Proposal for a Directive of the European Parliament and of the Council amending Directives 78/660/EEC and 83/349/EEC as regards the valuation rules for the annual and consolidated accounts of certain types of companies
Date: 2000-02-24
Institutions: European Commission
Subjects: balance sheet, consolidated account, financial institution, international standard, management accounting

31.10.2000

EN

Official Journal of the European Communities

C 311 E/1

II

(Preparatory Acts)

COMMISSION

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

(2000/C 311 E/01)

COM(2000) 80 final (cid:151) 2000/0043(COD)

(Submitted by the Commission on 24 February 2000)

THE EUROPEAN PARLIAMENT AND THE COUNCIL
OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European
Community, and in particular Article 44,

Having regard to the proposal from the Commission,

Having regard to the opinion of
Committee,

the Economic and Social

Acting in accordance with the procedure laid down in Article
251 of the Treaty,

Whereas:

(1) Article 32 of the Directive 78/660/EEC based on Article
54(3)(g) (now 44(2)(g)) (1) of the Treaty requires the items
shown in the annual accounts to be valued on the basis of
the principle of purchase price or production cost.

(2) Article 33 of Directive 78/660/EEC authorises Member
States to permit or require companies to re-value certain
assets, to value certain assets at replacement cost or to
apply other methods that take into account the effects of
inflation on the items shown in the annual accounts.

(3) Article 29 of Directive 83/349/EEC based on Article
(now 44(2)(g)) (2) of the Treaty requires assets
54(3)(g)
and liabilities to be included in consolidated accounts to
be valued in accordance with Articles 31 to 42 and 60 of
Directive 78/660/EEC.

institutions are prepared in accordance

(4) The annual and consolidated accounts of banks and other
to
financial
Council Directive 86/635/EEC, and the annual and
insurance undertakings are
consolidated accounts of
prepared
Council Directive
in
91/674/EEC. The amendments in this Directive do not
amend the provisions of Directives 86/635/EEC and
91/674/EEC, but
the Commission may bring forward
similar proposals to amend these Directives after having
consulted the relevant advisory committees.

accordance with

(6) Leading accounting standard setters in the world are
moving away from the historical cost model
for the
valuation of these financial instruments towards a model
of fair value accounting.

(7) The Communication of the Commission on (cid:145)Accounting
Harmonisation: A New Strategy vis (cid:224) vis International
Harmonisation(cid:146) (3),
the EU to work to
maintain consistency between Directives 78/660/EEC
and 83/349/EEC and developments
in international
accounting standard setting.

called for

standards

accounting

(8) In order to maintain consistency between internationally
recognised
Directives
78/660/EEC and Directive 83/349/EEC, it is necessary to
amend these Directives in order to allow for certain
financial assets and liabilities to be valued at fair value.
This will enable European companies to report in line
with current international developments.

and

(9) Comparability of

financial

information throughout

the
Community makes it necessary to require Member States
to introduce a system of fair value accounting. Member
States may permit or require the adoption of that system
to all or certain categories of companies and to both the
annual and consolidated accounts or
to consolidated
accounts only.

(10) Fair value accounting should only be possible for those
items where there is a sufficiently developed international
consensus that fair value accounting is appropriate. Fair
value accounting should therefore not be applied to all
financial assets and liabilities.

(11) The notes on the accounts

should include

certain
information concerning the items in the balance sheet
which have been measured at
fair value. The annual
report should give an indication of the company’s risk
management objectives and strategies in relation to its
use of financial instruments.

(5) The dynamic nature of international financial markets has
resulted in the widespread use of not only traditional
primary financial instruments such as shares and bonds,
but also various forms of derivative financial instruments
as futures, options, forward contracts and swaps.

(1) OJ L 222, 14.8.1978, p. 11. Directive as last amended by Directive

1999/60/EC (OJ L 162, 26.6.1999, p. 65).

(2) OJ L 193, 18.7.1983, p. 1. Directive as last amended by Directive

90/605/EEC (OJ L 317, 16.11.1990, p. 60).

(12) Accounting for financial

instruments is a fast evolving
area of financial reporting which necessitates a periodic
review. This review should be carried out through the
Contact Committee on the Accounting Directives
in
order to give Member States the opportunity to report
on their experiences with fair value accounting in
practice,

(3) COM(95) 508.

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Official Journal of the European Communities

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HAVE ADOPTED THIS DIRECTIVE:

commodity and which are expected to be settled by
delivery of the commodity.

Directive 78/660/EEC is hereby amended as follows:

Article 42b

Article 1

1. The following Section 7a is inserted:

(cid:145)SECTION 7a

Valuation at fair value

Article 42a

1.
By way of derogation from Article 32, Member States
shall permit or require in respect of all companies or any
classes of companies, valuation at fair value of all balance
instruments,
including derivative financial
sheet
except for the items listed in paragraph 3.

items,

2. Member States may
requirement
accounts as defined in Directive 83/349/EEC.

the permission or
in paragraph 1 to consolidated

set out

restrict

3.

The following items shall not be valued at fair value:

The fair value referred to in Article 42a is determined

1.
by reference to:

(a) a market value,

for those items for which a reliable
market can readily be identified. Where a market value
is not
readily identifiable for an item but can be
identified for its components, the market value of that
item may be derived from that of its components; or

(b) the value resulting from established valuation models
and techniques,
for those items for which a reliable
market cannot be readily identified. Such valuation
models and techniques
should ensure a reasonable
approximation of the market value.

2.
Those items that cannot be measured reliably in a way
that is free from material error and bias by the methods as
described under either (a) or (b) of paragraph 1, may not be
measured at fair value and should instead be measured in
accordance with Articles 34 to 42.

(a) balance sheet items that are not financial instruments;

Article 42c

(b) liabilities, with the exception of liabilities which are:

(i) held as part of a trading portfolio;

(ii) accounted for as hedged items; or

(iii) derivative financial instruments.

4.

Notwithstanding paragraph 1, Member States may:

(a) exclude items held-to-maturity, other than derivative
financial instruments, from valuation at fair value;

(b) exclude originated loans and advances not held for

trading purposes from valuation at fair value;

(c) restrict

the valuation at

fair value to items held for
trading purposes. Where this restriction is applied, all
derivative financial instruments are deemed to be held
for trading purposes;

Notwithstanding Article 31(1)(c)(aa), where a balance
1.
sheet item has been valued at fair value in accordance with
Article 42a (1) a change in the fair value of that item should
be included in the profit and loss account in arriving at the
profit or loss for the financial year.

2. Member States may permit or require the gain or loss
on a financial asset that is not held for trading purposes to
be recognised directly in equity, in a fair value reserve. To
the extent that gains and losses on such items that have
been recognised in equity are actually realised, they must be
removed from the fair value reserve. The Member States
may lay down rules governing the use of the fair value
reserve.

3.
Notwithstanding paragraph 1, the change in the fair
value of an item measured in accordance with Article 42b
should not be included in the profit and loss account in
arriving at the profit or loss for the financial year, but must
be included directly in the fair value reserve where:

(a) that

item is accounted for as a hedging instrument
under a system of hedge accounting that allows such
changes in value not to be shown in the profit and
loss account, or

(d) exclude commodity-based contracts that were originally
designated for the purposes of meeting a company’s
expected purchase, sale or usage requirements in that

(b) such change in value relates to an exchange difference
arising on a monetary item that
forms part of a
company’s net investment in an affiliated foreign under-
taking.

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The fair value reserve referred to in paragraph 3
4.
should be reduced to the extent that the amounts shown
therein are no longer necessary for the implementation of
the valuation methods under the circumstances referred to
in sub-paragraphs (a) and (b) of paragraph 3. The Member
States may lay down rules governing the use of the fair
value reserve.(cid:146)

2. The following Articles 43a, 43b and 43c are inserted:

(cid:145)Article 43a

Where valuation at fair value has been applied under Article
42a, the notes on the accounts must indicate at least the
following information:

Article 43c

Where valuation at fair value has not been applied under
Article 42a(1), and where a company has not made use of
in respect of a
the option to make a value adjustment
financial fixed asset in accordance with Article 35(1)(c)(aa)
and therefore carries that financial fixed asset at an amount
in excess of its fair value, it should disclose:

(a) the book value and the fair value of either the individual
those individual

assets or appropriate groupings of
assets; and

(b) the reasons for not reducing the book value, including
the nature of the evidence that provides the basis for the
belief that the book value will be recovered.(cid:146)

(a) the items in the balance sheet that have been measured

at fair value;

3. The following Article 46a is inserted:

(b) where fair values have been determined in accordance
significant assumptions

with Article 42b(1)(b),
underlying the valuation models and techniques;

the

(c) per category of items measured at fair value, the fair
value, and the profits or losses recognised directly in
the profit and loss account and in the fair value
reserve referred to in Article 42c(3);

(d) for the fair value reserve referred to in Article 42c(2)

and Article 42c(3) a table showing separately:

(i) the amount of the reserve at the beginning of the

financial year;

(cid:145)Article 46a

Whether or not use has been made of valuation at fair value
referred to in Section 7a, the annual report shall give an
indication of:

(a) the company’s financial risk management objectives and
strategies in relation to its use of financial instruments,
and how these objectives are implemented; and

(b) the company’s exposure to price risk, credit

risk,
liquidity risk, counter-party risk, cash flow risk and
risk of
future developments in relation to its use of
financial instruments.(cid:146)

(ii) the differences included in the reserve during the

financial year;

4. The following Article 52a is inserted:

(iii) the amounts transferred from the reserve during the
financial year and the nature of any such transfers;

(iv) the amount of the reserve at the end of the financial

year;

(e) for

each class of derivative
the
extent
instruments,

information about
derivative financial
terms and conditions
that may affect
timing and certainty of future cash flows

instruments,
financial
and nature of
the
including significant
the amount,

Article 43b

When a company is permitted to use valuation at fair value
in accordance with Article 42a(1), but decides not to do so,
the following disclosures should be given for each class of
derivative financial instruments:

(a) information about
derivative financial
terms and conditions
that may affect
timing and certainty of future cash flows;

extent
the
instruments,

the
and nature of
including significant
the amount,

(cid:145)Article 52a

The Parliament and the Council shall, acting in accordance
with the procedure laid down in Article 251 of the Treaty,
acting on a proposal from the Commission and within three
years of the adoption of this Directive, examine and, where
necessary, amend Articles 42a, 42b, 42c, 43a, 43b, 43c and
46a of Directive 78/660/EEC in the light of the experience
acquired in applying these Articles and taking account of
international developments in the field of accounting.(cid:146)

Directive 83/349/EEC is hereby amended as follows:

Article 2

1. The following Articles 34a, 34b and 34c are inserted:

(cid:145)Article 34a

Where valuation at
fair value has been applied in
accordance with Article 42a(1) of Directive 78/660/EEC,
the notes on the consolidated accounts must indicate at
least the following information:

(a) the items in the consolidated balance sheet that have

(b) the fair value of the derivative financial instruments.

been measured at fair value;

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(b) where fair values have been determined in accordance
the
with Article 42b(1)(b) of Directive 78/660/EEC,
significant
valuation
models and techniques;

assumptions

underlying

the

(c) per category of items measured at fair value, the fair
value, and the profits or losses recognised directly in
the consolidated profit and loss account and in the
fair value reserve referred to in Article 42c(3) of
Directive 78/660/EEC;

(d) for the fair value reserve referred to in Article 42c(2)
and Article 42c(3) of Directive 78/660/EEC a table
showing separately:

(i) the amount of the reserve at the beginning of the

financial year;

(ii) the differences included in the reserve during the

financial year;

(iii) the amounts transferred from the reserve during the
financial year and the nature of any such transfers;

(b) the reasons for not reducing the book value, including
the nature of the evidence that provides the basis for the
belief that the book value will be recovered.(cid:146)

2. The following Article 36a is inserted:

(cid:145)Article 36a

Whether or not use has been made of valuation at fair value
the
referred to in Section 7a of Directive 78/660/EEC,
consolidated annual report shall give an indication of:

(a) the undertaking’s financial risk management objectives,
and how these objectives are met through its use of
financial instruments; and

(b) information on the undertaking’s exposure to price risk,
credit risk,
liquidity risk, counter-party risk, cash flow
risk and risk of future developments in relation to its use
of financial instruments.(cid:146)

3. The following Article 48 is inserted:

(iv) the amount of the reserve at the end of the financial

year;

(cid:145)Article 48

(e) for

each class of derivative
the
extent
instruments,

information about
derivative financial
terms and conditions
that may affect
timing and certainty of future cash flows.

instruments,
financial
and nature of
the
including significant
the amount,

Article 34b

When a company is permitted to use valuation at fair value
in accordance with Article 42a(1) of Directive 78/660/EEC,
but decides not to do so, the following disclosures should be
given for each class of derivative financial instruments:

(a) information about
derivative financial
terms and conditions
that may affect
timing and certainty of future cash flows;

the
extent
instruments,

and nature of
the
including significant
the amount,

(b) the fair value of the derivative financial instruments.

Article 34c

Where an undertaking included in the consolidation has not
applied valuation at
fair value under Article 42a(1) of
Directive 78/660/EEC and has not made a value adjustment
in respect of a financial
in accordance with
Article 35(1)(c)(aa) of Directive 78/660/EEC, and therefore
carries that financial fixed asset at an amount in excess of
its fair value the notes on the consolidated accounts must
disclose:

fixed asset

(a) the book value and the fair value of either the individual
those individual

assets or appropriate groupings of
assets; and

the adoption of

The Parliament and the Council shall, acting in accordance
with the procedure laid down in Article 251 of the Treaty
on a proposal from the Commission and within three years
of
this Directive, examine and, where
necessary, amend Articles 34a, 34b, 34c and 36a of
Directive 83/349/EEC in the light of
the experience
acquired in applying these Articles and taking account of
international developments in the field of accounting.(cid:146)

Article 3

1. Member States shall bring into force the laws, regulations
and administrative provisions necessary for them to comply
with this Directive before . . . They shall forthwith inform the
Commission thereof.

When Member States adopt these provisions, they shall contain
a reference to this Directive or shall be accompanied by such
reference on the occasion of
their official publication. The
methods for making such reference shall be laid down by
Member States.

2. Member States shall communicate to the Commission the
main provisions of domestic law which they adopt in the field
governed by this Directive.

Article 4

This Directive shall enter into force on the twentieth day
following its publication in the Official Journal of the European
Communities.

This Directive is addressed to the Member States.

Article 5