Opinion of the European Economic and Social Committee on the Proposal for a Directive of the European Parliament and of the Council amending Council Directives 78/660/EEC and 83/349/EEC as regards certain disclosure requirements for medium-sized companies and obligation to draw up consolidated accounts COM(2008) 195 final — 2008/0084 (COD)
Date: 2008-09-18
Institutions: European Economic and Social Committee
Subjects: ESC opinion, company law, consolidated account, publication of accounts, small and medium-sized enterprises

31.3.2009

EN

Official Journal of the European Union

C 77/37

4.3
The Committee points out that by intervening in such
sensitive areas as publication and translation obligations, this
proposal not only significantly reduces costs, as demonstrated in
the impact assessment, but also increases the credibility of the
EU by removing all possible temptation to raise artificial unjusti-
fied barriers to the free movement of goods and services.

It notes

4.4
launched to date have
followed careful assessment of the intended objectives and of
the fundamental principles of subsidiarity and proportionality

the initiatives

that

Brussels, 18 September 2008.

and have also been subject to the prior in-depth consultation of
all stakeholders.

The Committee therefore approves of the content of the
4.5
proposed directive, considering it a welcome step forward
within the broader simplification strategy. It also fully backs the
Council
in calling on the Commission to intervene in other
areas and fields in which there is also a need for simplification
that continue to burden
to reduce the many obligations
companies.

The President

of the European Economic and Social Committee

Dimitris DIMITRIADIS

Opinion of the European Economic and Social Committee on the ‘Proposal for a Directive of the
European Parliament and of the Council amending Council Directives 78/660/EEC and 83/349/EEC
as regards certain disclosure requirements for medium-sized companies and obligation to draw up
consolidated accounts’

COM(2008) 195 final — 2008/0084 (COD)

(2009/C 77/07)

On 23 May 2008 the Council decided to consult the European Economic and Social Committee, under
Article 44(1) of the Treaty establishing the European Community, on the

Proposal for a Directive of the European Parliament and of the Council amending Council Directives 78/660/EEC and
83/349/EEC as regards certain disclosure requirements for medium-sized companies and obligation to draw up consoli-
dated accounts.

On 21 April 2008 the Committee Bureau instructed the Section for Single Market, Production and
Consumption to prepare the Committee's work on the subject.

Given the urgent nature of the work, the European Economic and Social Committee, in accordance with
Rules 20 and 57(1) of
the Rules of Procedure, appointed Mr Cappellini as rapporteur-general at its
447th plenary session, held on 18 September 2008, and adopted the following opinion by 59 votes to one.

1. Conclusions and recommendations

The EESC welcomes that the exemptions foreseen for
1.1
small companies
in the 4th Company Law Directive are
extended to medium-sized companies as they lead to a reduc-
tion of reporting burden for those companies.

1.2
The EESC also welcomes the proposed changes to the
7th Directive as they simply clarify the interaction between
consolidated rules set out in this Directive and in the Interna-
tional Financial Reporting Standards.

The EESC especially appreciates that

1.3
the objective of
simplifying financial reporting is respected: there is no signifi-
cant loss of information for users of accounts, and other stake-
holders are basically not affected. The proposed simplification is
based on the needs of SMEs and users of financial information.

1.4
To date there has been a lack of research and supporting
evidence to determine the needs of users, which may vary
across EU Member States. Before introducing further changes to
financial requirements for SMEs, the current position in terms
of uptake of options under the 4th and the 7th Directives
should be considered. This investigation should include (a) use
of existing options,
(b) motives cited by Member States to
explain their choice of options and (c) a review of Member
States' success in meeting their objectives.

1.5
The EESC therefore recommends that research in this
area should be undertaken as a basis for rational policy propo-
sals in the future.

C 77/38

EN

Official Journal of the European Union

31.3.2009

1.6
Accounting requirements were among the first areas of
legislation that were harmonised at European level. The EESC
recalls that
to achieve the common
market and stresses the importance that harmonisation creates a
level playing field in the EU.

is a central element

it

Cross-border trading by SMEs is growing within the EU.
1.7
There is a strong case, therefore, for developing the harmonisa-
tion of financial reporting frameworks and rules to (a) support
this growth in trade and (b) create a level playing field.

2. Background

2.1
In its Conclusions, the European Council of 8 and 9 March
2007 emphasised that reducing administrative burdens is impor-
tant for boosting the European economy, especially considering
the benefits this could bring for small and medium-sized
companies.

2.2
It stressed that a strong joint effort by the European
Union and the Member States is necessary to reduce administra-
tive burdens by simplifying accounting rules for small and
medium-sized companies;
the legal basis for such measures
would be Article 44(1) of the Treaty establishing the European
Community (1).

Accounting and auditing have been identified as areas for
2.3
reducing administrative burdens for companies within the Com-
munity (2).

from
Special attention was given to additional relief
2.4
reporting requirements for small and medium-sized companies.

companies

In the past, a number of changes were made in order to
2.5
enable
scope of Directives
falling within the
78/660/EEC and 83/349/EEC to use accounting methods in
accordance with International Financial Reporting Standards
(IFRS).

Pursuant

to Regulation (EC) No 1606/2002 of

2.6
the
European Parliament and of the Council of 19 July 2002 on the
application of international accounting standards (3), companies
whose securities are admitted to trading on a regulated market
of any Member State must prepare their consolidated accounts
in accordance with IFRS, and are consequently relieved from
most of
in Directives 78/660/EEC and
83/349/EEC. Those Directives, however, still form the basis for
accounting by small and medium-sized companies
in the
Community.

the requirements

2.7
Small and medium-sized companies are often subject to
the same rules as larger companies, but their specific accounting
needs have rarely been assessed. In particular, the increasing
number of disclosure requirements raises concerns for such
companies. Extensive reporting rules create a financial burden
and can hinder efficient use of capital for productive purposes.

2.8
The application of Regulation (EC) No 1606/2002 has
also highlighted the need to clarify the relationship between the
accounting standards required by Directive 83/349/EEC and
IFRS.

2.9 Where formation expenses can be treated as an asset in
the balance sheet, Article 34(2) of Directive 78/660/EEC
requires that such expenses are explained in the notes to the
accounts.

2.10
Small companies can be exempted from this disclosure
requirement in accordance with Article 44(2) of that Directive.
In order to reduce unnecessary administrative burdens, it should
also be possible to exempt medium-sized companies from such
disclosures.

Directive 78/660/EEC requires disclosure of a break-
2.11
down of
turnover according to activity and geographical
markets. This is required for all companies, but small companies
can be exempted in accordance with Article 44(2) of that Direc-
tive. In order to reduce unnecessary administrative burdens, it
should also be possible to exempt medium-sized companies
from this disclosure requirement.

2.12
Directive 83/349/EEC requires a parent company to
prepare consolidated accounts even if its only subsidiary, or all
of the subsidiaries as a whole, are immaterial for the purposes
of Article 16(3) of Directive 83/349/EEC. As a consequence
these companies fall under Regulation (EC) No 1606/2002 and
therefore have to prepare consolidated financial statements in
accordance with IFRS. This requirement is considered burden-
some where a parent company has only immaterial subsidiaries.

Therefore,

2.13
it should be possible to exempt a parent
undertaking from the obligation to draw up consolidated
accounts and a consolidated annual report, if all the subsidiary
undertakings of the parent undertaking, taken individually or as
a whole, can be considered as immaterial.

(1) OJ C 325, 24.12.2002, p. 35.
(2) EU Project on baseline measurement and reduction of administrative costs,
Second interim report, 15 January 2008, page 37. To date the Final
Report is not published yet. (See footnote 6 in COM(2008) 195 final).

(3) OJ L 243, 11.9.2002, p. 1.

Since the objectives of this Directive, namely reducing
2.14
administrative burdens relating to certain disclosure require-
ments for medium-sized companies and the obligation to draw
up consolidated accounts for certain companies within the

31.3.2009

EN

Official Journal of the European Union

C 77/39

Community, cannot be sufficiently achieved by Member States
in terms of scale and effects, be better
and can therefore,
achieved at Community level,
the Community may adopt
measures in accordance with the principle of subsidiarity as set
out in Article 5 of the Treaty.

In compliance with the principle of proportionality, as
2.15
set out in that Article, this Directive does not go beyond what is
necessary in order to achieve those objectives.

Directives 78/660/EEC and 83/349/EEC should there-

2.16
fore be amended accordingly.

3. General comments

The purpose of

to Directive 78/660/EEC
changes
3.1
(4th Company Law Directive) (4)
to simplify financial
is
reporting for medium-sized companies (5) and relieve them
from financial reporting burdens in a short term perspective.
The changes should lead to a reduced administrative burden
without loss of relevant information.

to Directive 83/349/EEC
3.2
changes
The purpose of
(7th Company Law Directive) (6)
is to clarify the interaction
between consolidation rules set out in this Directive and in the
International Financial Reporting Standards.

3.3 Consultation and impact assessment

3.3.1
The discussion on achieving meaningful reductions in
the regulatory burden on SMEs under the 4th and 7th Company
Law Directives was launched in good time by the EC together
with the consultation process, taking into account the objective
of ensuring that SMEs prosper in the European Single Market.
The problem of regulatory burdens on SMEs is invariably
caused by the original regulations being designed for large busi-
ness entities. Such regulations are not necessarily relevant to
SMEs and often impose a significant burden in terms of admin-
istration and cost.

3.4 Simplification based on the needs of SMEs and users of financial

information

It is important for discussions to focus not only on
3.4.1
to SMEs — as
‘simplification’ but also on the ‘relevance’
financial reporting
opposed to large listed companies — of
requirements. The debate on simplification tends to focus on

(4) OJ L 222, 14.8.1978, p. 11. Directive as last amended by Directive
2006/46/EC of the European Parliament and of the Council (OJ L 224,
16.8.2006, p. 1).

(5) Definitions

in Article 27 (medium-sized companies) of

the

4th Company Law Directive.

(6) OJ L 193, 18.7.1983, p. 1, Directive as last amended by Council Direc-

tive 2006/99/EC (OJ L 363, 20.12.2006, p. 137).

costs whereas the debate on relevance is concerned with the
benefits of financial reporting and with particular users and
their needs.

3.4.2
The simplification of ‘the Accounting Directive must
take as its starting point the actual needs of SMEs and the users
of their accounts’. If financial reports are to be useful and rele-
vant, investigating users and their needs is critical in the devel-
opment of a European financial reporting framework for SMEs.
The users are multiple:
institutions (rating), public
authorities (taxation, money-laundering, …).

financial

3.4.3
It is also important to remember that SMEs themselves
are major users of financial information, e.g. as suppliers and
is
contracting parties to other SMEs,
important to evaluate creditworthiness.

in situations where it

it

is important

In the context of

‘simplifying’ accounting rules for
3.4.4
that rigorous impact assessments are
SMEs,
carried out,
including assessment of the benefits of financial
reporting as well as cost/administrative burdens. Such impact
assessments should take into account the reasons for initially
reporting requirements and stakeholders'
imposing financial
interests (transparency, …) which they were intended to protect.

3.5 Harmonisation to create a level playing field in the EU

financial

Cross-border trading by SMEs is growing (7) within the
3.5.1
EU. There is a strong case, therefore, for developing the harmo-
nisation of
to
(a) support this growth in trade and (b) create a level playing
field. This may require fewer options and a move to maximised
harmonisation, e.g. in the field of publication of financial infor-
mation and public access to such information.

reporting frameworks

and rules

3.6 No mandatory international accounting standards for SMEs

3.6.1
The IASB's SMEs project is a consequence of demands
from standard setters, accountants and other stakeholders for an
alternative to the full IFRS. Although originally reluctant to take
on the project, the IASB was persuaded that the majority of
these stakeholders wanted it to go ahead and that only the IASB
had the perceived credibility and authority to establish high-
quality, enforceable accounting standards. However the starting
point for this project was the full IFRS, developed for listed
companies.

(7) See EESC opinions on the importance of Internal Market:

— CESE 952/2006 on A strategy for the simplification of the regulatory

environment (INT/296), OJ C 309 of 16.12.2008, p. 18;

— CESE 89/2007 on the Review of
OJ C 93 of 27.04.2007, p. 25;

the Single Market

(INT/332),

— CESE 1187/2008 on Policy measures for SMEs (INT/390) (not yet

published in the OJ);

— CESE 979/2008 on International public procurement (INT/394) (not

yet published in the OJ).

C 77/40

EN

Official Journal of the European Union

31.3.2009

3.6.2
The full IFRS were developed with the use of financial
reporting by listed companies and their stakeholders in mind.
As mentioned above, financial reporting for SMEs is more often
for internal or informal use (in connection with suppliers,
contracting parties, financial institutions, etc.) than because of
legal or other obligations to report to a wide range of users.

3.6.3
The mandatory implementation of IFRS, or a different
set of new rules, based on those developed for listed companies,
would generate substantial administrative burdens and a finan-
cial cost for SMEs that is likely to outweigh any positive effects.
The close connection between annual accounts and the tax
returns would also force SMEs in different Member States to
maintain two set of financial reports, also adding to the admin-
istrative burden.

3.7 Simplification of the Directives

Concerning the options for achieving simplification for
3.7.1
SMEs in the Accounting Directives which are mainly extensions
of
it is
the existing options for SMEs under the Directives,
important to investigate how these options are working in the

Brussels, 18 September 2008.

Member States prior to introducing new Directives. The EESC
recommends in addition to systematically apply the only once
principle at all levels (8).

Before

further

changes

introducing

3.7.2
to financial
reporting requirements for SMEs, the current position in terms
of uptake of options under the 4th and 7th Directive should be
considered. This investigation should include (a) use of existing
options, (b) motives cited by Member States to explain their
choice of options and (c) a review of Member States' success in
meeting their objectives.

A major problem with the current situation is a
3.7.3
‘top-down approach’ which (a) results in administrative burdens
on SMEs, and (b) reduces the relevance of financial accounting
frameworks and standards for those entities. A future review of
financial reporting in the EU should address this problem by
taking a ‘bottom up approach’. Such an approach would
concentrate on the needs of SMEs and other stakeholders, and
would be informed by research into users and their needs, as
proposed above.

The President

of the European Economic and Social Committee

Dimitris DIMITRIADIS

(8) Opinion of the European Economic and Social Committee on ‘The
different policy measures, other than suitable financing, that would
help SMEs to grow and develop’ (exploratory opinion), INT/390. This
principle means that Enterprises should not be obliged to provide all
over again information that the authorities have already received by
another route, at all levels (European, national, regional and local level).