Directive 2001/65/EC of the European Parliament and of the Council of 27 September 2001 amending Directives 78/660/EEC, 83/349/EEC and 86/635/EEC as regards the valuation rules for the annual and consolidated accounts of certain types of companies as well as of banks and other financial institutions
Date: 2001-09-27
Institutions: Council of the European Union, European Parliament
Subjects: balance sheet, bank, consolidated account, financial institution, publication of accounts

L 283/28

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Official Journal of the European Communities

27.10.2001

DIRECTIVE 2001/65/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

of 27 September 2001

amending Directives 78/660/EEC, 83/349/EEC and 86/635/EEC as regards the valuation rules for the
annual and consolidated accounts of certain types of companies as well as of banks and other
financial institutions

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE
EUROPEAN UNION,

Having regard to the Treaty establishing the European
Community, and in particular Article 44(2)(g),

Having regard to the proposal from the Commission (1),

Having regard to the opinion of the Economic and Social
Committee (2),

Acting in accordance with the procedure laid down in Article
251 of the Treaty (3),

Whereas:

(1)

(2)

(3)

(4)

Article 32 of the Fourth Council Directive 78/660/EEC
of 25 July 1978 on the annual accounts of certain types
of companies (4) requires the items shown in the annual
accounts to be valued on the basis of the principle of
purchase price or production cost.

Article 33 of Directive 78/660/EEC authorises Member
States to permit or require companies to revalue 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.

Article 29 of the Seventh Council Directive 83/349/EEC
of 13 June 1983 on consolidated accounts (5) requires
assets and liabilities to be included in consolidated
accounts to be valued in accordance with Articles 31 to
42 and Article 60 of Directive 78/660/EEC.

Article 1 of Council Directive 86/635/EEC of 8
December 1986 on the annual accounts and consol-
idated accounts of banks and other financial
institu-
tions (6) requires assets and liabilities to be valued in
accordance with Articles 31 to 42 of Directive 78/
660/EEC, except when Directive 86/635/EEC provides
otherwise.

(5)

The annual and consolidated accounts of
insurance
undertakings are prepared in accordance with Council
Directive 91/674/EEC of 19 December 1991 on the

(1) OJ C 311, 31.10.2000, p. 1.
(2) OJ C 268, 19.9.2000, p. 1.
(3) Opinion of

the European Parliament of 15 May 2001 (not yet
published in the Official Journal) and Council Decision of 30 May
2001.

(4) 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).

(5) OJ L 193, 18.7.1983, p. 1. Directive as last amended by the 1994

Act of Accession.

(6) OJ L 372, 31.12.1986, p. 1.

(6)

(7)

(8)

(9)

(10)

annual accounts and consolidated accounts of insurance
to Directives 78/
undertakings (7). The amendments
660/EEC and 83/349/EEC do not concern the provisions
of Directive 91/674/EEC, but the Commission may bring
forward similar proposals to amend that Directive after
having consulted the relevant advisory committee.

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
instru-
ments such as futures, options, forward contracts and
swaps.

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.

The Communication of the Commission on Accounting
harmonisation: a new strategy vis-à-vis international
harmonisation called for the European Union to work to
maintain consistency between Community accounting
directives and developments in international accounting
standard setting,
in particular within the International
Accounting Standards Committee (IASC).

In order to maintain such consistency between interna-
tionally recognised accounting standards and Directives
78/660/EEC, 83/349/EEC and 86/635/EEC, it is neces-
sary 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
international developments.
conformity with current

This amendment to Directives 78/660/EEC, 83/349/EEC
and 86/635/EEC is in line with the Commission's
communication to the European Parliament and the
Council of 13 June 2000 on the EU financial reporting
strategy which proposes the use of recognised inter-
national accounting standards for the preparation of
consolidated financial statements by listed companies.
The purpose of this amendment is to allow the applica-
tion of the international accounting standard dealing
with the recognition and measurement of
financial
instruments.

(7) OJ L 374, 31.12.1991, p. 7.

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(11)

(12)

(13)

Comparability of financial information throughout the
Community makes it necessary to require Member States
to introduce a system of fair value accounting for certain
financial instruments. Member States should permit the
adoption of that system by all companies or any classes
of companies subject to the Directives 78/660/EEC, 83/
349/EEC and 86/635/EEC in respect of both the annual
and consolidated accounts or in respect of consolidated
accounts only. Further, Member States
should be
permitted to require the adoption of that system in
respect of all companies or any classes of companies for
both the annual and consolidated accounts or for the
consolidated accounts only.

Fair value accounting should only be possible for those
items where there is a well-developed international
consensus that fair value accounting is appropriate. The
current consensus is that fair value accounting should
not be applied to all financial assets and liabilities, for
instance not to most of those relating to the banking
book.

The notes on the accounts should include certain infor-
mation concerning financial instruments in the balance
sheet, which have been measured at
fair value. The
annual report should give an indication of the compa-
ny's risk management objectives and policies in relation
to its use of financial

instruments.

(14) Derivative financial instruments can have a significant
impact on the financial position of companies. Disclo-
sures on derivative financial instruments and their fair
value are considered appropriate even if the company
does not use fair value accounting. In order to limit the
administrative burden for small companies, Member
States should be allowed to exempt small companies
from this disclosure requirement.

1. the following section shall be inserted:

‘SECTION 7a

Valuation at fair value

Article 42a

1.
By way of derogation from Article 32 and subject to
the conditions set out in paragraphs 2 to 4 of this Article,
Member States shall permit or require in respect of all
companies or any classes of companies valuation at fair
value of financial

including derivatives.

instruments,

Such permission or
requirement may be restricted to
consolidated accounts as defined in Directive 83/349/EEC.

2.
For the purpose of this Directive commodity-based
contracts that give either contracting party the right to settle
in cash or some other financial instrument shall be consid-
instruments, except when:
ered to be derivative financial

(a) they were entered into and continue to meet the compa-
ny's expected purchase, sale or usage requirements;

(b) they were designated for such purpose at their incep-

tion; and

(c) they are expected to be settled by delivery of

the

commodity.

3.

Paragraph 1 shall apply only to liabilities that are:

(a) held as part of a trading portfolio; or

(b) derivative financial

instruments.

(15) Accounting for financial instruments is a fast evolving
area of financial reporting which necessitates a review by
the Commission based on the experiences of Member
States with fair value accounting in practice,

4.

Valuation according to paragraph 1 shall not apply to:

(a) to non-derivative financial instruments held to maturity;

HAVE ADOPTED THIS DIRECTIVE:

Article 1

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

(b) to loans and receivables originated by the company and

not held for trading purposes; and

(c) to interests in subsidiaries, associated undertakings and
joint ventures,
issued by the
equity instruments
company, contracts for contingent consideration in a
business combination as well as other financial instru-
ments with such special characteristics that the instru-
ments, according to what is generally accepted, should
be accounted for differently from other financial instru-
ments.

5.
By way of derogation from Article 32, Member States
may in respect of any assets and liabilities which qualify as
hedged items under a fair value hedge accounting system, or
identified portions of such assets or liabilities, permit valua-
tion at the specific amount required under that system.

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Article 42b

The fair value referred to in Article 42a shall be

1.
determined by reference to:

(a) a market value,

instruments for
for those financial
which a reliable market can readily be identified. Where
a market value is not readily identifiable for an instru-
ment but can be identified for its components or for a
similar instrument, the market value may be derived
from that of its components or of the similar instru-
ment; or

(b) a value resulting from generally accepted valuation
models and techniques, for those instruments for which
a reliable market cannot be readily identified. Such
valuation models and techniques shall ensure a reason-
able approximation of the market value.

2.
Those financial instruments that cannot be measured
reliably by any of the methods described in paragraph 1,
shall be measured in accordance with Articles 34 to 42.

Article 42c

1.
Notwithstanding Article 31(1)(c), where a financial
instrument is valued in accordance with Article 42b, a
change in the value shall be included in the profit and loss
account. However, such a change shall be included directly
in equity,

in a fair value reserve, where:

(a) the instrument accounted for is a hedging instrument
under a system of hedge accounting that allows some or
all of the change in value not to be shown in the profit
and loss account; or

(b) the change in value relates to an exchange difference
arising on a monetary item that forms part of a compa-
ny's net investment in a foreign entity.

2. Member States may permit or require a change in the
value on an available for sale financial asset, other than a
derivative financial
instrument, to be included directly in
equity,

in the fair value reserve.

3.
The fair value reserve shall be adjusted when amounts
shown therein are no longer necessary for the implementa-
tion of paragraphs 1 and 2.

(b) per category of financial instruments, the fair value, the
changes in value included directly in the profit and loss
account as well as changes included in the fair value
reserve;

(c) for each class of derivative financial instruments, infor-
mation about the extent and the nature of the instru-
ments, including significant terms and conditions that
may affect the amount, timing and certainty of future
cash flows; and

(d) a table showing movements in the fair value reserve

during the financial year.’;

2.

in Article 43(1):

(a) the reference in point 10 to ‘Articles 31 and 34 to 42’
shall be replaced by a reference to ‘Articles 31 and 34
to 42c’, and

(b) the following point shall be added:

‘14. Where valuation at fair value of financial instru-
ments has not been applied in accordance with
Section 7a:

(a) for each class of derivative financial

instru-

ments:

(i) the fair value of the instruments, if such a
value can be determined by any of the
methods prescribed in Article 42b(1);

(ii) information about

the extent and the

nature of the instruments; and

(b) for financial

fixed assets covered by Article
42a, carried at an amount in excess of their
fair value and without use being made of the
option to make a value adjustment in accord-
ance with Article 35(1)(c)(aa):

(i) the book value and the fair value of either
the individual assets or appropriate group-
ings of those individual assets;

(ii) 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.’;

Article 42d

3. the text of Article 44(1) shall be replaced by the following

text:

Where valuation at fair value of financial instruments has
been applied, the notes on the accounts shall disclose:

(a) the significant assumptions underlying the valuation
models and techniques where fair values have been
determined in accordance with Article 42b(1)(b);

‘1. Member States may permit the companies referred to
in Article 11 to draw up abridged notes on their accounts
without the information required in Article 43(1)(5) to (12)
and (14)(a). However, the notes must disclose the informa-
tion specified in Article 43(1)(6) in total for all the items
concerned.’;

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4.

in Article 46(2) the following point shall be added:

‘(f) in relation to the company's use of financial

instru-
ments and where material for the assessment of its
assets, liabilities, financial position and profit or loss,

— the company's financial risk management objectives
and policies, including its policy for hedging each
major type of
forecasted transaction for which
hedge accounting is used, and

— the company's exposure to price risk, credit risk,

liquidity risk and cash flow risk.’;

5.

in Article 59(2)(a) and (b) the reference to ‘Articles 31 to
42’ shall be replaced by a reference to ‘Section 7 or 7a’;

6. the following Article shall be inserted:

‘Article 61a

later than 1 January 2007,

Not
the Commission shall
review the provisions in Article 42a to 42d, Article
43(1)(10) and (14), Article 44(1), Article 46(2)(f) and
Article 59(2)(a) and (b)
the experience
acquired in applying provisions on fair value accounting
and taking account of international developments in the
field of accounting and, if appropriate, submit a proposal
to the European Parliament and the Council with a view to
amending the abovementioned Articles.’

in the light of

Article 2

Directive 83/349/EEC is amended as follows:

1. the text of Article 29(1) shall be replaced by the following

text:

‘1.
Assets and liabilities to be included in consolidated
accounts shall be valued according to uniform methods and
in accordance with Sections 7 and 7a and Article 60 of
Directive 78/660/EEC.’;

2.

in Article 34:

(a) the reference in point 10 to ‘Articles 31 and 34 to 42’
shall be replaced by a reference to ‘Articles 31 and 34 to
Article 42c’, and

(b) the following points shall be added:

‘14. Where valuation at fair value of financial instru-
ments has been applied in accordance with Section
7a of Directive 78/660/EEC:

(a) the

significant assumptions underlying the
valuation models and techniques where fair
values have been determined in accordance
with Article 42b(1)(b) of that Directive;

(b) per category of financial instruments, the fair
value, the changes in value included directly in
the profit and loss account as well as,
in
accordance with Article 42c of that Directive,
changes included in the fair value reserve;

(c) for each class of derivative financial

instru-
ments,
information about the extent and the
nature of the instruments, including significant
terms and conditions
the
amount, timing and certainty of future cash
flows; and

that may affect

(d) a table showing movements in the fair value

reserve during the financial year.

15. Where valuation at fair value of financial

instru-
ments has not been applied in accordance with
Section 7a of Directive 78/660/EEC:

(a) for each class of derivative instruments:

(i) the fair value of the instruments, if such a
value can be determined by any of
the
methods prescribed in Article 42b(1) of that
Directive;

(ii) information about the extent and the nature

of the instruments; and

(b) for financial fixed assets covered by Article 42a
of that Directive, carried at an amount in excess
of their fair value and without use being made
of the option to make a value adjustment in
accordance with Article 35(1)(c)(aa) of
that
Directive:

(i) the book value and the fair value of either
the individual assets or appropriate group-
ings of those individual assets;

(ii) 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.’;

3.

in Article 36(2) the following point shall be added:

‘(e) in relation to the use by the undertakings of financial
instruments and, where material for the assessment of
liabilities, financial position and profit or loss,
assets,

— the financial risk management objectives and poli-
cies of the undertakings, including their policies for
hedging each major type of forecasted transaction
for which hedge accounting is used, and

— the exposure to price risk, credit risk, liquidity risk

and cash flow risk.’;

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4. the following Article shall be inserted:

Article 4

‘Article 50a

Not later than 1 January 2007, the Commission shall review
the provisions in Article 29(1), Article 34(10), (14) and (15)
and Article 36(2)(e) in the light of the experience acquired
in applying provisions on fair value accounting and taking
account of
in the field of
accounting and,
if appropriate, submit a proposal to the
European Parliament and the Council with a view to
amending the abovementioned Articles.’

international developments

Article 3

The text of Article 1(1) of Directive 86/635/EEC shall be
replaced by the following text:

‘1.
Articles 2, 3, 4(1), (3) to (5), Articles 6, 7, 13, 14,
15(3) and (4), Articles 16 to 21, 29 to 35, 37 to 41, 42 first
sentence, 42a to 42d, 45(1), 46(1) and (2), Articles 48 to
50, 50a, 51(1), 56 to 59, 61 and 61a of Directive 78/
660/EEC shall apply to the institutions mentioned in Article
2 of this Directive, except where this Directive provides
otherwise. However, Articles 35(3), 36, 37 and 39(1) to (4)
of this Directive shall not apply with respect to assets and
liabilities that are valued in accordance with Section 7a of
Directive 78/660/EEC.’

1. Member States shall bring into force the laws, regulations
and administrative provisions necessary for them to comply
with this Directive before 1 January 2004. 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.

This Directive is addressed to the Member States.

Article 5

Done at Brussels, 27 September 2001.

For the European Parliament

For the Council

The President

N. FONTAINE

The President

C. PICQUÉ