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 preparation of consolidated accounts. As far as the options available for member states to permit or require international standards in other types of accounts for different types of companies are concerned, the 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. 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.

General Overview

On July 19, 2002, European Commission (EC) Regulation No. 1606 of 2002 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 following IFRSs from January 1, 2005. In line with the Regulation No. 1606 of 2002, listed companies in Italy are required to use IFRSs in their consolidated accounts. Member States may decide as well to extend this permission or this requirement to other companies with regard to the preparation of their consolidated accounts and/or annual accounts. Per Deloitte's IAS Plus website, Italy's Council of Ministers approved a Legislative Decree on February 25, 2005 regarding the options provided to the Member states specified in the Article 5 of Regulation 1606 of 2002. The 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.

The 2007 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 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). 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. Monica Veneziani in her 2004 report "Effects of the IFRS on Financial Communication in Italy: Impact on the Consolidated Financial Statement" asserts that the introduction of IFRSs in the country will bring about significant changes to accounting practices, which diverge from IFRSs. The author explains that Italy has had a long tradition of applying codified law as opposed to the common law which is based on "custom and usage" (p. 2). Veneziani adds that accounting standards in Italy "have an integrative and interpretative function with respect to the provisions of the law. It can therefore be said that while in Italy the accounting standards play a secondary role for companies in drawing up of the financial statement ... in Anglo-Saxon countries these standards constitute the basis for mandatory financial communication" (p. 2). The 2005 CBSO report elaborates on the differences between the international standards and the Italian requirements.

The Italian accounting standards, according to a 2007 report published by the CBSO, are issued by the Organismo Italiano di Contabilità (OIC) with input and recommendation 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 CNDCEC's 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 agency 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, the 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 Consiglio Nazionale dei Dottori Commercialisti e Degli Esperti Contabili (CNDCEC). As indicated in the paper titled "The Italian Accountancy Profession" available from the CNDCEC's website, the CNDCEC will have the authority to oversee the accounting profession in Italy. Per the IFAC's website, the newly created organization is a member of the IFAC.

The Principles

IFRS 1: First-time Adoption of International Financial Reporting Standards (effective 2006)

II

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

IFRS 2: Share-based Payment (effective 2005)

II

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

IFRS 3: Business Combinations (effective 2004)

NC

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).

IFRS 4: Insurance Contracts (effective 2006)

II

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

IFRS 5: Non-current Assets Held for Sale and Discontinued Operations (effective 2005)

NC

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.

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

II

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

IFRS 7: Financial Instruments: Disclosures (effective 2007)

II

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

IAS 1: Presentation of Financial Statements (effective 2007)

NC

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.

IAS 2: Inventories (effective 2005)

II

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

IAS 7: Cash Flow Statements (effective 1994)

NC

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).

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

NC

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."

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

II

According to Deloitte IAS Plus website, 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.

IAS 11: Construction Contracts (effective 1995)

NC

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).

IAS 12: Income Taxes (effective 2001)

NC

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).

IAS 14: Segment Reporting (effective 1998)

NC

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).

IAS 16: Property, Plant and Equipment (effective 2005)

NC

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).

IAS 17: Leases (effective 2005)

NC

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).

IAS 18: Revenue (effective 1995)

II

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

IAS 19: Employee Benefits (effective 2006)

NC

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).

IAS 20: Accounting for Government Grants and Disclosure of Government Assistance (effective 1984)

NC

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).

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

NC

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).

IAS 23: Borrowing Costs (effective 1995)

II

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

IAS 24: Related Party Disclosures (effective 2005)

II

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

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

II

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

IAS 27: Consolidated and Separate Financial Statements (effective 2005)

NC

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.

IAS 28: Investments in Associates (effective 2005)

II

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.

IAS 29: Financial Reporting in Hyperinflationary Economies (effective 1990)

II

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

IAS 31: Interests in Joint Ventures (effective 2005)

II

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

IAS 32: Financial Instruments: Disclosure and Presentation (effective 2005)

NC

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).

IAS 33: Earnings per Share (effective 2005)

NC

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.

IAS 34: Interim Financial Reporting (effective 1999)

II

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

IAS 36: Impairment of Assets (effective 2004)

NC

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.

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

NC

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).

IAS 38: Intangible Assets (effective 2004)

NC

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).

IAS 39: Financial Instruments: Recognition and Measurement (effective 2006)

II

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

IAS 40: Investment Property (effective 2005)

II

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

IAS 41: Agriculture (effective 2003)

II

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