Recent high profile international business failures have seen concerns raised regarding the current state of corporate governance and financial reporting in Europe. With its new position paper FEE1 is highlighting the essential issues for the accountancy profession at the center of the current debate.
Financial statements presenting a true and fair view of a company’s financial position are a cornerstone of any capital market. A major listed company’s unexpected collapse risks undermining the credibility of the financial information presented to the market place, and the regulatory system which is put in place to protect investors.
FEE, as the representative organisation of the accountancy profession in Europe, understands the seriousness of the questions raised by recent events. Also, we recognise the fundamental importance of public trust in our profession and the need to work continuously to maintain that trust.
The key areas in the debate concern: financial reporting standards; enforcement of standards and corporate governance; auditing standards and quality assurance; ethical standards and independence; oversight of the profession; and auditor liability (protection from catastrophic loss disproportionate to auditor responsibility).
FEE has issued a new policy paper that focuses on the accounting and auditing professions’ commitment to high quality financial reporting, all major influences on the quality of financial reporting should be considered, including the role of other professions and regulators.
FEE believes that there is a need to strengthen corporate governance arrangements so that they are equally effective across Europe corporation directors, audit committees and supervisory boards have a key role to play. Others in this debate include enforcement bodies, stock exchange, sponsors, investment bankers, investors, analysts, rating agencies and the financial press.
FEE intends to work with all partners in this debate to maintain momentum and, where necessary, suggest additional initiatives to preserve and enhance the effectiveness of the financial reporting system.
Major steps have already been taken to improve the current financial reporting system in Europe, for example EU adoption of International Financial Reporting Standards (IFRS) and the Commission’s recommendation on auditor independence. FEE has played a proactive role, working closely with European Institutions. The paper provides a snapshot of the current situation; outlining the progress made to date and recommending areas that need to be improved. It provides insight into those issues which FEE considers priorities.
FEE strongly believes that recent EU initiatives have strengthened the credibility of the financial reporting system and they are a signal of political commitment to continue to strengthen the quality of European corporate disclosure. The forward-looking strategy adopted by the European Commission, and supported by FEE, should now be given a higher priority.
FEE believes that action is needed in:
- Ensuring that the European Financial Reporting Advisory Group (EFRAG) makes a significant impact in providing a European contribution to the international financial reporting standard setting process (IFRS and IFRIC);
- Ensuring effective enforcement of IFRS in Europe by 2005;
- Coordinating initiatives in the Member States on the enforcement of financial reporting standards, in order to ensure consistency in application decisions within Europe;
- Agreeing on the FEE proposal to require the application of International Standards on Auditing in Europe by 2005;
- Increasing effort to support and influence the global standard setting process in auditing;
- Speeding up national programs of quality assurance in conformity with the EC’s recommendation;
- Stimulating the implementation of the European Commission’s recommendations on statutory auditor independence;
- Improving the current situation in the area of auditors’ liability; and
- Defining at EU level harmonised conditions for organising the public oversight of the auditing profession in the EU Member States.
Commenting on the current debate, FEE President Goran Tidstrom said:
«The accountancy profession has made substantial efforts over many years to provide business and capital markets with high quality accounting and auditing standards. As demonstrated by its action in recent years, FEE has been proactive in its contribution. FEE will continue to work on behalf of the European profession to raise standards and to highlight areas of concern.
The position paper The Role of Accounting and Auditing in Europe is available free of charge and can be downloaded from the FEE website http://www.fee.be.