CESR published today its advice to the European Commission “CESR’s advice on the equivalence of Chinese, Japanese and US GAAP” (Ref. CESR/08-179).
The Commission Regulation (EC) No 1569/2007 “Regulation establishing a mechanism for the determination of equivalence of accounting standards applied by third country issuers of securities pursuant to Directives 2003/71/EC and 2004/109/EC of the European Parliament” (“the Regulation on the mechanism”) published on 18 December 2007, lays down the conditions under which the GAAP of a third country may be considered equivalent to IFRS adopted pursuant to EC Regulation 1606/2002 in accordance with a definition of equivalence set out in article 2 (see Notes for Editors). The Regulation also sets out in article 4 the conditions for the acceptance of third country accounting standards that are the subject of an appropriate convergence or adoption programme for a limited period expiring no later than 31st December 2011.
On the basis of this new Regulation, CESR received a mandate from the European Commission in December 2007 requesting a technical advice on the equivalence of Chinese, Japanese and US GAAP. In accordance with this mandate, CESR provides, in this advice, details of its work and conclusions concerning the equivalence of these three GAAPs.
CESR’s advice was subject to consultation with market participants. CESR has not issued a feedback statement on this consultation but has included comments raised by respondents into the final advice. The responses to the consultation are available on CESR website in the section “Consultation”.
CESR’s recommendations in the technical advice are the following:
- CESR recommends the Commission find US GAAP equivalent to IFRS for use on EU markets.
- CESR recommends the Commission consider Japanese GAAP equivalent, unless there is no adequate evidence of the Accounting Standards Board of Japan (ASBJ) achieving to timetable the objectives set out in the Tokyo Agreement (see Notes for Editors).
- CESR recommends the Commission postpone a final decision on Chinese GAAP until there is more information on the application of the new Chinese accounting standards by Chinese issuers. CESR points out that the first complete reporting period under the new Chinese standards will only be for 2007 accounting periods. Consequently there is as yet no evidence available concerning the concrete implementation of the standards by companies and auditors. CESR believes that evidence of adequate implementation is important in the context of an outcome-based definition of equivalence. However, if the Commission were minded to allow Chinese issuers to use Chinese GAAP when accessing EU markets, CESR would recommend the Commission consider accepting Chinese GAAP according to article 4 of the Commission Regulation on the mechanism, until such time as there is adequate evidence to enable a decision to be made under article 2 thereof.
In line with some market responses, CESR intends to undertake additional work to assess whether Chinese GAAP has been properly applied by Chinese issuers and will communicate publicly on the outcome of such work at a time when appropriate evidence can be made available to it by the Chinese authorities.
