homepage - accountancy europe - fÉdÉration …...fÉdÉration des experts comptables europÉens...

FÉDÉRATION DES EXPERTS COMPTABLES EUROPÉENS

EUROPEAN FEDERATION OF ACCOUNTANTS

Representing

the Accountancy

Profession in Europe

2 0 0 5

A N N U A L R E P O R T



www.fee.be



2

Fédération des Experts Comptables EuropéensEuropean Federation of Accountants

FEE is the representative organisation for the accountancy profession in Europe. FEE's membership consists of 44 profes-sional institutes of accountants from 32 countries. FEE member bodies are present in all 25 member states of the EuropeanUnion and three member countries of EFTA. FEE member bodies represent more than 500,000 accountants in Europe.

INTRODUCTION

Foreword ................................................................................................................................................................. 4

FEE Governance ..................................................................................................................................................... 6

Meeting of Presidents ......................................................................................................................................... 7

New Office.............................................................................................................................................................. 8

Financial Statements ............................................................................................................................................ 9

WORKING PARTY REPORTS

Audit .................................................................................................................................................................. 10Auditing Working PartyInternal Control SubgroupRegulatory Task Force

Capital Markets ................................................................................................................................................... 14Company Law and Corporate Governance Working PartyEuropean Capital Markets Reporting Project Group

Financial Reporting............................................................................................................................................. 16Financial Reporting Policy GroupAccounting Working PartyBanks Working PartyInsurance Working Party

Professional Regulation..................................................................................................................................... 22Liberalisation/Qualification Working PartyEthics Working Party

Public Sector........................................................................................................................................................ 24Public Sector Committee

SME .................................................................................................................................................................. 25SME/SMP Working Party

Sustainability ....................................................................................................................................................... 26Sustainability Working PartySustainability Assurance Subgroup

Taxation ................................................................................................................................................................. 28Direct Taxation Working PartyIndirect Taxation Working Party

ABOUT FEE

Publications 2005 ................................................................................................................................................ 30

FEE Member Bodies ........................................................................................................................................... 32

FEE Contacts ......................................................................................................................................................... 34

CONTENTS

3


2 0 0 5



By FEE President David Devlin

FOREWORD

The year has been a most memorable one for the profes-sion. A new era can be said to have begun as theEuropean Union finalised the single biggest reform ofauditing in more than 20 years. In addition, Europe’s pub-lic interest entities have had to face the challenge ofpreparing their financial statements in a new reportinglanguage, namely, International Financial ReportingStandards (IFRS).

Of course FEE continues to be active in all areas of inter-est to the European accountancy profession. As you willsee from this Annual Report, aside from auditing andfinancial reporting issues, the profession is actively con-tributing at the European level to relevant initiatives onSME policy, company taxation, sustainability reportingand public sector accounting.

Audit Directive The European Commission’s proposal to revise the EighthCompany Law Directive on Statutory Audit was approvedby the European Parliament and Council. It truly signals anew era for auditing in Europe. The Directive covers allaspects of the audit profession, from qualification andregistration through to quality assurance and oversight.FEE’s working parties coordinated their efforts to ensurethat the European accountancy profession made a mean-ingful contribution to the process, providing input of realvalue to the legislators.

In supporting the Directive, FEE’s position was clear:reform must deliver high quality financial reporting andauditing in the public interest. And what of the result? FEEbelieves that Europe has adopted reforms that are sup-portive of high quality audit and will drive the further har-monisation of audit practice. The profession particularlywelcomes proposals on key issues such as application ofInternational Standards on Auditing (ISAs), quality assur-ance, audit committees and new arrangements for publicoversight of the profession which underpin audit quality inthe EU.

In 2006, the implementation process will start. The mem-ber states have two years to implement the Directive, fol-lowing its publication in the Official Journal of the EU. FEEhas already started its work to support the successfulimplementation of the Directive, the objective of which isto avoid divergent interpretations of the Directive at mem-ber state level.

Implementation work will also continue at the Europeanlevel. FEE has been invited to contribute expert advice tothe European Commission’s ISA Subgroup of the EGAOB,regarding the drafting, adoption and use of ISAs. In addi-tion, the European Commission has committed to under-take a study on the economic impact of liability regimesfor auditors. FEE is represented on the expert group thatwill advise the Commission on the long awaited study.The profession believes that there are a number of solu-tions, depending on the national liability system.Proportionate liability and a legal cap on the potentialdamages, or a combination of these measures, are themost often considered solutions.

Financial Reporting: ConvergenceThroughout 2005 the accountancy profession has had anongoing dialogue with key financial reporting stakehold-ers, including two meetings with IASCF trustees. At a FEEevent in October, Commissioner McCreevy emphasisedthe importance of IFRS for the European Union and thenecessity on making progress on the roadmap towardsequivalence between IFRS and US GAAP. Looking to movethe policy debate forward, in December FEE organised amajor seminar on IFRS which addressed progress on theconvergence roadmap and considered issues regardingconsistent application of IFRS in Europe.

Welcoming the European Commission’s and the SEC’scommitment to global accounting convergence expressedat the Seminar, FEE believes that the time is right for theacceptance of IFRS as truly global financial reporting stan-dards.

FEE’s positon paper on Convergence, Equivalence andMutual Recognition notes that mutual recognition and theattendant elimination of reconciliation requirements, isjustifiable today provided that IFRS and US GAAP areproperly applied. Hence, the implementation of IFRS inEurope is critical and major efforts are being undertakenby preparers, the accountancy profession, regulators andothers in this, the fist year of IFRS application in Europe.It is important that there is a clear understanding of whatis meant by consistent application of IFRS in Europe.

Whilst supporting the goal of global standards, FEEemphasises that the convergence project must not comeat the expense of principle-based IFRS. It is also crucialthat a specific level of convergence is not needed for

4

mutual recognition of IFRS and US GAAP. Convergenceneeds to proceed at a realistic pace, recognising that astable platform of IFRS is required in the short- term.

Financial Reporting: EFRAG The Accounting Regulatory Committee (ARC), chaired bythe European Commission decides whether IFRSs andrelated IFRIC interpretations are to be endorsed for use inthe EU. EFRAG, the European Financial Reporting PolicyGroup, provides the European Commission with advice onendorsement and interpretation of IFRSs; it also partici-pates in the early phases of debates on new and upcom-ing issues in the area of financial reporting standards.FEE’s working parties in the field of financial reporting pro-vides these bodies with the views of the European profes-sion, commenting on their proposals. The profession,together with the other founding organisations, supportthe continued development of EFRAG and welcome theWorking Arrangement recently agreed between EFRAGand the European Commission.

Risk Management and Internal ControlAs the European Union seeks to reform aspects of its reg-ulation of corporate governance and company law, thespotlight has fallen on the issue of company reporting onrisk management and internal control. FEE believes that arobust debate with a wide range of stakeholders isrequired to ensure that Europe’s approach to risk manage-ment and internal control builds on best practice and isbased on evidence that the benefits to companies, share-holders and the public interest will exceed the costsinvolved.

FEE’s March 2005 discussion paper on Risk Managementand Internal Control in the EU provided a review of bestpractice amongst companies, recent regulatory develop-ments in the EU and US and a survey of regulatory require-ments on risk management and internal control in EUmember states. Building on the interest the discussionpaper generated, FEE organised a Forum in October withparticipation from key stakeholders in the debate, includ-ing the European Commission and the SEC. The Forumconsidered practical issues involved in the implementa-tion of internal control and risk management requirementsin Europe, as well as analysis of reforms recently imple-

mented in France, the Netherlands, Sweden, UK and theUS. FEE will continue to drive the debate on risk manage-ment and internal control reporting and will soon publishan analysis of the responses received to the discussionpaper.

Regulatory ProcessThe nature of regulation has changed greatly over the pastfew years. As a result of the Lamfalussy approach to reg-ulation, the European Commission has created commit-tees to implement and enforce measures adopted in aseries of framework Directives. In addition there has beena noticeable desire to improve stakeholder dialogue in theregulatory process. FEE has responded to the challenge ofthis more complex regulatory environment to ensure thatthe profession’s view is heard at the relevant hearings,consultations, forums and meetings, for example FEE par-ticipates in the work of CESR, CEBS, CEIOPS and FEE rep-resentatives have accepted membership, in a personalcapacity, of the European Commission’s Europe CorporateGovernance Forum and the Advisory Group on CorporateGovernance and Company Law. In 2005, FEE has in partic-ular delivered an important contribution to CESR on theimplementation measures of the Prospectus Directive

It is equally important that member bodies are kept awareof FEE’s active contribution to the regulatory process.Hence the meeting of FEE Presidents in Warsaw, kindlyhosted by Polish member body KIBR, was particularly use-ful in this regard.

FEE DevelopmentsOn behalf of the European accountancy profession I wouldlike to thank European Commissioner McCreevy who offi-cially opened FEE’s new offices on 18 October 2005, mak-ing a memorable speech entitled ‘IFRS: no pain, no gain’.Over 120 people joined us for our ‘housewarming’ event.FEE’s virtual home also changed: the redesign of the FEEwebsite allows users a greater insight into the current pri-orities of the profession.

5


2 0 0 5



FEE GOVERNANCE

6

COUNCILThe Federation is administered by a Council, which con-sists of one representative appointed by each country ofwhich at least one professional body is an ordinary mem-ber of the Federation. In 2005, the Council met four times.

EXECUTIVEThe Executive is responsible for the implementation of thedecisions taken by the Council as well as for the day-to-day management of the Federation. The Executive held tenmeetings in 2005.

WORKING PARTIESCouncil decisions are usually prepared by working parties,established to elaborate on specific Council objectives.Some of the working parties continue their activities overa long period due to the characteristics of the subject mat-ter and subsequent developments.

All member bodies, including correspondent members,have the right to appoint a representative to serve on eachworking party. Approximately 1400 participants attendedmeetings held at FEE during 2005.

David Devlin PresidentJacques Potdevin Deputy President

& Treasurer

José Maria Bové Vice-PresidentTorben Haaning Vice-PresidentKlaus-Günter Klein Vice-President Stefano Marchese Vice-PresidentAndrew Popham Vice-PresidentHans van Damme Vice-President

Executive Members in 2005:

FEE Executive

7


2 0 0 5

MEETING OF PRESIDENTS

SPECIAL REPORT

Meeting of Presidents of FEE Member Bodies

The FEE General Assembly is held biennially in Brussels.In years when there is no General Assembly a meeting ofPresidents and Chief Executives of FEE member bodiestakes place. On 16 September 2005, 63 delegates of theFEE member bodies met in Warsaw on the invitation ofKIBR, (the Polish Chamber of Auditors).

The purpose of the meeting was to allow the leaders ofthe accountancy profession an opportunity to discussmajor strategic issues for the profession in Europe.Following a keynote address by the Polish Vice-Minister ofFinance, Mr. Stec, the debate focused on three main themes:accountants in society; modernisation of the Statutory AuditDirective; and financial reporting architecture.

Accountants in Society: the debate focused on two mainissues, the positive contribution of high quality financialreporting in the transition to a developed economy; andhow to attract and retain top level graduates within theprofession.

Modernisation of the Statutory Audit Directive: the impli-cations of the public oversight reforms on the future roleof professional institutes of accountants and questionsregarding the audit in medium sized companies were themain discussion points.

Financial Reporting Architecture: participants focussedtheir attention on the challenge of consistent implementa-tion of International Financial Reporting Standards forSMEs and on the enhancement of European input to theinternational debate on financial reporting standardsthrough EFRAG.

The meeting was preceded by a splendid dinner hosted byKIBR in the Royal Lazienki Palace on the Water. FEE ismost grateful to its Polish member body and its PresidentPiotr Rojek for hosting this unique, high-level event.

SPECIAL REPORT

FEE Office Opening

In 2005 the FEE Secretariat moved to Brussels’ Schumandistrict. The office is now located at the heart of the EUquarter. FEE organised an event to celebrate the move ofoffice, which was held on 18 October 2005. In all, morethan 120 people attended. Guest of honour EuropeanCommissioner Charlie McCreevy officially opened the newoffice. In his keynote speech he emphasized the impor-tance of IFRS for the European Union and the necessity onmaking progress on the roadmap towards equivalencebetween International Financial Reporting Standards(IFRS) and US GAAP.

NEW OFFICE



8

FINANCIAL STATEMENTS

9


2 0 0 5

Income and Expenditures for the year ended 31/12/2005(abridged version; in €)

ACTIVITIES 31/12/2005 31/12/2004

INCOME € €

Member body contributions 2.183.999,00 1.952.550,50Contributions received on behalf of EFRAG 300.000,00 297.450,00Publications (sales) 1.642,00 847,00Royalties and other income 1.672,99 1.320,13Total income 2.487.313,99 2.252.167,63

EXPENDITURES

Personnel costs 1.432.375,24 1.260.840,88Office occupancy 244.725,21 174.756,85Communications 51.824,09 47.861,99Office supplies 29.112,30 21.226,73Office maintenance 31.597,62 20.930,50Library and subscriptions 9.866,13 8.830,06Hospitality 74.290,84 79.823,16Travel and subsistence 127.938,95 153.491,40Contribution to other organisations (incl.EFRAG) 317.700,28 325.079,90Equipment rental and maintenance 49.096,13 45.488,25Publications 37.267,11 48.930,07Other expenses 102.106,64 149.920,10Total expenditures 2.507.900,54 2.337.179,89

RESULTS FROM ACTIVITIES -20.586,55 -85.012,26

FINANCIAL RESULTS 15.113,89 22.742,98

TOTAL NON CASH EXPENDITURES -136.398,39 -23.661,11

RESULT OF THE YEAR -141.871,05 -85.930,39

The auditor, Deloitte & Touche & Co, represented by Mr. Michel Denayer, reviseur d’entreprises, delivered an unmodifiedreport on the annual accounts. The full version of the annual accounts and the auditor’s report are made available sepa-rately to the member bodies.



“FEE has a key role to play in building understanding of audit issues between the profession, legislators and oversight bodies. This understanding will be criticalto harmonisation through adoption of InternationalStandards on Auditing in Europe”

Andrew PophamFEE Vice-President & Auditing Working Party Chairman

AUDIT

The Working Party addresses policy issues arisingfrom developments in auditing, with a particularinterest in harmonisation across Europe. The bulkof the working party’s activities are dealt with bysubgroups, which have been active in the areas ofIAASB proposed standards, internal control andquality assurance.

Audit Legislation The Working Party welcomed the approval of the revisionsto the Statutory Audit Directive in the autumn of 2005.Contributions were made to the Federation’s input onareas such as statutory audit and audit reporting, qualityassurance systems, auditors’ liability, public oversight andthe audit of public interest entities. The Working Party isnow developing its plans relating to the implementationof the Statutory Audit Directive by member states.

FEE particularly welcomed the initiative of the EuropeanCommission to coordinate the work of national audit regu-lators through the European Group of Auditors OversightBodies (EGAOB). Coordination and, ultimately, harmonisa-tion of oversight activities will serve the public interest andprovide a stable platform within which European networksof auditors can work effectively. The Working Party is keento support the work of the EGAOB both in relation to stan-dards on auditing and in relation to its other responsibilities.

Towards Harmonised Auditing Standards International Standards on Auditing (ISAs) for Europecame a step closer in 2005. The Statutory Audit Directiveprovides for ISAs to be adopted by the EuropeanCommission under the ‘comitology’ procedure for second-ary regulation. FEE, together with the European auditstandard setters, considered alternative structures for the

adoption process and discussed their advantages and dis-advantages with the European Commission.

Through the Auditing Working Party, FEE is an active partic-ipant in discussions relating to the further enhancement ofISAs. Our input is guided by three important principles.Firstly, the standards must contribute to good quality audit-ing which relies on auditors using their insight and judge-ment rather than simply following required procedures.Secondly, the standards must allow flexibility in theirdetailed procedures in order that the same standards canapply to all sizes of audit and in order to encourage innova-tion. Thirdly, the standards must find an appropriate balancebetween achieving these two principles and serving theneeds of those responsible for monitoring audit quality.

At the end of 2005, FEE was invited by the EuropeanCommission to be a member of the ISA Subgroup of theEGAOB. This Subgroup is intended to give advice to theEGAOB and the European Commission on auditing stan-dards, and its initial work has been directed at theCommission’s response to the consultation by theInternational Auditing and Assurance Standards Board(IAASB) in relation to the clarity project. The Subgroup hasproved to be an invaluable forum for dialogue betweenthe profession, regulators and other interested parties onthe future direction of auditing standards.

FEE is also actively involved in direct discussions with theIAASB through the Consultative Advisory Group (CAG),through involvement in the IAASB Clarity Forum in July2005 and through FEE’s further comment letters on theclarity of IAASB standards. Comment letters were alsosent to IAASB in response to all of the Board’s consulta-tions during the year. These included audit documenta-

FEE Secretariat Contact

Hilde Blomme Director of Practice Regulation

[email protected]

Auditing Working Party

10

tion, accounting estimates, materiality, group audits, com-munications with those charged with governance and fivestandards on audit reporting.

Quality AssuranceFollowing issue in 1998 of a FEE Paper on ‘ContinuousQuality Assurance – Statutory Audit in Europe’ and in2000 the EU’s Recommendation on Quality Assurance forthe Statutory Audit, a wide spectrum of quality controlsystems have developed throughout the European Union.As part of its programme of support for the coordination ofaudit oversight in Europe, FEE is surveying the currentquality assurance arrangements in member states in orderto highlight best practice. We hope this report will be ofuse to the EGAOB as it develops appropriate benchmarksfor quality assurance systems in Europe.

Looking AheadThe next few years will be critical for the future harmoni-sation of auditing standards in the European Union. ISAsneed to develop in a way that meets the public interest,can be implemented effectively by the profession and gainsupport from member states as a basis for harmonisation.FEE is convinced that there is a middle ground thatachieves these objectives, but there needs to be full, opendialogue between all interested parties to build a commonunderstanding. Without that understanding, harmonisa-tion will be delayed and the current patchwork of auditingstandards across Europe will increasingly fail to meet theneeds of the single market. FEE looks forward to taking anactive role in building mutual understanding.

11


2 0 0 5



“FEE has completed the main phase of a project to develop a position on how management, those chargedwith governance and external auditors can responsiblyreport on companies’ systems of internal control and riskmanagement in ways that serve the public interest.”

Robert HodgkinsonInternal Control Working Group Chairman

AUDIT

The discussion paper on Risk Management andInternal Control in the EU generated much feedbackand provided a basis for debate at the high levelconference organised in October.

Risk Management and Internal Control In March 2005, FEE published a discussion paper RiskManagement and Internal Control in the EU. The paper,inter-alia, contained the following suggestions: stagingthe introduction of potential requirements related to riskmanagement and internal control would be sensible,recognising that companies and member states may faceimplementation challenges that will take time to resolve;there should not be a relentless increase in requirementsat the European level; and when listed companies operatein securities markets where they are generally subject toshareholder influence, shareholders can often bring aboutreal changes in behaviour in a more proportionate andcost-effective manner than detailed legal requirements.

High Level ConferenceBelieving that debate was required to ensure thatEurope’s approach to risk management and internal con-trol builds on best practice and that requirements shouldbe based on evidence that the benefits to companies andshareholders will exceed the costs involved, FEE organ-ised a conference of key stakeholders in October 2005.

The successful conference saw participation frominvestors, senior corporate executives, regulators andauditors. The keynote speaker at the conference was DrAlexander Schaub, Director General of DG InternalMarket. Other speakers, from several member states andthe USA, included leaders in the development of publicpolicy in this area.

There was support from regulators for a principle-basedapproach to regulation. It was generally agreed that dis-closure and description were preferable to compliancewith a set of rules. Indications that the EuropeanCommission would not follow a prescriptive approachwere widely welcomed. A broad, business focussedapproach to internal control was favoured ahead of a soli-tary focus on financial reporting controls.

Future PlansIn 2006, the Working Group will publish a document sum-marising the responses to the discussion paper and thefeedback received at the October conference. Initialanalysis of responses has indicated that there is little sup-port for a Sarbanes-Oxley type effectiveness statement inEurope and little appetite for an EU Framework on internalcontrol and risk management. However, there is broadsupport for FEE’s proposed regulatory principles and prin-ciples of disclosure. The debate on risk management andinternal control is still very much open.


Hilde Blomme Director of Practice Regulation

[email protected]

Internal Control Subgroup

12

The Task Force coordinates activities related to EUdraft legislation relevant to the work of several FEEworking parties. It works under direct supervisionof the Executive.

Statutory Audit DirectiveThe clear priority for the Task Force was on the revision ofthe Statutory Audit Directive. The Task Force followed thework of the European Parliament very closely. It focusedon the committees preparing reports or opinions on theDirective and prepared briefing material which was usedin contacts with MEPs.

Forum on Auditor’s LiabilityThe Task Force welcomed the European Parliament’samendment to the draft Directive that addressed the issueof auditor liability. The Parliament’s initiative has led to acommitment by the European Commission to report on theimpact of current national liability systems before the endof 2006. As announced in its Communication of 2003, theEuropean Commission launched a study on the subject. AGroup of Market Experts on liability was also established toadvise the Commission. The Regulatory Task ForceChairman, Klaus-Günter Kleinis was appointed to the group.

Public OversightAs announced by Director General Alexander Schaub in thelast FEE General Assembly, the European Commission hasdecided on 14 December 2005 to set up a group of expertsto advise the Commission and to facilitate cooperationbetween public oversight systems for statutory auditors andaudit firms.

As recommended in the FEE discussion paper “EuropeanCoordination of Public Oversight” published in 2003, publicoversight arrangements should be put in place as soon aspossible in all Member States in order to make the newlyestablished EGAOB fully operational.

FEE welcomed the Commission’s proposal to organise a dia-logue with European associations. The contribution of prac-titioners is critical if EGAOB is to be involved in regulatoryactivities which go beyond oversight. In its capacity of rep-resentative organisation for the accountancy profession inEurope, FEE is keen to provide contributions in all areaswhere the European Commission and EGAOB might consid-er it useful.

Future WorkThe implementation of the Audit Directive will be thefocus of the Task Force’s work in 2006. FEE member bod-ies have appointed a national coordinator to monitor thetransposition of the Directive in their country. TheRegulatory Task Force will work with national coordinatorsto help identify, and find solutions to, any difficulty in theimplementation process.

AUDIT“The profession is actively supporting the implementationprocess of the new Audit Directive, which will deliverreal reform.”

Klaus-Günter KleinFEE Vice-President & Regulatory Task Force Chairman


Henri OlivierSecretary General

[email protected]

Regulatory Task Force

13


2 0 0 5



“The revised 4th and 7th Company Law Directives will have important consequences for corporate Europe -reforms of board responsibilities, corporate governancestatements, related parties and off-balance sheetarrangements.”

Erich KandlerCompany Law and Corporate Governance Working Party Chairman

CAPITAL MARKETS

The Working Party was established as a result of amerger between the Company Law Task Force andthe Corporate Governance Subgroup.

4th and 7th DirectivesThe proposed amendments to the 4th and 7th Company LawDirectives were high on the agenda of the Working Party.The reforms of board responsibilities, corporate gover-nance statements, related parties and off-balance sheetarrangements will have important consequences for corpo-rate Europe. The Working Party particularly focused on theEuropean Parliament, developing a special briefing notefor MEPs highlighting the importance of the location of thecorporate governance statement given the related auditimplications and noting that the requirements regardingrelated party transactions should not exceed IAS 24.Following adoption of the Directive, expected in lateSpring 2006, the Working Party will turn its attention toimplementation. The Working Party also prepared FEE’sinput to the European Commission’s second consultationon fostering an appropriate regime for stakeholders’ rights.

Capital MaintenanceThe Working Party responded to the EuropeanCommission’s (EC) proposed Directive on companies’ cap-ital formation, maintenance and alteration. A subgrouphas been created to lead a proactive project focusing oncapital maintenance and alternative regimes, includingthe solvency test, with a focus on accounting and auditingaspects. It will closely monitor the progress on the EC fea-sibility study on an alternative to the existing capitalmaintenance regime.

Corporate Governance StatementsA second subgroup will develop a project on the auditor’srole regarding providing assurance on corporate gover-nance statements. The aim is to stimulate debate, withthe ultimate objective being to encourage a global stan-dard or guidance from IAASB.

RepresentationThe accountancy profession’s high level contribution tothe European debate in corporate governance is wellrecognised. FEE President David Devlin is a member of theEuropean Corporate Governance Forum and in April 2005,Erich Kandler was appointed to the EuropeanCommission’s Advisory Group of non-governmentalexperts on corporate governance and company law. Bothhave been appointed in a personal capacity. In addition,the profession provided active contributions to many highprofile seminars in the corporate governance debate, suchas the UN/ISAR Consultative Group on CorporateGovernance, the CEPS Task Force on CorporateGovernance Reform and the ECGI’s TransatlanticCorporate Governance Dialogue.

Next StepsAt the end of 2005, the EC launched a consultation regard-ing future priorities for the action plan on modernisingcompany law and corporate governance in the EuropeanUnion. Preparing FEE’s contribution will be an immediatepriority for the Working Party.


Saskia SlompTechnical Director

[email protected]

Company Law and Corporate Governance Working Party

14

The Project Group’s specific mandate is to provideguidance for the accountancy profession in relationto prospectuses, supporting the development of asingle European capital market. The Group had towork within a defined timeframe directly related tothe Prospectus Directive. The Chairman is gratefulto the members of the Group for their dedication andcommitment.

ReportingAn issue on which FEE had previously called for moreattention. The Prospectus Directive came into force on 1July 2005 and intends to simplify the raising of capital inEurope. The Project Group actively monitored and con-tributed to CESR’s Level 3 guidance regarding theEuropean Commission’s Regulation on Prospectuses.CESR’s final recommendations for consistent implementa-tion were published in February 2005. The Group con-tributed to the CESR consultation on complex financial his-tories. FEE had previously called for more attention to cir-cumstances in which the issuer has not prepared its his-torical financial information as a single business duringthe whole period of reporting.

Auditors and ProspectusesThe Project Group analysed the responses received to theFEE Discussion Paper on the Auditor’s Involvement with theNew EU Prospectus Directive, which had been published inNovember 2004. The draft analysis was presented at theEuropean Auditing Standard Setters meeting held in Aprilwith the aim of stimulating the development and the updateof national pronouncements by audit standard setters in par-ticular with a focus on historical information, prospectivefinancial information and pro-forma financial information.

In October 2005 FEE published the Analysis of Responsesto FEE Discussion Paper on the Auditor’s Involvement withthe new EU Prospectus Directive. The paper analysedcomments from a range of different stakeholders and putforward key proposals in relation to the audit report andthe auditor’s responsibility.

Comfort LettersIn April 2005, FEE published a Discussion Paper on ComfortLetters Issued in Relation to Financial Information in aProspectus. Now that the Prospectus Directive is effective,market participants (underwriters, issuers and their audi-tors) need to prepare for the new rules and understandingof each participant’s role and responsibility needs to beupdated. The comfort letter is a crucial instrument in thisprocess. The paper provides auditors and auditing stan-dard setters with a consideration of the procedures to beperformed by an auditor and the reporting on it, with regardto comfort letters. The single prospectus can be used indifferent countries and both issuers and auditors areexposed to the liability regimes in all countries. The workperformed by the auditor therefore needs to have regard tothe most onerous national liability regime (in the absenceof a European regime). The Discussion Paper and theresponses received were discussed with the EuropeanAuditing Standard Setters in their meetings of April andOctober 2005 to stimulate guidance in this area.

Future PlansThe Group will continue to monitor developments relatedto the Prospectus Directive and is ready to assist CESRand the European Commission in this domain. The ProjectGroup will publish in Spring 2006 an analysis of theresponses to the Discussion Paper on comfort letters.

CAPITAL MARKETS“FEE’s analysis of the auditor’s involvement with theProspectus Directive highlighted issues which, if leftunattended, could undermine the benefits for investorsand other market participants of the ‘single passport’ for issuers.”

Jan BuismanEuropean Capital Markets Reporting Project Group Chairman


Corinne Soubies Senior Project Manager

[email protected]

European Capital MarketsReporting Project Group

15


2 0 0 5



“Mutual recognition of IFRS and US GAAP, provided theyare properly applied, is justifiable as both can now beconsidered as equivalent high quality sets of standards.”

Hans van DammeFEE Vice-President & Financial Reporting Policy Group Chairman

FINANCIAL REPORTING

The Group deals with policy and strategic mattersin the financial reporting area and coordinatesFEE’s work in the financial reporting area. Since thebeginning of 2005, the Group has also been activeon capital market issues. The Group supports FEErepresentatives on the EFRAG Supervisory Board inpreparing FEE positions.

IFRS and US GAAPIn April 2005, the European Commission (EC) and the SECagreed on a “roadmap” toward equivalence between IFRSand US GAAP setting out the steps to the eventual elimi-nation of the SEC’s reconciliation requirement. InDecember 2005, FEE continued the momentum by organ-ising a high level policy seminar on the theme of IFRSConvergence and Consistency. Commissioner McCreevy,Ethiopis Tafara (SEC), David Tweedie (IASB), MichaelCrooch (US FASB) and Pervenche Berès (EuropeanParliament) were amongst the particpants. The Seminarconcluded that: there was strong support for global stan-dards and clear recognition of their benefits; Europe’s pre-parers require a stable platform of standards; for removalof the reconciliation requirement the SEC does not expectcomplete or even a particular degree of convergence; con-sistent application of IFRS means acceptable within theboundaries of IFRS standards; and that no IFRS interpreta-tions should be considered at European level. FEE hasrecently published a position paper on convergence,equivalence and mutual recognition in Spring 2006.

CESR carried out a consultation on equivalence of thirdcountry GAAP in the first half of 2005 and published itsfinal advice in June. FEE contributed to the consultationcalling on CESR to consider an interim period to allowcompanies to list in Europe, without having to provide

remedies in the form of additional disclosures in the lightof the anticipated convergence between GAAPs.

IFRS: Consistent ApplicationConsistent application of IFRS is central to the successfuladoption of the international standards in Europe and is aprerequisite to the SEC’s consideration of eliminating thereconciliation requirement. In July, the EFRAG SupervisoryBoard published a discussion paper on achieving consistentapplication of IFRS in the EU. The discussions, includingthose in the Advisory Forum held by EFRAG on 21September 2005, alluded to the need for some sort of coor-dination of European views and requests to support IFRIC inits work. The Financial Reporting Policy Group led FEE’sreaction to the EFRAG paper and the Advisory Forum.

The EC is to create a forum of European accountingexperts to identify emerging and potentially problematicaccounting issues in relation to consistent application ofIFRS. It is intended to act as a filter mechanism and it willnot be making any interpretation or guidance itself. FEEhas accepted to participate in the forum.

EFRAGThe Group has contributed to strategic and policy issuesregarding EFRAG, the European Financial ReportingAdvisory Group. EFRAG has recently concluded an agree-ment regarding its working arrangements with the EC. Aprime objective of this clarification of the relationshipwith the EC is a formal recognition of EFRAG by theCommission. The working arrangements have recentlybeen published.

IASC FoundationIn 2005, FEE took the initiative of organising regular meet-



[email protected]

Financial Reporting Policy Group

16

ings with Chairman Volcker and some other IASCFTrustees, in order to allow an exchange of views with rep-resentatives from preparers, auditors, users and EFRAG.The first European Coordination meeting was held inFebruary and mainly addressed the changes to the IASCFConstitution and the position of Europe within IASCF andIASB. The second, November, meeting focused on the con-vergence project, consistent application of IFRS and theIASB working programme.

IASB Working GroupsThe Group maintained good relationships with IASB staffand commented on a series of consultation papers, includ-ing the Draft Memorandum of Understanding on the Roleof Accounting Standard Setters and Their Relationshipwith the IASB. In April, FRPG had a special meeting withthe European representatives on the IASB Working Groupsto discuss cooperation and relationship with FEE.

Transition to IFRSInternational Financial Reporting Standards (IFRS) asadopted by the international standard setter, IASB, will

not always be identical to those recognised underEuropean law. This is primarily because each standard hasto be endorsed by the European Commission and thisprocess can take some time. In addition, as the experiencewith IAS 39 shows, the European Commission may decideto carve out certain parts of a standard while endorsingthe rest. Hence, companies and their auditors will have todeal with a situation whereby IFRSs as adopted for use inthe EU may deviate from those approved by the IASB.Addressing these issues in April 2005, FEE published adiscussion paper on Reporting Issues in relation toEndorsed IFRS and Possible Implications for the AuditReport. In October, FEE published the analysis of respons-es to the discussion paper outlining steps to ensure usersof accounts are clear as to the financial reporting frame-work being used. In December, FEE issued aCommunication to its member bodies strongly urging theprofession to use the standard reference on the financialframework in the EU, concerning endorsed IFRS, in orderto give a clear message to the market and to users offinancial statements in and outside the EU.

17


2 0 0 5



“What are the benefits of fair valuing goodwill as per theIASB proposal on business combinations? We questionwhether preparers and auditors need put such effort intoaccounting for goodwill when the business communityseems to express no need for any change.”

Benoît LebrunAccounting Working Party Chairman

FINANCIAL REPORTING

The Working Party focused on IASB related work. Inparticular, work on service concession arrangementsand business combinations was prioritised as wellas a strong input to the IFRS endorsement process.

International Financial Reporting StandardsThe Working Party reacted to a series of important IASBexposure drafts published during the year. Input was pro-vided regarding: amendments to IFRS 3 on business com-binations (phase II); amendments to IAS 27 on consolidat-ed and separate financial statements; amendments to IAS37 on provisions, contingent liabilities and contingentassets; and amendments to IAS 21 on net investment in aforeign operation. The Chairman represented FEE in theRoundtable on business combinations organised by theIASB in November 2005.

In addition, comments were provided to EFRAG and toIFRIC regarding the interpretations published by IFRIC on:liabilities arising from participating in a specific market(WEEE); changes in contribution to employee share pur-chase plans; service concessions arrangements; the scopeof IFRS 2; and group and treasury share transactions.

EFRAGThe Working Party contributed to EFRAG’s endorsementadvice concerning a number of interpretations issued bythe International Financial Reporting InterpretationsCommittee (IFRIC) including, IFRIC 2 - members’ shares inco-operative entities, IFRIC 4 - determining whether anarrangement contains a lease, IFRIC 5 - decommissioningrestoration and environmental rehabilitation funds, andIFRIC 6 - liabilities arising from participating in a specificmarket. Comments were also provided regarding theendorsement of IFRS 6 which deals with exploration forand evaluation of mineral resources and on the amend-ments to IAS 19 on employee benefits. EFRAG provided a

negative endorsement advice to the EuropeanCommission regarding IFRIC 3 on emission rights.Although FEE supports global, principle-based standards,the profession supported ERFRAG’s position. However, theEuropean Commission did not finally have to make anendorsement decision as the interpretation was subse-quentially withdrawn by IASB.

IFRS for SMEsThe Working Party, together with the SME/SMP WorkingParty, commented to both EFRAG and IASB regarding theIASB questionnaire on possible recognition and measure-ment modifications for SMEs. Members of the WorkingParty also participated in the joint EFRAG/FEE Group onIFRS for SMEs. FEE participated in the IASB Roundtable todiscuss the Questionnaire.

Other ProjectsThe Working Party contributed to FEE’s response toEFRAG’s discussion paper on achieving consistent appli-cation of IFRS in the EU, on the IASB proposal regardingtechnical corrections policy and on CESR’s recommenda-tion on alternative performance measures.

The Working Party provided input to FEE’s reaction to theproposal to amend the Fourth and Seventh Directives,analysing the provisions on related party transactions andoff-balance sheet arrangements. The Working Party hasbegun its consideration of the IASB discussion paper onmanagement commentary, and it contributed to the draft-ing of the FEE position paper on convergence, equivalenceand mutual recognition of IFRS and US GAAP.

Future PlansIn 2006, the Working Party will continue to make high-level contribution to the international standard settingprocess and to the European IFRS endorsement procedureon behalf of the profession.


Catherine Ameye Project Manager

[email protected]

Accounting Working Party

18

19


2 0 0 5

“FEE welcomed the revised approach to the fair valueoption in IAS 39. The IASB proposals struck the right balance and have allowed the option to be endorsed inthe EU.”

Hans van DammeFEE Vice-President & Banks Working Party Chairman

FINANCIAL REPORTING

The main focus for the Working Party has been onfinancial instruments, particularly amendments tothe international standard, IAS 39. The WorkingParty operates a Financial Instruments Subgroup inwhich members of the Accounting, Banks andInsurance Working Parties participate.

IAS 39The Financial Instruments Subgroup developed theFederation’s position on the proposed amendments to IAS39 regarding the fair value option. FEE welcomed IASB’s(International Accounting Standards Board) revisedapproach to the fair value option. The proposals strike theright balance between the views of those in favour of theprevious fair value option in IAS 39 and those requiring arevision of the standard in respect of the fair value option.

An element of IAS 39 still remains to be agreed and theWorking Party has monitored the ensuing discussionbetween IASB and the banking organisations regarding apossible interest rate margin hedge method. The discus-sion will continue in 2006 with the objective of eliminat-ing the last carve-out in the endorsed IAS 39.

EFRAG & IFRICThe Working Party responded to EFRAG’s (EuropeanFinancial Reporting Advisory Group) endorsement adviceon issues such as the amendment to IAS 39 Fair Value

Option, the amendment to IAS 39 Cash Flow HedgeAccounting of Forecast Intragroup Transactions, theamendment to IAS 39 and IFRS 4 Financial GuaranteeContracts and the new IFRS 7 regarding financial instru-ment disclosures. Following the European endorsement ofthe revised Fair Value Option, the Subgroup was consultedby the European Commission on a proposal to amendArticle 42 of the Fourth Directive. The purpose of the pro-posal was to align the wording of the Fourth Directive withthe amended IAS 39. The IFRIC Draft interpretation D15 onReassessment of Embedded Derivatives was discussed andcomment letters were submitted to both EFRAG and IFRIC.

In 2005, the Working Party also monitored and discussedworking documents of CEBS (the Committee of EuropeanBanking Supervisors) relating to the framework for super-visory disclosure, the financial reporting framework andvalidation of risk management. A number of publicationsby the Basel Committee on Banking Supervision were alsoconsidered by the Working Party.

Future PlansIn 2006, the priority for the Working Party will again bethe work of the IASB on financial instruments. In addition,accounting or auditing aspects of CEBS implementation ofthe proposed Capital Requirements Directive (CAD) willbe closely monitored.



[email protected]

Banks Working Party

The EU project on Solvency II and the work of theCEIOPS were the focus of the years’ activities forthe Working Party.

Solvency IIRegular contact with the European Commission and theCommittee of European Insurance and OccupationalPensions Supervisors (CEIOPS), facilitated the WorkingParty’s input on the reform of the supervisory system forinsurance companies, known as Solvency II. The projectaims to establish a solvency system that is better matchedto the true risk of an insurance company. In its developmentof detailed rules and implementation measures on SolvencyII, CEIOPS has consulted with the audit profession. Membersof the Working Party were invited to participate in CEIOPSworking groups on ‘Pillar I’, ‘Pillar II’ and ‘Accounting/PillarIII’. The chairman of the Insurance Working Party is alsomember of the CEIOPS Consultative Panel.

FEE contributed to the process by submitting comment let-ters to CEIOPS on their draft answers to the EuropeanCommission on the first and second wave of calls foradvice in the framework of the Solvency II project. A FEEcomment letter on the draft answers on the third wave ofcalls for advice is in preparation.

European DevelopmentsFEE provided input to other projects initiated by the EU andCEIOPS, namely to the new Reinsurance Directive, to theCEIOPS investigation on ‘Implications of IAS/IFRSIntroduction for the Prudential Supervision of InsuranceUndertakings’ and the ‘Report on possible need foramendments to the Insurance Groups Directive’.

IFRSIn March 2004, the IASB published IFRS 4: InsuranceContracts as an interim standard. The Working Party dis-cussed the technical impact of IFRS 4 and prepared acomment letter on the two sets of drafts of InternationalActuarial Standards of Practice, published by theInternational Actuarial Association as educational stan-dards and dealing with the impact of IFRS 4 on the actu-arial profession. The third set of drafts standards will bediscussed in the beginning of 2006.

Due to close contact with European representatives of IASBworking groups several IFRS issues with impact on insur-ance accounting were discussed. These include the ‘fairvalue’ option, amendments to IAS 39, financial guaranteecontracts, the amendments to the IFRS 4 implementationguidance according to the issuance of IFRS 7 and the devel-opments within Phase II Insurance Project of the IASBwhich commenced in late 2004. Members of the FEEInsurance Working Party participate in the EFRAG WorkingGroups on Insurance Accounting and Financial Instruments.

Future PlansIFRS remains a key issue; in particular the Phase IIInsurance Project of the IASB as well as the interpretationand impact of IFRS 4 first-time adoption. The focus will beon technical issues raised by the different projects, aswell as the auditing implications related to fair valuemeasurement and disclosures.

As the European Commission advances the Solvency II reformsthere will be much overlap with accounting and auditingissues. Close contacts will be maintained with the EuropeanCommission, regulators and supervisors, especially via thecooperation with the relevant working parties of CEIOPS.

“There is a need to determine in much clearer form whatis meant by each request for audit input in the frame-work of Solvency II. At present the scope of the workcontemplated can only be guessed at.”

Gerd Geib Insurance Working Party Chairman



[email protected]

Insurance Working Party



FINANCIAL REPORTING

20



www.fee.be



“The accountancy profession operates, in the main, inactivity areas where there are no market access rulesrestricting or prohibiting the entry of other serviceproviders.”

Jacques PotdevinFEE Deputy President

& Liberalisation / Qualification Working Party Chairman

PROFESSIONAL REGULATION

The Working Party closely followed the legislativeagenda on all aspects linked to the recognition ofprofession qualifications and the cross-border pro-vision of services. It also finalised a study on mar-ket access to accountancy services.

Recognition of ProfessionalQualifications DirectiveThe Directive was adopted in September 2005. It addsnew provisions related to cross-border provision of servi-ces under the home country title to existing rules concern-ing establishment in another country. In its representationon the Directive, FEE emphasised that, where they wishto, member states should be allowed to subject cross bor-der service providers to the rules and disciplinary provi-sions linked to professional qualifications in the countrywhere the services are provided.

FEE strongly argued in favour of clear legislation wherebyall aspects related to statutory audit could be found in oneDirective. This argument was accepted in the final versionof the Directive.

Services DirectiveThe Commission’s proposal to improve cross-border provi-sions of services, in line with the Lisbon Agenda generat-ed much interest and controversy in 2005. FEE has com-municated its main concerns to the EU institutions sincethe proposal was first issued in 2004. It is important thatthere is consistency between the Services Directive andother legislation, particularly on recognition of profession-al qualifications and statutory audit. The main concernrelated to the clarity of the scope of the Directive.

Competition and Market Access RulesResponding to the European Commission’s growing inter-est in competition policy and the regulated professions,the Working Party launched a study to ascertain the cur-

rent situation regarding market access and restrictedrights to practise within the accountancy profession. Thesurvey concluded that the accountancy profession oper-ates in the main in activity areas where there are no mar-ket access rules restricting or prohibiting the entry ofother services providers. Only in the areas of statutoryaudit and to some extent other reports which are requiredby European company law directives, do market accessregulations oblige consumers to acquire services from theaccountancy profession.

Education SubgroupThe Education Subgroup is chaired by Prof. WimMoleveld. In 2005, its activities focused on issues con-nected to lifelong learning. The Subgroup prepared FEEcomments on the European Commission’s working docu-ment ‘Towards A European Qualifications Framework forLifelong Learning’. It organised a meeting with directorsof continuous professional development in member statesto discuss the implementation of the IFAC Standard IES 7,which is effective from 1 January 2006.

Despite amendments tabled in the European Parliamentbased on FEE proposals on education, the concerns werenot taken onboard in the final text of the statutory auditDirective.

Future PlansThe Services Directive progress will be closely monitoredin 2006 as well as the debates on services at the interna-tional level, in the World Trade Organisation. The WorkingParty will conduct studies on two important issues relat-ed to the Statutory Audit Directive: ownership of auditfirms; and the practical organisation of the aptitude test inmember states.


Henri Olivier Secretary General

[email protected]

Liberalisation/Qualification Working Party

22

There were two main priorities for the WorkingParty in 2005: finalising the survey on the implemen-tation of the EU Recommendation on StatutoryAuditor’s Independence and contributing to theexpected revision of the independence section ofthe IFAC Code of Ethics.

Survey on IndependenceIn February 2006, the Working Party published a survey on theimplementation of the EU Recommendation on Indepen-dence. It outlines how the principles underlying theRecommendation, recently given a legal underpinning by therevised Statutory Audit Directive, are applied in the EuropeanUnion member states. The principles of the Recommendationhave been implemented in about three quarters of memberstates. Most European Union countries have taken regulatoryinitiatives on auditor independence in the last few years. Theaccountancy profession has strongly supported auditor inde-pendence reform in Europe. It is now important that there bea regulatory pause to allow this new approach to auditorindependence time to prove its worth to users of auditreports. A stable platform on independence is required tofocus more broadly on the common goal of high audit quality.

Audit LegislationIn September and October 2005 the European Parliamentand ECOFIN approved the Statutory Audit Directive, revis-ing the existing Eighth Company Law Directive onStatutory Audit. The Working Party closely followed thedevelopment of the proposals in the areas of ethics andindependence. The Working Party also outlined its planson the implementation of the Statutory Audit Directive.

IFAC Code of EthicsThe Chairman of the Working Party was invited in 2004 toparticipate in the newly formed Consultative Advisory

Group of the International Ethics Standards Board forAccountants, formerly the IFAC Ethics Committee. He hasactively contributed to its workings in 2005 by continuingto express support for a principles based approach to eth-ical standard setting, supplemented by appropriate guid-ance, restrictions and prohibitions.

The Working Party also discussed the IFAC EthicsCommittee exposure draft on network firms definition indetail and advocated for a network definition in line withthe one included in the Statutory Audit Directive.

PCAOB RuleThe Working Party commented on the US PCAOB proposedrules concerning independence, tax services and contin-gent fees. These rules stipulate that the provision to anaudit client of services for a contingent fee or a commis-sion, the provision of assistance in planning or tax adviceon certain types of potentially abusive tax transactionsand the provision of tax services to certain senior officersof an audit client impair the independence of an audit firm.

Future PlansThe Working Party will continue to provide input to FEE’swork on the implementation of the Statutory AuditDirective, by identifying the members state options andother national developments in relation of Articles 21 and22 of the Statutory Audit Directive. A revision of theCommon Core of Principles elaborated by FEE in 1998 andbeing used as the basis for discussions at EU and IFAClevel and the development of a publication to furtherexplain the framework approach to auditor independenceare under consideration.

PROFESSIONAL REGULATION“The accountancy profession has strongly supportedauditor independence reform in Europe. A stable platformon independence is now required to focus more broadlyon the common goal of high audit quality.”

Harald RingEthics Working Party Chairman


Hilde BlommeDirector of Practice Regulation

[email protected]

Ethics Working Party

23


2 0 0 5



“Public sector organisations looking to tackle externalfraud need to take a strategic approach, set targets andidentify controls to use in the prevention of fraud.”

Caroline MawhoodPublic Sector Committee Chair

PUBLIC SECTOR

In 2005 the Committee’s priorities were taking for-ward our research on the implementation of accru-als basis of financial reporting in the public sectorand on New Public Management.

Accrual Accounting in the Public SectorThe Committee followed up the successful conferenceheld with the European Commission late in 2004, byundertaking a survey of the implementation of accrualaccounting in the public sector. The purpose was to under-stand how member states apply the standards: differ-ences in approaches and the potential for advice. TheCommittee is collating the results and is confident thatthe work will result in a useful overview of how memberstates have adopted accruals accounting at different lev-els of Government. In early 2006 we published a discus-sion paper on the implications for politicians of the adop-tion of accruals based reporting.

New Public ManagementThe Committee carried out a survey on how member statesinterpret the term, ‘New Public Management’. The surveyinquires about corporate governance, the role of internaland external audit and performance management. Theobjective is to produce a booklet analysing the characteris-tics of new public management, the accounting structuresassociated with it and how different European Union coun-tries are handling its implementation.

Public Sector Accounting Standards BoardThe Committee has worked actively with the IFACInternational Public Sector Accounting Standards Board.Two members are technical advisors on the Board. The

Committee seeks to comment on issues of concern toEuropean members, for example, formal comments wesubmitted on IPSAS ED 24 relating to disclosures onexternal assistance. The Committee had a key input intoFEE’s comment on the international exposure draft onservice concessions.

Tackling External FraudThe Committee published a guide to Good Practice Guideon Tackling External Fraud in 2005. The key messagesfocused on the importance of organisations taking astrategic approach to fraud; assessing the scale of thefraud threat; understanding the types of fraud risk; settingtargets and monitoring performance; and identifying con-trols to use in the prevention of fraud.

European Institutions and AcademiaThe Committee has continued to develop relations withkey European Institutions and academia. The Committeewas represented at the European Parliament seminar onimproving financial accountability in the European Union.A strong relationship has been established with theComparative International Government AccountingResearch (CIGAR) network of academics.

Future PlansThe Committee is planning work on a survey of privatesector contribution to internal control, corporate gover-nance and auditing in the public sector . The Committeewill study the ‘legality’ assurance requirement for for pub-lic sector work, which may lead to a publication buildingon existing work in the member states.



[email protected]

Public Sector Committee

24

25


2 0 0 5

“The FEE European Congress for SMP/SME Accountants,to be held in September 2006 in Versailles, France, willbuild on the success of the inaugural Congress held inSitges, Spain, in 2004.”

José Maria BovéFEE Vice-President

& SME/SMP Working Party Chairman

SME

The Working Party is the accountancy profession’svoice on issues relevant to SMEs and SMPs (smalland medium-sized practitioners) in the EU.

European AgendaThe Working Party’s primary focus is on representation ofSME/SMP interests at European level. The EuropeanCommission’s DG Enterprise is a key contact in thisregard. Representatives of the Working Party regularlyparticipated in events organised by the EuropeanCommission (EC) and SMEs organisations throughout theyear. The Working Party has been asked to contribute tothe 5th EC Round Table between Banks and SMEs, whichwill start in 2006 and will focus on access to finance,including mezzanine financing and securitisation.

ISAsThe Working Party provided informal input from aEuropean SME/SMP perspective to IFAC’s SMPCommittee on ISAs (International Standards on Auditing).In addition, input was provided to the Auditing WorkingParty which prepared FEE’s responses to ISA exposuredrafts. ISAs work will feature prominently in 2006, andthe Working Party seeks to highlight SME/SMP concernswhen responding to IFAC’s clarity project, which will seethe redrafting of all ISAs.

IFRS for SMEsA joint EFRAG/FEE Group dealing with financial reportingfor SMEs is contributing to IASB project on IFRS for SMEs.

The group provides input to both EFRAG’s Technical ExpertGroup and the European members of the IASB’s SMEWorking Group. FEE also commented on the IASB’s ques-tionnaire on possible recognition and measurement mod-ifications for SMEs, broadly supporting the views ofEFRAG. In addition, FEE was represented on the IASBround tables held by the IASB in October 2005. GerhardPrachner, a member of FEE’s Accounting and SME/SMPWorking Parties, represents EFRAG on the IASB SMEWorking Group.

PublicationsIn November 2005, the guide How SMEs can reduce theRisk of Fraud - Limiting Fraud Risk - What SMEs can do’was published. The Guide analyses the impact of fraud,provides practical suggestions to identify, detect and pre-vent fraud and recommends implementing internal controlsystems tailored to specific needs.

Future PlansA highlight will be the second FEE European Congress forSMP/SME Accountants, to be held on the 7th & 8th ofSeptember 2006 in Versailles, France. The Working Partywill also monitor the implementation of the new 8th

Directive on statutory audit, which will present many chal-lenges for small and medium-sized practitioners. TheWorking Party fully supports FEE’s policy of ‘an audit is anaudit’ and will work closely with the Auditing Working Party.


Chiara Pisano Project Manager

[email protected]

SME/SMP Working Party

The accountancy profession due to its expertise onquality of information has a significant contribution tomake to developments in the sustainability area. TheWorking Party operates in liaison with the AuditingWorking Party and Financial Reporting Policy Group.

Strategic PlanDuring 2005, the Working Party updated its strategic plan.The plan outlines the specific role of the accountancy pro-fession in supporting sustainability reporting and relatedassurance. It provides a framework for the Working Partyas it looks to meet the challenges and opportunities forthe profession stemming from the growing importance ofextra-financial information for entities and their stake-holders, and its relevance for long-term financial perform-ance. The accountancy profession is the key supplier ofadvice on preparation of reliable financial and non-finan-cial information, including sustainability information andin giving assurance thereon.

Emissions Trading Alert In January 2005, the FEE Alert on Emissions Trading waspublished to coincide with the European UnionGreenhouse Gas Emissions Trading Scheme (EU ETS),which commenced operation on 1 January 2005. Thescheme is a major part of Europe’s strategy to comply withthe UN’s Kyoto Protocol. The FEE publication considers thefinancial reporting and auditing issues, impacting uponthe financial statements, arising from the EU ETS.

Stakeholder DialogueDuring 2005, the Sustainability Working Party invited keystakeholders to participate in its meetings to facilitate aninformal exchange of views on aspects of reporting,accounting and assurance provision in the field of sustain-ability and corporate social responsibility. Senior repre-sentatives from the European Commission, John Kellas,Chairman of the International Auditing and AssuranceStandards Board (IAASB) and Matt Christensen, ExecutiveDirector of the European Social Investement Forum(Eurosif), were amongst those who joined the WorkingParty discussions.

The Working Party cooperates with organisations such asthe GRI (Global Reporting Initiative), United Nations (UN-ISAR, UNEP), IFAC (International Federation of Accountants),Eurosif (European Social Investement forum), AccounAbility(Institute of Social and Ethical Accountability), as well aswith the European Commission and other EU institutions.

Future PlansThe start of 2006 saw the publication of the GRI G3Sustainability Reporting Guidelines Exposure Draft . On 17March, FEE hosted a European event to raise awarenessand discussion regarding G3, the third generation of sus-tainability reporting guidelines from GRI. The WorkingParty will continue to produce innovative initiatives onsustainability.

SUSTAINABILITY“The growing importance of extra-financial informationfor entities and their stakeholders and its relevance forlong-term financial performance, provides challengesand opportunities for the accountancy profession.”

Johan Piet Sustainability Working Party Chairman


Corinne SoubiesSenior Project [email protected]

Sustainability Working Party



26

27


2 0 0 5

“More work is required from standard setters, notablythe IAASB, if they are to meet the needs of the market-place for suitable standards for assurance that willincrease the credibility of sustainability reports.”

Lars-Olle LarssonSustainability Assurance Subgroup Chairman

SUSTAINABILITY

The Subgroup operates in liaison with and underthe supervision of the Sustainability Working Party.The Group is principally active on sustainabilityassurance aspects but acts also as a detailed dis-cussion and drafting group on reporting issues.

Assurance for a Sustainable Supply ChainBuilding on its series of well received papers in the assur-ance domain, a new paper was published in 2005 entitledAssurance for a Sustainable Supply Chain. ManyEuropean companies work with suppliers from all over theworld. The supply chain forms an important element in themanagement of business risk, opportunity and responsi-bility. It is critical to relationships with many stakeholdersand to the governance of companies generally. Codes ofconduct for suppliers can benefit corporate reputation,brand and “triple bottom line” if properly safeguarded byindependent assurance. The discussion paper givesinsights to a range of factors relevant to assurance provi-sion.

GRIThe Subgroup provides input to the Global ReportingInitiative (GRI), notably in the process of development ofthe “G3” exposure draft of its Sustainability ReportingGuidelines. The Group contributed to the GRI survey onshaping new GRI reporting levels, as well as the GRI sur-vey on external verification/assurance of GRI-basedreports. The Group drafted the FEE response to the GRI G3Guidelines.

RepresentationThe Chairman of the Group represents FEE on the IFACSustainability Experts Advisory Panel (SEAP). TheChairman also made a presentation in October 2005 to ameeting of European Auditing Standard Setters at whichthe harmonisation of sustainability assurance standardswas addressed.

Comment LettersThe Subgroup developed the FEE responses to the DutchRoyal NIVRA Exposure Drafts ED3410 ‘AssuranceEngagements Relating to Sustainability Reports’ and ED3010 ‘Practitioners Working With Subject Matter ExpertsFrom Other Disciplines on Non-Financial AssuranceEngagements’. It also gave input to the FEE comments onthe draft endorsement advice on IFRIC 3 on EmissionRights.

Future PlansThe Group will soon publish a Discussion Paper provision-ally entitled: Key Issues in Sustainability Assurance – AnOverview. The paper attempts to identify areas of com-monality in the various national pronouncements issuedto date as well as analysing their differences. It is hopedthat the paper will provoke debate that will enhance theability of national and international standard setters,notably the IAASB, to meet the needs of the marketplacefor suitable standards for assurance that will increase thecredibility of sustainability reports.


Corinne SoubiesSenior Project [email protected]

Sustainability Assurance Subgroup

In 2005 the Working Party has focused activities onsignificant cases before the European Court ofJustice and the European Commission project on acommon consolidated tax base.

Common Corporate Consolidated Tax BaseThe European Commission project on the CommonCorporate Consolidated Tax Base (CCCTB) for companiesoperating cross border in the EU, generated momentumthroughout the year and is currently high on theCommission’s list of priorities and is supported by mostFEE member bodies. The European Commission has creat-ed a Working Group on CCCTB comprising of Commissionand member states representatives.

In December 2005 FEE was invited to participate in ameeting of the Working Group on CCCTB. It was the solemeeting of the Working Group open to external academicsand experts. The Direct Taxation Working Party has carriedout a survey which will be used as a basis for a new pub-lication, which will analyse issues related to dependencyof tax and accounting, the common tax base and the appli-cation of IFRS on the common base. The Working Partyalso contributed to the report of CEPS (Centre forEuropean Policy Studies) report on Achieving a CommonConsolidated Corporate Tax Base in the EU.

European Court of JusticeOver the last few years the European Court of Justice (ECJ)has played an increasingly significant role in the area ofcompany taxation. Cases brought before the Court have ledto member states being forced to amend their national laws.The Working Party operates a subgroup on ECJ issues. Itstudies both pending cases and ECJ decisions deliveringopinions on identified issues of particular interest for theprofession. In December, FEE published an analysis of theCadbury Schweppes case, analysing whether ControlledForeign Company (CFC) legislation is in line with the relevantarticle of the EU Treaty.

Direct Tax LegislationThe Working Party monitored closely the legislative processregarding direct taxation aspects of measures such as: theParent-Subsidiary Directive; the Mergers Directive; theInterests and Royalties Directive; the Transfer Pricing Forum;Harmful tax competition; Double Taxation Conventions

Future PlansThe Working Party is preparing a position paper to beissued in 2006 on the implementation of the Interest andRoyalties Directive. A position paper on the CCCTB willalso be prepared.

TAXATION“European Court of Justice rulings are having far reach-ing consequences for company taxation. FEE has high-lighted the issues at stake.”

Stefano MarcheseFEE Vice-President & Direct Tax Working Party Chairman



[email protected]

Direct Taxation Working Party



28

29


2 0 0 5

“VAT fraud remains a hugely important issue. FEE is concerned that the European Commission’s proposedDirective to counter such fraud may not deliver thedesired results.”

Stephen DaleIndirect Taxation Working Party Chairman

TAXATION

The Working Party concentrated on developing theprofession’s reaction to the European Commission’sproposals for VAT simplification.

VAT Simplification The Working Party welcomed the European Commission’sproposals regarding the place of supply of services to non-taxable persons as a step in the right direction, but point-ed out that the benefit of the simplifications will be limit-ed. As part of the simplification proposals the Commissionis pursuing its work on the ‘One Stop Shop’ system, whichwill nonetheless require businesses to complete the dif-ferent VAT returns in 20 languages, applying the differentVAT rules of the Member State in which the relevanttransactions are carried out.

VAT FraudVAT fraud remains a really important issue as discussed byleading taxtation experts in the FEE VAT Round Table inMay 2004. The Working party reacted to the EuropeanCommission’s proposal to amend Directive 77/388/EC. TheCommission’s intention is to simplify the procedure forcharging VAT and to give member states an alternative tothe rules of the existing Directive in order to counter taxevasion and VAT fraud. The accountancy profession agreesthat additional measures should be taken to combat eva-sion. Even though the intent of the proposed Directive issensible and correct, FEE does not agree with all the detailsof the proposal. Some problems might arise from a codifi-cation of the existing derogations as derogations could incertain cases be in contradiction with the principles of the6th Directive. There appears to be a confusion between theactions that need to be taken to deal with VAT fraud andthose actions required to deal with tax avoidance whichcould be undertaken by fully applying the existing legisla-tion.

Vouchers and Promotional SchemesThe Working Party prepared a discussion paper on the VATtreatment of vouchers and promotional schemes withinthe 25 EU Member States. The paper highlights that thecurrent VAT regime creates a high degree of uncertaintyfor businesses with a possible exposure to significantcosts, as, in the majority of transactions, final consumersare involved, i.e. any additional tax charges determined ontax audit cannot be passed on. The paper analyses differ-ent categories of vouchers and promotional schemes andidentifies for each one the different types of transactionsin use in EU Member States and the VAT treatment whichshould be applied. The paper will be published in 2006.The European Commission has indicated that it will pub-lish a Communication on the issue in 2006.

Future PlansThe Working Party will continue to monitor and commenton the development of the draft VAT Directives on travelagents, postal services, and the proposals on financialservices and activities of central and local governmentbodies. Key stakeholders such as DG TAXUD of theEuropean Commission will be fully briefed on the profes-sion’s views.



[email protected]

Indirect Taxation Working Party



PUBLICATIONS 2005

30

Reference to the Financial Reporting Framework in the EU in Accounting Policies and in the Audit Report and Applicability of Endorsed IFRSCommunication to FEE Member BodiesFEE has issued a communication to its Member Bodies on the reference to the Financial Reporting Framework in the EU inAccounting Policies and in the Audit Report and Applicability of Endorsed IFRS.

Provision of Accountancy, Audit and Related Services in Europe -A Survey on Market Access RulesFEE SurveyThe FEE survey addresses the degree to which statutory market access rules are applied across European jurisdictions inrelation to the provision of a wide range of audit, accountancy and related services. It focuses on the degree of consumerchoice for such services. The survey found that only in the areas of statutory audit and to some extent other reports whichare required by European company law Directives, do market access regulations apply.

Observations on European Court of Justice Pending Case C –196/04FEE Observation PaperNational tax legislations on CFCs imposes upon a company resident in a member state a tax charge for the profits of itssubsidiaries which are resident in another member state and subject to a lower level of taxation. Ahead of the hearing ofthe European Court of Justice (ECJ) in the Cadbury-Schweppes case, due to take place on 13 December 2005, FEE has pub-lished a number of observations regarding Controlled Foreign Company (CFC) legislation in Europe. FEE questions whethersuch legislation is consistent with the principles of articles 43, 49 and 56 of the EC Treaty.

Good Practice in Tackling External FraudFEE Position PaperThe publication concentrates on external fraud. It is divided into three main sections: understanding and managing the risksof external fraud; preventing and deterring external fraud; and detecting and investigating fraud and imposing sanctions.Case studies are also provided for illustrative purposes.

How SMEs can reduce the risk of fraudFEE GuideThis practical guide is designed to assist SME entrepreneurs limit the risk of fraud. The publication analyses fraud’s impact,provides practical suggestions to identify, detect and prevent fraud and recommends implementing internal control systemstailored to SMEs’ specific needs. Cases studies are provided to illustrate the range and nature of fraudulent activity.

Analysis of Responses to FEE Discussion Paper on the Auditor’s Involvement with the New EU Prospectus DirectiveFEE Position PaperThe Prospectus Directive, which came into force on 1 July 2005, intends to simplify the raising of capital in Europe. The Directiverequires the involvement of the auditor in historical, prospective and pro forma information. FEE’s publication highlights issues which,if left unattended, could undermine the benefits for investors and other market participants of the ‘single passport’ for issuers. Thepublication analyses responses to FEE’s November 2004 Discussion Paper on the Auditor’s Involvement with the EU ProspectusDirective.

Analysis of Responses to FEE Discussion Paper on Reporting Issues in relation to Endorsed IFRS and Possible Implications for the Audit ReportFEE Position PaperThe FEE publication analyses the responses to FEE Discussion Paper on Reporting Issues in relation to Endorsed IFRS andPossible Implications for the Audit Report which was published in April 2005. The key question which the Analysis address-es is how to refer to the financial reporting framework in the accounting policies in the notes to the accounts and in theaudit report when applying ‘endorsed IFRSs’.

FEE Council approved the following publications in 2005

31


2 0 0 5

Assurance for a Sustainable Supply ChainFEE Discussion PaperAs a result of globalisation many European companies work with suppliers from all over the world. The supply chain nowforms an important element in the management of business risk and opportunity and hence in the governance of manycompanies. The FEE publication provides background and guidance on management of supply chains with a emphasis onaspects, such as codes of conduct, where independent assurance and related services may be particularly valuable.

Comfort Letters Issued in relation to Financial Information in a ProspectusFEE Discussion PaperFrom 1 July 2005 the Prospectus Directive becomes effective, so market participants (underwriters, issuers and their auditors)need to prepare for the new rules and understanding of each participant’s role and responsibility needs to be updated. Thecomfort letter is a crucial instrument in this process. Given the change from national rules to European-wide rules in respectof prospectuses, existing national variations in current practice should be eliminated where not linked to national legal issues.

Proposal to Amend the Fourth and Seventh Directives FEE Briefing NoteFEE has published a briefing note detailing the profession’s concerns regarding the current proposal to amend the Fourthand Seventh Directives. The publication notes that: the location of the corporate governance statement and related auditimplications may inhibit development of disclosure; there is a need for clarification of the term “arrangements”; and dis-closure requirements for related party transactions should not go beyond IAS 24.

Reporting Issues in Relation to Endorsed IFRS and Possible Implications for the Audit Report FEE Discussion PaperThe IAS Regulation requires European listed companies to prepare consolidated financial statements from 2005 on the basis ofinternational accounting standards, defined as those IFRS that have been endorsed by the European Commission. Both in theaccounting policies and in the audit report, reference needs to be made to the applicable financial reporting framework; but select-ing appropriate text for such a reference is not straightforward as endorsed IFRS may not necessarily be the same as (full) IFRS.

Risk Management and Internal Control in the EUFEE Discussion PaperThe FEE publication provides a review of current best practice amongst companies in risk management and internal con-trol, a review of recent regulatory developments in the US and EU in response to the recent financial scandals; and a sur-vey of regulatory requirements on risk management and internal control in EU member states. The paper sets out variousproposals as to how European regulators can build on what the best companies are already doing.

Takeover of Losses in the EUFEE Position PaperFollowing a comprehensive analysis of the rules on loss compensation in EU member states’ tax systems, FEE has identi-fied substantial differences in the treatment of domestic and foreign losses amongst member states. The ability to set offlosses against profits (‘takeover of losses’) for assessing the tax liability of a domestic group of companies is a basic fea-ture of any company tax system. However, the rules on loss compensation differ substantially at domestic and at interna-tional level. In many cases while offset of domestic losses is possible, the offset of foreign losses is restricted or impos-sible. As a consequence, foreign investment is treated less favourably than domestic investment.

Alert on Emissions TradingFEE AlertThe European Union Greenhouse Gas Emissions Trading Scheme (EU ETS), which commenced operation on 1 January 2005,is a major part of Europe’s strategy to comply with the United Nations’ climate change strategy, the Kyoto Protocol. The pub-lication considers the financial reporting and auditing issues arising from the new scheme.



FEE MEMBER BODIES

32

AustriaKammer der Wirtschaftstreuhänder (KWT)www.kwt.or.at

Institut Österreichischer Wirtschaftsprüfer (IWP)www.iwp.or.at

BelgiumInstitut des Experts-Comptables et des ConseilsFiscaux (IEC),Instituut van de Accountants en de Belasting-consulenten (IAB)www.iec-iab.be

Institut des Réviseurs d’Entreprises (IRE),Instituut der Bedrijfsrevisoren (IBR)www.ibr-ire.be

BulgariaInstitute of Certified Public Accountants in Bulgaria www.ides.bg

CyprusInstitute of Certified Public Accountants of Cyprus(ICPA)www.icpac.org.cy

Czech RepublicKomora Auditoru Ceske Republiky (KACR)www.kacr.cz

DenmarkForeningen af Statsautoriserede Revisorer (FSR)www.fsr.dk

EstoniaEstonian Board of Auditorswww.audiitorkogu.ee

FinlandKHT-Yhdistys www.kht.fi

FranceCompagnie Nationale des Commissaires auxComptes (CNCC)www.cncc.fr

Institut Français des Experts-Comptables (IFEC)www.ifec.fr

Ordre des Experts-Comptables (OEC)www.experts-comptables.fr

GermanyInstitut der Wirtschaftsprüfer (IDW)www.idw.de

GreeceSilogos Egekrimenou Logiston-Elegton Ellados(SELE)

Soma Orkoton Elegton Logiston (SOEL),www.soel.gr

HungaryMagyar Könyvvizsgálói Kamara (MKVK)www.mkvk.hu

IcelandFélag Löggiltra Endurskodena (FLE)www.fle.is

IrelandInstitute of Chartered Accountants in Ireland (ICAI)www.icai.ie

Institute of Certified Public Accountants in Ireland(ICPAI)www.cpaireland.ie

IsraelInstitute of Certified Public Accountants in Israel(ICPA)www.icpas.org.il

ItalyConsiglio Nazionale dei Dottori Commercialisti (CNDC)www.cndc.it

Consiglio Nazionale dei Ragionieri e PeritiCommerciali (CNRPC)www.consrag.it

33


2 0 0 5

LatviaLatvian Association of Certified Auditors (LACA)www.lzra.lv

LithuaniaLithuanian Chamber of Auditorswww.lar.lt

LuxembourgInstitut des Réviseurs d’Entreprises (IRE)www.ire.lu

Ordre des Experts-Comptables (OEC)www.oec.lu

MaltaThe Malta Institute of Accountants (MIA)www.miamalta.org

MonacoConseil de l’Ordre des Experts-Comptables deMonaco (COECM)

NetherlandsKoninklijk Nederlands Instituut vanRegisteraccountants (NIVRA)www.nivra.nl

NorwayDen norske Revisorforening (DnR)www.revisornett.no

PolandKrajowa Izba Bieglych Rewidentów (KIBR) National Chamber of Statutory Auditorswww.kibr.org.pl

PortugalOrdem dos Revisores Oficiais de Contas (OROC)www.oroc.pt

RomaniaCorpul Expertilor Contabili si Contabililor Autorizati din Romania (CECCAR)www.ceccar.ro

Slovak RepublicSlovenská Komora Auditorov (SKAu)www.skau.sk

SloveniaSlovenski Institut za Revizijo (SIZR)www.si-revizija.si

SpainInstituto de Censores Jurados de Cuentas de España(ICJCE),www.icjce.es

SwedenFARwww.far.se

SwitzerlandTreuhand-Kammer, Chambre Fiduciaire www.treuhand-kammer.ch

United KingdomThe Association of Chartered Certified Accountants(ACCA)www.accaglobal.com

Chartered Institute of Management Accountants(CIMA)www.cimaglobal.com

Chartered Institute of Public Finance andAccountancy (CIPFA)www.cipfa.org.uk

Institute of Chartered Accountants in England andWales (ICAEW)www.icaew.co.uk

Institute of Chartered Accountants of Scotland(ICAS)www.icas.org.uk



FEE CONTACTS

34

Henri OlivierSecretary General+32 2 285 [email protected]

Saskia SlompTechnical Director+32 2 285 [email protected]

Hilde BlommeDirector of Practice Regulation+32 2 285 [email protected]

Corinne SoubiesSenior Project Manager+32 2 285 [email protected]

Catherine AmeyeProject Manager+32 2 285 [email protected]

Chiara PisanoProject Manager+32 2 285 [email protected]

Michael SotiriouCommunications Manager+32 2 285 [email protected]

Sabine LeurartSecretarial Support+32 2 285 [email protected]

Loraine DiamondSecretarial Support+32 2 285 [email protected]

Sylvie RomancideSecretarial Support+32 2 285 [email protected]

Elizabeth FoxSecretarial Support+32 2 285 [email protected]

Sophie BlaveSecretarial Support & Reception+32 2 285 [email protected]

Liese-Lotte BillietSecretarial Support +32 2 285 [email protected]

FEE Secretariat Contact Details



www.fee.be

Avenue d’Auderghem 22-28B - 1040 Bruxelles

Belgium

Tel: +32 2 285 4085Fax: +32 2 231 1112

E-mail: [email protected]

Visit our websitewww.fee.be



Representing

the Accountancy

Profession in Europe

2 0 0 5


homepage - accountancy europe - fÉdÉration …...fÉdÉration des experts comptables europÉens...

Documents