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Transcripts of Financial Reporting Session
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– 271 – Transcripts of Financial Reporting Session Paper: Karel Van Hulle and Frank Hellemans Respondent: Peter Van der Zanden (University of Tilburg) and Hans Beckman (University of Amsterdam and University of Groningen) Chair: Henri Olivier (University of Liège) Rapporteur: Sven Bogaerts (K.U.Leuven) A. Abstract Purposes of financial reporting. Financial reporting is a technique through which the financial situation of an entity is communicated to a broader audience. At present we are living in a complex world and we cannot expect financial reporting to be very simple. However, if accounting standards become too sophisticated – which they currently are – the communication with the broader audience is bound to suffer and the financial information is likely to be misunderstood or even wrongfully communicated. And it is a general feeling that we have some problems ahead of us with the current development in accounting standards. Scope of the different systems for financial reporting. There is a discussion ongoing about the possibility of fully exempting so-called “micro-entities” from the scope of the Fourth Directive (which has nothing to do with the usefulness of accounting as an internal management tool). The European Commission has identified a number of measures that could be considered to simplify the legislation and to reduce the administrative burdens imposed on “small” and “medium-sized” companies There was overall agreement during the session that the exemption of small entities from the EU legislation would certainly not be applied in all Member States and would possibly have a counter-effect. There was also general agreement that indeed, if the current system of disclosure (publication) of financial statements were to be abolished, this would result in a significant increase in administrative burdens and costs for “small and medium-sized companies”. That is why the participants to the workshop agreed to recommend sticking to the current system. Competent body and process. This issue was not discussed at large, except by the authors of the paper presented to the panel and in the response thereto. The issue finds its origin in the success of IFRS and the fact that IFRS are gradually becoming the global accounting standards. The challenge ahead of us is to make sure that the role of Europe will be safeguarded in future development of ‘global’ legislation. – 272 – Enforcement mechanism and consistent application of the International Financial Reporting Standards. The role of the securities organisations is quite important. The database that CESR (Committee of European Securities Regulators) has developed on IFRS interpretation issues was discussed with somewhat mixed feelings because there remains a fear that we are on the way to developing a new kind of “rules based” approach, such as the SEC has done with the “preclearance ” system in the US. On the other hand, it was generally recognised that, in the end, the last word will remain with the court, since we are dealing with EU law. Given the fact that IFRS now forms part of the EU legislation, the possibility exists that in the end the European Court of Justice may have to interpret International Financial Reporting Standards. Such judicial review may again lead to diversity. B. Response to paper by Hans Beckman and Peter Van der Zanden Hans BECKMAN With great interest and appreciation, I have read the paper prepared by my colleagues VAN HULLE and HELLEMANS. It is self-evident that, while reading this paper, various remarks and thoughts have come to the surface, several of which I have summarised. 1. The application of IAS/IFRS is, as far as the European Union is concerned, only possible through the IAS Regulation of 2002. For IAS/IFRS to become applicable in the Member States, an endorsement process has to be followed, whereby the “true and fair view” concept as laid down in the Fourth and Seventh Directives has to be verified, as well as several quality requirements. In this respect, it is strange to note that the quality requirements enumerated in the IAS Regulation cannot be found in these Accounting Directives, but are derived from the International Financial Reporting Standards themselves, whereas the “true and fair view” concept does find its origin in the Accounting Directives. This means – in my opinion – that the “true and fair view” test, when applying this concept in relation to IFRS, should be the test of the “true and fair view” concept as it is laid down in the Accounting Directives and not as this “true and fair view” concept has been formulated by the IASB (International Accountancy Standards Board...