Comparable and clear company financial statements across the EU

KEY POINTS

• The legislation applies to limited liability types of companies in the European Union (EU).
• The legislation defines and differentiates between micro, small, medium-sized and large companies, based on their:
  • balance sheet,
  • net turnover,
  • average number of employees during a financial year.
• For each of the following size categories, it sets three limits, two of which must not be exceeded:
  • micro-undertakings: balance sheet (€350,000), net turnover (€700,000), employees (10);
  • small undertakings: balance sheet (€4 million), net turnover (€8 million), employees (50);
  • medium-sized undertakings: balance sheet (€20 million), net turnover (€40 million), employees (250).
• Large undertakings exceed at least two of the three following criteria: balance sheet (€20 million), net turnover (€40 million), employees (250).
• A delegated act, Directive (EU) 2023/2775, with which EU Member States must comply by 24 December 2024, adjusts the size criteria as follows:
  • micro-undertakings: balance sheet (€450,000), net turnover (€900,000), employees (10);
  • small undertakings: balance sheet (€5 million, or up to €7.5 million at Member State’s discretion), net turnover (€10 million, or up to €15 million), employees (50);
  • medium-sized undertakings: balance sheet (€25 million), net turnover (€50 million), employees (250);
  • large undertakings exceed at least two of the three following criteria: balance sheet (€25 million), net turnover (€50 million), employees (250).

Similarly, the directive sets similar rules for company groups (consisting of parent and subsidiary undertakings) of different sizes.

• Annual financial statements must:
  • contain, at a minimum, the balance sheet, the profit-and-loss account and the notes to the financial statements¹;
  • give a true and fair view of the company’s assets, liabilities, financial position and profit or loss;
  • be published by each company in the relevant national business register.
• The directive sets out general financial reporting principles, such as the consistent application of accounting policies and measurement bases from one year to the next.
• Detailed rules cover the presentation of the balance sheets, profit-and-loss accounts and the notes to the financial statements, along with management reports, non-financial information, corporate governance and consolidated statements.
• The obligations may vary depending on a company’s size, and the directive allows for exemptions or simplifications in many areas for micro-undertakings and SMEs. It is up to each Member State to decide on the extent of these exemptions and simplifications.
• The financial statements of public-interest entities and medium-sized and large undertakings must be audited by one or more statutory auditors.
• Large companies involved in mining minerals, oil, natural gas or other materials or those involved in logging in primary forests² must publish details of payments over €100,000 in total that they have made to governments in any financial year.
• Since 22 June 2023, Chapter 10a of Directive 2013/34/EU, which concerns the disclosure of income tax information by multinational groups with annual consolidated revenues of more than €750 million, has applied.
  • The parent companies of such groups are required to declare, in a specific report published on their website, their revenues, profits, corporate income tax paid and number of employees per Member State and per non-EU country that does not cooperate with the EU on tax matters or that does not meet all standards but has committed to reform.
  • Business registers also provide public access to these reports.
  • Non-EU-based multinational groups doing business in the EU are required to report similarly.
• Rules on corporate sustainability reporting require small, medium-sized and large undertakings (excluding micro-undertakings) listed on EU-regulated markets, along with large undertakings and parent undertakings of large groups, to include in their management reports information relating to the company’s impact on sustainability matters (such as environmental rights, social rights, human rights and governance factors), along with information necessary for understanding how sustainability aspects affect its development, performance and position. The application of these rules will be phased in (see below). In its annexes and appendices, Delegated Regulation (EU) 2023/2772 sets out detailed rules as regards EU sustainability reporting standards to be used by companies for carrying out their sustainability reporting, following the timetable set out in Directive (EU) 2022/2464.
• Amending Directive (EU) 2023/2864 inserts an article concerning the accessibility of the information to be published under Directive 2013/34/EU on the European single access point (ESAP) set up under Regulation (EU) 2023/2859 – see summary. The ESAP will provide access to public financial and sustainability-related information about EU companies and EU investment products. From 10 January 2028, when making public their various reports and statements (e.g. management reports, annual and consolidated financial statements and audit, assurance and sustainability reports), companies will have to submit these reports and statements at the same time to the designated collection body for the purpose of making them accessible on the ESAP.

Repeal

• Directive 2013/34/EU repeals earlier accounting directives (Directives 78/660/EEC and 83/349/EEC) and amends Directive 2006/43/EC (see summary).