The Maystadt report: “Nostalgia isn’t what it used to be”: Europe soul-searches over IFRS

05 Nov 2013

The EU needs to find a way to assert its leadership in the setting of International Financial Reporting Standards, according to the text of a draft review by the Internal Market Commissioner’s special adviser, Philippe Maystadt. But could the EU’s bid for primacy lead to ‘renationalisation’ of accounting standards? And what effect might this latest development have on the recently issued Exposure Draft on the Conceptual Framework for Financial Reporting?

According to sources close to the process, the review – not yet public – refers to EU Member States’ dissatisfaction with their collective level of influence over the International Accounting Standards Board. Their relationship with the IASB, now that the convergence project with US GAAP has been all but abandoned, appears also to have led the EU to believe that its higher contribution to the funding of the IASB – and its status as the main IFRS user – ought to be reflected in more influence. The review recommends three options for securing European leadership of the standard-setting process. All the options emphasise many EU Member States’ desire to have the public interest more fully considered during the drafting and adoption of IFRS.

The review – reportedly titled Should IFRS standards be more European? – comes at a time of heightened tension between the EU and the IASB. However, Mr Maystadt addresses the apparent EU frustration at the speed and direction of standard-setting in milder terms than other recent European pronouncements on the Board’s future funding and focus. The influential European finance committee, ECON, has expressed its dissatisfaction in stronger terms, suggesting that the IASB’s funding be contingent on significant changes to its governance and a rethinking of its priorities

Mr Maystadt’s conclusions seem to have been better received at the IASB. Michel Prada, IFRS Foundation chairman, referenced Mr Maystadt’s findings in a speech on ‘the bumpy path towards global standard setting’. He noted that Mr Maystadt “cautions against” the tweaking of IFRS to suit European aims but emphasised the IASB’s concern that too much pressure from Europe could result in “a decade of progress unwound”.

Mr Prada’s speech was supportive of Mr Maystadt’s work in “looking for improvements in the way Europe interfaces with the IASB”, but was broadly critical of what the IASB has inferred as a “threatening” EU power-grab. He called for vigilance against the kind of posturing that could lead to standards that are “once again incompatible with other parts of the world” and urged Europe to recognise that, although improvements to processes will always be encouraged, the “fundamental premise of Europe’s commitment to IFRS as global standards has to remain intact and undiluted”.

The IASB may, however, be pleased with the majority of the findings in Mr Maystadt’s review. According to sources familiar with the draft, the recommendations focus on internal change in Europe – developing a more coordinated response to the IASB’s pronouncements –rather than demanding that the IASB reconsider its governance and processes. In fact, Mr Maystadt appears to accept that US influence in IFRS is likely to remain, despite convergence no longer being a priority. He also notes that Europe understands that its influence is diluted by the IASB’s legitimate and essential attempts to expand the global reach of IFRS to new users.

The recommendations in Mr Maystadt’s report are expected to focus on a mechanism to resolve the internal divisions and divergence of opinion between the various interested bodies across the EU. The favoured approach to improved influence is likely to be the transformation of EFRAG to include a formal consideration of public policy pre-comment, and a new, composite board of EU representatives that presents a coordinated approach to the IASB’s pronouncements. The IASB is likely to welcome such a consensus-based approach, but it is unclear how Mr Maystadt’s review will affect the harsher ECON proposals that are already in official trialogue.