Proposal for a Directive of the European Parliament and of the Council amending Council Directives 78/660/EEC and 83/349/EEC concerning the annual accounts of certain types of companies and consolidated accounts
Date: 2004-10-27
Institutions: European Commission
Subjects: capital market, company law, consolidated account, corporate governance, publication of accounts

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 27.10.2004 
COM(2004) 725 final 

2004/0250 (COD) 

Proposal for a 

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL  

amending Council Directives 78/660/EEC and 83/349/EEC concerning the annual 
accounts of certain types of companies and consolidated accounts 

(presented by the Commission) 

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EXPLANATORY MEMORANDUM 

1)  CONTEXT OF THE PROPOSAL 

101 

•  Grounds for and objectives of the proposal 

The objective is to further enhance confidence in the financial statements and annual 
reports  published  by  European  companies.  In  this  respect,  shareholders  and  other 
stakeholders need reliable, complete and easily accessible information. This concern is 
shared  by  the  European  Parliament1  and  the  Council2.  It  should  be  addressed  by 
amending the Accounting Directives to: 

•  Establish  collective  responsibility  of  board  members:  Confidence  in  the 
financial  statements  is  linked  to  who  has  responsibility  for  drawing  up  and 
publishing  them.  In  line  with  what  is  currently  prevailing  in  Member  States  the 
responsibility should rest collectively with all board members. 

•  Enhance  transparency  about  related  parties’  transactions:  Companies’ 
transaction  with  their  managers,  the  latter’s  family  members  or  other  so-called 
related parties are often not carried out under normal commercial conditions. While 
satisfactory  transparency  is  required  for  all  listed  European  companies,  under 
International  Accounting  Standards  (IAS)  more  transparency  is  necessary  for 
unlisted companies.  

•  Enhance  transparency  about  off-balance  arrangements:  The  disclosure 
requirements  in  the  Accounting  Directives  for  off-balance  sheet  commitments  are 
not precise enough. Special Purpose Entities (SPE) is a prominent example: They 
are captured in the balance sheet if they qualify as a subsidiary but in many cases 
SPE’s  may  be  organised  in  a  different  way.  Instead  of  developing  complex 
definitions  of  an  SPE  (bearing  the  immediate  risk  of  circumvention),  disclosure 
should instead be improved by imposing a specific requirement in the notes to the 
accounts for material off-balance sheet arrangements, including SPE’s. 

•  Introduce  a  corporate  governance  statement:  Investors  on  European  capital 
markets  have  a  major  interest  in  listed  EU-companies’  corporate  governance 
practices.  Accordingly,  each  listed  company  should  –  in  a  specific  section  of  its 
annual report - disclose information about its practices in a “corporate governance 
statement”. 

102 

•  General context 

On 21 May 2003, the Commission adopted an Action Plan for Modernising Company 
Law  and  Corporate  Governance  at  EU  level  (Action  Plan)3,  announcing  the 

1 

2 

3 

P5_TA(2004)0096  –  “European  Parliament  resolution  on  corporate  governance  and  supervision  of 
financial services - the Parmalat case” 
The  ECOFIN  ministers  meeting  in  the  Council  in  Oviedo  in  April  2002  invited  the  Commission  to 
consider this issue. 
Communication  from  the  Commission  to  the  Council  and  the  European  Parliament  –  Modernising 
Company Law and Enhancing Corporate Governance in the European Union – A Plan to move forward 
COM(2003) 284 final. 

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confirmation  of  the  collective  responsibility  of  board  members,  the  improvement  of 
information  provided  by  groups  and  the  introduction  of  a  corporate  governance 
statement  as  a  short  term  priority,  i.e.  presentation  of  a  proposal  before  the  end  of 
2004. Recent corporate scandals have underlined that urgent action is necessary. 

103 

•  Existing provisions in the area of the proposal 

The Accounting Directives are in this context understood as Directives 78/660/EEC4 
and 83/349/EEC5. 

105 

•  Consistency with other policies 

The proposed amendment is consistent with other horizontal Community policies, in 
particular the Commission’s Action Plan and the Financial Services Action Plan. 

2)  RESULTS OF CONSULTATIONS OF INTERESTED PARTIES AND IMPACT ASSESSMENT 

•  Consultations of interested parties 

202  Consultation methods and main sectors targeted. 

Two consultations were carried out: a consultation on the Company Law Action Plan 
(2003)  and  an  on-line  consultation  (between  April  and  June  2004)  on  this  specific 
initiative.  A  summary  of  the  responses  to  the  Company  Law  Action  Plan  was 
published in November 2003; the responses to the second consultation were published 
in September 2004 on the Commission’s web site. 

203  General profile of respondents. 

There  was  a  wide  geographical  coverage,  i.e.  more  than  200  responses  from  18 
Member  States.  Approximately  half  of  the  responses  came  from  the  business 
community; the other half came from other stakeholders. 

204 

Summary of responses and how they have been taken into account. 

a)Collective responsibility of board members 

Generally, there was support for the Commission’s intention to confirm the collective 
responsibility of board members towards the company in EU-legislation. 

b)  Enhancing  transparency  on  transactions  with  related  parties’  and  on  off-balance 
arrangements 

The business community was not in favour of solutions going beyond what is already 
required  by  International  Accounting  Standards  (IAS)  whereas  other  stakeholders  in 
general  support  improved  disclosure  in  order  to  restore  confidence  in  a  company’s 
financial statements. 

4 

5 

OJ L 222, 14.8.1978, p 11. Directive last amended by Directive 2003/51/EC of the European Parliament 
and Council (OJ L 178, 17.7.2003, p16). 
OJ  L  193,  18.7.1983,  p  1.  Directive  as  last  amended  by  Directive  2003/51/EC  of  the  European 
Parliament and Council (OJ L 178, 17.7.2003, p16). 

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Given the increased use of off balance sheet arrangements, e.g. use of SPEs in order to 
remove  assets  and  liabilities  from  the  balance  sheet,  it  is  necessary  to  improve  the 
disclosure of such arrangements which may serve useful business purposes. This will 
further promote public confidence in financial statements. 

c) Corporate governance statement 

The consultation showed  support for limiting such a corporate governance statement 
to  information  on  whether  and  to  what  extent  a  listed  EU-company  complies  or  not 
with  a  corporate  governance  code.  While  business  was  reluctant  to  go  further  other 
stakeholders  favoured  additional  disclosure,  in  particular  information  about  the  risk 
management system applied by listed EU-companies. 

The Commission proposes a corporate governance statement for listed EU-companies 
along the lines set out in its Action Plan thereby limiting information requirements to 
what  is  strictly  necessary,  i.e.  the  reference  to  the  corporate  governance  code,  the 
extent of which this code is complied with, information about shareholders’ meetings, 
the  composition  and  operation  of  the  board  and  its  committees.  The  Action  Plan 
included  further  items  the  publication  of  which  is  already  mandatory  under  the 
Directive on Takeover Bids; these items should in future become part of the corporate 
governance statement. 

•  Collection and use of expertise 

206  During the consultation more than 40 detailed written contributions was received. 

213 

•  Impact assessment 

A preliminary impact assessment was presented in the Commission’s Legislative and 
Work  Programme  2004  showing  that  increased  transparency  would  contribute  to 
ensuring  that  the  functioning  of  groups  remains  compatible  with  the  interests  of 
shareholders and other stakeholders at the different levels of the group 

3)  LEGAL ELEMENTS OF THE PROPOSAL 

301 

•  Legal basis 

Article 44 (1) of the Treaty. 

513 

•  Explanation of the proposal 

A.  CLARIFICATION  OF  RESPONSIBILITY  AND  LIABILITY  OF 
BOARD  MEMBERS  FOR  FINANCIAL  STATEMENTS  AND  KEY 
NON-FINANCIAL INFORMATION 

Recent  corporate  scandals  have  highlighted  issues  related  to  board  members’ 
misconduct and thereby underlined the need for the Commission to pursue its Action 
Plan  and  establish  an  EU-framework  of  collective  responsibility  for  board  members, 
including  appropriate  sanctions  and  liability.  Hence  the  Commission  proposes  to 
ensure  that  Member  States  must  guarantee  that  board  members  are  collectively 
responsible at least towards the company. 

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This  does  not  prevent  Member  States  from  extending  collective  responsibility  for 
board  members  directly  to  shareholders  and  other  stakeholders.  But  EU  legislation 
would  confirm  the  system  of  collective  responsibility  and  oblige  Member  States  to 
have or introduce appropriate sanctions and civil liability rules for non-respect of the 
accounting rules by board members in order to underpin the collective responsibility 

Accordingly, the Commission proposes in Article 1 to insert a new section containing 
Articles 50b and 60a in Directive 78/660/EEC and in Article 2 to insert a new section 
containing  Articles  36(a)  in  Directive  83/349/EEC  and  inserting  Article  48  under 
section 6 of Directive 83/349/EEC. 

B.  INCREASED 

TRANSPARENCY 

PARTY 
TRANSACTIONS  AND  OFF  BALANCE  SHEET  ARRANGEMENTS, 
INCLUDING  THE  USE  OF  SPECIAL  PURPOSE  ENTITIES  AND 
OFFSHORE CENTRES 

RELATED 

- 

Related party transactions 

In  the  Action  Plan  the  Commission  considered  that  additional  initiatives  aiming  at 
improving the financial and non-financial information disclosed is desirable, even by 
non-listed companies. 

The Accounting Directives provide for transparency about transactions with affiliated 
companies which are but one type of related parties. This concept is not as broad as 
under the International Accounting Standards (IAS 24) dealing with transactions with 
related parties that listed companies must, as of January 2005, apply when preparing 
consolidated accounts. 

In order to determine who is a related party, the Commission proposes to integrate the 
definitions  set  out  in  IAS  24,  as  endorsed  under  the  IAS-Regulation6.  Using  the 
definitions  under  IAS  does  not  imply  that  non-listed  companies  would  be  subject  to 
exactly the same disclosure requirements as listed ones. Unnecessary burdens should 
be avoided in two ways: the Accounting Directives already grant an option to Member 
States  allowing  small  companies  not  to  provide  disclosure  about  transactions  with 
affiliated  undertakings  –  which  is  one  type  of  related  party;  accordingly,  this  logic 
should also apply to other related party transactions. In addition,  not each and  every 
related party transaction should be disclosed if they are not carried out under normal 
commercial conditions (i.e. not at arm’s length) and only if they are material. 

Accordingly,  the  Commission  proposes  in  Article  1  to  add  a  new  subparagraph  to 
Article 43 (1) of Directive 78/660/EEC and in Article 2 to add a new subparagraph to 
Article 34 of Directive 83/349/EEC. In Article 2 the Commission also proposes to add 
a new paragraph 1a to Article 41 of Directive 83/349/EEC. 

Transparency in the use of off-balance arrangements 

Innovations  in  financial  instruments  have  facilitated  the  allocation  of  risk  among 
borrowers  and  investors  in  more  efficient  ways.  However,  certain  financial 

6 

OJ L 243, 11.9.2002, p1 

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instruments may involve transactions the effect of which alters a company's accounts 
so  they  no  longer  reflect  the  true  financial  position.  Consequently,  there  is  a  public 
policy  issue  to  ensure  that  the  “true-and-fair-view”  principle  is  better  and  clearer 
implemented at European level. IAS and the Accounting Directives provide for some 
disclosure of off balance sheet arrangements. 

Special Purpose Entities (SPEs) are captured in the balance sheet if they qualify as a 
subsidiary  or  as  a  company  in  which  a  participating  interest  is  being  held  but  SPE’s 
can be organised to elude this. Disclosure should be improved by imposing a specific 
disclosure requirement in the notes for material off-balance sheet arrangements. To the 
extent  that  this  disclosure  goes  beyond  what  is  required  under  IAS,  listed  EU 
companies  applying  IAS  would  also  have  to  comply  with  this  disclosure  through  an 
amendment to the Accounting Directives. 

Consequently,  the  Commission  considers  that  the  Accounting  Directives  should 
require  all  companies  -  whether  listed  or  not  -  to  disclose  any  off  balance  sheet 
arrangements  and  their  financial  impact  if  it  can  be  material  for  an  investor's 
assessment  of  a  company's  financial  position.  This  is  in  line  with  the  overarching 
principle  that  financial  statements  must  present  a  true  and  fair  view  of  a  company’s 
financial situation and the best way for ensuring transparency. Capturing for instance 
SPEs via specific definitions would be too easy to circumvent. 

Accordingly,  the  Commission  proposes  that  additional  specific  information  on 
material off-balance sheet arrangements should be disclosed in the notes to the annual 
and  consolidated  accounts.  The  Commission  proposes  to  add  a  new  subparagraph  to 
Article 43 (1) of Directive 78/660/EEC and in Article 2 the Commission proposes to 
add a new subparagraph to Article 34 of Directive83/349/EEC. 

C.  DISCLOSURE  ABOUT  CORPORATE  GOVERNANCE  PRACTICES 
BY  ISSUERS  WHICH  HAVE  THEIR  SECURITIES  TRADED  ON  A 
REGULATED MARKET 

Information  about  corporate  governance  structures  in  listed  European  companies  are 
of  crucial  importance  for  European  capital  markets  and  European  investors.  For  this 
purpose,  all  listed  EU-companies  should  provide  a  specific  "Corporate  Governance 
Statement" in their annual report. 

The Commission considers that the Corporate Governance Statement should become a 
specific  part  of  the  company’s  annual  report  and  that  it  should  also  indicate  certain 
information  to  be  given  in  accordance  with the  Take  Over  Bids  Directive  as  well  as 
information  about  the  risk  management  system,  the  operation  of  the  shareholder 
meeting, the shareholders rights and the operation of the board and its committees. 

Therefore,  the  Commission  proposes  to  add  a  new  section  9A  to  Directive 
78/660/EEC.  As  for  the  consolidated  annual  report  it  is  proposed  to  add  a  new 
subparagraph  to  Article  36  (2)  of  Directive  83/349/EEC  limiting  the  information 
requirements to the applied risk management and internal control systems for drawing 
up the consolidated accounts and the consolidated annual report. 

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303 

•  Subsidiarity principle 

This  proposal  does  not  fall  under  the  exclusive  competence  of  the  Community.  The 
objective  of  the  action  is  to  improve  public  confidence  in  financial  statements.  A 
central element in this is that financial statements must be comparable across the EU 
to  benefit  integration  of  capital  markets.  In  ensuring  equivalent  transparency  and 
thereby contributing to completion of the internal market, the proposed measures are 
in line with the subsidiarity principle. 

•  Proportionality principle 

311 

The proposal continues the Community’s principle based approach to EU-Accounting 
regulation.  This  ensures  proportionality  and  leaves  flexibility  to  authorities  and 
economic  operators  on  how  to  fulfil  the  objectives  while  minimising  their  financial 
and administrative burden. 

•  Choice of instruments 

313 

The proposed instrument amends existing directives and is therefore a directive. 

4)  BUDGET IMPLICATIONS 

402 

There are none for the Community budget. 

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2004/0250 (COD) 

Proposal for a 

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL  

amending Council Directives 78/660/EEC and 83/349/EEC concerning the annual 
accounts of certain types of companies and consolidated accounts  

(Text with EEA relevance) 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

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

Having regard to the proposal from the Commission7, 

Having regard to the opinion of the European Economic and Social Committee8, 

Acting in accordance with the procedure laid down in Article 251 of the Treaty9, 

Whereas: 

(1) 

(2) 

On  21  May  2003,  the  Commission  adopted  an  Action  Plan  announcing  measures  to 
modernise  company  law  and  enhance  corporate  governance  in  the  Community.  As  a 
short term priority, for the Community was to confirm the collective responsibility of 
board  members,  increase  transparency  in  transactions  with  related  parties  and  off-
balance  arrangements  and  improve  disclosure  about  corporate  governance  practices 
applied in a company. 

Pursuant  to  that  Action  Plan,  members  of  the  administrative,  management  and 
supervisory  bodies  of  a  company  were  as  a  minimum  to  be  collectively  responsible 
towards  the  company  for  drawing  up  and  publishing  annual  accounts  and  annual 
reports.  The  same  approach  was  also  to  apply  to  members  of  the  administrative, 
management  and  supervisory  bodies  of  undertakings  drawing  up  consolidated 
accounts. On the one hand, this would not prevent Member States from going further 
and provide for direct responsibility towards shareholders or even other stakeholders. 
On  the  other  hand,  Member  States  were  to  refrain  from  opting  for  a  system  of 
responsibility limited to individual board members. However, this should not prevent 
courts  or  other  enforcement  bodies  in  the  Member  States  from  being  able  to  impose 
sanctions on an individual board member. 

7 
8 
9 

OJ C […] […], p.[…] 
OJ C […] […], p.[…] 
OJ C […] […], p.[…] 

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(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

On 27 September 2004 the Commission adopted a Communication on preventing and 
combating  financial  and  corporate  malpractice  outlining  inter  alia  the  Commission 
policy  initiatives  regarding  internal  control  in  companies  and  responsibility  of  board 
members. 

At present Fourth Council Directive 78/660/EEC of 25 July 1978 based on Article 54 
(3)  (g)  of  the  Treaty  on  the  annual  accounts  of  certain  types  of  companies10  and 
Seventh Council Directive 83/349/EEC of 13 June 1983 based on the Article 54 (3) (g) 
of  the  Treaty  on  consolidated  accounts11  only  provide  disclosure  of  transactions 
between  a  company  and  the  company’s  affiliated  undertakings.  This  should  be 
extended to cover other types of related parties, such as key management members and 
spouses of board members. Disclosure of material transactions with related parties that 
are  not  carried  out  under  normal  commercial  condition  can  assist  users  of  annual 
accounts to assess the financial position of the company as well as, when the company 
belongs to a group, the financial situation of the group as a whole. 

Definitions  applicable  to  related  party  disclosures  as  set  out  in  the  International 
Accounting  Standards  adopted  by  the  Commission  under  Regulation  (EC)  No 
1725/2003 of 29 September 2003 adopting certain international accounting standards 
in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of 
the Council12, should be integrated into Directives 78/660/EEC and 83/349/EEC 

Off  balance  sheet  arrangements  may  expose  a  company  to  risks  and  benefits,  which 
are material for an assessment of the financial position of the company and when the 
company belongs to a group, the financial position of the group as a whole. 

Such  off  balance  sheet  arrangements  could  be  any  transactions  or  agreements 
companies may have with entities that are not included in the balance sheet. Such off 
balance sheet arrangements may be associated with the creation or use of one or more 
Special Purpose Entities (SPE’s) and offshore activities designed to address inter alia 
economic,  legal,  tax  or  accounting  objectives.  Appropriate  disclosure  of  such 
arrangements that are not included in the balance sheet should be set in the notes to the 
accounts or the consolidated accounts. 

Companies,  having  their  securities  admitted  to  trading  on  a  regulated  market  and 
which  have  their  registered  seat  in  the  Community,  should  be  obliged  to  disclose  an 
annual corporate governance statement as a specific and clearly identifiable section of 
the  annual  report.  This  statement  should  provide  shareholders  with  easily  accessible 
key information about the actually applied corporate governance practices, including a 
description of any existing risk management systems and internal controls in relation 
to  the  financial  reporting  process.  Furthermore,  where  relevant,  companies  may  also 
provide an analysis of environment and social aspects necessary for an understanding 
of the company’s development, performance and position. There is no need to impose 
a separate corporate governance statement on undertakings drawing up a consolidated 

10 

11 

12 

OJ  L  222,  14.08.1978,  p.  11.  Directive  as  last  amended  by  Directive  2003/51/EC  of  the  European 
Parliament and of the Council (OJ L 178, 17.7.2003, p. 16). 
OJ  L  193,  18.07,1983,  p.1.  Directive  as  last  amended  by  Directive  2003/51/EC  of  the  European 
Parliament and of the Council (OJ L 178, 17.7.2003, p.16). 
OJ L 243, 11.09.2002, p1 

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annual report, however, the information concerning the risk management system and 
the internal control system the group has should be presented. 

(9) 

The  objectives  of  the  action  to  be  taken  are,  in  particular  to  facilitate  cross  border 
investments and to improve EU-wide comparability and public confidence in financial 
statements  and  reports  through  enhanced  and  consistent  specific  disclosures.  This 
cannot be sufficiently achieved by the Member States since national legislation differs 
By  amending  the  Accounting  Directives  and  deepened  harmonisation  the  objectives 
can  be  better  achieved  at  Community  level.  Hence  the  Community  may  adopt 
measures, in accordance with the principle of subsidiarity as set out in Article 5 of the 
Treaty. In accordance with the principle of proportionality, as set out in that Article, 
this  Directive  does  not  go  beyond  what  is  necessary  in  order  to  achieve  those 
objectives. 

(10)  Directives 78/660/EEC and 83/349/EEC should therefore be amended accordingly. 

(11)  This  Directive  respects  fundamental  rights  and  observes  the  principles  recognised  in 

particular by the Charter of the Fundamental Rights of the European Union, 

HAVE ADOPTED THIS DIRECTIVE: 

Directive 78/660/EEC is amended as follows: 

Article 1 

1. 

In Article 43 (1), the following points (7a) and (7b) are inserted: 

(7a) the nature and business purpose of company’s arrangements not included in the 
balance sheet, and the financial impact on the company of those arrangements, in so 
far as the information set out is material and of assistance in assessing the financial 
position of the company” 

(7b) the nature, business purpose and amount of any transaction entered into by the 
company  with  related  parties,  where  that  transaction  is  material  and  has  not  been 
concluded under normal commercial conditions. The definitions of related party set 
out  in  paragraph  3  of  the  International  Accounting  Standard  24  on  Related  Party 
Disclosures  as  set  out  in  Commission  Regulation  (EC)  1725/2003  13shall  apply  for 
the purposes of this Directive.”  

2. 

The following Article 46a is inserted: 

“Article 46a 

A  company  whose  securities  are  admitted  to  trading  on  a  regulated  market,  within 
the meaning of Article 4(1)(14) of Directive 2004/39/EC of the European Parliament 
and  of  the  Council  14  shall  include  a  corporate  governance  statement  in  its  annual 

13 
14 

OJ L 261, 13.10.2003, p. 1 
OJ L 145, 30.4.2004, p. 1 

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report.  That  statement  shall  be  included  as  a  separate  part  of  the  annual  report  and 
shall contain at least the following information: 

1. 

2. 

3. 

4. 

5. 

a reference to the corporate governance code the company decided to apply or 
is subject to under the law of the Member State where it has its registered seat, 
accompanied  by  an  indication,  where  the  text  of  the  applied  corporate 
governance code is publicly available; 

an explanation as to whether and to which extent the company complies with 
the corporate governance code referred to under point (1). 

a description of the company’s internal control and risk management systems; 

the information required by Article 10, paragraph 1, points (c), (d), (f), (h), and 
(i) of Directive 2004/25/EC of the European Parliament and of the Council 15; 

the operation of the shareholder meeting and its key powers, and a description 
of shareholder’s rights and how they can be exercised; 

6. 

the composition and operation of the board and its committees. 

To  the  extent  a  company  departs  from  the  corporate  governance  code  referred  to 
under  point  (1),  the  company  shall  explain  from  which  parts  of  the  code  it  departs 
and the reasons for doing so.  

3. 

The following Section 10A is inserted: 

“SECTION 10A 

Responsibility and liability for the annual accounts and the annual report 

Article 50b 

Member States shall ensure that the members of the administrative, management and 
supervisory bodies of the company are collectively responsible towards the company 
for  ensuring  that  the  annual  accounts  and  the  annual  report  are  drawn  up  and 
published in accordance with the requirements of this Directive. 

Article 50c 

Member States shall ensure that their laws, regulations and administrative provisions 
on liability apply to the members of the administrative, management and supervisory 
bodies referred to in Article 50b of this Directive.” 

4. 

The following Article 60a is inserted: 

“Article 60a 

15 

OJ L 142, 30.4.2004, p. 12 

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”Without  prejudice  to  Article  6  of  Directive  68/151/EEC16  and  to  the  right  of 
Member States to impose criminal sanctions, the Member States shall lay down the 
rules  on  penalties  applicable  to  infringements  of  the  national  provisions  adopted 
pursuant  to  this  Directive  and  shall  take  all  measures  necessary  to  ensure  that  they 
are  implemented.  The  penalties  and  measures  provided  for  must  be  effective, 
proportionate and dissuasive. The Member States shall notify those provisions to the 
Commission by 31 December 2006 at the latest and shall notify it without delay of 
any subsequent amendment affecting them.” 

Article 2 

Directive 83/349/EEC is amended as follows: 

1. 

In Article 34 the following points (7a) and (7b) are inserted: 

”(7a)  the  nature  and  business  purpose  of  any  arrangements  not  included  in  the 
consolidated balance sheet, and the financial impact of those arrangements, in so far 
as  the  information  set  out  is  of  direct  relevance  and  assistance  in  assessing  the 
financial  position  of  the  undertakings  included  in  the  consolidation  taken  as  a 
whole.” 

“(7b) the nature, business purpose and amount of any transaction entered into by the 
parent  undertaking,  or  by  other  undertakings  included  in  the  consolidation,  with 
related  parties,  where  that  transaction  is  material  and  has  not  been  under  normal 
commercial conditions.”  

2. 

In Article 36 (2), the following point (f) is added: 

“(f)  A  description  of  the  group’s  internal  control  and  risk  management  systems  in 
relation to the process for preparing consolidated accounts. In case the consolidated 
annual report and the annual report are presented as a single report, this information 
must  be  included  in  the  section  of  the  report  containing  the  corporate  governance 
statement as provided by Article 46a of Directive 78/660/EEC”; 

3. 

The following Section 3A is inserted: 

“SECTION 3A 

Responsibility  and  liability  for  drawing  up  the  consolidated  annual  accounts 
and the consolidated annual report 

Article 36a 

Member States shall ensure that the members of the administrative, management and 
supervisory bodies of the undertaking drawing up the consolidated accounts and the 
consolidated annual report are collectively responsible towards that undertaking for 

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OJ  L  065,  14.3.1968,  p.  8.  Directive  as  last  amended  by  Directive  2003/58/EC  of  the  European 
Parliament and of the Council (OJ L 221, 4.9.2004, p.13) 

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ensuring that the consolidated annual accounts and the consolidated annual report are 
drawn up and published in accordance with the requirements of this Directive. 

Article 36b 

Member States shall ensure that their laws, regulations and administrative provisions 
on liability apply to the members of the administrative, management and supervisory 
bodies referred to in Article 36a of this Directive.” 

4. 

In Article 41, the following paragraph 1a shall be inserted: 

“1a.  The  definitions  of  related  party  set  out  in  paragraph  3  of  the  International 
Accounting  Standard  24  on  Related  Party  Disclosures  as  set  out  in  Commission 
Regulation (EC) 1725/200317 shall apply for the purposes of this Directive. 

5. 

The following Article 48 is inserted: 

“Article 48 

Without prejudice to Article 6 of Directive 68/151/EEC and to the right of Member 
States  to  impose  criminal  sanctions  the  Member  States  shall  lay  down  the  rules  on 
penalties applicable to infringements of the national provisions adopted pursuant to 
this  Directive  and  shall  take  all  measures  necessary  to  ensure  that  they  are 
implemented.  The  penalties  provided  for  must  be  effective,  proportionate  and 
dissuasive.  The  Member  States  shall  notify  those  provisions  to  the  Commission  by 
31 December 2006 at the latest and shall notify it without delay  of any  subsequent 
amendment affecting them.” 

Article 3 

1. 

Member  States  shall  bring  into  force  the  laws,  regulations  and  administrative 
provisions  necessary  to  comply  with  this  Directive  by  31  December  2006  at  the 
latest.  They  shall  forthwith  communicate  to  the  Commission  the  text  of  those 
provisions and a correlation table between those provisions and this Directive. 

When  Member  States  adopt  those  provisions,  they  shall  contain  a  reference  to  this 
Directive  or  be  accompanied  by  such  a  reference  on  the  occasion  of  their  official 
publication. Member States shall determine how such reference is to be made. 

2. 

Member States shall communicate to the Commission the text of the main provisions 
of national law which they adopt in the field covered by this Directive. 

This  Directive  shall  enter  into  force  on  the  20th  day  following  that  of  its  publication  in  the 
Official Journal of the European Union. 

Article 4 

17 

OJ L 261, 13.10.2003, p. 1 

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Article 5 

This Directive is addressed to the Member States. 

Done at Brussels,  

For the European Parliament 
The President 

For the Council 
The President 

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