Opinion of the Economic and Social Committee on the "Proposal for a Directive of the European Parliament and of the Council amending Directives 78/660/EEC and 83/349/EEC as regards the valuation rules for the annual and consolidated accounts of certain types of companies"

(2000/C 268/01)

On 15 March 2000, the Council decided to consult the Economic and Social Committee, under Article 44 of the Treaty establishing the European Community, on the above-mentioned proposal.

The Section for the Single Market, Production and Consumption, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 7 June 2000. The rapporteur was Mr Byrne.

At its 374th plenary session (meeting of 12 July 2000), the Economic and Social Committee adopted the following opinion by 84 votes to one with two abstentions.

1. Introduction

1.1. The Fourth Directive of 25 July 1978 harmonises the content of annual accounts of limited liability companies (excluding banks and insurance undertakings) and the Seventh Directive co-ordinates the content of consolidated accounts.

1.2. The purpose of the amendment is to maintain consistency between the EU financial reporting framework and recent developments in International Accounting Standards.

1.3. The amendment deals with the concept of fair value accounting under which certain assets and liabilities be introduced into the accounts of companies at cost and subsequently remeasured to fair value at each balance sheet date. Fair value is normally the current open market value.

1.4. The need for the amendment arises from the dynamic nature of international financial markets where it is now common for the largest companies to use complex financial instruments such as futures, options, forward contracts and swaps to manage financial risks to which their businesses are exposed from movements in variables such as interest rates, currency rates or equity or commodity prices.

1.5. The amendment will ensure that European companies can participate in the capital markets on equal terms with their non-European competitors.

2. General Comments

2.1. The ESC supports the action of the Commission in proposing this amendment; it is important that European companies are not disadvantaged as against their foreign competitors.

2.2. The proposal would require Member States to permit or require all or certain categories of companies to adopt fair value accounting. The ESC agrees that the alternative approach of allowing Member States an option is undesirable as it would reduce comparability.

2.3. The ESC also agrees with the format of the proposal which leaves room for future developments; this is a dynamic area and further variants are likely to arise. The proposal does however clearly specify the balance sheet items which cannot be valued at fair value.

2.4. The ESC accepts that where fair value accounting is adopted by a company it should apply to all derivative financial instruments.

3. Specific Comments

3.1. The ESC notes that it is intended that the Member States have the option to limit the scope of the amendment to consolidated accounts. The ESC suggests that since the amendment largely only applies to the largest companies it would not be onerous to require the amendment to apply to annual accounts as well. This would seem more appropriate in the context of the completion of the Single Market.

3.2. The ESC welcomes the fact that the amendment will not generally apply to SMEs which are often already overburdened by regulatory requirements. However it does suggest that in those very few cases where an SME is sufficiently sophisticated to use these instruments (for example, new technology companies) it should be required to account for them in the appropriate manner.

3.3. The ESC also welcomes the intention of the Commission to review the practical operation of the proposal within three years of implementation and looks forward to commenting on this review.

Brussels, 12 July 2000.

The President

of the Economic and Social Committee

Beatrice Rangoni Machiavelli