The Role of the IASB and auditing standards in the aftermath of the 2008/20091 financial crisis

European Law Journal

Volumn 16, Issue 5, 2010, Pages 604-623

  Ojo, Marianne ^a  

^a UNIVERSITY OF BREMEN   (Germany)

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[No Author keywords available]

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EID: 77956029072     PISSN: 13515993     EISSN: 14680386     Source Type: Journal    
DOI: 10.1111/j.1468-0386.2010.00525.x     Document Type: Article

References (81)

1. It is acknowledged that the recent financial crisis broke out in 2007. Hence reference will be made to 2007 in relation to incidences prior to the financial crisis.
2. http://www.iasplus.com/restruct/euro2009.htm,http://ec.europa.eu/commission_barroso/president/pdf/statement_20090225.pdf Report of the High Level Group on Financial Supervision (February 2009), available at and particularly Brief Summary of the De Larosiere Report, available at , at 3.
3. Brief Summary, ibid, at 2.
4. This is the tendency for periods of financial and economic downturns or booms to be further exacerbated. Certain economic or financial policies could also be pro-cyclical; eg Basel II's pro-cyclical effects have been criticised.
5. EU Supervision Report Criticises IASB, available at http://www.iasplus.com/restruct/euro2009.htm.
6. A situation which arises where disparity exists between the duration of maturity of assets and liabilities. It could occur where the duration of maturity for liabilities exceeds that of assets (short term) and also where the duration of term for assets exceeds that of liabilities (medium and long term). For example, where an undertaking possesses more short-term liabilities than short-term assets or more assets than liabilities for medium- and long-term obligations. The disparity between the periods of maturity for assets and liabilities could determine the state of the company's liquidity.
7. http://ec.europa.eu/internal_market/finances/docs/de_larosiere_report_en.pdf. Report, at 43, available at The High Level Group proposed, a fundamental review of the Basel II rules' with the Basel Committee of Banking Supervisors being called upon to make amendments to such rules for the purpose of increasing minimum capital requirements in a gradual manner, reducing pro-cyclicality through the facilitation of dynamic provisioning or capital buffers, introducing more stringent requirements for off balance sheet items, introducing stricter rules for the management of liquidity, and consolidating rules for banks' internal control and risk management; see Report of the High Level, op cit n 2 supra.
8. http://ec.europa.eu/internal_market/company/docs/enron/ecofin_2004_04_enron_en.pdfA First EU Response to Enron Related Policy Issues, available at at 3.
9. R. Ball International Financial Reporting Standards (IFRSs): Pros and Cons For Investors, 2006 Accounting and Business Research International Accounting Policy Forum 11.
10. http://www.iasplus.com/restruct/euro2009.htm,http://www.iasplus.com/europe/0906mccreevy.pdf.International Financial Reporting Standards in Europe: Commissioner McCreevy Comments on Accounting and Financial Crisis' Seeks Loss Provisioning Reforms, available at and Speech by C McCreevy, Some Aspects of Economic and Financial Crisis, available at.
11. International Financial Reporting Standards in Europe: McCreevy Seeks Loss Provisioning Reforms, available at http://www.iasplus.com/restruct/euro2009.htm
12. Regulation (EC) No 1606/2002 on the application of international accounting standards, [2002] OJ L243/1, Recital 5.
13. The difference between what users of financial statements, the general public perceive an audit to be and what the audit profession claim is expected of them in conducting an audit.
14. Ball, op cit n 10 supra, at 6 and 17.
15. Regulation 1606/2002, n 14 supra, Recital 7.
16. Collectively referred to as the 'Founding Fathers' or member body organisations. See the website available at http://www.efrag.org/content/default.asp?id=4103.
17. the website available at http://www.efrag.org/content/default.asp?id=4103.
18. Working Arrangement Between European Commission and EFRAG, available at at 1http://www.efrag.org/images/Efrag/EFRAG-EC%20Working%20Arrangement.pdf.
19. the website available at http://www.efrag.org/content/default.asp?id=4104.
20. The inability of the reporting requirements to guarantee the required level of transparency and comparability.
21. On the annual accounts of certain types of companies.
22. On consolidated accounts.
23. On the annual accounts and consolidated accounts of banks and other financial institutions.
24. On the annual accounts and consolidated accounts of insurance companies.
25. Recitals 1-3 of Regulation 1606/2002, n 14 supra.
26. Regulation 1606/2002, See ibid, Recital 4.
27. IASB/IASC Foundation Response to April 2009 G20 Recommendations, available at http://www.iasb.org/NR/rdonlyres/3E1B44D3-DE0C-4684-905F-51CD0C70BDB5/0/UpdatedAprilG20Matrix21April.pdf.
28. Under this Regulation, which mandates the application of IFRSs by all European listed companies, in their consolidated financial statements, as from 2005, the European Commission is to obtain advice from a technical committee before it endorses standards. See the website available at http://www.efrag.org/content/default.asp?id=4103.
29. Implementation of International Accounting and Auditing Standards: lessons learned from the World Bank's Accounting and Auditing ROSC (Report on the Observance of Standards and Codes) Program, 2004 (World Bank publications, at 5, available at http://www.worldbank.org/ifa/LessonsLearned_ROSC_AA.pdf.
30. A First EU Response, op cit n 9 supra, at 3.
31. This Standard is aimed at 'establishing principles for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items'. See IAS 39 Financial Instruments, Recognition and Measurement, available at http://www.iasb.org/NR/rdonlyres/1D9CBD62-F0A8-4401-A90D-483C63800CAA/0/IAS39.pdf.
32. P. Ebling, Conference on Financial Reporting in a Changing World (7-8 May 2009), at 2.
33. IFRS requirements are not only considered to be complex for users and those who prepare such rules, but are considered not to be fully inconsistent with other IFRS requirements. These issues are currently being addressed by the IASB and it has published two exposure drafts, with final drafts being expected by mid-2010.
34. P. Ebling, Overview of Accounting Issues Raised by the Crisis, Conference on Financial Reporting in a Changing World, n 44 supra, at 2.
35. M. Grande, Accounting and Procyclicality, Conference on Financial Reporting in a Changing World, n 44 supra, at 2.
36. Brief Summary of the De Larosiere Report, op cit n 2 supra, at 9.
37. IASB/IASC Foundation Response, op cit n 34 supra.
38. Communication from the European Commission on European Financial Supervision, available at,at 4.http://ec.europa.eu/internal_market/insurance/docs/2009-markt-docs/communication-2009-252_en.pdf
39. Basel II: Revised International Capital Framework, available at http://www.bis.org/publ/bcbsca.htm.
40. Enhancements to Basel II Framework, July 2009, available at http://www.bis.org/publ/bcbs157.htm.
41. Report of the High Level Group, op cit n 2 supra and particularly Brief Summary, op cit n 2 supra, at 8.
42. Global Plan Annex - Declaration on Strengthening the Financial System, available at http://www.number10.gov.uk/Page18929.
43. R. Lewis , D. Pendrill, Advanced Financial Accounting (Pearsons Education, 7th edn, 2004), at 53 and also B. Epstein and E. Jermakowicz, Interpretation and Application of International Financial Reporting Standards (John Wiley and Sons, 2008), at 12.
44. Lewis and Pendrill, at 54.
45. CESR Standard No 1 (Enforcement of Standards on Financial Information in Europe), at 9, available at http://www.iasplus.com/europe/0303cesrstandard1.pdf.
46. Brief Summary, op cit n 2 supra, at 9.
47. Strengthening CESR, CEBS and CEIOPS and Funding IASB/IASCF, EFRAG, PIOB, and CESR, available at http://www.iasplus.com/restruct/euro2009.htm.
48. Brief Summary, op cit n 2 supra, at 13-16 for Recommendations 16-24; at 8-12 for Recommendations 1-15 (Policy and Regulation Repair); at 17-18 for Recommendations 25-31.
49. Ball, op cit n 10 supra, at 17.
50. Report of the High Level Group, op cit n 2 supra and particularly Brief Summary, op cit n 2 supra, at 8.
51. The IASB Chairman addresses the European Parliament, available at http://www.iasb.org/News/Announcements+and+Speeches/The+IASB+Chairman+Addresses+European+Parliament+-+read+the+full+address.htm.
52. Lewis and Pendrill, op cit n 83 supra, at 50.
53. La Federation des Experts Comptables Europeens, Audit Liability in the EU (Federation des Experts Comptables Europeens Publications, 2001).
54. at 2 and 3 of the document available at http://www.cmvm.pt/NR/rdonlyres/542657CE-77E4-47A2-BF28-2A18F392C8C7/1559/norma1_inf_financeira.pdf.
55. CESR Standard No 1, n 85 supra, at 3.
56. Principle one states that 'the purpose of enforcement of standards on financial information provided by the issuers mentioned by principle 9 is to protect investors and promote market confidence by contributing to the transparency of financial information relevant to the investors' decision making process. With regard to financial statements, the above implies that enforcement contributes to a consistent application of the IFRSs in the EU financial regulated markets'. See Standard No 1, ibid, at 4.
57. The reporting framework includes the accounting and disclosure standards adopted by the EU'; see See the website available at http://www.cesr-eu.org/popup2.php?id=5788.
58. R. Turner, 'The Interaction between FSA Enforcement Action and Compliance: A Help or a Hindrance?', 2005 132 Journal of Financial Regulation and Compliance 142.
59. Federation des Experts Comptables Europeens, Enforcement Mechanisms in Europe: A Preliminary Investigation of Oversight Systems (Federation des Experts Comptables Europeens Publications, April 2001), at 4, available at http://www.fee.be/publications/default.asp?library_ref=4&content_ref=108.
60. A. Dutescu, Harmonization of International Accounting Standards in Europe, paper presented at the 3rd FCM Conference, Challenge Facing the Profession (Bucharest, 26-27 May 2003), at 3.
61. furthermore, Principle 17 of CESR Standard No 1 states that 'Actions taken by enforcers should be distinguished from sanctions imposed by the national legislation'.
62. CESR Standard No 1, n 85 supra, Principle 18.
63. J. Ernstberger, J. Hitz and M. Stich, Enforcement of Accounting Standards in Europe: Empirical Evidence for the Two-Tier Mechanism in Germany, Working Paper, Tilburg University, Working Paper Series WP2009-132, INTACCT Research Network,at 14. 2009.
64. CESR Standard No 1, n 85 supra, at 7.
65. Federation des Experts Comptables Europeens, op cit n 108 supra, at 8.
66. S. Cascino and J. Gassen, 'Do Harmonized Accounting Standards lead to Harmonized Accounting? German Italian Evidence' 2009, http://ssrn.com/abstract=1402206 SSRN Working Paper Series, at 11, available at and also
67. M. T. Bradshaw and G. S. Miller, Will Harmonizing Accounting Standards Really Harmonize Accounting? Evidence from Non US Firms adopting US GAAP, Working Paper 2007
68. Ernstberger et al, op cit n 113 supra, at 2.
69. R. Bittlestone, 'Now For the Quake Test', Financial Times, 6 November 2003.
70. S. Fearnley and T. Hines, 'Sour Taste of Bad Law', Financial Times, 25 September 2003, at 2.
71. the website available at, at 12 and 13. http://www.frc.org.uk/about/annual.cfm
72. CESR Standard No 1, n 85 supra, at 8.
73. Summary of CESR's Self Assessment of the Implementation of Standard No 2 on Financial Information - Coordination of Enforcement Activities' and Final Report on CESR's Peer Review of the Implemenatation of Standard No 2 on Financial Information, available at http://www.cesr-eu.org/data/document/09_188.pdf.
74. For greater in-depth analysis on how external auditor's expertise could be harnessed more effectively in proactive monitoring processes undertaken by regulators and standard setters, see M. Ojo, The Need For Greater Pro Active Involvement by Regulators in Financial Regulation and Supervision: Lessons From the Legal and General Case', Munich Personal RePEcArchive Working Paper, available at http://mpra.ub.uni-muenchen.de/13688/.
75. European Financial Reporting Advisory Group website, available at http://www.efrag.org/content/default.asp?id=4103.
76. Summary of CESR's Self Assessment and Final Report on CESR's Peer Review, op cit n 130 supra.
77. Ball, op cit n 10 supra, at 6 and 17.
78. FEE's statement 'A New Approach to Setting Global Financial Reporting Standards', at 2, available at,Of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards; see Recital 16 of the Regulation.http://www.iasplus.com/europe/0907feepolicy.pdf.
79. Also see CESR Standard No 1, n 85 supra, at 3.
80. For information on all the principles, see Also see Presentation by H. van Damme, FEE President, EC Conference, Financial Reporting in a Changing World, How to Keep Financial Reporting Relevant.
81. A full adoption of such IFRSs is recommended; see Need for Global and Principle Based Standards, available at http://ec.europa.eu/internal_market/accounting/docs/conference_052009/van_damme_en.pdf.