PURPOSE: to amend Council Directives 78/660/EEC and 83/349/EEC in order to ease the administrative burden linked to certain disclosure requirements for medium-sized companies and obligation to draw up consolidated accounts.

PROPOSED ACT: Directive 2009/49/EC of the European Parliament and of the Council amending Council Directives 78/660/EEC and 83/349/EEC as regards certain disclosure requirements for medium-sized companies and the obligation to draw up consolidated accounts.

CONTENT: following a first reading agreement reached with the European Parliament, the Council adopted a directive aimed at simplifying rules as regards certain disclosure requirements for medium-sized companies and the obligation to draw up consolidated accounts.

At its meeting of 8 and 9 March 2007, the European Council agreed that the administrative burden on companies should be reduced in order to improve the competitiveness of companies in the EU.

The Commission's communication of 10 July 2007 on a simplified business environment for EU companies in the areas of accounting and auditing identified amendments to be made to the abovementioned directives, which form the basis for SMEs' accounting in the Community.

The directive amends directive 78/660/EEC ("Fourth company law directive") on the annual accounts of certain types of companies and directive 83/349/EEC ("Seventh company law directive") on consolidated accounts, with a view to relieving the reporting burden imposed on small and medium-sized companies (SMEs).

More specifically, the Directive stipulates that:

Article 34(2) of Directive 78/660/EEC requires that, where formation expenses can be treated as an asset in the balance sheet, those expenses be explained in the notes to the accounts. Small companies can be exempted from that disclosure requirement in accordance with Article 44(2) of that Directive. In order to reduce unnecessary administrative burdens, it should also be possible to exempt medium-sized companies from that disclosure requirement .

Moreover, Directive 83/349/EEC requires a parent undertaking to prepare consolidated accounts even if the only subsidiary or all of the subsidiaries as a whole are not material for the purposes of Article 16(3) of that Directive. As a consequence, those undertakings fall under Regulation (EC) No 1606/2002 and therefore have to prepare consolidated financial statements in accordance with IFRS. That requirement is considered to be burdensome where a parent undertaking has only immaterial subsidiaries.

Therefore, a parent undertaking should be exempted from the obligation to draw up consolidated accounts and a consolidated annual report if it has only subsidiary undertakings considered as not being material, both individually and as a whole . Although that statutory obligation should be lifted, a parent undertaking should remain able to draw up consolidated accounts and a consolidated annual report on its own initiative.

ENTRY INTO FORCE: 16/07/2009.

TRANSPOSITION: 01/01/2011.

The European Parliament adopted by 581 votes to 11 with 1 abstentions, a legislative resolution amending the proposal for a directive of the European Parliament and of the Council amending Council Directives 78/660/EEC and 83/349/EEC as regards certain disclosure requirements for medium-sized companies and obligation to draw up consolidated accounts. The report had been tabled for consideration in plenary by Ieke VAN DEN BURG (PES, NL) on behalf of the Committee on Legal Affairs.

The amendments were the result of a compromise between the Council and the Parliament. The main amendments - adopted under the 1st reading of the codecision procedure - were as follows:

- as regards the amendment of the 7th Directive (Directive 83/349/EEC) on consolidated accounts, MEPs stress that a parent undertaking should be exempt from the obligation to draw up consolidated accounts and a consolidated annual report if that parent undertaking has only subsidiary undertakings considered as not material, both individually and as a whole. Although this statutory obligation should be lifted, a parent undertaking could still draw up consolidated accounts and a consolidated annual report on its own initiative;

- as regards Directive 78/660/EEC, Parliament amended Article 45(2) regarding the omission of certain disclosure requirements by companies fulfilling specified criteria.

- the date of transposition must be 31 December 2010 at the latest.

The Committee on Legal Affairs adopted the report drafted by Ieke van den BURG (PES, NL) and made amendments to the proposal for a directive of the European Parliament and of the Council amending Council Directives 78/660/EEC and 83/349/EEC as regards certain disclosure requirements for medium-sized companies and obligation to draw up consolidated accounts.

The main amendments adopted in committee (1 st reading of the codecision procedure) are as follows:

- as regards the amendment of the 7th Directive (Directive 83/349/EEC) on consolidated accounts, MEPs stress that a parent undertaking should be exempt from the obligation to draw up consolidated accounts and a consolidated annual report if that parent undertaking has only subsidiary undertakings considered as not material, both individually and as a whole. Although this statutory obligation should be lifted, a parent undertaking could still draw up consolidated accounts and a consolidated annual report on its own initiative;

- the exemption proposed by the Commission must not be acted on unless there is continued complete transparency vis-à-vis third parties. Accordingly, MEPs consider that it should be made clear that any company availing itself of this exemption must disclose, in the annex to its annual accounts, why it decided not to draw up consolidated accounts.

PURPOSE: to amend Council Directives 78/660/EEC and 83/349/EEC in order to ease the administrative burden linked to certain disclosure requirements for medium-sized companies and obligation to draw up consolidated accounts.

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

BACKGROUND: at its meeting of 8 and 9 March 2007, the European Council agreed that the administrative burden on companies should be reduced by 25% by 2012 in order to improve the competitiveness of companies in the EU. Accounting and auditing have been identified as key areas for reducing administrative burden for European companies.

The 4 th Company Law Directive (78/660/EEC) was adopted in order to create a harmonised set of requirements for the external reporting of all limited liability companies in the EU. In 1983, the 7 th Company Law Directive (83/349/EEC) was adopted and added a common set of requirements for consolidated financial statements. During the past 25 years the Accounting Directives have been modified several times. Through the adoption of the Regulation (EC) No 1606/2002 on the application of international accounting standards (IAS Regulation) listed companies (and those with listed debt) have to present IFRS accounts, and are consequently relieved from most of the requirements in the 4 th and 7 th Directives. These Directives however still form the basis for SME accounting in the EU. Directive 83/349/EEC requires a parent company to prepare consolidated accounts even if the only subsidiary or all of the subsidiaries as a whole are not material. As a consequence these companies are scoped in the IAS Regulation and therefore have to prepare their consolidated financial statements in accordance with IFRS. This consequence of the particular Article in Directive 83/349/EEC is considered to be excessive where a parent company has only immaterial subsidiaries.

The objective of the amendment to the 4 th Company Law Directive is therefore to simplify financial reporting for small and medium-sized companies (SMEs) and relieve SMEs from financial reporting burden in a short term perspective. The objective of the amendment to the 7 th Company Law Directive is to clarify the interaction between consolidation rules in this Directive and in the International Financial Reporting Standards.

CONTENT: the proposed measures form part of the second fast track package and the general programme for the reduction of administrative burden for companies by 25% by 2012 (see also COD/2008/0083 ):

Removal of disclosure requirement for formation expenses : formation expenses are different types of costs related to the creation of a company. For example, registration fees or legal assistance costs. These can under some circumstances be treated as an asset in the balance sheet. If this is the case, the 4 th Company Law Directive requires that these “formation expenses” be explained in the notes to the accounts. Small companies can be exempted from this disclosure requirement in accordance with the Directive. The Commission suggests extending the scope of these exemptions to also include medium-sized companies.

Removal of disclosure requirements for breakdown of turnover into activity and geographical markets for SMEs : the 4 th Company Law Directive requires that a breakdown of turnover into activity and geographical markets is disclosed. This is required for all companies, but small companies can be excluded in accordance with the same Directive. The Commission suggests extending the scope of these exemptions also to include medium-sized companies.

Amendment to the 7 th Company Law Directive in order to clarify the relationship of its consolidation rules with the rules of International Financial Reporting Standards : the relationship between the IAS Regulation and the 7 th Company Law Directive is not clear in cases where parent companies have no material subsidiaries. The problematic issue is whether such a parent company would fall under the IAS Regulation – and therefore have to prepare IFRS accounts – or not. The Commission considers it excessive to require the preparation of consolidated accounts in the situation where a parent company has only immaterial subsidiaries. It therefore proposes to exempt any parent undertaking governed by its national law from the obligation to draw up consolidated accounts and a consolidated annual report if this parent undertaking has only subsidiary undertakings considered as not material, both individually or as a whole.

PURPOSE: to amend Council Directives 78/660/EEC and 83/349/EEC in order to ease the administrative burden linked to certain disclosure requirements for medium-sized companies and obligation to draw up consolidated accounts.

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

BACKGROUND: at its meeting of 8 and 9 March 2007, the European Council agreed that the administrative burden on companies should be reduced by 25% by 2012 in order to improve the competitiveness of companies in the EU. Accounting and auditing have been identified as key areas for reducing administrative burden for European companies.

The 4 th Company Law Directive (78/660/EEC) was adopted in order to create a harmonised set of requirements for the external reporting of all limited liability companies in the EU. In 1983, the 7 th Company Law Directive (83/349/EEC) was adopted and added a common set of requirements for consolidated financial statements. During the past 25 years the Accounting Directives have been modified several times. Through the adoption of the Regulation (EC) No 1606/2002 on the application of international accounting standards (IAS Regulation) listed companies (and those with listed debt) have to present IFRS accounts, and are consequently relieved from most of the requirements in the 4 th and 7 th Directives. These Directives however still form the basis for SME accounting in the EU. Directive 83/349/EEC requires a parent company to prepare consolidated accounts even if the only subsidiary or all of the subsidiaries as a whole are not material. As a consequence these companies are scoped in the IAS Regulation and therefore have to prepare their consolidated financial statements in accordance with IFRS. This consequence of the particular Article in Directive 83/349/EEC is considered to be excessive where a parent company has only immaterial subsidiaries.

The objective of the amendment to the 4 th Company Law Directive is therefore to simplify financial reporting for small and medium-sized companies (SMEs) and relieve SMEs from financial reporting burden in a short term perspective. The objective of the amendment to the 7 th Company Law Directive is to clarify the interaction between consolidation rules in this Directive and in the International Financial Reporting Standards.

CONTENT: the proposed measures form part of the second fast track package and the general programme for the reduction of administrative burden for companies by 25% by 2012 (see also COD/2008/0083 ):

Removal of disclosure requirement for formation expenses : formation expenses are different types of costs related to the creation of a company. For example, registration fees or legal assistance costs. These can under some circumstances be treated as an asset in the balance sheet. If this is the case, the 4 th Company Law Directive requires that these “formation expenses” be explained in the notes to the accounts. Small companies can be exempted from this disclosure requirement in accordance with the Directive. The Commission suggests extending the scope of these exemptions to also include medium-sized companies.

Removal of disclosure requirements for breakdown of turnover into activity and geographical markets for SMEs : the 4 th Company Law Directive requires that a breakdown of turnover into activity and geographical markets is disclosed. This is required for all companies, but small companies can be excluded in accordance with the same Directive. The Commission suggests extending the scope of these exemptions also to include medium-sized companies.

Amendment to the 7 th Company Law Directive in order to clarify the relationship of its consolidation rules with the rules of International Financial Reporting Standards : the relationship between the IAS Regulation and the 7 th Company Law Directive is not clear in cases where parent companies have no material subsidiaries. The problematic issue is whether such a parent company would fall under the IAS Regulation – and therefore have to prepare IFRS accounts – or not. The Commission considers it excessive to require the preparation of consolidated accounts in the situation where a parent company has only immaterial subsidiaries. It therefore proposes to exempt any parent undertaking governed by its national law from the obligation to draw up consolidated accounts and a consolidated annual report if this parent undertaking has only subsidiary undertakings considered as not material, both individually or as a whole.