7 Financial reporting and auditing
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5213/13
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COM(12) 782
| Draft Regulation establishing a Union programme to support specific activities in the field of financial reporting and auditing for the period 2014-20
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| Legal base | Article 114 TFEU; co-decision; QMV
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| Department | Business, Innovation and Skills
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| Basis of consideration | Minister's letters of 28 May and 4 December 2013
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| Previous Committee Report | HC 86-xxx (2013-14), chapter 2 (30 January 2013)
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| Discussion in Council | See para 7.8 below
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| Committee's assessment | Politically important
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| Committee's decision | Cleared; further information awaited
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Background
7.1 According to the Commission, the global nature of capital
markets means that harmonisation of reporting and audit rules
at global level is essential, and it says that this is why the
EU decided in 2002 to adopt international accounting standards
(IFRS), rather than introduce its own set of requirements. It
also suggests that, with more countries moving to adopt IFRS,
Europe will need to speak with one voice in order to be heard,
and it notes that the European Financial Reporting and Accounting
Group (EFRAG) has gradually taken on the role of providing technical
input in this area.
7.2 In 2009, Decision No. 716/2009/EC was adopted, establishing
a Programme with a budget of 38.7 million for the period 2010-13
to support specific activities relating to financial services,
financial reporting and auditing. However, this will end in December
2013, and, as we noted in our Report of 30 January 2013, the Commission
has put forward this draft Regulation, which aims to renew it
for 2014-20, with funding of €58 million[32]
being made available from the EU budget for three bodies (the
IFRS Foundation, EFRAG and the Public Interest Oversight Board
(PIOB)). In addition, funding of €4 million would be provided
in administrative expenditure for the Internal Market and Services
Directorate.
7.3 We noted that the Government agrees with
the overall strategic aim of the proposal, but had said that,
whilst it recognises the important roles of the organisations
in this area, and supports their continued funding in principle,
it questioned whether a blanket increase in their budgets was
justified in the current austerity climate, and therefore proposed
to ask the Commission to explain what consideration it had given
to prioritising outcomes, and to linking funding accordingly.
It added that the UK and
other Member States had expressed concern about the proposed role
of EFRAG, and that it would also wish to consider
the proposed delegation to the Commission of the power to select
new beneficiaries for the Programme (and to ask the Commission
to explain how it will consider if bodies merit funding).
7.4 We commented that, since the document would
essentially extend for a further period a programme which had
been in force since 2009, it did not raise any significant new
issues, but we also noted the points on which the Government had
expressed concern. We therefore decided to hold the document
under scrutiny, pending further developments.
Minister's letters of 28 May and 4 December 2013
7.5 We next received a letter of 28 May 2013
from the Minister for Employment Relations and Consumer Affairs
(Jo Swinson) indicating that the Commission had said that it was
conducting a review of IFRS in the EU, and had appointed a Special
Adviser (Philippe Maystadt) to focus on the role of bodies such
as EFRAG. She also reported that the European Parliament's Committee
on Economic and Monetary Affairs had suggested a number of amendments,
and said that she would write again when the impact of these developments
was clearer.
7.6 We have now received from the Minister a
further letter of 4 December 2013. She says that the Maystadt
review has recommended that EFRAG should continue to have a role,
but that its governance arrangements should be transformed, including
a number of detailed recommendations to improve stakeholder representation
and influence, in particular at board level, thus making it appropriate
to consider the provision of funding over the 2014-20 budget period.
(She also notes that, whilst not directly relevant to this proposal,
the report considers other issues related to the EU's influence
in the development of IFRS and its approach to their adoption.)
7.7 The Minister notes that the European Parliament
has brought forward a number of amendments, some of which (such
as the deletion of provisions for the Commission to use delegated
acts in relation to future beneficiaries of the funding programme)
the Government supports, whilst it is strongly opposed to others
(such as the imposition of detailed conditions on the funding
of the IFRS Foundation). She adds that other Member States share
these views which have been the subject of intense discussions
between the Presidency and the Parliament, as a result of which
the proposal has been amended to:
- remove the ability of the Commission
to use delegated acts to determine future recipients of funding
within the budget period, so that, if it considers it appropriate
to fund a new body (even the direct successor of a current recipient),
it will need to put forward a proposal;
- require the Commission to provide annual reports
to the Council and the European Parliament on the activities of
the IFRS Foundation and the PIOB;
- require the Commission to provide the Council
and the Parliament with reports on the activities of EFRAG, and,
in particular, the progress with its reform programme;
- limit the period for which funding will be made
available to EFRAG, pending evidence of its implementing governance
reforms in line with recommendations of the Maystadt report, with
the Commission bringing forward a proposal for continued funding
for the remainder of the budget period — though this is
subject to satisfactory progress with the Group's reform programme,
and the precise length of the initial funding period is still
subject to negotiation (but unlikely to exceed three years);
- reduce the budget envelope accordingly;
- restrict the Commission's funding to the PIOB
to €300,000 a year if the funding it receives from the International
Federation of Accountants exceeds two-thirds of its total annual
funding (thus reflecting the expectation that the PIOB will be
effective in achieving its objective of diversifying its funding
base for the future); and
- insert a clause enabling the Commission to fund
the recipient bodies from 1 January 2014, regardless of the date
of adoption, thereby acknowledging the delay in securing agreement
to this proposal, and avoiding a reduction in the amount available
to each body in 2014.
7.8 The Minister observes that the provisions
on the Commission's power to use delegated acts, and on the levels
of funding proposed, reflect the points made by the UK on the
original text, and that negotiations on the proposal are now drawing
to a close, with the Commission being keen to secure agreement
as soon as possible to remove uncertainty and avoid disrupting
the funding of the recipient bodies. She adds that, if agreement
is reached, it is possible that the proposal will be considered
by the Council later this month, and expresses the hope that the
information she has provided will enable us to release the proposal
from scrutiny.
Conclusion
7.9 As we have noted previously, this proposal
would essentially extend for a further period arrangements which
have been in force since 2009, and our main reason for holding
it under scrutiny was to await further information about the points
on which the Government had expressed concern. Although the Minister's
most recent letter suggests that there are still one or two loose
ends to be tied up, it would appear as though the fear that the
Commission would be able to use delegated acts to determine future
recipients of funding has been removed, and that adjustments will
be made to the budgetary envelope which reflect the points made
by the UK and other Member States. In view of this, and the prospect
of an imminent agreement in the Council, we are now clearing the
document, but we would be glad if the Government could inform
us of the eventual outcome.
32 €32.22 million would be for the IFRS Foundation;
€23.51 million for EFRAG; and €2.27 million for the
Public Interest Oversight Board. Back
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