vate in the United States will encourage unlisted European companies to use IFRS
where they have that possibility.
Countries like the United Kingdom have a tradition of applying the same ac-
counting standards to all except the very smallest incorporated entities, irrespective
of listed status, and consequently, IFRS will in effect become national GAAP from
- The Accounting Standards Board in the United Kingdom has already started to
amend national standards to bring them into line with IFRS. In Spain, the idea of
adopting IFRS for all companies is under consideration.
The Commission has decided to facilitate this movement by proceeding with a fur-
ther set of amendments to the Fourth and Seventh Directives. Unlisted companies
that do not use IFRS, or are not allowed to do so (permitting use of IFRS by unlisted
companies is a member state option at this time), will have to comply with the Fourth
and Seventh Directives, which are not wholly compatible with IFRS. In June 2002,
the Commission put a proposal to the Council of Ministers to proceed to a new set of
amendments that would “bring EU accounting requirements into line with modern
accounting theory and practice.”^3
The intention is to remove inconsistencies with IFRS, as well as remove the pos-
sibility of hiding liabilities in off balance sheet vehicles, and to call for more risk dis-
closure. The proposal also includes a specification of the issues to be mentioned in
the audit report. However, the Commission observes that accounting is linked to tax-
ation in many member states, and therefore the proposed amendments are expressed
as Member State options, to permit individual states to move toward IFRS at “a pace
appropriate to that individual country.”
The Commission has also started to take an active interest in the idea of there
being a small company version of IFRS. Some countries, such as the United King-
dom, Canada, and New Zealand, have in recent years given derogations to allow
smaller entities to use simplified accounting standards. The UN Intergovernmental
Working Group of Experts on International Standards of Accounting and Reporting
(ISAR) has been working on an abridged form of IFRS to meet the needs of smaller
business. Such a set of standards would be helpful in an EU environment since it
would provide an intermediate stage that could be applied to all smaller business and
still remain compatible with full IFRS. The IASB has in the past been reluctant to go
down this path, but is expected shortly to start its own project in this area.
It is too early in the process to predict the outcomes with certainty, but it seems
very likely that the use of IFRS by listed companies will be the catalyst for very many
other enterprises to produce either full IFRS accounts, or national variants which are
very close to IFRS.
17.4 AUDITING. The Commission had significantly, but probably unintentionally,
affected the market for statutory audit as a result of the Fourth Directive. This caused
many medium-sized companies in countries like Germany and Belgium to fall into
the statutory audit net for the first time and therefore enlarged the market substan-
tially. In Germany, this led to the creation of a second tier of audit professionals
(vereidigte Buchprüfer) to be licensed to carry out audits on medium-sized compa-
nies, alongside the Wirtschaftsprüfer, because it was felt impossible to expand the
number of the latter sufficiently quickly to meet demand.
17.4 AUDITING 17 • 11(^3) European Commission press release IP/02/799 of June 3, 2002.