IFRS 8 approved by the EU – but with the case for Country by Country reporting now accepted

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The EU Parliament approved the following motion concerning IFRS 8 this morning:

1. Accepts the Commission's proposal to endorse IFRS 8 incorporating US SFAS 131 into EU law, which will require listed EU companies to disclose segmental information following the 'through the eyes of management approach';

2. Regrets that the impact assessment carried out by the Commission did not take sufficiently into account the interests of users as well as the needs of small and medium-sized companies located in different European countries and companies operating only locally;

3. Recalls that convergence of accounting is not a one-sided process where one party simply copies the financial reporting standards of the other party;

4. Expresses reservation as to the Commission's analysis that disclosure of geographical information would in practice not be reduced compared to IAS 14, and considers it vital that management continues to provide segmental information sufficient to allow users to assess the risks and drivers of the business in terms of geography, where relevant country-by-country, and business sector and asks the Commission to report back to Parliament on the outcome of the discussion with the IASB on this issue within the next six months;

5. Notes that the 'Chief Operating Decision Maker' concept could be seen as a function, and as such can fit the concept of the board having collective responsibility as set out in European law;

6. Requests the Commission to follow closely the application of IFRS 8 and to report back to Parliament no later than 2011, inter alia regarding reporting of geographical segments, segment profit or loss, and use of non-IFRS measures; underlines that if the Commission discovers deficiencies in the application of IFRS 8 it has a duty to rectify such deficiencies;

7. Stresses that Parliament will actively use its right of scrutiny; underlines therefore that the IASB/IASCF and the Commission in particular must engage more closely with Parliament and European stakeholders than they have done so far, because failure to do so has caused serious problems as, for example, with IFRS 8; considers that it should be involved in the earliest stages of the standard setting process in order to avoid significant delays in the endorsement process;

8. Requests therefore that the Commission go beyond voluntary guidelines and support the development of an appropriate accounting standard requiring country-by-country reporting by extractive companies;

9. Stresses that the Commission in all cases should follow its own principles of better regulation, and that, in particular regarding international accounting standards, it must ensure that impact assessments are carried out at the earliest stages in the development of international accounting standards or interpretation, and provide the necessary support; underlines that such impact assessments must incorporate quantitative information and reflect an equilibrium between stakeholders;

10. Stresses the importance of appropriate enforcement of accounting standards, namely the capacity for the EP to properly exercise its right of scrutiny;

11. Instructs its President to forward this resolution to the Council and Commission, and the parliaments and governments of the Member States.

So IFRS 8 will happen, but the Parliament has said to the Commission and the IASB:

1) Your methods are not good enough. Never do this again;

2) Be prepared to amend this standard if it proves 'unfit for purpose';

3) Copying US standards is not acceptable;

4) Listen to civil society;

5) They should respect the democratic right of Parliaments.

The campaign for Country-by-Country reporting goes on, much heartened by this news. After all, we never said IFRS 8 was wrong if that's what the profession wanted. We said we wanted more. And that's still the case, and that's what the EU Parliament has said as well.