EduBourseActualitésCharlie McCreevy European Commissioner for Internal Market and ServicesKeynote address Official opening...

Charlie McCreevy European Commissioner for Internal Market and ServicesKeynote address Official opening of the World Bank Centre for Financial Reporting ReformVienna, 30 November 2007

Official opening of the World Bank Centre for Financial Reporting Reform
Vienna, 30 November 2007

Good morning Ladies and Gentlemen,

I am delighted to have been invited to the opening of the World Bank Centre for Financial Reporting Reform here in Vienna. This is an important milestone in the work of the World Bank and emphasizes its commitment to strengthening financial reporting standards in Europe and Central Asia. I am also convinced that the opening of this office will further strengthen the excellent cooperation between our institutions.

World Bank Initiatives

Sound financial reporting is an essential condition for market economies to work properly. Improving the quality, comparability and transparency of the financial information is crucial for the Internal Market, as well as for strengthening economic links between the EU, candidate and potential candidate countries, and other third countries. And I am not just saying this because I am a trained accountant myself.

The work of the Centre for Financial Reporting Reform plays a pivotal role in this respect. The Accounting and Auditing ROSC (Reports on the Observance of Standards and Codes) assessments – which will be coordinated from this office – help countries to strengthen their financial reporting frameworks. They also provide an important source of information for the Commission in the enlargement and European Neighbourhood Policy or ENP process.

I am happy to see that in its assessments of South Eastern Europe and the Neighbourhood countries, the World Bank not only examines countries’ observance of international standards, but also of the relevant EU legislation. In this way the World Bank contributes to improving the institutional capacity and national legislation of these countries with a view to bringing them in line with EU standards. As for the Western Balkans, this approach proves that the World Bank recognises and shares our objective of preparing those countries for future EU accession.

I particularly welcome the “Road to Europe: Program of Accounting Reform and Institutional Strengthening”, the so-called REPARIS programme. This regional programme aims at creating a transparent policy environment and effective institutional framework for corporate reporting within South Central and South East Europe. It plays an important role in introducing, implementing, and enforcing the relevant portions of the EU acquis to facilitate potential integration into the EU. Given the positive effects on the business environment and investment climate, we may even consider extending this initiative to other countries of the European Neighbourhood process, one day.

I am pleased to hear that the World Bank is also involved in discussions with other donors, such as Switzerland, to broaden the funding base for Eastern European countries.

A lot of things have happened, when it comes to accounting and auditing in the EU in recent years. I would like to take the opportunity to briefly discuss some key developments in the EU and their relation to the work of the World Bank.

Recent Developments in Accounting

In 2005, the EU became the first major jurisdiction that required listed companies to report in accordance with International Accounting Standards (IAS/IFRS). For sure, we were not the very first – I understand that Croatia, for example, required companies to report in accordance with international accounting standards as early as 2001. But it is fair to say that the EU’s decision provided a huge boost to the success and importance of IFRS.

Today, over 100 jurisdictions have adopted IFRS and more will follow. I very much welcome the US Securities and Exchange Commission’s (SEC) recent move to abolish the reconciliation to US Generally Accepted Accounting Principles (GAAP) for foreign companies using IFRS. This is a historical step on the road towards global accounting standards! Other countries, including Japan, China and Canada, have also adopted programmes to either implement IFRS or to converge their national GAAP towards IFRS.

The EU’s decision to adopt IFRS was a bold and visionary step. It took significant effort from our listed companies, auditors and regulators to adapt to the new accounting environment. The changeover to IFRS has nevertheless been achieved without disturbances to the market and has improved the quality of financial reports. In short, IFRS are now a well-established part of the EU’s accounting rulebook and they are here to stay.

Clearly this progress towards a single set of internationally accepted accounting standards is a great success. We must continue to build on it. One key requirement is further strengthening user confidence in the institutions responsible for the development of global accounting standards. That is why on 7 November, the European Commission, the US SEC, the Japanese Financial Services Agency and the International Organisation of Securities Commissions (IOSCO) issued a statement calling for improvements to the IASB’s governance. This focuses in particular on ensuring the IASB’s public accountability and on strengthening the governance of the standard-setting process through effective consultations and impact assessments. In the end this will lead to better standards with broader acceptance among stakeholders. In my view it is in the interests of all users of IFRS that these reforms are implemented speedily and with determination.

The Commission will soon issue a report on the governance of the IASB. Next to this we intend to publish another document reviewing our experience with the implementation of IFRS. This might provide helpful information for accession and Neighbourhood countries.

I would like to say a few words about the implementation of IFRS in transition and developing countries. World Bank assessments show that some countries initially require a very broad scope of application of IFRS. In some cases, all companies – regardless of size – were or still are required to report in accordance with IFRS. This is not the approach we have taken in the EU, where IFRS are only mandatory for companies with listed securities – and even for them, only for consolidated accounts. The reason is simple: IFRS are sophisticated standards, tailored to the specific needs of external investors who require detailed and high-quality information about the financial situation of companies. For companies that do not have external investors, the costs of IFRS may be difficult to justify. This is especially true for non-listed SMEs – which generally do not have the expertise or resources to implement IFRS.

My message, which I know the World Bank shares, is therefore that policy-makers should be careful to apply IFRS only to so-called “public interest entities”. The latter can include certain non-listed financial institutions or companies with public accountability requirements, such as large utilities. However, the lesson that we have drawn from our work with transition and developing countries is that a wide scope of application of IFRS is generally counterproductive and should be avoided.

Unfortunately, I have to say that the IASB’s work to develop an “IFRS for SMEs” currently does not appear to provide a satisfactory accounting framework for all non-listed companies, especially for smaller companies. The EU accounting framework for non-listed companies, including SMEs, is set out in two directives adopted over 20 years ago. In its “Reports on the Observance of Standards and Codes”, the World Bank has consistently concluded that these directives provide a high-quality accounting framework that retains its relevance for countries seeking closer integration with the EU. So these directives have clearly stood the test of time.

The European Commission is nevertheless committed to simplify the business environment for SMEs as part of its Better Regulation Agenda. We are therefore assessing a number of steps to limit the administrative burden for SMEs arising from Community accounting law. This includes the possibility of excluding micro entities from the requirements of the accounting directives. The European Commission is currently analysing the responses to the consultation document we published in July. I am convinced that the conclusions of this consultation will also be of relevance to the countries participating in the REPARIS programme, as SMEs play a central role in generating growth and employment in these regions.

Recent Developments in Auditing

As for auditing, the EU adopted the Directive on Statutory Audit last year with the aim to promote quality and restore public confidence in auditing. This is a crucial Directive, which will bring EU financial reporting into the 21st century by introducing a much more rigorous and ethical audit process for company accounts.

One key element of this Directive is a requirement to establish effective public oversight systems in order to strengthen public confidence in financial reporting. Another important element is the related requirement to have robust external quality assurance over auditors. In this regard, we intend to provide guidance to Member States early next year in order to contribute to high quality audits of at least all listed companies.

We very much welcome the contribution of the World Bank to promote the use of international standards on auditing in the Member States that joined the European Union after 2004. The work of the World Bank greatly contributes to the effective implementation and enforcement of the EU acquis, in particular with respect to public oversight and external quality assurance systems.

One specific issue where the work of the World Bank could be very helpful is on the issue of international co-operation. The Directive on Statutory Audit addresses the need for the EU to co-operate with regulators in third countries, based on a cooperative model and work sharing. In order for co-operation of this sort to take place, the third country oversight system has to be considered equivalent to the EU model. This allows a maximum of reliance on the home country authorities and will avoid audit firms facing unnecessary and duplicative administrative requirements. We have already started discussions with authorities in individual third countries, such as the Public Company Accounting Oversight Board in the US and the Japanese Financial Services Authority. However, the EU will have to co-operate with other third countries, such as Russia and Turkey. Here I hope that the World Bank can support our efforts in promoting thorough public oversight at the international level. This will not only serve the needs of EU capital markets, but will also be beneficial to the economies in these third countries.


Let me conclude, ladies and gentlemen. We have come a long way in our work towards creating an appropriate framework for financial reporting and auditing, but there is more to be done. This goes for national implementation, as well as our joint efforts to come to global financial standards. We are thankful for the commitment of the World Bank to support countries in their moves towards closer integration with the EU and towards better financial reporting.

Good, reliable financial reporting is a bit like your spouse in an old, well-tested marriage: as long as she is there you don’t notice her much and come to take her for granted. But if she is not there any more you painfully realise how much you depended on her.

The crises of recent years – Enron, Worldcom – and the current financial turbulence have shown us again and again how important good financial reporting is and how much we need it for our markets to function well. This is why your work is so important and why I am looking forward to continuing our excellent cooperation.

Pierre Perrin-Monlouis
Pierre Perrin-Monlouis
Fondateur de Rente et Patrimoine (cabinet de gestion de patrimoine), Pierre Perrin-Monlouis est un analyste et trader pour compte propre. Il vous fait profiter de son expérience en trading grâce à ses analyses financières et décrypte pour vous les actualités des marchés. Son approche globale des marchés combine à la fois l'analyse technique et l'analyse fondamentale sur l'ensemble des marchés : crypto, forex, actions et matières premières.