Relations with Europe

If things were going relatively well in relations with the US, the reverse was the case with Europe. Many people in Europe had been totally ignorant of the existence of international accounting standards before the European Union’s decision to adopt them, formalized in a 2002 Regulation. So while the people managing the IASB felt that they were part of a long-running process in which the individuals had been involved for years, their new ‘clients’ thought that the standards had only become significant with EU adoption. There was a mismatch of perceptions that led Europe to feel ignored by the IASB and the IASB to feel Europe was trying to take them over.

On top of that, the European Commission had set up machinery for endorsement of IFRS that gave endless opportunities for politics and revisiting old decisions. The EU Regulation requiring use of IFRS overrides national legislation, but it requires that each and every standard receives formal approval by the EU (it created its Accounting Regulatory Committee, consisting of representatives of member states) so that it becomes part of EU law in itself. The Commission approved the creation of a private sector advisory body, the European Financial Reporting Advisory Group (EFRAG). This body does detailed work on standards and liaises with the IASB and subsequently advises the Commission on the suitability of an IFRS for endorsement. The IFRS is submitted for approval to the Accounting Regulatory Committee (ARC), ...

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