.
See the full text of the Commission's Communication in Tax-news.com's Resources Section
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