PURPOSE: to facilitate cross-border investments by improving EU-wide comparable financial statements and reports.

LEGISLATIVE ACT: Directive 2006/46/EC of the European Parliament and of the Council amending Council Directive 78/660/EEC on the annual accounts of certain types of companies; 83/349/EEC on consolidated accounts; 86/635/EEC on the annual accounts and consolidated accounts of banks and other financial institutions and 91/674/EEC on the annual accounts and consolidated accounts of insurance undertakings.

CONTENT: this Directive amends a number of the EU’s accounting Directives by improving disclosure provisions whereby listed EU companies will be obliged to provide annual corporate governance statements. Greater disclosure is also expected vis-à-vis the use of off-balance sheet arrangements and unusual transaction with related parties – i.e. a spouse or board member. Further, the Directive introduces new thresholds for Small and Medium Sized Enterprises (SME’s).

In other provisions, the amended Directives establish the principle of collective responsibility for board members at an EU level as well as introducing an obligation for listed EU companies to provide annual corporate governance statements. These amendments will allow the Member States to align their laws with that of the international accounting standard, IAS 39, on fair value measurement. Threshold (balance sheet total and net turn over) defining SME limited liability companies will be increased by 20%.

The new thresholds read as follows:

Small companies

- Balance sheet total: (former threshold) EUR 3 650 000,00; (new threshold) EUR 4 400 000,00

- Net turn over: (former threshold) EUR 7 300 000,00; (new threshold) EUR 8 800 000,00

Medium sized companies

- Balance sheet total: (former threshold) EUR 14 600 000,00; (new threshold) EUR 17 300 000,00

- Net turn over: (former threshold) EUR 29 200 000, 00; (new threshold) EUR 35 000 000,00

ENTRY INTO FORCE: 05/09/2006.

TRANSPOSITION: 05/09/2008.

Directive 2006/46
OJ L 224 16.08.2006, p. 0001-0007
Corrigendum to final act 32006L0046R(01)
OJ L 217 18.08.2010, p. 0014

03675/4/2005

SP(2006)0053

Results of vote in Parliament

The European Parliament adopted a resolution drafted by and made some amendments to the Commission’s text, which were the results of a compromise reached by Parliament, Council and Commission:

-Parliament felt that costly and inefficient over-regulation should be avoided, in particular for SMEs. Measures to enhance business transparency and liability for inappropriate behaviour should be proportionate to their actual benefit to shareholders and other interested parties. Excessive demands regarding disclosure should be avoided: the duty of disclosure should only be extended where this is relevant and necessary;

-the inclusion of off-balance sheet transactions in the notes is not necessary, since the rules of IAS 1, Presentation of Financial Statements, already give a sufficient guarantee that information relevant to decision-making is disclosed by the companies. The Commission ’ s proposal to this effect, which amounts to treating listed and unlisted companies in the same way, is also, in the Parliament’s opinion, unnecessary, since unlisted companies by definition do not make any claims on the capital market and there is thus no “ public interest ” in the inclusion of off-balance sheet transactions in the notes. The duty of disclosure of transactions with related parties, which the Commission also calls for in its proposal, was regarded as disproportionate. Parliament deleted the Commission proposals to this effect.

-Parliament clarified the proposed principle of collective responsibility for the proper drawing up and publication of the annual report and financial statement. Responsibility and liability are separate, the one does not automatically entail the other. Responsibility and liability derive solely from national law. The directive does not create any new law on liability. Members of the board are only collectively responsible for the activities of the board to which they belong, and are only liable on the basis of their own responsibility. Collective responsibility exists only within a board and not between boards.

-On the corporate governance statement, Parliament felt that this should not form part of the financial statement, since this would require a management assessment. In addition, a number of the items of information required in the corporate governance statement were felt to be superfluous and disproportionate, since the benefit of inclusion in the corporate governance statement would be far exceeded by the effort and costs involved.

-There was a new article inserted in Directive 78/660/EC, which provides a 20 % increase of the thresholds for small and medium-sized companies, and which is reflected in the amendments.

T6-0518/2005

A6-0384/2005

A6-0384/2005

PE364.890

PE360.323

PE359.918

CES0844/2005

The Council approved a general approach, pending the European Parliament's first-reading opinion, on a proposal for a Directive aimed at strengthening investors' and shareholders' confidence in the annual and consolidated accounts of companies. The text provides for greater obligations to disclose information and for the collective responsibility of board members. It aims to supplement other Community measures, in particular the Commission's action plans for financial services and corporate governance. While promoting the reliability of company accounts, the draft Directive has to find a balance to avoid overburdening companies with new administrative obligations, in particular small and

medium-sized undertakings. The future Directive will amend the existing "Accounting Directives" (76/660/EEC and 83/349/EEC).

2666

PURPOSE : to further enhance confidence in the financial statements and annual reports published by European companies.

PROPOSED ACT : Directive of the European Parliament and of the Council.

CONTENT : recent corporate scandals have highlighted issues related to board members'misconduct and thereby underlined the need for the Commission to pursue its Action Plan and establish an EU-framework of collective responsibility for board members, including appropriate sanctions and liability. Hence the Commission proposes to ensure that Member States must guarantee that board members are collectively responsible at least towards the company. In this respect, shareholders and other stakeholders need reliable, complete and easily accessible information. This concern is shared by the European Parliament and the Council and should be addressed by amending the Accounting Directives 78/660/EEC and 83/349/EEC as follows:

- Establish collective responsibility of board members: Confidence in the financial statements is linked to who has responsibility for drawing up and publishing them. In line with what is currently prevailing in Member States the responsibility should rest collectively with all board members.

- Enhance transparency about related parties' transactions: Companies' transaction with their managers, the latter's family members or other so-called related parties are often not carried out under normal commercial conditions. While satisfactory transparency is required for all listed European companies, under International Accounting Standards (IAS) more transparency is necessary for unlisted companies.

- Enhance transparency about off-balance arrangements: The disclosure requirements in the Accounting Directives for off-balance sheet commitments are not precise enough. Special Purpose Entities (SPE) is a prominent example: They are captured in the balance sheet if they qualify as a subsidiary but in many cases SPE's may be organised in a different way. Instead of developing complex definitions of an SPE (bearing the immediate risk of circumvention), disclosure should instead be improved by imposing a specific requirement in the notes to the accounts for material off-balance sheet arrangements, including SPE's.

- Introduce a corporate governance statement: Investors on European capital markets have a major interest in listed EU-companies' corporate governance practices. Accordingly, each listed company should – in a specific section of its annual report - disclose information about its practices in a "corporate governance statement".

COM(2004)0725
EUR-Lex

PURPOSE : to further enhance confidence in the financial statements and annual reports published by European companies.

PROPOSED ACT : Directive of the European Parliament and of the Council.

CONTENT : recent corporate scandals have highlighted issues related to board members'misconduct and thereby underlined the need for the Commission to pursue its Action Plan and establish an EU-framework of collective responsibility for board members, including appropriate sanctions and liability. Hence the Commission proposes to ensure that Member States must guarantee that board members are collectively responsible at least towards the company. In this respect, shareholders and other stakeholders need reliable, complete and easily accessible information. This concern is shared by the European Parliament and the Council and should be addressed by amending the Accounting Directives 78/660/EEC and 83/349/EEC as follows:

- Establish collective responsibility of board members: Confidence in the financial statements is linked to who has responsibility for drawing up and publishing them. In line with what is currently prevailing in Member States the responsibility should rest collectively with all board members.

- Enhance transparency about related parties' transactions: Companies' transaction with their managers, the latter's family members or other so-called related parties are often not carried out under normal commercial conditions. While satisfactory transparency is required for all listed European companies, under International Accounting Standards (IAS) more transparency is necessary for unlisted companies.

- Enhance transparency about off-balance arrangements: The disclosure requirements in the Accounting Directives for off-balance sheet commitments are not precise enough. Special Purpose Entities (SPE) is a prominent example: They are captured in the balance sheet if they qualify as a subsidiary but in many cases SPE's may be organised in a different way. Instead of developing complex definitions of an SPE (bearing the immediate risk of circumvention), disclosure should instead be improved by imposing a specific requirement in the notes to the accounts for material off-balance sheet arrangements, including SPE's.

- Introduce a corporate governance statement: Investors on European capital markets have a major interest in listed EU-companies' corporate governance practices. Accordingly, each listed company should – in a specific section of its annual report - disclose information about its practices in a "corporate governance statement".

COM(2004)0725
EUR-Lex