EN Official Journal of the European Union CE 78/215

(2004/C 78 E/0220)

WRITTEN QUESTION E-3055/03

by Margrietus van den Berg (PSE) to the Commission

(17 October 2003)

Subject: Accounting scandals and corporate governance

Following cases in the United States, instances of accounting scandals involving multinational undertakings have now also come to light in Europe. Over-ambitious boards of directors have focused on expansion, to the detriment of stability, with the result that multinational undertakings can keep their heads above water only if the economic climate is favourable. The economic tide has now turned and these undertakings are facing problems: subsidiaries and shareholdings are being sold off and in some cases profits are being artificially inflated. These developments are having serious consequences, with the brunt of the problems being borne by pension funds, employees and customers, and trust in the economy is being further undermined. Rising unemployment and poor economic prospects are adding to the concerns regarding firms and workers who are the innocent victims of the misplaced optimism and irresponsible ambitions of major undertakings.

One example of this problem in the Netherlands is the accounting scandal involving Ahold, into which two judicial inquiries have now been launched. The last two years' profits of Ahold subsidiaries in Argentina and the United States were deliberately inflated and Ahold suppressed side letters from the accountants Deloitte & Touche. Now the Netherlands subsidiary Albert Heijn and its dozens of employees seem set to become the victims of Ahold's mismanagement, despite the fact that Albert Heijn is a healthy firm which has nothing whatsoever to do with its holding company's practices abroad.

1. What view does the Commission take of this case, which is but one example among many involving multinational undertakings?

2. What action does the Commission plan to take to combat mismanagement, in the light of its action plan on improving corporate governance?

3. How does the Commission plan to protect innocent subsidiaries and employees against the effects of mismanagement, once again in the light of its action plan on improving corporate governance?

Answer given by Mr Bolkestein on behalf of the Commission

(25 November 2003)

1. Cases like Ahold have no doubt contributed to a loss of confidence of investors in capital markets to the detriment of the European economy, all its stakeholders and investors. It confirms the importance of Commission initiatives aiming at restoring the confidence of the capital markets in the contents of the financial information published by companies, in the people who prepare financial statements and in the professionals who audit those financial statements.

2. The following initiatives have been taken by the Commission in order to contribute to restoring confidence, particularly in the areas of financial reporting and corporate governance: — The introduction of a requirement for all listed Community companies to prepare their consolidated accounts in accordance with the International Accounting Standards (IAS) as of 2005 (Regulation (EC) No 1606/2002 of 19 July 2002 (1)); — The publication of a Communication in May 2003 (2) on modernising company law and enhancing corporate governance in the Union, with an indication of specific proposals to be made in the short term on subjects such as the collective responsibility of board members for financial and key non-financial statements; — The publication of a Communication in May 2003 (3) on priorities in the area of statutory audit, with the indication of an amendment in the short term of the Eighth Company Law Directive of 12 May 1984 (4) in order to introduce into this Directive requirements aiming at an improvement of audit quality throughout the Union, such as proper public oversight, external quality control, and the use of one set of auditing standards (International Auditing Standards).

3. Subsidiaries of a group are not always the innocent victim of the group's behaviour, on the contrary, they may also be the direct cause of problems for the group as whole. In order to get a better insight into intra-group relations, the company law Action Plan mentioned above includes a proposal to be made by the Commission in the short term concerning an increased disclosure of group structures and relations, both financial and non financial. Increased transparency might contribute to a quicker assessment of the situation so that measures can be taken before the problems materialise.

(1) Regulation (EC) No 1606/2002 of the Parliament and of the Council of 19 July 2002 on the application of international accounting standards, OJ L 243, 11.9.2002.

(2) COM(2003) 284 final.

(3) OJ C 236, 2.10.2003.

(4) Eighth Council Directive 84/253/EEC of 10 April 1984 based on Article 54 (3) (g) of the Treaty on the approval of persons responsible for carrying out the statutory audits of accounting documents, OJ L 126, 12.5.1984.