International developments in Accounting and Auditing Regulation

International developments in Accounting and Auditing Regulation

REPARIS WORKSHOP VIENNA - 15 March 2006

Philippe DANJOUChief Accountant – AMFIASB’s SAC MemberCESRFin AuditbTask Force

04/22/23AMF - titre de la présentation 2

Disclaimer

This document was prepared solely for the purpose of informing participants to the March 2006 Reparis Forum.

The views expressed herein only represent the personal views of the author, and cannot be considered whatsoever as representing those of the AMF, SAC or CESR


The world of auditing and accounting is changing fast and becoming quite complex…

I will try to give an overview of what is going on !

•NEW LEGISLATION ON AUDITING•NEW PUBLIC OVERSIGHT STRUCTURES•REPORTING ON INTERNAL CONTROLS AND GOVERNANCE•CONVERGENCE OF ACCOUNTING STANDARDS•STOCK EXCHANGES’ EVOLUTION•SECURITIES REGULATORS MORE ACTIVE


PREPARERS

Corporategovernance

AUDITORS

FinancialIntermediaries :

AnalystsCR agencies

Enforcementauthorities

INVESTORS

IFRS&

IFRICISA

Codes of Corp Gov

EnforcementstdsReports on

Internal ctrl Oversight

Standard setting processes

MANY SUBJECTS AND PLAYERS

IOSCOCESR

IASCF

IFACPIOB

Oversightbodies

Monitoringgroup

Legislators


Acronyms used in slides MG / Monitoring group : an informal grouping of international organizations of

regulators, ( World Bank; IAIS; BCBS, IOSCO); chaired by IOSCO ; FSF participates in a coordinating / umbrella role

PIOB : the Public Interest Oversight Board of IFAC IFAC: The International Federation of Accountants (regroups the national

Institutes or professional organizations of accountants); CAG: Consultative Advisory group (established to advise IAASB and IESBA)

IAASB: International Audit and Assurance Standards Board (establishes standards for auditing and other assurance work performed by auditors)

IESBA : International Ethics Standards Setting Board for Accountants (establishes international independence and ethical standards for auditors and other accountants); precedently named the Ethics Committee

IFIAR : International Forum of Independent Audit Regulators (regroups the national bodies in charge of the oversight of the audit profession; e.g PCAOB, FRC, H3C..)

WB : The World Bank FSF: the Forum for Financial Stability IAIS: the International Association of Insurance Supervisors IOSCO: the International Organization of Securities Commissions BCBS: the Basel Committee of Banking Supervisors



NEW LEGISLATION IN AUDITING

USA :– SARBANES-OXLEY– PCAOB

EU : – 8th Directive– NATIONAL AUDIT OVERSIGHT BODIES– Prospectus Directive– Transparency directive ( > 1/01/2007)


IMPACT OF 8th DIRECTIVE ON EU AUDIT FIRMS

EU(8ème

Directive)>2008

Endorsed ISA’s

Independencerequirements

Oversightbodies

Quality controlsystems

AUDITFIRMS

NationalEnforcement bodies

NationalAudit

Standards(ISA+)

<2007

ProfessionalInstitutes


WHO IS INVOLVED IN DEVELOPMENT OF ISA’s ?

IFAC

IAASB

PIOB

ISAISA

EU COMMISSION

AuRc

MEMBER STATESAUTHORITIES

ENDORSEDISA in OfficialJournal

EGAOB

.

Monitoringgroup

CAG

BCBSWorld BankIAIS…

> 2008

IOSCO /Securities Regulators

NATIONALAOB’s

US. PCAOB

IFIAR


OVERSIGHT OF STANDARD SETTING PROCESSOverview of the new relationship

IFAC standard setting operations (PIAC’s)

IAASB IESBA (Ethics Ctee) Other public interestfunctions

PIOB

MonitoringGroup

BCBS IAIS WB

IOSCO

IFIAR ??

Appoint members

Oversight of due processes

Appoint and evaluate PIOB Operations & independence

Influence standardsetting proposals

LEGEND

FSFFSF


Role of PIOB (press release 28 february 2005)



REPORTING ON INTERNAL CONTROLS AND GOVERNANCE USA

– Section 404 of SOX– COSO Framework– AUDITORS REPORTING

EU – PROPOSED REVISION OF 4th AND 7th DIRECTIVES– CORPORATE GOVERNANCE STATEMENTS– INTERNAL CONTROLS IN RELATION WITH FINANCIAL

REPORTS– NO AUDITORS INVOLVEMENT REQUIRED

MEMBER STATES DEVELOPMENTS AHEAD OF EU– SOMETIMES, AUDITORS HAVE REPORTING REQUIREMENTS


Corporate Governance statement : mandatory for companies listed on a regulated market (Art. 1.2)

A report included in the annual report in a specific section :1. Shall refer to the mandatory or voluntary corporate governance

code followed by the company; include all information about the corporate gov. practices applied beyond the requirements under national law– If company departs from such code : explain such departures and

reasons for doing so– In the absence of code applied , reason for that

2. Describes operation of the shareholders’ meetings and description of shareholders rights– Unless fully contained in national law– Composition and operation of Board and its committees

3. (point 3) Describes the « main features of the internal control and risk management system » (at annual accounts level) and « in relation to the process for preparing consolidated accounts »


Duties and liability for the annual accounts and annual report (art 1.3 and 2.3) MS shall ensure that the members of the administrative,

management or supervisory bodies have collectively the duty to ensure that the following documents are drawn up and published in accordance with the requirements of this directive and of IFRS as adopted in the EU :– Annual accounts ( and consolidated accounts if applicable)– Annual report– Corporate governance statement

Such bodies shall act within the competences assigned to them by national law

MS shall ensure that the provisions of their regulations on liability apply to these bodies’members at least towards the company ; they shall lay down rules on penalties applicable to infringements of the prvisions adopted pursuant to this directive.



FRANCE

IASUK

US GaapJAPAN

GERMANY AUS

CANADA

BEFORE 2005 : THE TOWER OF BABEL


IASB RECENT DEVELOPMENTS

NEW CONSTITUTION AND PROCEDURES– INCREASED NUMBER OF TRUSTEES– NEW CHAIR OF TRUSTEES– CHANGE IN BOARD’S VOTING RULE (8 to 9 positive votes out of

14 members)– NEW S.A.C WITH ELECTED CHAIRMAN– RENEWAL OF BOARD MEMBERS– NEW DUE PROCESS CHARTER– INCREASED FOCUS ON IFRIC

DIRECTIONS OF STANDARDS– 2005 STABLE PLATFORM ( 2006)– CONVERGENCE PROGRAMS ( MAINLY USA)

EQUIVALENCE OF IFRS WITH OTHER NATIONAL FRAMEWORKS ?– CESR’s ADVICE TO COMMISSION ON US, CANADA, JAPAN– PENDING DECISION


STRUCTURE OF STANDARD SETTER

IASCFoundation22 trustees

StandardsAdvisoryCouncil

Advisorygroups

The standard setting operation

IAS Board12+2

IFRIC(Interprétations)

Staff

http://www.iasplus.com/restruct/iasbbios.htm


Use of IFRS by world’s largest companies (2005)

176

13 16

81

14

200

020406080

100120140160180200

Fortune 500 companies

US GAAPCanada GAAPChina GaapJapan GaapOtherIFRS


EU 2005

IFRS

US/FASBJAPAN

AUSNZ2006

CANADA

2002-2009 : ADOPTION, CONVERGENCE, EQUIVALENCE WITH IFRS

CHINA

2009 ?

More than 90 countriesaccept or require use of IFRS standards




ROADMAP TO CONVERGENCE PROGRAM – SHORT TERMTo be examined by the FASB To be examined by IASB

Fair value Option Borrowing costs (remove option to expense)

Impairment * Impairment *

Income Taxes * Income tax *

Investment properties Government grants

Research & Development Joint Ventures

Subsequent events Segment reporting

* Denotes joint project IASB - FASB


ROADMAP TO CONVERGENCE PROGRAM – OTHER PROJECTS1. Business Combinations Phase II2. Consolidations3. Fair Value measurement guidance4. Liabilities and Equity distinctions5. Performance Reporting6. Post-Retirement benefits (including pensions)7. Revenue Recognition

TOPICS BEING RESEARCHED, NOT YET ACTIVE ON AGENDA1. Derecognition2. Financial Instruments (replacement of IAS 39 and FAS 133)3. Intangible Assets4. Leases



STOCK EXCHANGES EVOLUTION

PRIVATISATION BECOMING « FOR PROFIT » ENTITIES LISTING ON MARKETS :

– EURONEXT, LES, OM, DEUTSCHE BÖRSE, NYSE… CONSOLIDATION – MERGERS – ACQUISITIONS

SELF REGULATION OF MARKETS NO LONGER VIABLE SOLUTION

INCREASING ROLE OF INDEPENDENT PUBLIC AUTHORITIES* PROSPECTUS DIRECTIVE* TRANSPARENCY DIRECTIVE* MARKET ABUSE DIRECTIVE



EVOLUTION OF REGULATORS

BECOMING INDEPENDENT ADMINISTRATIVE AUTHORITIES

INCREASING SCOPE OF ACTIVITIES INCREASED POWERS SOMETIMES DELEGATION OF RESPONSIBILITIES TO A

SPECIALIZED BODY (e.g UK FRC, German FREP-DPFR, etc.)

INTERNATIONAL NETWORKS DEVELOP : IOSCO, CESR


Regulators are working to strengthen all links in the Regulators are working to strengthen all links in the Financial Reporting Supply ChainFinancial Reporting Supply Chain

PREPARERS

Corporategovernance

AUDITORS

FinancialIntermediaries :

AnalystsCR agencies

Enforcementauthorities

INVESTORS

IFRS&

IFRICISA

Codes of Corp Gov

Courts ofjustice

EnforcementstdsReports on

Internal ctrl Oversight

Standard setting processes


IOSCO

TechnicalCommittee

SC n°1

Accounting Auditing Disclosures Other task forces Enforcement data base

National securitiesregulators

Chairscommittee

Special projects, Audit Task Force


CESR organisation (post June CESR organisation (post June 2004)2004)

CESR Chairs

Plenary meeting 4 x yearMarket Participants Consultative Panel

Expert Groups

Level 3Investment ManagementClearing and Settlement

ProspectusReview Panel

Permanent Operational Groups

Level 2MiFID

•Intermediaries•Cooperation and Enforcement

•MarketsTransparency

Investment Management

Mediation Task ForceCESR-Pol

CESR-FinLevel 3


CESR-Fin - OrganisationCESR-Fin - Organisation

CESR-Fin

SCE

EECS

ATFSISE

ARC

SAC

EFRAG

FEE


IFRS: Monitor pro-actively the development and EU

adoption (endorsement) of international accounting standards (IAS/IFRS)

Level 2 and 3 regulatory work

Enforcement of compliance with IFRS: foster a proper and consistent application of IAS/IFRS by EU listed companies, through coordination of national supervision activities and exchange of information

Audit: Monitor developments in Europe in the field of auditing.

CESR Fin Key objectives


Enforcement : national & coordination (EU and Worldwide)

NationalEnforcement

decision

NationalEnforcement

AgencyAMF, FSA,…

ControlsEx anteEx post

EECS

Other EUNational

regulators

COORDINATION OF DECISIONSCONSULTATIONS

EnforcementDecisionsData base

SEC(USA)

OtherRegul.

IOSCOdatabase


International developments in Accounting and Auditing Regulation

REPARIS WORKSHOP VIENNA - 15 March 2006

Documents

International developments in Accounting and Auditing Regulation