Keywords

Summary



Keywords

1 Freedom of movement for persons - Freedom of establishment - Companies - Directive 78/660 - Annual accounts of certain types of companies - Principles of making valuations on a prudent basis and of a true and fair view - Provisions for potential warranty liabilities to be entered as liabilities arising before the date of the balance sheet but having only potential effects

(Council Directive 78/660, Art. 20(1))

2 Freedom of movement for persons - Freedom of establishment - Companies - Directive 78/660 - Annual accounts of certain types of companies - Principle that the components of asset and liability items are to be evaluated separately - Derogations - `Exceptional cases' - Meaning

(Council Directive 78/660, Art. 31(2))

3 Freedom of movement for persons - Freedom of establishment - Companies - Directive 78/660 - Annual accounts of certain types of companies - Provisions for liabilities and charges - Rules governing the making of provisions - Application of national law - Conditions and limits

(Council Directive 78/660)

Summary

1 Under Article 20(1) of the Fourth Directive (78/660) based on Article 54(3)(g) of the Treaty on the annual accounts of certain types of companies, which lays down the obligation to enter provisions for liabilities and charges in the accounts under `Liabilities', provisions for potential warranty liabilities must be entered under `Liabilities' provided that those liabilities constitute charges the nature of which is clearly defined and which are likely to be incurred but in respect of which the amount or the date on which they will arise is uncertain. Provisions for potential warranty liabilities must therefore be entered as liabilities arising in law before the date of the balance sheet but whose effects will not become apparent until after that date. Any other interpretation of the above provision would mean that such potential debts would not be shown in the balance sheet. This would lead to an overestimate of the assets, which would be incompatible not only with the principle of making valuations on a prudent basis, but also with the principle of the `true and fair view', compliance with which is the primary objective of the Directive.

2 Article 31(2) of the Fourth Directive (78/660) based on Article 54(3)(g) of the Treaty on the annual accounts of certain types of companies permits, `in exceptional cases', departure from the principle that the components of asset and liability items are to be evaluated separately. Since the expression `in exceptional cases' must be interpreted in the light of the Directive's aim - that the annual accounts of the companies concerned must give a true and fair view of their assets, of their financial position and of their profit or loss - the cases envisaged are those in which separate valuation would not give the truest and fairest possible view of the actual financial position of the company concerned. It follows that a single provision for all such liabilities should be made where a global valuation is the most appropriate way of ensuring that the expenditure to be shown under `Liabilities' represents a true and fair view of its amount.

3 In the absence of Community rules specifically applying to the method and criteria for evaluating provisions for charges and liabilities which, by virtue of the Fourth Directive (78/660) based on Article 54(3)(g) of the Treaty on the annual accounts of certain types of companies, must be entered under `Liabilities' in the company's balance sheet, those provisions should be determined under the conditions laid down by the national legislation of the various Member States, provided, however, that the annual accounts give a true and fair view of the assets, financial position and the profit or loss of the company and that the provisions do not exceed in amount the sums which are necessary.