11.2.2005 Official Journal of the European Union L41/1 (Acts whose publication is obligatory) COMMISSION REGULATION (EC) No 211/2005 of 4 February 2005 amending Regulation (EC) No 1725/2003 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council as regards International Financial Reporting Standards (IFRS) 1 and 2 and International Accounting Standards (IASs) No 12, 16, 19, 32, 33, 38 and 39 (Text with EEA relevance) THE COMMISSION OF THE EUROPEAN COMMUNITIES, Having regard to the Treaty establishing the European Community. Having regard to Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards (!), and in particular Article 3(1) thereof, Whereas: 1 By Commission Regulation (EC) No 1725/2003 (2, certain international standards and interpretations that were extant at 1 September 2002 were adopted. On 19 February 2004, the International Accounting Stan- dards Board (IASB) published International Financial Reporting Standard (IFRS) 2 Share-based Payment. IFRS 2 requires for the first time that companies reflect in their income statements the effects of share-based payment transactions, including expenses associated with transac- tions in which share options are granted to management and employees. In the past, transactions in which share options were granted to employees were not recognized in the company’s income statements but were disclosed in the notes not affecting reporting of earnings to capital markets. The consultation with technical experts in the field con- firms that IFRS 2 meet the technical criteria for adoption set out in Article 3 of Regulation (EC) No 1606/2002, and in particular the requirement of being conducive to the European public good. IFRS 2 does not specify which valuation models should be used. Instead, it only describes the factors that should be at least taken into account when estimating the fair value of () OJ L 243,11.9.2002, p. 1 (3 OJ L 261, 13.10.2003, p. 1. Regulation as last amended by Regula- tion (EC) No 2238/2004 (O] L 394, 31.12.2004, p. 1). share based payments. This was done on purpose in order not to prevent the development of appropriate measure- ment techniques which hitherto do not exist for all forms of share based payments (e.g. non tradable long term employee stock options). New alternative methods might be developed in the future to accommodate the needs of companies, auditors and investors. In particular, newly listed companies or companies without a sufficient track record might have difficulties to estimate future share prices. The Commission took note of the criticism about the com- plexity of IFRS 2 Share-based Payment that were advanced from several concerned parties during the consultation process. The Commission is aware of the remaining tech- nical issues of this standard and the related concerns regarding their economic impact. The Commission recog- nizes that, in view of the potential impact, such as on employee stock option schemes, and the possible implica- tions for the competitiveness of EU companies, the appli- cation should be regularly monitored. However, endorse- ment is in the interest of European capital markets and European investors. The Commission will therefore moni- tor the future effects of IFRS 2 on European companies and review the applicability of the standard by July 2007 at the latest. The Commission recalls that Regulation (EC) No 1606/2002 (the IAS Regulation) of 19 July 2002 requires that for each financial year starting on or after 1 January 2005, companies governed by the law of a Member State shall prepare their consolidated accounts in conformity with the international accounting standards adopted in accordance with the procedure laid down in Article 6(2) if, at their balance sheet date, their securities are admitted to trading on a regulated market of any Mem- ber State within the meaning of Article 1(13) of Council Directive 93/22/EEC of 10 May 1993 on investment ser- vices in the securities field (3). () OJ L 141, 11.6.1993, p. 27. Directive as last amended by Directive 2002/87EC of the European Parliament and of the Council (O] L 35, 11.2.2003, p. 1).