Regulation 2002/1606 - Application of international accounting standards - Main contents

Summary of Legislation
Legislative text

1. Summary of Legislation

International Financial Reporting Standards (IFRSs)

SUMMARY OF:

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

WHAT IS THE AIM OF THE REGULATION?

It requires all EU publicly-listed companies (ie. EU companies that have issued securities on an EU regulated market) including banks and insurance companies, to prepare their consolidated accounts in accordance with financial reporting standards (IFRSs)* from 2005 onwards.

Using common accounting standards improves the transparency and comparability of company accounts, thus increasing market efficiency and reducing the cost of raising capital for companies.

KEY POINTS

EU countries have the option to permit or require publicly-traded companies to prepare also their annual accounts in conformity with the IFRSs adopted according to the procedures laid down in the regulation. They may also decide to extend this permission or requirement to non-publicly traded companies when preparing their consolidated accounts or their annual accounts.

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

Two bodies assist in this process:

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the Accounting Regulatory Committee (ARC), chaired by the European Commission and composed of EU countries' representatives, decides whether to endorse IFRSs on the basis of Commission proposals;
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the European Financial Reporting Advisory Group (EFRAG) provides support and expertise to the Commission in the assessment of IFRSs. It is composed of accounting experts from the private sector in several EU countries.

The endorsement mechanism involves a two-tier process:

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a regulatory process where ARC decides, on the basis of a Commission proposal, whether the IFRSs are to be adopted;
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a technical process with EFRAG providing support and expertise as needed to assess IFRSs and to advise the Commission on whether or not to adopt the IFRSs under consideration.

Commission Regulation (EC) No 1126/2008 sets out the endorsed IFRSs 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 page 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 IFRSs have 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 the parties involved in the endorsement process.

FROM WHEN DOES THE REGULATION APPLY?

It has applied since 14 September 2002.

BACKGROUND

For more information, see:

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Financial reporting (European Commission).

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 in the original text. This consolidated version is of documentary value only.

2. Legislative text

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

Contents

1.

Summary of Legislation

2.

Legislative text