European Association of Cooperative Banks, Comité Européen des Assurances (in-
surance companies), European Association of Craft, Small and Medium-sized Enter-
prises, European Federation of Accountants and Auditors for small and medium-
sized enterprises (SMEs), Federation of European Securities Exchanges, and the
European Federation of Financial Analysts’ Societies. The first secretary general of
EFRAG is Paul Rutteman, a former technical partner in Ernst & Young with years of
experience in European harmonization.
The executive organ of EFRAG is its Technical Expert Group (TEG). This body
meets every month, under the chairmanship of Johan van Helleman, a former Shell
executive and latterly chairman of the Dutch standard setter. The TEG is the body
that deals with the day-to-day work of participating in IASB committees and dis-
cussing IASB literature. Although the TEG does not have a liaison member as such
on the IASB, Tom Jones, IASB vice chairman, has taken on responsibility for liaison
with them.
The procedure that has been worked out for endorsement is that the TEG will issue
its opinion on each IFRS when issued and submit this to the European Commission.
The Commission then assembles a committee of member state permanent represen-
tatives, called the Accounting Regulatory Committee (ARC). The ARC will then en-
dorse (or not) the standard. At the same time, the European Parliament has the right
to intervene, if it wishes, during a three-month period. If the Commission is not
happy with the ARC’s deliberations, it has the right to refer an issue to the Council
of Ministers.
Clearly, the machinery for transmission of IFRS into EU law leaves plenty of
room for manipulation, and it remains to be seen whether IFRS will have a clear pas-
sage from the IASB into the EU. TEG chairman Johan van Helleman, in an interview
inWorld Accounting Report, has commented: “There is a strong feeling that we
should take IFRS as they are. We could provide negative advice to the European
Commission, but that should be a very great exception. We hope rather to have a Eu-
ropean influence before the standards become final.”^2 As far as the ARC is con-
cerned, it is supposed to limit itself to taking a position as to whether or not a partic-
ular IFRS is compatible with European Directives. Clearly, it would be very
damaging to IFRS if the EU were to start amending them for use in Europe.
(f) Future Harmonization. It may be that when the European Commission decided
to adopt a stance of requiring the use of IFRS by listed companies, this was seen as
an extension of their 1995 position, and the intention was to leave national GAAP un-
touched in the member states. However, it now seems unlikely that this will be the
case. The effect of introducing IFRS looks likely to be to pull national GAAP toward
IFRS and in effect introduce another wave of full harmonization, potentially affect-
ing all businesses, from the smallest to the largest.
This tendency can be seen in a number of ways. Commentators have observed that
unlisted companies, particularly the larger ones, will want to adopt IFRS in order not
to be seen as second-class citizens. Countries such as France are planning to leave
unlisted companies that prepare consolidated accounts with a choice of IFRS or
French GAAP for the group accounts. Just as many U.S. companies that are not SEC
registrants follow full U.S. GAAP, so it is expected that the same reasons that moti-
17 • 10 EUROPEAN HARMONIZATION(^2) World Accounting Report, November 2001, p. 15.