International Accounting Standards Board Law European Essay

Published Date: 02 Nov 2017

The European Parliament is the only elected parliamentary institution of the European Union. It does not have the powers of a normal national parliament in the sense that it cannot propose new legislation. It can only accept, reject or put forward amendments to laws proposed by the commission. The lack of ability to formally propose legislation, resulted into an image problem for the European Parliament, with many European voters uncertain of its role and, consequently, extremely low turnouts in EU elections. This institution also controls budgetary actions for the European Union. The members of the European Parliament are elected every five years. The European Parliament has three places of work being Brussels (Belgium), Luxembourg and Strasbourg (France).

History and Development

The European Parliament was established in 1952, as the Common Assembly of the European Coal and Steel Community (ECSC) and renamed the European Parliamentary Assembly in 1958. Later in 1962, it was renamed the European Parliament. The evolution of the Parliament is closely linked to a succession of treaties culminating in the current Lisbon Treaty. These treaties define the rules and scope of the Union and have turned the ECSC of old into what is now known as the European Union.

The European Parliament was originally created as an appointed body under the Treaty of Rome. It has acquired greater standing since it became a directly elected body in 1979. Under the Single European Act (1986) it was given the power to veto the entry of a new member state, and under the Maastricht Treaty (1992) it acquired the power of co-decision with the Council of the European Union. Also, The Lisbon Treaty (2007) extended the number of policy areas covered by co-decision. The current Members of European Parliament (MEPs) were elected during the 2009 elections and will serve until 2014.

Over the years, events like for example the introduction of the euro and European enlargement have left their impact on the European Parliament, its powers and its composition.

In the past, the European Parliament was labelled as a 'multi-lingual talking shop'. But this is no longer the case, as the EP is now one of the most powerful legislatures in the world both in terms of its legislative and executive oversight powers.

Roles

The European Parliament mainly has three roles:

Debating and Passing European laws, with the Council

In many areas, the European Parliament works together with the Council to decide on the content of EU laws and officially adopt them. This process is called Ordinary Legislative procedure. Parliament also must give its permission for other important decisions to be taken, such as allowing new countries to join the European Union.

Scrutinising other EU institutions, particularly the Commission, to make sure they are working democratically

Influence is exercised by the Parliament over other European institutions. When a new Commission is appointed, the members cannot take up office until there is an approval from the Parliament. The Parliament also, can call on the Commission to resign during its period in office.

The Parliament keeps checks on the Commission. It continuously examines reports that the Commission produces and also questions Commissioners. MEPs also, look at petitions from citizens and sets up committees of inquiry.

Also, when national leaders meet for European Council summits, Parliament gives its opinion on the topics on the agenda.

Debating and adopting the EU's budget, with the Council

Parliament has a committee that oversees how the budget is used up, and every year passes judgment on the Commission’s handling of the previous year’s budget.

European Commission

The European commission is the EU’s executive body and considers the interests of all Europe, and not the interests of individual countries. It proposes new legislation to the European Parliament and the Council of the European Union. It ensures that EU law is correctly applied by member countries. The commission has its head quarters in Brussels, and representations in all EU member countries.

History and Development

ec.europa.eu/index_en.htm

The European commission has been through a number of changes under various Presidents where it comes to its composition and its powers.

The first commission originated in 1951 which involved nine-member High Authority under President Jean Monnet. The High authority was the administrative executive of the European Coal and Steel community (ECSC). In 1958 the Treaties of Rome created two new communities: European Economic community (EEC) and the European Atomic Energy community (Eurotom). The reason for change in name was the new relationship between the Executive and the Council. Some states including France did not completely agree regarding the power of the High Authority and wished to limit it, giving more power to the Council rather than the new executives.

The three bodies, together called the European Executives, co- existed until 1 July 1967. However afterwards under the Merger Treaty they were combined into a single administration under President Jean Rey. The Rey Commission completed the community’s custom union in 1968 and campaigned for a more powerful elected European Parliament.

One of the most remarkable commissions was that headed by Jacques Delors. It was considered as giving the community a sense of direction and dynamism. In 1999 the Amsterdam Treaty had raised the commission’s powers. Powers were strengthened again with the Nice Treaty in 2001, giving the President more power over the composition of the Commission.

Roles

The commission’s main roles are to:

Set objectives and priorities for action

Propose legislation to Parliament and Council

Manage and implement EU policies and the budget

Enforce European law (along with the Court of Justice)

Represent the EU outside Europe

Involves itself in trade agreements between EU and other countries.

Before making a proposal, the Commission consults widely so that stakeholders' views can be taken into account. An assessment of the potential economic, social and environmental impact of a particular piece of legislation act is published with the proposal. The principles of subsidiarity and proportionality mean that the EU may legislate only where action is more effective at EU level than at national, regional or local level.

EU Council’s Role

Summit of the Heads of Government, headed by the President of the European Council

Gives the necessary direction for the development and establishes the general objectives and priorities.

It will not legislate

It is based in Brussels

Council of European Union

Serves as a legislator together with the parliament

Exerts the budgetary power together with the parliament

Makes sure there is coordination of the broad economic and social policy

Sets out guidelines for the common foreign and security policy (CFSP)

Concludes international agreements

Based in Brussels

In June 2002, the EU permitted an accounting regulation which requires that all EU listed companies should adopt IASB standards in their consolidated statements by 2005. According to Zeff (2003, pp.879-892), in his journal ‘US GAAP confronts the IASB: Roles of the SEC and the European commission’ the ‘European Commission (EC) has started to have a screening capacity for newly issued IASB standards, so that the EC can be satisfied that they are acceptable for use within the E.U’.

The screening is done both at "technical" and "political" levels. At the technical level, private interests in Europe have established the European Financial Reporting Advisory Group (EFRAG), which has a Technical Expert Group (TEG) composed of accounting specialists from audit firms, companies, and universities. TEG gives advice to the EC on the technical aspects of a standard. The TEG passes its views directly to the IASB.

At the political level, the EC is informed and advised by representatives from the fifteen E.U. governments, who form an Accounting Regulatory Committee (ARC). Once a standard is issued by the IASB, the EC will await the receipt of formal advice from the TEG and will then confer with the ARC before deciding whether the new standard is to be required of EU companies.

According to Zeff, various steps have been taken to improve the process of securing compliance with financial reporting norms. In recent years, the EC has stirred a process for raising the standard of financial reporting regulation in the securities markets amongst the Member States. However this process has been slow. A statement of principles of enforcement on accounting standards in Europe is issued by Committee of European Securities Regulations (CESR). Finally the process of securing conformity with accounting standards comes within the jurisdiction of each member state.

Endorsement process

Only IASs and interpretations issued by the IASB and the IASC can be endorsed. They can only be endorsed by the EC following a specified procedure. This involves input from a variety of sources. There needs to be extensive analysis and public commentary prior to adoption of new accounting standards. Several committees and interest groups are included in the endorsement process.

This process consists mainly of:

The International Accounting Standards Board (IASB) issues a standard

The European Financial Reporting Advisory Group (EFRAG) holds consultations with interest groups

EFRAG delivers its advice to the Commission whether the standard meets the criteria of the endorsement. EFRAG also prepares in cooperation with the Commission an effect study about the potential economic effects of the given standard’s application in the EU.

The Standards Advice Review Group (SARG) issues its view whether EFRAG’s endorsement advice is well-balanced and objective.

Based on the advice of EFRAG and the opinion of SARG, the Commission prepares a draft endorsement Regulation. This involves:

The Accounting Regulatory Committee (ARC) set up Regulation votes on the Commission proposal. If the vote is favourable, the European Parliament and the Council of the European Union have 3 months to oppose the acceptance of the draft Regulation by the Commission

If the European Parliament and the Council give their favourable opinion on the adoption or the 3 months have passed without opposition from their side, the Commission adopts the draft regulation. 

c. After adoption, it is published in the Official Journal and enters into force on the day laid down in the Regulation itself.

Advantages

Faster and more efficient than parliaments

Technical experts involved

Consultation process – transparent process

Disadvantages

Time consuming – however it is improving

Political involvement

Comes after the fact

Controversy

EU has been criticised since it refused to endorse portions of IAS 39 Financial Instruments. The portion rejected referred to certain hedge accounting rules in IAS 39 that were fiercely opposed by some commercial and Central European Banks.

IFRS endorsement process