Majority of European investment funds do not use IFRS

Findings showed only a fifth of fund managers and administrators surveyed who currently have the option to apply IFR, did so.

A further 22% are using a combination of IFRS and other accounting standards, such as the local Generally Agreed Accounting Principles (GAAP) or US GAAP.

Ernst & Young's assurance asset management leader for Europe, Middle East, India and Africa Joost Hendriks said some major hurdles needed to be addressed before the harmonization of financial reporting for funds in Europe would be achieved.

He explained: "First, a European directive is needed to change local reporting regulations to mandatory IFRS reporting. Secondly, a convergence between IFRS and US GAAP is desirable, specifically the incorporation of the investment fund accounting guidance which already exists in US GAAP.

"This basis of accounts preparation is favored by the managers and administrators as it provides specific investment fund disclosures and exempts funds from disclosing other information, which they do not believe is relevant to investment funds."
Despite the low take-up of IFRS across Europe, the research found that 48% of managers and administrators believed that conversion had significantly improved the quality of financial reporting.

Currently, the European Commission allows member states to decide whether to mandate IFRS for regulated funds.

Hendriks added: "Industry trade organizations may be reticent to push for IFRS, but in the spirit of transparency it is clear that the industry should take advantage of the standards as the European Commission compels the industry towards greater harmonization and clearer reporting through directives such as the Undertakings for Collective Investment in Transferable Securities, the Markets in Financial Instruments and the Alternative Investment Fund Manager directives."