The European Union has set the objective of creating a common market within which the comparison of financial statements of different member countries could be made possible, thanks to the issuing of IV EEC Directive (Directive 78/660/EEC) of companies’ annual financial statements, of VII EEC Directive (Directive 83/349/EEC) on consolidated financial statements, of Directive 86/635/EEC on annual and consolidated financial statements of Banks and other financial entities and of Directive 91/674/EEC on annual and consolidated financial statements of insurance companies.

Despite its objective, all those acts turned out to be ineffective in pursuing a real European accounting harmonization due to excessive customization adopted by each member country in transposing such Directives into their domestic legislation. This has forced the European Commission to opt for the adoption of standards already endorsed by internationally recognized entities such as the IASB through the issuing of EC Regulation 1606/2002, which obliges listed companies of all member states, starting from 2005, to draw up their consolidated financial statements according to IAS/IFRS.

In our domestic legislation, Legislative Decree 38/2005 based on the options allowed by Article 5 of EC Regulation 1606/2002, has extended the obligation of utilization of IAS/IFRS also to the preparation of  annual financial statements of listed entities, and has granted to all non-listed  companies, except for those falling under the category of small entities pursuant to article 2435-bis of the Civil Code, the possibility of adopting IAS/IFRS in drawing up their annual and/or consolidated financial statements. The companies that, by law or option, do not follow the international accounting standards set, are bound to the domestic legislation which is based on the provisions of above mentioned EU Directives IV and VII.

In this situation of double accounting standards discipline, it is mandatory to understand both obligations and threats arising from the application of one set compared to the other. Taking into consideration that a process of accounting standards convergence seems highly recommended at a global level, not just at a European level, solid elements of harmonization have been registered during the revision process of our domestic standards undertaken by the Organismo Italiano di Contabilità (Italian Accounting Standards Setter), that has in fact brought our domestic standards much closer to the international accounting standards set. Even though some of the evaluation and calculation methods required by the IAS/IFRS set might be overburdening and complex for smaller entities (which has led the Italian legislator not to extend the IAS/IFRS application option to those entities falling under the provisions of article 2435-bis), it is undeniable that the possibility of presenting financial reporting that is comparable and homogenous on an international scale, can represent an enormous opportunity for those entities, characterized by high export level or interest to financial markets (IPOs or other structured financial operations), that wish to communicate their financial standing to potential investors or international partners.

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