Implementation of the Maystadt Recommendations
UPDATE 31 OCTOBER 2014 - following EFRAG General Assembly
The Maystadt report was published early November 2013, following the mandate given to Philippe Maystadt as adviser of Commissioner Barnier in March 2013. At the ECOFIN Council meeting of 15 November 2013, Philippe Maystadt presented to the Finance Ministers his recommendations for enhancing the EU’s role in international accounting standard setting. Those recommendations received wide support from the Member States.
On 4 February 2014, Commissioner Barnier prolonged Philippe Maystadt’s mission in order to supervise the appropriate follow-up and implementation of EFRAG's reform. The extended mission of Philippe Maystadt has facilitated the swift implementation and ensured an adequate and timely follow-up of the EFRAG reform.
Contents of the Maystadt Report
The report reveals consensus in Europe on the commitment to global quality accounting standards, i.e. IFRS. In relation to the endorsement process, there is also wide support for maintaining the current “standard by standard” adoption procedure, i.e. keeping the binary possible outcome of either adopting or rejecting standards. The recommendation is made that every standard should be assessed to ensure that the financial reporting requirements are not endangering financial stability and not hindering economic development. These two criteria could be either part of an interpretation of the current regulation as to whether standards are conducive of the European public good or be formally included as criteria in the IAS Regulation. The European Commission is currently carrying out an evaluation of the IAS Regulation.
EFRAG’s mandate should be widened so that its endorsement advice be accountable of these supplementary assessments being conducted in addition to the current assessments from a sole financial reporting perspective, i.e. whether the standards are consistent with the true and fair view principle.
Two of the recommendations address the funding of EFRAG. In the long term, a compulsory levy is envisaged on all listed companies; whereas, in the short term, countries that have not yet set up a National Funding Mechanism are encouraged to do so and contribute to the funding of EFRAG.
To bring EFRAG in the capacity of serving a widened mandate and to support EFRAG’s positions with increased legitimacy, the report recommends changes in the governance of EFRAG. These changes include:
• Extending the EFRAG membership to include National Funding Mechanisms and other private
and/or public organisations that contribute financially or in kind to EFRAG.
• Entrusting to a high-level Board the approval of all EFRAG’s positions and endorsement advice letters, this high level Board relying on the advice provided by the EFRAG Technical Expert Group and on the results of enhanced effect study and other field work. According to the report, this new Board would be comprised of three pillars: European public institutions, stakeholders (i.e. private European organisations) and National Standard Setters, each party nominating representatives that are at a high level and preferably to meet pre-defined criteria.
• The existing Technical Expert Group will continue and will be a committee supporting and advising the new Board. EFRAG TEG would continue to include part-time experts who should be active practitioners with diverse professional experience and from diverse geographic origins. At least four of those experts should come from the National Standard Setters, provided they meet the expertise criteria.
• Maintaining the EFRAG Consultative Forum of Standard-Setters (EFRAG CFSS) in its current role and composition. This includes the preparation of the IASB Accounting Standards Advisory Forum (ASAF) meetings to provide input to the European delegation at the ASAF.
The revised EFRAG Statutes and EFRAG Internal Rules reflect the Maystadt recommendations as closely as feasible and supplement them, in the same spirit, in areas where the Maystadt report has remained either silent or high level. The revised EFRAG Statutes allow for the extended membership of EFRAG, specify the financing commitments and include the new decision-making responsibilities of the EFRAG Board. The EFRAG Statutes embrace the consensus principle but specify fallback procedures in case consensus cannot be reached. The revised EFRAG Internal Rules address the nomination, composition and responsibilities of the new EFRAG Board and its committees as well as the advisory role of EFRAG TEG and the EFRAG Consultative Forum of Standard Setters (EFRAG CFSS) as a consultative body to the EFRAG Board and EFRAG TEG.
On 16 June 2014, EFRAG and its Member Organisations have taken an important step in implementing those recommendations by approving in the EFRAG General Assembly meeting the revised EFRAG Statutes and EFRAG Internal rules that set out the requirements of the new governance structure effective as of 31 October 2014.