25.11.2005   

EN

Official Journal of the European Union

C 294/4

1.1

The proposal to amend the Accounting Directives is a follow up to the Action Plan adopted by the Commission on 21 May 2003, for Modernising Company Law and Corporate Governance at EU level.

1.2

The objective of the proposals is to further enhance confidence in the financial statements and annual reports published by European companies to provide shareholders and other stakeholders (e.g. employees and suppliers) with reliable, complete and easily accessible information.

1.3

The EESC has made its comments on certain points of detail in this document but in general supports the stated objective and believes that this action is necessary to protect all stakeholders.

2.1

The proposal requires that the Accounting Directives (78/660/EEC and 83/349/EEC) be amended to:

2.2

The Commission emphasises that its approach is principle based; this is intended to ensure proportionality and provide flexibility.

2.3

The Commission acknowledges that the proposal does not fall under the exclusive competence of the Community but points out that making financial statements comparable across the EU is necessary to improve public confidence in them.

3.1

The EESC acknowledges the need to improve public confidence in financial statements of European Companies in the light of recent scandals within Europe and elsewhere. It therefore strongly supports this initiative.

3.2

The EESC supports the principle-based approach to the proposal as it agrees that specific rules have the possibility of being circumvented or becoming out of date.

3.3

Given the need to encourage enterprise and employment within the EU it is important that reporting requirements should not be excessive. Excessive reporting could have the added disadvantage of reducing the focus on the things that really matter. The EESC welcomes therefore the inclusion of a ‘materiality’ criterion within the proposals; indeed it wonders if this criterion should not be an overriding feature of the Directives.

3.4

The EESC is also concerned that the reporting requirements for unlisted SMEs should not be unduly burdensome as these entities are an engine for growth in the EU. The Committee is aware that Member States have discretion to permit small and medium-sized companies use less than the full reporting requirements. The EESC suggests that it would be appropriate to undertake a fundamental review of the thresholds for small and medium-sized companies with a particular focus on reducing the burden on the smallest entities (1).

3.5

The EESC is aware that the International Accounting Standards Board is currently undertaking a project to produce a set of standards specifically for SMEs. The EESC welcomes this development.

4.1.1

The EESC supports the proposals establishing the collective responsibility of board members for the annual report and accounts that is already generally accepted in the EU. However where a two tier structure exists it is important that responsibility be placed on each board (administrative, management or supervisory) in relation to their respective functions and should not exceed the competences assigned to them by national law.

4.1.2

The EESC suggests that board members should, in good faith, be required to disclose to their auditor all information that is deemed to be relevant to the company's financial report and accounts without being specifically asked.

4.2.1

The EESC welcomes the Commission's objective of enhancing transparency about related parties' transactions for non-listed companies in order to restore public confidence in the companies' financial statements. Related party transactions are often of particular significance in privately owned companies including SMEs.

4.2.2

The text of Article 1 amending the Fourth Directive under Article 43 7 (b) requires the disclosure of the ‘nature, business purpose and amount’ of transactions with related parties that are not carried out ‘under normal commercial conditions’. This disclosure goes beyond the requirements of IAS 24 in particular in requiring the disclosure of the ‘business purpose’ of such transactions.

4.2.3

The EESC questions the proposal to go beyond IAS 24 that is likely to impose significant additional costs for many non-listed companies which would outweigh the benefits to users of their financial statements.

4.3.1

The Commission proposes to improve disclosure by imposing a specific requirement to include in the notes to the accounts disclosure of material off balance sheet ‘arrangements’ including SPEs. The EESC supports this requirement but is concerned that the term ‘arrangement’ is not defined and therefore remains a rather vague concept; the Committee therefore suggests that there is a need for clarification and guidance, possibly by using appropriate examples.

4.3.2

To limit the impact on SMEs the EESC recommends that Member States be permitted to limit the information to be disclosed to what is strictly necessary to assess the financial position of the company.

4.4.1

The EESC welcomes the requirement for listed companies to disclose information about governance structures that are of great importance for investors. Inclusion of the statement in the annual report will require the auditors to express an opinion concerning the consistency or otherwise of the annual report with the annual accounts for the same financial year which already applies to the annual report itself under Article 51.1 of the Fourth Directive.

4.4.2

A problem seems likely to arise however since some Member States have gone beyond the requirements of the Fourth and Seventh Directives and made the annual report — which would in future include the corporate governance statement — subject to a full audit. The EESC believes that not all elements in the corporate governance statement lend themselves to full audit. A solution to this could be found by requiring listed companies to provide a corporate governance statement ‘together with the annual report and accounts’ but the statement should still remain subject to a consistency check as outlined in paragraph 4.4.1.above.

4.4.3

The EESC believes that Article 46a.3 is too widely drawn. The following wording is suggested ‘a description of the main features of the company's internal control and risk management system in relation to the financial reporting process’.

4.5.1

The terminology used in Article 2 i.e. ‘of direct relevance and assistance’ amending the Seventh Directive is different from that used in the Fourth Directive i.e. ‘material and of assistance’. There does not seem to be any reason for this apparent inconsistency. The EESC would suggest that the latter wording that includes the important word ‘material’ be used in both cases.

4.5.2

The words ‘not under normal commercial conditions’ are used in Article 1 amending Article 43(1) under 7(b) of the Fourth Directive. Similar wording is used in relation to the Seventh Directive in Article 34 7(b). In the explanatory memorandum ‘not under normal commercial conditions’ is defined by adding ‘i.e. not at arm's length’. Since the latter is the generally recognised accountancy term it is suggested that it is more appropriate for use in the amended Directives.