Commission staff working document -  Accompanying document to the proposal for a  Directive of the European Parliament and of the Council  amending Council Directive 78/660/EEC on the annual accounts of certain types of companies as regards micro-entities - Impact assessment  {COM(2009) 83}  {SEC(2009) 207}
Date: 2009-02-26
Institutions: European Commission
Subjects: account, balance sheet, capital market, capital movement, impact study, organisation, publication of accounts

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 26.2.2009 
SEC(2009) 206 

COMMISSION STAFF WORKING DOCUMENT 

Accompanying document to the 

Proposal for a 

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

amending Council Directive 78/660/EEC on the annual accounts of certain types of 
companies as regards micro-entities 

Impact assessment 

{COM(2009) 83} 
{SEC(2009) 207} 

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TABLE OF CONTENTS 

1. 

Introduction ................................................................................................................................................. 4 

1.1. 
1.2. 
1.3. 
1.4. 
1.5. 
1.6. 

European Economic Recovery Plan..................................................................................................... 4 
Policy Context...................................................................................................................................... 5 
The EU acquis in company law, accounting and auditing................................................................... 5 
Definition of micro entities .................................................................................................................. 6 
Practices in the main trading partners of the European Union........................................................... 7 
Opinion of the Commission's Impact Assessment Board ..................................................................... 8 

2. 

Procedural issues, consultation of interested parties and subsidiarity ................................................... 8 

2.1. 
2.2. 
2.3. 
2.4. 
2.5. 
2.6. 

Commission Communication of 10 July 2007 and stakeholder consultation....................................... 9 
Measurement of cost and determination of thresholds for micro-entities.......................................... 10 
High Level Group on Administrative Burden Reduction ................................................................... 11 
European Parliament......................................................................................................................... 12 
Other related Commission's proposals .............................................................................................. 12 
Subsidiarity ........................................................................................................................................ 12 

3. 

Problem definition ..................................................................................................................................... 13 

Disproportional administrative (compliance) cost as economic burden ........................................... 14 

3.1. 
3.2. 
Misalignment between requirements of the Directives and the needs of micro entities and the users of 
their financial statements ................................................................................................................................. 16 
How large is the problem?................................................................................................................. 18 
3.3. 

4.  Objectives ................................................................................................................................................... 20 

5. 

Policy options and their expected impact ................................................................................................ 21 

5.1. 
5.2. 
5.3. 

5.4. 

5.5. 

5.6. 

Description of policy options ............................................................................................................. 21 
Option 0. No change to the Directives ............................................................................................... 22 
Option 1. Encourage a full use of existing options in the Accounting Directives .............................. 22 
5.3.1.  Summary ....................................................................................................................................... 22 
5.3.2.  Analysis......................................................................................................................................... 23 
Option 2. Obligatory exemption of micro entities from the scope of the Directives .......................... 24 
5.4.1.  Summary ....................................................................................................................................... 24 
5.4.2.  Analysis......................................................................................................................................... 25 
Option 3. Member State option to exempt micro entities from the scope of the Directives................ 25 
5.5.1.  Summary ....................................................................................................................................... 25 
5.5.2.  Analysis......................................................................................................................................... 26 
Option 4. Introduction of a simplified accounting regime for micro entities..................................... 30 
5.6.1.  Summary ....................................................................................................................................... 30 
5.6.2.  Analysis......................................................................................................................................... 31 
Option 5. Amendments to the Accounting Directive without introducing the micro category. .......... 32 
5.7.1.  Summary ....................................................................................................................................... 32 
5.7.2.  Analysis......................................................................................................................................... 32 

5.7. 

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6.  Comparison of options .............................................................................................................................. 33 

7.  Monitoring and evaluation ....................................................................................................................... 36 

7.1. 
7.2. 

Monitoring ......................................................................................................................................... 36 
Evaluation .......................................................................................................................................... 37 

Annex 1 Quantitative analysis of micro entities exemption............................................................................. 38 

CSES Study on Evaluation of thresholds for Micro-Entities ............................................................................ 38 
Study by the Consortium................................................................................................................................... 41 
Combination of the two studies ........................................................................................................................ 43 
Summary of the impact of option 3................................................................................................................... 45 

Annex 2: Use of options by Member States ...................................................................................................... 47 

Annex 3: Policy Option 5.................................................................................................................................... 50 

Annex 4: Results from the stakeholder consultation........................................................................................ 51 

Results of Public consultation of 2007 ............................................................................................................. 51 

Annex 5 Users' and preparers' needs from the financial reporting................................................................ 53 

Users needs from financial statements of micro-entities.................................................................................. 53 
Banks ........................................................................................................................................................... 54 
Public authorities ......................................................................................................................................... 55 
General Public ............................................................................................................................................. 56 
Statistical offices ......................................................................................................................................... 56 
Financial information providers .................................................................................................................. 56 
Accountants and auditors............................................................................................................................. 57 
Needs of micro-entities..................................................................................................................................... 57 
Cross-border trade and voluntary application.............................................................................................. 58 

Annex 6 Current reporting requirements of the Fourth Directive................................................................. 60 

Annex 7: Abbreviations ...................................................................................................................................... 67 

References............................................................................................................................................................ 68 

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1. 

INTRODUCTION 

The small and medium-sized enterprises are the backbone of the European economy, and they 
are the main contributors to the creation of employment in the EU.  In accordance with the 
goals  of  Lisbon  Agenda1,  the  Commission  is  committed  to  release  the  growth  potential  of 
these companies by reducing their administrative burden.  

This  impact  assessment  presents  the  Commission's  initiatives  to  simplify  the  business 
environment  and  particularly  the  financial  reporting  requirements  for  micro-entities.  It 
describes  the  problems  related  to  the  current  Accounting  Directives2,  presents  a  number  of 
policy options, analyses their feasibility and, where applicable, their expected impacts. 

1.1.  European Economic Recovery Plan   

In the aftermath of the current financial crisis, the Commission issued a Communication: A 
European Economic Recovery Plan3  setting out an ambitious action plan to restore consumer 
and  business  confidence  by  coordinating  EU  and  national  level  actions.  In  the  area  of 
business,  the  European  Economic  Recovery  Plan  pledges  to  substantially  reduce  the  burden 
on  SMEs  and  micro-enterprises  by  among  others  "removing  the  requirement  on  micro-
enterprises  to  prepare  annual  accounts".  This  exemption  was  already  announced,  together 
with  the  intention  to  proceed  with  an  overhaul  of  the  Accounting  Directives,  by  Internal 
Market  Commissioner  Mr  Charlie  McCreevy4  in  September  2008.  Public  consultations  will 
be held in early 2009, with legal proposal expected in the autumn of 2009. The proposal to 
remove the requirement on micro- enterprises to prepare annual accounts is thus interlinked to 
the more general overhaul of the Accounting Directives, including revised provisions suitable 
for micro enterprises. The general overhaul will require more time before it is able to bring 
effects and therefore the Commission considers that measures are needed to reduce the burden 
for micro entities in short term. 

1  

2  

3  

4  

Webpage devoted to Lisbon Agenda: 
http://ec.europa.eu/growthandjobs/faqs/background/index_en.htm. 
Accounting Directives are: 

•  Fourth Council Directive of 25 July 1978 based on Article 54 (3) (g) of the Treaty on the annual 

accounts of certain types of companies (78/660/EEC) 
Consolidated text: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:01978L0660-
20070101:EN:NOT. 

•  Seventh Council Directive of 13 June 1983 based on the Article 54 (3) (g) of the Treaty on 

consolidated accounts (83/349/EEC) 
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:01983L0349-
20070101:EN:NOT. 

Communication from the Commission to the European Council: A European Economic Recovery Plan. 
COM(2008) 800 final. 26.11.2008, 

http://ec.europa.eu/economy_finance/publications/publication13504_en.pdf. 

European Commission. 2008. Press Release. McCreevy announces major initiatives on accounting rules 
for small businesses: 29.09.2008, 
http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/08/589&format=HTML&aged=0&la
nguage=EN&guiLanguage=en. 

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1.2. 

Policy Context 

The  Accounting  Directives  as  well  as  International  Financial  Reporting  Standards  (IFRS) 
were  developed  with  the  investor  protection  as  an  overarching  objective.  It  has  been  a 
consensus for the last decades that such investor oriented financial statement will also serve 
most  of  the  needs  of  other  stakeholders  in  a  satisfactory  manner.  The  Directives  have  not 
introduced  specific  accounting  rules  for  micro-entities  or  SMEs,  but  instead,  they  include 
certain opt outs from the rules designed for bigger companies.  

It continues to be the Commission's view that appropriate bookkeeping is essential to sound 
management  and  prosperity  of  the  business  in  the  long  term.  It  is  in  the  interest  of  every 
entrepreneur, regardless of any legal  obligations,  to  keep  records  of  sales,  and  manage  cash 
flows by monitoring receivables and liabilities to secure liquidity as well as keep track of cost 
to ensure profitability of the business. 

It should be pointed out that any company, regardless of size or form, can also in the future 
voluntarily follow the requirements laid down in the Accounting Directives, as well as audit 
and publish such information.  

Furthermore,  should  a  micro  entity  be  listed  on  regulated  stock  exchange,  it  would 
automatically fall into the scope of the Transparency Directive5 and as a result be obliged to 
present periodic financial information according to Regulation 1606/2002 (IAS Regulation)6 
and/or Accounting Directives as implemented by Member States. 

The proposals of the Commission that are discussed in this document are thus not intended to 
prohibit  or  limit  bookkeeping,  nor  the  preparation  and  audit  of  financial  statements  that 
Member States, financial regulators or companies consider necessary or useful. The aim is to 
reduce  any  administrative  obligations  deemed  unnecessary  and  to  facilitate  alignment  of 
reporting requirements to real needs of users and of preparers.  

1.3.  The EU acquis in company law, accounting and auditing 

In  the  fields  of  accounting  and  auditing,  the  Company  Law  Directives  establish  minimum 
requirements  for  the  annual  accounts  of  mainly  limited-liability  companies  (Fourth 
Directive)7  and  group  accounts  (Seventh  Directive)8.  A  separate  directive  lays  down  the 
requirements for the audit of the annual accounts9. 

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6  

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Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the 
harmonisation of transparency requirements in relation to information about issuers whose securities are 
admitted to trading on a regulated market and amending Directive 2001/34/EC, 
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:02004L0109-20080320:EN:NOT. 
Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the 
application of international accounting standards, 
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:02002R1606-20080410:EN:NOT. 
See footnote 2. 
See footnote 2. 
Directive 2006/43/EC of the European Parliament and of the Council of 17 May 2006 on statutory 
audits of annual accounts and consolidated accounts, amending Council Directives 78/660/EEC and 

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The  purpose  of  general  financial  statements  is  to  inform  stakeholders  (investors,  creditors, 
employees and other interested parties) about the financial position of a company. The Fourth 
Directive  was  adopted  in  1978  in  order  to  create  a  harmonised  set  of  requirements  for  the 
external reporting of all limited liability companies in the EU. In 1983, the Seventh Directive 
was adopted and added a common set of requirements for consolidated financial statements.  

In the time when Accounting Directives were developed the prevailing idea was that SMEs 
are  not  fundamentally  different  from  large  companies  and  should  follow  similar  reporting 
requirements. This view has now changed with acknowledgment of distinct needs of the SME 
group as well as segments within that group – laid down as the "think small first" principle. 

Moreover  during  the  past  25  years there have been several modifications  to the Accounting 
Directives10, notably through adding new disclosure requirements and accommodating the use 
of International Financial Reporting Standards (IFRS) for the listed companies. Through the 
adoption  of  the  IAS  Regulation  listed  companies  have  to  present  IFRS  accounts,  and  are 
consequently  relieved  from  many of the requirements in the Fourth and Seventh Directives. 
These Accounting Directives, however, still form the basis for SME accounting in the EU. 

The Accounting Directives have led to an improved financial reporting environment in the EU 
and that has been in the interest of preparers11 as well as users12. However the development of 
the  Accounting  Directives  was  focused  on  the  needs  of  large  and  listed  companies.  Every 
subsequent  addition  to  the  Accounting  Directives  has  created  new  requirements,  and  whilst 
every  added  requirement  may  have  been  justified  in  its  own  right,  it  is  now  important  to 
reconsider  whether  less  useful  requirements  should  be  removed  or  replaced13  to  adapt 
accounting  rules  to  the  needs  of  the  SMEs  that  have  become  the  main  target  group  of  the 
Directives.  

1.4.  Definition of micro entities  

The  focus  of  the  Commission  proposal  is  simplifying  the  reporting  and  thus  reducing  the 
administrative  burden  of  micro  entities.  Further  simplification  proposal  for  all  SMEs  will 
follow  in  autumn  2009  as  part  of  Accounting  Directives  revision  process,  and  thus  are  not 
discussed in this document.  

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11  

12  

13  

83/349/EEC and repealing Council Directive 84/253/EEC (Text with EEA relevance), 
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:02006L0043-20080321:EN:NOT. 
See Annex 6 Current reporting requirements of the Fourth Directive and 
http://ec.europa.eu/internal_market/accounting/index_en.htm. 
Defined as company / management preparing the financial information (See Annex 5 Users' and 
preparers' needs from the financial reporting). 
Defined as stakeholders relying on the financial information, such as for example investors, providers 
of financing, employees (See Annex 5 Users' and preparers' needs from the financial reporting). 
The Seventh Company Law Directive does not need to be amended, as already the present text of this 
Directive gives the Member States an option to exclude from the obligation to draw up consolidated 
financial statements companies which together do not exceed the limits of medium-sized company as 
defined in the 4th Company Law Directive (Art. 6(1) of the 7th Company Law Directive). 

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The  Commission  communication  of  2007  suggests  that  a  category  of  micro  entities  as  the 
smallest companies could be introduced into the EU legislative framework with the following 
definition: 

– no more than ten employees, 

– balance sheet total not higher than € 500,000 and 

– turnover not higher than € 1,000,000. 

It  should  also  be  noted  that  a  "micro  entity"  category  has  already  been  introduced  in  many 
Member States. 

Table. 1. Thresholds for the different categories of companies. 

Category

Threshold 

Micro 

Small 

Medium 

balance sheet total 

≤ € 500,000 

≤ € 4,400,000 

≤ € 17,500,000 

Net turnover 

≤ € 1,000,000 

≤ € 8,800,000 

≤ € 35,000,000 

Average number of 
employees during 
the financial year 

≤ 10 

≤ 50 

≤ 250 

Source:  The Fourth Directive 1978, Communication form the Commission on a simplified business environment for companies 

in the areas of company law, accounting and auditing 2007. 

1.5. 

Practices in the main trading partners of the European Union 

In  other  economically  comparable  jurisdictions  and  key  trading  partners  of  the  European 
Union, the financial reporting requirements for small companies are generally less demanding 
than the requirements of the EU Accounting Directives. 

In  the  US,  only  companies  listed  on  stock  exchanges  regulated  by  the  U.S.  Securities  and 
Exchange  Commission  (SEC)  are  required  to  prepare  and  publish  their  accounts  under  US 
Generally  Accepted  Accounting  Principles  (GAAP)  (with  exception  of  third  country  issuers 
that can also report under IFRS). For unlisted companies there is generally no legal obligation 
to  prepare  or  publish  financial  statements.  They  may  only  prepare  tax  returns  following  the 
tax accounting rules, or they may choose to prepare financial statements on a voluntary basis 
their  stakeholders.  If  financial  statements  are  prepared,  companies  may  utilise 
to 
simplifications  available  for  private  (not  listed)  companies,  depart  from  some  standards  or 
follow standards other than US GAAP. It is estimated that around 30% of private companies 
do not release any financial information to external users. 

There  is  no  evidence  that  this  situation  has  been  a  hindrance  to  US  companies  in  obtaining 
external  financing.  On  the  contrary,  the  US  has  traditionally  been  generally  regarded  as 
having  the  most  liquid  markets  for  external  SME  financing,  prior  to  the  current  financial 
crisis. 

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In  Japan,  small  companies  prepare  financial  statements  under  Japanese  GAAP  for  taxation 
purposes. 

In Canada, all companies must prepare financial statements for their shareholders. There are 
simplified options for small companies and no requirement to file them in a public register. 

A  comparison  between  the  situation  in  the  EU  with  its  trading  partners  may  provide  an 
additional  source  of  information  in  relation  to  the  possible  effects.  Furthermore,  the 
comparison  is  of  relevance  with  regard  to  EU's  relative  competitiveness  and  the  goals  of 
Lisbon Agenda.  

1.6.  Opinion of the Commission's Impact Assessment Board 

Due to the importance of rapidly implementing the European Economic Recovery Plan, work 
on the initiative was carried forward compared to original planning. As a result, no specific 
Inter-Service  Steering  Group  was  created  and,  following  the  Board's  agreement,  the  report 
was  submitted  to  it  less  than  two  weeks  before  examination.  External  stakeholders  were, 
however extensively consulted on the basis of COM (2007)394 and, more recently, through 
the High Level Group of Independent Stakeholders on Administrative Burden.  

This  impact  assessment  has  been  prepared  by  the  Commission  staff.  A  draft  of  the  impact 
assessment was submitted to the Commission's Impact Assessment Board, which provided its 
opinion  on  2  February  2009.  The  recommendations  of  the  board  led  to  changes  in  the  draft 
impact assessment, in particular providing an extended analysis of the impact on stakeholders 
as presented in Annex 5, analysis of the current accounting obligations as presented in Annex 
6, more detailed analysis of the economic impact of the measure including the effect on the 
audit  profession,  impact  on  single  market  and  level  playing  field  (Chapter  5).  Furthermore, 
the analysis on administrative burden (Chapter 3.1) the interaction between the proposal and 
the overhaul of the accounting Directives (Chapter 5) was improved.  

2.  PROCEDURAL ISSUES, CONSULTATION OF INTERESTED PARTIES AND SUBSIDIARITY 

The  Commission  has  already  taken  a  number  of  simplification  initiatives  to  reduce  the 
administrative  burden  for  small  and  medium-sized  companies  (SMEs).  These  are  described 
below: 

Target: reduction of 25% of administrative burdens by 2012 

In  2005,  the  Commission  launched  a  programme  for  measuring  administrative  costs  and 
reducing  administrative  burdens  in  order  to  improve  the  business  environment  for  EU 
companies and to make the EU economies fit to meet the challenges of a more competitive 
global business environment in which they have to operate. 

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The Commission outlined the way for achieving this by adopting, on 14 November 2006, an 
updated simplification programme14 and the guidance on measuring administrative costs and 
reducing  administrative  burdens15.  Both  programmes  emphasised  the  need  to  generate 
tangible economic benefits. They were complemented by the Action Programme adopted on 
24  January  200716  which  fixed  the  aim  of  reducing  administrative  burdens  on  businesses  in 
the EU by 25% by the year 2012 and launched the first package of fast-track proposals. 

The Action Programme was endorsed by the Spring European Council in March 200717. The 
European Council underlined that reducing administrative burdens is important with a view to 
boosting  Europe's  economy,  especially  given  the  potential  benefits  this  can  bring  for  small 
and  medium-sized  enterprises  (SMEs).  It  stressed  that  a  strong  joint  effort  of  the  European 
Union and the Member States is necessary to reduce administrative burdens within the EU. 

A key part of the Action Programme consists of a large-scale measurement of administrative 
costs incurred by businesses in meeting legal obligations to provide information as explained 
in detail in point 2.2. 

2.1.  Commission Communication of 10 July 2007 and stakeholder consultation 

Accounting and auditing have been identified as key areas for reducing administrative burden 
for  European  companies.  Consequently,  research  was  conducted  on  the  Fourth  and  the 
Seventh  Directives  (the  "Accounting  Directives")  in  order  to  identify  the  potentially  most 
burdensome  requirements.  The  initial  findings  indicated  that  several  amendments  could  be 
made  to  the  Accounting  Directives  in  order  to  simplify  the  reporting  requirements,  in 
particular for SMEs.  

These  initial  ideas  and  suggestions  were  discussed  with  Member  States  in  the  Accounting 
Regulatory  Committee18  (ARC)  and  the  Audit  Regulatory  Committee19  (AuRC)  at  several 
meetings  from  December  2006  onwards.  Following  these  discussions,  the  Commission 
published  a  Communication20  in  July  2007  setting  out  its  ideas  and  identifying  potential 

14 

15 

16 

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18  
19  
20  

Communication from the Commission to the Council, the European Parliament, the European 
Economic and Social Committee and the Committee of the Regions - "A strategic review of Better 
Regulation in the European Union" (COM(2006)689 final, OJ C 78, 11.4.2007, p. 9), 
http://ec.europa.eu/enterprise/regulation/better_regulation/docs/docs_admin_b/en_689.pdf. 
Commission working document of 14/11/2006 – "Measuring administrative costs and reducing 
administrative burdens in the European Union" (COM(2006)691 final), 
http://ec.europa.eu/enterprise/regulation/better_regulation/docs/en_691.pdf. 
European Commission. 2007. Action Programme for Reducing Administrative Burdens in the European 
Union. COM(2007) 23, 
http://ec.europa.eu/enterprise/regulation/better_regulation/docs/com_2007_23_en.pdf. 
European Council. 2007. Presidency Conclusions of the Brussels European Council - doc. 7224/07 
CONCL 1, 
http://europa.eu/rapid/pressReleasesAction.do?reference=DOC/07/1&format=HTML&aged. 
ARC website: http://ec.europa.eu/internal_market/accounting/committees_en.htm#arc. 
AuRC website: http://ec.europa.eu/internal_market/auditing/committee/index_en.htm. 
Communication from the Commission on a simplified business environment for companies in the areas 
of company law, accounting and auditing, COM (2007) 394 final, 10.7.2007. Available on 
DG MARKT's website at: http://ec.europa.eu/internal_market/company/simplification/index_en.htm. 

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amendments/changes  to  the  Accounting  Directives.  Special  attention  was  given  to  finding 
further relief for reporting by small and medium-sized companies.  

In  this  Communication  the  Commission  proposed  to  introduce  a  new  category  of  so-called 
"micro  entities"  in  the  Fourth  Directive,  which  could  be  optionally  exempted  by  Member 
States from the Accounting Directives. Stakeholders were invited to submit comments on the 
proposals by mid-October 2007. 

In  all,  18  Member  States'  governments,  the  government  of  one  EEA  country  and 
110 stakeholders, including European bodies and associations, reacted to the Communication. 
These contributions originated from 23 countries in total, including 22 Member States21.  

Four fifths of all stakeholders who responded to the public consultations took either a positive 
or  negative  stance  to  the  exemption  of  micro  entities.  The  majority  (59%  of  them)  was  in 
favour of exempting micro entities from the requirements of the Accounting Directives. The 
positions of the organisations representing small and medium-sized enterprises were varied22. 
The exemption was supported by the majority of the companies, public authorities, banks and 
insurance  companies  that  replied  to  the  consultation.  The  biggest  opposition  came  from 
accountants and auditors, followed by commercial information providers.  

Those  respondents  that  welcomed  the  proposal  considered  it  as  a  major  reduction  of  the 
administrative  burden  for  those  entities,  which  would  encourage  new  start-ups  through 
removal of disincentives to incorporation. A smaller number of commentators took the view 
that  this  would  lead  to  problems  for  smaller  companies  in  raising  external  funding  and 
communicate with stakeholders.  

The  proposal  has  been  discussed  with  Member  States  in  the  ARC  at  several  occasions. 
Several Member States supported the initiative and believed that it would be an important step 
towards tangible simplification of accounting rules for the smallest entities. It would also give 
freedom  at  national  level  to  align  financial  reporting  requirements  with  other  types  of 
reporting  required  by  companies  (tax,  statistics,  social  security  etc).  Other  Member  States 
feared  that  the  proposal  would  lead  to  significant  reduction  in  information  and  to  the  de-
harmonisation  of  financial  reporting  in  the  EU  (for  details  please  consult  Annex  4:  Results 
from the stakeholder consultation) 

2.2.  Measurement of cost and determination of thresholds for micro-entities 

In connection with the aforementioned simplification initiative, a measurement exercise was 
launched in July 2007 in order to determine the costs created by the information obligations 
(IOs) contained in the EU company law acquis.  

21  

22  

A report on the reactions received from Member States and stakeholders between July and December 
2007 is available on the website of the Directorate-General for Internal Market and Services (DG 
MARKT) at http://ec.europa.eu/internal_market/company/simplification/index_en.htm.  
See also Annex 4: Results from the stakeholder consultation. 
Some of the organisations were in favour (e.g. BUSINESSEUROPE) of the exemption while other 
opposed it (e.g. UEAPME). For all the responses please see: 
http://circa.europa.eu/Public/irc/markt/markt_consultations/library?l=/company_law/simplifying_enviro
nment&vm=detailed&sb=Title. 

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This  measurement  was  carried  out  by  the  consortium  Capgemini/Ramboll  on  behalf  of  the 
Commission. This baseline measurement covered obligations stemming from EU legislation 
and from national measures transposing that legislation. The methodology used was based on 
the  ‘EU  Standard  Cost  Model’,  inspired  by  different  variants  of  the  Standard  Cost  Model 
(SCM)23  currently  used  for  measurements  at  national  level  by  a  number  of  Member  States. 
The  EU  measurement  focused  on  the  areas  with  the  most  burdensome  information 
obligations, which included among others the areas of company law/accounting and auditing.  

The measurement started the mapping of EU IOs for company law in early August 2007 and 
finalized  it  in  the  beginning  of  September.  Mapping  of  the  national  IOs  was  commenced 
during November 2007. The results of the national mapping were then validated via the High 
Level  Group  of  National  Regulatory  Experts24.  This  high  level  group  as  well  as  the  High 
Level  Group  of  Independent  Stakeholders  on  Administrative  Burdens  (HLG)25  were  also 
consulted on the question of whether to process certain proposals in a fast track procedure. 

Relevant  pre-final  results  of  the  measurement  exercise  are  referred  to  in  this  impact 
assessment. 

DG  Internal  Market  and  Services  also  launched  in  September  2007  a  targeted  study  on  the 
"Evaluation of Thresholds for Micro-Entities"26 that was delivered in 2008. It simulated how 
large  population  of  companies  would  be  covered  by  different  combinations  of  threshold 
levels. Results are used in the impact assessment. 

The  micro  threshold  levels  proposed  are  consistent  with  previous  proposal  by  the 
Commission.  They  are  also  consistent  with  the  thresholds  commonly  used  by  statistical 
offices and Eurostat as well as Member States. 

2.3.  High Level Group on Administrative Burden Reduction 

The  High  Level  Group  of  Independent  Stakeholders  on  Administrative  Burdens  (HLG)27 
spent  a  number  of  meetings  discussing  the  ways  to  reducing  the  burden  in  the  area  of 
company law and accounting. A majority of the members of the HLG concluded that several 
of the accounting obligations stemming from the Fourth Directive were more of a hindrance 
than help. Therefore in their report28 the HLG asked for rapid enactment of a Member State 
option to exempt micro entities and called for a general overhaul of the Accounting Directives 
with the "think small first" as guiding principle. 

23  
24  

25  

26  

27  
28  

See footnote 15. 
For details on the High Level Group of National Regulatory Experts see DG ENTR's website at 
http://ec.europa.eu/enterprise/regulation/better_regulation/high_level_group_en_version.htm. 
For details on the High Level Group of Independent Stakeholders on Administrative Burdens see: 
http://ec.europa.eu/enterprise/admin-burdens-reduction/highlevelgroup_en.htm. 
CSES. 2008. Evaluation of Thresholds for Micro-Entities, 
http://ec.europa.eu/internal_market/accounting/docs/studies/micro_entity_en.pdf. 
See footnote 25. 
High Level Group on Administrative Burden Reduction opinion, p. 6, 
http://ec.europa.eu/enterprise/admin-burdens-reduction/docs/080710_hlg_op_comp_law_final.pdf. 

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2.4.  European Parliament 

The  European  Parliament's  resolution  of  21  May  200829  welcomed  the  general  objective  of 
the  Commission  Communication  on  a  simplified  business  environment,  reducing  the 
administrative  burden  for  businesses  in  Europe  and  enabling  them  to  compete  more 
effectively  and  achieve  greater  success  in  highly  competitive  global  environments.  The 
Parliament furthermore welcomed the introduction of micro entities, which were to be exempt 
from the accounting, auditing and disclosure requirement under European law. 

The  European  Parliament's  resolution  of  18  December  200830  reminds  the  Commission  that 
very  small  undertakings  (micro  entities)  are  excessively  burdened  with  the  existing 
accounting  rules  and  that  the  Member  States  should  have  the  option  of  exempting  these 
undertakings that conduct their activities at a local or regional level fully or partly from the 
statutory  accounting  obligations.  Furthermore,  the  European  Parliament  calls  on  the 
Commission to come forward with a legislative proposal that allows Member States to exempt 
these undertakings from the scope of the Accounting Directive 

2.5.  Other related Commission's proposals 

In late 2007 Commission launched a Fast Track31 legislative action to introduce two technical 
changes  to  the  Accounting  Directives.  These  concern  a  Member  State  option  to  abolish 
formation expenses disclosure for medium size companies and an alignment of consolidation 
rules to those of the International Accounting Standards. These amendments were supported 
by the European Parliament on 18 December 200832. Adoption is expected in the beginning of 
2009. 

2.6. 

Subsidiarity 

Exempting micro entities from the requirements of Accounting Directives would decrease the 
level  of  harmonisation  EU  wide.  However,  any  harmonisation  is  not  an  end  to  itself. 
Following the principle of subsidiarity, decisions should be taken as closely as possible to the 
citizens  and  constant  checks  should  be  made  as  to  whether  action  at  Community  level  is 

29  

30  

31  

32  

European Parliament resolution of 21 May 2008 (A6-101/2008), 
http://www.europarl.europa.eu/sides/getDoc.do?type=TA&reference=P6-TA-2008-
0220&language=EN. 
European Parliament resolution of 18 December 2008 (B6-0626/2008), 
http://www.europarl.europa.eu/sides/getDoc.do?type=MOTION&reference=B6-2008-
0626&language=EN. 
Proposal for a Directive 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, 
http://register.consilium.europa.eu/pdf/en/08/st10/st10366.en08.pdf. 
European Parliament. 2008. European Parliament legislative resolution of 18 December 2008 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. P6_TA(2008)0631, 
http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P6-TA-2008-
0631+0+DOC+XML+V0//EN&language=EN. 

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justified in the light of the possibilities available at national, regional or local level. Principles 
of  proportionality  and  necessity  require  that  any  action  by  the  Union  should  not  go  beyond 
what  is  necessary  to  achieve  the  objectives  of  the  Treaty.  Therefore,  when  analysing  the 
impacts  of  the  proposed  measure,  it  should  be  carefully  considered  whether  EU  level 
harmonisation is really necessary or not. The fact that EU harmonisation is required for bigger 
companies,  may  not  be  the  case  when  micro  entities  are  concerned,  especially  if  they  are 
operating only on local level. 

Some  simplification  measures  can  already  be  taken  in  Member  States.  The  Accounting 
Directives  are  "minimum  harmonisation"  instruments,  i.e.  Member  States  can  put  in  place 
more extensive requirements nationally, or refrain from doing so. The Directives also contain 
numerous options for simplified rules for SMEs. However, many of those have not been taken 
up by Member States due to reasons including different characteristics of national economy, 
accounting and business cultures. 

Only  some  Member  States  are  fully  utilising  the  simplification  options  already  provided  by 
the  Directives33.  In  order  for  any  simplification  measures  to  be  effective  for  preparers  and 
users,  Member  States  must  make  use  of  the  possibilities  offered  by  the  changed  directives. 
Further simplification could be achieved in those Member States that are not making full use 
of them. This first step of simplification would not need change of legislation at EU level but 
at the Member States. Therefore, a regular analysis of national legislation should take place, 
to assess which simplification measures can be possible in Member States at national level. 

However,  most  obligations  entailing  administrative  burdens  derive  from  the  Accounting 
Directives.  In  order  to  allow  the  Member  States  to  exempt  micro  entities  from  the 
requirements  of  the  Accounting  Directives,  the  Directives  themselves  need  to  be  changed. 
This action needs to be taken at EU level. 

3.  PROBLEM DEFINITION  

The  Accounting  Directives  cover  companies  with  limited  liability  and  certain  types  of 
partnerships.  The  stated  purpose  of  this  scope  is  to  provide  protection  for  external 
stakeholders, in particular creditors. However, many of the smallest companies in the scope of 
the Directives have a very limited number of external stakeholders. Very often the owners of 
these  limited  companies,  de  facto,  have  to  pledge  assets  or  provide  personal  guarantees  in 
order to finance their business. In practice, the borderline between limited liability companies 
and unlimited liability companies is not clear-cut.  

The  requirements  of  the  Accounting  Directives  apply  to  all  limited  liability  companies 
without regard to other factors (e.g. size, financing or type of activities). Notwithstanding that 
the  Directives  contain  exemptions  for  smaller  companies,  small  and  medium-sized 
companies,  these  are  often  still  subject  to  the  same  rules  as  larger  companies,  and  their 
specific  accounting  needs  have  rarely  been  assessed.  In  many  situations,  certain  accounting 

33  

See Annex 2: Use of options by Member States. 

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information must be collected and processed only to satisfy legal obligations where there is no 
corresponding business need. This corresponds to the definition of an administrative burden34. 

Under the general issue of administrative burden two elements can be further analysed:  

•  Economic burden from administrative (compliance) cost that is not related to the size 
of the company and therefore disproportional for the smallest enterprises as compared 
to the larger enterprises 

•  Misalignment  between  requirements  of  the  Accounting  Directives  and    the  needs  of 

the micro entities and the users of their financial statements  

3.1.  Disproportional administrative (compliance) cost as economic burden 

National measurements carried out in the years until 2006 and the results of the stakeholder 
consultation identified company law, including the fields of accounting and auditing, as one 
of the most burdensome areas of the EU acquis.  

Unnecessary  and  disproportionate  administrative  costs  severely  hamper  economic  activity. 
This is especially so for start-up businesses and small enterprises with limited administrative 
and  financial  resources  which  are  sensitive  to  excessive  administrative  obligations. 
Companies, in particular SMEs, have indicated that the increasing complexity and widening 
scope of the accounting rules have led to extensive costs which divert resources from the core 
business activities of companies. 

An expert group report35 identified that on average, a business with fewer than ten employees 
has to face a regulatory burden (measured per employee) that is roughly twice as high as the 
burden of a business with more than ten but less than twenty employees and about three times 
as high as the burden of businesses with more than twenty but less than fifty employees. For 
bigger  companies,  the  burden  per  employee  is  only  one  fifth  or  less  of  that  of  small 
enterprises.  

In  other  terms:  where  a  big  enterprise  spends  one  Euro  per  employee  to  comply  with  a 
regulatory duty a medium-sized enterprise might have to spend around four euros and a small 
business up to ten euros. It is illustrated on the graph below. 

34  

35  

For definition of administrative costs and burdens see: 
http://ec.europa.eu/enterprise/admin-burdens-reduction/faq_en.htm. 
European Commission. 2007. Report of the Expert Group. Models to reduce the disproportionate 
regulatory burden on SMEs, pp. 16-17, 
http://ec.europa.eu/enterprise/entrepreneurship/support_measures/regmod/regmod_en.pdf. 

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Fig. 1. Administrative burden by company size. 

Source: European Commission. 2007. Report of the Expert Group. Models to reduce the disproportionate regulatory burden on 

SMEs, p. 17. 

Moreover, the substantial part of the administrative cost is fixed. It is further confirmed by a 
recent  survey  by  Eurobarometer36  that  shows  that  micro  entities  sacrifice  most  resources  to 
complying with the required paper work (9% of time) while this burden does not reach 0.5% 
for large scale enterprises. 

The  fact  that  there  are  approximately  7  million  EU  companies  that  are  subject  to  reporting 
rules in the scope of the Directives inevitably creates a costs and can hinder efficient use of 
capital  for  productive  purposes.  Of  course,  not  all  of  the  workload  can  be  considered 
"burdensome",  as  it  also  supports  the  business  activities  of  the  company.  It  is,  however, 
important to reflect on the different types of reporting requirements that a company is exposed 
to and the associated costs. This is particularly important for small entities 

As outlined in a study prepared by Ramboll Management for the Commission in July 200737, 
small  enterprises  are  faced  with  a  disproportionate  regulatory  burden  in  comparison  with 
larger  businesses.  The  disproportionate  distribution  of  regulatory  costs  can  be  explained  by 
several factors. First, a large part of the regulatory requirements results in costs that are fixed 
or not related to the size of a company. Filling in a form takes a certain amount of time, and as 
long  as  the  information  requested  is  the  same,  it  makes  no  difference,  in  terms  of  time 
consumption,  if  it  is  a  large  or  small  company.  Second,  larger  businesses  can  employ 
specialists  to  deal  with  regulatory  obligations  more  efficiently.  For  larger  businesses, 
investment  in  computerisation  and  rationalisation  of  regulatory  obligations  will  often  be 
worthwhile due to the larger number of cases to be dealt with. Third, in small companies the 

36  

37  

Eurobarometer. 2007. Observatory of European SMEs. Analytical report, p. 37, 
http://ec.europa.eu/public_opinion/flash/fl196_en.pdf. 
Ramboll Management, July 2007, Study on administrative costs of EU Company Law Acquis, pp. 20-
35, 
http://ec.europa.eu/internal_market/company/docs/simplification/final_report_company_law_administr
ative_costs_en.pdf. 

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15 

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manager  and  owner  himself  will  be  ultimately  legally  responsible  for  taking  care  of  the 
regulatory  obligations.  Very  often  these  obligations,  as  typically  in  case  of  accounting  and 
preparation  of  statutory  financial  reports,  are  outside  his/her  key  competence  and  they  are 
outsourced to external professionals. Nevertheless, the owner/manager will also need to use 
his/her time to ensure that outsourcing is well managed and, ultimately, that all the obligations 
are  fulfilled.  This  means  that  the  most  valuable  resource  of  the  small  business  will  be 
occupied with tasks that do not directly contribute to the success of the company.  

Furthermore,  as  discussed  in  the  following  Chapter,  this  disproportional  cost  of  complying 
with  the  Directives'  requirements  is  combined  with  the  fact  that  the  micro  entities  usually 
have  very  low  number  of  external  stakeholders38  and  that  the  information  needs  of  those 
stakeholders are generally not well served by the current requirements.  

3.2.  Misalignment between requirements of the Directives and the needs of micro 

entities and the users of their financial statements 

The  accounting  cultures  across  Europe  are  different.  In  very  general  terms,  the  EU  area 
encompasses  Anglo-Saxon  and  continental  accounting  cultures,  the  latter  also  differs 
significantly even between close neighbours. In some Member States wide use of published 
financial  accounting  data  is  generally  encouraged  by  the  companies,  whereas  in  others  it  is 
viewed as revealing sensitive information. Also tax authorities differ in their use of financial 
accounting numbers and the amount of reconciliation required. 

Generally,  stakeholders39  of  very  small  companies  are  limited  and  differ  significantly  from 
those  of  big  corporations.  These  companies  are  effectively  owner-managed  and  statutory 
financial  statements  do  not  have  significant  relevance  for  the  owners  in  reviewing  the 
company's  performance.  Moreover,  investors  in  micro  entities  are  often  limited  in  number, 
often directly involved in running the company and with direct access/insight into company's 
accounts.  The  source  of  financing  is  not  the  stock  market  but  own  resources,  credit  from 
banks or other financial institutions. 

The  stakeholders  of  micro  entities  can  be  divided  into  two  categories:  those  who  have  the 
power  or  ability  to  demand  information  above  and  beyond  the  statutory  reporting 
requirements,  and  those  who  rely  on  information  in  the  public  domain.  The  first  category 
usually  includes  banks,  other  providers  of  finance  and  tax  authorities,  while  the  second  one 
includes, for example, suppliers, customers and employees.  

Most  of  the  stakeholders  with  power  to  request  information  can  get  extensive  financial 
information from companies and are generally not dependent on the statutory accounts with 
exemption of statistical offices which can extract information from the statutory accounts in 
order  to  avoid  additional  burden  on  companies.  Furthermore,  as  regards  banks  and  other 
providers  of  finance,  the  statutory  accounts  prepared  under  requirements  of  the  Accounting 
Directives  have  a  number  of  limitations  that  make  them  less  suitable  for  information 
purposes:  

38  

39  

Based on survey in other OECD member (US) 90% of all companies has no more than 2 owners 
Kauffman. 2008. Firm survey, p.11, 
http://www.kauffman.org/uploadedFiles/kfs_08.pdf. 
For additional information please see Annex 5 Users' and preparers' needs from the financial reporting. 

EN 

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•  The information in statutory accounts is historical and very often out of date to bear 

relevance to the company's current circumstances.  

•  Disclosures are based on minimum standards and do not provide as such the necessary 
information. For example, in the absence of a cash flow statement, users of statutory 
accounts of small enterprises are not able to assess whether the company's day-to-day 
activities are generating cash.  

•  Statutory accounts do not provide any forward looking information, nor do they assess 

the risks and opportunities of the company.  

Therefore, banks often require information beyond or not contained in the statutory accounts. 
Often  they  also  ask  for  the  information  in  a  different  format  more  suitable  for  them.  In 
addition,  they  may  wish  to  review  other  factors,  for  example  the  competence  of  the 
management or compare the budgeted figures with actual numbers. Thus banks demand more 
information that will allow them to assess recoverable amount of assets in case of bankruptcy 
and  are  not  interested  in  sophisticated  accrual  accounting  vehicles  such  as  deferred  tax  or 
goodwill40. Furthermore, creditors, sometimes, request tailor made accounts for their needs so 
that do not need to perform additional analysis. On the other hand many of the data provided 
in  statutory  accounts  include  numerous  disclosures  that  are  not  relevant  to  the  main  users. 
Having  said  that,  due  to  their  power  to  demand  information,  they  can  also  require  audited 
accounts even in a situation where this would not be a legal requirement.  

It  should  be  noted  that  tax  authorities  usually  have  special  reporting  needs  which  differ 
significantly from general financial reporting. As regards other stakeholders of micro entities, 
the usefulness of the statutory accounts is likewise hampered by the shortcomings discussed 
above. Customers may wish to know about a small company's ability to remain in business if 
it  is  a  major  supplier;  potential  suppliers  may  want  to  know  about  the  company's  policies 
toward paying its creditors; and external shareholders will want information on the value of 
their shares and the value of the company, as well as the future prospects, strategy and plans 
of the management. This information is only partly to be gained from the statutory accounts, 
and it is often out-of-date by the time the accounts are published. (e.g. in the UK it takes on 
average 10 months before accounts are published). 

As regards suppliers and customers, small companies’ relationships with them are often based 
on mutual trust rather than on (access to) financial information. Again, the information needs 
are usually not covered by the financial information provided by the Accounting Directives.  

The insurers of the trade credit41 are another group that may be interested in the accounts of 
micro  entities.  If  necessary,  a  micro  entity  can  always  provide  information  on  a  voluntary 
basis.  The  same  applies  when  providing  more  detailed  information  to  those  required  by  the 
Directives which can result in better credit rating and lower cost of insurance. 

40  

41  

E.g. DRSC. 2008, Financial Reporting from the Perspective of Banks as a major User Group of 
Financial Statements, p. 16, 
http://www.standardsetter.de/drsc/docs/press_releases/080917_ASCG_Surveyontheexpectationsofbank
s.pdf. 
Trade credit insurance is an insurance of trade receivables against default, insolvency or bankruptcy of 
the trading partner. 

EN 

17 

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Micro-entities themselves can also be the users of  other  micro  entities'  financial  statements, 
for example, when they assess the creditworthiness of their potential clients. Discussions with 
stakeholders suggest that current complexity of accounting statements makes them useless for 
micro entrepreneurs, as they often cannot understand the content of the reports without help of 
specialised  analyst/accountant.  Thus  usability  of  the  micro-entities  financial  reporting  is 
reduced both for managerial purposes and for investigating business partners.  

Consequently,  the  main  users  of  micro  accounts  are  more  likely  to  demand  specific 
information  (for  example  on  recoverable  amount  of  assets  (banks)  or  taxable  profit  (tax 
authorities) rather than various disclosures or sophisticated accrual accounting information. At 
the same time, companies that have to produce essentially investor oriented accounts devote 
time  and  money  to  accounting  techniques  that  use  no  purpose  and  only  satisfy  legal 
requirements.  They  often  need  help  from  external  accountants  to  prepare  these  accounts  as 
these  techniques  are  often  complex  and  not  the  core  competence  of  the  managers  of  micro 
business.  For  the  same  reason  the  statutory  accounts  seldom  provide  useful  information  for 
managers  to  utilise.  Furthermore,  most  of  the  additional  information  is  not  of  interest  to 
stakeholders of SME's. 

As illustrated in the Annex 6 Current reporting requirements of the Fourth Directive, many of 
the current requirements in the Accounting Directive are rather heavy and laborious to comply 
with  and  thus  not  suitable  for  the  micro  entities.  Such  requirements  are  for  example: 
depreciation  rules  that  are  not  aligned  with  tax  accounting,  accounting  for  deferred  tax, 
goodwill  and  borrowing  cost,  and  the  numerous  disclosure  requirements,  most  importantly 
various notes on the accounts. Especially the latter requires a great deal of resources of micro 
entities, as it is not usually the area of their core competence. In case of micro entities, most of 
these  notes  have  little  informative  value  to  stakeholders.  Currently,  Member  States  have  a 
possibility  to  exempt  micro  entities  only  from  some  of  those  requirements,  and  only  on  a 
piecemeal  basis,  without  a  possibility  to  make  a  general  exemption.  This  prevents  Member 
States from designing accounting rules adapted to micro entities' needs. 

3.3.  How large is the problem? 

A  study  conducted  for  the  Commission42  found  that  about  25%  or  7m  of  all  enterprises  in 
Europe  are  subject  to  the  requirements  of  the  Accounting  Directives,  i.e.  they  are  limited 
liability companies. 

Table. 2.  Number of all enterprises in the EU and number of enterprises covered by the 

Fourth Directive on Accounting. 

No. of enterprises  
(all legal forms) 

No. of companies covered by 
the Fourth Directive 

28,207,491 

7,158,209 

Source: CSES. 2008. Evaluation of Thresholds for Micro-Entities, p. 15. 

% 

25.4% 

42  

See footnote 26, p. 15. 

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Calculations carried out for the Commission by the Centre for Strategy & Evaluation Services 
LLP  show  that  some  5.4  million  (around  75%)  of  the  companies  within  the  scope  of  the 
Fourth Directive are micro entities. 

Table. 3.  Estimated number of companies in the categories. 

Micro 

Small 

Medium 

5,369,738* 

1,477,882 

206,419 

75% 

21% 

3% 

Large 

96,562 

1% 

Listed 

Total 

7,608 

0.1% 

7,158,209 

100% 

*when thresholds for turnover (≤€1m) and employment (≤10) are combined. 
Note: Figures for medium and large companies are estimations based on Ramboll 2007 and Ramboll 2005, the 
total figure and figure for micro entities is from CSES 2008. Figure for small companies is estimated based on 
all studies. 

Source:  CSES study "Evaluation of Thresholds for Micro-Entities" (2008), Ramboll "Study on administrative costs of the EU 

Company Law Acquis" ( 2007), Ramboll Management. 2005. Report on impacts of raised thresholds defining SMEs, 
Commission Services analysis. 

A study prepared by Ramboll Management for the Commission in July 200743 concluded that 
the different reporting requirements took the following amounts of time to perform for micro 
entities  (table  below,  left  hand  columns)44.  For  illustrative  purposes,  standard  amounts  for 
internal  and  external  costs  could  be  used  and  would  give  the  results  presented  in  the  right 
hand columns of the grid.  

Table. 4.  Assessment of administrative burden: Abridged balance sheet*, micro entities. 

Data requirement 

Statement by Management 

Balance sheet 

Notes 

Due approval 

Publication  

Total 

Note:  

Internal cost:  
External cost: 

45 EUR/hour 
111 EUR/hour 

Time per company (minutes) 

Burden per company (EUR) 

Internal 
time 

External 
time 

Total time 

Internal 
cost 

External 
cost 

Total 
burden 

50 

200 

220 

115 

15 

600 

50 

200 

220 

115 

15 

600 

93 

371 

408 

213 

28 

93 

371 

408 

213 

28 

1113 

1113 

In this impact assessment an update cost per company of €1558 and burden of €1169 will be used (see Annex 1 Quantitative 
analysis of micro entities exemption). An updated study by the Consortium shows that up to 30% of the costs are internal. 

Administrative cost is a total cost that a company incurs for collecting and processing of information. 

Administrative burden is cost incurred solely due to legal obligation. 

* Abridged balance sheet contains less information than complete balance sheet, as specified in Article 11 of the Fourth 
Directive. 

Source:  Ramboll Management, 2007, Study on administrative costs of the EU Company Law Acquis, p.22, Consortium Study 

2008., Commission Services analysis. 

The above gives an approximation that the aggregated administrative burden on the EU level 
would total €6.3 billion.  

43  
44 

See footnote 37, p.20. 
The Ramboll 2007 (see footnote 37) study also contains similar information for small entities, p. 20 and 
medium-sized entities, pp. 24, 31. 

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It  is  important  to  highlight  that  the  above  figures  are  very  approximate,  and  relate  to  the 
complete preparation of the accounts and all disclosures. It is, however, important to keep in 
mind that also limited reductions in the requirements at aggregate level lead to considerable 
savings (See further Chapter 6). 

The  latest  study  by  a  Consortium45  estimates  the  total  administrative  cost  for  the  Annual 
Accounts  /  Company  law  priority  area  consisting  of  seven  Company  Law  Directives46  is 
€22.7bn. 84.9% of this administrative cost arises from the Fourth Council Directive. The total 
administrative  burden  (costs  incurred  solely  due  to  the  legal  obligations)  is  estimated  at 
€12.1bn, and that of accounting obligations at €10bn. 

The  study  pointed  out  that  small  enterprises  are  faced  with  a  disproportionate  regulatory 
burden  in  comparison  with  larger  businesses:  on  average,  a  business  with  fewer  than  ten 
employees has to face a regulatory burden (measured per employee) that is roughly twice as 
high as the burden of a business with more than ten but less than twenty employees and about 
three  times  as  high  as  the  burden  of  businesses  with  more  than  twenty  but  less  than  fifty 
employees. For bigger companies, the burden per employee is only one fifth or less of that of 
small  enterprises.  In  other  words,  where  a  big  enterprise  spends  one  Euro  per  employee  to 
comply with a regulatory requirement, a medium-sized enterprise might have to spend around 
four euros and a small business up to ten euros. 

4.  OBJECTIVES 

In  order  to  enhance  the  competitiveness  of  the  micro-entities  and  release  their  growth 
potential,  the  administrative  burdens  should  be  reduced  to  the  minimum.  The  two  specific 
objectives are, as illustrated in the table below: 

•  Reduction of the administrative burden of businesses in the EU, especially for SMEs 
and  micro-entities,  while  safeguarding  adequate  protection  and  information  to 
stakeholders.  

•  Enable alignment of the micro-entities' reporting requirements with the real needs of 

users and preparers.  

45  

46  

Ramboll, CapGemini (Consortium). 2008. Final report. Measurement data and analysis. EU project on 
baseline measurement and reduction of administrative costs. Please see: 
http://ec.europa.eu/enterprise/admin-burdens-reduction/action_program_en.htm#dd and 
http://ec.europa.eu/enterprise/admin-burdens-reduction/priority_annual_en.htm. 
The following directives were investigated: First Council Directive 68/155/EEC, Second Council 
Directive 77/91/EEC, Third Council Directive 78/855/EEC, Fourth Council Directive 78/660/EEC, 
Sixth Council Directive 82/891/EEC, Seventh Council Directive 83/349/EEC, Eleventh Council 
Directive 89/666/EEC, Twelfth Council Directive 89/667/EEC. 

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Fig. 2. Objectives tree. 

Enhance the competitiveness of the 
micro-enterprises and release their 
growth potential

Reduce Accounting 
Burden for micro 
entities 

Align accounting of 
micro entities to the 
needs of users and 
preparers

Objectives level 

General 

Specific 

Rebalance the cost of 
accounting obligations 
for micro entities 

Identify financial 
information of most 
relevance to users

Eliminate 
unnecessary reporting 
requirements

Operational 

Source:  Commission Services analysis. 

5.  POLICY OPTIONS AND THEIR EXPECTED IMPACT 

5.1.  Description of policy options 

The information needs of different users may vary significantly and there is no single solution 
to  all  accounting  needs.  Moreover,  the  limited  administrative  resources  of  the  smallest 
enterprises  cannot  accommodate  all  potential  user  needs.  Deciding  on  the  most  relevant 
information  needs  and  defining  to  what  extent  they  should  be  served  is  therefore  always  a 
matter of policy choices. In the case of micro entities, a balance needs to be struck between 
sufficiently  serving  the  most  relevant  needs  and  the  efficient  use  of  their  limited  resources 
(reduction of administrative cost).  

The Commission Services envisage following possible policy options that will be discussed in 
detail  in  the  sub-chapters  below.  In  the  context  of  the  economic  crisis  the  timeliness  of  the 
reduction of the administrative burden is an important aspect: 

Option 0. No change to the Directives. 

Option 1. Encourage a full use of existing options in the Accounting Directives. 

Option 2. Obligatory exemption of micro entities from the scope of the Directives. 

Option 3. Member State option to exempt micro entities from the scope of the Directives. 

Option 4. Introduction of a simplified mandatory accounting regime for micro entities. 

Option 5. Amendments to the Accounting Directive without introducing the micro category. 

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5.2.  Option 0. No change to the Directives 

In  the  baseline  scenario  no  action  is  taken  and  all  5.4  million  micro  entities  will  continue 
following  the  accounting  rules  of  the  Directives  and  spending  annually  around  €6.3bn  to 
comply  with  information  obligations  designed  primarily  for  large  companies  with  investor 
orientation  in  mind,  save  some  exemptions  that  the  Fourth  Directive  allows  for  a  broader 
small enterprises segment47 (as defined by Art. 11 of the Fourth Directive).  

Table. 5.  Expected impact of Option 0: No legislative actions. 

Option  Rebalance 
the cost of 
accounting 
obligations for 
micro entities 

Identify 
financial 
information of 
most 
relevance to 
users 

Eliminate 
unnecessary 
reporting 
requirements 

Protection of 
information 
for investors 

Political 
Acceptability 

Time to 
implement 

Max Burden 
reduction € 
(% of burden 
reduction*) 

0 

0 

0 

0 

0 

0 

0 

0 

Note: "+" favourable, "-" unfavourable; "0" neutral; "?" impact unknown 
* as %of total burden stemming from the EU Company Law legal acquis, estimated at: €12.1bn  

Source: Commission Services analysis. 

5.3.  Option  1.  Encourage  a  full  use  of  existing  options  in  the  Accounting 

Directives 

5.3.1.  Summary 

Not  all  reductions  of  administrative  burdens  require  changes  to  the  Accounting  Directives. 
Even  in  case  no  legislative  changes  are  made,  the  Commission  can  nevertheless  call  on 
Member States to utilise all the simplification options already available in the Directives. This 
option targets mainly small companies and could in theory produce some significant burden 
reductions in those Member States which have not fully made use of them48. This would not, 
however,  facilitate  further  reduction  in  those  Member  States  that  are  already  using  the 
options.  Furthermore,  it  would  not  address  the  substantial  issue  of  discrepancy  between  the 
Accounting  Directives  to  the  user  needs  of  smallest  companies  (see  Chapter  3.2)  and  the 
administrative burden resulting from this. 

The  rules  creating  the  reporting  requirements  are  included  in  the  Directives  and  more 
significant  changes  to  the  accounting  requirements  are  not  possible  without  changes  to  the 
Directives. A Commission recommendations or guidance is non-binding. In general, EU-wide 
substantial  simplification  in  the  area  of  accounting  and  auditing  can  only  be  achieved  by 
revising the law.  

47  
48  

For definition of small segment threshold please see chapter 1.4. 
For example a recent analysis in Sweden showed that a full use of all options and threshold levels 
would reduce the administrative burden by 20%,  
see: SOU. 2008. Enklare redovisning. SOU 2008:67, p.176, 
http://www.regeringen.se/content/1/c6/10/76/85/4f21026a.pdf. 

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5.3.2.  Analysis 

To  mitigate  (but  not  fix)  the  situation,  the  Commission  can  without  resorting  to  legislative 
action  try  to  use  soft  power  on  Member  States  to  utilise  the  wide  range  of  simplifying 
possibilities currently offered by the Accounting Directives. 

There are around 40 Member State options in the Fourth Directive, some of which allow for a 
more business friendly-accounting regime for especially small and medium-sized companies 
as defined by Article 11 and 27 of the Directive49. For the small companies, these are: 

•  abridged balance sheet, 

•  simplified Profit and Loss account layout, 

•  abridged and simplified notes, 

•  exemption from preparation of annual report, 

•  simplified publication requirement, 

•  exemption from audit. 

According to the data available to the Commission there is a significant number of Member 
States  that  do  not  fully  utilise  these  options  or  impose  additional  restrictions  to  their  use. 
Moreover,  not  all50  Member  States  have  transposed  the  thresholds  for  small  and  medium-
sized  entities  to  their  maximum  values  –  however  in  all  but  two  cases  the  transposed 
thresholds cover the proposed micro entities segment. 

The estimates of the potential savings of the full use of thresholds and exemptions amount to 
up  to  €3.8bn  for  all  companies, and  up  to  €1.8bn  for  the  micro  segment  (as  part  of  "small" 
segment). 

The  exemptions  available,  however,  do  not  address  the  main  concern  that  accounts  are  not 
suited to the real needs of user and preparers. These exemptions are in essence "carve-outs" 
from the full scope of the Fourth Directive, mainly in terms of disclosure. There is no special, 
tailor made regime for the smallest entities which would fulfil the usefulness criterion. 

In  addition  to  the  requirements  of  the  Accounting  Directives,  Member  States  can  impose 
national rules ("gold plating") that further increase the burden on smallest entities. According 
to the estimations available to the Commission these additional requirement amount to €0.6bn 
for all companies, data for micro entities alone is not available. 

In  the  public  consultations  of  2007  as  well  as  from  discussions  with  stakeholders  during 
various meetings a call for better utilisation of the existing options was frequently mentioned. 

49  
50  

See Annex 2: Use of options by Member States. 
Based on Consortium study, that measured the situation in MS before the transposition deadline of 5 
September 2008 for the latest threshold increases of Directive 2006/46/EC, there were 5 Member States 
that transposed the new thresholds in full. 

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The Commission Services acknowledge that there are legitimate reasons why some Member 
States do not fully utilise some of the options and set the thresholds to their maximum levels. 
The characteristics of national economies, accounting and business cultures are different. The 
options  in  the  Directive  were  introduced  precisely  because  there  were  different  accounting 
legacies  in  Member  States,  and  the  Fourth  Directive  was  one  of  the  longest  to  negotiate. 
Therefore,  without  changes  to  the  Directives,  it  seems  very  difficult  to  convince  Member 
States to give up their options and pursue a standardised approach towards use of all options 
and  maximum  threshold  levels.  Also,  the  current  Directive  builds  on  general  requirements 
with  Member  States  possibility  to  exempt  only  from  some  of  those  requirements  on  a 
piecemeal basis. Thus there is no possibility to make a general exemption for targeted group 
like,  for  example,  micro  entities  which  hampers  the  usability  of  these  options,  and  thus  has 
made them generally less appealing to Member States.  

The result of Option 1 is a maximum potential reduction of burden on micro business without 
changes  to  Directive.  The  total  burden  is  €12.1bn.  By  transposition  of  all  exceptions  and 
threshold  levels  the  maximum  potential  reduction  for  micro  entities  would  be  €1.8bn. 
However as explained above, this amount is unlikely to be attained. 

Implementation timeline. As all the options are already available they could theoretically be 
readily implemented by Member States within their normal legislative timeline. 

The summary of the option is presented in the table below: 

Table. 6.  Expected impact of Option 1: Encourage a full use of existing options in the 

Accounting Directives. 

Option  Rebalance 
the cost of 
accounting 
obligations for 
micro entities 

Identify 
financial 
information of 
most 
relevance to 
users 

Eliminate 
unnecessary 
reporting 
requirements 

Protection of 
information 
for investors 

Political 
Acceptability 

Time to 
implement 

Max Burden 
reduction € 
(% of burden 
reduction*) 

1 

+ 

0 

0/+ 

0 

0/- 

++ 

0 to €1.8bn 
(0 to 15%) 

Note: "+" favourable, "-" unfavourable; "0" neutral; "?" impact unknown 
The more "+" or "-" the stronger the impact 
* as %of total burden stemming from the EU Company Law legal acquis, estimated at: €12.1bn  

Source: Commission Services analysis and calculations based on Consortium 2008 report. 

5.4.  Option  2.  Obligatory  exemption  of  micro  entities  from  the  scope  of  the 

Directives 

5.4.1.  Summary 

Obligatory exemption of micro entities would eliminate all EU level accounting requirements 
for  this  group  –  a  case  of  maximum  harmonization.  It  must  be  born  in  mind,  however,  that 
accounting cultures across Europe are different and some Member States will find it difficult 
to  dispose  of  the  Directives'  accounting  obligations  for  micro  entities  as  for  example  tax 
returns  are  based  on  those  accounting  numbers.  Thus,  it  would  be  inappropriate  to  force 

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Member  States  to  fully  abolish  their  reporting  traditions.  It  is  unlikely  that  such  a  proposal 
would be politically acceptable for some EU Member States. 

.  

5.4.2.  Analysis 

As a complete exemption of micro entities from the scope of the Accounting Directives is not 
feasible,  it  will  not  be  analysed  in  detail.  The  impact  of  this  option  is  the  same  as  the 
maximum impact of the option 3 (except for political acceptability), as discussed in the next 
section. 

Table. 7.  Expected impact of Option 2: Obligatory exemption of micro entities from the scope 

of the Directives. 

Option  Rebalance 
the cost of 
accounting 
obligations for 
micro entities 

Identify 
financial 
information of 
most 
relevance to 
users 

Eliminate 
unnecessary 
reporting 
requirements 

Protection of 
information 
for investors 

Political 
Acceptability 

Time to 
implement 

Max Burden 
reduction € 
(% of burden 
reduction*) 

2 

++ 

++ 

++ 

0/- 

--- 

++ 

€5.1 to 6.9bn
(39 to 57%) 

Note: "+" favourable, "-" unfavourable; "0" neutral; "?" impact unknown 
The more "+" or "-" the stronger the impact  
* as %of total burden stemming from the EU Company Law legal acquis, estimated at: €12.1bn  

Source: Commission Services analysis, See Annex 1 Quantitative analysis of micro entities exemption. 

5.5.  Option  3.  Member  State  option  to  exempt  micro  entities  from  the  scope  of 

the Directives 

5.5.1.  Summary 

Originally  flagged  in  the  2007  Commission  Communication  on  a  simplified  business 
environment  for  companies  in  the  areas  of  company  law,  accounting  and  auditing  – 
COM(2007)394  -  the  proposal  to  exempt  micro-entities  from  the  Accounting  Directive 
78/660/ECC  (Fourth  Company  Law  Directive)  was  re-launched  by  the  European  Economic 
Recovery Plan in view of its potential for administrative costs reduction and entrepreneurship 
promotion.  The  proposal  has  already  received  strong,  albeit  not  unanimous,  support  as 
evidenced by the public consultation on COM(2007)394, the July 2008 Opinion  of the High 
Level  Group  of  Independent  Stakeholders  on  Administrative  Burdens  and  two  separate 
resolutions of the European Parliament (A6-101/2008 of 21 May 2008 and B6-0626/2008 of 
18 December 2008). The initiative would precede a proposal to modernise the more than 25-
years old Accounting Directives in late 2009. 

Due to the diversity of accounting needs of micro entities, the Commission Services believe 
that  there  should  be  more  flexibility  for  solutions  on  national  level.  With  an  optional 
exemption  in  the  Accounting  Directives,  it  would  be  left  to  Member  States  to  determine 
which rules micro entities should be required to comply with. This would allow the possibility 

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to  determine  the  most  relevant  reporting  requirements  and,  for  example,  integrate  various 
reporting requirements (e.g. tax, statistics) into one.  

Developments during the last years show more use of the simplification options and there is 
an  increasing  demand  for  more  simplification  measures.  Changes  in  business  practices  and 
information tools open new opportunities for creating one-stop-shop reporting on the national 
level. Despite the fact that the different reporting traditions are one of the underlying reasons 
why some Member States have not used the maximum potential provided by the exemptions 
(as discussed in Option 1), they may still lean towards aligning the micro entities ' reporting 
requirements  with  tax or  other national requirements. A voluntary compliance with national 
laws  based  on  the  Directives  by  the  companies  would  be  compatible  with  the  exemption 
option.  Thus,  all  exempted  companies  would  be  able  to  follow  the  accounting  and  auditing 
rules on a voluntary basis.  

An alternative solution would be to have an exemption of micro entities from the scope of the 
Directives with a possibility for Member States to opt-in to these requirements nationally. The 
maximum impact of this option is likely to be the same as the impact of the option 3. 

Politically,  the  possibility  for  opt  in  is  likely  to  make  it  more  acceptable  than  obligatory 
exemption (Option 2). However, there are no advantages compared with Member State option 
(Option 3).  

5.5.2.  Analysis 

Exempting the micro entities from the requirements of the Accounting Directives enables the 
Member  States  to  promptly  curb  the  current  burdensome  reporting  requirements  for  micro 
entities as discussed in Chapter 3.2. (see also Annex 6 Current reporting requirements of the 
Fourth Directive). It will not pre-empt the possibility to simplify the requirements included in 
the  Directive  for  small  and  medium  sized  entities  including  micros  in  the  context  of  the 
general overhaul. 

Exempting micro entities from the scope of the Accounting Directive is expected to have the 
following impacts: 

Reduction  of  administrative  burden51.  According  to  the  estimations  available  to  the 
Commission  there  are  around  5.4m  micro  entities  in  the  EU  that  meet  at  least  two  of  the 
definition  criteria52.  It  costs  each  company  €1,558  on  average  to  meet  the  reporting 
obligations  of  the  Accounting  Directives.  The  expert  consulted  by  the  Consortium  assessed 
that without any legal obligations micro entities would still spend around 25% of that amount 
to  meet  their  managerial  and  external  information  needs.  Therefore  the  remaining  75%  or 
€1,169 is an approximation of the accounting burden these companies face. Aggregated, this 
amounts to accounting burden of €6.3bn. 

Thus,  in  the  maximum  scenario  where  all  Member  States  exempt  micro  entities  and  do  not 
impose  additional  requirements  our  best  estimation  of  the  potential  savings  stemming  from 
the proposal is €6.3bn (with range of €5.9bn to €6.9bn). 

51  
52  

For details see Annex 1 Quantitative analysis of micro entities exemption. 
See Chapter 1.4 for thresholds defining micro entities. 

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During  the  public  consultations  two  Member  States  (France  and  Belgium)  indicated  their 
initial  disinclination  towards  the  use  of  this  option.  Without  these  two  states  the  maximum 
potential burden reduction would be around €4.9bn. However, as potential use of the option 
cannot be ruled out by any Member State on the basis of their earlier positions, the maximum 
saving potential of this option is the same as of option 2. 

In  the  scenario  where  all  three  micro  thresholds  must  be  met  simultaneously  the  maximum 
number of companies affected drops to around 4.7m. If all Member States took up the option 
our best estimation of burden reduction is €5.4bn (with range from €5.1bn to €6bn). 

Where France and Belgium also not to utilise the option the savings could be reduce to around 
€4.1bn 

Commission Services also acknowledge that the need for basic book keeping will remain and 
it  is  highly  likely  that  Member  States  after  exempting  micro  entities  from  the  Directive's 
obligations  would  impose  other  accounting  requirements,  e.g.  to  align  tax  and  financial 
reporting53.  Such  a  "gold  plating"  is  likely  to  decrease  the  realistic  burden  reduction  for 
companies. However the Commission Services are not in possession of any realistic EU wide 
estimations  to  the  extent  of  future  Member  States  "gold  plating".  All  that  makes  precise 
estimation  of  the  realistic  burden  reduction  of  the  proposal  not  possible.  Rationally,  these 
requirements will not be more burdensome than the current Directive's requirements and, as 
discussed below, they could be more aligned with other requirements (e.g. tax, statistical) so 
that duplication of work can be avoided. Sharing best practices between Member States could 
contribute  to  creation  of  appropriate  set  of  national  rules  and  minimization  of  the 
administrative burdens. The Commission is prepared to facilitate this process by, for example, 
implementation  workshops,  regular  follow  up  and  consultations  as  well  as  utilising  the 
network of SME contact points54 in the Member States.  

More  relevant  and  understandable  information  to  management.  The  accounts  could  be 
made more relevant to the needs of managers of micro entities, taking into account the need 
for  them  to  be  understandable.  Currently,  it  seems  that  managers  of  micro  entities  do  not 
utilise  and/or  even  understand  all  of  the  information  that  is  gathered  and  processed  due  to 
statutory  requirements.  Consultations  with  various  stakeholders  indicated  that  managers  of 
micro entities should have accounts that they can comprehend and utilise in their business. 

More relevant information for main users, including tax authorities and creditors: The 
users  of  accounts  of  micro  entities  differ  significantly  from  the  users  of  accounts  of  large 
companies. The main concern is usually protection of creditors rather than information needs 
of  investors.  The  main  users  of  micro  accounts  are  banks  and  tax  authorities.  According  to 
some studies,55 banks look mainly for standardised information that would allow for a quick 
determination of recoverable amount of assets and assessment of credit rating of micro client. 
Consequently,  they  are  less  interested  in  e.g.  goodwill,  deferred  tax  or  similar  sophisticated 
accounting information.  

53  

54  

55  

E.g. UK ARC member informed the Commission that alignment of financial and tax reporting in the 
UK is expected to produce burden reduction of around £200 per micro company. 
SME Envoy: 
http://ec.europa.eu/enterprise/entrepreneurship/sme_envoy.htm. 
See footnote 40, pp.17, 21, 29. 

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Consequently, it is concluded that the proposal will not have significant negative impact on 
the information to the external stakeholders and creditors' protection. This is corroborated by 
the responses to the Commission Consultation of 200756 where respondents both from banks 
and industry were generally in favour of exempting the micro entities from the requirements 
of the Accounting Directives.  

Impact on the single market and level playing field. On the national level, exempting micro 
entities from the requirements of the Accounting Directives (and possibly replacing them with 
other national requirements) will have no negative effect on the level playing field within the 
micro category. On contrary, it will put the limited liability (micro) companies in comparable 
position with the unlimited ones. As the minimal capital requirements for limited companies 
tend  to  be  lowered  (e.g.  UK  £1,  project  in  DK  to  set  at  1DK),  the  traditional  division  on 
limited  and  unlimited  liability  is  increasingly  meaningless.  The  idea  that  the  capital  and 
reserves of the limited liability company would provide the protection for creditors - and the 
accounts prove the maintenance of  the capital - has become obsolete with the current (non-
existing) minimum capital requirements.  

Impact  on  single  market  is  also  expected  to  be  insignificant.  First  of  all,  financial  reporting 
needs of micro entities are rather basic and the statutory accounts not a generally important 
source of information. The basic book keeping and financial reporting of micro entities with 
very  straight-forward  transactions  and  reports  will  remain  the  same,  regardless  the  legal 
framework.  Furthermore,  only  a  low  number  of  micro  entities  are  involved  in  cross  border 
activities. The recent Eurobarometer57 survey shows that 7% of all micro entities are involved 
in  export.  An  analysis  by  Eurostat58  demonstrate  that  for  the  number  of  micro  entities 
(regardless  of  the  legal  form)  engaged  in  intra  EU  trade  could  be  as  low  as  2  to  4%. 
Moreover, 95% of companies with less than 10 employees did not have foreign subsidiaries.  

As  a  consequence,  the  user  needs  of  internationally  active  micro  entities  are  generally  not 
different from those of micro-entities active only domestically. Firstly, there is generally no 
dissimilarity  as  regards  the  ownership  and  financing  structures.  Secondly,  the  statutory 
financial  reporting  is  not  a  generally  important  source  of  information  for  tax  authorities  as 
regards cross-border tax issues of micro-entities. The extent to which micro entities' financial 
statements  are  used  by  other  enterprises  in  assessing,  for  example,  their  creditworthiness  is 
also  rather  limited  on  cross-border  level.  Therefore,  there  is  no  indication  that  cross  border 
trade would be significantly affected. 

The  above  does  not  exclude  that  in  some  situations  there  remains  a  continued  demand  for 
internationally  comparable  financial  statements  of  micro-entities,  for  example  by  their 
international trading partners or trade credit insures. However, this demand is not expected to 
be widespread and it can be alleviated with voluntary reporting.  

Exempting micro entities from the requirements of Accounting Directives would decrease the 
level  of  harmonisation  on  EU  level.  However,  following  the  argument  of  subsidiarity, 

56  
57  
58  

See footnote 21. 
See footnote 36, p. 45. 
See Eurostat data from 2005: 
http://circa.europa.eu/Public/irc/dsis/trade/library?l=/basic_documentation/characteristics/reference_yea
r_2005&vm=detailed&sb=Title, 
and Annex 5 Users' and preparers' needs from the financial reporting. 
Note that Eurostat acknowledges that these numbers are underestimated due to data collection method. 

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decisions should be taken as closely as possible to the citizen and constant checks should be 
made  as  to  whether  action  at  Community  level  is  justified  in  the  light  of  the  possibilities 
available  at  national,  regional  or  local  level.  In  the  view  of  the  insignificant  cross-border 
relevance of micro entities financial reports, it seems that solutions on local level are indeed 
more appropriate than EU level harmonisation.  

Collection  of  Statistical  information.  The  Commission  is  aware  of  the  fact  that  published 
financial  statements  are  an  important  source  of  statistical  information  in  several  Member 
States59. In cases where Member States will use the option to exempt micro entities from the 
publication requirements, the statistical offices may therefore need to re-design the system for 
data  collection  from  these  kind  of  entities  including  use  of  alternative  sources  or  direct 
statistical  surveys  of  the  companies  or,  where  feasible,  reliance  on  tax  accounts.  In  this 
context  it  will  be  important  that  Member  States  will  carefully  consider  statistical  reporting 
needs when defining the reporting requirements for micro entities. 

Collection  of  information  for  taxation.  There  is  a  variation  between  Member  States  as 
regards  to  what  extent  the  statutory  financial  reports  prepared  under  the  Accounting 
Directives'  requirements  serve  the  basis  for  taxation.  However,  as  noted  above,  the  tax 
authorities  have  the  power  to  demand  information  according  to  their  own  reporting 
requirements.  They  have  also  the  powers  to  carry  out  verifications  (audits)  of  the  financial 
information. It is, therefore, not expected that exemption of micro-entities from the Directives' 
reporting requirements as such will have a negative impact on collection of information by the 
tax  authorities.  In  contrast,  exempting  micro-entities  from  the  Directives'  reporting 
requirements will offer a possibility of aligning micro accounting with their tax reporting.  

Impact on the accounting profession. In the short term, the reduction to the need to prepare 
annual  accounts  in  accordance  with  the  requirements  of  the  Directives  might  lead  to  a 
reduction of the demand for services of external accountants and auditors necessary to comply 
with formal obligation by the Directives.  

Current estimations point that majority of accounting related cost incurred by micro entities 
are  directed  to  external  accountants  and  auditors.  Albeit,  the  exemption  from  the  formal 
requirements and administrative burden is likely to result in some cost savings by the micro 
entities as for their external accounting and audit cost, and therefore also impact adversely the 
revenues  for  accounting  firms,  there  is  also  an  opportunity  to  direct  this  cost  towards  more 
added value activities.  Basic book keeping continues to be done, some national rules will still 
be  present,  as  well  as  tax  accounting  and  voluntary  audit  for  external  stakeholders  (the 
Commission's discussions with UK government showed that some small companies in the UK 
continue  to  voluntarily  audit  their  financial  statements  despite  existing  exemption60),  all  of 
which  will  require  assistance  of  professional  accountants.  Reduced  statutory  requirements 
allow companies to use the accountants' professional expertise to tailor the financial reporting 
to  suit  better  their  business  and  tax  purposes.  Consequently,  reduced  use  of  professional 
accountants'  help  for  statutory  accounting  purposes  is  expected  to  be  partly  substituted  by 
their use to purposes adding more value to the micro entities - thus allocating the economic 
resources  more  effectively.  Quantitative  estimation  on  the  impact  on  the  accounting 
profession is therefore impossible at this stage.  

59  

60  

Modernisation of European Enterprise and Trade Statistics (Decision No 1279/2008/EC of the 
European Parliament and Council). 
According to UK ARC member 7% of exempted companies continue to voluntarily audit their financial 
statements. 

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29 

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Social aspects. As such, the exemption of micro-entities from the Directives' accounting and 
publication  requirements  may  reduce  information  available  to  employees  of  the  micro-
entities.  However,  in  the  micro-entities  the  employees  usually  have  direct  contact  with  the 
management and owner(s), and the published financial statements have a lesser role in serving 
their  information  needs  as  compared  to  large  companies.  The  situation  of  micro  limited 
liability companies is expected to be similar to unlimited liability companies of the same size.  

Environmental  aspects.  Minor  positive  impact  due  to  reduction  of  reporting  and  filing 
activities.  

Information to general public. There will be reduction of information available to external 
parties  and  general  public  about  micro-entities.  However,  as  indicated  by  the  number  of 
inquiries to the company registers this interest is generally very low (for example in UK, there 
is yearly on average less than 2 inquiries/company).  

Assessing continued compliance with the micro company segment's criteria. The proposal 
will leave it to Member States to decide on how to check compliance with micro thresholds. 
However,  there  are  number  of  possibilities,  including  using  data  from  tax  returns  and  VAT 
registers  (for  the  turnover)  and  extended  possibly  by  a  declaration  on  the  number  of 
employees. The number on balance sheet totals may be not readily available as such, however 
some  form  of  declaration  based  on  tax  accounting  balance  sheet  could  be  required  as 
supplement to tax returns.  

Implementation timeline. The measure could be adopted by the EU in 2009, with national 
transposition deadline of the end of 2010, it could be effective starting from 2010/11. 

Table. 8.  Expected impact of Option 3: Optional exemption of micro entities from the 

Accounting Directives. 

Option  Rebalance 
the cost of 
accounting 
obligations for 
micro entities 

Identify 
financial 
information of 
most 
relevance to 
users 

Eliminate 
unnecessary 
reporting 
requirements 

Protection of 
information 
for investors 

Political 
Acceptability 

Time to 
implement 

Max Burden 
reduction € 
(% of burden 
reduction*) 

3 

++ 

++ 

++ 

0/- 

0/+ 

++ 

€4.1 to 6.9bn
(39 to 57%) 

Note: "+" favourable, "-" unfavourable; "0" neutral; "?" impact unknown 
The more "+" or "-" the stronger the impact 
* as %of total burden stemming from the EU Company Law legal acquis, estimated at: €12.1bn  

Source: Commission Services analysis, See Annex 1 Quantitative analysis of micro entities exemption. 

5.6.  Option 4. Introduction of a simplified accounting regime for micro entities 

5.6.1.  Summary 

One option to address the needs of "micro entities" is to include a micro-tailored accounting 
regime into the Accounting Directives. This would allow creating a standard that meets most 
of the needs of micro-stakeholders without imposing redundant reporting obligations to them.  

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30 

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In contrast to the "exemption option", the new regime would require a longer preparatory and 
implementing  period.  Therefore,  it  is  not  suitable  to  achieve  quick  burden  reduction  as 
requested by the Commission in the Economic Recovery Plan61 - endorsed by the European 
Council  of  12/13  December  2008.  It  needs  further  analysis  to  examine  whether  a  common 
European solution should be a way forward, given the local differences in accounting needs of 
micro entities. On the other hand, the Commission acknowledges that it is not likely that all 
Member  States  will  utilise  the  option  to  exempt  "micro-entities"  from  the  Directives' 
accounting  obligations.  Therefore,  an  alternative  solution  could  be  implementing  a  "micro" 
accounting  regime  into the Directives  as an alternative as well as updating accounting rules 
for small and medium categories. These would make the Accounting Directives more tailored 
towards the needs of micro, small and medium enterprises, thus reducing their administrative 
burden  regardless  whether  a  Member  State  uses  the  micro  exemption  option  or  not.  In 
practice, this could entail creating a rather basic set of rules applicable to micro entities. This 
basic  set  would  be  designed  from  bottom-up  rather  than  the  current  top-down  approach.  It 
could  also  serve  as  the  starting  pointy  when  creating  more  sophisticated  rules  for  bigger 
entities.  

The  Commission  is  already  undertaking  a  revision  of  the  Accounting  Directives  with  the 
"think small first" principle. In addition to the micro exemption discussed in this paper (option 
3), it also reflects an alternative set of basic micro accounting rules. This latter initiative is a 
medium term one with the first proposals expected in late 2009. 

5.6.2.  Analysis 

Due to the long lead time needed for the preparation and adoption process, this revision of the 
Accounting  Directives  cannot  be  achieved  as  swiftly  as  the  proposed  exemption  of  micro 
entities from the Directives' requirements. A new proposal for a directive could be adopted in 
2010. After the adoption by the EU, time is needed for national implementation. This means 
that a new accounting directive could be in force in all Member States by 2014, at the earliest.  

At the moment it is not possible to quantify the potential impact of revision of the Directives 
(currently under development) to the micro administrative burden.  

Table. 9.  Expected impact of Option 4: Simplified accounting regime for micro entities. 

Option  Rebalance 
the cost of 
accounting 
obligations for 
micro entities 

Identify 
financial 
information of 
most 
relevance to 
users 

Eliminate 
unnecessary 
reporting 
requirements 

Protection of 
information 
for investors 

Political 
Acceptability 

Time to 
implement 

Max Burden 
reduction € 
(% of burden 
reduction*) 

4 

++ 

++ 

++ 

0/? 

? 

-- 

+++ 

Note: "+" favourable, "-" unfavourable; "0" neutral; "?" impact unknown 
The more "+" or "-" the stronger the impact 
* as %of total burden stemming from the EU Company Law legal acquis, estimated at: €12.1bn  

Source: Commission Services analysis. 

61  

See footnote 3. 

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5.7.  Option 5. Amendments to the Accounting Directive without introducing the 

micro category. 

5.7.1.  Summary 

It  is  also  possible  to  create  some  quick  fixes  without  major  decisions  such  as  that  of 
exempting  micro  entities  or  overhauling  the  Accounting  Directives.  These  are  expected  to 
produce limited burden savings in a short time span. 

A number of ideas stem from Commission 2007 Communication and the HLG proposals: 

•  Compulsory exemption of micro entities from statutory audit 

•  Exemption from publication requirements 

• 

Introducing limited review instead of full audit 

•  Other fast track measures in the field of accounting from 2008 

Please note that first and third bullets are alternatives and fourth bullet will be adopted in the 
beginning of 2009. 

5.7.2.  Analysis 

These  proposals  could  produce  a  significant  burden  reduction  (if  micro  entities  were  not 
exempted from the Accounting Directive). However, they do not address the main concern of 
discrepancy between the Accounting Directives and the user needs.  

A  compulsory  exemption  from  statutory  audit  is  not  fully  supported  by  all  Member  States. 
There  is  already  an  option  to  exempt  small  companies  from  audit  that  has  been  used  by 
Member States willing to utilise it.  

As an alternative to exemption from audit, an introduction of a limited review was proposed. 
The  idea  is  expected  to  produce  limited  savings  compared  to  full  exemption  from  audit  for 
micro entities. 

On the exemption from publication requirement it is essential to point out that the publication 
culture differs among Member States with some that extensively utilise published statements.  

Most  other  measures  in  the  area  of  accounting  and  auditing  addressed  in  the  July  2007 
Communication require a longer preparation time and are, therefore, not suited for a fast track 
procedure. However, rapid progress seemed possible with a view to some minor measures set 
out in the communication, i.e. the proposals to abolish the requirement to provide (for SMEs) 
the  explanation  on  formation  expenses  and  to  clarify  the  relationship  between  the  IAS 
Regulation and the Seventh Directive with a view to groups with only immaterial subsidiaries. 
These  measures  were  proposed  in  April  2008,  but  they  are  far  less  significant  in  terms  of 
reduction of administrative burden. 

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32 

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Environmental  aspects.  Minor  positive  impact  due  to  reduction  of  reporting  and  filing 
activities. 

Implementation timeline. The measures could be adopted by the EU in 2009, with national 
transposition deadline of the end of 2010, it could be effective starting from 2010/11. 

Table. 10.  Expected impact of Option 5: Amendments to the Accounting Directive without 

introducing the micro category. 

Option  Rebalance 
the cost of 
accounting 
obligations for 
micro entities 

Identify 
financial 
information of 
most 
relevance to 
users 

Eliminate 
unnecessary 
reporting 
requirements 

Protection of 
information 
for investors 

Political 
Acceptability 

Time to 
implement 

5 

0/+ 

- 

+ 

0/- 

0/- 

+ 

Max Burden 
reduction € 
(% of burden 
reduction*) 

0.1 to €1.4bn
(0 to 12%) 

Note: "+" favourable, "-" unfavourable; "0" neutral; "?" impact unknown 
The more "+" or "-" the stronger the impact 
* as %of total burden stemming from the EU Company Law legal acquis, estimated at: €12.1bn  

Source: Commission Services analysis and calculations based on Consortium 2008 report. 

6.  COMPARISON OF OPTIONS  

The table below provides a summary of the expected impact of the analysed options. 

The  option  that  provides  the  biggest  burden  reduction  is  Option  3:  Option  to  exempt  micro 
entities. This option can also be implemented within shortest timeframe.  

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33 

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Table. 11.  Comparison of options. 

Option  Rebalance 
the cost of 
accounting 
obligations for 
micro entities 

Identify 
financial 
information of 
most 
relevance to 
users 

Eliminate 
unnecessary 
reporting 
requirements 

Protection of 
information 
for investors 

Political 
Acceptability 

Time to 
implement 

Max Burden 
reduction € 
(% of burden 
reduction*) 

0 

1 

2 

3 

4 

5 

0 

+ 

++ 

++ 

++ 

0/+ 

0 

0 

++ 

++ 

++ 

- 

0 

0/+ 

++ 

++ 

++ 

+ 

0 

0 

0/- 

0/- 

0/? 

0/- 

0 

0/- 

--- 

0/+ 

? 

0/- 

0 

++ 

++ 

++ 

-- 

+ 

0 

0 to €1.8bn 
(0 to 15%) 

€5.1 to 6.9bn
(39 to 57%) 

€4.1 to 6.9bn
(39 to 57%) 

+++ 

0.1 to €1.4bn
(0 to 12%) 

Note: "+" favourable, "-" unfavourable; "0" neutral; "?" impact unknown 
The more "+" or "-" the stronger the impact 
* as %of total burden stemming from the EU Company Law legal acquis, estimated at: €12.1bn  

Source: Commission Services analysis and calculations based on Consortium 2008 report, CSES 2007 study. 

The proposal to grant Member States an option to exempt micro entities from the scope of the 
Fourth  Directive  is  expected  to  affect  around  5.4m  companies  and  produce  potential 
maximum burden reduction of up to €6.9bn, with best estimate of reduction of €6.3bn. 

The actual impact of the proposal will depend on the number of Member States that taking up 
the  option,  the  thresholds  to  be  set,  eventual  alternative  accounting  regimes  (e.g.  tax 
accounting) and the amount of companies that will voluntarily continue to produce and audit 
financial statements according to the Directives. 

In their responses to the 2007 public consultation two Member States (France and Belgium) 
have  indicated  that  they  will  not  take  up  the  option  exempting  the  micro  entities.  It  is  also 
likely that many Member States after exempting micro entities from the Directive's obligation 
would impose other accounting requirements, e.g. to align tax and financial reporting. Such 
alternative requirements are likely to decrease the burden reduction for companies. However 
at this point of time it is not possible to quantify potential effect on EU level. 

The expected impacts of the measure are summarised in the table below. 

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34 

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Table. 12.  Summary of the expected impacts of micro entities exemption proposal. 

Quantitative impact 

Scenario 

1)  All  three  criteria  for  micro  entities 
must be met 

Min 

No. of micro entities  Max. administrative 

burden reduction (€m) 

4,399,311 

5,142 

Best estimation 

4,659,665 

Max 

5,155,917 

1a) FR and BE do not take up the option  Best estimation 

3,495,261 

2) Two out of three criteria must be met  Min 

5,069,907 

Best estimation 

5,369,738 

Max 

5,941,844 

2a) FR and BE do not take up the option  Best estimation 

4,205,334 

Qualitative analysis 

Advantages 

Disadvantages 

5,446 

6,026 

4,085 

5,926 

6,276 

6,945 

4,915 

•  Encourage new start ups, boost economy. 

•  Potential loss of information to some stakeholders. 

•  Reduce unnecessary data collection and 

processing. 

•  Alignment of financial reporting to user  needs. 

• 

Improved usefulness and understandability of 
financial reports to managers. 

•  Alignment of reporting requirements with the US. 

•  Contribute to one stop shop reporting (one all 

purpose report). 

•  Accountants' and auditors' work would be better 

directed towards real business needs. 

Attitude of stakeholders 

Preparers 

Users 

Public authorities 

Accountants and auditors 

Note: "++" very positive, "+" positive, "--" very negative  

Source: Commission Services analysis. 

EN 

• 

• 

In short term, potential loss of jobs for accountants 
specialised in micro entities. 

It will have an impact on availability of statistical 
information in a number of Member States leading 
to changes in the collection of statistical data. This 
could, for instance, be overcome by additional 
statistical surveys. 

++ 

+ 

++ 

-- 

35 

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In  conclusion,  the  exemption  of  micro  entities  from  the  requirements  under  the  information 
obligations of Fourth Directive is likely to have: 

•  A  positive  effect  on  relevance  and  understandability  of  financial  information  to 

management.  

•  Mainly  positive  or  neutral  impact  for  information  for  external  stakeholders  of  micro 

entities , including creditors.  

•  Not significantly negative impact on credit protection. 

•  An  impact  on  availability  of  statistical  information  in  a  number  of  Member  States 
leading  to  changes  in  the  collection  of  statistical  data.  This  could,  for  instance,  be 
overcome by additional statistical surveys.  

•  No negative impact on collection of information for taxation. 

•  Clearly positive impact on reduction of administrative burden. 

On  the  basis  of  this  analysis,  the  Commission  considers  that  the  Member  States  option  to 
exempt  micro  entities  from  the  requirements  of  the  Accounting  Directives  is  the  most 
appropriate alternative in order to significantly reduce the administrative burden of the small 
business and align the reporting requirements with the needs of the users and preparers.  

7.  MONITORING AND EVALUATION  

This  proposal  is  a  major  step  in  the  Commission  initiative  for  simplification  of  accounting 
rules  for  SMEs  and  other  companies  in  the  scope  of  the  Directives  and  revision  of  the 
Accounting Directives. Therefore, this proposal is closely linked to the general modernisation 
and  simplification  of  the  Accounting  Directives.  Due  to  the  close  connection  between  these 
measures  the  monitoring  and  evaluation  will  be  carried  out  together.  The  second  step,  i.e. 
proposal to adopt a modernised framework for the Accounting Directives will be presented in 
autumn 2009. 

7.1.  Monitoring 

The  Commission  will  monitor  the  implementation  of  the  changes  to  the  Accounting 
Directives  together  with  the  Member  States  through  the  implementation  period  which  is 
expected to extend until 2014. The Commission will also organise implementation workshops 
together  with  the  Member  States.  This  will  help  to  clarify  questions  arising  during  the 
implementation  and  to  share  the  best  practices.  As  regards  the  Member  States  option  to 
exempt micro entities  from the scope of the Accounting Directives, the first indicators to be 
assessed starting from accounting year 2009 will include: extent of its application by Member 
States, alternative accounting regimes and the level of voluntary application of the Directives' 
requirements / other accounting regimes. A detailed monitoring plan will be part of the overall 
monitoring strategy in relation to the general revision of the Accounting Directives.  

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36 

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As  regards  monitoring  trespassing  of  the  micro  thresholds,  is  proposed  that  it  is  up  to  the 
Member  States  to  check  and  monitor  whether  the  micro-entities  criteria  by  companies 
excluded from the scope of the Fourth Company Law Directive continue or cease to be met. 
The  Member  States  shall  have  relevant  necessary  information  at  their  disposal  (statistical, 
social  data  etc.).  Following  the  principle  of  subsidiarity,  the  Commission  has  deliberately 
chosen this option.   

7.2.  Evaluation 

The  evaluation  of  effects  and  functioning  of  the  exemption  for  micro  entities  will  be 
integrated in the evaluation plan related to the general revision of the Accounting Directives.  
The evaluation will include an assessment as regards the key objectives of better alignment of 
the  accounting  rules  with  the  needs  of  the  users  and  preparers  of  the  financial  reports  and 
overall  reduction  of  administrative  burden.  Furthermore,  consideration  will  be  given  to  the 
quality and accessibility of relevant financial information to stakeholders. Possible indicators 
could  be  cost  of  financial  reporting  in  relation  to  the  current  situation,  and  a  qualitative 
analysis  of  the  reporting  practices  of  the  micro  entities  including  the  reports  required  by 
stakeholders, especially the providers of financing. 

The results and feedback from monitoring and evaluation will be considered with a view to 
propose further amendments when appropriate. 

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 ANNEX 1 QUANTITATIVE ANALYSIS OF MICRO ENTITIES EXEMPTION 

This chapter presents the Commission's analysis of the quantitative impact of micro entities 
exemption. The numbers presented are in most part estimates and as such should be treated as 
indicative  of  the  magnitude  of  problems,  rather  than  precise  figures.  In  deriving  the  figures 
the Commission utilised all available studies (public as well as those under preparation), data 
from Member States as well as conducted own estimations. 

CSES Study on Evaluation of thresholds for Micro-Entities 

The  Commission  ordered  a  study  to  quantify  the  number  of  companies  that  could  be 
exempted from the scope of the Accounting Directives. 

The  study  found  that  about  25%  or  7m  of  all  enterprises  in  Europe  are  covered  by  the 
Accounting Directives, i.e. they are limited liability companies. 

Table. 13. Number of all enterprises in the EU and number of enterprises covered by the 

Fourth Directive on Accounting. 

No. of enterprises  
(all legal forms) 

No. of companies covered by 
the Fourth Directive 

28,207,491 

7,158,209 

Source: CSES. 2008. Evaluation of Thresholds for Micro-Entities, p. 15. 

% 

25.4% 

The  study  than  moved  on  to  analyse  how  many  of  the  limited  liability  companies  meet  the 
definition  of  micro  entities    as  proposed  by  the  Commission  and  discussed  earlier  in  the 
Chapter 1.4. 

The study concluded that in most EU countries data on balance sheet total is not collected, but 
based  on  the  available  evidence  (Danish  data)  the  number  of  micro  entities  according  to 
balance  sheet  totals  roughly  matches  the  number  according  to  the  turnover  criterion.  Thus 
balance  sheet  total  of  €0.5m  seems  to  be  different  from  the  levels  of  other  two  criteria  and 
will  result  in  lower  amount  of  companies  exempted  than  turnover  threshold  of  €1m  and 
employment of 10 persons (the study recommends a review of the appropriateness of balance 
sheet  total  as  a  Micro  criterion).  This  observation  was  also  made  in  Commission 
Recommendation on the definition of micro and SME62 from 2003 that stated that: 

The statistical trend requires a greater increase to be made to the turnover ceiling. Since the 
trend differs according to the size-category of the enterprise, it is also appropriate to adjust the 
coefficient  in  order  to  reflect  the  economic  trend  as  closely  as  possible  and  not  to  penalise 
micro  enterprises  and  small  enterprises  as  opposed  to  medium-sized  enterprises.  This 
coefficient is very close to 1 in the case of micro enterprises and small enterprises.  

62  

Commission Recommendation of 6 May 2003 concerning the definition of micro, small and medium-
sized enterprises (Text with EEA relevance) (notified under document number C(2003) 1422), recital 
(6), 
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2003:124:0036:0041:EN:PDF. 

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To  simplify  matters,  therefore,  a  single  value  must  be  chosen  for  those  categories  for  the 
turnover ceiling and balance sheet total ceiling. 

However the Commission initially proposed lower threshold for balance sheet totals to keep 
them  in  line  with  thresholds  for  other  SMEs  in  the  Fourth  Directive.  The  threshold  for  the 
balance  sheet  proved  also  useful  in  discussions  with  the  stakeholders  for  certain  types  of 
companies. 

The data on balance sheet totals is expected to be provided even for the tax accounting, and 
could be disclosed, together with net turnover and number of employees to public authorities. 

According to the study the following number of limited liability companies would qualify as 
micro entities if only employment criterion was used: 

Table. 14. Table. 15. Number of "micro entities" according to different employment 

thresholds. 

No. of employees 

No. of micro-entities 

% of all companies 
covered by the Fourth 
Directive 

% of all enterprises 

< 0 

< 2 

< 5 

< 10 

< 15 

0 

3,325,242 

5,004,626 

5,979,737 

6,365,118 

0% 

46% 

70% 

84% 

89% 

0% 

12% 

18% 

21% 

23% 

Source: CSES. 2008. Evaluation of Thresholds for Micro-Entities, p.39, Commission Services analysis. 

These figures change slightly when only the turnover criterion is applied 

Table. 15. Number of "micro entities" according to different turnover thresholds. 

Turnover 

No. of micro-entities 

% of all companies 
covered by the Fourth 
Directive 

% of all enterprises 

< 0 

< 250,000 

< 500,000 

< 750,000 

< 1,000,000 

< 1,500,000 

< 2,000,000 

< 5,000,000 

0 

4,037,819 

5,065,292 

5,513,370 

5,833,889 

6,164,780 

6,384,358 

6,805,203 

0% 

56% 

71% 

77% 

81% 

86% 

89% 

95% 

0% 

14% 

18% 

20% 

21% 

22% 

23% 

24% 

Source: CSES. 2008. Evaluation of Thresholds for Micro-Entities, p.39, Commission Services analysis. 

When the two thresholds of employment and turnover are combined, lower numbers of micro 
entities is received due to the fact that the two criteria do not overlap perfectly. 

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39 

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The  study  estimates  that  the  criteria  for  number  of  employees  and  turnover  are  met  by 
5,263,707  to  5,475,770  companies  with  mid  point  of  5,369,738  companies.  That  represents 
around 75% of companies currently covered by the Accounting Directives. It must be noted 
that obligation to meet all three criteria could send these figures significantly lower. 

Furthermore  the  study  utilising  the  cost  data  from  Ramboll  2007  analysis  estimates  that  the 
compliance with the Directives costs these companies from €5.9bn to €6.1bn with midpoint of 
€6bn – which at the same time represents maximum potential savings from the exemptions 

On the basis of the data in the study, the Commission services conducted a simple sensitivity 
analysis of the combination of the two thresholds, which is presented in the tables below.  

Table. 16. The effect of combining thresholds for employment and turnover on the number of 

"micro entities". 

Employment 

Turnover 

< € 0.5 mil 

< € 1.0 mil 

< € 1.5 mil 

All levels 

< 5 

< 10 

< 15 

5,065,292 

4,317,305 

4,659,665 

4,666,159 

5,833,889 

4,620,935 

5,369,738 

5,512,023 

6,164,780 

4,669,183 

5,530,422 

5,813,570 

All levels 

7,158,209 

5,004,626 

5,979,737 

6,365,118 

Source: CSES. 2008. Evaluation of Thresholds for Micro-Entities, pp. 33, 39, Commission Services analysis. 

Table. 17. The effect of combining thresholds for employment and turnover on the percentage 
of "micro entities" as share of all companies covered by the Accounting Directives. 

Employment 

Turnover 

All levels 

< € 0.5 mil 

< € 1.0 mil 

< € 1.5 mil 

All levels 

71% 

81% 

86% 

100% 
(7,158,209 companies) 

< 5 

60% 

65% 

65% 

70% 

< 10 

65% 

75% 

77% 

84% 

< 15 

65% 

77% 

81% 

89% 

Source: CSES. 2008. Evaluation of Thresholds for Micro-Entities, pp. 33, 39, Commission Services analysis. 

If it is assumed that the balance sheet criterion will follow closely the turnover criterion this 
may imply that if all three criteria are required the number of companies exempted could fall 
as  low  as  to  4.7m  companies,  i.e.  65%  all  companies  covered  by  the  Directive.  This  could 
bring potential savings of the exemption to €5.4bn. 

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Study by the Consortium 

A  Consortium  (Capgemini/Ramboll)  hired  by  the  Commission  conducted  an  extensive 
analysis based on data collection from 10 EU Member States and extrapolations for the others 
of the costs imposed by the EU Company Law legal acquis. 

It  concluded  that  EU  Company  Law  rules  cost  European  companies  around  €22.7bn,  and 
around half of this – €12.1bn is a pure administrative burden 

The  Consortium  identified  and  measured  the  costs  of  the  following  obligations  stemming 
from  the  Fourth  and  Seventh  Directives,  deemed  as  the  most  burdensome  for  companies  in 
Europe. 

From Fourth Directive on annual accounts: 

•  Obligation to draw up annual accounts and disclosure of accounts. 

•  Preparation of Annual Report. 

•  Audit of annual accounts. 

From the Seventh Council Directive: 

•  Preparation of consolidated accounts and consolidated annual reports. 

•  Audit of consolidated accounts. 

The  estimations  by  the  Consortium  distinguish  between  the  total  administrative  cost  of  the 
obligation,  part  of  the  cost  that  would  be  incurred  regardless  of  any  legal  rules  (called 
'business  as  usual'  costs)  and  a  residual  value  -  the  administrative  burden,  i.e.  costs  that  are 
incurred solely due to the legal obligation. 

The  Consortium  conducted  several  workshops  with  accounting  experts  in  different  Member 
States  who  estimated  that  around  25%  of  all  administrative  cost  for  micro  entities  are 
'business as usual' costs. 

The results for micro entities are as follows: 

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Table. 18. Administrative costs and burdens of information obligations incurred by micro 

entities. 

Obligation 

Obligation to Draw up annual 
accounts and disclosure of 
accounts 

Administrative 
cost  
(€m) 

Business as 
usual costs 
(€m) 

Administrative 
Burden (€m) 

Contribution to
burden 
reduction* 

5,439.2 

1,359.8 

4,079.4 

34% 

Annual Report 

537.7 

Audit of annual accounts 

1,737.5 

Consolidated accounts and 
consolidated annual reports 

160.8 

134.4 

434.4 

40.2 

403.3 

1,303.1 

120.6 

Audit of consolidated accounts 

25.5 

6.4 

19.1 

Total 

7,900.7 

1,975.20 

5,925.50 

3% 

11% 

1% 

0.2% 

49% 

* As % of reduction of administrative burden due to EU Company Law legal acquis of €12,117m 

Source: Consortium study 2008, Commission Services analysis. 

The figures present the costs and the maximum possible burden reduction of the exemption of 
micro entities from the Accounting Directives that amounts to €5.9bn. 

The  most  burdensome  obligations  are  preparation  of  annual  accounts  and  associated 
disclosure  requirements  (i.e.  content  of  the  notes  on  the  accounts)  and  audit  of  financial 
statements. 

The following table presents estimations of costs per company per information obligation. 

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Table. 19. Administrative costs and burdens of information obligations per micro entity. 

Obligation 

No. of 
companies 
affected 

Administrat
ive cost  
(€m) 

Cost per 
company 
€ 

Administrat
ive Burden 
(€m) 

Burden per 
company 
€ 

Obligation  to  Draw  up  annual 
accounts  and  disclosure  of 
accounts 

5,069,907

5,439.2

1,072.86

4,079.4 

804.65

Annual Report 

3,057,889

537.7

175.85

403.3 

131.88

Audit of annual accounts 

728,117

1,737.5

2,386.24

1,303.1 

1,789.68

Consolidated 
consolidated annual reports 

accounts 

and 

86,748

160.8

1,853.38

120.6 

1,390.04

Audit of consolidated accounts 

9,006

25.5

2,833.22

19.1 

2,124.92

Total 

5,069,907

7,900.7

1,558.35

5,925.50 

1,168.76

Source: Consortium study 2008, Commission Services analysis. 

The table shows similar number of micros to those presented in earlier study. 

Combination of the two studies 

Both  studies  discussed  are  partly  based  on  on-ground  measurements  and  partly  on 
estimations. Below a combination of the two studies is presented. 

There are differences in population figures between the studies. This can be in part explained 
by the method of extrapolation. Moreover the Consortium study uses older measurements for 
Austria, Denmark, Germany and Netherlands where no segmentation on Micro was used. 

The table below presents the best estimation on the number of companies meeting criteria for 
micro  entities.  CSES  study  data  was  used  where  possible  (i.e.  the  lowest  of  number  of 
companies meeting employment, turnover, and balance sheet total criteria) for the remaining 
countries numbers come from the Consortium study. 

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Table. 20. Number of micro entities in EU Member States. 

Country 

Austria 

Belgium 

Bulgaria 

Cyprus 

Czech Republic 

Estonia 

Denmark 

Finland 

France 

Germany 

Greece 

Hungary 

Ireland 

Italy 

Latvia 

Lithuania 

Luxemburg 

Malta 

Netherlands 

Poland 

Portugal 

Romania 

Slovakia 

Slovenia 

Spain 

Sweden 

United Kingdom 

Total 

* data from CSES 2008 study 
n/a – not available 

No. of Micro entities covered 
by the Fourth Directive 

% of all 

M-measurement/ 
E-estimation 

n/a 

153,569 

165,377 

129,384 

135,263 

64,130 

38,965 

151,050 

n/a 

3% 

3% 

2% 

2% 

1% 

1% 

3% 

1,010,835 

17% 

369,019 

65,873 

143,637 

149,422 

472,730 

39,218 

18,451 

12,539 

20,710 

121,334 

86,701 

356,140 

47,397 

72,097 

n/a 

945,469 

183,269 

989,265 

5,941,844 

6% 

1% 

2% 

3% 

8% 

1% 

0% 

0% 

0% 

2% 

1% 

6% 

1% 

1% 

n/a 

16% 

3% 

17% 

100% 

n/a 

E 

E 

E 

M 

E 

M* 

M 

M 

M* 

E 

M* 

M 

M* 

E 

M* 

M* 

E 

M 

M* 

M* 

E 

E 

n/a 

M* 

E 

M* 

Source: Consortium study 2008, CSES 2008, Commission Services analysis. 

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Please note that a number of values are estimated, they also come from various sources, and 
then  from  various  national  statistical  offices  which  means  that  methodologies  may  differ. 
Thus these numbers should be treated as indicative only. 

Summary of the impact of option 3 

The  following  table  presents  summary  of  estimations  of  the  impact  of  the  proposal  under 
assumption  that  all  Member  states  would  utilise  the  option  to  exempt  "micro  entities"  from 
the accounting requirements. Or more accurately the administrative burden that micro entities 
currently  incur  due  to  the  Fourth  Directive  requirements.  The  scenarios  presented  are 
calculated  on  the  bases  of  data  available  from  previously  discussed  studies  and  their 
combination and recalculation. 

Table. 21. Estimations of burden reductions under different scenarios 

Scenario 

1)  All  three  criteria  for  micro  entities  must 
be met 

Min 

No. of micro 
entities 

Max. 
administrative 
burden 
reduction (€m) 

4,399,311 

5,142 

Best estimation 

4,659,665 

Max 

5,155,917 

1a) FR and BE do not take up the option  

Best estimation 

3,495,261 

2) Two out of three criteria must be met 

Min 

5,069,907 

Best estimation 

5,369,738 

Max 

5,941,844 

2a) FR and BE do not take up the option 

Best estimation 

4,205,334 

Under assumption that burden per company equals €1,168.76 (see table 19)  

Source: Consortium study 2008, CSES 2008, Commission Services analysis. 

5,446 

6,026 

4,085 

5,926 

6,276 

6,945 

4,915 

Therefore it is concluded that if the scenario one will be considered, i.e. all three thresholds 
defining  micro  entities  will  need  to  be  fulfilled  in  order  to  qualify,  the  number  of  micro 
entities can be estimated between 4.4m and 5.1m with the best estimate (not a mid point) at 
4.7m. 

That would result in maximum potential burden reduction ranging from €5.1bn to €6bn, with 
the best estimate of €5.4bn. 

Further  taking  into  account  the  indications  from  the  2007  public  consultations  that  certain 
Member States will not utilise the option the best estimate of the number of micro entities that 
would be freed from the obligation is 3.5m with resulting burden reduction of €4.1bn. 

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Under the scenario where (as is the case now for small and medium companies in the scope of 
the Fourth Directive) only two out of three criteria would have to be met, the number of micro 
entities covered would range from 5m to 5.9m with the best estimate at 5.4m. 

That  would  result  in  maximum  potential  burden  reduction  ranging  from  €5.9bn  to  €6.9bn, 
with out best estimate of €6.3bn. 

Further  taking  into  account  the  indications  from  the  2007  public  consultations  that  certain 
Member States will not utilise the option the best estimate of the number of micro entities that 
would be freed from the obligation is 4.2m with resulting burden reduction of €4.9bn. 

The  numbers  presented  are  estimations  based  on  the  available  studies.  As  such  realised 
burden  reduction  might  differ  significantly.  Moreover  burden  reduction  depends  on  the 
utilisation of the option by Member States and on the cost of the national accounting regime 
that exempted companies would still be required to follow. 

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ANNEX 2: USE OF OPTIONS BY MEMBER STATES 

Based on report: EU  project  on  baseline measurement and reduction of  administrative costs 
by Consortium (Ramboll, Capgemini, 2008) the following table presents the utilisation of the 
Fourth Directive exemptions: 

Table. 22. Utilisation of exemptions available in the Fourth Directive by Member States. 

Abridged accounts 

Country 

Fourth Art 11 

Fourth Art 27 

Fourth Art 44 

Fourth Art 45 

Austria 

Belgium 

Bulgaria 

Cyprus 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Not transposed 

Article transposed 

Partially transposed 

Article transposed 

Not transposed 

Not transposed 

Not transposed 

Not transposed 

Not transposed 

Czech Republic 

Article transposed 

Article transposed 

Article transposed 

Not transposed 

Denmark 

Not transposed 

Article transposed 

Article transposed 

Article transposed 

Estonia 

Finland 

France 

Not transposed 

Not transposed 

Not transposed 

Not transposed 

Article transposed 

Not transposed 

Article transposed 

Not transposed 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Germany 

Article transposed 

Article transposed 

Partially transposed 

Article transposed 

Greece 

Hungary 

Ireland 

Italy 

Latvia 

Article transposed 

Not transposed 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Not transposed 

Lithuania 

Article transposed 

Article transposed 

Article transposed 

Not transposed 

Luxembourg 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Malta 

Article transposed 

Article transposed 

Article transposed 

Not transposed 

Netherlands 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Poland 

Portugal 

Romania 

Slovakia 

Slovenia 

Spain 

Sweden 

Article transposed 

Not transposed 

Article transposed 

Not transposed 

Article transposed 

Article transposed 

Article transposed 

Not transposed 

Not transposed 

Not transposed 

Not transposed 

Not transposed 

Article transposed 

Not transposed 

Not transposed 

Not transposed 

Article transposed 

Not transposed 

Article transposed 

Not transposed 

Article transposed 

Article transposed 

Article transposed 

Not transposed 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

United Kingdom 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

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Abridged accounts 

Country 

Fourth Art 46 (3) 

Fourth Art. 46 (4) 

Fourth Art 47 (2) (3) 

Fourth Art 51 (2) 

Austria 

Belgium 

Bulgaria 

Cyprus 

Article transposed 

Not transposed 

Article transposed 

Article transposed 

Article transposed 

Not transposed 

Partially transposed 

Article transposed 

Article transposed 

Article transposed 

Not transposed 

Article transposed 

Not transposed 

Not transposed 

Not transposed 

Not transposed 

Czech Republic 

Not transposed 

Not transposed 

Article transposed 

Article transposed 

Denmark 

Article transposed 

Article transposed 

Not transposed 

Article transposed 

Estonia 

Finland 

France 

Not transposed 

Not transposed 

Not transposed 

Article transposed 

Article transposed 

Article transposed 

Partially transposed 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Germany 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Greece 

Hungary 

Ireland 

Italy 

Latvia 

Not transposed 

Not transposed 

Article transposed 

Article transposed 

Not transposed 

Not transposed 

Article transposed 

Article transposed 

Not transposed 

Not transposed 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Not transposed 

Article transposed 

Not transposed 

Article transposed 

Lithuania 

Article transposed 

Article transposed 

Not transposed 

Article transposed 

Luxembourg 

Article transposed 

Not transposed 

Article transposed 

Article transposed 

Malta 

Article transposed 

Article transposed 

Article transposed 

Not transposed 

Netherlands 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Poland 

Portugal 

Romania 

Slovakia 

Slovenia 

Spain 

Sweden 

Not transposed 

Not transposed 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Not transposed 

Not transposed 

Not transposed 

Not transposed 

Not transposed 

Not transposed 

Not transposed 

Not transposed 

Not transposed 

Not transposed 

Article transposed 

Article transposed 

Article transposed 

Article transposed 

Not transposed 

Article transposed 

Not transposed 

Article transposed 

Not transposed 

Not transposed 

United Kingdom 

Not transposed 

Not transposed 

Article transposed 

Article transposed 

Source: Consortium study 2008. 

Where: 

Art. 11: Small entities definition, abridged balance sheet. 

Art. 27: Medium entities definition, simplified Profit and Loss account layout. 

Art. 44: Abridged notes for small entities. 

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Art. 45: Certain simplification of disclosures in the notes. 

Art. 46.3: Exemption for small entities to prepare annual report. 

Art. 46.4: Certain simplifications for medium entities in the annual report. 

Art 47.2 and 3: Simplifications of publication requirement for small and medium entities. 

Art. 51.2: Exemption for small entities from audit. 

Where all of these exemptions used the burden for Micro entities could be reduced (according 
to the calculation of the Consortium) by as much as: €1.8bn and for all companies by €3.8bn. 
These include: 

Table. 23. Estimation of burden reduction through full use of existing exemptions. 

Estimated cost reduction (€) 

Exemption 

Art. 11 

Art. 27.  

Art. 44  

Art. 45 

Art. 46.3  

Art. 46. 

Art 47.2 and 3  

Art. 51.2.  

Art. 57 

Total 

Micro 

91,078,221 

39,282,071 

25,550,357 

67,810,277 

117,371,612 

69,453,028 

124,295,807 

All companies 

117,225,663 

56,340,747 

34,886,123 

99,345,319 

142,123,629 

90,962,726 

208,656,122 

1,303,125,000 

1,798,950,000 

No segment information 

1,274,120,204 

1,837,966,373 

3,822,610,533 

Note: Art. 57 Exemptions for certain subsidiary undertakings 
Please also note that the presented numbers with exception for Article 51.2, take into account only estimation for the countries 
that did not transpose the relevant articles at all, it does not deal with transpositions that impose additional restrictions for the 
utilization of the exemptions. 

Source: Consortium study 2008, Commission Services analysis. 

In  terms  of  thresholds  levels,  all  but  two  Member  States  have  transposed  Article  11  small 
companies' thresholds in a way that covers the proposed maximum threshold levels for micro 
entities in terms of balance sheet total and turnover. Thus there is a limited possibility to soft 
law approach simplification in this sphere.  

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ANNEX 3: POLICY OPTION 5 

Based  on  the  data  provided  by  the  Consortium  report  and  assuming  that  "micro  entities" 
exemption is not utilised the exemptions considered under Option 5 are expected to produce 
the following results: 

Table. 24. Detail estimation of exemptions from audit and publication requirement. 

Option 

Administrative 
burden (€) 

Maximum 
Estimated  burden 
reduction (€) 

Option 4.1 Exempting micro entities from statutory audit 

1,303,125,000 

1,303,125,000 

Option 4.2 Introducing limited review instead of full audit 

1,303,125,000 

651,562,500 

Option 4.3 Exemption from publication requirements 

1,359,800,000 

117,789,145 

Option 4.3a Web based publication 

1,359,800,000 

54,912,928 

Source: Consortium study 2008. 

Please note that Options 4.1 and 4.2 as well as 4.3. and 4.3a are alternatives. 

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ANNEX 4: RESULTS FROM THE STAKEHOLDER CONSULTATION 

Strategically important decisions, such as introducing a micro entity category, cannot be made 
without broad support from Member States and stakeholders. Calculations performed for the 
Commission by the Centre for Strategy & Evaluation Services LLP show that around 75% of 
companies in the scope of the Fourth Directive are micro entities. 

Results of Public consultation of 2007 

Commentators  to  the  Commission  communication  expressed  the  following  opinions  on  the 
possible introduction of micro entities: 

Fig. 3.  Support for introduction of micro entities exemption. 

All answers 

Positive and negative answers only 

YES
39%

No
41%

No
27%

tNo
5%

N/A
22%

tYES
7%

YES
59%

Legend: tYes: tentative Yes; tNo: tentative No; n/a: no answer to the question 

Source: Commission Services analysis. 

The  proposal  to  introduce  the  micro  entities  definition  into  the  Fourth  Directive  was 
welcomed by a majority of respondents: 100 responses were received to that question (about 
80% of the total number of responses).  

Those  respondents  that  welcomed  the  proposal  considered  it  a  major  reduction  of 
administrative burden for those entities, which will encourage new start-ups through removal 
of  disincentives  to  incorporation.  Support  was  the  strongest  amongst  public  authorities  and 
companies where more than four fifths expressed themselves in favour of the proposal. There 
were also comments suggesting that the thresholds for the micro entities should be as high as 
currently  defined  by  Article 11  of  the  Fourth  Directive  for  small  companies.  Those  that 
opposed  the  proposal,  primarily  accountants  and  auditors,  took  the  view  that,  despite  the 
possibility for Member States to maintain equivalent requirements at national level, it would 
lead  to  an  abolition  of  bookkeeping  and  preparation  of  accounting  data  in  general  for  those 
entities (which is not the intention of the Commission proposal and is virtually impossible to 
occur).  A  smaller  number  of  commentators  took  the  view  that  exemption  would  result  in 
problems for smaller companies to raise external funding and communicate with stakeholders. 

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The  following  table  summarises  responses  to  the  micro  question  by  field  of  activity  of  the 
respondent: 

Table. 25. Reactions to Micro entities exemption by stakeholders. 

Field 

No. of responses 

Positive responses 

Negative responses 

Companies 

Public authorities 

Accountants and 
Auditors 

Banks, insurance, 
finance 

Commercial 
information providers 

Others 

Total 

21 

19 

34 

8 

3 

15 

100 

86% 

79% 

38% 

75% 

0% 

47% 

59% 

14% 

21% 

62% 

25% 

100% 

53% 

41% 

Source: Responses to the 2007 Consultation, Commission Services analysis. 

The  measure  was  supported  by  the  majority  of  companies,  public  authorities,  banks  and 
insurance companies that decided to participate in the survey. The biggest opposition and the 
biggest  respondent  group  came  from  accountants  and  auditors,  followed  by  commercial 
information  providers.  Respondents  that  could  not  be  easily  classified  to  any  of  the 
aforementioned groups were more or less evenly split on the issue. 

During  the  2007  consultations  Commission  Services  received  positive  responses  to  the 
measure from public authorities from 13 Member States (AT, EE, ET, CZ, DE, DK, FI, IT, 
LT, PL, SE, SK, UK) and negative from 2 Member States (BE, FR)63, the remaining Members 
States  either  did  not  respond  to  the  question  or  did  not  submit  their  response  to  the 
consultation. 

This  consultation  supports  previous  statements  that  the  main  users  of  the  accounts  of  micro 
entities  are  banks  and  tax  authorities  and  that  they  rely  primarily  on  tailor  made  financial 
information rather than financial statements. 

63  

Please note that we received more than one response from public authorities from some Member States. 

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ANNEX 5 USERS' AND PREPARERS' NEEDS FROM THE FINANCIAL REPORTING 

This  annex  presents  the  Commission's  best  estimate  of  the  user  needs  and  prepares 
expectations from the financial reporting. The situation may vary in different Member States 
and as such the list below is by no means comprehensive and complete. 

Users needs from financial statements of micro-entities  

The  Accounting  Directives  as  well  as  International  Financial  Reporting  Standards  were 
developed  with  the  investor  protection  as  an  overarching  objective.  Thus  they  contain 
numerous  measures  to  ensure  that  minority  stockholders  have  proper  information,  that  the 
valuation  methods  are  appropriate  and  give  a  true  and  fair  view  of  the  company,  that  all 
subsidiaries  are  properly  consolidated,  and  finally  that  independent  auditor  presents  opinion 
on the quality of the reports. 

It has been a consensus for the last decades that such investor oriented financial statement will 
also  serve  most  of  the  needs  of  other  stakeholders  in  a  satisfactory  manner.  Therefore,  the 
Directives  have  not  introduced  specific  accounting  rules  for  micro-entities  or  SMEs,  but 
instead, they contain certain opt outs from the rules designed for bigger companies.  

Generally, the stakeholders of very small companies are limited and differ significantly from 
those  of  big  corporations.  These  companies  are  effectively  owner  managed  and  statutory 
financial  statements  do  not  have  significant  relevance  for  the  owners  in  reviewing  the 
company's  performance.  Moreover,  investors  in  micro  entities  are  often  limited  in  number, 
frequently directly involved in running of the company and with direct insight into company's 
accounts. The source of financing is not stock market but own resources, credit from banks or 
other financial institutions. 

Thus  the  main  users  are  banks  and  tax  authorities  and  other  small  companies,  not  an 
anonymous investor. It is common that especially tax authorities have special reporting needs 
known  as  tax  accounting  which  differs  significantly  from  financial  reporting.  Also  banks 
demand more information that will allow them to assess recoverable amount of assets in case 
of bankruptcy and thus are not interested in sophisticated accrual accounting vehicles such as 
deferred tax or goodwill. Moreover banks and tax authorities have direct contacts (as opposed 
to anonymous investor) with small companies and often demand tailor made information. 

Consequently,  the  users  of  micro  accounts  are  more  likely  to  demand  information  on 
recoverable  amount  of  assets  (banks)  or  taxable  profit  (tax  authorities)  rather  than  various 
disclosures or sophisticated accrual accounting information. 

Therefore, companies that have to produce essentially investor oriented accounts devote time 
and money to accounting techniques that use no purpose and only satisfy legal requirements. 
They  often  need  help from external accountants to prepare these accounts as the techniques 
are  often  complex  and  not  the  core  competence  of  the  managers  of  micro  business.  For  the 
same  reason  the  statutory  accounts  provide  seldom  useful  information  for  the  managers  to 
utilise.  

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Micro  category  is  however  not  homogenous.  There  are  some  micro  entities  with  external 
investors  such  as  e.g.  venture  capital  investors.  It  is  expected  that  they  will  continue  to 
demand  investor  oriented  financial  accounts.  There  are  also  other  reasons  for  continued 
demand  for  internationally  comparable  financial  statements  for  some  companies,  by  their 
international  trading  partners  or  trade  credit  insures.  In  these  cases  it  may  well  be  that  the 
Directives' accounting and disclosure rules reflect the business needs of these companies. It is 
appropriate  that  these  companies  will  be  able  to  follow  the  Directives'  accounting  rules  as 
transposed by the Member States on a voluntary basis as well as have their accounts audited if 
necessary. However, this concerns only a minority of all micro entities and it is not justified to 
keep the same burdensome requirements for all companies. 

Banks 

Banks are main providers of finance to the micro entities. They predominantly relay on direct 
contacts with their clients, and often ask for additional information. 

From our consultations with banks, banks' organisations (European Banking Federation) and 
authorities  responsible  for  bank  oversight  Commission  learnt  that  in  majority  of  cases 
financial data is obtained directly from the owner or from the accountant of the company.  

Banks of course utilise public records where they are available, however lack of such record 
generally do not prevent them form obtaining information. 

Moreover banks create internal databases to monitor history of their clients and rely on such 
databases  primarily  when  assessing  the  risk  of  client  and  of  sectors  in  which  it  operates. 
Banks often shear information between each other especially about delinquent borrowers and 
systematically collect information on them. 

When  it  comes  to  analysis  of  financial  statements  both  banks  form  Continental  as  well  as 
Anglo  Saxon  cultures  transform  and  recalculate  financial  statement  to  strip  them  of  any 
information  that  does  not  contribute  to  the  recoverable  amount  of  assets,  when  assessing 
credit rating of a client.  

They  are  also  interested  in  the  cash  flow  statements  to  forecast  future  cash  flows,  however 
these  are  not  provided  in  the  current  framework  of  financial  statements  and  banks  must 
calculate them based on available data. 

These all proves that financial accounting for SME is not tuned to the needs of their users, and 
contains numerous figures that serve no purpose. 

Moreover where financial statements of micro entities are public, it often takes a lot of time 
after the year end before they are published, for instance 10 months in the UK and 5 months 
in Denmark. Such delays make financial information useless for the bank, thus banks prefer to 
contact a company directly to have real time results, and eventually afterwards confront them 
with financial statements. 

Banks can of course always ask for audited financial statement before granting a loan, even if 
there is no legal obligation to do so. 

EN 

54 

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However  for  instance,  banks  in  United  Kingdom  are  generally  not  interested  in  the  annual 
accounts for loans of up to £2m, in Germany banks are obliged by law to consider financial 
statements only if the credit amount is higher than €0.75m. 

It is also customary in the UK to check timeliness of filing of financial information rather than 
thorough analysis of their content as studies have shown that late filing is a key indicator of 
impending failure. Thus the same purpose could be served by information that the company is 
filing its tax return on a timely basis. 

German  Bank64  survey  reveals  that  banks  see  little  or  no  need  for  goodwill  or  deferred  tax 
calculation  as  they  consider  that  recoverable  amount  resulting  from  these  figures  is  too 
uncertain and they tend to set it off against equity for credit analysis. 

In  the  survey  banks  also  stated  that  they  prefer  to  have  information  directly  on  the  face  of 
financial  statements  rather  than  hidden  somewhere  in  the  notes,  and  thus  more  difficult  to 
extract. This indicates that notes to the accounts (which are most labours part of the financial 
accounting) can sometimes confuse more than inform. 

Overall banks are mainly interested in: 

•  Calculating recoverable amount of assets, 

•  Calculating future cash flows to assess credit servicing potential of client 

Public authorities 

The interest of public authorities is in calculating and collecting taxes. There are various kinds 
of taxes on wealth (property taxes), income, and turnover.  

Wealth taxes can depend on the value of a real estate, this value could be a prevailing market 
value in the area and is not necessarily based on statutory accounts. 

Turnover  taxes  such  as  Value  Added  Tax  are  based  on  compulsory  registration  of  all 
transactions. This is done by every company regardless of any accounting obligation. As such 
this  register  may  also  be  utilised  to  determine  whether  threshold  criteria  are  still  met  by  a 
micro entity. 

Income taxes such as CIT (Corporate Income Tax) are based on special form of accounting 
called  tax  accounting  that  often  uses  different  concepts  from  those  in  financial  reporting, 
generally based on realisation principle rather than for example fair value accounting, it also 
sometimes uses specific tax defined depreciation rates or other measurement basis. 

These differences often result in companies preparing two sets of accounts, or reconciling one 
set to another which produces unnecessary costs. 

64  

See footnote 40, p. 16. 

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55 

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From our consultation with UK financial services we learned that if the exemption for micro 
entities is granted the UK will try to produce one set of accounts for both financial and tax 
reporting that is expected to produce savings of £100 to £200 per company.  

German government has also indicated its interest in merging the two sets together. 

This  situation  differs  by  jurisdictions,  with  France  for  instance  indicating  that  they  have  no 
problems  with  the  double  reporting,  and  the  Netherlands  where  financial  reports  of  small 
companies are at the same time tax reports. 

The differences are due to the fact that the basis for tax accounting is not harmonised at EU 
level, and each country preserves its own tradition. 

General Public 

From our consultations with stakeholders we received clear indications that general public is 
mostly  illiterate  in  terms  of  accounting.  The  most  common  error  that  ordinary  financial 
statements readers make is to confuse accrual accounting numbers with cash accounting ones, 
e.g. people confuse reserves with cash, and the same can be said about profit figure. 

All  that  means  that  financial  accounts  in  order  to  be  understood  must  be  interpreted  by 
financial  analysts.  And  while  there  are  plenty  of  financial  analyses  concerning  listed 
companies it is almost impossible to find one for micro entities. Thus in most likely scenario 
an  individual  would  have  to  pay  for  analysis  service  to  accountant  or  other  person 
knowledgeable in the accounts. 

Therefore the general public mainly relies on public authorities to conduct oversight of small 
businesses on their behalf. And public authorities as explained earlier are most interested in 
tax returns for their control. 

Statistical offices 

Statistical offices collect data from companies in order to provide statistical information on a 
whole range of issues. That information is heavily dependent on the availability of financial 
information as a source of data to compile the indicators.  

In order to avoid duplication of work, the National Statistical Offices in many Member States 
have built up a statistical system during the past few years that depends to a large extent on 
the usage of data available in the economy, among them accounting data.  

Financial information providers 

Financial information providers are specialised companies whose business model is based on 
collecting, analysing and selling on information regarding companies.  

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They  will  obviously  be  affected  by  the  exemption  of  micro  entities.  However  one  must 
remember  that  already  now  in  many  countries  small  companies  publish  abridged  accounts 
(see Annex 2: Use of options by Member States), so the source of information is limited. 

Ultimately it should be left to the market to resolve the problem, if there will be demand both 
from  users  and  from  prepares  the  solution  will  be  found.  There  is  plenty  to  learn  form 
countries with limited publication obligation. There are already know databases that focus on 
selected and often most sought after information, such as databases of delinquent borrowers. 

The data from UK register shows for instance that there are about 1.7 searches per year per 
company  in  the  register  (average  for  all  companies  in  the  register).  This  data  is  allegedly 
further  reused  by  other  information  providers,  however  the  number  is  indicative  of  rather 
limited demand.  

Accountants and auditors 

Part of the turnover of accountants and auditors is  based on statutory obligations to prepare 
and  audit  annual  accounts.  Furthermore,  statutory  accounts  are  often  too  complex  to 
understand by the management of small companies and interpreting these accounts may also 
add to the turnover of accountants and auditors.  

Exemption  of  micro  entities  is  likely  to  reduce  the  demand  for  financial  statements  to  the 
levels that are justified by the market.  

On top of that most accounting expert of micro entities specialise in tax law as well, thus they 
will be able to shift their business model to tax assistance and generate more added value to 
companies in question. 

The  voluntary  audit  of  accounts  will  continue  to  provide  revenues  to  the  audit  profession. 
Commission  received  indications,  that  for  instance  in  the  UK  around  7%  of  companies  that 
are exempted decide to audit their financial statements, due to the needs of their stakeholders. 
So companies faced with demand on financial transparency respond to it, be the demand from 
banks, investors or foreign trading partners. 

As for cost of voluntary preparation of financial statements and their audit, this need not to 
rise  if  companies  will  chose  to  follow  national  or  international  standards  in  which  there 
already is great expertise in the accounting profession. 

Needs of micro-entities  

The  needs  of  micro-entities  should  also  be  considered  in  drafting  any  new  accounting  law. 
Micro-entities themselves can also be the users of  other  micro  entities'  financial  statements, 
for  example,  when  they  assess  the  creditworthiness  of  their  potential  clients.  The  extent  to 
which financial statements are used for this purpose varies between different EU states. 

Discussions  with  stakeholders  suggest  that  current  complexity  of  accounting  statements 
makes them useless for micro entrepreneurs, they often cannot understand the content of the 
reports  without  help  of  specialised  analyst/accountant.  Thus  usability  of  the  financial 

EN 

57 

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reporting  is  reduced  both  for  managerial  purposes  and  for  investigating  business  partners. 
This supports the idea that small companies' accounting should be simplified. 

Eurobarometer  in  2005  conducted  a  survey  on  EU15  SMEs  access  to  finance65.  The 
population  studied  comprises  all  legal  forms  of  companies,  i.e.  not  only  limited  liability 
companies covered by the Directives. However due to lack of more precise studies the results 
of this survey may be indicative of general sentiment in the SME group that should not differ 
significantly for limited liability companies.  

It  found  that  78%  of  micro  companies  considered  banks  as  a  main  source  of  financing, 
followed  by  leasing  companies  (22%)  and  public  institutions  (10%).  Private  investors 
constituted only 7% and venture capital companies 2% of all answers66. 

This  reinforced  the  earlier  statement  that  banks  are  main  stakeholders  of  micro-entities  ' 
financial statements, and that anonymous investors constitute only marginal part of the micro 
financing market. 

The  study  also  asked  Micro  entities  what  should  be  done  to  ensure  development  of  the 
company.  Majority  of  respondents  (31%)  named  regulations  more  suited  to  their  activities 
followed by easier means of financing (15%). 

The majority of micro companies (38%) took loans of less than €25,000 and 75% of less then 
€100,000.  These  loans  were  used  primarily  to  purchase  equipment  (68%)  followed  by 
financing of working capital (34%). 

Three quarters of micro companies did not expect any time soon to open up or increase their 
company's capital – thus saw limited prospect of external investors. 

Cross-border trade and voluntary application 

On the basis of information from the stakeholders also supported by statistical information67 
Commission estimates that approximately 5-7% of the micro-enterprises are involved in the 
cross-border  activities.  The  recent  Eurobarometer68  confirms  that  only  7%  of  all  micro 
companies in the EU (regardless of the legal form) are involved in export. Moreover, 95% of 
companies with less than 10 employees did not have any foreign subsidiaries.  

Another  analysis  by  Eurostat69  on  2005  figures  shows  that  the  number  of  micro  entities 
(regardless  of  the  legal  form)  engaged  in  intra  EU  imports  in  18  MS  was  128,435  and  in 
exports 58,277, making a simple estimation to 27MS these numbers are 192,653 and 87,416. 
Assuming  that  limited  liability  companies  are  more  likely  to  engage  in  cross  border  trade, 
these numbers were compared to the estimated number of micro limited liability companies of 

65  

66  
67  

68  
69  

Eurobarometer. 2005. SME Access to Finance, 
http://ec.europa.eu/public_opinion/flash/fl174_en.pdf. 
The percentages do not add up to 100% as it was possible to select more than one source of financing. 
EUROSTAT 74/2007: Statistics in focus: Export of business services, 
http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-SF-07-074/EN/KS-SF-07-074-EN.PDF. 
See footnote 36, p. 45. 
See footnote 58. 

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58 

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5,369,738  which  results  in  4%  of  micro  companies  engaged  in  imports  and  2%  engaged  in 
exports. It must be noted that Eurostat cautious that numbers for micro companies engaged in 
intra  EU  trade  are  underestimated  due  to  the  data  collection  peculiarities  (data  is  only 
collected from companies whose intra EU trade exceeds certain threshold level). Eurostat is 
now working on a better method on data collection that should produce more accurate results 
in the future. 

For most of the internationally active micro-entities, the user needs are unlikely to be different 
from those of micro-entities that are trading only on national level. Firstly, there is generally 
no  dissimilarity  as  regards  the  ownership  and  financing  structures.  Secondly,  the  statutory 
financial  reporting  is  not  a  generally  important  source  of  information  for  tax  authorities  as 
regards cross-border tax issues of micro-entities. The extent to which micro entities' financial 
statements  are  used  by  other  enterprises  in  assessing,  for  example,  their  creditworthiness  is 
also rather limited on cross-border level.  

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ANNEX 6 CURRENT REPORTING REQUIREMENTS OF THE FOURTH DIRECTIVE 

In the table below a list of reporting requirements of the Fourth Directive is presented. The 
analysis particularly highlights exemptions available for small and medium companies 

Table. 26. Information requirements in the Fourth Directive. 

Art. 

Information requirement 

MS Exemption 
option for 

Small  
(Art. 11) 

Medium 
(Art. 27) 

Section 1 General provisions: 

1 

•  Annual accounts shall comprise 

o  Balance sheet 
o  Profit and Loss account 
o  Notes 

•  Member States may require other statements and disclosures 

Section 2 General provisions for Balance Sheet and Profit and Loss 
•  For each item figures for preceding financial year must be presented 
•  Appropriation of profit and treatment of loss may be required 

Section 3 Balance sheet 

•  2 balance sheet layouts 

•  Current/non-current layout for balance sheet possible 
•  All guarantees must be disclose in the footnotes or notes 

Section 4 Special provisions for Balance Sheet 

•  Definition of assets 

•  Movements of the assets 

o  Should be shown on balance sheet or in notes (separately, with 

detail information) 

o  For first time adoption residual value may be used as carrying 

value (must be disclosed in notes) 

o  valuation by replacement value or inflation adjusted value 

•  Formation expenses same as 15(3) (a) and (b) 

•  Participating interest 
•  Prepayments and accrued income 

4(4) 
6 

9-10 

10a 
14 

15(1), 
(2) 
15(3) 
15(3) 
(a) 

15(3) 
(b) 
15(3) 
(c) 
15(4) 

17 
18 

Yes  
(Art 11)70 

Yes  
(Art 44(1)) 
(Art 11) 

Yes  
(Art 44(1)) 
(Art 11) 

Yes  
(Art 44(1)) 

70  

Not for companies whose securities are admitted to trading on a regulated market within the meaning of 
Article 4(1), point (14) of Directive 2004/39/EC (Art. 53a). 

EN 

60 

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19 
20 
21 

•  Value adjustments 
•  Provisions 
•  Accruals and deferred income 

Yes  
(Art 44(1)) 

Yes  
(Art 27) 70 

Section 5 Profit and Loss 
•  4 layouts possible 

•  Statement of performance possible instead of P&L 

Section 6 Special Provisions 

•  Net turnover 
•  Extraordinary income and charges 

23-26 

22 

28 
29(1) 
29(2) 

30 

o  Amount and nature in the notes (also for previous year) if material 

•  Taxes can be shown it total (MS exemption) 

o  Detailed disclosure in the notes. 

Yes  
(Art 44(1)) 

Yes  
(Art 44(1)) 

Section 7 Valuation rules 

33 

•  Other valuation methods (replacement value, inflation adjustments, 

33(2) 
(a) 

33(2) 
(c) 
33(3) 
33(4) 

revaluation) 
o  Items concerned and method should be disclosed in the notes 
o  Difference from valuation according to Directive should be 
explained in the notes in form of detailed table(Revaluation 
reserve) 

o  Transfers from the Revaluation Reserve to P&L must be disclosed 

separately 

o  Differences in valuation adjustment may be show separately in P&L 
o  In balance sheet or note must be disclosed 
the value according to the general rules 

(cid:131) 
(cid:131)  cumulative value adjustment 
(cid:131)  difference between valuations 
(cid:131)  cumulative difference 

34(2) 

•  Formation expenses must be explained in the notes 

Yes  
(Art 44(1)) 

Yes  
(Art 45(2)) 
proposal 

34(1) 
(c)(cc) 
35(1) 
(d) 
35(4) 

37(1) 

37(2) 
39(1) 
(c) 
39(1) 
(e) 
40(2) 

41(1) 

•  Valuation adjustments of fixed assets to the lower figure should be 

disclosed separately in P&L or in the notes 

•  Exceptional value adjustment of fixed assets for taxation purposes 

• 

must be disclosed in the notes 
Interest on borrowed capital included in the production cost must be 
disclosed in the notes 

•  Cost of Research and Development (derogations from Art 34 

treatment (5 year amortisation) must be disclosed in the notes) 

•  Good will – amortisation over 5 years must be disclosed in the notes  
•  Exceptional value adjustment to current assets must be disclosed 

separately in the P&L or in notes 

•  Exceptional value adjustments of current assets for tax purposes must 

be disclosed in the notes 

•  Differences in inventory value form the market value must be disclosed 

in the notes 

•  Positive difference between debt and amount repayable must be 

Yes  
(Art 44(1)) 

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61 

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shown as asset in balance sheet or in the notes 

42 

•  Material "other provisions" must be disclosed in the notes 

Yes  
(Art 44(1)) 

42d 
42d(a) 
42d(b) 

42d(c) 
42d(d) 

43 
43(1) 
(1) 

43(1) 
(2) 
43(2) 
45(1) 
(a) 
45(1) 
(b) 
43(1) 
(3), (4) 
43(1) 
(5) 
43(1) 
(6) 

43(1) 
(7) 
43(1) 
(7) 
43(1) 
(7a) 
43(1) 
(7b) 

43(1) 
(8) 
45(2) 

71  

Section 7a Valuation at fair value 

• 

If financial instrument are at FV, the notes shall include 
o  Assumptions underlying valuation models 
o  FV per category of instrument, changes in FV included in P&L and 

Fair Value Reserve 

o  Information about derivative financial instruments 
o  Movements in FV 

Section 8 Contents of the notes on the accounts 
Notes to the account must contain at least the information on 

•  Valuation methods 
•  Value adjustment calculation methods 
•  Foreign currency conversion 
•  Names, offices of undertakings with at least 20% stake in and all 

unlimited liability undertakings – unless not material 
o  MS Need not apply to financial holdings 
o  May take for of a statement in a register (Art 3(1), (2) of Directive 

68/151/EEC, the fact must be disclosed in notes 

o  May be omitted if seriously prejudicial to any of the undertakings, 

the fact must be disclosed in notes 

•  Shares – number, nominal value, par value of subscribed for each 

class of shares 

•  Participation certificates, convertible debentures, or similar securities 

rights 

•  Amounts owed, due and payable after more than 5 years and debts 

covered by valuable security, for each creditors item 

•  Total amount of any financial commitments not in the balance sheet if 

useful for analysing financial position 

•  Commitments concerning pensions and affiliated undertaking, 

disclosed separately 

•  Nature and business purpose of arrangements not in the balance 

sheet and their financial impact, if material 

•  Transactions with related parties (amount, nature, other information, 
materiality, under normal market conditions), may be aggregated 
unless doesn't distort 
o  MS may exempt transactions between company and its fully owned 

subsidiary 

Yes  
(Art 44(1)) 

Yes  
(Art 44(1)) 
only total 
figure 

Yes  
(Art 44(1)) 

Yes 
(43(1)(7a)) 
Yes71 
(Art. 
43(1)(7b)) 

•  Net turnover broken by categories of activity and geographical markets 

(if differ substantially) 
o  May be omitted if seriously prejudicial to any of the undertakings, 

Yes  
(Art 44(1)) 

Yes  
(Art 45(2)) 

Unless those companies are of a type referred to in Article 1(1) of Directive 77/91/EEC, in which case 
Member States may limit disclosure to, as a minimum, transactions entered into directly or indirectly 
between: 

(i) the company and its major shareholders, 
and 
(ii) the company and the members of the administrative, management and supervisory bodies. 

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43(1) 
(9) 
43(1) 
(10) 
43(1) 
(11) 
43(1) 
(12) 
43(3) 

43(1) 
(13) 
43(1) 
(14) 
43(1) 
(14)(a) 
43(1) 
(14)(b) 
43(1) 
(15) 

46(1) 
(a) 

46(1) 
(a) 
46(1) 
(b) 

46(1) 
(c) 
46(2) 
(a) 
46(2) 
(b) 
46(2) 
(c) 
46(2) 
(d) 

the fact must be disclosed in notes 

•  Average number of persons employed, by categories, if not disclosed 

in P&L – the staff cost  

•  Tax induced distortions to P&L 

•  Deferred tax (the difference between tax charged and amount 

payable) 

•  Emoluments to administrative, managerial and supervisory bodies, 

commitments on pensions for former members 
o  MS may exempt if it is possible to identify the position of specific 

members of these bodies 

•  Advances and credit to members of administrative, managerial and 

supervisory bodies and commitments entered on their behalf 
If valuation at FV not applied 

• 

Yes  
(Art 44(1)) 

o  FV of derivative instruments (if possible) and information on their 

extant and nature 

Yes  
(Art 44(1)) 

o  FV of financial fixed assets carried at an excess of their FV without 

value adjustment to lower figure 

•  Fees for audit, assurance, tax advisory, non-audit services 

o  MS may exempt if company is included in Consolidated accounts (if 

the information is in the notes to these accounts) 

Section 9 Contents of the Annual Report 

•  Balance and comprehensive analysis of the development and 

performance of the company consistent with the size and complexity of 
the business 

•  Description of principle risk and uncertainties 

•  Financial and non-financial key performance indicators relevant to 
particular business including those relating to environmental and 
employee matters 

•  References and additional explanations of amounts reported in the 

• 

annual accounts (where appropriate) 
Indication of any important events that occurred since the end of the 
financial year 

•  The company's likely future development 

•  Activities in the field of Research and Development (R&D) 

• 

Information on acquisition of own shares 

Yes  
(Art 44(1)) 

Yes  
(Art 45(2))72 

Yes  
(Art 46(4)) 
70 non-
financial 
only 

Yes  
(Art 46(3)) 
70 

Yes  
(Art 46(3)) 
70,73 

72  

73  

Provided that such information is delivered to the public oversight system (referred to in Article 32 of 
Directive 2006/43/EC on statutory audit) when requested by such a public oversight system. 
Provided that the information referred to in Article 22 (2) of Directive 77/91/EEC concerning the 
acquisition by a company of its own shares is given in the notes to their accounts. 

EN 

63 

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46(2) 
(e) 
46(2) 
(f) 

46a(1) 
46a(1) 
(a) 
46a(1) 
(a)(i) 
46a(1) 
(a)(ii) 
46a(1) 
(a)(iii) 
46a(1) 
(b) 
46a(1) 
(c) 
46a(1) 
(d) 
46a(1) 
(e) 
46a(1) 
(e) 
46a(1) 
(e) 
46a(1) 
(e) 
46a(1) 
(f) 
46a(3) 

Yes  
(Art 46(3))70 

•  Existence of branches of the company 

•  Use of financial instruments (when material for annual accounts 

analysis): 
o  Financial risk management objectives and polices 
o  Policy for hedging each major forecasted transaction 
o  Exposure to: 
(cid:131)  Price risk 
(cid:131)  Credit risk 
(cid:131)  Liquidity risk 
(cid:131)  Cash flow risk 

•  Corporate Governance Statement 
•  Reference to 

o  Corporate governance code which the company is subject to, 

o  Code which company voluntarily applies 

o  Additional corporate governance principles applied 

•  Departures from code of conduct with reasons for that 

•  Description of internal control and risk management system (in relation 

to financial reporting process) 

•  Takeover bids 

•  Shareholders meeting (unless described by national law) 

Yes if not listed  
(Art 46a(1) 70  
or  
with only bonds listed 
(Art 46a(3)) 70 

o  Operation 

o  Key powers 

o  Shareholders rights and their exercise  

•  Composition and operation of the administrative, management and 

supervisory bodies and their committees 

•  Companies with only bonds traded can be exempted from preparing 

Corporate Governance Statement. 

Section 10 Publication 

47 

•  Annual accounts must be published 

48 
50 

50 
50 

•  Published accounts must be accompanied by auditor report 
•  With annual accounts the following must be published (if they are not 

included in the annual accounts) 
o  The proposed for appropriation of profit or treatment of loss 
o  The appropriation of profit or treatment of loss 

51-51a  Section 11 Auditing 

Yes  
Yes  
(Art 47(3)) 
(Art 47(2)) 
70 
70 
abridge 
abridge 
balance 
balance 
sheet  
sheet  
The fact that abridged 
balance sheet is published 
must be indicated, 
reference to register 
made, the auditor report 
shall not be attached but it 
must be disclosed what 
opinion the auditor made 
(Art 49) 70 
Yes  
(Art 51(2)) 
70  

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Section 12 Final provisions 

53a 

•  Member States shall not make available the exemptions set out in 

Articles 11, 27, 43(1), points (7a) and (7b), 46, 47 and 51 in the case 
of companies whose securities are admitted to trading on a regulated 
market within the meaning of Article 4(1), point (14) of Directive 
2004/39/EC. 

•  The notes to the accounts must also disclose 

o  Name and office of undertaking drawing the consolidated accounts 
of the largest body of undertakings of which company forms a part 
o  Name and office of undertaking drawing the consolidated accounts 
of the smallest body of undertakings of which company forms a 
part, also included in (a) above 

o  The place where copies of the consolidated accounts referred to in 
(a) and (b) above may be obtained provided that they are available 

•  MS need not to apply the provisions of this directive concerning the 
content, auditing and publication of annual accounts to companies 
which: 
o  the parent undertaking must be subject to the laws of a Member 

State; 

o  all shareholders or members of the subsidiary undertaking must 
have declared their agreement to the exemption from such 
obligation; this declaration must be made in respect of every 
financial year; 

o  the parent undertaking must have declared that it guarantees the 

commitments entered into by the subsidiary undertaking; 

o  the declarations referred to in (b) and (c) must be published by the 
subsidiary undertaking as laid down by the laws of the Member 
State in accordance with Article 3 of Directive 68/151/EEC; 
o  the subsidiary undertaking must be included in the consolidated 
accounts drawn up by the parent undertaking in accordance with 
Directive 83/349/EEC; 

o  the above exemption must be disclosed in the notes on the 
consolidated accounts drawn up by the parent undertaking; 
o  the consolidated accounts referred to in (e), the consolidated 

annual report, and the report by the person responsible for auditing 
those accounts must be published for the subsidiary undertaking as 
laid down by the laws of the Member State in accordance with 
Article 3 of Directive 68/151/EEC. 

•  Requirements of the Directive need not apply to companies which are 
members having unlimited liability of any of the companies and firms 
listed in Article 1(1) second and third subparagraphs under certain 
conditions 

•  Provisions of this directive need not apply to audit and publication of 
P&L account of parent companies that draw consolidated accounts 
and are included in these. 

•  This fact must be disclosed in the notes to annual and consolidated 

accounts 

•  Participating interest in companies over which significant influence is 
exercised (20% or more) may be shown in the balance sheet under 
items "shares in affiliated undertakings" or "participating interest" 

•  When first applied (Art 59) participating interest shall be shown: 
o  At book value (deference between the value and amount 

corresponding to proportion of capital represented by participating 
interest shall be disclosed separately in the balance sheet or notes) 

o  At the amount corresponding to proportion of capital represented 

56(2) 
56(2) 
(a) 
56(2) 
(b) 

56(2) 
(c) 
57 

57(a) 

57(b) 

57(c) 

57(d) 

57(e) 

57(f) 

57(g) 

57a 

58 

59 

59(2) 
59(2) 
(a) 

59(2) 

EN 

65 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a) 

59(2) 
(a) 
59(3) 

by participating interest (the difference between value calculated 
according to section 7 or 7a shall be disclosed separately in the 
balance sheet or notes) 

o  Member States may prescribe (a) or (b) above, it must be indicated 

in the balance sheet or notes 

• 

If company in which participating interest is hold uses different 
valuation methods of those used by company drawing the accounts – 
they may be revaluated and the fact must be disclosed in the notes  

59(9) 

•  The Art. 59 need not apply if participating interest is not material 

Note: Option for medium companies covers also small companies 

Source: Fourth Council Directive on the annual accounts of certain types of companies (78/660/EEC). 

EN 

66 

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ANNEX 7: ABBREVIATIONS 

ARC 

AuRC 

DG 

EU 

Accounting Regulatory Committee 

Audit Regulatory Committee 

Directory General 

European Union 

GAAP 

Generally Accepted Accounting Principles 

HLG 

IAS 

IFRS 

IO 

SCM 

SEC 

SME 

UK 

High Level Group of Independent Stakeholders on Administrative Burdens 

International Accounting Standards 

International Financial Statements 

Information Obligation 

Standard Cost Model 

Securities and Exchange Commission 

Small and Medium Enterprises 

United Kingdom 

US, USA 

United States of America 

EN 

67 

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