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International accounting standards (IAS)

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International accounting standards (IAS)

By requiring all EU-listed companies to prepare their accounts in accordance with international accounting standards (IAS)*/international financial reporting standards (IFRS)*, the transparency and comparability of company accounts is enhanced. This in turn increases market efficiency, reduces the cost of raising capital for companies, thus improving competitiveness and boosting growth in the EU.

ACT

Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards.

SUMMARY

By requiring all EU-listed companies to prepare their accounts in accordance with international accounting standards (IAS)*/international financial reporting standards (IFRS)*, the transparency and comparability of company accounts is enhanced. This in turn increases market efficiency, reduces the cost of raising capital for companies, thus improving competitiveness and boosting growth in the EU.

WHAT DOES THE REGULATION DO?

It requires all EU-listed companies, including banks and insurance companies, from 2005 onwards, to prepare their consolidated accounts in accordance with the IAS.

KEY POINTS

With regard to annual accounts, EU countries have the option to permit or require publicly-traded companies to prepare them in conformity with the IAS adopted in accordance with the procedure laid down in the regulation. They may also decide to extend this permission or requirement to other companies as regards the preparation of their consolidated accounts or their annual accounts.

In order to ensure appropriate political oversight, the regulation establishes a new EU mechanism to assess the IAS adopted by the London-based International Accounting Standards Board (IASB) in order to give them legal endorsement (approval) for use within the EU.

The regulation provides for the setting up of two bodies to assist the process:

The Accounting Regulatory Committee (ARC), chaired by the Commission and composed of EU countries’ representatives, decides whether to endorse IAS on the basis of Commission proposals.

The European Financial Reporting Advisory Group (EFRAG) provides support and expertise to the Commission in the assessment of IAS. It is composed of accounting experts from the private sector in several EU countries.

The endorsement mechanism involves a two-tier process:

a regulatory process where ARC decides, on the basis of a Commission proposal, whether the IFRSs are to be adopted;

a technical process with EFRAG providing support and expertise as needed to assess IFRSs and advise the Commission on whether or not to adopt the IFRSs under consideration.

Commission Regulation (EC) No 1126/2008 sets out the IAS and related interpretations. This regulation has been amended several times to include all the standards presented by the IASB since 2008, including certain amendments from 2012 on consolidated financial statements, partnerships and information to be provided on interests held in other entities.

A table on the Commission’s website listing all the amendments to Commission Regulation (EC) No 1126/2008 is published and updated regularly.

In June 2015, the European Commission adopted a report evaluating the regulation’s operation. It concludes overall that IFRS has been successful in improving the efficiency of EU capital markets by enhancing the transparency and comparability of financial statements. Some areas for improvement were however identified, such as better collaboration between actors in the endorsement process.

WHEN DOES THE REGULATION APPLY?

From 14 September 2002.

KEY TERMS

International accounting standards: international accounting standards (IAS), international financial reporting standards (IFRS) and related interpretations (SIC-IFRIC interpretations), subsequent amendments to those standards and related interpretations, future standards and related interpretations issued or adopted by the International Accounting Standards Board (IASB).

SIC-IFRIC: the Standing Interpretations Committee (SIC) was the predecessor to the International Financial Reporting Interpretations Committee (IFRIC).

For more information, see the IAS/IFRD standards and interpretations page on the European Commission’s website.

REFERENCES

Act

Entry into force

Deadline for transposition in the Member States

Official Journal

Regulation (EC) No 1606/2002

14.9.2002

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OJ L 243 of 11.9.2002, pp. 1-4

Amending act(s)

Entry into force

Deadline for transposition in the Member States

Official Journal

Regulation (EC) No 297/2008

10.4.2008

-

OJ L 97 of 9.4.2008, pp. 62-63

The successive amendments and corrections to Regulation (EC) No 1606/2002 have been incorporated in the original text. This consolidated version is of documentary value only.

RELATED ACT

Commission Regulation (EC) No 1126/2008 of 3 November 2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council (Official Journal L 320 of 29.11.2008, pp. 1-481).

Report from the Commission to the European Parliament and the Council - Evaluation of Regulation (EC) No1606/2002 of 19 July 2002 on the application of international accounting standards (COM(2015) 301 final of 18 June 2015).

Last updated: 10.06.2015

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