EN    EN EN 
 
EN    EN  COMMISSION OF THE E UROPEAN COMMUNITIES 
Brussels, 26.2.2009 
SEC(2009) 207l 
  
COMMISSION STAFF WORKING DOCUMENT 
 
Accompanying document to the 
Proposal for a 
 
DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 
 
amending Council Directive 78/660/EEC on th e annual accounts of certain types of 
companies as regards micro-entities 
  
Summary of the Impact assessment 
  
 
{COM(2009) 83} {SEC(2009) 206} 
 
 
 
EN 2   EN COMMISSION STAFF WORKING DOCUMENT 
 
Accompanying document to the 
Proposal for a 
 
DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 
 
amending Council Directive 78/660/EEC on th e annual accounts of certain types of 
companies as regards micro-entities 
  
Summary of the Impact assessment  
  
 
{COM(2009) 83} 
{SEC(2009) 206} 
 
EN 3   EN EXECUTIVE SUMMARY 
1. INTRODUCTION  
This impact assessment presents the Commi ssion's initiatives to simplify the business 
environment and particularly the financia l reporting requirements for micro-entities. 
It describes the problems related to  the current Accounting Directives1, presents a 
number of policy options, an alyses their feasibility a nd, where applicable, their 
expected impacts. 
1.1. European Economic Recovery Plan  
In accordance with the goals of Lisbon Agenda, the Commission is committed to 
release the growth potential of the small and medium-sized enterprises companies by 
reducing their administrative burden.  
In the aftermath of the financial cris is, the Commission issued "A European 
Economic Recovery Plan" to restore consumer and business confidence. The European Economic Recovery Plan ple dges to reduce the burden on SMEs and 
micro-enterprises by among others "removi ng the requirement on micro-enterprises 
to prepare annual accounts". 
1.2. Policy Context 
The aim of the proposals of the Commission th at are discussed in this document is to 
reduce unnecessary administra tive obligations and facilitate alignment of reporting 
requirements to real needs of users and of preparers. 
1.3. The EU acquis in company law, accounting and auditing 
In the field of accounting th e Fourth Company Law Dir ective establishes minimum 
requirements for the annual accounts of limite d-liability companies.  In the time when 
Accounting Directives were developed the prevailing id ea was that SMEs are not 
fundamentally different from large comp anies and should follow similar reporting 
requirements. This view has subsequently  changed with acknowle dgment of distinct 
needs of the SME group – laid down as the "think small first" principle. It is important to consider which requirements should be removed or replaced in order to simplify financial report ing for micro-entities
2. 
1.4. Definition of micro entities 
The Commission category of mi cro entities is set as the sm allest enterprises with the 
following definition: 
                                                 
1 Fourth Council Directive of 25 July 1978 (78/660/EEC);  
Seventh Council Directive of 13 June (83/349/EEC) 
2 The Seventh Company Law Directive do es not need to be amended, as already the present text of this 
Directive gives the Member States an option to exclude from the obligation to draw up consolidated 
financial statements companies which together do not exceed the limits of medium-sized company as 
defined in the 4th Company Law Directive (Art. 6(1) of the 7th Company Law Directive). 
 
EN 4   EN – less than ten employees, 
– balance sheet total below 500,000 EUR, and – turnover below 1,000,000 EUR. 
1.5. Practices in the main trading partners of the European Union 
In other economically comparable jurisdic tions and key trading partners of the 
European Union, the financial reporting requirements for small companies are 
generally less demanding than the requir ements of the Accounting Directives. 
For example in the USA, there is generall y no legal obligation to prepare or publish 
financial statements for unlisted companies. There is no evidence that these less stringent requirements would be a hindrance  to US companies in obtaining external 
financing. 
1.6. Opinion of the Commission's  Impact Assessment Board 
This Impact Assessment takes into c onsideration the Commission's Impact 
Assessment Board's comments provided on 2 February 2009. 
2. 
PROCEDURAL ISSUES , CONSULTATION OF INTERESTED PARTIES AND SUBSIDIARITY  
The Commission has already taken a number of  simplification initiatives to reduce 
the administrative burden for small a nd medium-sized companies (SMEs).  
2.1. Commission Communication of 10 Ju ly 2007 and stakeholder consultation 
In 2005, the Commission launche d a programme for measuring administrative costs 
and to identify the most burdensome re quirements with a view to reducing 
administrative burdens for EU companies. The Commission published a communication in July 2007 identifying potential ame ndments/changes to the 
Accounting Directives.  
In this communication the Commission propos ed to introduce a new category of so-
called "micro entities" in the Fourth Dir ective, which could be optionally exempted 
by Member States from the Accounting Directives. 
In all, 18 Member States' governments, th e government of one EEA country and 110 
stakeholders, including European bodies  and associations, reacted to the 
Communication. These contributions originated  from 23 countries in total, including 
22 Member States.  
80% of all stakeholders w ho responded to the public co nsultations took either a 
positive or negative stance to the measure. The majority was in favour of exempting micro entities from the requirements of the accounting Directives. The exemption 
was supported by the majority of the co mpanies, public authorities, banks and 
insurance companies that participated in the survey. The biggest opposition came from accountants and auditors.  
 
EN 5   EN 2.2. Measurement of cost and th resholds for micro-entities 
In connection with the aforementioned si mplification initiativ e, a measurement 
exercise was carried out by the consortium Capgemini/Ramboll to determine the costs created by the information obligations  (IOs) contained in the EU company law 
acquis. Relevant pre-final results of the measurement exercise are referred to in this impact assessment.  
2.3. High Level Group on Administrative Burden Reduction 
A report from The High Level Group of Inde pendent Stakeholders on Administrative 
Burdens (HLG), which reflected on the core obstacles for small firms, calls for rapid 
enactment of a Member State option to ex empt micro entities and a general overhaul 
of the Accounting Directive with "think small first" as guiding principle. 
2.4. European Parliament 
The European Parliament's resolution of  18 December 2008 calls  on the Commission 
to come forward with a legi slative proposal that allows Member States to exempt 
very small undertakings (micro entitie s) from the scope of the Accounting 
Directives.  
2.5. Other related Commission's proposals 
In late 2007, the Commission launched a Fa st Track legislativ e action to introduce 
two technical changes to the Accounting Di rectives. Adoption is expected in the 
beginning of 2009. 
2.6. Subsidiarity 
Following the principle of subsidiarity, it needs to be considered whether EU level 
harmonisation is for micro entities is rea lly necessary. Most obligations entailing 
administrative burdens derive from EU dir ectives and their reduction needs EU level 
action. 
3. 
PROBLEM DEFINITION  
The requirements of the Accounting Direc tives apply to all limited liability 
companies without regard to other factors (e .g. size, financing or type of activities). 
Mostly small companies are subject to the same rules as larger companies. In many 
situations certain information must be pr ocessed only to satisfy legal obligations 
without real business needs. This corres ponds to the definition of administrative 
burden. Two elements of this administra tive burden can be further analysed: 
• Administrative cost that is not related to  the size of the comp any and is therefore 
disproportional for the smallest enterprises as compared to the larger enterprises 
• Misalignment between requirements of the directives and the needs of the micro 
entities and the users of th eir financial statements  
 
EN 6   EN 3.1. Disproportional administrative (c ompliance) cost as economic burden 
Start-up businesses and small enterprises with limited resources are sensitive to 
excessive administrative obligations as they  divert resources from the core business 
activities. 
The substantial part of the administrative cost is fixe d and micro entities sacrifice 
relatively much more resources to comply  with a regulatory duty than bigger 
companies. Furthermore, micro entities' stat utory financial statem ents have generally 
little value for its stakeholders.  
3.2. Misalignment between requirements of the Accounting Directives and the needs 
of micro entities and users of  their financial statements 
Usually, very small companies are owner ma naged and statutory financial statements 
do not have significant rele vance for their reviewing th e company's performance. 
Moreover, investors in micro entities are often limited in number, often directly 
involved in running the company and with direct access/insight into company accounts. The source of financing is not th e stock market but own resources, credits 
from banks or other financial institutions. The main users of the financial information 
(banks and tax authorities)  have the possibility to demand information above and 
beyond the statutory reporti ng requirements. For the other stakeholders, the 
information needs are usually not covered by statutory financial information. This is 
because their relationships with small companies are often based on mutual trust 
rather than on (access to) financial inform ation and because the current complexity 
of accounting statements makes them often useless / incomprehensible for many of 
the stakeholders. 
3.3. How large is the problem? 
Approximately 7.2 million EU companies are subject to reporting rules within the 
scope of the Accounting Directives. So me 5.4 million (around 75% of them) are 
micro entities. 
A study prepared by Ramboll Management concluded that the average cost per 
company to comply with the requirements of the directives is €1558. Out of this 
amount, the administrative burden (i.e. coll ecting and processing information only to 
satisfy legal obligation without  real business need) is €1169.  
The above gives an approximation that th e aggregate administ rative burden on the 
EU level would be around €6.3 billion.  
4. 
OBJECTIVES  
In order to enhance the competitiveness of the micro-entities and release their growth 
potential, the administrative burdens s hould be reduced to the minimum. The 
objectives are: 
• Reduction of the administrative burden of  businesses in the EU, especially for 
SMEs and micro-entities, while safeguard ing adequate protection and information 
to stakeholders.  
 
EN 7   EN • Enable alignment of the micro-entities' reporting requirements with the real needs 
of users and preparers.  
5. POLICY OPTIONS AND THEIR EXPECTED IMPACT  
5.1. Description of policy options 
The Commission Services envisage following possible policy options: 
Option 0. No change to the Directives Option 1. Encourage a full use of existing options in the Accounting Directives 
Option 2. Obligatory exemption of micro entities from the scope of the Directives Option 3. Member State option to exempt micro entities from the scope of the 
Directives 
Option 4. Introduction of a simplified mandatory accounting regime for micro 
entities 
Option 5. Amendments to the Accounting Directive without introducing the micro 
category. 
5.2. Option 0. No change to the Directives 
In the baseline scenario, no action is ta ken and all 5.4 million micro companies will 
continue following the accounting rules of the directives and spending yearly around 
€6bn to comply with information obligations.  
5.3. Option 1. Encourage a full use of existi ng options in the Accounting Directives 
In case no legislative changes are made , the Commission can still call on Member 
States to utilise all the simplification options available in the Directives.  
The estimate of the potentia l saving of the full use of existing thresholds and 
exemptions amount up to €1.8bn for the micro segment. However this amount is unlikely to be attained. The current Dire ctive builds on genera l requirements with 
Member States possibility to exempt onl y from some of those requirements on a 
piecemeal basis. There is no possibility to make more general exemptions, which hampers the usability of these options, and thus has made them generally less appealing to Member States.  
Furthermore, this option would not facili tate burden reduction in those Member 
States that are already using the options . Neither would it address the issue of 
discrepancy between the Accounting Direct ives to the user needs of smallest 
companies and the administrative  burden resulting from this. 
 
EN 8   EN 5.4. Option 2. Obligatory Ex emption of Micro entities  from the scope of the 
Directives 
Obligatory exemption of micro entities would eliminate all EU level accounting 
requirements for this group – a case of ma ximum harmonization. The impact of this 
option is the same as the maximum impact  of option 3, as discussed in the next 
section. 
However, due to differences in accounti ng cultures and reporting traditions across 
EU, it is very unlikely that such a proposal  would be politically  acceptable for some 
EU Member States. 
5.5. Option 3. Member State option to exempt  micro entities from  the scope of the 
Directives 
Member States would have the possibility to  determine the most relevant rules that 
micro entities should be required to comply with and, for example, integrate various 
reporting requirements into one. 
Exempting micro entities from the scope of the Accounting Directive is expected to 
have the following impacts:  
Reduction of administrative burden . In the maximum scenario where all Member 
States exempt micro companies and do not impose additional requirements the 
potential savings stemming from the propos al is estimated at €6.3bn (with range of 
€5.9bn to €6.9bn). It is, however, likely that  many Member States after exempting 
micro entities from the Fourth Directive' s obligations would impose other accounting 
requirements, e.g. to align tax and financia l reporting. Such alternative requirements 
are likely to decrease the burden reduction fo r companies. However, at this point of 
time it is not possible to quantify th e potential effect on EU level. 
More relevant and understandable information to main users, including tax 
authorities and creditors, and management.  The accounts could be made more 
relevant to the needs of stakeholders a nd management of micro businesses, taking 
into account the unders tandability criterion. 
No significant negative impact on the in formation to the external stakeholders 
and creditors protection.  The main users of accounts of micro entities are banks 
and tax authorities. Banks are generally no interested in sophisticated accounting 
information provided under directives' requi rements. In their responses to the 
Commission Consultation of 2007, both banks and industry were generally in favour 
of exempting the micro entities from the re quirements of the Accounting Directives.  
Impact on the single mark et and level playing field.  Impact on single market is 
expected to be insignificant as the fina ncial reporting needs of  micro entities are 
rather basic and the statutory accounts not a generally important source of 
information. Furthermore, only a low number of micro entities are involved in cross 
border activities.  
Some negative impact on collection of statistical data  in some Member States 
possibly requiring change in methodology of collection of st atistical data.  
 
EN 9   EN No negative impact on collectio n of information for taxation. The tax authorities 
have the power to demand information according to their reporting requirements and to carry out verifications (audits ) of the financial information.  
Reduction of activities of accounting profession in preparation and audit of 
statutory accounts. This is expected to be partly substituted by use of professional accountants to other more added value purposes.  
Social aspects.  Some reduction of public informati on available to employees of the 
micro-entities. However, due to direct cont act that employees us ually have with the 
management and owner(s) of micro entities,  the published financial statements have 
a lesser role in serving the information needs. Situation is similar to unlimited liability companies of the same size.  
Environmental aspects.  Minor positive impact due to reduction of reporting and 
filing activities.  
Information to general public . Some reduction of public information available to 
external parties. However this interest is generally very low. 
5.6. Option 4. Introduction of a simplified accounting regime for micro entities 
One option is to include a micro-tailore d accounting regime into the Accounting 
Directives. In contrast to the "exemption option" such a new re gime would require a 
longer preparatory and implemen ting period. Therefor e, it is not suit able to achieve 
quick burden reduction at the given timetable.  
5.7. Option 5. Amendments to the current Di rective without introducing the micro 
category. 
It is possible to create some quick fixe s to the Accounting Directives. These could 
produce limited burden savings in a short time span. However, they do not address the main concern of discrepancy between accounting directives and the user needs. 
More substantial amendments would requ ire a longer preparation time and are, 
therefore, not suitable to achieve quick burden reduction at the given timetable. 
6. C
OMPARISON OF OPTIONS AND JUSTIFICATION FOR THE COMMISSION 'S PROPOSAL  
The option that provides the biggest burden reduction is the opti on to exempt micro 
entities. This option can also be implemented within shortest timeframe. The Commission considers that this option is therefore the most appropriate alternative in order to significantly reduce the admini strative burden of the small business and 
align the reporting requirements with th e needs of the user s and preparers.  
7. M
ONITORING AND EVALUATION  
This proposal is closely linked to the gene ral modernisation and simplification of the 
Fourth and Seventh Accounting Directives. Due to the close connection between these measures the monitoring and evaluati on will be carried out together. A detailed 
 
EN 10   EN monitoring plan will be part of the overall  monitoring strategy in relation with the 
general revision of the Accounting Directives.  
The evaluation of effects and functioning of  the exemption for micro entities will 
include an assessment as regards the key objectives of better alignment of the 
accounting rules with the needs of the users and preparers of  the financial reports and 
overall reduction of administrative burden. Furthermore, consideration will be given to the quality and accessibility of relevant  financial information to stakeholders.