About Financial Reporting

In the mid-nineties Europe was confronted with the challenge of finding a ‘European’ set of standards to meet the needs of a single capital market. Major listed companies, notably in Germany, used US GAAP. At that stage, the IASC had an important governance reform leading to the creation of the IASB. With this reform in place, IAS became a real alternative to the development of new EU Directives or European standards. The European Commission, at the time, underlined that the introduction of IAS developed by a private organisation was not legally possible without an endorsement process scrutinising every standard and interpretation issued by the IASB, at both political and technical levels. The European Commission asked FEE to explore the ways and means to set up a technical advisory group drawn from all the interested parties: EFRAG was born.

In its financial reporting activities, EFRAG ensures that the European views are properly considered in the IASB’s standard-setting process and in related international debates. EFRAG ultimately provides advice to the European Commission on whether newly issued or amended IFRS Accounting Standards meet the criteria of the IAS Regulation for endorsement for use in the EU, including whether endorsement would be conducive to the European public good.

Due Process Procedures for Financial Reporting Standard-Setting

EFRAG ensures that the European views are properly considered in the IASB’s standard-setting process and in related international debates. EFRAG ultimately provides advice to the European Commission on whether newly issued or amended IFRS Accounting Standards meet the criteria of the IAS Regulation for endorsement for use in the EU, including whether endorsement would be conducive to the European public good.

EFRAG seeks input from all stakeholders and obtains evidence about specific European circumstances throughout the standard-setting process. Its legitimacy is built on excellence, transparency, governance, due process, public accountability and thought leadership. This enables EFRAG to speak convincingly, clearly, and consistently, and be recognised as the European voice in financial reporting.

A rigorous and transparent due process must underpin activities around standard-setting process and is critical for the long-term credibility and independence of EFRAG.

The Due Process Procedures for the EFRAG Financial Reporting activities (DPP) set out the due process requirements to be followed by EFRAG in its role as technical advisor to the European Commission, in its contribution to the IASB’s standard-setting process by providing European views including through proactive research activities, and providing technical advice to the European Commission on the endorsement of IFRS Accounting Standards.

EFRAG is requested to provide with proper due process, public oversight and transparency, and with the expertise of stakeholders:

  • Publication, with an open call for comments, of EFRAG draft comment letters to the IASB, IFRS Foundation or any other bodies, draft endorsement advice letters to the European Commission, and other position papers as appropriate;

  • Publication of EFRAG final comment letters;

  • Publication of due process feedback reports;

  • Publication of comment letters received unless confidentiality is requested; and

  • Publication of summary reports on relevant outreaches and events, field tests and surveys if applicable.

Following a request from the European Commission, EFRAG provides endorsement advice on an IFRS Accounting Standard to the European Commission, within the agreed time frame. In addition, as part of EFRAG's proactive research work, EFRAG may publish discussion papers for public consultation, related feedback reports, comment letters received and if applicable recommendations and other which aim mainly to raise debate both at European and international level, contribute to the IASB standard-setting process from a European perspective and inform European stakeholders how financial reporting may affect them.

A robust, agile and adaptable due process is necessary to contribute to financial reporting standard setting by bringing the European views in a transparent, credible and independent way. All the steps described in this document may not need to be applied mechanically or sequentially in all instances. In some circumstances, an accelerated due process may be appropriate whereby a core of necessary due process steps will be defined. In such cases, the EFRAG Administrative Board, in its oversight role of due process, will be consulted.

The DPP therefore:

  • Specify the minimum steps to be taken to ensure that the activities have benefited from a thorough and effective public consultation process;

  • Identify additional non-mandatory steps to be considered by the EFRAG Financial Reporting Board (EFRAG FRB), the EFRAG Financial Reporting Technical Expert Group (EFRAG FR TEG) and their working groups or panels for each project.

The Exposure Draft on the EFRAG Due Process on Financial Reporting will soon be issued for public consultation