EN    EN EN 
 
EN    EN  COMMISSION OF THE E UROPEAN COMMUNITIES 
Brussels, 26.2.2009 
SEC(2009) 206 
  
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 
  
Impact assessment  
{COM(2009) 83} 
{SEC(2009) 207} 
 
EN 2   EN TABLE OF CONTENTS  
1. Introduction ................................................................................................................... .............................. 4  
1.1. European Economic  Recover y Plan................................................................................................ ..... 4 
1.2. Policy Co ntext................................................................................................................. ..................... 5  
1.3. The EU acquis in company la w, accounting an d auditing................................................................... 5  
1.4. Definition of mi cro entities ................................................................................................... ............... 6  
1.5. Practices in the main trading par tners of the European Union........................................................... 7  
1.6. Opinion of the Commission's Impact Assessm ent Board ..................................................................... 8  
2. Procedural issues, consultation of in terested parties an d subsidiarity ................................................... 8  
2.1. Commission Communication of 10 July 2007 and stakeholder consultation....................................... 9  
2.2. Measurement of cost and determinatio n of thresholds for micro-entities.......................................... 10  
2.3. High Level Group on Administ rative Burden Reduction ................................................................... 11  
2.4. European Parliament............................................................................................................ ............. 12  
2.5. Other related Comm ission's pr oposals ........................................................................................... ... 12 
2.6. Subsidiarity ................................................................................................................... ..................... 12  
3. Problem de finition............................................................................................................. ........................ 13  
3.1. Disproportional administrative (complia nce) cost as economic burden ........................................... 14  
3.2. Misalignment between requirements of the Directives  and the needs of micro entities and the users of 
their financial  statem ents ..................................................................................................... ............................ 16  
3.3. How large is the problem?...................................................................................................... ........... 18  
4. Objectives..................................................................................................................... .............................. 20  
5. Policy options and their expected impact ....................................................................................... ......... 21  
5.1. Description of policy options .................................................................................................. ........... 21  
5.2. Option 0. No change to the Di rectives .......................................................................................... ..... 22  
5.3. Option 1. Encourage a full use of existing options in the Acco unting Directives .............................. 22  
5.3.1. Summary ........................................................................................................................ ............... 22  
5.3.2. Analysis....................................................................................................................... .................. 23  
5.4. Option 2. Obligatory exemption of micro entitie s from the scope of the Directives .......................... 24  
5.4.1. Summary ........................................................................................................................ ............... 24  
5.4.2. Analysis....................................................................................................................... .................. 25  
5.5. Option 3. Member State option to exempt micro entities from th e scope of the Directives................ 25  
5.5.1. Summary ........................................................................................................................ ............... 25  
5.5.2. Analysis....................................................................................................................... .................. 26  
5.6. Option 4. Introduction of a simplified ac counting regime fo r micro entities..................................... 30  
5.6.1. Summary ........................................................................................................................ ............... 30  
5.6.2. Analysis....................................................................................................................... .................. 31  
5.7. Option 5. Amendments to the Accounting Directive without introducing the micro category........... 32  
5.7.1. Summary ........................................................................................................................ ............... 32  
5.7.2. Analysis....................................................................................................................... .................. 32  
 
EN 3   EN 6. Comparison of options .......................................................................................................... .................... 33  
7. Monitoring a nd evaluation ...................................................................................................... ................. 36  
7.1. Monito ring ..................................................................................................................... .................... 36  
7.2. Evalua tion..................................................................................................................... ..................... 37  
Annex 1 Quantitative analysis of micro entiti es exemption...................................................................... ....... 38  
CSES Study on Evaluation of th resholds for Micro-En tities ...................................................................... ...... 38  
Study by the Consortium........................................................................................................ ........................... 41  
Combination of the two studies ................................................................................................. ....................... 43  
Summary of the impact of option 3.............................................................................................. ..................... 45  
Annex 2: Use of options by Member States ....................................................................................... ............... 47  
Annex 3: Policy Option 5....................................................................................................... ............................. 50  
Annex 4: Results from the stakeholder consultation............................................................................. ........... 51  
Results of Public co nsultation of 2007 ......................................................................................... .................... 51  
Annex 5 Users' and preparers' need s from the financial reporting............................................................... .5 3 
Users needs from financial st atements of micro-entities........................................................................ .......... 53  
Banks.......................................................................................................................... ................................. 54  
Public au thoritie s............................................................................................................. ............................ 55  
General Public ................................................................................................................. ............................ 56  
Statistical  offices ............................................................................................................ ............................. 56  
Financial informa tion providers ................................................................................................ .................. 56  
Accountants an d aud itors....................................................................................................... ...................... 57  
Needs of mi cro-en tities ........................................................................................................ ............................. 57  
Cross-border trade and vo luntary app lication................................................................................... ........... 58  
Annex 6 Current reporting requiremen ts of the Four th Directive................................................................. 60 
Annex 7: Abbreviations......................................................................................................... ............................. 67  
References..................................................................................................................... ....................................... 68  
 
 
EN 4   EN 1. INTRODUCTION  
The small and medium-sized enterprises are th e backbone of the European economy, and they 
are the main contributors to the creation of em ployment in the EU.  In accordance with the 
goals of Lisbon Agenda1, the Commission is committed to release the growth potential of 
these companies by reducing th eir administrative burden.  
This impact assessment presents the Commission's initiatives to simplify the business 
environment and particularly the financial re porting requirements for micro-entities. It 
describes the problems related to the current Accounting Directives2, presents a number of 
policy options, analyses their feasibility and, where applicab le, their expected impacts. 
 
1.1. European Economic Recovery Plan   
In the aftermath of the current financial cr isis, the Commission issu ed a Communication: A 
European Economic Recovery Plan3  setting out an ambitious acti on plan to restore consumer 
and business confidence by coordinating EU and national level actions. In the area of 
business, the European Economic Recovery Plan  pledges to substan tially reduce the burden 
on SMEs and micro-enterprises by among ot hers "removing the requirement on micro-
enterprises to prepare annual accounts". This exemption was already announced, together 
with the intention to proceed with an overh aul of the Accounting Directives, by Internal 
Market Commissioner Mr Charlie McCreevy4 in September 2008. Public consultations will 
be held in early 2009, with legal proposal exp ected in the autumn of 2009. The proposal to 
remove the requirement on micro- enterprises to prepare annual accounts is thus interlinked to 
the more general overhaul of the Accounting Di rectives, including revise d provisions suitable 
for micro enterprises. The general overhaul will  require more time before it is able to bring 
effects and therefore the Commission considers that measures are needed to reduce the burden for micro entities in short term. 
 
                                                
 
1  Webpage devoted to Lisbon Agenda: 
http://ec.europa.eu/growthandjobs/faqs/background/index_en.htm . 
2  Accounting Directives are: 
• Fourth Council Directive of 25 July 1978 based on Article 54 (3) (g) of the Treaty on the annual 
accounts of certain types of companies (78/660/EEC) 
Consolidated text: http://eur-lex.europa.eu/L exUriServ/LexUriServ.d o?uri=CELEX: 01978L0660-
20070101:EN:NOT . 
• Seventh Council Directive of 13 June 1983 based on the Article 54 (3) (g) of the Treaty on 
consolidated acco unts (83/349/EEC) 
http://eur-lex.europa.eu/LexUriServ/ LexUriServ.do?uri= CELEX:01983L0349-
20070101:EN:NOT . 
3  Communication from the Commission to the European Council: A European Economic Recovery Plan. 
COM(2008) 800 final. 26.11.2008,  http://ec.europa.eu/economy_finance/publications/publication13504_en.pdf
. 
4  European Commission. 2008. Press Release. McCreevy announces major initiatives on accounting rules 
for small businesses: 29.09.2008, 
http://europa.eu/rapid/pressReleasesAction.do?r eference=MEMO/08/589&f ormat=HTML&aged=0&la
nguage=EN&guiLanguage=en . 
 
EN 5   EN 1.2. Policy Context 
The Accounting Directives as well as Intern ational Financial Reporting Standards (IFRS) 
were developed with the invest or protection as an overarchi ng objective. It has been a 
consensus for the last decades that such invest or oriented financial statement will also serve 
most of the needs of other stakeholders in a satisfactory manner. The Directives have not 
introduced specific accounting rules for micro-en tities or SMEs, but instead, they include 
certain opt outs from the rules designed for bigger companies.  
It continues to be the Commission's view that appropriate bookkeeping is  essential to sound 
management and prosperity of th e business in the long term. It is in the interest of every 
entrepreneur, regardless of any legal obligations, to keep records of sales, and manage cash 
flows by monitoring receivables and li abilities to secure liquidity as  well as keep track of cost 
to ensure profitability of the business. 
It should be pointed out that a ny company, regardless of size or  form, can also in the future 
voluntarily follow the requirements laid down in the Accounting Directives, as well as audit 
and publish such information.  
Furthermore, should a micro entity be list ed on regulated stock exchange, it would 
automatically fall into the scope of the Transparency Directive5 and as a result be obliged to 
present periodic financial information according to Regulation 1606/2002 (IAS Regulation)6 
and/or Accounting Directives as  implemented by Member States. 
The proposals of the Commission that are discussed in this document are thus not intended to 
prohibit or limit bookkeeping, nor the preparation and audit of financial statements that 
Member States, financial regulator s or companies consider necessa ry or useful. The aim is to 
reduce any administrative obligations deemed unnecessary and to facilitate alignment of 
reporting requirements to real need s of users and of preparers.  
 
1.3. The EU acquis in company law, accounting and auditing 
In the fields of accounting a nd auditing, the Company Law Di rectives establish minimum 
requirements for the annual accounts of main ly limited-liability companies (Fourth 
Directive)7 and group accounts (Seventh Directive)8. A separate directive lays down the 
requirements for the audit of the annual accounts9. 
                                                 
5  Directive 2004/109/EC of the Eu ropean Parliament and of the Coun cil of 15 December 2004 on the 
harmonisation of transparency requirements in relati on to information about issuers whose securities are 
admitted to trading on a regulated market and amending Directive 2001/34/EC, 
http://eur-lex.europa.eu/LexUr iServ/LexUriServ.do?uri=C ELEX:02004L0109-20080320:EN:NOT . 
6  Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the 
application of international accounting standards, 
http://eur-lex.europa.eu/LexUr iServ/LexUriServ.do?uri=C ELEX:02002R1606-20080410:EN:NOT . 
7  See footnote 2. 
8  See footnote 2. 
9  Directive 2006/43/EC of the European Parliament and of the Council of 17 May 2006 on statutory 
audits of annual accounts and co nsolidated accounts, amending Co uncil Directives 78/660/EEC and 
 
EN 6   EN The purpose of general financial statements is to inform stakeholders (investors, creditors, 
employees and other interested parties) about the financial po sition of a company. The Fourth 
Directive was adopted in 1978 in order to create a harmonised set of requirements for the external reporting of all limited liability comp anies in the EU. In 1983, the Seventh Directive 
was adopted and added a common set of requireme nts for consolidated financial statements.  
In the time when Accounting Directives were developed the prevailing  idea was that SMEs 
are not fundamentally different from large companies and should follow similar reporting 
requirements. This view has now changed with acknowledgment of distinct needs of the SME 
group as well as segments within that group – la id down as the "think small first" principle. 
Moreover during the past 25 year s there have been several m odifications to the Accounting 
Directives
10, notably through adding new disclosure requirements and accommodating the use 
of International Financial Re porting Standards (IFRS) for th e listed companies. Through the 
adoption of the IAS Regulation listed compan ies have to present IFRS accounts, and are 
consequently relieved from many of the requirements in the F ourth and Seventh Directives. 
These Accounting Directives, however, still fo rm the basis for SME accounting in the EU. 
The Accounting Directives have led to an impr oved financial reporting environment in the EU 
and that has been in th e interest of preparers11 as well as users12. However the development of 
the Accounting Directives was focused on the needs of large and listed companies. Every 
subsequent addition to the A ccounting Directives has created new requirements, and whilst 
every added requirement may have been justifie d in its own right, it is now important to 
reconsider whether less useful requi rements should be removed or replaced13 to adapt 
accounting rules to the needs of the SMEs that have become th e main target group of the 
Directives.  
 
1.4. Definition of micro entities  
The focus of the Commission proposal is si mplifying the reporting and thus reducing the 
administrative burden of micro entities. Furt her simplification proposal for all SMEs will 
follow in autumn 2009 as part of Accounting Di rectives revision process, and thus are not 
discussed in this document.  
                                                                                                                                                         
83/349/EEC and repealing Council Directive 84/253/EEC (Text with EEA relevance), 
http://eur-lex.europa.eu/LexUr iServ/LexUriServ.do?uri=C ELEX:02006L0043-20080321:EN:NOT . 
10  See Annex 6 Current reporting requir ements of the Fourth Directive and 
http://ec.europa.eu /internal_market/acco unting/index_en.htm . 
11  Defined as company / management preparing the financial information (See Annex 5 Users' and 
preparers' needs from the financial reporting). 
12  Defined as stakeholders relying on the financial information, such as for example investors, providers 
of financing, employees (See Annex 5 Users' and preparers' needs from the financial reporting). 
13  The Seventh Company Law Directive does 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 7   EN The Commission communication of 2007 suggests th at a category of micro entities as the 
smallest companies could be introduced into the EU legislative framework with the following definition: 
– no more than ten employees, – balance sheet total no t higher than € 500,000 and 
– turnover not higher than € 1,000,000. It should also be noted that a "micro entity " category has already been introduced in many 
Member States. 
Table. 1.  Thresholds for the different categories of companies. 
Category
Threshold Micro Small Medium 
balance sheet total ≤ € 500,000 ≤ € 4,400,000 ≤ € 17,500,000 
Net turnover ≤ € 1,000,000 ≤ € 8,800,000 ≤ € 35,000,000 
Average number of 
employees during 
the financial year ≤ 10 ≤ 50 ≤ 250 
Source:  The Fourth Directive 1978, Communication form th e Commission on a simplified business environment for companies 
in the areas of company law, accounting and auditing 2007. 
 
1.5. Practices in the main trading partners of the European Union 
In other economically comparable jurisdictions  and key trading partne rs of the European 
Union, the financial reporting requirements fo r small companies are generally less demanding 
than the requirements of the EU Accounting Directives. 
In the US, only companies listed on stock ex changes regulated by the U.S. Securities and 
Exchange Commission (SEC) are required to prepare and publish their accounts under US 
Generally Accepted Accounting Pr inciples (GAAP) (with exceptio n of third country issuers 
that can also report under IFRS). For unlisted co mpanies there is generally no legal obligation 
to prepare or publish financial statements. Th ey may only prepare tax returns following the 
tax accounting rules, or they may choose to prepare financial statements on a voluntary basis 
to their stakeholders. If financial statements are prepared, companies may utilise simplifications available for private (not listed ) companies, depart from some standards or 
follow standards other than US GAAP. It is estimated that around 30% of private companies 
do not release any financial info rmation to external users. 
There is no evidence that th is situation has been a hindran ce to US companies in obtaining 
external financing. On the cont rary, the US has traditionally been generally regarded as 
having the most liquid markets for external SM E financing, prior to the current financial 
crisis. 
 
EN 8   EN In Japan, small companies prepare financial statements under Japanese GAAP for taxation 
purposes. 
In Canada, all companies must prepare financia l statements for their shareholders. There are 
simplified options for small companies and no requi rement to file them in a public register. 
A comparison between the situation in the EU with its trading partners may provide an 
additional source of information in relation to the possible effects. Furthermore, the 
comparison is of relevance with regard to EU's relative competitiveness and the goals of Lisbon Agenda.  
 
1.6. Opinion of the Commission's Impact Assessment Board 
Due to the importance of rapidly implementing the European Economic Recovery Plan, work 
on the initiative was carried forw ard compared to original pla nning. As a result,  no specific 
Inter-Service Steering Group was created and, following the Board's agreement, the report 
was submitted to it less than two weeks before  examination. External stakeholders were, 
however extensively consulted on the basis of COM (2007)394 and, more recently, through 
the High Level Group of Independent Stak eholders on Administrative Burden.  
This impact assessment has been prepared by the Commission staff. A draft of the impact 
assessment was submitted to the Commission's Impact Assessment Board, which provided its 
opinion on 2 February 2009. The recommendations of the board led to changes in the draft impact assessment, in particular providing an ex tended analysis of the impact on stakeholders 
as presented in Annex 5, analys is of the current accounting oblig ations as presented in Annex 
6, more detailed analysis of the economic impact  of the measure including the effect on the 
audit profession, impact on single market and le vel playing field (Chapter 5). Furthermore, 
the analysis on administrative burden (Chapter 3.1) the interaction be tween the proposal and 
the overhaul of the accounting Directives (Chapter 5) was improved.  
 
2. P
ROCEDURAL ISSUES , CONSULTATION OF INTERESTED PARTIES AND SUBSIDIARITY  
The Commission has already taken a number of  simplification initiatives to reduce the 
administrative burden for small and medium-si zed companies (SMEs). These are described 
below: 
 
Target: reduction of 25% of administrative burdens by 2012 
In 2005, the Commission launched a programme for measuring administrative costs and 
reducing administrative burdens  in order to improve the business environment for EU 
companies and to make the EU economies fit to meet the challenges of a more competitive 
global business environment in which they have to operate. 
 
EN 9   EN The Commission outlined the way for achievi ng this by adopting, on 14 November 2006, an 
updated simplification programme14 and the guidance on measuring administrative costs and 
reducing administrative burdens15. Both programmes emphasise d the need to generate 
tangible economic benefits. They were comple mented by the Action Programme adopted on 
24 January 200716 which fixed the aim of reducing admi nistrative burden s on businesses in 
the EU by 25% by the year 2012 and launched th e first package of fast-track proposals. 
The Action Programme was endorsed by the Spring European Council in March 200717. The 
European Council underlined that reducing administ rative burdens is important with a view to 
boosting Europe's economy, especi ally given the poten tial benefits this can bring for small 
and medium-sized enterprises (SMEs). It stresse d that a strong joint ef fort of the European 
Union and the Member States is necessary to reduce administrative burdens within the EU. 
A key part of the Action Programme consists of  a large-scale measurem ent of administrative 
costs incurred by businesses in meeting legal oblig ations to provide information as explained 
in detail in point 2.2. 
 
2.1. Commission Communication of 10 July  2007 and stakeholder consultation 
Accounting and auditing have been identified as key areas for reducing administrative burden 
for European companies. Consequently, res earch was conducted on the Fourth and the 
Seventh Directives (the "Accoun ting Directives") in order to identify the potentially most 
burdensome requirements. The initial findings i ndicated that several amendments could be 
made to the Accounting Directives in orde r to simplify the reporting requirements, in 
particular for SMEs.  
These initial ideas and suggestions were disc ussed with Member States in the Accounting 
Regulatory Committee18 (ARC) and the Audit Regulatory Committee19 (AuRC) at several 
meetings from December 2006 onwards. Fo llowing these discussions, the Commission 
published a Communication20 in July 2007 setting out its ideas and identifying potential 
                                                 
14 Communication from the Commission to the Council, the European Parliament, the European 
Economic and Social Committee and the Committee of  the Regions - "A strategic review of Better 
Regulation in the European Union" (COM(2006)689 final, OJ C 78, 11.4.2007, p. 9), http://ec.europa.eu/enterprise/regulation/better_regulation/docs/docs_admin_b/en_689.pdf
. 
15 Commission working document of 14/11/2006 – "Measuring administrative costs and reducing 
administrative burdens in the Europ ean Union" (COM(2006)691 final), 
http://ec.europa.eu/enterprise/regulation/better_regulation/docs/en_691.pdf . 
16 European Commission. 2007. Action Programme for Reducing Administrative Burdens in the European 
Union. COM(2007) 23, 
http://ec.europa.eu/enterprise/regulation/better_regulation/docs/com_2007_23_en.pdf . 
17  European Council. 2007. Presidency Conclusions of the Brussels European Council - doc. 7224/07 
CONCL 1, 
http://europa.eu/rapid/pressReleasesAction. do?reference=DOC/07/1&format=HTML&aged . 
18  ARC website: http://ec.europa.e u/internal_market/accounti ng/committees_en.htm#arc . 
19  AuRC website: http://ec.europa.eu/internal_market/auditing/committee/index_en.htm . 
20  Communication from the Commission on a simplified business environment for companies in the areas 
of company law, accounting and auditing, COM (2007) 394 final, 10.7.2007. Available on DG MARKT's website at: http://ec.europa.eu/internal_market/company/simplification/index_en.htm
. 
 
EN 10   EN amendments/changes to the Accounting Directiv es. Special attention was given to finding 
further relief for reporting by small and medium-sized companies.  
In this Communication the Commission proposed to introduce a new category of so-called 
"micro entities" in the Fourth Directive, which could be optionally exempted by Member 
States from the Accounting Directives. Stake holders were invited to submit comments on the 
proposals by mid-October 2007. 
In all, 18 Member States' governments,  the government of one EEA country and 
110 stakeholders, including European bodies and a ssociations, reacted to the Communication. 
These contributions originated from 23 count ries in total, including 22 Member States21.  
Four fifths of all stakeholders who responded to the public consultati ons took either a positive 
or negative stance to the exemption of micro en tities. The majority (59% of them) was in 
favour of exempting micro entities from the re quirements of the Acc ounting Directives. The 
positions of the organisations representing small and medium-sized enterprises were varied22. 
The exemption was supported by the majority of the companies, public authorities, banks and 
insurance companies that replied to the c onsultation. The biggest opposition came from 
accountants and auditors, followed by commercial information providers.  
Those respondents that welcom ed the proposal considered it as a major reduction of the 
administrative burden for those entities, wh ich would encourage new start-ups through 
removal of disincentives to in corporation. A smaller number of  commentators took the view 
that this would lead to problems for smalle r companies in raising external funding and 
communicate with stakeholders.  
The proposal has been discussed with Member States in the ARC at several occasions. 
Several Member States supported th e initiative and believ ed that it would be  an important step 
towards tangible simplification of accounting rules for the smallest entities. It would also give freedom at national level to align financia l reporting requirements with other types of 
reporting required by companies (tax, statistics, social security etc). Other Member States 
feared that the proposal would lead to signifi cant reduction in information and to the de-
harmonisation of financial reporting in the EU (for details please cons ult Annex 4: Results 
from the stakeholder consultation) 
 
2.2. Measurement of cost and determination of thresholds for micro-entities 
In connection with the aforemen tioned simplification initiative , a measurement exercise was 
launched in July 2007 in order to determine th e costs created by the information obligations 
(IOs) contained in the EU company law acquis.  
                                                
 
21  A report on the reactions recei ved from Member States and stakeh olders between July and December 
2007 is available on the website of the Director ate-General for Internal Market and Services (DG 
MARKT) at http://ec.europa.eu/internal_market/company/simplification/index_en.htm .  
See also Annex 4: Results from the stakeholder consultation. 
22  Some of the organisations were in favour (e.g. BUSINESSEUROPE) of the exemption while other 
opposed it (e.g. UEAPME). For all the responses please see: 
http://circa.europa.eu/Public/irc/ma rkt/markt_consultations/library?l =/company_law/simplifying_enviro
nment&vm=detailed&sb=Title . 
 
EN 11   EN This measurement was carried out by the c onsortium Capgemini/Ramboll on behalf of the 
Commission. This baseline measurement covere d obligations stemming from EU legislation 
and from national measures transposing that legislation. The met hodology used was based on 
the ‘EU Standard Cost Model’, inspired by different variants of the Standard Cost Model 
(SCM)23 currently used for measurements at na tional level by a number of Member States. 
The EU measurement focused on the areas with the most burdensome information 
obligations, which included among others the ar eas of company law/accounting and auditing.  
The measurement started the mapping of EU IOs for company law in early August 2007 and 
finalized it in the beginning of September.  Mapping of the national IOs was commenced 
during November 2007. The results of the nationa l mapping were then validated via the High 
Level Group of National Regulatory Experts24. This high level group as well as the High 
Level Group of Independent Stakeholde rs on Administrative Burdens (HLG)25 were also 
consulted on the question of whether to proce ss certain proposals in a fast track procedure. 
Relevant pre-final results of the measuremen t exercise are referred to in this impact 
assessment. 
DG Internal Market and Services also launched in September 2007 a targeted study on the 
"Evaluation of Thresholds for Micro-Entities"26 that was delivered in  2008. It simulated how 
large population of companies w ould be covered by different combinations of threshold 
levels. Results are used in the impact assessment. 
The micro threshold levels proposed are consistent with previous proposal by the 
Commission. They are also consistent with the thresholds commonl y used by statistical 
offices and Eurostat as well as Member States. 
 
2.3. High Level Group on Administrative Burden Reduction 
The High Level Group of Independent Stak eholders on Administrative Burdens (HLG)27 
spent a number of meetings discussing the wa ys to reducing the burden in the area of 
company law and accounting. A majority of the members of the HLG concluded that several 
of the accounting obligations stemming from the Fourth Directive were more of a hindrance 
than help. Therefore in their report28 the HLG asked for rapid enactment of a Member State 
option to exempt micro entities and called for a general overhaul of the Accounting Directives 
with the "think small first" as guiding principle. 
 
                                                 
23  See footnote 15. 
24  For details on the High Level Group of Nationa l Regulatory Experts see DG ENTR's website at 
http://ec.europa.eu/enterprise/regulation/better_regulation/high_level_group_en_version.htm . 
25  For details on the High Level Group of Independent Stakeholders on Administrative Burdens see: 
http://ec.europa.eu/enterprise/admin-burdens-reduction/highlevelgroup_en.htm . 
26  CSES. 2008. Evaluation of Thresholds for Micro-Entities, 
 http://ec.europa.eu/in ternal_market/accounting/docs/s tudies/micro_entity_en.pdf . 
27  See footnote 25. 
28  High Level Group on Administrative Burden Reduction opinion, p. 6, 
http://ec.europa.eu/enterprise/admin-burdens-reduction/docs/080710_hlg_op_comp_law_final.pdf . 
 
EN 12   EN 2.4. European Parliament 
The European Parliament's resolution of 21 May 200829 welcomed the general objective of 
the Commission Communication on a simplified business environment, reducing the administrative burden for businesses in Eur ope and enabling them to compete more 
effectively and achieve greater success in hi ghly competitive global environments. The 
Parliament furthermore welcomed the introduction of micro entities, which were to be exempt 
from the accounting, auditing and disclosu re requirement under European law. 
The European Parliament's resolution of 18 December 2008
30 reminds the Commission that 
very small undertakings (micro entities) ar e excessively burdened with the existing 
accounting rules and that the Me mber States should have th e option of exempting these 
undertakings that conduct their ac tivities at a local or regional level fully or partly from the 
statutory accounting obligations. Furthermor e, the European Parliament calls on the 
Commission to come forward with a legislative pr oposal that allows Member States to exempt 
these undertakings from the scope  of the Account ing Directive 
 
2.5. Other related Commission's proposals 
In late 2007 Commission launched a Fast Track31 legislative action to introduce two technical 
changes to the Accounting Dire ctives. These concern a Memb er State option to abolish 
formation expenses disclosure for medium size companies and an alignment of consolidation 
rules to those of the International Accounting Standards.  These amendments were supported 
by the European Parliament on 18 December 200832. Adoption is expected  in the beginning of 
2009. 
 
2.6. Subsidiarity 
Exempting micro entities from the requirements of  Accounting Directives would decrease the 
level of harmonisation EU wide. However, a ny harmonisation is not an end to itself. 
Following the principle of subsidia rity, decisions should be taken as closely as possible to the 
citizens and constant checks should be made as  to whether action at Community level is 
                                                 
29  European Parliament resolution of 21 May 2008 (A6-101/2008), 
http://www.europarl.europa.eu/sides/getD oc.do?type=TA&refe rence=P6-TA-2008-
0220&language=EN . 
30  European Parliament resolution of 18 December 2008 (B6-0626/2008), 
http://www.europarl.europa.eu/sides/getD oc.do?type=MOTION&reference=B6-2008-
0626&language=EN . 
31  Proposal for a Directive amendi ng 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, 
http://register.consilium.europa.eu/pdf/en/08/st10/st10366.en08.pdf . 
32  European Parliament. 2008. Euro pean Parliament legislative resolu tion of 18 December 2008 on 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 conso lidated accounts. P6_TA(2008)0631, 
http://www.europarl.europa.eu/sides/getDoc .do?pubRef=-//EP// TEXT+TA+P6-TA-2008-
0631+0+DOC+XML+V 0//EN&language=EN . 
 
EN 13   EN justified in the light of the possibilities availabl e at national, regional or local level. Principles 
of proportionality and necessity require that  any action by the Union should not go beyond 
what is necessary to achieve the objectives of the Treaty. Therefore, when analysing the 
impacts of the proposed measure, it should be  carefully considered  whether EU level 
harmonisation is really n ecessary or not. The fact that EU harmonisation is required for bigger 
companies, may not be the case when micro en tities are concerned, especially if they are 
operating only on local level. 
Some simplification measures can already be  taken in Member States. The Accounting 
Directives are "minimum harmoni sation" instruments, i.e. Memb er States can put in place 
more extensive requirements nationally, or refr ain from doing so. The Di rectives also contain 
numerous options for simplified rules for SMEs. However, many of those have not been taken 
up by Member States due to reasons including different characterist ics of national economy, 
accounting and business cultures. 
Only some Member States are fully utilising the simplification options  already provided by 
the Directives33. In order for any simplification measures to be effective for preparers and 
users, Member States must make use of the possibilities offered by the changed directives. 
Further simplification could be achieved in thos e Member States that are not making full use 
of them. This first step of simplification would not need change of legislation at EU level but 
at the Member States. Therefore,  a regular analysis of national legislation should take place, 
to assess which simplification measures can be possible in Member States at national level. 
However, most obligations entailing admini strative burdens derive from the Accounting 
Directives. In order to allow the Member States to exempt micro entities from the 
requirements of the Accounting Directives, the Directives themselves need to be changed. 
This action needs to be taken at EU level. 
 
3. PROBLEM DEFINITION  
The Accounting Directives cover companies w ith limited liability and certain types of 
partnerships. The stated purpose of this sc ope is to provide protection for external 
stakeholders, in particular cred itors. However, many of the smallest companies in the scope of 
the Directives have a very lim ited number of external stakehol ders. Very often the owners of 
these limited companies, de facto, have to ple dge assets or provide personal guarantees in 
order to finance their business. In practice, the borderline be tween limited liability companies 
and unlimited liability companies is not clear-cut.  
The requirements of the Account ing Directives apply to all limited liability companies 
without regard to other factors (e.g. size, financ ing or type of activities). Notw ithstanding that 
the Directives contain exemptions for sm aller companies, small and medium-sized 
companies, these are often still subject to th e same rules as larger companies, and their 
specific accounting needs have rarely been a ssessed. In many situations, certain accounting 
                                                 
33  See Annex 2: Use of options by Member States. 
 
EN 14   EN information must be collected and processed only to satisfy legal obligations where there is no 
corresponding business need. This corresponds to  the definition of an  administrative burden34. 
Under the general issue of admi nistrative burden two elements can be further analysed:  
• Economic burden from administrative (complian ce) cost that is not  related to the size 
of the company and therefore disproportional for the smallest enterprises as compared 
to the larger enterprises 
• Misalignment between requirements of the Accounting Directives and  the needs of 
the micro entities and the users of their financial statements  
 
3.1. Disproportional administrative (com pliance) cost as economic burden 
National measurements carried out in the year s until 2006 and the results of the stakeholder 
consultation identified company law, including th e fields of accounting and auditing, as one 
of the most burdensome areas of the EU acquis.  
Unnecessary and disproportionate  administrative costs severe ly hamper economic activity. 
This is especially so for start-up businesses and small enterprises with limited administrative and financial resources which are sensitiv e to excessive administrative obligations. 
Companies, in particular SMEs, have indicate d that the increasing complexity and widening 
scope of the accounting rules have led to extensiv e costs which divert resources from the core 
business activities of companies. 
An expert group report
35 identified that on average, a business with fewer than ten employees 
has to face a regulatory burden (measured per em ployee) that is roughly twice as high as the 
burden of a business with more than ten but le ss than twenty employees and about three times 
as high as the burden of businesses with more th an twenty but less than fifty employees. For 
bigger companies, the burden per employee is only one fifth or less of that of small enterprises.  
In other terms: where a big enterprise spen ds one Euro per employee to comply with a 
regulatory duty a medium-sized enterprise might have to spend around four euros and a small business up to ten euros. It is illustrated on the graph below. 
                                                
 
34  For definition of administrative costs and burdens see: 
http://ec.europa.eu/enterprise/a dmin-burdens-reduction/faq_en.htm . 
35  European Commission. 2007. Report of the Expert Group. Models to reduce the disproportionate 
regulatory burden on SMEs, pp. 16-17, http://ec.europa.eu/enterprise/entrepreneurship/support_measures/regmod/regmod_en.pdf
. 
 
EN 15   EN Fig. 1.  Administrative burden by company size. 
 
Source: European Commission. 2007. Report of the Expert Group.  Models to reduce the disproportionate regulatory burden on 
SMEs, p. 17. 
Moreover, the substantial part of the administra tive cost is fixed. It is further confirmed by a 
recent survey by Eurobarometer36 that shows that micro entities  sacrifice most resources to 
complying with the required paper work (9% of time) while this burden does not reach 0.5% 
for large scale enterprises. 
The fact that there are approximately 7 milli on EU companies that ar e subject to reporting 
rules in the scope of the Directives inevitably creates a costs and can hinder efficient use of 
capital for productive purposes. Of course, not all of the wo rkload can be considered 
"burdensome", as it also supports the busines s activities of the company. It is, however, 
important to reflect on the different types of reporting requ irements that a company is exposed 
to and the associated costs. This is particularly important for small entities 
As outlined in a study prepared by Ramboll Management for the Commission in July 200737, 
small enterprises are faced with a dispropor tionate regulatory burden in comparison with 
larger businesses. The disproportionate distri bution of regulatory cost s can be explained by 
several factors. First, a large pa rt of the regulatory requirements results in costs that are fixed 
or not related to the size of a company. Filling in a form takes a certain amount of time, and as 
long as the information requested is the same, it makes no difference, in terms of time consumption, if it is a larg e or small company. Second, la rger businesses can employ 
specialists to deal with regulatory obligatio ns more efficiently. For larger businesses, 
investment in computerisation and rationalisation of regulatory  obligations will often be 
worthwhile due to the larger num ber of cases to be dealt wit h. Third, in small companies the 
                                                
 
36  Eurobarometer. 2007. Observatory of European SMEs. Analytical report, p. 37, 
http://ec.europa.eu/public_opinion/flash/fl196_en.pdf . 
37  Ramboll Management, July 2007, Study on administrative costs of EU Company Law Acquis, pp. 20-
35, 
http://ec.europa.eu/internal_market/company/docs/simplification/final_report_company_law_administr
ative_costs_en.pdf . 
 
EN 16   EN manager and owner himself will be ultimately legally responsible for taking care of the 
regulatory obligations. Very often these obligat ions, as typically in case of accounting and 
preparation of statutory financ ial reports, are outside his/her key competence and they are 
outsourced to external professionals. Nevertheless, the owner/manager will also need to use his/her time to ensure that outsourcing is well managed and, ultimately, that all the obligations 
are fulfilled. This means that the most valu able resource of the small business will be 
occupied with tasks that do not directly contribute to the succe ss of the company.  
Furthermore, as discussed in the following Chap ter, this disproportional cost of complying 
with the Directives' requirements is combined w ith the fact that the micro entities usually 
have very low number of external stakeholders
38 and that the information needs of those 
stakeholders are generally not well se rved by the current requirements.  
 
3.2. Misalignment between requirements of th e Directives and the needs of micro 
entities and the users of their financial statements 
The accounting cultures across Europe are differe nt. In very general terms, the EU area 
encompasses Anglo-Saxon and c ontinental accounting cultures,  the latter also differs 
significantly even betwee n close neighbours. In some Member  States wide use of published 
financial accounting data is generally encourag ed by the companies, whereas in others it is 
viewed as revealing sensitive information. Also ta x authorities differ in their use of financial 
accounting numbers and the amoun t of reconciliation required. 
Generally, stakeholders39 of very small companies are lim ited and differ significantly from 
those of big corporations. These companies are effectively owner-m anaged and statutory 
financial statements do not have significant relevance for the owners in reviewing the 
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's 
accounts. The source of financing is not the stock market but own resources, credit from 
banks or other financial institutions. 
The stakeholders of micro entities can be di vided into two categories: those who have the 
power or ability to demand information above and beyond the st atutory reporting 
requirements, and those who rely on information in the public domain. The first category usually includes banks, other providers of fina nce and tax authorities , while the second one 
includes, for example, suppliers, customers and employees.  
Most of the stakeholders with power to re quest information can get extensive financial 
information from companies and are generally not dependent on the statutory accounts with exemption of statistical offices which can extr act information from the statutory accounts in 
order to avoid additional burden on companie s. Furthermore, as regards banks and other 
providers of finance, the st atutory accounts prepared under re quirements of the Accounting 
Directives have a number of limitations that make them less suitable for information 
purposes:  
                                                
 
38  Based on survey in other OECD member (US) 90% of all companies has no more than 2 owners 
Kauffman. 2008. Firm survey, p.11, http://www.kauffman.org/up loadedFiles/kfs_08.pdf
. 
39  For additional information please see Annex 5 Users' and preparers' needs from the financial reporting. 
 
EN 17   EN • The information in statutory accounts is histor ical and very often out of date to bear 
relevance to the company's current circumstances.  
• Disclosures are based on minimum standards and do not provide as such the necessary 
information. For example, in the absence of a cash flow statement, users of statutory 
accounts of small enterprises are not able to  assess whether the company's day-to-day 
activities are generating cash.  
• Statutory accounts do not provide any forw ard looking information, nor do they assess 
the risks and opportunities of the company.  
Therefore, banks often require information beyond or not contained in th e statutory accounts. 
Often they also ask for the information in a different format more suitable for them. In 
addition, they may wish to review other f actors, for example the competence of the 
management or compare the budgeted figures w ith actual numbers. Thus banks demand more 
information that will allow them to assess rec overable amount of assets  in case of bankruptcy 
and are not interested in sophisticated accrua l accounting vehicles such as deferred tax or 
goodwill40. Furthermore, creditors, sometimes, reque st tailor made accounts for their needs so 
that do not need to perform additional analysis . On the other hand many of the data provided 
in statutory accounts include numer ous disclosures that are not re levant to the main users. 
Having said that, due to their power to dema nd information, they can also require audited 
accounts even in a situati on where this would not be a legal requirement.  
It should be noted that tax authorities usua lly have special reporting needs which differ 
significantly from general financial reporting. As regards other stakeholders of micro entities, 
the usefulness of the statutory accounts is lik ewise hampered by the shortcomings discussed 
above. Customers may wish to know about a small company's ability to remain in business if it is a major supplier; potential suppliers ma y want to know about the company's policies 
toward paying its creditors; and external shareh olders will want information on the value of 
their shares and the value of th e company, as well as the future prospects, strategy and plans 
of the management. This information is only par tly to be gained from the statutory accounts, 
and it is often out-of-date by the time the accounts are published. (e.g. in the UK it takes on 
average 10 months before  accounts are published). 
As regards suppliers and customers, small compan ies’ relationships with them are often based 
on mutual trust rather than on (access to) financial information. Again, the information needs are usually not covered by the financial info rmation provided by the Accounting Directives.  
The insurers of the trade credit
41 are another group that may be  interested in the accounts of 
micro entities. If necessary, a micro entity can always provide information on a voluntary 
basis. The same applies when providing more de tailed information to those required by the 
Directives which can result in better cred it rating and lower cost of insurance. 
                                                 
40  E.g. DRSC. 2008, Financial Reporting from the Perspective of Banks as a major User Group of 
Financial Statements, p. 16, 
http://www.standardsetter.de/drsc/docs/press_rel eases/080917_ASCG_Surveyontheexpectationsofbank
s.pdf . 
41  Trade credit insurance is an insu rance of trade receivables against de fault, insolvency or bankruptcy of 
the trading partner. 
 
EN 18   EN Micro-entities themselves can also be the users of other micro entities' financial statements, 
for example, when they assess the creditworthine ss of their potential clients. Discussions with 
stakeholders suggest that current complexity of accounting statements makes them useless for 
micro entrepreneurs, as they often cannot understa nd the content of the re ports without help of 
specialised analyst/accountant. Thus usability of the micro-entities financial reporting is 
reduced both for managerial purposes a nd for investigating business partners.  
Consequently, the main users of micro acc ounts are more likely to demand specific 
information (for example on r ecoverable amount of assets (b anks) or taxable profit (tax 
authorities) rather than various disclosures or sophisticated ac crual accounting information. At 
the same time, companies that have to produce essentially investor or iented accounts devote 
time and money to accounting techniques th at use no purpose and only satisfy legal 
requirements. They often need help from exte rnal accountants to prepare these accounts as 
these techniques are often complex and not the core competence of the managers of micro 
business. For the same reason the statutory acco unts seldom provide useful information for 
managers to utilise. Furthermore, most of th e additional information is not of interest to 
stakeholders of SME's. 
As illustrated in the Annex 6 Current reporting re quirements of the Fourth Directive, many of 
the current requirements in the Accounting Direc tive are rather heavy and laborious to comply 
with and thus not suitable for the micro entities. Such requirements are for example: 
depreciation rules that ar e not aligned with tax accounting, accounting for deferred tax, 
goodwill and borrowing cost, and the numerous di sclosure requirements, most importantly 
various notes on the accounts. Especially the latte r requires a great deal of resources of micro 
entities, as it is not usually the area of their co re competence. In case of micro entities, most of 
these notes have little informa tive value to stakeholders. Curre ntly, Member States have a 
possibility to exempt micro en tities only from some of thos e requirements, and only on a 
piecemeal basis, without a possibility to make  a general exemption. This prevents Member 
States from designing accounting rules adapted to micro entities' needs. 
 
3.3. How large is the problem? 
A study conducted for the Commission42 found that about 25% or 7m  of all enterprises in 
Europe are subject to the requirements of th e Accounting Directives, i.e. they are limited 
liability companies. 
Table. 2.   Number of all enterprises in the EU and number of enterprises covered by the 
Fourth Directive on Accounting. 
No. of enterprises  
(all legal forms) No. of companies covered by 
the Fourth Directive % 
28,207,491 7,158,209 25.4% 
Source: CSES. 2008. Evaluation of Thre sholds for Micro-Entities, p. 15. 
 
                                                 
42  See footnote 26 , p. 15.  
 
EN 19   EN Calculations carried out  for the Commission by the Centre fo r Strategy & Evaluation Services 
LLP show that some 5.4 million (around 75%) of  the companies within the scope of the 
Fourth Directive are micro entities. 
Table. 3.   Estimated number of companies in the categories. 
Micro Small Medium Large Listed Total 
5,369,738* 1,477,882 206,419 96,562 7,608 7,158,209 
75% 21% 3% 1% 0.1% 100% 
*when thresholds for turnover ( ≤€1m) and employment ( ≤10) are combined. 
Note: Figures for medium and large companies are estimations based on Ramboll 2007 and Ramboll 2005, the 
total figure and figure for micro entities is from CSES 2008. Figure for small companies is estimated based on 
all studies. 
Source:  CSES study "Evaluation of Thresholds for Micro-Entiti es" (2008), Ramboll "Study on administrative costs of the EU 
Company Law Acquis" ( 2007), Ramboll Management. 2005. Repor t on impacts of raised th resholds defining SMEs, 
Commission Services analysis. 
A study prepared by Ramboll Management for the Commission in July 200743 concluded that 
the different reporting requirements took the foll owing amounts of time to perform for micro 
entities (table below, left hand columns)44. For illustrative purposes, standard amounts for 
internal and external costs could be used and would give the results presented in the right 
hand columns of the grid.  
Table. 4.   Assessment of administrative burden: Ab ridged balance sheet*, micro entities. 
Time per company (minutes) Burden per company (EUR) 
Data requirement Internal 
time External 
time Total time Internal 
cost External 
cost Total 
burden 
Statement by Management  50 50  93 93 
Balance sheet  200 200  371 371 
Notes  220 220  408 408 
Due approval  115 115  213 213 
Publication   15 15  28 28 
Total   600 600  1113 1113 
Note:  Internal cost:  45 EUR/hour 
 External cost: 111 EUR/hour 
In this impact assessment an update cost per company of €1558 and burden of €1169 will be used (see Annex 1 Quantitative analysis of micro entities  exemption). An updated study by the Consortium shows that up to 30% of the costs are internal. 
Administrative cost is a total cost that a compan y incurs for collecting and processing of information. 
Administrative burden is cost incurred solely due to legal obligation. 
* Abridged balance sheet contains less information than complete  balance sheet, as specified in  Article 11 of the Fourth 
Directive.
 
Source:  Ramboll Management, 2007, Study on administrative cost s of the EU Company Law Acquis, p.22, Consortium Study 
2008., Commission Services analysis. 
The above gives an approximation that the aggreg ated administrative bu rden on the EU level 
would total €6.3 billion.  
                                                 
43  See footnote 37, p.20. 
44 The Ramboll 2007 (see footnote 37) study also contains similar information for small entities, p. 20 and 
medium-sized entities, pp. 24, 31. 
 
EN 20   EN It is important to highlight th at the above figures are very approximate, and relate to the 
complete preparation of the accounts and all disc losures. It is, however, important to keep in 
mind that also limited reductions in the requirements at aggregate level  lead to considerable 
savings (See further Chapter 6). 
The latest study by a Consortium45 estimates the total admini strative cost for the Annual 
Accounts / Company law priority area cons isting of seven Company Law Directives46 is 
€22.7bn. 84.9% of this administrative cost arises fr om the Fourth Council Directive. The total 
administrative burden (costs incurred solely du e to the legal obligations) is estimated at 
€12.1bn, and that of accounting obligations at €10bn. 
The study pointed out that small enterprises are faced with a disproportionate regulatory 
burden in comparison with larger businesses: on average, a business with fewer than ten 
employees has to face a regulatory burden (meas ured per employee) that is roughly twice as 
high as the burden of a business with more than  ten but less than twenty employees and about 
three times as high as the burden of businesses with more than twenty but less than fifty 
employees. For bigger companies, the burden per em ployee is only one fift h or less of that of 
small enterprises. In other words, where a bi g enterprise spends one Euro per employee to 
comply with a regulatory requi rement, a medium-sized enterpri se might have to spend around 
four euros and a small business up to ten euros. 
 
4. OBJECTIVES  
In order to enhance the competitiveness of the micro-entities and release their growth 
potential, the administrative burdens should be  reduced to the minimum. The two specific 
objectives are, as illustra ted in the table below: 
• Reduction of the administrative burden of businesse s in the EU, especially for SMEs 
and micro-entities, while safeguarding ad equate protection and information to 
stakeholders.  
• Enable alignment of the micro-entities' re porting requirements with the real needs of 
users and preparers.  
                                                 
45  Ramboll, CapGemini (Consortium). 2008. Final repo rt. Measurement data and analysis. EU project on 
baseline measurement and reduction of  administrative costs. Please see: 
http://ec.europa.eu/enterprise/admin-burdens-reduction/action_program_en.htm#dd  and 
http://ec.europa.eu/enterprise/admin-b urdens-reduction/priority_annual_en.htm . 
46  The following directives were investigated: First Council Directive 68/155/EEC, Second Council 
Directive 77/91/EEC, Third Council Directive 78 /855/EEC, Fourth Council Directive 78/660/EEC, 
Sixth Council Directive 82/891/EEC, Seventh Council Directive 83/349/EEC, Eleventh Council Directive 89/666/EEC, Twelfth Council Directive 89/667/EEC. 
 
EN 21   EN Fig. 2.  Objectives tree. 
 
Source:  Commission Services analysis. 
 
5. POLICY OPTIONS AND THEIR EXPECTED IMPACT  
5.1. Description of policy options 
The information needs of different users may va ry significantly and ther e is no single solution 
to all accounting needs. Moreover, the limited administrative resources of the smallest enterprises cannot accommodate all potential us er needs. Deciding on the most relevant 
information needs and defining to what extent they should be served is therefore always a 
matter of policy choices. In the case of micro en tities, a balance needs to be struck between 
sufficiently serving the most relevant needs an d the efficient use of their limited resources 
(reduction of administrative cost).  
The Commission Services envisage  following possible policy options that will be discussed in 
detail in the sub-chapters below. In the cont ext of the economic crisis the timeliness of the 
reduction of the administrative burden is an important aspect: 
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 mandato ry accounting regime for micro entities. 
Option 5. Amendments to the Accounting Dir ective without introducing the micro category. General  
Specific 
Operational  Align accounting of 
micro entities to the 
needs of users and 
preparersReduce Accounting 
Burden for micro 
entities Enhance the competitiveness of the 
micro-enterprises and release their 
growth potential
Eliminate 
unnecessary reporting 
requirementsIdentify financial 
information of most 
relevance to usersRebalance the cost of 
accounting obligations 
for micro entities Objectives level 
 
EN 22   EN  
5.2. Option 0. No change to the Directives 
In the baseline scenario no action is taken and all 5.4 million micro entities will continue 
following the accounting rules of the Direc tives and spending annually around €6.3bn to 
comply with information obligations designed primarily for large companies with investor orientation in mind, save some exemptions that  the Fourth Directive allows for a broader 
small enterprises segment
47 (as defined by Art. 11 of the Fourth Directive).  
Table. 5.   Expected impact of Option 0: No legislative actions. 
Option Rebalance 
the cost of accounting 
obligations for 
micro entities Identify 
financial information of 
most 
relevance to users Eliminate 
unnecessary reporting 
requirements Protection of 
information for investors Political 
Acceptability Time to 
implement Max Burden 
reduction € (% of burden 
reduction*) 
0 0 0 0 0 0 0 0 
Note: "+" favourable, "-" unfavourable; "0" neutral; "?" impact unknown 
* as %of total burden stemming from the EU Co mpany Law legal acquis, estimated at: €12.1bn  
Source: Commission Services analysis. 
 
5.3. Option 1. Encourage a full use of ex isting options in the Accounting 
Directives 
5.3.1.  Summary 
Not all reductions of administ rative burdens require changes to the Accounting Directives. 
Even in case no legislative changes are ma de, the Commission can nevertheless call on 
Member States to utilise all the simplification opt ions already available in the Directives. This 
option targets mainly small companies and coul d in theory produce some significant burden 
reductions in those Member States wh ich have not fully made use of them48. This would not, 
however, facilitate further reduction in thos e Member States that are already using the 
options. Furthermore, it would not address the substantial issue of di screpancy between the 
Accounting Directives to the user needs of smallest companies (see Chapter 3.2) and the 
administrative burden resulting from this. 
The rules creating the reporti ng requirements are included in  the Directives and more 
significant changes to the accounting requirement s are not possible without changes to the 
Directives. A Commission recomme ndations or guidance is non-bi nding. In general, EU-wide 
substantial simplification in the area of accounting and auditing can only be achieved by revising the law.  
                                                
 
47  For definition of small segment threshold please see chapter 1.4. 
48  For example a recent analysis in  Sweden showed that a full use of all options and threshold levels 
would reduce the administrative burden by 20%,  
see: SOU. 2008. Enklare redovisning. SOU 2008:67, p.176, http://www.regeringen.se/conte nt/1/c6/10/76/85/4f21026a.pdf
. 
 
EN 23   EN  
5.3.2.  Analysis 
To mitigate (but not fix) the situation, the Commission can without resorting to legislative 
action try to use soft power on Member States  to utilise the wide range of simplifying 
possibilities currently offered by the Accounting Directives. 
There are around 40 Member State op tions in the Fourth Directive,  some of which allow for a 
more business friendly-accounting regime for es pecially small and medium-sized companies 
as defined by Article 11 and 27 of the Directive49. For the small companies, these are: 
• abridged balance sheet, 
• simplified Profit and Loss account layout, 
• abridged and simplified notes, 
• exemption from preparation of annual report, 
• simplified publication requirement, 
• exemption from audit. 
According to the data available to the Commis sion there is a significant number of Member 
States that do not fully utilise these options or  impose additional restrictions to their use. 
Moreover, not all50 Member States have transposed the thresholds for small and medium-
sized entities to their maxi mum values – however in all but two cases the transposed 
thresholds cover the proposed micro entities segment. 
The estimates of the potential savings of the fu ll use of thresholds and exemptions amount to 
up to €3.8bn for all companies, and up to €1.8bn for the micro se gment (as part of "small" 
segment). 
The exemptions available, however, do not addr ess the main concern that accounts are not 
suited to the real needs of user  and preparers. These exemptions  are in essence "carve-outs" 
from the full scope of the Fourth Directive, mainly in terms of disclosure. There is no special, tailor made regime for the smallest entitie s which would fulfil th e usefulness criterion. 
In addition to the requirements of the Acc ounting Directives, Member States can impose 
national rules ("gold plat ing") that further increase the burd en on smallest entities. According 
to the estimations available to the Commi ssion these additional re quirement amount to €0.6bn 
for all companies, data for micro entities alone is not available. 
In the public consultations of 2007 as well as  from discussions with stakeholders during 
various meetings a call for better  utilisation of the existing op tions was frequently mentioned. 
                                                
 
49  See Annex 2: Use of options by Member States. 
50  Based on Consortium study, that measured the situation in MS before the transposition deadline of 5 
September 2008 for the latest threshold increases of Directive 2006/46/EC, there were 5 Member States that transposed the new thresholds in full. 
 
EN 24   EN The Commission Services acknowledge that ther e are legitimate reasons why some Member 
States do not fully utilise some of the options and set the thresholds to their maximum levels. 
The characteristics of national economies, accoun ting and business cultures are different. The 
options in the Directive were introduced pr ecisely because there were different accounting 
legacies in Member States, and the Fourth Di rective was one of the longest to negotiate. 
Therefore, without changes to the Directives, it seems very difficult to convince Member 
States to give up their options and pursue a st andardised approach towards use of all options 
and maximum threshold levels. Also, the curr ent Directive builds on general requirements 
with Member States possibility to exempt only from some of those requirements on a 
piecemeal basis. Thus there is no possibility to  make a general exemption for targeted group 
like, for example, micro entities which hamper s the usability of thes e options, and thus has 
made them generally less appealing to Member States.  
The result of Option 1 is a ma ximum potential reduction of burd en on micro business without 
changes to Directive. The total burden is €12.1bn. By transposition of all exceptions and 
threshold levels the maximum potential re duction for micro enti ties would be €1.8bn. 
However as explained above, this am ount is unlikely to be attained. 
Implementation timeline.  As all the options are already ava ilable they could theoretically be 
readily implemented by Member States within their normal legislative timeline. 
The summary of the option is presented in the table below: 
Table. 6.   Expected impact of Option 1: Encourage a full use of existing options in the 
Accounting Directives. 
Option Rebalance 
the cost of 
accounting obligations for 
micro entities Identify 
financial 
information of most 
relevance to 
users Eliminate 
unnecessary 
reporting requirements Protection of 
information 
for investors Political 
Acceptability Time to 
implement Max Burden 
reduction € 
(% of burden reduction*) 
1 + 0 0/+ 0 0/- ++ 0 to €1.8bn 
(0 to 15%) 
Note: "+" favourable, "-" unfavourable; "0" neutral; "?" impact unknown 
The more "+" or "-" the stronger the impact 
* as %of total burden stemming from the EU Co mpany Law legal acquis, estimated at: €12.1bn  
Source: Commission Services analysis and ca lculations based on C onsortium 2008 report. 
 
5.4. Option 2. Obligatory exemption of micr o entities from the scope of the 
Directives 
5.4.1.  Summary 
Obligatory exemption of micro entities would eliminate all EU level accounting requirements 
for this group – a case of maximum harmonizati on. It must be born in mind, however, that 
accounting cultures across Europe are different a nd some Member States will find it difficult 
to dispose of the Directives' accounting obliga tions for micro entities as for example tax 
returns are based on those accounting numbers. Thus, it would be inappropriate to force 
 
EN 25   EN Member States to fully abolish their reporting tr aditions. It is unlikely that such a proposal 
would be politically acceptable  for some EU Member States. 
.  
5.4.2.  Analysis 
As a complete exemption of micro entities from the scope of the Accoun ting Directives is not 
feasible, it will not be analysed in detail. The impact of this option is the same as the maximum impact of the option 3 (except for politic al acceptability), as discussed in the next 
section. 
Table. 7.   Expected impact of Option 2: Obligatory ex emption of micro entities from the scope 
of the Directives. 
Option Rebalance 
the cost of accounting 
obligations for 
micro entities Identify 
financial information of 
most 
relevance to users Eliminate 
unnecessary reporting 
requirements Protection of 
information for investors Political 
Acceptability Time to 
implement Max Burden 
reduction € (% of burden 
reduction*) 
2 ++ ++ ++ 0/- --- ++ €5.1 to 6.9bn
(39 to 57%) 
Note: "+" favourable, "-" unfavourable; "0" neutral; "?" impact unknown 
The more "+" or "-" the stronger the impact  
* as %of total burden stemming from the EU Co mpany Law legal acquis, estimated at: €12.1bn  
Source: Commission Services analysis , See Annex 1 Quantitative analysis of micro entities exemption. 
 
5.5. Option 3. Member State option to exempt  micro entities from the scope of 
the Directives 
5.5.1.  Summary 
Originally flagged in the 2007 Commissi on Communication on a simplified business 
environment for companies in the areas of company law, accounting and auditing – COM(2007)394 - the proposal to exempt micro-entities from  the Accounting Directive 
78/660/ECC (Fourth Company Law Directive) was re-launched by the European Economic 
Recovery Plan in view of its potential for ad ministrative costs reducti on and entrepreneurship 
promotion. The proposal has already receive d strong, albeit not unanimous, support as 
evidenced by the public consultation on CO M(2007)394, the July 2008 Opinion  of the High 
Level Group of Independent Stakeholders on  Administrative Burden s and two separate 
resolutions of the Eu ropean Parliament (A6-101/2008 of  21 May 2008 and B6-0626/2008 of 
18 December 2008). The initiative would precede a proposal to modernise the more than 25-
years old Accounting Directives in late 2009. 
Due to the diversity of accounti ng needs of micro entities, the Commission Services believe 
that there should be more fl exibility for solutions on nati onal level. With an optional 
exemption in the Accounting Directives, it would be left to Member States to determine which rules micro entities should be required to comply with. Th is would allow the possibility 
 
EN 26   EN to determine the most relevant reporting requ irements and, for example, integrate various 
reporting requirements (e.g. tax, statistics) into one.  
Developments during the last ye ars show more use of the simplification options and there is 
an increasing demand for more simplification measures. Changes in business practices and 
information tools open new opportunities for creating one-stop-shop re porting on the national 
level. Despite the fact that th e different reporting traditions are one of the underlying reasons 
why some Member States have not used the maximum potential provided by the exemptions 
(as discussed in Option 1), they may still lean towards aligning the micro entities ' reporting 
requirements with tax or other national requ irements. A voluntary compliance with national 
laws based on the Directives by the companie s would be compatible with the exemption 
option. Thus, all exempted companies would be able to follow the accounting and auditing 
rules on a voluntary basis.  
An alternative solution would be to have an ex emption of micro entities from the scope of the 
Directives with a possibility for Member States  to opt-in to these requirements nationally. The 
maximum impact of this option is likely to be  the same as the impact of the option 3. 
Politically, the possibility for opt in is likel y to make it more acceptable than obligatory 
exemption (Option 2). However, there are no advantages compared with Member State option 
(Option 3).  
 
5.5.2.  Analysis 
Exempting the micro entities from the requireme nts of the Accounting Directives enables the 
Member States to promptly curb the current  burdensome reporting requirements for micro 
entities as discussed in Chapter 3.2. (see also Annex 6 Current reporting requirements of the 
Fourth Directive). It will not pre-empt the possibility to simplify the requirements included in 
the Directive for small and medium sized ent ities including micros in the context of the 
general overhaul. 
Exempting micro entities from the scope of the Accounting Directive is expected to have the 
following impacts: 
Reduction of administrative burden51. According to the estimations available to the 
Commission there are around 5.4m mi cro entities in the EU that  meet at least two of the 
definition criteria52. It costs each company €1,558 on av erage to meet the reporting 
obligations of the Accounting Directives. The expert consulted by the Consortium assessed 
that without any legal obligations micro entities would s till spend around 25% of that amount 
to meet their managerial and external inform ation needs. Therefore the remaining 75% or 
€1,169 is an approximation of the accounting burden  these companies face. Aggregated, this 
amounts to accounting burden of €6.3bn. 
Thus, in the maximum scenario where all Memb er States exempt micro entities and do not 
impose additional requirements our best estima tion of the potential savings stemming from 
the proposal is €6.3bn (with range of €5.9bn to €6.9bn). 
                                                 
51  For details see Annex 1 Quantitative analysis of micro entities exemption. 
52  See Chapter 1.4 for thresholds defining micro entities. 
 
EN 27   EN During the public consu ltations two Member States (France and Belgium) indicated their 
initial disinclination towards the use of this  option. Without these two states the maximum 
potential burden reduction would be around €4. 9bn. However, as potential use of the option 
cannot be ruled out by any Member State on the basis of their earlier positions, the maximum 
saving potential of this option is the same as of option 2. 
In the scenario where all three micro thresholds must be met simultaneously the maximum 
number of companies affected drops to around 4.7m. If all Member States took up the option 
our best estimation of burden reducti on is €5.4bn (with range from €5.1bn to €6bn). 
Where France and Belgium also not to utilise th e option the savings could be reduce to around 
€4.1bn 
Commission Services also acknowledge that th e need for basic book keeping will remain and 
it is highly likely that Member States after exempting micro entities from the Directive's 
obligations would impose other accounting requi rements, e.g. to align tax and financial 
reporting53. Such a "gold plating" is likely to d ecrease the realistic burden reduction for 
companies. However the Commission Services are not in possession of a ny realistic EU wide 
estimations to the extent of future Member States "gold plating". All that makes precise 
estimation of the realistic burden reduction of  the proposal not possi ble. Rationally, these 
requirements will not be more burdensome than  the current Directive' s requirements and, as 
discussed below, they could be more aligned w ith other requirements (e .g. tax, statistical) so 
that duplication of work can be avoided. Shari ng best practices between Member States could 
contribute to creation of appropriate set of national rules and minimization of the 
administrative burdens. The Commi ssion is prepared to facilitate this process by, for example, 
implementation workshops, regular follow up a nd consultations as well as utilising the 
network of SME contact points54 in the Member States.  
More relevant and understandable information to management . The accounts could be 
made more relevant to the needs of managers of micro entities, taking into account the need 
for them to be understandable. Currently, it s eems that managers of micro entities do not 
utilise and/or even understand all of the inform ation that is gathered  and processed due to 
statutory requirements. Consultations with vari ous stakeholders indicated that managers of 
micro entities should have accounts that they can  comprehend and utilise in their business. 
More relevant information for main users , including tax authorities and creditors : The 
users of accounts of micro enti ties differ significantly from the users of accounts of large 
companies. The main concern is usually protecti on of creditors rather than information needs 
of investors. The main users of micro account s are banks and tax aut horities. According to 
some studies,55 banks look mainly for standardised information that would allow for a quick 
determination of recoverable amount of assets and assessment of credit rating of micro client. 
Consequently, they are less interested in e.g. goodwill, deferred tax or similar sophisticated 
accounting information.  
                                                 
53  E.g. UK ARC member informed the Commission that alignment of financial and tax reporting in the 
UK is expected to produce burden reduction of around £200 per micro company. 
54  SME Envoy: 
http://ec.europa.eu/enterprise/entrepreneurship/sme_envoy.htm . 
55  See footnote 40, pp.17, 21, 29. 
 
EN 28   EN Consequently, it is concluded that the proposal  will not have significant negative impact on 
the information to the external stakeholders an d creditors' protection. This is corroborated by 
the responses to the Commission Consultation of 200756 where respondents both from banks 
and industry were generally in favour of exempting the micro entities from the requirements 
of the Accounting Directives.  
Impact on the single market and level playing field.  On the national level, exempting micro 
entities from the requirements of the Accountin g Directives (and possibly replacing them with 
other national requirements) will have no negative effect on the level playing field within the micro category. On contrary, it will put the limited liability (m icro) companies in comparable 
position with the unlimited ones. As the minimal capital requirements for limited companies tend to be lowered (e.g. UK £1, project in DK to set at 1DK), the traditional division on 
limited and unlimited liability is increasingly meaningless. The idea that the capital and reserves of the limited liability company would provide the protection for creditors - and the 
accounts prove the maintenance of the capital - has become obsolete with the current (non-
existing) minimum capital requirements.  
Impact on single market is also expected to be  insignificant. First of all, financial reporting 
needs of micro entities are rath er basic and the stat utory accounts not a generally important 
source of information. The basic book keeping a nd financial reporting of micro entities with 
very straight-forward transactions and repor ts will remain the same, regardless the legal 
framework. Furthermore, only a low number of micro entities are involved in cross border 
activities. The recent Eurobarometer
57 survey shows that 7% of all micro entities are involved 
in export. An analysis by Eurostat58 demonstrate that for the number of micro entities 
(regardless of the legal form) engaged in intra EU trade c ould be as low as 2 to 4%. 
Moreover, 95% of companies with less than 10 em ployees did not have foreign subsidiaries.  
As a consequence, the user needs of interna tionally active micro enti ties are generally not 
different from those of micro- entities active only domestically. Firstly, there is generally no 
dissimilarity as regards the ownership and financing structures. Secondly, the statutory 
financial reporting is not a generally important source of information for tax authorities as 
regards cross-border tax issues of  micro-entities. The extent to which micro entities' financial 
statements are used by other en terprises in assessing, for exampl e, their creditw orthiness is 
also rather limited on cross-border level. Ther efore, there is no indication that cross border 
trade would be significantly affected. 
The above does not exclude that in some situ ations there remains a continued demand for 
internationally comparable fi nancial statements of micro- entities, for example by their 
international trading partners or trade credit insures. However, this demand is not expected to 
be widespread and it can be alle viated with voluntary reporting.  
Exempting micro entities from the requirements of  Accounting Directives would decrease the 
level of harmonisation on EU level. However,  following the argument of subsidiarity, 
                                                 
56  See footnote 21. 
57  See footnote 36, p. 45. 
58  See Eurostat data from 2005: 
http://circa.europa.eu/Public/irc/dsis /trade/library?l=/basic_documenta tion/characteristics/reference_yea
r_2005&vm=detailed&sb=Title , 
 and Annex 5 Users' and preparers' needs from the financial reporting. 
Note that Eurostat acknowledges th at these numbers are underestimated  due to data collection method. 
 
EN 29   EN decisions should be taken as closely as possibl e to the citizen and constant checks should be 
made as to whether action at Community level is  justified in the light of the possibilities 
available at national, regional or  local level. In the view of  the insignificant cross-border 
relevance of micro entities financial reports, it seems that solutions on local level are indeed 
more appropriate than EU level harmonisation.  
Collection of Statistical information.  The Commission is aware of the fact that published 
financial statements are an important source of  statistical information in several Member 
States59. In cases where Member States  will use the option to exempt micro entities from the 
publication requirements, the statis tical offices may therefore need  to re-design the system for 
data collection from these kind of entities in cluding use of alternativ e sources or direct 
statistical surveys of the companies or, wher e feasible, reliance on tax accounts. In this 
context it will be important that Member Stat es will carefully consider statistical reporting 
needs when defining the reporting requirements for micro entities. 
Collection of information for taxation. There is a variation betw een Member States as 
regards to what extent the statutory fina ncial reports prepared under the Accounting 
Directives' requirements serve the basis for ta xation. However, as noted above, the tax 
authorities have the power to demand in formation according to their own reporting 
requirements. They have also the powers to ca rry out verifications (audits) of the financial 
information. It is, therefore, not  expected that exemption of mi cro-entities from the Directives' 
reporting requirements as such wi ll have a negative impact on collection of information by the 
tax authorities. In contrast, exempting micr o-entities from the Directives' reporting 
requirements will offer a possibility of aligni ng micro accounting with their tax reporting.  
Impact on the accounting profession.  In the short term, the reducti on to the need to prepare 
annual accounts in accordance with the requirem ents of the Directiv es might lead to a 
reduction of the demand for services of external  accountants and auditors  necessary to comply 
with formal obligation by the Directives.  
Current estimations point that majority of acco unting related cost incurred by micro entities 
are directed to external account ants and auditors. Albeit, the exemption from the formal 
requirements and administrative burden is likely to result in some cost savings by the micro 
entities as for their external accounting and audit cost, and therefore also impact adversely the 
revenues for accounting firms, there is also an opportunity to direct this cost towards more 
added value activities.  Basic book keeping contin ues to be done, some national rules will still 
be present, as well as tax accounting and volunt ary audit for external stakeholders (the 
Commission's discussions with UK government s howed that some small companies in the UK 
continue to voluntarily audit their financ ial statements despite existing exemption60), all of 
which will require assistance of professional accountants. Reduced statutory requirements 
allow companies to use the accountants' professi onal expertise to tailor the financial reporting 
to suit better their business and tax purposes . Consequently, reduced use of professional 
accountants' help for statutory accounting purposes is expected to be pa rtly substituted by 
their use to purposes adding more  value to the micro entities - thus allocating the economic 
resources more effectively. Quantitative estimation on the impa ct on the accounting 
profession is therefore impo ssible at this stage.  
                                                 
59  Modernisation of European Enterprise and Tr ade Statistics (Decision No 1279/2008/EC of the 
European Parliament and Council). 
60  According to UK ARC member 7% of exempted companies continue to voluntarily audit their financial 
statements. 
 
EN 30   EN Social aspects.  As such, the exemption of micro-entiti es from the Directives' accounting and 
publication requirements may reduce informati on available to employees of the micro-
entities. However, in the micro-entities the em ployees usually have direct contact with the 
management and owner(s), and the published financ ial statements have a lesser role in serving 
their information needs as compared to larg e companies. The situation of micro limited 
liability companies is expected to  be 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 . There will be reduction of info rmation available to external 
parties and general public abou t micro-entities. However, as indicated by the number of 
inquiries to the company registers this interest is generally very low (f or example in UK, there 
is yearly on average less th an 2 inquiries/company).  
Assessing continued compliance with th e micro company segment's criteria. The proposal 
will leave it to Member States to decide on how to check compliance with micro thresholds. However, there are number of possibilities, in cluding using data from tax returns and VAT 
registers (for the turnover) and extended possibly by a d eclaration on the number of 
employees. The number on balance sheet totals ma y be not readily availa ble as such, however 
some form of declaration based on tax acc ounting balance sheet could be required as 
supplement to tax returns.  
Implementation timeline.  The measure could be adopted by the EU in 2009, with national 
transposition deadline of th e end of 2010, it could be effective starting from 2010/11. 
Table. 8.   Expected impact of Option 3: Optiona l exemption of micro entities from the 
Accounting Directives. 
Option Rebalance 
the cost of 
accounting obligations for 
micro entities Identify 
financial 
information of most 
relevance to 
users Eliminate 
unnecessary 
reporting requirements Protection of 
information 
for investors Political 
Acceptability Time to 
implement Max Burden 
reduction € 
(% of burden reduction*) 
3 ++ ++ ++ 0/- 0/+ ++ €4.1 to 6.9bn
(39 to 57%) 
Note: "+" favourable, "-" unfavourable; "0" neutral; "?" impact unknown 
The more "+" or "-" the stronger the impact 
* as %of total burden stemming from the EU Co mpany Law legal acquis, estimated at: €12.1bn  
Source: Commission Services analysis , See Annex 1 Quantitative analysis of micro entities exemption. 
 
5.6. Option 4. Introduction of a simplified accounting regime for micro entities 
5.6.1.  Summary 
One option to address the needs of "micro entities" is to include a micro-tailored accounting 
regime into the Accounting Dire ctives. This would allow creati ng a standard that meets most 
of the needs of micro-stakeholders without im posing redundant reporting obligations to them.  
 
EN 31   EN In contrast to the "exemption option", the new regime would require a longer preparatory and 
implementing period. Therefore, it is not suit able to achieve quick  burden reduction as 
requested by the Commission in  the Economic Recovery Plan61 - endorsed by the European 
Council of 12/13 December 2008. It needs furthe r analysis to examine whether a common 
European solution should be a way forward, give n the local differences in accounting needs of 
micro entities. On the other hand, the Commissi on acknowledges that it is  not likely that all 
Member States will utilise the option to exempt "micro-entities" from the Directives' accounting obligations. Therefore, an alterna tive solution could be implementing a "micro" 
accounting regime into the Directives as an alternative as well as updating accounting rules 
for small and medium categories. These would ma ke the Accounting Direc tives more tailored 
towards the needs of micro, small and medium enterprises, thus reducing their administrative 
burden regardless whether a Member State us es the micro exemption option or not. In 
practice, this could entail creating a rather basic set of rules app licable to micro entities. This 
basic set would be designed from bottom-up rath er than the current top-down approach. It 
could also serve as the starting pointy when  creating more sophisticated rules for bigger 
entities.  
The Commission is already undert aking a revision of the Acc ounting Directives with the 
"think small first" principle. In addition to the micro exemption discussed in this paper (option 
3), it also reflects an alternative set of basic micro accounting rules. This latter initiative is a 
medium term one with the first proposals expected  in late 2009. 
 
5.6.2.  Analysis 
Due to the long lead time needed for the preparat ion and adoption process,  this revision of the 
Accounting Directives cannot be achieved as swiftly as the proposed  exemption of micro 
entities from the Directives' requirements. A ne w proposal for a directive could be adopted in 
2010. After the adoption by the EU, time is needed for national implementation. This means 
that a new accounting directive could be in force in all Member States by 2014, at the earliest.  
At the moment it is not possible to quantify th e potential impact of revision of the Directives 
(currently under develo pment) to the micro administrative burden.  
Table. 9.   Expected impact of Option 4: Simplifie d accounting regime for micro entities. 
Option Rebalance 
the cost of 
accounting obligations for 
micro entities Identify 
financial 
information of most 
relevance to 
users Eliminate 
unnecessary 
reporting requirements Protection of 
information 
for investors Political 
Acceptability Time to 
implement Max Burden 
reduction € 
(% of burden reduction*) 
4 ++ ++ ++ 0/? ? -- +++ 
Note: "+" favourable, "-" unfavourable; "0" neutral; "?" impact unknown The more "+" or "-" the stronger the impact 
* as %of total burden stemming from the EU Co mpany Law legal acquis, estimated at: €12.1bn 
Source: Commission Services analysis. 
                                                 
61  See footnote 3. 
 
EN 32   EN  
5.7. Option 5. Amendments to the Accounting Directive without introducing the 
micro category. 
5.7.1.  Summary 
It is also possible to create some quick fixe s without major decisions such as that of 
exempting micro entities or overhauling the A ccounting Directives. These are expected to 
produce limited burden savings in a short time span.  
A number of ideas stem from Commissi on 2007 Communication and the HLG proposals: 
• Compulsory exemption of micro entities from statutory audit 
• Exemption from publication requirements 
• Introducing limited review instead of full audit 
• Other fast track measures in the field of accounting from 2008 
Please note that first and third bullets are altern atives and fourth bullet will be adopted in the 
beginning of 2009. 
 
5.7.2.  Analysis 
These proposals could produce a significant burden reduction (i f micro entities were not 
exempted from the Accounting Directive). However, they do not address the main concern of discrepancy between the Accounting Di rectives and the user needs.  
A compulsory exemption from statutory audit is not fully supported by all Member States. 
There is already an option to exempt small companies from audit that has been used by 
Member States willing to utilise it.  
As an alternative to exempti on from audit, an introduction of  a limited review was proposed. 
The idea is expected to produce limited savings compared to full exemption from audit for 
micro entities. 
On the exemption from publication requirement it is essential to point out that the publication 
culture differs among Member States with some th at extensively utilise published statements.  
Most other measures in the area of accounting and auditing addressed in the July 2007 
Communication require a l onger preparation time and are, ther efore, not suited for a fast track 
procedure. However, rapid progress seemed possi ble with a view to some minor measures set 
out in the communication, i.e. the proposals to a bolish the requirement to provide (for SMEs) 
the explanation on formation expenses and to  clarify the relationship between the IAS 
Regulation and the Seventh Direct ive with a view to groups with only immaterial subsidiaries. 
These measures were proposed in April 2008, but  they are far less si gnificant in terms of 
reduction of administrative burden. 
 
EN 33   EN Environmental aspects. Minor positive impact due to reduction of reporting and filing 
activities. 
Implementation timeline.  The measures could be adopted  by the EU in 2009, with national 
transposition deadline of th e end of 2010, it could be effective starting from 2010/11. 
Table. 10.   Expected impact of Option 5: Amendmen ts to the Accounting Directive without 
introducing the micro category. 
Option Rebalance 
the cost of accounting 
obligations for 
micro entities Identify 
financial information of 
most 
relevance to users Eliminate 
unnecessary reporting 
requirements Protection of 
information for investors Political 
Acceptability Time to 
implement Max Burden 
reduction € (% of burden 
reduction*) 
5 0/+ - + 0/- 0/- + 0.1 to €1.4bn
(0 to 12%) 
Note: "+" favourable, "-" unfavourable; "0" neutral; "?" impact unknown 
The more "+" or "-" the stronger the impact 
* as %of total burden stemming from the EU Co mpany Law legal acquis, estimated at: €12.1bn  
Source: Commission Services analysis and ca lculations based on C onsortium 2008 report. 
 
6. COMPARISON OF OPTIONS  
The table below provides a summary of the e xpected impact of the analysed options. 
The option that provides the biggest burden re duction is Option 3: Option to exempt micro 
entities. This option can also be impl emented within shortest timeframe.  
 
EN 34   EN Table. 11.   Comparison of options. 
Option Rebalance 
the cost of accounting 
obligations for 
micro entities Identify 
financial information of 
most 
relevance to users Eliminate 
unnecessary reporting 
requirements Protection of 
information for investors Political 
Acceptability Time to 
implement Max Burden 
reduction € (% of burden 
reduction*) 
0 0 0 0 0 0 0 0 
1 + 0 0/+ 0 0/- ++ 0 to €1.8bn 
(0 to 15%) 
2 ++ ++ ++ 0/- --- ++ €5.1 to 6.9bn
(39 to 57%) 
3 ++ ++ ++ 0/- 0/+ ++ €4.1 to 6.9bn
(39 to 57%) 
4 ++ ++ ++ 0/? ? -- +++ 
5 0/+ - + 0/- 0/- + 0.1 to €1.4bn
(0 to 12%) 
Note: "+" favourable, "-" unfavourable; "0" neutral; "?" impact unknown 
The more "+" or "-" the stronger the impact * as %of total burden stemming from the EU Co mpany Law legal acquis, estimated at: €12.1bn 
Source: Commission Services analysis and calculati ons based on Consortium 2008 report, CSES 2007 study. 
The proposal to grant Member States an option to  exempt micro entities from the scope of the 
Fourth Directive is expected to affect  around 5.4m companies and produce potential 
maximum burden reduction of up to €6.9bn, w ith best estimate of reduction of €6.3bn. 
The actual impact of the proposal will depend on the number of Member States that taking up 
the option, the thresholds to be set, ev entual alternative accounting regimes (e.g. tax 
accounting) and the amount of companies that will voluntarily continue to produce and audit 
financial statements accor ding to the Directives. 
In their responses to the 2007 public consultati on two Member States (France and Belgium) 
have indicated that they will not take up the option exempting the micro entities. It is also likely that many Member States after exempting micro entities from the Directive's obligation 
would impose other accounting requirements, e .g. to align tax and financial reporting. Such 
alternative requirements are lik ely to decrease the burden reduction for companies. However 
at this point of time it is not possible to  quantify potential effect on EU level. 
The expected impacts of the measure are summarised in the table below. 
 
EN 35   EN Table. 12.   Summary of the expected impacts of  micro entities exemption proposal. 
Quantitative impact  
Scenario  No. of micro entities Max. administrative 
burden reduction (€m) 
1) All three criteria for micro entities 
must be met Min 4,399,311 5,142 
 Best estimation 4,659,665 5,446 
 Max 5,155,917 6,026 
1a) FR and BE do not take up the option Best estimation 3,495,261 4,085 
2) Two out of three criteria must be met Min 5,069,907 5,926 
 Best estimation 5,369,738 6,276 
 Max 5,941,844 6,945 
2a) FR and BE do not take up the option Best estimation 4,205,334 4,915 
Qualitative analysis 
Advantages Disadvantages 
• Encourage new start ups, boost economy. 
• Reduce unnecessary data collection and 
processing. 
• Alignment of financial reporting to user  needs. 
• Improved usefulness and understandability of 
financial reports to managers. 
• Alignment of reporting requirements with the US. 
• Contribute to one stop shop reporting (one all 
purpose report). 
• Accountants' and auditors' work would be better 
directed towards real business needs. • Potential loss of information to some stakeholders. 
• In short term, potential loss of jobs for accountants 
specialised in micro entities. 
• It will have an impact on availability of statistical 
information in a number of Member States leading 
to changes in the collection of statistical data. This 
could, for instance, be overcome by additional 
statistical surveys. 
Attitude of stakeholders  
Preparers ++ 
Users + 
Public authorities ++ 
Accountants and auditors -- 
Note: "++" very positive, "+" positive, "--" very negative  
Source: Commission Services analysis. 
 
EN 36   EN In conclusion, the exemption of micro enti ties from the requirements under the information 
obligations of Fourth Dir ective is likely to have: 
• A positive effect on relevance and understand ability of financial information to 
management.  
• Mainly positive or neutral impact for inform ation for external stakeholders of micro 
entities , including creditors.  
• Not significantly negative impact on credit protection. 
• An impact on availability of statistical in formation in a number of Member States 
leading to changes in the collection of stat istical data. This could, for instance, be 
overcome by additional statistical surveys.  
• No negative impact on collection of information for taxation. 
• Clearly positive impact on reducti on of administrative burden. 
On the basis of this analysis, the Commission considers that the Member States option to 
exempt micro entities from the requirements of the Accounting Directives is the most 
appropriate alternative in orde r to significantly reduce the admi nistrative burden of the small 
business and align the reporting requirements wi th the needs of the users and preparers.  
 
7. MONITORING AND EVALUATION  
This proposal is a major step in the Commi ssion initiative for simp lification of accounting 
rules for SMEs and other companies in the sc ope of the Directives and revision of the 
Accounting Directives. Therefore, this proposal is closely linked to the general modernisation 
and simplification of the Acc ounting Directives. Due to the close connection between these 
measures the monitoring and evaluation will be carried out together. The second step, i.e. 
proposal to adopt a modernised framework for th e Accounting Directives will be presented in 
autumn 2009. 
 
7.1. Monitoring 
The Commission will monitor the implementation of the changes to the Accounting 
Directives together with the Member Stat es through the implementation period which is 
expected to extend until 2014. The Commission w ill also organise implementation workshops 
together with the Member States. This will help to clarify questions arising during the 
implementation and to share the best practice s. As regards the Member States option to 
exempt micro entities  from the scope of the A ccounting Directives, the fi rst indicators to be 
assessed starting from accounting year 2009 will in clude: extent of its application by Member 
States, alternative accounting regimes and the level of voluntary application of the Directives' requirements / other accounting regimes. A detailed monitoring plan will be part of the overall monitoring strategy in relation to the genera l revision of the Acc ounting Directives.  
 
EN 37   EN As regards monitoring trespassing of the micro thresholds, is pr oposed that it is up to the 
Member States to check and monitor whethe r the micro-entities criteria by companies 
excluded from the scope of the Fourth Company Law Directive continue or cease to be met. 
The Member States shall have re levant necessary information at  their disposal (statistical, 
social data etc.). Following the principle of subsidiarity, the Commis sion has deliberately 
chosen this option.   
 
7.2. Evaluation 
The evaluation of effects and functioning of  the exemption for micro entities will be 
integrated in the evaluation plan related to the general revision of the Accounting Directives.  The evaluation will include an assessment as re gards the key objectives of better alignment of 
the accounting rules with the needs of the user s 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 in formation to stakeholders. Possible indicators 
could be cost of financial re porting in relation to the current situati on, and a qualitative 
analysis of the reporting practices of the mi cro entities including the reports required by 
stakeholders, especially th e providers of financing. 
The results and feedback from monitoring and ev aluation will be considered with a view to 
propose further amendments when appropriate. 
 
EN 38   EN  ANNEX 1 QUANTITATIVE ANALYSIS OF MICRO ENTITIES EXEMPTION  
This chapter presents the Commission's analysis  of the quantitative impact of micro entities 
exemption. The numbers presented are in most part  estimates and as such should be treated as 
indicative of the magnitude of problems, rather  than precise figures. In deriving the figures 
the Commission utilised all available studies (pub lic as well as those under preparation), data 
from Member States as well as conducted own estimations. 
 
CSES Study on Evaluation of  thresholds for Micro-Entities 
The Commission ordered a study to quantify th e number of companies that could be 
exempted from the scope of the Accounting Directives. 
The study found that about 25% or 7m of all enterprises in Europe  are covered by the 
Accounting Directives, i.e. they are limited liability companies. 
Table. 13.  Number of all enterprises in the EU and number of enterprises covered by the 
Fourth Directive on Accounting. 
No. of enterprises  
(all legal forms) No. of companies covered by 
the Fourth Directive % 
28,207,491 7,158,209 25.4% 
Source: CSES. 2008. Evaluation of Thre sholds for Micro-Entities, p. 15. 
The study than moved on to analyse how many of the limited liability  companies meet the 
definition of micro entities  as proposed by the Commission and discussed earlier in the Chapter 1.4. 
The study concluded that in most EU countries da ta on balance sheet total is not collected, but 
based on the available evidence (Danish data) the number of micro entities according to 
balance sheet totals roughly matches the numbe r according to the turnover criterion. Thus 
balance sheet total of €0.5m seems to be different  from the levels of other two criteria and 
will result in lower amount of companies ex empted than turnover threshold of €1m and 
employment of 10 persons (the study recommends  a review of the appropriateness of balance 
sheet total as a Micro criterion). This ob servation was also made in Commission 
Recommendation on the defi nition of micro and SME
62 from 2003 that stated that: 
The statistical trend requires a greater increase to be made to  the turnover ce iling. Since the 
trend differs according to the size-category of the enterprise, it is also appropriate to adjust the 
coefficient in order to reflect the economic trend as closely as  possible and no t to penalise 
micro enterprises and small enterprises as o pposed to medium-sized enterprises. This 
coefficient is very close to 1 in the case  of micro enterprises and small enterprises .  
                                                 
62  Commission Recommendation of 6 May 2003 concerning the definition of micro, small and medium-
sized enterprises (Text with EEA relevance) (notif ied under document number C(2003) 1422), recital 
(6), http://eur-lex.europa.eu/LexUriServ/LexUriSe rv.do?uri=OJ:L:2003:124:0036:0041:EN:PDF
. 
 
EN 39   EN To simplify matters, therefore, a single value must be chosen for th ose categories for the 
turnover ceiling and balance sheet total ceiling. 
However the Commission initially proposed lower threshold for balance sheet totals to keep 
them in line with thresholds for other SMEs in  the Fourth Directive. The threshold for the 
balance sheet proved also useful in discussions  with the stakeholders  for certain types of 
companies. 
The data on balance sheet totals is expected to be provided even for the tax accounting, and 
could be disclosed, together with  net turnover and number of em ployees to public authorities. 
According to the study the following number of limited liability compan ies would qualify as 
micro entities if only employment criterion  was used: 
Table. 14.  Table. 15. Number of "micro entities"  according to different employment 
thresholds. 
No. of employees No. of micro-entities % of all companies 
covered by the Fourth 
Directive % of all enterprises 
< 0 0 0% 0% 
< 2 3,325,242 46% 12% 
< 5 5,004,626 70% 18% 
< 10 5,979,737 84% 21% 
< 15 6,365,118 89% 23% 
Source: CSES. 2008. Evaluation of Thresholds for Micro-Entities, p.39, Co mmission Services analysis. 
These figures change slightly when only the turnover  criterion is applied 
Table. 15.  Number of "micro entities" accordin g to different turnover thresholds. 
Turnover No. of micro-entities % of all companies 
covered by the Fourth 
Directive % of all enterprises 
< 0 0 0% 0% 
< 250,000 4,037,819 56% 14% 
< 500,000 5,065,292 71% 18% 
< 750,000 5,513,370 77% 20% 
< 1,000,000 5,833,889 81% 21% 
< 1,500,000 6,164,780 86% 22% 
< 2,000,000 6,384,358 89% 23% 
< 5,000,000 6,805,203 95% 24% 
Source: CSES. 2008. Evaluation of Thresholds for Micro-Entities, p.39, Co mmission Services analysis. 
When the two thresholds of employment and tu rnover are combined, lower numbers of micro 
entities is received due to the fact that  the two criteria do no t overlap perfectly. 
 
EN 40   EN The study estimates that the criteria for number of employees and turnover are met by 
5,263,707 to 5,475,770 companies with mid point of 5,369,738 companies. That represents around 75% of companies currentl y covered by the Accounting Dire ctives. It must be noted 
that obligation to meet all three criteria could send these figures significantly lower. 
Furthermore the study utilising the cost data from Ramboll 2007 analysis estimates that the 
compliance with the Directives costs these co mpanies from €5.9bn to €6.1bn with midpoint of 
€6bn – which at the same time represents maxi mum potential savings from the exemptions 
On the basis of the data in the study, the Co mmission services conducted a simple sensitivity 
analysis of the combination of the two threshol ds, which is presented in  the tables below.  
Table. 16.  The effect of combining thresholds for employment and turnover on the number of 
"micro entities". 
Employment 
Turnover All levels < 5 < 10 < 15 
< € 0.5 mil 5,065,292 4,317,305 4,659,665 4,666,159 
< € 1.0 mil 5,833,889 4,620,935 5,369,738 5,512,023 
< € 1.5 mil 6,164,780 4,669,183 5,530,422 5,813,570 
All levels 7,158,209 5,004,626 5,979,737 6,365,118 
Source: CSES. 2008. Evaluation of Thresholds for Micr o-Entities, pp. 33, 39, Co mmission Services analysis. 
 
Table. 17.  The effect of combining thresholds for employment and turnover on the percentage 
of "micro entities" as shar e of all companies covered by  the Accounting Directives. 
Employment 
Turnover All levels < 5 < 10 < 15 
< € 0.5 mil 71% 60% 65% 65% 
< € 1.0 mil 81% 65% 75% 77% 
< € 1.5 mil 86% 65% 77% 81% 
All levels 100% 
(7,158,209 companies)  70% 84% 89% 
Source: CSES. 2008. Evaluation of Thresholds for Micr o-Entities, pp. 33, 39, Co mmission Services analysis. 
If it is assumed that the balance sheet criteri on will follow closely the turnover criterion this 
may imply that if all three criteria are require d the number of companies exempted could fall 
as low as to 4.7m companies, i.e. 65% all co mpanies covered by the Directive. This could 
bring potential savings of the exemption to €5.4bn. 
 
 
EN 41   EN Study by the Consortium 
A Consortium (Capgemini/Ramboll) hired by the Commission conducted an extensive 
analysis based on data collection from 10 EU Memb er States and extrapolations for the others 
of the costs imposed by the EU Company Law legal acquis. 
It concluded that EU Company Law rule s cost European companies around €22.7bn, and 
around half of this – €12.1bn is a pure administrative burden 
The Consortium identified and measured the costs of the following obligations stemming 
from the Fourth and Seventh Directives, deem ed as the most burdensome for companies in 
Europe. 
From Fourth Directive on annual accounts: 
• Obligation to draw up annual accounts and disclosure of accounts. 
• Preparation of Annual Report. 
• Audit of annual accounts. 
From the Seventh Council Directive: 
• Preparation of consolidated accounts  and consolidated annual reports. 
• Audit of consolidated accounts. 
The estimations by the Consortium distinguish be tween the total administrative cost of the 
obligation, part of the cost th at would be incurred regardless  of any legal rules (called 
'business as usual' costs) and a residual value - the administrative burden, i.e. costs that are 
incurred solely due to  the legal obligation. 
The Consortium conducted several workshops w ith accounting experts in different Member 
States who estimated that around 25% of all administrative cost for micro entities are 
'business as usual' costs. 
The results for micro entities are as follows:        
 
EN 42   EN Table. 18.  Administrative costs and burdens of info rmation obligations incurred by micro 
entities. 
Obligation Administrative 
cost  
(€m) Business as 
usual costs 
(€m) Administrative 
Burden (€m) Contribution to
burden 
reduction* 
Obligation to Draw up annual 
accounts and disclosure of 
accounts 5,439.2 1,359.8 4,079.4 34% 
Annual Report 537.7 134.4 403.3 3% 
Audit of annual accounts  1,737.5 434.4 1,303.1 11% 
Consolidated accounts and 
consolidated annual reports 160.8 40.2 120.6 1% 
Audit of consolidated ac counts 25.5 6.4 19.1 0.2% 
Total 7,900.7 1,975.20 5,925.50 49% 
* As % of reduction of administrative burden due to EU Company Law legal acquis of €12,117m 
Source: Consortium study 2008,  Commission Services analysis. 
The figures present the costs and the maximum possible burden reduction of the exemption of 
micro entities from the Accounting Directives that amounts to €5.9bn. 
The most burdensome obligations are prepar ation of annual accounts and associated 
disclosure requirements (i.e. content of the notes on the acc ounts) and audit of financial 
statements. 
The following table presents estimations of costs per company per information obligation. 
 
EN 43   EN Table. 19.  Administrative costs and burdens of info rmation obligations per micro entity. 
Obligation No. of 
companies 
affected Administrat
ive cost  
(€m) Cost per 
company 
€ Administrat
ive Burden 
(€m) Burden per 
company 
€ 
Obligation to Draw up annual 
accounts and disclosure of 
accounts 5,069,907 5,439.2 1, 072.86 4,079.4 804.65
Annual Report 3,057,88 9 537.7 175.85 403.3 131.88
Audit of annual accounts 728, 117 1,737.5 2,386.24 1,303.1 1,789.68
Consolidated accounts and 
consolidated annual reports 86,748 160.8 1,853.38 120.6 1,390.04
Audit of consolidated account s 9,006 25.5 2,833.22 19.1 2,124.92
Total 5,069,907 7,900.7 1 ,558.35 5,925.50 1,168.76
Source: Consortium study 2008,  Commission Services analysis. 
The table shows similar number of micr os to those presen ted in earlier study. 
 
Combination of the two studies 
Both studies discussed are partly based on on-ground measurements and partly on 
estimations. Below a combination of the two studies is presented. 
There are differences in population figures between the studies. This can be in part explained 
by the method of extrapolation. Moreover the C onsortium study uses older measurements for 
Austria, Denmark, Germany and Netherlands  where no segmentation on Micro was used. 
The table below presents the be st estimation on the number of companies meeting criteria for 
micro entities. CSES study data was used where possible (i.e. the lowest of number of companies meeting employment, turnover, and ba lance sheet total criter ia) for the remaining 
countries numbers come from the Consortium study. 
      
 
EN 44   EN Table. 20.  Number of micro entities in EU Member States. 
Country No. of Micro entities covered 
by the Fourth Directive % of all M-measurement/ 
E-estimation 
Austria n/a n/a n/a 
Belgium 153,569 3% E 
Bulgaria 165,377 3% E 
Cyprus 129,384 2% E 
Czech Republic 135,263 2% M 
Estonia 64,130 1% E 
Denmark 38,965 1% M* 
Finland 151,050 3% M 
France 1,010,835 17% M 
Germany 369,019 6% M* 
Greece 65,873 1% E 
Hungary 143,637 2% M* 
Ireland 149,422 3% M 
Italy 472,730 8% M* 
Latvia 39,218 1% E 
Lithuania 18,451 0% M* 
Luxemburg 12,539 0% M* 
Malta 20,710 0% E 
Netherlands 121,334 2% M 
Poland 86,701 1% M* 
Portugal 356,140 6% M* 
Romania 47,397 1% E 
Slovakia 72,097 1% E 
Slovenia n/a n/a n/a 
Spain 945,469 16% M* 
Sweden 183,269 3% E 
United Kingdom 989,265 17% M* 
Total 5,941,844 100%  
* data from CSES 2008 study 
n/a – not available 
Source: Consortium study 2008, CSES 2008, Commission Services analysis. 
 
EN 45   EN Please note that a number of values are estimate d, they also come from various sources, and 
then from various national statistical offices  which means that methodologies may differ. 
Thus these numbers should be  treated as indicative only. 
 
Summary of the impact of option 3 
The following table presents summary of esti mations of the impact of the proposal under 
assumption that all Member stat es would utilise the option to exempt "micro entities" from 
the accounting requirements. Or more accurately the administrative burden that micro entities 
currently incur due to the Fourth Directive requirements. The scenarios presented are calculated on the bases of data available fr om previously discussed studies and their 
combination and recalculation. 
Table. 21.  Estimations of burden reductions  under different scenarios 
Scenario  No. of micro 
entities Max. 
administrative 
burden 
reduction (€m) 
1) All three criteria for micro entities must 
be met Min 4,399,311 5,142 
 Best estimation 4,659,665 5,446 
 Max 5,155,917 6,026 
1a) FR and BE do not take up the option  Best estimation 3,495,261 4,085 
2) Two out of three criteria must be met Min 5,069,907 5,926 
 Best estimation 5,369,738 6,276 
 Max 5,941,844 6,945 
2a) FR and BE do not take up the option Best estimation 4,205,334 4,915 
Under assumption that burden per comp any equals €1,168.76 (see table 19)  
Source: Consortium study 2008, CSES 2008, Commission Services analysis. 
Therefore it is concluded that if the scenario on e will be considered, i.e. all three thresholds 
defining micro entities will need to be fulfilled in order to qualify, the number of micro entities can be estimated between 4.4m and 5.1m with the best estimate (not a mid point) at 
4.7m.  
That would result in maximum potential bur den reduction ranging from €5.1bn to €6bn, with 
the best estimate of €5.4bn.  
Further taking into account the indications fr om the 2007 public consultations that certain 
Member States will not utilise the option the be st estimate of the number of micro entities that 
would be freed from the obligation is 3.5m with resulting burden reduction of €4.1bn.  
 
EN 46   EN Under the scenario where (as is the case now fo r small and medium companies in the scope of 
the Fourth Directive) only two out  of three criteria would have to be met, the number of micro 
entities covered would range from 5m to 5.9m with th e best estimate at 5.4m.  
That would result in maximum potential burden reduction ranging from €5.9bn to €6.9bn, 
with out best estimate of €6.3bn. 
Further taking into account the indications fr om the 2007 public consultations that certain 
Member States will not utilise the option the be st estimate of the number of micro entities that 
would be freed from the obligation is 4.2 m with resulting bur den reduction of €4.9bn. 
The numbers presented are estimations based on the available studies. As such realised 
burden reduction might differ significantly. Moreover burden reduction depends on the 
utilisation of the option by Memb er States and on the cost of  the national accounting regime 
that exempted companies would still be required to follow. 
 
EN 47   EN ANNEX 2: USE OF OPTIONS BY MEMBER STATES  
Based on report: EU project on baseline measurem ent and reduction of administrative costs 
by Consortium (Ramboll, Capgemi ni, 2008) the following table pres ents the utilisation of the 
Fourth Directive exemptions: 
Table. 22.  Utilisation of exemptions available in th e Fourth Directive by Member States. 
 Abridged accounts 
Country Fourth Art 11 Fourth Art 27 Fourth Art 44 Fourth Art 45 
Austria Article transposed Article trans posed Article transpos ed Article transposed 
Belgium Article transposed Article tr ansposed Article trans posed Not transposed 
Bulgaria Article transposed Partially transposed Article tr ansposed Not transposed 
Cyprus Not transposed Not trans posed Not transposed Not transposed 
Czech Republic Article trans posed Article transposed Arti cle transposed Not transposed 
Denmark Not transposed Article transpos ed Article transposed Article transposed 
Estonia Not transposed Not trans posed Not transposed Not transposed 
Finland Article transposed Not transposed Article transposed Not transposed 
France Article transposed Ar ticle transposed Article tr ansposed Article transposed 
Germany Article transposed Ar ticle transposed Partially transposed Article transposed 
Greece Article transposed Not transposed Article tr ansposed Article transposed 
Hungary Article transposed Ar ticle transposed Article tr ansposed Article transposed 
Ireland Article transposed Ar ticle transposed Article tr ansposed Article transposed 
Italy Article transposed Article transpos ed Article transposed Article transposed 
Latvia Article transposed Article trans posed Article trans posed Not transposed 
Lithuania Article transposed Article tr ansposed Article trans posed Not transposed 
Luxembourg Article transposed Article trans posed Article transpos ed Article transposed 
Malta Article transposed Article trans posed Article trans posed Not transposed 
Netherlands Article transpos ed Article transposed Article transposed Article transposed 
Poland Article transposed Not transpos ed Article transposed Not transposed 
Portugal Article transposed Article tr ansposed Article trans posed Not transposed 
Romania Not transposed Not trans posed Not transposed Not transposed 
Slovakia Article transposed Not tr ansposed Not transposed Not transposed 
Slovenia Article transposed Not trans posed Article trans posed Not transposed 
Spain Article transposed Article trans posed Article trans posed Not transposed 
Sweden Article transposed Article transpos ed Article transposed Article transposed 
United Kingdom Article transposed Article tr ansposed Article transpos ed Article transposed 
 
EN 48   EN  Abridged accounts 
Country Fourth Art 46 (3) Fourth Art. 46 (4) Fourth Art 47 (2) (3) Fourth Art 51 (2) 
Austria Article transposed Not transpos ed Article transposed Article transposed 
Belgium Article transposed Not transposed Partially transposed Article transposed 
Bulgaria Article transposed Article tr ansposed Not transposed Article transposed 
Cyprus Not transposed Not trans posed Not transposed Not transposed 
Czech Republic Not transposed Not transpos ed Article transposed Article transposed 
Denmark Article transposed Article tr ansposed Not transposed Article transposed 
Estonia Not transposed Not transpos ed Not transposed Article transposed 
Finland Article transposed Ar ticle transposed Partially transposed Article transposed 
France Article transposed Ar ticle transposed Article tr ansposed Article transposed 
Germany Article transposed Article trans posed Article transpos ed Article transposed 
Greece Not transposed Not transposed Ar ticle transposed Ar ticle transposed 
Hungary Not transposed Not transposed Ar ticle transposed Ar ticle transposed 
Ireland Not transposed Not transposed Ar ticle transposed Ar ticle transposed 
Italy Article transposed Article transpos ed Article transposed Article transposed 
Latvia Not transposed Article transpos ed Not transposed Article transposed 
Lithuania Article transposed Article tr ansposed Not transposed Article transposed 
Luxembourg Article transposed Not transpos ed Article transposed Article transposed 
Malta Article transposed Article trans posed Article trans posed Not transposed 
Netherlands Article transpos ed Article transposed Article transposed Article transposed 
Poland Not transposed Not transposed Ar ticle transposed Ar ticle transposed 
Portugal Article transposed Article trans posed Article transpos ed Article transposed 
Romania Not transposed Not trans posed Not transposed Not transposed 
Slovakia Not transposed Not trans posed Not transposed Not transposed 
Slovenia Not transposed No t transposed Article trans posed Article transposed 
Spain Article transposed Article trans posed Not transposed Article transposed 
Sweden Not transposed Article trans posed Not transposed Not transposed 
United Kingdom Not transposed Not transpos ed Article transposed Article transposed 
Source: Consortium study 2008. 
Where: 
Art. 11: Small entities defin ition, abridged ba lance sheet. 
Art. 27: Medium entities definition, si mplified Profit and Loss account layout. 
Art. 44: Abridged notes for small entities. 
 
EN 49   EN Art. 45: Certain simplification of disclosures in the notes. 
Art. 46.3: Exemption for small entities to prepare annual report. Art. 46.4: Certain simplifications for medium entities in the annual report. 
Art 47.2 and 3: Simplifications of publicati on requirement for small and medium entities. 
Art. 51.2: Exemption for small entities from audit. Where all of these exemptions used the burden fo r Micro entities could be reduced (according 
to the calculation of the Consortium) by as much as: €1.8bn and for all companies by €3.8bn. These include: 
Table. 23.  Estimation of burden reduction throu gh full use of existing exemptions. 
 Estimated cost reduction (€) 
Exemption Micro All companies 
Art. 11 91,078,221 117,225,663 
Art. 27.  39,282,071 56,340,747 
Art. 44  25,550,357 34,886,123 
Art. 45 67,810,277 99,345,319 
Art. 46.3  117,371,612 142,123,629 
Art. 46. 69,453,028 90,962,726 
Art 47.2 and 3  124,295,807 208,656,122 
Art. 51.2.  1,303,125,000 1,798,950,000 
Art. 57 No segment information 1,274,120,204 
Total 1,837,966,373 3,822,610,533 
Note: Art. 57 Exemptions for certain subsidiary undertakings 
Please also note that the presented numbers with exception for Ar ticle 51.2, take into account only estimation for the countrie s 
that did not transpose the relevant articl es at all, it does not deal with transposit ions that impose additi onal restrictions f or the 
utilization of the exemptions.  
Source: Consortium study 2008,  Commission Services analysis. 
In terms of thresholds levels, all but two Me mber States have transposed Article 11 small 
companies' thresholds in a wa y that covers the proposed maxi mum threshold levels for micro 
entities in terms of balance sheet total and tur nover. Thus there is a limited possibility to soft 
law approach simplification in this sphere.  
 
EN 50   EN ANNEX 3: POLICY OPTION 5 
Based on the data provided by the Consortium  report and assuming that "micro entities" 
exemption is not utilised the exemptions c onsidered under Option 5 ar e expected to produce 
the following results: 
Table. 24.  Detail estimation of exemptions fr om audit and publication requirement. 
Option Administrative 
burden (€) Maximum 
Estimated burden 
reduction (€) 
Option 4.1 Exempting micro entities from statutory audit 1,303, 125,000 1,303,125,000 
Option 4.2 Introducing limited review in stead of full audit 1,303,125,000 651,562,500 
Option 4.3 Exemption from publicati on requirements 1,359,800,000 117,789,145 
Option 4.3a Web based public ation 1,359,800,000 54,912,928 
Source: Consortium study 2008. 
Please note that Options 4.1 and 4.2 as well as 4.3. and 4.3a are alternatives. 
 
 
EN 51   EN ANNEX 4: RESULTS FROM THE STAKEHOLDER CONSULTATION  
Strategically important decisions , such as introducing a micro en tity category, ca nnot be made 
without broad support from Member  States and stakeholders. Ca lculations performed for the 
Commission by the Centre for Strategy & Evalua tion Services LLP show that around 75% of 
companies in the scope of the Four th Directive are micro entities. 
Results of Public consultation of 2007 
Commentators to the Commission communica tion expressed the following opinions on the 
possible introduction of micro entities: 
Fig. 3.   Support for introduction of micro entities exemption. 
All answers Positive and negative answers only 
tYES
7%No
27%
tNo
5%
N/A
22%YES
39%
 No
41%
YES
59%
 
Legend: tYes: tentative Yes; tNo: tent ative No; n/a: no answer to the question 
Source: Commission Services analysis. 
The proposal to introduce the micro entities  definition into the Fourth Directive was 
welcomed by a majority of respondents: 100 re sponses were received to  that question (about 
80% of the total number of responses).  
Those respondents that welcomed the propos al considered it a major reduction of 
administrative burden for those entities, which will encourage new start-ups through removal of disincentives to incorpor ation. Support was the strongest amongst public authorities and 
companies where more than four fifths expresse d themselves in favour of the proposal. There 
were also comments suggesting that the threshol ds for the micro entities should be as high as 
currently defined by Article 11 of the Fourth Directive for small companies. Those that 
opposed the proposal, primarily accountants and auditors, took the view  that, despite the 
possibility for Member States to maintain equi valent requirements at na tional level, it would 
lead to an abolition of bookkeeping and prepar ation of accounting data in general for those 
entities (which is not the intention of the Co mmission proposal and is virtually impossible to 
occur). A smaller number of commentators t ook the view that exemption would result in 
problems for smaller companies to raise extern al funding and communicate with stakeholders. 
 
EN 52   EN The following table summarises responses to th e micro question by field of activity of the 
respondent: 
Table. 25.  Reactions to Micro entities exemption by stakeholders. 
Field No. of responses Positive responses Negative responses 
Companies 21 86% 14% 
Public authorities 19 79% 21% 
Accountants and 
Auditors 34 38% 62% 
Banks, insurance, 
finance 8 75% 25% 
Commercial 
information providers 3 0% 100% 
Others 15 47% 53% 
Total 100 59% 41% 
Source: Responses to the 2007 Consul tation, Commission Services analysis. 
The measure was supported by the majority of companies, public authorities, banks and 
insurance companies that decide d to participate in the survey . The biggest opposition and the 
biggest respondent group came from accountants and auditors, followed by commercial information providers. Respondents that could not be easily classified to any of the 
aforementioned groups were more or  less evenly split on the issue. 
During the 2007 consultations Commission Servi ces received positive  responses to the 
measure from public authorities from 13 Member  States (AT, EE, ET, CZ, DE, DK, FI, IT, 
LT, PL, SE, SK, UK) and negative fr om 2 Member States (BE, FR)
63, the remaining Members 
States either did not respond to the question or did not submit their response to the consultation. 
This consultation supports previous statements that the main users of the accounts of micro 
entities are banks and tax authorities and that they rely primarily on tailor made financial information rather than financial statements. 
                                                
 
63  Please note that we received more than one respon se from public authorities from some Member States. 
 
EN 53   EN ANNEX 5 USERS ' AND PREPARERS ' NEEDS FROM THE FINANCIAL REPORTING  
This annex presents the Commission's best estimate of the user needs and prepares 
expectations from the financial reporting. The si tuation may vary in different Member States 
and as such the list below is by no means comprehensive and complete. 
 
Users needs from financial st atements of micro-entities  
The Accounting Directives as well as Inte rnational Financial Reporting Standards were 
developed with the investor protection as an  overarching objective. Thus they contain 
numerous measures to ensure that minority stockholders have proper information, that the 
valuation methods are appropriate  and give a true and fair vi ew of the company, that all 
subsidiaries are properly consolidated, and fina lly that independent auditor presents opinion 
on the quality of the reports. 
It has been a consensus for the last decades that such investor oriented financial statement will 
also serve most of the needs of  other stakeholders in a satis factory manner. Therefore, the 
Directives have not introduced specific acc ounting rules for micro-entities or SMEs, but 
instead, they contain certain opt outs from the rules desi gned for bigger companies.  
Generally, the stakeholders of very small comp anies are limited and differ significantly from 
those of big corporations. These companies are effectively owner managed and statutory 
financial statements do not have significant relevance for the owners in reviewing the 
company's performance. Moreover, investors in  micro entities are often limited in number, 
frequently directly involved in running of the company and with direct insight into company's 
accounts. The source of financing is not stock market but own re sources, credit from banks or 
other financial institutions. 
Thus the main users are banks and tax auth orities and other small companies, not an 
anonymous investor. It is common that especially tax authorities  have special reporting needs 
known as tax accounting which differs significan tly from financial reporting. Also banks 
demand more information that will allow them to  assess recoverable amount  of assets in case 
of bankruptcy and thus are not interested in so phisticated accrual accoun ting vehicles such as 
deferred tax or goodwill. Moreover banks and tax au thorities have direct  contacts (as opposed 
to anonymous investor) with small companies and often demand tailor made information. 
Consequently, the users of micro accounts are more likely to demand information on 
recoverable amount of assets (b anks) or taxable profit (tax au thorities) rather than various 
disclosures or sophisticated accrual accounting information. 
Therefore, companies that have to produce esse ntially investor orient ed accounts devote time 
and money to accounting techniques that use no purpose and only satisfy legal requirements. 
They often need help from external accountants  to prepare these accounts as the techniques 
are often complex and not the core competence of the managers of mi cro business. For the 
same reason the statutory accounts provide seldom  useful information for the managers to 
utilise.  
 
EN 54   EN Micro category is however not homogenous. Th ere are some micro entities with external 
investors such as e.g. venture capital investors. It is expected that they will continue to demand investor oriented financial accounts. There are also other reasons for continued 
demand for internationally comparable financ ial statements for some companies, by their 
international trading partners or trade credit in sures. In these cases it  may well be that the 
Directives' accounting and disclosu re rules reflect the business need s of these companies. It is 
appropriate that these companies will be able to follow the Directives' accounting rules as 
transposed by the Member States on a voluntary ba sis as well as have their accounts audited if 
necessary. However, this concerns only a minority of all micro entities and it is not justified to 
keep the same burdensome requirements for all companies. 
 
Banks 
Banks are main providers of finance to the micr o entities. They predomin antly relay on direct 
contacts with their clients, and often ask for additional information. 
From our consultations with banks, banks' or ganisations (European Banking Federation) and 
authorities responsible for ba nk oversight Commission learnt that in major ity of cases 
financial data is obtained directly from the owner or from the accountant of the company.  
Banks of course utilise public r ecords where they are available, however lack of such record 
generally do not prevent them  form obtaining information. 
Moreover banks create internal da tabases to monitor history of their clients and rely on such 
databases primarily when assessing the risk of client and of sectors in which it operates. 
Banks often shear information between each other especially about delinquent borrowers and systematically collect information on them. 
When it comes to analysis of financial statemen ts both banks form Continental as well as 
Anglo Saxon cultures transform an d recalculate financ ial statement to strip them of any 
information that does not cont ribute to the recoverable amount  of assets, when assessing 
credit rating of a client.  
They are also interested in the cash flow st atements to forecast future cash flows, however 
these are not provided in the current framewor k of financial statements and banks must 
calculate them based on available data. 
These all proves that financial accounting for SME is not tuned to the needs of their users, and 
contains numerous figure s that serve no purpose. 
Moreover where financial statements of micro en tities are public, it often takes a lot of time 
after the year end before they are published, for instance 10 months in the UK and 5 months 
in Denmark. Such delays make financial informa tion useless for the bank, thus banks prefer to 
contact a company directly to have real time re sults, and eventually afterwards confront them 
with financial statements. 
Banks can of course always ask for audited fina ncial statement before granting a loan, even if 
there is no legal obligation to do so. 
 
EN 55   EN However for instance, banks in United Kingdom are generally not inte rested in the annual 
accounts for loans of up to £2m, in Germany ba nks are obliged by law to consider financial 
statements only if the credit amount is higher than €0.75m. 
It is also customary in the UK to check timelines s of filing of financial information rather than 
thorough analysis of their content as studies have  shown that late filing is a key indicator of 
impending failure. Thus the same purpose could be  served by information that the company is 
filing its tax return on a timely basis. 
German Bank64 survey reveals that banks see little or no need for goodwill or deferred tax 
calculation as they consider that recoverabl e amount resulting from these figures is too 
uncertain and they tend to set it off against equity for credit analysis. 
In the survey banks also stated that they prefer to have information directly on the face of 
financial statements rather than hidden somewhere in the notes, and thus more difficult to extract. This indicates that not es to the accounts (which are mo st labours part of the financial 
accounting) can sometimes confuse more than inform. 
Overall banks are mainly interested in: 
• Calculating recoverable amount of assets, 
• Calculating future cash flows to assess credit servicing potential of client 
 
Public authorities 
The interest of public authoritie s is in calculating and collecting taxes. There are various kinds 
of taxes on wealth (property taxes), income, and turnover.  
Wealth taxes can depend on the value of a real es tate, this value could be a prevailing market 
value in the area and is not neces sarily based on statutory accounts.  
Turnover taxes such as Value Added Tax are based on compulsory registration of all 
transactions. This is done by every company regardless of any accounting obligation. As such this register may also be utilised to determ ine whether threshold criteria are still met by a 
micro entity.  
Income taxes such as CIT (Corporate Income Tax) are based on special form of accounting 
called tax accounting that often uses different  concepts from those in  financial reporting, 
generally based on realisation pr inciple rather than for example fair value accounting, it also 
sometimes uses specific tax defined depr eciation rates or other measurement basis.  
These differences often result in companies prep aring two sets of accounts, or reconciling one 
set to another which produces unnecessary costs.  
                                                
 
64  See footnote 40, p. 16. 
 
EN 56   EN From our consultation with UK financial services we learned that if the exemption for micro 
entities is granted the UK will try to produce one set of account s for both financial and tax 
reporting that is expected to produc e savings of £100 to £200 per company.  
German government has also indicated its interest in merging the two sets together.  
This situation differs by jurisdictions, with France for instance indicating that they have no 
problems with the double reporting, and the Ne therlands where financial reports of small 
companies are at the same time tax reports.  
The differences are due to the fact that the ba sis for tax accounting is not harmonised at EU 
level, and each country pr eserves its own tradition. 
 
General Public 
From our consultations with stak eholders we received clear indi cations that general public is 
mostly illiterate in terms of accounting. The most common error that ordinary financial 
statements readers make is to confuse accr ual accounting numbers with cash accounting ones, 
e.g. people confuse reserves with cash, and th e same can be said about profit figure. 
All that means that financial accounts in order to be understood must be interpreted by 
financial analysts. And while there are plenty  of financial analys es concerning listed 
companies it is almost impossible to find one fo r micro entities. Thus in most likely scenario 
an individual would have to pay for anal ysis service to accountant or other person 
knowledgeable in the accounts. 
Therefore the general pub lic mainly relies on pu blic authorities to condu ct oversight of small 
businesses on their behalf. And publ ic authorities as explained ea rlier are most interested in 
tax returns for their control. 
 
Statistical offices 
Statistical offices collect data from companies in order to provide statistical information on a 
whole range of issues. That information is heavily dependent on the availability of financial information as a source of data  to compile the indicators.  
In order to avoid duplication of  work, the National St atistical Offices in many Member States 
have built up a statistical system during the past  few years that depends to a large extent on 
the usage of data available in the economy, among them accounting data.  
 
Financial information providers 
Financial information providers are specialised companies whos e business model is based on 
collecting, analysing and selling on in formation regarding companies.  
 
EN 57   EN They will obviously be affected by the ex emption of micro entitie s. However one must 
remember that already now in many count ries small companies publish abridged accounts 
(see Annex 2: Use of options by Member States ), so the source of information is limited. 
Ultimately it should be left to the market to resolve the problem, if there will be demand both 
from users and from prepares the solution w ill be found. There is plenty to learn form 
countries with limited publication obligation. Ther e are already know databases that focus on 
selected and often most sought after informati on, such as databases of delinquent borrowers. 
The data from UK register shows for instance that there are a bout 1.7 searches per year per 
company in the register (average for all companies in the register). This data is allegedly further reused by other information providers, however the number is indicative of rather 
limited demand.  
 
Accountants and auditors 
Part of the turnover of accountan ts and auditors is based on statutory ob ligations to prepare 
and audit annual accounts. Furthermore, st atutory accounts are often too complex to 
understand by the management of small compan ies and interpreting these accounts may also 
add to the turnover of ac countants and auditors.  
Exemption of micro entities is likely to reduc e the demand for financial statements to the 
levels that are justified by the market.  
On top of that most accounting expert of micro en tities specialise in tax law as well, thus they 
will be able to shift their busin ess model to tax assistance and generate more added value to 
companies in question. 
The voluntary audit of accounts will continue to  provide revenues to the audit profession. 
Commission received indications, that for inst ance in the UK around 7% of companies that 
are exempted decide to audit their financial stat ements, due to the needs of their stakeholders. 
So companies faced with demand on financial tr ansparency respond to it, be the demand from 
banks, investors or foreign trading partners. 
As for cost of voluntary preparat ion of financial statements and their audit, this need not to 
rise if companies will chose to follow nati onal or international standards in which there 
already is great expertise in the accounting profession. 
 
Needs of micro-entities  
The needs of micro-entities should also be considered in drafting any new accounting law. 
Micro-entities themselves can also be the users of other micro entities' financial statements, 
for example, when they assess the creditworthine ss of their potential clients. The extent to 
which financial statements are used for this purpose varies between different EU states. 
Discussions with stakeholders  suggest that current comple xity of accounting statements 
makes them useless for micro entrepreneurs, they often cannot understand the content of the 
reports without help of speci alised analyst/accountant. Thus  usability of the financial 
 
EN 58   EN reporting is reduced both for managerial purpo ses and for investigating business partners. 
This supports the idea that small companies' accounting should be simplified. 
Eurobarometer in 2005 conducted a survey on EU15 SMEs access to finance65. The 
population studied comprises all legal forms of  companies, i.e. not only limited liability 
companies covered by the Directives. However due to lack of more precise studies the results 
of this survey may be indicative of general sentiment in the SME gr oup that should not differ 
significantly for limited liability companies.  
It found that 78% of micro companies consid ered banks as a main source of financing, 
followed by leasing companies (22%) and public  institutions (10%). Private investors 
constituted only 7% and venture cap ital companies 2% of all answers66. 
This reinforced the earlier statement that ba nks are main stakeholders of micro-entities ' 
financial statements, and that anonymous investor s constitute only marginal part of the micro 
financing market. 
The study also asked Micro en tities what should be done to  ensure development of the 
company. Majority of respondents (31%) named regulations more suite d to their activities 
followed by easier means of financing (15%). 
The majority of micro companies (38%) took loans of less than €25,000 and 75% of less then 
€100,000. These loans were used primarily to  purchase equipment (68%) followed by 
financing of working capital (34%). 
Three quarters of micro companies did not expe ct any time soon to open up or increase their 
company's capital – thus saw limited prospect of external investors. 
 
Cross-border trade and vo luntary application 
On the basis of information from the stakehol ders also supported by statistical information67 
Commission estimates that approximately 5-7% of the micro-enterprise s are involved in the 
cross-border activities. The recent Eurobarometer68 confirms that only 7% of all micro 
companies in the EU (regardless of the legal form) are involved in export. Moreover, 95% of 
companies with less than 10 employees di d not have any foreign subsidiaries.  
Another analysis by Eurostat69 on 2005 figures shows that the number of micro entities 
(regardless of the legal form) engaged in intra EU imports in 18 MS was 128,435 and in 
exports 58,277, making a simple estimation to 27MS these numbers are 192,653 and 87,416. Assuming that limited liability companies are mo re likely to engage in cross border trade, 
these numbers were compared to the estimated number of micro limited liability companies of 
                                                
 
65  Eurobarometer. 2005. SME Access to Finance, 
http://ec.europa.eu/public_opinion/flash/fl174_en.pdf . 
66  The percentages do not add up to 100% as it was possible to select more than one source of financing. 
67  EUROSTAT 74/2007: Statistics in focus: Export of business services, 
http://epp.eurostat.ec. europa.eu/cache/ITY_OFFPUB/KS-SF- 07-074/EN/KS-SF- 07-074-EN.PDF . 
68  See footnote 36, p. 45. 
69  See footnote 58. 
 
EN 59   EN 5,369,738 which results in 4% of micro companie s engaged in imports and 2% engaged in 
exports. It must be noted that Eurostat cautious that numbers for micro companies engaged in 
intra EU trade are underestimated due to the data collection peculiarities (data is only collected from companies whose intra EU trade exceeds certain threshold level). Eurostat is 
now working on a better method on data collecti on that should produce more accurate results 
in the future. 
For most of the internationally active micro-enti ties, the user needs are unlikely to be different 
from those of micro-entities that are trading only on national level. Firstly, there is generally 
no dissimilarity as regards the ownership and financing structures. Secondly, the statutory 
financial reporting is not a generally important source of information for tax authorities as 
regards cross-border tax issues of  micro-entities. The extent to which micro entities' financial 
statements are used by other en terprises in assessing, for exampl e, their creditw orthiness is 
also rather limited on cross-border level.  
 
 
EN 60   EN ANNEX 6 CURRENT REPORTING REQUIREMENTS OF THE FOURTH DIRECTIVE  
In the table below a list of reporting requireme nts of the Fourth Directive is presented. The 
analysis particularly highlights exemptions  available for small and medium companies 
 
Table. 26.  Information requirements in the Fourth Directive. 
MS Exemption 
option for Art. Information requirement 
Small  
(Art. 11) Medium 
(Art. 27) 
 Section 1 General provisions:    
• Annual accounts shall comprise   
o Balance sheet   
o Profit and Loss account   
o Notes   1 
• Member States may require other statements and disclosures   
    
 Section 2 General provisions for Balance Sheet and Profit and Loss   
4(4) • For each item figures for preceding financial year must be presented   
6 • Appropriation of profit and tr eatment of loss may be required   
    
 Section 3 Balance sheet   
9-10 • 2 balance sheet layouts Yes  
(Art 11)70  
10a • Current/non-current layout for balance sheet possible   
14 • All guarantees must be disclose in the footnotes or notes   
    
 Section 4 Special provisions for Balance Sheet   
15(1), 
(2) • Definition of assets   
15(3) • Movements of the assets   
15(3) 
(a) o Should be shown on balance sheet or in notes (separately, with 
detail information) Yes  
(Art 44(1)) 
(Art 11)   
15(3) 
(b) o For first time adoption residual value may be used as carrying 
value (must be disclosed in notes)   
15(3) 
(c) o valuation by replacement value or inflation adjusted value   
15(4) • Formation expenses same as 15(3) (a) and (b) Yes  
(Art 44(1)) 
(Art 11)   
17 • Participating interest   
18 • Prepayments and accrued income Yes  
(Art 44(1))   
                                                 
70  Not for companies whose securities are admitted to tr ading on a regulated market within the meaning of 
Article 4(1), point (14) of Directive 2004/39/EC (Art. 53a). 
 
EN 61   EN 19 • Value adjustments   
20 • Provisions   
21 • Accruals and deferred income Yes  
(Art 44(1))   
    
 Section 5 Profit and Loss   
23-26 • 4 layouts possible  Yes  
(Art 27) 70 
22 • Statement of performance possible instead of P&L   
    
 Section 6 Special Provisions   
28 • Net turnover   
29(1) • Extraordinary income and charges   
29(2) o Amount and nature in the notes (also for previous year) if material Yes  
(Art 44(1))   
• Taxes can be shown it total (MS exemption)   30 
o Detailed disclosure in the notes. Yes  
(Art 44(1))   
    
 Section 7 Valuation rules   
• Other valuation methods (replacement value, inflation adjustments, 
revaluation)   33 
o Items concerned and method should be disclosed in the notes   
33(2) 
(a) o Difference from valuation according to Directive should be 
explained in the notes in form of detailed table(Revaluation 
reserve)   
33(2) 
(c) o Transfers from the Revaluation Reserve to P&L must be disclosed 
separately   
33(3) o Differences in valuation adjustment may be show separately in P&L   
33(4) o In balance sheet or note must be disclosed   
  the value according to the general rules   
  cumulative value adjustment   
  difference between valuations   
  cumulative difference   
34(2) • Formation expenses must be explained in the notes Yes  
(Art 44(1))  Yes  
(Art 45(2)) 
proposal  
34(1) 
(c)(cc) • Valuation adjustments of fixed assets to the lower figure should be 
disclosed separately in P&L or in the notes   
35(1) 
(d) • Exceptional value adjustment of fixed assets for taxation purposes 
must be disclosed in the notes   
35(4) • Interest on borrowed capital included in the production cost must be 
disclosed in the notes   
37(1) • Cost of Research and Development (derogations from Art 34 
treatment (5 year amortisation) must be disclosed in the notes)   
37(2) • Good will – amortisation over 5 years must be disclosed in the notes    
39(1) 
(c) • Exceptional value adjustment to current assets must be disclosed 
separately in the P&L or in notes   
39(1) 
(e) • Exceptional value adjustments of current assets for tax purposes must 
be disclosed in the notes   
40(2) • Differences in inventory value form the market value must be disclosed 
in the notes Yes  
(Art 44(1))   
41(1) • Positive difference between debt and amount repayable must be   
 
EN 62   EN shown as asset in balance sheet or in the notes 
42 • Material "other provisions" must be disclosed in the notes Yes  
(Art 44(1))   
    
 Section 7a Valuation at fair value   
42d • If financial instrument are at FV, the notes shall include   
42d(a) o Assumptions underlying valuation models   
42d(b) o FV per category of instrument, changes in FV included in P&L and 
Fair Value Reserve   
42d(c) o Information about derivative financial instruments   
42d(d) o Movements in FV   
    
 Section 8 Contents of the notes on the accounts   
43 Notes to the account must contain at least the information on   
• Valuation methods   
• Value adjustment calculation methods   43(1) 
(1) 
• Foreign currency conversion   
43(1) 
(2) • Names, offices of undertakings with at least 20% stake in and all 
unlimited liability undertakings – unless not material   
43(2) o MS Need not apply to financial holdings   
45(1) 
(a) o May take for of a statement in a r egister (Art 3(1), (2) of Directive 
68/151/EEC, the fact must be disclosed in notes   
45(1) 
(b) o May be omitted if seriously prejudicial to any of the undertakings, 
the fact must be disclosed in notes   
43(1) 
(3), (4) • Shares – number, nominal value, par value of subscribed for each 
class of shares   
43(1) 
(5) • Participation certificates, converti ble debentures, or similar securities 
rights Yes  
(Art 44(1))   
43(1) 
(6) • Amounts owed, due and payable after more than 5 years and debts 
covered by valuable security, for each creditors item Yes  
(Art 44(1)) 
only total figure
  
43(1) 
(7) • Total amount of any financial commitments not in the balance sheet if 
useful for analysing financial position  
43(1) 
(7) • Commitments concerning pension s and affiliated undertaking, 
disclosed separately  
43(1) 
(7a) • Nature and business purpose of arrangements not in the balance 
sheet and their financial impact, if material Yes 
(43(1)(7a))  
• Transactions with related parties (amount, nature, other information, 
materiality, under normal market conditions), may be aggregated 
unless doesn't distort Yes  
(Art 44(1))  
Yes71 
(Art. 
43(1)(7b))  43(1) 
(7b) 
o MS may exempt transactions between company and its fully owned 
subsidiary   
43(1) 
(8) • Net turnover broken by categories of activity and geographical markets 
(if differ substantially) Yes  
(Art 44(1))  Yes  
(Art 45(2))  
45(2) o May be omitted if seriously prejudicial to any of the undertakings,   
                                                 
71  Unless those companies are of a type referred to in Article 1(1) of Directive 77/91/EEC, in which case 
Member States may limit disclosure to, as a minimum,  transactions entered into directly or indirectly 
between: 
 (i) the company and its major shareholders, 
 and  (ii) the company and the memb ers of the administrative, management and supervisory bodies. 
 
EN 63   EN the fact must be disclosed in notes 
43(1) 
(9) • Average number of persons employed , by categories, if not disclosed 
in P&L – the staff cost   
43(1) 
(10) • Tax induced distortions to P&L  
43(1) 
(11) • Deferred tax (the difference between tax charged and amount 
payable)  
43(1) 
(12) • Emoluments to administrative, managerial and supervisory bodies, 
commitments on pensions for former members Yes  
(Art 44(1))  
 
43(3) o MS may exempt if it is possible to  identify the position of specific 
members of these bodies   
43(1) 
(13) • Advances and credit to members of administrative, managerial and 
supervisory bodies and commitments entered on their behalf   
43(1) 
(14) • If valuation at FV not applied   
43(1) 
(14)(a) o FV of derivative instruments (i f possible) and information on their 
extant and nature Yes  
(Art 44(1))   
43(1) 
(14)(b) o FV of financial fixed assets carrie d at an excess of their FV without 
value adjustment to lower figure   
43(1) 
(15) • Fees for audit, assurance, tax advisory, non-audit services Yes  
(Art 44(1))  Yes  
(Art 45(2))72 
 o MS may exempt if company is included in Consolidated accounts (if 
the information is in the notes to these accounts)   
 Section 9 Contents of the Annual Report   
46(1) 
(a) • Balance and comprehensive analysis of the development and 
performance of the company consistent with the size and complexity of the business  
46(1) 
(a) • Description of principle risk and uncertainties  
46(1) 
(b) • Financial and non-financial key performance indicators relevant to 
particular business including those relating to environmental and 
employee matters Yes  
(Art 46(4)) 
70 non-
financial 
only 
46(1) 
(c) • References and additional explanations of amounts reported in the 
annual accounts (where appropriate)  
46(2) 
(a) • Indication of any important event s that occurred since the end of the 
financial year  
46(2) 
(b) • The company's likely future development  
46(2) 
(c) • Activities in the field of Research and Development (R&D) Yes  
(Art 46(3)) 
70 
 
46(2) 
(d) • Information on acquisition of own shares Yes  
(Art 46(3)) 
70,73  
                                                 
72  Provided that such information is delivered to the public oversight system (referred to in Article 32 of 
Directive 2006/43/EC on statutor y audit) when requested by su ch a public oversight system. 
73  Provided that the information referred to in Ar ticle 22 (2) of Directive 77/91/EEC concerning the 
acquisition by a company of its own shares is given in the notes to their accounts. 
 
EN 64   EN 46(2) 
(e) • Existence of branches of the company  
• Use of financial instruments (when material for annual accounts 
analysis):  
o Financial risk management objectives and polices  
o Policy for hedging each major forecasted transaction  
o Exposure to:  
 Price risk  
 Credit risk  
 Liquidity risk  46(2) 
(f) 
 Cash flow risk Yes  
(Art 46(3))70 
 
46a(1) • Corporate Governance Statement 
46a(1) 
(a) • Reference to 
46a(1) 
(a)(i) o Corporate governance code which the company is subject to, 
46a(1) 
(a)(ii) o Code which company voluntarily applies 
46a(1) 
(a)(iii) o Additional corporate governance principles applied 
46a(1) 
(b) • Departures from code of c onduct with reasons for that 
46a(1) 
(c) • Description of internal control and risk management system (in relation 
to financial reporting process) 
46a(1) (d) • Takeover bids 
46a(1) 
(e) • Shareholders meeting (unles s described by national law) 
46a(1) 
(e) o Operation 
46a(1) 
(e) o Key powers 
46a(1) 
(e) o Shareholders rights and their exercise  
46a(1) 
(f) • Composition and operation of the administrative, management and 
supervisory bodies and their committees 
46a(3) • Companies with only bonds traded can be exempted from preparing 
Corporate Governance Statement. Yes if not listed  
(Art 46a(1) 70  
or  
with only bonds listed 
(Art 46a(3)) 70 
 Section 10 Publication   
Yes  
(Art 47(2)) 
70 
abridge 
balance 
sheet  Yes  
(Art 47(3)) 
70 
abridge 
balance 
sheet  47 • Annual accounts must be published 
48 • Published accounts must be accompanied by auditor report 
50 • With annual accounts the following must be published (if they are not 
included in the annual accounts) 
50 o The proposed for appropriation of profit or treatment of loss 
50 o The appropriation of profit or treatment of loss The fact that abridged 
balance sheet is published must be indicated, 
reference to register made, the auditor report 
shall not be attached but it 
must be disclosed what opinion the auditor made 
(Art 49)
 70 
51-51a Section 11 Auditing Yes  
(Art 51(2)) 
70   
 
EN 65   EN  Section 12 Final provisions   
53a • Member States shall not make av ailable the exemptions set out in 
Articles 11, 27, 43(1), points (7a) and (7b), 46, 47 and 51 in the case 
of companies whose securities are admitted to trading on a regulated 
market within the meaning of Article 4(1), point (14) of Directive 2004/39/EC.   
56(2) • The notes to the accounts must also disclose   
56(2) 
(a) o Name and office of undertaking drawing the consolidated accounts 
of the largest body of undertakings of which company forms a part   
56(2) 
(b) o Name and office of undertaking drawing the consolidated accounts 
of the smallest body of undertakings of which company forms a 
part, also included in (a) above   
56(2) 
(c) o The place where copies of the consolidated accounts referred to in 
(a) and (b) above may be obtained pr ovided that they are available   
57 • MS need not to apply the provisions of this directive concerning the 
content, auditing and publication of annual accounts to companies which:   
57(a) o the parent undertaking must be subject to the laws of a Member 
State;   
57(b) o all shareholders or members of the subsidiary undertaking must 
have declared their agreement to the exemption from such 
obligation; this declaration must be made in respect of every 
financial year;   
57(c) o the parent undertaking must have declared that it guarantees the 
commitments entered into by the subsidiary undertaking;   
57(d) o the declarations referred to in (b) and (c) must be published by the 
subsidiary undertaking as laid down by the laws of the Member 
State in accordance with Ar ticle 3 of Directive 68/151/EEC;   
57(e) o the subsidiary undertaking must be included in the consolidated 
accounts drawn up by the parent undertaking in accordance with 
Directive 83/349/EEC;   
57(f) o the above exemption must be disclosed in the notes on the 
consolidated accounts drawn up by the parent undertaking;   
57(g) o the consolidated accounts referred to in (e), the consolidated 
annual report, and the report by t he person responsible for auditing 
those accounts must be published for the subsidiary undertaking as 
laid down by the laws of the Member State in accordance with 
Article 3 of Directive 68/151/EEC.   
57a • Requirements of the Directive need not apply to companies which are 
members having unlimited liability of any of the companies and firms 
listed in Article 1(1) second and third subparagraphs under certain 
conditions   
58 • Provisions of this directive need not apply to audit and publication of 
P&L account of parent companies that draw consolidated accounts 
and are included in these. 
• This fact must be disclosed in the notes to annual and consolidated 
accounts   
59 • Participating interest in companies over which significant influence is 
exercised (20% or more) may be shown in the balance sheet under 
items "shares in affiliated undertakings" or "participating interest"   
59(2) • When first applied (Art 59) parti cipating interest shall be shown:   
59(2) 
(a) o At book value (deference between the value and amount 
corresponding to proportion of capital represented by participating 
interest shall be disclosed separately in the balance sheet or notes)   
59(2) o At the amount corresponding to pr oportion of capital represented   
 
EN 66   EN (a) by participating interest (the difference between value calculated 
according to section 7 or 7a shall be disclosed separately in the 
balance sheet or notes) 
59(2) 
(a) o Member States may prescribe (a) or (b) above, it must be indicated 
in the balance sheet or notes   
59(3) • If company in which participating interest is hold uses different 
valuation methods of those used by  company drawing the accounts – 
they may be revaluated and the fact must be disclosed in the notes    
59(9) • The Art. 59 need not apply if participating interest is not material   
Note: Option for medium companies covers also small companies 
Source: Fourth Council Directive on the annual acc ounts of certain types of companies (78/660/EEC). 
 
 
EN 67   EN ANNEX 7: ABBREVIATIONS  
ARC Accounting Regulatory Committee 
AuRC Audit Regulatory Committee DG Directory General EU European Union GAAP Generally Accepted Accounting Principles HLG High Level Group of Independent Stak eholders on Administrative Burdens 
IAS International Accounting Standards IFRS International Financial Statements IO Information Obligation SCM Standard Cost Model SEC Securities and Exchange Commission SME Small and Medium Enterprises UK United Kingdom US, USA United States of America  
 
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