FEE (Fédération des Experts Comptables Européens - European Federation of Accountants)

1. Russian Corporate Governance Roundtable meetingMoscow, 11 November 2004ENFORCEMENT OF IFRS IN the EUHans van Damme – Vice President FEE FEE (Fédération des Experts Comptables Européens - European Federation of Accountants)

2. Outline of the Presentation • Background • Framework for High Quality Financial Reporting • Enforcement Bodies • Conclusion

3. Background • FEE has extensively contributed to the thoughts on endorsement and enforcement • First FEE study goes back as far as 1999 • Contribution to CESR’s considerations on the subjects in drafting phase • Commented on CESR standard No 1 and 2 • FEE’s comments have had their influence Situation in the EU: IFRS need to be enforced by 2005

4. Background - 2001 FEE StudyEnforcement Mechanisms in Europe • Oversight systems: differ widely • Stock exchange • Regulator • Governmental department • Review Panel • Most countries: • 2001 no enforcement of financial statements • 2003 changing • 2005 getting in place • Not much review of substance or systematic review • Foreign listings: usually relied on enforcement body in the home country

5. Background - FEE 2002 Discussion Paper on Enforcement: Key Messages • Effective enforcement to be in place by 2005 • Enforcement to be built on effective national enforcement bodies: • No enforcement body  FRRP (review panel) • EU Member States to review arrangements for enforcement • European coordination on enforcement involving all enforcement bodies (securities regulators and review panels) • Enforcement should not result in standard setting • Pre-clearance: only where cost effective, with full involvement of auditors and management (only where no IFRS or IFRIC interpretations exist)

6. FEE Discussion Paper Enforcement is a system to whenever possible prevent, and thereafter identify and correct, material errors or omissions in the application of IFRS in financial information and other regulatory statements issued to the public. CESR Monitoring compliance of the financial information with the applicable reporting framework Taking appropriate measures in case of infringements discovered in the course of enforcement The reporting framework mainly includes: the International Financial Reporting Standards endorsed by the EU The disclosure rules required by EU legislation Definitions of Enforcement

7. Background - FEE Discussion Paper on Enforcement – Scope

8. Framework forHigh Quality Financial ReportingThe Corporate Reporting Supply Chain Company Executives Board of Directiors Audit Committees Internal Audit Independent Auditors Third-Party Analysts Investors & Other Stakeholders Standard Setters Market Regulators

9. Framework For High Quality Financial Reporting • All parties in the Corporate Reporting Supply Chain have to assume their proper responsibilities and demonstrate ethical behaviour • Restoring confidence in capital markets should be the aim of all parties involved • Need for Framework for High Quality Financial Reporting (See: FEE Discussion on Enforcement of IFRS in Europe)

10. Framework for High Quality Financial Reporting • Proper financial accounting standards • Preparation by an effective and well resourced internal company accounting function • Internal audit and informed review by directors, Audit Committees or Supervisory Boards • Proper approval procedures of financial information by the body responsible within the company • External audit and external review subject to appropriate quality assurance systems • Effective enforcement bodies • Stock Exchanges with supportive listing agreements • Sponsors, advisers and investment bankers committed to high quality financial reporting • Investors, analysts, rating agencies and the financial press: clear ethical obligations to raise issues of dubious financial reporting

11. Enforcement Bodies • 1. Features of effective enforcement bodies • 2. Choice of model • 3. Coordination at European level • 4. Consistency • 5. Interpretation and implementation • 6. Interaction between auditors and enforcement bodies

12. Enforcement Bodies 1. Features of Effective Enforcement Bodies • Support for high quality corporate governance and external audit • High quality, expert, globally-consistent decisions on important issues • Freedom from bias • Transparency and clear procedures • Confidentiality and speed of action • Avoidance of making detailed accounting rules • Focusing resources • Rectification of defective financial information • Sanctions Relation with Corporate Governance – see FEE discussion paper September 2003

13. Enforcement Bodies 2. Choice of Model • Securities regulator or body constituted by stakeholders for the specific purpose (review panel) • Delegated power – official government body • Listed companies vs all IFRS companies • Timeliness: effective enforcement by 2005 • If no enforcement body exists: FEE recommends a review panel approach • Both models can co-exist in Europe – mixed model Why to consider others as well? • Enforcement of non-listed companies using IFRS • Not all enforcement bodies member of CESR • Review panel initiatives in a number of countries • Involvement other stakeholders • BUT, central role of CESR

14. Enforcement Bodies 3.European Enforcement Coordination (EEC) National Level European Level National Securities Regulators CESR Enforcement Subcommittee National Government National Review Panels And other enforcement bodies European Enforcement Coordination (EEC) (Partnership) National Stakeholders (including reporting entity) Consultative Forum Consultation with Stakeholders

15. Enforcement Bodies 4. Consistency Difficult issues: • Need to avoid system of case-by-base interpretations • Achieving global consistency • Consultation with IASB/IFRIC • Agree on decisions with other enforcement bodies • Making other preparers and auditors immediately aware • Formal status of the views expressed • Risk of different view from IASB/IFRIC

16. Enforcement Bodies 5. Interpretation and Implementation • Avoid making separate European rules • Enforcing existing standards • Consultation arrangements with the IASB, IFRIC, EFRAG, SEC and other enforcement bodies • Status of enforcement decisions • CESR Standard n° 1 • CESR proposed recommendations on transition to IFRS • IASB/IFRIC subsequent interpretation may differ from interim guidance • Enforcement bodies shouldn’t reduce existing flexibility contained in IFRS • Court interpretations of accounting standards • Clear distinction enforcement and standard setting

17. Enforcement Bodies 5. Interpretation and Implementation (2) Is there a need for European interpretations ? Advantages: • Addressing specific European and national circumstances • Temporary addressing topical issues • Avoiding risk of different decisions (auditor and company) • Assist IFRIC in forming interpretations Disadvantages: • Risk of creating European IFRS • Risk of stimulating other parts in the world to issue own interpretations • Taking away responsibility companies and auditors • Not possible to have interpretations for all situations • Risk of worldwide inconsistency

18. Enforcement Bodies 5. Interpretation and Implementation - Pre-clearance • Only when cost effective • Full involvement Board of Directors and auditors • Limited to issues where IFRS or IFRIC interpretations are not available • Framework of common European principles, established by EEC • Not all enforcement bodies need pre-clearance mechanisms • Comparison with expost system • CESR Level 3 Consultation Paper

19. Enforcement Bodies 6. Interaction Auditors and Enforcement Bodies • Good corporate governance • Auditors are not the first line of defence: it is the responsibility of directors and management to prepare proper financial reporting information • Directors and management are also responsible for additional and more detailed information to the enforcement bodies • If requested, the auditor can prepare a special report • Complaints to the audit regulator  no « double jeopardy »

20. FEE Discussion Paper on Enforcement Key Messages • Effective enforcement to be in place by 2005 • Enforcement to be built on effective national enforcement bodies: • No enforcement body  FRRP (review panel) • EU Member States to review arrangements for enforcement • European coordination on enforcement involving all enforcement bodies (securities regulators and review panels) • Enforcement should not result in standard setting

21. Russian Corporate Governance Roundtable meetingMoscow, 11 November 2004ENFORCEMENT OF IFRS IN the EUHans van Damme – Vice President FEE FEE (Fédération des Experts Comptables Européens - European Federation of Accountants)

22. Background May 2001 FEE Study – Enforcement Mechanisms in Europe April 2002 FEE Discussion Paper on Enforcement of IFRS in Europe June 2002 IAS Regulation – Central role of the Commission, CESR and Member States October 2002 CESR - Proposed SOP – Principles of Enforcement of Accounting Standards in Europe March 2003 CESR Standard n° 1: Enforcement of Standards on Financial Information in Europe 10 Oct. 2003 FEE Round table on Enforcement Nov. 2003 FEE Discussion Paper European Enforcement Coordination - Coordination at Europeal Level of National Enforcement Mechanisms April 2004 CESR Standard n° 2: Coordination and Enforcement