Mr Philippe Maystadt Special Advisor European Commission Rue de la Loi 200 B-1049 Bruxelles. 30 September Dear Mr Maystadt

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Mr Philippe Maystadt Special Advisor European Commission Rue de la Loi 200 B-1049 Bruxelles 30 September 2013 602/550 Dear Mr Maystadt Re: Draft Report Should IFRS Standards be more European?

[Institute of Public Auditors in Germany, Incorporated Association (IDW)] appreciates the opportunity to comment on your draft report Should IFRS Standards be more European?

Wirtschaftsprüfer are, among other things, entrusted with the performance of statutory audits of financial statements of business enterprises in Germany, including publicly listed companies.

At present, the European Union influence seems to be reduced because EFRAG, the national accounting standard setting bodies, the national and European supervisory authorities, the European users

1 Mr Philippe Maystadt Special Advisor European Commission Rue de la Loi 200 B-1049 Bruxelles 30 September /550 Dear Mr Maystadt Re: Draft Report Should IFRS Standards be more European? Mission to reinforce the EU s contribution to international accounting standards The Institut der Wirtschaftsprüfer in Deutschland e.v. [Institute of Public Auditors in Germany, Incorporated Association (IDW)] appreciates the opportunity to comment on your draft report Should IFRS Standards be more European?. The IDW represents over 12,000 Wirtschaftsprüfer (German Public Auditors), or about 86 % of all Wirtschaftsprüfer in Germany. Wirtschaftsprüfer are, among other things, entrusted with the performance of statutory audits of financial statements of business enterprises in Germany, including publicly listed companies. We welcome the objective of the report, i.e. reviewing European structures regarding the possibilities to exert an increased influence on the IASB in setting high quality global accounting standards. At present, the European Union influence seems to be reduced because EFRAG, the national accounting standard setting bodies, the national and European supervisory authorities, the European users associations, etc. often adopt different and even opposite positions on the IASB s proposals, which they then respectively notify to the IASB. We doubt whether it will ever be possible to achieve a single European position which can be voiced in the international accounting debate. Nevertheless, it is worth exploring both whether the existing European system for the adoption of IFRS is

2 Page 2/5 IDW Comment Letter to Mr Philippe Maystadt, European Commission still appropriate and how best to improve European structures so as to optimise the coordination of European positions and thus increase the effectiveness of European influence on the IASB. Is the existing European system for adopting IFRS still appropriate? The IDW supports the European commitment to global quality standards (IFRS). In our view, the use of IFRS as a common language for financial reporting is important for Public Interest Entities (PIEs) and all the various stakeholders in terms of comparability, transparency and the informative value of financial statements. The adoption of IFRS in 2005 was, and is still, a key prerequisite for enhancing investors and other stakeholders confidence in financial information and the EU regulated financial markets. Currently, the IAS Regulation grants the EU the power not to adopt certain provisions within a standard or an entire standard ('carve-out'), but it does not authorise the EU to change the text published by the IASB ('carve-in') or to draft an alternative standard. In our view, this standard by standard adoption procedure (with the possibility of either accepting or refusing a standard produced by the IASB) should be retained as proposed in the report. Further, the report proposes two additional adoption criteria, i.e. accounting standards should not endanger financial stability and not hinder the economic development of the region. We agree with these criteria to the extent that they are intended only as supporting the existing general principle that accounting standards have to be in line with the European public interest. However, we would not agree if these additional criteria are to be used to open the door to altering standards that seem to be merely inconvenient for specific political reasons, thereby impairing the transparency and the informative value of financial statements. This should be avoided. For example, the additional provisions in IAS 39 on reclassification of financial assets caused by the financial crisis have shown that when accounting requirements are changed only as a means of achieving a political aim the resulting diminished transparency and quality of financial statements give rise to a lack of confidence in the financial markets on the part of financial statement users.

3 Page 3/5 IDW Comment Letter to Mr Philippe Maystadt, European Commission How could European structures be improved in order to get a better coordination of European positions? Of the proposed options to address the problems raised by the current structure of EFRAG the IDW prefers option 1, i.e. transforming the EFRAG. We have much sympathy for the idea of re-defining the role of EFRAG and therefore, developing a new and more appropriate structure. The positions adopted by the EFRAG should not be based exclusively on a technical analysis of the standards, but should always take into consideration its economic and political implications. All these aspects ought to be comprehensively considered in one committee being in authority (i.e. the high-level Board). Further we support the proposal that EFRAG remains a private organisation; however it will need to combine both public and private interests at European level. Regarding the proposed new structure of EFRAG, we have the following comments: a) Role and composition of the high-level Board: We support the proposed role of the Board, i.e. approval of both comment letters addressed to the IASB as well as of adoption opinions prepared by the (re-structured and renamed) TEG. The high-level Board should be the only decision-making body within EFRAG and should follow the policy to achieve consensus-based decisions. In respect of the composition of the high-level Board, we do not totally agree with the report s proposals: Contrary to the objective that EFRAG should cover both public and private interests at European level, the influence of public institutions proposed within the high-level Board is overwhelming. European public institutions as well as national public institutions are represented in the first and third of the proposed categories, i.e. they would have nearly two-thirds of all seats. In contrast, stakeholders from the private sector are highly underrepresented from our point of view although it is they who are mostly affected by the regulation of financial reporting and their representatives could bring much practical expertise to the Board s discussions. The composition of the high-level Board needs to be more balanced. Therefore, we propose to double the number of stakeholders to address this imbalance. For example, there should be at least one seat provided to a representative of the preparers of listed companies. In addition, one

4 Page 4/5 IDW Comment Letter to Mr Philippe Maystadt, European Commission representative of the banking sector as well as one representative of the insurance sector should always be a member of the high-level Board. The members of the accounting profession should only be proposed by the Fédération des Experts-comptables Européens (FEE) as it is the only organisation that represents the entire European accounting and auditing profession. If other organisations such as the EFAA representing solely one specific sector (in the case of EFAA, the European accounting and auditing profession for small and medium-sized entities) then all of these specific organisations would need to be involved in putting forward the two members for the high-level Board. It is a fact that not all European national standard setting bodies can be represented in the high-level Board of EFRAG because the number of seats within the third pillar is to be limited to six. However, to ensure that all national standard setting bodies will have the possiblity of being a member of the high-level Board at one time, a rotation mechanism will be needed. If the national standard setting bodies of the largest Member States would not be completely excluded from such a rotation mechanism, the acceptance of EFRAG might be supported. In general, we believe that a nomination committee ought to be envisaged. This nomination committee should identify potential members of the high-level Board and, in so doing, ensure its composition is well-balanced. Ideally, members should be from different geographical and professional backgrounds combining technical knowledge as well as political skills. Members of the nomination committee could be nominated and appointed by the General Assembly. b) Role and composition of the General Assembly: According to the report s proposals, the members of the high-level Board should be appointed by a General Assembly. However, the report contains no further explanations; neither as to its role, nor to its composition. An important role of the General Assembly could also be the nomination and appointment of the members of the nomination committee, as we have suggested above. Moreover, we believe that it could be useful to establish an oversight committee within EFRAG which would monitor the due processes but not be able to influence the decision-making process within the high-level Board. The members of this oversight committee could also be nominated and appointed by the General Assembly.

5 Page 5/5 IDW Comment Letter to Mr Philippe Maystadt, European Commission c) Role, structure and composition of the Technical Expert Group (TEG): In our view, the TEG should no longer exist in its current structure and under its current name. Instead of having one TEG we would like to propose establishing a system comprising several permanent but predominately project-specific working groups, each of them composed of staff seconded by national standard setting bodies, some specific experts and practioners and EFRAG s own staff. This constellation would allow sufficient flexibility, and, at the same time, ensure that the best staff and experts are involved in preparing the projects submitted for approval to the high-level Board. However, if the TEG will be re-structured as proposed under option 1 in the report, we would prefer that this group is at least renamed, in order to avoid confusion and to demonstrate that the old structures no longer exist. In addition, further guidance describing the role and functioning of the restructured TEG in a more precise manner would be useful. We would be pleased to answer any questions you may have or discuss any aspects of this letter. Yours sincerely Klaus-Peter Naumann Chief Executive Officer Ulrich Schneiß Deputy Technical Director Accounting and Auditing

Dear Dr. Arbex

Dear Dr. Arbex Dr. Nelmara Arbex Deputy Chief Executive Guidance Support & Innovation Global Reporting Initiative (GRI) PO Box 10039 1001 EA Amsterdam The Netherlands By E-mail: G4@globalreporting.org 25.09.2012 482/622