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November 02, 2020 04:54 PM

Update from the EAA Stakeholder Reporting Committee – Response to the Ad Personam Mandate of EFRAG Board President Jean-Paul Gauzès on Non-Financial Reporting Standard Setting

Posted by Begoña Giner, Laura Girella and Lúcia Lima Rodrigues, on behalf of the EAA Stakeholder Reporting Committee (EAA SRC)

In response to the letter of Mr. Gauzes, EFRAG Board President, on the Ad Personam Mandate on Non-Financial Reporting Standard Setting, dated 1 October 2020, the Stakeholder Reporting Committee of the European Accounting Association (“the SRC”) issued a response letter (see attached PDF file) outlining our position in relation to the issues raised therein.

Our response states clearly that academics should be more involved in the standard setting process and that consideration of published academic research (both ex ante and ex post) is essential to ensure its legitimacy. Moreover, we also clarify that our response should not be understood as implicitly agreeing, or disagreeing, to the fundamental decision to establish a new European standard setter as this is not in the scope of the Consultation.

Regarding the specific questions, we refer to the importance of having a strong due process, based on three fundamental principles – transparency, full and fair consultation with stakeholders, and accountability of the choices made. Such process requires efforts to encompass all stakeholders, considering the different interest groups and their geographic locations. We highlight that setting up a fair and transparent European due process in this field requires attention to the findings of the academic research on a specific subject area in consideration.

In relation to the possible involvement of relevant European institutions and authorities, as well as national public authorities we suggested that ESMA and others could cover a key role. The same is for national accounting standard setters, even though it is important for these to guarantee the adequate expertise on non-financial reporting topics. 

In the EAA SRC’s opinion the new standard setting initiative has to be conceived as a public-private partnership, where the private sector is directly involved in the standard setting work, under the premise that those making the standards are independent, whilst the public entities have a fundamental role of direction providers and oversight.

Also SMEs should be adequately represented and taken into consideration.

In terms of cooperation with existing standard setters and other initiatives, we support the view that it is in the interest of entities and stakeholders to have a common set of rules for NFR. Thus, if an EU standard-setter is created, standards should align to the extent possible with international ones. Otherwise, it would only increase complexity for preparers and users and, likely, impair global harmonisation.

We also highlight the need to ensure an appropriate coordination between financial and non-financial reporting. In particular we refer to the operationalisation of the double materiality concept in both domains, and the need to consider intangibles and especially the unaccounted ones. 

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