International accounting standards – IAS regulation

SUMMARY OF:

Regulation (EC) No 1606/2002 on international accounting standards

WHAT IS THE AIM OF THE REGULATION?

The regulation requires all European Union (EU) companies whose securities are traded on an EU-regulated market (publicly listed companies) to prepare their consolidated financial statements in accordance with a single set of international financial reporting standards (IFRSs)*, previously known as international accounting standards (IASs), from 2005 onwards.
Using common accounting standards improves the transparency and comparability of company accounts, thus increasing the efficiency of the EU capital market and reducing the cost of raising capital for companies.

KEY POINTS

EU Member States have the option to extend the mandatory scope of the IAS regulation by permitting or requiring publicly traded companies to prepare their individual annual accounts in conformity with the IFRSs adopted in accordance with the procedures laid down in the IAS regulation (see below). Member States may also extend this permission or requirement to prepare consolidated accounts or individual annual accounts to non-publicly traded companies.

To ensure appropriate political oversight, the regulation introduces a mechanism to assess the IFRSs and the related interpretations adopted by the London-based International Accounting Standards Board (IASB) (part of the IFRS Foundation) in order to give them enforceability within the EU.

The following two bodies assist in this process.

The Accounting Regulatory Committee (ARC), chaired by the European Commission and composed of Member States’ representatives, decides whether to endorse the IFRSs or related interpretations on the basis of Commission proposals.
The European Financial Reporting Advisory Group (EFRAG) provides support and expertise to the Commission in assessing IFRSs and related interpretations. It is composed of accounting experts from the private sector in several Member States.

The endorsement mechanism involves the following two-tier process.

A technical process with EFRAG providing support and accounting expertise as needed to assess IFRSs and related interpretations and to advise the Commission on whether to adopt the IFRSs or related interpretations issued by the IASB.
A regulatory process where the ARC decides, on the basis of a Commission proposal, whether IFRSs or related interpretations are to be adopted. The formal adoption of an IFRS or related interpretation by the EU is done through a comitology procedure and is subject to a no-objection letter from the European Parliament and the Council of the European Union.

Commission Regulation (EU) 2023/1803 codifies IFRSs and related interpretations, as adopted by the EU, in accordance with Regulation (EC) No 1606/2002. It repeals and replaces Regulation (EC) No 1126/2008. As and when the EU endorses a new IFRS or related interpretation, Regulation (EU) 2023/1803 is amended by a new regulation.

FROM WHEN DOES THE REGULATION APPLY?

Regulation (EC) No 1606/2002 has applied since 14 September 2002.

Commission Regulation (EU) 2023/1803 has applied since 16 October 2023.

BACKGROUND

For further information, see:

Financial reporting (European Commission).

KEY TERMS

International financial reporting standards. Previously known as international accounting standards (IASs), this term encompasses international financial reporting standards (IFRSs) 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).

MAIN DOCUMENT

Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards (OJ L 243, 11.9.2002, pp. 1–4).

Successive amendments to Regulation (EC) No 1606/2002 have been incorporated into the original text. This consolidated version is of documentary value only.