No Compliance Summary

In line with the European Commission's (EC) Regulation No. 1606 of 2002, listed companies in Italy are required to use International Financial Reporting Standards (IFRSs) as endorsed by the European Union for the preparation of consolidated accounts. The 2008 EC report on the implementation of Regulation No. 1606 of 2002 asserts that Italy also requires IFRSs in the annual accounts of listed companies. Application of IFRSs is required in the preparation of both annual and consolidated accounts for banks, issuers of widely distributed financial instruments, stockbrokers, fund management companies and regulated financial institutions. Insurance companies are required to apply IFRSs in the preparation of their consolidated accounts, but are prohibited from doing so for annual accounts. However, listed insurance companies that do not prepare consolidated statements are an exception, and are required to use IFRSs in preparing their annual accounts. For unlisted subsidiaries and associated companies of listed entities and other companies that prepare consolidated financial statements, the use of IFRSs is optional in both consolidated and annual accounts. Other companies must follow Italian Generally Accepted Accounting Principles (GAAP), which, according to a number of publications on the subject, differ from their international counterparts. According to a 2009 report by PricewaterhouseCoopers, Italy was planning on achieving partial convergence with IFRSs in the second half of 2009.

General Overview

On July 19, 2002, European Commission (EC) Regulation No. 1606 was passed by the European Parliament and the European Council of Ministers requiring the adoption of International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB). As a result of the Regulation, all European Union (EU) listed companies are required to prepare their consolidated financial statements based on IFRSs from January 1, 2005. A 2008 EC report on the implementation of Regulation No. 1606 of 2002 asserts that Italy requires IFRSs in the annual accounts of listed companies, and in the preparation of both annual and consolidated accounts for banks, financial companies, and listed insurance companies. Application of IFRSs for unlisted insurance companies is mandatory in the consolidated accounts and optional in the individual accounts. For unlisted companies belonging to IFRSs-reporting groups, the use of IFRSs is optional for both consolidated and individual accounts. Michela Cordazzo in her report “The Impact of IAS/IFRS on Accounting Practices: Evidences from Italian Listed Companies,” presented in 2008 notes that the introduction of IFRSs into Italy and the EU has meant significant changes for many of the affected companies. The report cites several studies which have demonstrated that the obstacles in implementing IFRSs within EU member states “are widely linked to the preparation of accounting information for taxation purposes by continental European companies which do not correspond to the investors/users financial reporting orientation of IAS/IFRS” (p. 4).

The 2007 European Committee of Central Balance Sheet Data Offices (CBSO) report indicates that in 2007, Italy's national accounting body released a proposal on the issue of accounting reporting for small and medium-size enterprises (SMEs). Although the report states that the proposal is in line with the IASB’s Exposure Draft on SMEs, "significant differences exist, like a mandatory format and the drop of alternative treatments. The proposal is currently on the hands of Italian government that will decide about its adoption during 2007/2008" (p. 17). However there is presently no publicly available information regarding the status of this adoption. Prior to the determinations on the proposal, companies in Italy which are not required or choose not to apply IFRSs, follow Italian Generally Accepted Accounting Principles (GAAP), which, according to a number of sources on the subject, differ from their international counterparts. A 2005 CBSO report elaborates on the differences between the international standards and the Italian requirements in greater detail. The Italian accounting standards, according to the 2007 CBSO report, are issued by the Organismo Italiano di Contabilità (OIC) with input and recommendations from the Companies and Stock Exchange Commission (CONSOB) and other stakeholders. The Deloitte IAS Plus website lists the following as the activities of the OIC: issue accounting standards to be used for those companies not applying international standards, not for profit entities, national and local public administrations, as well as to assist in the implementation of international standards.

Listed companies are subject to accounting requirements set by the CONSOB which, as mentioned above, requires application of IFRSs. The CONSOB has the powers to review financial information provided by the regulated entities in order to ensure compliance with the applicable requirements. The Bank of Italy (BoI), according to the Consiglio Nazionale dei Dottori Commercialisti e Degli Esperti Contabili’s (CNDCEC) 2005 self-assessment, is the authority responsible for the regulation of banks as well as other similar financial institutions. The BoI has the power to enact Regulations (named "Provvedimenti") that specify requirements for financial statements of banks and financial institutions. In December 2005, as mentioned above, the Bank issued regulations for the mandatory application of IFRSs. The BoI, however, does not have the authority to review financial statements prepared by listed entities. The Supervisory Authority for Private Insurance Undertakings and Insurance Undertakings of Public Interest (ISVAP) has, according to the CNDCEC's 2005 self-assessment, the power to monitor and enforce reporting requirements for insurance companies and enact documents that contain specific accounting policies for insurance companies. The ISVAP has the authority to ensure that insurance companies are fully compliant with the prescribed accounting requirements. The ISVAP has the power to request data, inspect financial accounts, and impose corrective measures as it deems necessary.

Prior to January 2008, the Consiglio Nazionale dei Dottori Commercialisti (CNDC) and the Consiglio Nazionale dei Ragionieri e Periti Commerciali (CNRPC) regulated the accounting profession in Italy. However, Legislative Decree No. 139 enacted in 2005 reformed the regulation of the accounting profession. As a result, effective January 1, 2008, the CNRPC and the CNDC merged to form the CNDCEC. As indicated in the paper titled "The Italian Accountancy Profession" available on the CNDCEC's website, the CNDCEC will have the authority to oversee the accounting profession in Italy. The CNDCEC is a member of the International Federation of Accountants.

The Principles

IIIFRS 1: First-time Adoption of International Financial Reporting Standards (revised 2009)

There is insufficient publicly available information as to Italy's compliance with this principle.

IIIFRS 2: Share-based Payment (revised 2009)

There is insufficient publicly available information as to Italy's compliance with this principle.

NCIFRS 3: Business Combinations (revised 2009)

According to a 2005 comparison of Italian GAAP and IFRSs published by the CBSO, pursuant to Italian GAAP, "certain business combinations (in particular those carried out through exchange of shares) can be accounted for as uniting of interest even when an acquirer can be identified. Provisions in the context of a business combination accounted for as an acquisition can be more extensive" (p. 22).

IIIFRS 4: Insurance Contracts (effective 2006)

There is insufficient publicly available information as to Italy's compliance with this principle.

NCIFRS 5: Non-current Assets Held for Sale and Discontinued Operations (revised 2009)

According to a 2005 comparison of Italian GAAP and IFRSs published by the CBSO, rules and guidelines on the national accounting principles and required information on discontinued operations are different from those available under IFRSs.

IIIFRS 6: Exploration for and Evaluation of Mineral Resources (effective 2006)

There is insufficient publicly available information as to Italy's compliance with this principle.

IIIFRS 7: Financial Instruments: Disclosures (effective 2007)

There is insufficient publicly available information as to Italy's compliance with this principle.

NCIFRS 8: Operating Segments (effective 2009)

According to a 2005 comparison of Italian GAAP and IFRSs published by the CBSO, under Italian GAAP, "segment reporting may, in practice, be incomplete" (p. 22).

NCIAS 1: Presentation of Financial Statements (revised 2009)

According to a 2005 comparison of Italian GAAP and IFRSs published by the CBSO, a primary statement of changes in equity and a presentation of cash flow statement are not foreseen under Italian GAAP.

IIIAS 2: Inventories (effective 2005)

There is insufficient publicly available information as to Italy's compliance with this principle.

NCIAS 7: Cash Flow Statements (effective 1994)

According to a 2005 comparison of Italian GAAP and IFRSs published by the CBSO, "the cash flow is not foreseen in National GAAP" (p. 2).

NCIAS 8: Accounting Policies, Changes in Accounting Estimates and Errors (effective 2005)

According to Deloitte IAS Plus website May 2001 Update, Italian Accounting Principle (AP) 29 Changes in Accounting Principles, Changes in Estimates, Fundamental Errors, Extraordinary Items, Events After the Balance Sheet Date was approved in February 2001. Further, AP 29 differs from IAS 8 "principally because only the allowed alternative treatment to account for the effects of the changes in accounting principles and the corrections of the fundamental errors is allowed."

NCIAS 10: Events after the Reporting Period (effective 2005)

According to Deloitte IAS Plus website May 2001 Update, the Italian Accounting Principle 29 Changes in Accounting Principles, Changes in Estimates, Fundamental Errors, Extraordinary Items, Events After the Balance Sheet Date was approved in February 2001. There is, however, insufficient publicly available information as to Italy's compliance with this principle.

NCIAS 11: Construction Contracts (effective 1995)

According to a 2005 comparison of Italian GAAP and IFRSs published by the CBSO, following Italian GAAP, "the completed contract method can be utilized for the recognition of revenues on construction contracts and services" (p. 21).

NCIAS 12: Income Taxes (effective 2001)

According to a 2005 comparison of Italian GAAP and IFRSs published by the CBSO, under Italian GAAP "deferred tax liabilities are not recognized when the likelihood of payment is remote. It is possible to base deferred tax calculations on timing differences rather than temporary differences, as long as there are adequate disclosures" (p. 22).

NCIAS 16: Property, Plant and Equipment (revised 2009)

According to a 2005 comparison of Italian GAAP and IFRSs published by the CBSO,
"fixed assets have been revalued in the past as a result of specific laws but these revaluations are not kept up-to-date in National GAAP" (p. 2).

NCIAS 17: Leases (effective 2005)

According to a 2005 comparison of Italian GAAP and IFRSs published by the CBSO, "accounting for leases in the balance sheet is required by IAS 17 and not by National GAAP" (p. 2).

IIIAS 18: Revenue (effective 1995)

There is insufficient publicly available information as to Italy's compliance with this principle.

NCIAS 19: Employee Benefits (revised 2009)

According to a 2005 comparison of Italian GAAP and IFRSs published by the CBSO, "employee benefit calculations generally do not take into account expected future salary increases due to promotion under National GAAP" (p. 3).

NCIAS 20: Accounting for Government Grants and Disclosure of Government Assistance (revised 2009)

According to a 2005 comparison of Italian GAAP and IFRSs published by the CBSO, under Italian GAAP, "some government grants of 1997 or earlier were partly recognized as equity" (p. 21).

NCIAS 21: The Effects of Changes in Foreign Exchange Rates (effective 2005)

According to a 2005 comparison of Italian GAAP and IFRSs published by the CBSO, under Italian GAAP, "gains on the translation of long-term monetary balances should be deferred until settlement" (p. 21).

IIIAS 23: Borrowing Costs (revised 2009)

There is insufficient publicly available information as to Italy's compliance with this principle.

IIIAS 24: Related Party Disclosures (effective 2005)

There is insufficient publicly available information as to Italy's compliance with this principle.

IIIAS 26: Accounting and Reporting by Retirement Benefit Plans (effective 1998)

There is insufficient publicly available information as to Italy's compliance with this principle.

NCIAS 27: Consolidated and Separate Financial Statements (revised 2009)

According to a 2005 comparison of Italian GAAP and IFRSs published by the CBSO, under Italian GAAP, accounting for consolidation differs from IAS 27. In her 2006 report, Monica Veneziani examines in great detail the differences between IAS 27 and the Italian requirements.

NCIAS 28: Investments in Associates (revised 2009)

According to a 2005 comparison of Italian GAAP and IFRSs published by the CBSO, under Italian GAAP, "for investments in publicly traded companies, the presumption of significant influence begins with a holding of 10 per cent of voting equity" (p. 21). There is, however, insufficient publicly available information as to Italy's compliance with this principle.

IIIAS 29: Financial Reporting in Hyperinflationary Economies (revised 2009)

There is insufficient publicly available information as to Italy's compliance with this principle.

IIIAS 31: Interests in Joint Ventures (revised 2009)

There is insufficient publicly available information as to Italy's compliance with this principle.

NCIAS 32: Financial Instruments: Disclosure and Presentation (revised 2009)

According to a 2005 comparison of Italian GAAP and IFRSs published by the CBSO, under Italian GAAP, "an issuer's financial instruments are generally accounted for on the basis of legal form, and compound instruments are not split into liability and equity components" (p. 4).

NCIAS 33: Earnings per Share (effective 2005)

According to a 2005 comparison of Italian GAAP and IFRSs published by the CBSO, disclosures of earnings per share are recommended but not required under Italian GAAP.

IIIAS 34: Interim Financial Reporting (effective 1999)

There is insufficient publicly available information as to Italy's compliance with this principle.

NCIAS 36: Impairment of Assets (revised 2009)

According to a 2005 comparison of Italian GAAP and IFRSs published by the CBSO, accounting for impairment of assets is not foreseen under Italian GAAP.

NCIAS 37: Provisions, Contingent Liabilities and Contingent Assets (effective 1999)

According to a 2005 comparison of Italian GAAP and IFRSs published by the CBSO, under Italian GAAP, "provisions can be created when an obligation does not meet such definition criteria at the balance sheet date, and provisions do not need to be discounted" (p. 21).

NCIAS 38: Intangible Assets (effective 2004)

According to a 2005 comparison of Italian GAAP and IFRSs published by the CBSO, "under Italian GAAP deferred costs such as Research & Development (R&D) costs, start-up costs, advertising costs related to a new business or product and some other costs can be capitalized; this is not possible under IFRSs" (p. 21).

IIIAS 39: Financial Instruments: Recognition and Measurement (revised 2009)

There is insufficient publicly available information as to Italy's compliance with this principle.

IIIAS 40: Investment Property (revised 2009)

There is insufficient publicly available information as to Italy's compliance with this principle.

IIIAS 41: Agriculture (revised 2009)

There is insufficient publicly available information as to Italy's compliance with this principle.