The Development and Status of Enforcement in the European Union

Abstract

Enforcement's task is to protect capital markets by ensuring proper application of accounting standards. This paper examines how this goal is pursued on a European level and explores the different structures and processes of the national enforcement agencies. Considerations will be presented for improving the effectiveness of enforcement in Europe.

Acknowledgement

This paper previously appeared in the German language in Betriebswirtschaftliche Forschung und Praxis [61(6), pp. 599–620]. The kind permission of NWB Verlag to publish this translated version is gratefully acknowledged.

Notes

The author is the vice president of the Deutsche Prüfstelle für Rechnungslegung e.V. (the German Financial Reporting Enforcement Panel), Berlin. In this paper he provides his personal views.

See paragraph 12 of the IFRS Framework as well as IAS 1 paragraph 7; the German Accounting Standards Board (GASB) included accountability in its draft for the framework (which was subsequently not pursued) as an additional accounting goal.

The section is with reference to Berger (2008a).

See Kapitalaufnahmeerleichterungsgesetz (KapAEG) dated 20 April 1998, Bundesgesetzblatt (BGBl.) Nr. 22 dated 20 April 1998, pp. 707–709.

See the Final Report of the Committee of Wise Men about the Regulation of European Securities Markets (Lamfalussy Report); located at: ec.europa.eu.internal_market/securities/docs/lamfalussy/wisemen/final-report-wise-men_de.pdf

See Regulation (EG) No. 1606/2002 of the European Parliament and the Advice dated 19 July 2002 relating to the use of International Accounting Standards, ABlEU No. L 243 dated 11 September 2002, pp. 1–4.

Lohwasser also provides further references.

See more detail at: www.cesr-eu

See CESR-Charter Art. 4.3: ‘The Committee will a) take decisions such as CESR guidelines, recommendations and standards that the members will introduce in their regulatory practices on a voluntary basis’, located at: www.cesr-eu

CESR's review of the implementation and enforcement of IFRS in the EU (November 2007), located at: www.cesr-eu

For more details see CESR's review of the implementation and enforcement of IFRS in the EU (November 2007), p. 7.

It was criticized that Germany had no legal ability to require companies to issue corrected financial statements. Germany does not agree with this critique due to its different interpretation of principle 16 of Standard No. 1.

The European Parliament's Directive 2004/109/EG and the Advice to Harmonising Transparency relating to information of security-issuers whose equity securities are approved for trade in a regulated market and to the change in the Directive 2001/34/EG dated 15 December 2004, ABlEU Nr. L 390 dated 31 December 2004, p. 38.

Law to control financial statements of companies (Bilanzkontrollgesetz – BilKoG), BGBl. I Nr. 69 dated 20 December 2004, p. 3408.

See also Section 6.2.

See CESR's review of the implementation and enforcement of IFRS in the EU (November 2007), p. 19.

It has to relate to ‘an agency other than the central responsible agency’ in the meaning of Article 24, Section 1, Sentence 3 of the Transparency Directive. See also Section 6.2.

Decisions from IFRIC partially stem from inquiries from the EECS.

There it is stated: enforcers should periodically report to the public on their activities providing at least information on the enforcement policies adopted and decisions taken in individual cases including accounting and disclosure matters.

Switzerland is not a member of the EECS. It was included in this report due to the close economic ties and due to the fact that several companies are listed in Switzerland as well as in Germany.

This includes, among others, Italy, Spain, Portugal, France, Finland, Denmark, Greece, Cyprus and the Netherlands.

Including Spain, Italy, France, Portugal, Finland, Greece, Cyprus.

See the applicable regulation in the securities law or Wertpapierprospektgesetz (WpPG).

Regarding this controversial question, see Schön (2008) as well as the reply from Berger (2008b).

See OLG Frankfurt am Main dated 12 February 2007 – WpÜG 1/06, Der Betrieb, 60(16), pp. 909–911.

Due to the various processes that have to be coordinated in the two-tier German enforcement system, publishing the error can be subject to delays in some instances.

See OLG Frankfurt am Main dated 22 January 2009 – WpÜG 1 and 3/08, Zeitschrift für internationale und kapitalmarktorientierte Rechnungslegung, 9(3), p. 198.

See The Danish Securities Council: The Danish Securities Council's general considerations and deliberations on the assessment of materiality in relation to its financial reporting enforcement activities (March 2009), available in Danish language at: www.finansraadet.dk

Enforcers in France, Spain, Portugal, Denmark, Switzerland, Greece and Italy proceed in a similar manner.

Relating to the DPR/FREP procedures see Scheffler (2006).

From 1 July 2005 through 31 December 2008 32% of all errors identified by DPR/FREP related to the judgement used dealing with valuation issues.

Located at: www.pcaob.org/inspections/other/2008/12-05_Release_2008-08.pdf

See Financial Reporting Review Panel: Review Findings and Recommendations – 2008, p. 4, available at: www.frc.org.uk/frrp

See the related support to the government's draft of the BilKoG, in: Regierungsentwurf eines Gesetzes zur Kontrolle von Unternehmensabschlüssen (Bilanzkontrollgesetz – BilKoG), BT-Drucks. 15/3421 dated 24 June 2004, pp. 11–21.

The information from the different countries relates either to 2007 or 2008.

An example is EADS N.V., whose shares are traded in its home country, the Netherlands, as well as in France and Germany.

Located at: www.frep.info

Hoogervorst, Hans: The case for a European supervisor. Wilton Park Dinner Speech delivered by the Chairman of the Executive Board of the AFM (21 November 2008), p. 8, located at: afm.nl/corporate/default.ashx?folderid = 1098&downloadid = 11742

See Wymersch, Eddy: Preparing for the future. Speech by the Chairman of CESR delivered during the CESR Conference (23 February 2009), located at: www.cesr-eu

Additional information

Notes on contributors

Axel Berger

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