Annexes to COM(2023)712 - Activities of the IFRS Foundation, EFRAG and PIOB in 2022 - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2023)712 - Activities of the IFRS Foundation, EFRAG and PIOB in 2022. |
|---|---|
| document | COM(2023)712 |
| date | November 20, 2023 |
EFRAG received around 700 responses to the ESRS consultation from 19 EU Member States and EEA countries with most responses from France and Germany. Some responses were received from stakeholders outside the EU including Japan and the US. Following the public consultation, EFRAG made some important changes: replacing the rebuttable presumption approach by materiality assessment for most ESRS, deleting one cross cutting ESRS, significantly reducing the number of disclosure requirements and datapoints and put some transitional provisions in relation to value chain reporting.
The EFRAG SRB submitted the first set of 12 final draft ESRS to the European Commission on 20 November 2022, which the Commission adopted on 31 July 2023 after further simplification, improved proportionality and additional phase-ins.
In November 2022, EFRAG also launched two workstreams on standards for small, medium enterprises (‘SMEs’). The first one stems from the CSRD to develop a simplified standard for listed SMEs, small banks and captive insurers (together “LSME”). The second workstream is outside the CSRD mandate and was triggered by market needs for a voluntary sustainability reporting standard for non-listed SMEs and micro-entities to support them with ESG requests from banks or value chain partners.
The EFRAG Digital Reporting Team has also started the XBRL taxonomy implementation project in November 2022. The goal is to deliver a complete ESRS XBRL taxonomy that enables digital tagging of the ESRS statements and enable users of the reports to consume machine-readable ESG data sets, as foreseen in the CSRD.
3.3. transparency and accountability
3.3.1 Transparency rules
EFRAG has a transparent public due process. Moreover, since March 2022, EFRAG established a DPC that supports the Administrative Board in monitoring that the EFRAG FRB and EFRAG SRB comply with EFRAG’s due process procedures and internal rules. EFRAG’s due process allows all European constituents to put forward their views for consideration by EFRAG. It ensures that the diversity of accounting and economic models and views in Europe are taken into account in determining EFRAG’s positions, especially with regard to the endorsement of IFRS Accounting Standards and the development of ESRS.
As part of its due process, EFRAG publishes draft positions for consultation, undertakes field tests and other forms of effect analyses, organises outreach events (some of which are especially aimed at users) and undertakes surveys, publishes their results in feedback statements and then publishes its final positions. EFRAG contributes to evidence-based standard setting by undertaking quantitative studies that inform the discussion on EFRAG’s comment letters and endorsement advice and which are gradually becoming a more important part of EFRAG’s research work.
Meetings of the EFRAG FRB and EFRAG SRB, EFRAG FR TEG and EFRAG SR TEG and EFRAG Consultative Forum of Standard Setters (EFRAG CFSS) are held in public. The agendas, supporting agenda papers and summaries of the meetings are published on EFRAG’s website. Since March 2018, the meetings can also be watched online and recordings remain online for several months.
EFRAG maintains a public transparency register, which covers the meetings of the EFRAG FRB and EFRAG SRB Chairs, EFRAG FR TEG and EFRAG SR TEG Chairs and the EFRAG CEO.
3.3.2 representation and accountability
EFRAG strives for a proper geographical, professional background and gender balance in its Financial and Sustainability Reporting Boards, the corresponding Technical Expert Groups, its Working Groups and Advisory Panels, and the European Lab Steering Group and its project task forces. There is a limit for the number of members of the FRB and SRB and their TEGs with the same nationality and there are rules on professional background and gender balance.
EFRAG Board members are nominated by the EFRAG Member Organisations. The gender balance and geographic representation of the Financial and Sustainability Reporting Boards and corresponding TEGs was further improved during 2022.
3.3.3 PREVENTION OF CONFLICT OF INTERESTS
EFRAG has a conflict of interest policy to underpin its public interest mandate, which is published on EFRAG’s website.16 EFRAG Board members and EFRAG staff confirm yearly their independence in a signed declaration.
3.3.4 Contacts with the European Parliament and Member States
EFRAG regularly attends meetings of the European Commission’s Accounting Regulatory Committee to discuss outstanding issues with Member States’ experts, in particular concerning the endorsement of IFRS Accounting Standards.
EFRAG has occasionally contacts with members of the European Parliament. On sustainability reporting, the European Parliament has set up a sustainability reporting team that regularly engages with EFRAG.
3.4 Diversification and budget
For 2022, EFRAG’s total operating costs were EUR 11 million, which included an estimated EUR 3.9 million contributions in kind funded by third parties. The funding fell EUR 50,000 short of the expenses. A loss was therefore deducted from the EFRAG’s retained earnings of EUR 4.6 million as at end 2021.
The received contributions in kind include the time of members of the EFRAG FRB and SRB, the EFRAG FR and SR TEGs (only the chairs are paid), as well as temporary secondments to the EFRAG secretariat.
In 2022, the Commission funded a maximum 60% of EFRAG’s eligible costs. In 2022, the Commission grant was EUR 3.97 million. Other cash contributions on financial reporting came from European stakeholder organisations (EUR 615,000) and national stakeholder organisations (i.e. France, Germany, UK, Italy, Netherlands, Denmark, Spain, Sweden and Luxembourg) (EUR 1.525 million).
On sustainability reporting, European stakeholder organisations funded EUR 0.248 million, national sustainability organisations EUR 0.44 million and civil society organisations EUR 0.054 million. In addition, EFRAG received EUR 0.178 million ad hoc funding inter alia from the French standard setter and the European Contact Group of large audit firms and Accountancy Europe.
Ad hoc financing and reliance on contributions in kind are not a sustainable funding model commensurate with EFRAG’s sustainability standard setting activities. Therefore, the Commission will for 2023 optimise the EU contribution within the confines on the EU budget and budget rules by splitting the operating grant into two activity grants for financial reporting and sustainability reporting activities with a significant higher co-funding percentage for sustainability reporting activities. This will contribute to satisfy EFRAG’s structural funding needs.
4. PIOB
4.1. Governance
The PIOB is the global independent oversight body that oversees the standard-setting process for the international audit, assurance, and ethics standards formulated by the international standard-setting boards: the International Auditing and Assurance Standards Board (IAASB) and the International Ethics Standards Board for Accountants (IESBA). Its main role is to ensure that IAASB and IESBA follow the due process for the development of standards and strategies, in line with the public interest framework. Oversight is carried out through continuous observations and follow-up by the PIOB Board and oversight staff of the standards under development by the two boards.
Within the context of implementation of the 2020 Monitoring Group reform17, the IAAS and IESBA have been moved to a new legal entity, the International Foundation for Ethics and Audit (IFEA) independent from the International Federation of Accountants IFAC. The IFEA is incorporated in the US, state of Delaware. IFEA has become operational at the end of November 2022, with a Board of Trustees consisting of six members. The PIOB continues to operate from Madrid and appoints four of these, including the Chair.18
The Monitoring Group, of which the Commission is a member, monitors how the PIOB carries out the oversight of the standard setting process and appoints the PIOB members (including the Chair).
4.2 ACTIVITIES
The PIOB reviewed and approved that the IAASB and the IESBA followed due process effectively and with proper regard for the public interest in the standard-setting activities, including the approval of 3 standards and the IAASB 2022-2023 Work Plan. Following the PIOB’s establishment in November 2021 of the SSB Nominations Committee, the first cycle of applications and appointments to the IAASB and IESBA was completed in 2022. The Committee submitted its recommendations in summer 2022 which were approved by the PIOB in October.
On 7 October 2022, the PIOB held its 3rd Public Interest Workshop in Madrid for participants involved in sustainability reporting, providing assurance, use of non-financial reports -specially the investor community- regulatory bodies and standard-setters.19
On 29 June 2023, the PIOB published its 18th Public Report published which gives a full overview of the PIOB’s activities.20
4.3. Diversification of funding
The funding of the PIOB is designed to preserve its independence from the accounting profession in fact and in appearance. However, since its creation in 2005 and until 2010 when the Community funding programme established by Decision 716/2009/EC became operative, the PIOB was financed exclusively by IFAC. Since 2010, the European Union has been the second biggest donor. In 2022, PIOB’s income amounted to EUR 2,191,120. The EU contribution was EUR 350,000 (or 15.97%), whereas IFAC contributed EUR 1,392,754 (or 63.56%), which is below the cap of two-thirds permitted by Article 12(3) of Regulation (EU) 2021/690. Other contributions came from the International Organization of Securities Commissions (IOSCO), the Bank for International Settlements (BIS), the International Forum of Independent Regulators (IFIAR), the UK Financial Reporting Council (FRC), the Swiss Federal Audit Oversight Authority, the Financial Supervisory Commission of Taiwan, while the Spanish government provides the Madrid office free. Further diversification of funds remains necessary, and together with the PIOB, the Monitoring Group is seeking other sponsors to further reduce the funding from the accounting profession, in particular the IFAC.
5. Conclusions
The EU funding has been indispensable for the three beneficiaries (IFRS Foundation, EFRAG and PIOB). The EU funding enabled the IASB to develop high quality IFRS Accounting Standards. The EU funding also was essential for EFRAG to serve the European public interest by developing and promoting European views in the field of financial reporting and to develop European Sustainability Reporting Standards as technical advice to the European Commission. Finally, the EU funding helped the PIOB to safeguard the public interest in setting International Standards on Auditing.
1 Regulation (EU) 2021/690 establishing a programme for the internal market, and the competitiveness of enterprises), OJ L 153, 3.5.2021, p. 1–47.
2 Grants were in past provided under Regulation (EU) No 258/2014 of the European Parliament and of the Council of 3 April 2014 establishing a Union programme to support specific activities in the field of financial reporting and auditing for the period of 2014-20 and repealing Decision No 716/2009/EC (OJ, L 105, 8.4.2014, p. 1.).
3 OJ L 243, 11.9.2002, p. 1.
4 The Monitoring Board, of which the Commission is a member, consists of public authorities responsible for setting the form and content of financial reporting.
5 The financing provided by the European Union also supports the timely update of the IFRS taxonomy, which in turn serves as an input to the European Single Electronic Format.
6 IFRS Foundation work plan: https://www.ifrs.org/projects/work-plan/; and completed projects: https://www.ifrs.org/projects/completed-projects/.
7 IFRS Foundation work plan: https://www.ifrs.org/projects/work-plan/; and completed projects: https://www.ifrs.org/projects/completed-projects/.
8 https://www.ifrs.org/groups/international-accounting-standards-board/stakeholder-engagement-register/.
9 The Value Reporting Foundation was a global non-profit organisation that offered a comprehensive suite of resources designed to help businesses and investors develop a shared understanding of enterprise value—how it is created, preserved or eroded over time.
10 Please see footnote 4.
11https://www.efrag.org/Assets/Download?assetUrl=/sites/webpublishing/SiteAssets/210512%2520Commissioner%2520McGuinness%2520to%2520EFRAG%2520on%2520sustainability.pdf
12 OJ L322,16.12.2022, p. 15.
13 Proposal for a Directive of the European Parliament and of the Council amending Directive 2013/34/EU, Directive 2004/109/EC, Directive 2006/43/EC and Regulation (EU) No 537/2014, as regards corporate sustainability reporting, COM/2021/189 final.
14 Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting (OJ L 322 of 16.12.2022, p. 15).
15 https://efrag.org/lab3.
16 www.efrag.org.
17 https://www.iosco.org/about/monitoring_group/pdf/2020-07-MG-Paper-Strengthening-The-International-Audit-And-Ethics-Standard-Setting-System.pdf.
18 See www.ethicsandaudit.org.
19 See https://piobworkshop.org.
20 https://ipiob.org/
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