Pre-Clearance in European Accounting Law - The Right Step?

The responsibility for the accuracy and reliability of the annual and consolidated accounts of a company rests with a number of institutions such as the company's board, audit committees and the different types of standard setters. In recent years, also capital market authorities and their auxiliary troops have been entrusted with the task of ex post review of financial reports disclosed by listed companies. Fearing the danger of being exposed to a public discussion about the appropriateness of their financial reports, big market players have voiced the desire to institutionalise the possibility to obtain individual case-related statements or indications via “no action letters” on the general approvability of certain accounting measures from the capital market authorities. This claim for a so called “pre-clearance” is prima facie supported by positive experiences in the U.S., where the SEC's authority to issue statements encountering ambiguous cases in accounting law has gained great factual importance. However, as a comparison of the legal U.S. and European accounting framework shows, there exists a far higher degree of power division in European accounting law than it is the case in the U.S. As a consequence the extensive introduction of pre-clearance threatens to fall foul of the institutional structure of disclosing companies, their rapport with the statutory auditors and the courts' control function. At the same time, capital market authorities and their financial reporting review panels would master less and less their genuine task of effectively persecuting clear reporting violations