COMMISSION STAFF WORKING DOCUMENT Fitness Check on the EU framework for public reporting by companies Accompanying the document Report from the Commission to the European Parliament, the Council and the European Economic and Social Committee on the review clauses in Directives 2013/34/EU, 2014/95/EU, and 2013/50/EU
Date: 2021-04-21
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: EU Member State, accounting, activity report, capital market, disclosure of information, financial market, private limited company, public limited company, publication of accounts, size of business

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 21.4.2021  SWD(2021) 81 final  COMMISSION STAFF WORKING DOCUMENT Fitness Check on the EU framework for public reporting by companies  Accompanying the document Report from the Commission to the European Parliament, the Council and the European Economic and Social Committee on the review clauses in Directives 2013/34/EU, 2014/95/EU, and 2013/50/EU {COM(2021) 199 final}  
 
 
Contents  

EXECUTIVE SUMMARY .............................................................................................. 4 

1. 

INTRODUCTION ..................................................................................................... 9 

1.1 

1.2 

1.3 

Scope of the evaluation ....................................................................................... 9 

Main requirements applicable to each type of company ................................... 14 

Review clauses .................................................................................................. 17 

2.  BACKGROUND TO THE INITIATIVE ............................................................... 18 

2.1 

2.2  

Legislation history ............................................................................................. 18 

Baseline scenario ............................................................................................... 21 

3. 

INTERVENTION LOGIC ...................................................................................... 22 

4.  EVALUATION QUESTIONS ................................................................................ 26 

5.  METHOD ................................................................................................................ 27 

5.1 

5.2 

5.3 

5.4 

Overall approach ............................................................................................... 27 

Past evaluations ................................................................................................. 28 

Information and data gathering ......................................................................... 29 

Limitations......................................................................................................... 31 

6. 

IMPLEMENTATION STATE OF PLAY .............................................................. 32 

7.  ANSWERS TO THE EVALUATION QUESTIONS............................................. 35 

7.1 

Effectiveness of the EU framework .................................................................. 35 

7.1.1  Effectiveness  of the  EU  framework on regular public reporting by all limited 
liability companies .......................................................................................................... 37 

7.1.2  Effectiveness  of  the  EU  framework  on  regular  public  reporting  by  listed 
companies ....................................................................................................................... 45 

7.1.3  Effectiveness  of  the  EU  framework  on  regular  public  reporting  by  non-listed 
financial institutions ........................................................................................................ 60 

7.1.4  Contribution to the wider objectives ................................................................. 64 

7.2 

Efficiency of the EU framework ....................................................................... 67 

7.2.1  Efficiency from the perspective of the reporting entity .................................... 67 

7.2.2   Digitalisation as a source of efficiency for both users and preparers ................ 73 

7.3 

Relevance of the EU framework ....................................................................... 78 

7.3.1  Continued relevance of the wider objectives .................................................... 79 

7.3.2  Continued relevance of the EU framework ....................................................... 79 

7.4 

EU added value of the EU framework .............................................................. 84 

7.4.1  EU added value for all limited liability companies ........................................... 85 

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7.4.2  EU added value for listed companies ................................................................ 86 

7.5 

Coherence .......................................................................................................... 91 

7.5.1  Coherence  of  the  requirements  within  the  EU  framework  on  public  reporting 
by companies .................................................................................................................. 91 

7.5.2  Coherence between the requirements imposed by the EU framework on public 
reporting by companies and the requirements imposed by other Union legislation ....... 92 

8.  CONCLUSIONS ..................................................................................................... 95 

ANNEX I – Consultation of the Regulatory Scrutiny Board ....................................... 100 

ANNEX II – Procedural information ............................................................................ 106 

ANNEX III – Stakeholders consultation (synopsis report) .......................................... 110 

ANNEX IV – Member States’ use of options under the IAS Regulation .................... 120 

ANNEX V – EU legislative framework for periodic reporting by companies – overview 
of reporting obligations ................................................................................................. 121 

ANNEX VI – Financial and non-financial information – an overview of documents and 
contents ......................................................................................................................... 123 

ANNEX  VII  –  Literature  study  on  the  benefits  of  IFRS  (update  from  the  2015  IAS 
Regulation review) ........................................................................................................ 128 

ANNEX VIII – EU approach on the digitalisation of public financial reporting ......... 134 

ANNEX IX – Data structuring, an overview ................................................................ 139 

ANNEX X –  SME definition and micro-regime ......................................................... 140 

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List of abbreviations and acronyms used in this report 

Accounting Directive (Directive 2013/34/EU) 

AD 
AFR  Annual Financial Report (as defined by the Transparency Directive) 
API 
Application Programming Interface 
ARC  Accounting Regulatory Committee 
BAD  Bank Accounts Directive (Council Directive 86/635/EEC) 
BRIS  Business Registers Interconnection System 
CBCR  Country-By-Country Reporting 
CLD  Company Law Directive (Directive 2017/1132/EU) 
CMU  Capital Markets Union 
CRD  Capital Requirements Directive (Directive 2013/36/EU) 
CRR  Capital Requirements Regulation (Regulation (EU) No 575/2013) 
CSDR  Central Securities Depositories Regulation (Regulation (EU) No. 909/2014) 
CSV 
EEA 
EBA 
EEAP   European Electronic Access Point 
EGESC  Expert Group of the European Securities Committee 
ESG 
eIDAS  Regulation  (EU)  No  910/2014  on  electronic  identification  and  trust  services  for 

Comma-separated values file 
European Economic Area 
European Banking Authority  

Environmental, Social and Governance 

electronic transactions in the internal market 
Extractive Industries Transparency Initiative 

EITI 
ESEF  European Single Electronic Format 
ESMA  European Securities and Markets Authority 
GAAP  Generally Accepted Accounting Principles 
nGAAP  national Generally Accepted Accounting Principles (in a Member State) 
GRI 
IAD 
IASB 
IFRS 
ISIN 
MS 
MTFs  Multilateral Trading Platforms 
NCA  National Competent Authority 
NFRD  Non-Financial Reporting Directive (Directive 2014/95/EU) 
OAM  Officially  Appointed  Mechanism  (body  for  national  storage  of  regulated 

Global Reporting Initiative 
Insurance Accounts Directive (Council Directive 91/674/EEC) 
International Accounting Standards Board 
International Financial Reporting Standards 
International Securities Identification Number 
Member State 

Regulatory Technical Standards 

information)  
Profit & Loss 
Public-Interest Entity 
Prospectus Regulation (Regulation (EU) 2017/1129) 

P&L 
PIE 
PR 
REFIT  Regulatory Fitness and Performance Programme 
RTS 
SMEs  Small and medium-sized Enterprises 
TCFD  Task Force on Climate-related Financial Disclosures 
TD 
Transparency Directive (Directive 2004/109/EC) 
TFEU  Treaty on the Functioning of the European Union 
XHTML EXtensible HyperText Markup Language 
XLSX  Microsoft Excel Open XML Spreadsheet 
XML  EXtensible Markup Language 

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EXECUTIVE SUMMARY 

Context and objectives 

The  primary  function  of  public  reporting  by  companies  is  to  enable  stakeholders  to  make 
informed decisions so as to protect their interests, make investment decisions, or hold companies 
publicly accountable. The range of stakeholders includes predominantly investors, creditors, civil 
society  and  trade  unions.  Public  reporting  by  companies  established  in  the  EU  is  largely 
governed by the EU framework on public reporting. The aim of the information to be published 
under the EU framework is to contribute to the broader EU objectives to achieve (i) an efficient 
functioning  single  market;  (ii)  an  integrated  capital  market;  (iii)  financial  stability,  and  (iv) 
sustainable growth. 

The legal instruments that make up the EU framework for public corporate reporting have been 
adopted progressively over the last decades. They span an era with varying levels of ambition on 
European integration and significant changes in the way business creates value, largely driven by 
fast technological developments, and increasing societal accountability.  

The EU framework assessed in this fitness check comprises the legislative instruments that were 
adopted from 1978 to 2014, namely the Accounting Directive (AD) including the Non-Financial 
Reporting  Directive  (NFRD),  the  Bank  Accounts  Directive  (BAD),  the  Insurance  Accounts 
Directive  (IAD),  the  Transparency  Directive  (TD)  and  the  IAS  Regulation  (IAS).  These 
instruments  apply  cumulatively.  They  set  out  tailored  requirements  depending  on  the  type  and 
size of companies: limited liability companies, listed companies, non-listed financial institutions 
and insurance companies. This fitness check was largely structured around these different types 
and  sizes  of  companies,  recognising  that  the  companies  often  have  different  stakeholder 
compositions.  

Corporate reporting has evolved to make companies more accountable on broader economic and 
societal issues. Today, it covers a broad range of financial and non-financial information such as 
financial  statements,  management  reports  or  reports  on  payments  to  government.  This  fitness 
check assesses  whether the EU framework has effectively and efficiently achieved its intended 
objectives  and  is  still  fit  for  purpose  in  the  light  of  evolving  societal  and  technological 
challenges, including the increased importance of sustainability aspects such as climate change. 
The  fitness  check  also  seeks  to  identify  potential  inconsistencies  or  overlaps  with  other  EU 
legislation.  

This  fitness  check  assessment  was  initiated  in  2018.  It  is  based  on  research  carried  out  by 
Commission services a thorough consultation including a written public consultation as well as 
interactions with stakeholders (conference, workshops) and with key expert groups. 

Key findings 

The  underlying  objectives  of  the  EU  framework  remain  relevant.  The  EU  continues  to  be  the 
right  level  to  set  public  reporting  policies  to  pursue  the  objectives  of  developing  the  internal 
market and an integrated capital market in general.  

The  effectiveness  of  the  EU  framework  was  first  assessed  against  the  immediate  objectives  of 
providing stakeholders with financial and non-financial information that is sufficient in quantity 
and quality, relevant, comparable, reliable and timely. The EU framework was then assessed in 
terms  of  its  contribution  to  broader  EU  objectives  of  (i)  an  efficient  functioning  of  the  single 
market,  (ii)  an  integrated  capital  market,  (iii)  financial  stability  and  (iv)  sustainable  growth. 

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Overall, the EU framework for corporate reporting achieves the immediate objectives to a great 
extent. In particular, the IAS Regulation appears to be the most effective instrument in ensuring 
high-quality and comparable public financial information across the EU.  

Public reporting by companies to stakeholders is a very important factor in assessing whether the 
broader  EU  objectives  are  achieved,  but  it  is  not  the  only  factor.  It  is  difficult  to  isolate  the 
impact of the EU framework on public reporting from other factors such as other EU financial 
regulations pursuing the same objectives (e.g. prudential regulation), or additional national legal 
requirements for directives that set  a minimum level  of harmonisation.  Nevertheless,  academic 
research provides empirical evidence that the EU framework has reduced the cost of capital, as 
confirmed by feedback received during the consultation process.  

However, there are a number of caveats to the overall effectiveness of the EU framework.  

As  regards  financial  information,  the  Accounting  Directive  (AD)  ensures  that  limited  liability 
companies  publicly  disclose  a  minimum  set  of  information  commensurate  to  their  size  (micro, 
small, medium, large) and provide the necessary information to stakeholders. But the AD has a 
number  of  lacunas,  especially  in  terms  of  the  relevance  and  comparability  of  information.  As 
regards  relevance,  there  are  lacunas  due  to  the  lack  of  standardisation  on  certain  accounting 
treatments – an example is leases. The Member States have mitigated the overall impact of these 
lacunas,  either  by  supplementing  the  minimum  requirements  of  the  AD  in  their  national 
Generally  Accepted  Accounting  Principles  (nGAAP)  or  by  expanding  the  scope  of  companies 
allowed or required to use International Financial Reporting Standards (IFRS). Lacunas can also 
be identified in relation to limited availability of data about exposures to financial risks that are 
linked to sustainability, notably climate risks. 

As regards comparability, the minimum harmonisation and principles-based approach in the AD 
leads to a fair level of comparability in form (prescribed lay-outs) but in substance comparability 
is not so good, given the numerous options available. This is mainly a concern for stakeholders 
with an interest in companies with cross-border operations, i.e. larger companies. As a mitigating 
factor, these count for 2% of all EU limited liability companies.  

As regards the timeliness of information provided to stakeholders, the AD permits companies to 
publish  information  up  to  12  months  after  the  balance  sheet  date.  The  publication  deadlines 
implemented  by  Member  States  is  effectively  from  4  to  12  months,  with  nine  Member  States 
granting companies more than 10 months before publication. Such long deadlines raise concerns 
on  the  relevance  of  information  for  stakeholders,  especially  trade  creditors.  There  is  also 
evidence that many companies tend to delay publication beyond the legal deadlines. This may be 
a consequence of insufficiently dissuasive penalties issued in the Member States. 

The  lacunas  in  the  Accounting  Directives  are  more  acute  for  banks  and  insurance  companies 
complying with nGAAP, because the EU framework has become less relevant than supervisory 
reporting,  which  has  been  drastically  upgraded  at  the  EU  level  for  banks  and  insurance 
companies in recent years. The wide use of IFRS standards by large banks and the concentration 
of the banking industry have significantly reduced the banking assets volumes reported under the 
Bank  Accounts  Directive.  Both  Directives  still  contribute  in  terms  of  improving  the  relevance 
and comparability of financial statements through their definitions and lay-outs of the financial 
statements.  

The  aim  of  non-financial  reporting  is  to  meet  stakeholders’  information  needs,  which  have 
expanded  beyond  the  financial  performance  of  reporting  entities.  Non-financial  information  is 

5 

 
 
increasingly important for investors, creditors and other users such as civil society organisations. 
The  Non-Financial  Reporting  Directive  (NFRD)  has  led  to  an  increase  in  the  quantity  of  non-
financial information  disclosed. But  some significant  deficiencies in  company disclosures have 
nevertheless  been  identified,  including  the  failure  to  disclose  all  relevant  information,  and  the 
limited  comparability  and  reliability  of  the  information  disclosed.  Although  the  NFRD  was  a 
pioneering  piece  of  legislation  when  it  was  adopted  in  2014,  it  may  no  longer  be  an  adequate 
response to new challenges, in particular the growing needs of investors and other stakeholders 
for  information  on  the  sustainability  crises  that  we  face.  As  a  result,  as  regards  the  broader 
objective to achieve sustainable growth, the assessment suggests that the EU framework does not 
ensure that reporting  practices are adequate to  enable stakeholders to  make informed decisions 
and  hold  companies  accountable  for  their  impact.  The  extent  to  which  the  EU  framework 
contributes to the broader objective of sustainable growth therefore remains limited.  

As regards the management report, there is a growing demand for a better link between financial 
and  non-financial  information,  better  comparability  if  possible,  and  the  need  for  more 
information on intangibles. 

Country-By-Country Reporting (CBCR) in the extractive and logging sectors is a new policy. It 
is too soon to tell whether this has produced significant changes in governments’ accountability 
and resource management in resource-rich countries. However there is no doubt that it has been 
effective in increasing the transparency of payments made by companies to governments linked 
to  the  exploitation  of  natural  resources.  Civil  society  and  business  alike  are  concerned  by  the 
lack of a global level playing field since the policy is applied only by the European Economic 
Area, United Kingdom, Canada, and more recently by Switzerland. A level playing field would 
ensure full reporting coverage and ease the concerns of EU companies in terms of competition. 
The scope to apply this policy in the logging industries appears to be very narrow, and it triggers 
hardly any reports. Users report certain shortcomings in the design of the policy such as on joint 
ventures and difficulties in terms of access and use (machine readability). 

The  reliability  of  financial  information  disclosed  by  listed  companies  was  found  to  be  overall 
good, due to the cascade of requirements of collective board responsibility for the true and fair 
view  of  financial  statements,  to  the  mandatory  statutory  audit  for  all  listed  companies,  and 
securities market supervision. However, enforcement practices of national supervisors still differ 
significantly  across  the  EU.  The  Wirecard  case 1  confirmed  this  and  indicated  that  the  EU 
framework presents potential weaknesses as regards the effectiveness of enforcement practices, 
in  particular  as  regards  the  lack  of  coordination  between  national  authorities  and  the 
independence of the authorities in charge of examining financial information. 

Turning to  efficiency, performing a cost/benefit  analysis of the  entire EU reporting framework 
proved difficult. To begin with micro companies, the Commission services remain unconvinced 
that EU reporting requirements are relevant to the 14.2 million micro companies. The attempt to 
reduce the reporting cost when revising the Accounting Directive in 2013 by bringing in a super-
simplified reporting regime has only partly been achieved. One reason is that even if the majority 
of Member States have  alleviated the micro regime,  about  half of the Member States have not 
fully  implemented  the  simplified  regime,  which  affects  at  least  40%  of  micro  companies. 
Another  reason  is  that  even  where  a  simplified  regime  is  in  place,  many  micro  companies  are 

1   

Wirecard, a German company with shares listed on the EU regulated markets, declared bankruptcy in June 
2020 after revelations that €1.9 billions in cash reported in the group’s balance sheet were missing. 

6 

 
 
                                                 
unaware  of  it,  especially  when  they  use  the  services  of  an  external  accountant.  Some  are 
reluctant to change practice.   

A key finding of this fitness check as regards efficiency is the need to tap the potential of digital 
tools to  structure, re-use, secure, disseminate and give  easier access  to  both  financial and non-
financial  information.  The  EU  framework  has  started  to  do  so,  for  instance  with  the  recent 
adoption  of  the  ESEF  Regulation  under  the  Transparency  Directive,  which  makes  the 
consolidated  IFRS financial statements of listed  companies both  human  and machine-readable, 
and with the recent adoption of Directive (EU) 2019/1151 as regards the use of digital tools and 
processes  in  company  law.  However,  much  remains  to  be  done.  The  new  action  plan  on  the 
capital markets union adopted in September 2020 suggested creating a European Single Access 
Point (ESAP) as a matter of priority.  

IFRS standards can only be incorporated into EU law if they meet the criteria for endorsement 
laid  down  by  the  IAS  Regulation.  One  criterion  is  the  conduciveness  to  the  European  Public 
Good,  which  encompasses  significantly  broader  considerations  than  the  capital  provider  focus 
adopted by the International Accounting Standard Board (IASB) in developing IFRS standards. 
Currently,  the  IAS  Regulation  provides  limited  flexibility  to  amend  standards  as  issued  by  the 
IASB, in case a standard would not meet the technical endorsement criteria or not be conducive 
to  the  EU  public  good.  Introducing  greater  flexibility  in  the  IAS  Regulation’s  endorsement 
procedure could  in  principle be considered beneficial  to  address  situations in  which only some 
aspects of a standard would not meet the technical endorsement criteria or not be conducive to 
the EU public good. However, the EU has so far been able to deal with such situations using the 
limited flexibility available within the confines of the IAS Regulation (the so-called “carve-out” 
power  and  the  “top-up”)  and  has  only  needed  to  do  so  sparingly  on  only  two  occasions  since 
2003  to  cover  very  limited  elements  of  two  standards.  This  suggests  that  the  endorsement 
procedure foreseen in  the current  legal  framework provides sufficient  flexibility in  most cases. 
There  may  nevertheless  be  a  case  to  clarify  the  endorsement  criteria  included  in  the  IAS 
Regulation, in particular in light of the growing importance of sustainability considerations for 
investment decisions.  

Finally,  the  EU  reporting  framework  is  generally  internally  consistent.  There  are  risks  that 
different pieces of EU legislation that require sustainability disclosures may lack coherence, in 
particular  regarding  the  financial  sector.  Legislative  and  non-legislative  developments  in  this 
field  will  need  to  be  followed  closely  to  ensure  that  the  overall  sustainability  reporting 
framework remains coherent.  

Follow-up 

Although  it  is  beyond  the  scope  of  the  fitness  check  to  provide  follow-up  action,  this  section 
highlights  some of the  main areas that  could  be addressed to  improve the EU  framework.  The 
EU  framework  on  public  reporting  for  non-financial  information  is  relatively  recent,  but  its 
requirements  and  public  reporting  practices  are  not  commensurate  with  the  EU’s  ambition  to 
become a sustainable economy and society.  

Further  digitalisation  of  public  reporting  could  significantly  improve  companies’  access  to  and 
use of public reporting. 

The  IAS  Regulation  appears  to  be  the  most  effective  instrument  in  ensuring  comparable  and 
complete  financial  information  across  Europe.  Based  on  further  consultation  with  all 
stakeholders,  a  comprehensive  cost-benefit  analysis  could  be  carried  out  to  assess  whether  to 

7 

 
 
expand the scope of EU-endorsed  IFRS to  all companies  listed on regulated markets  and, as a 
company option, to small and medium-sized enterprises (SMEs) that plan to issue securities or to 
larger non-listed companies.  

As  regards  limited  liability  companies  in  general,  more  could  be  done  to  ensure  they  publish 
financial information without delay. Some aspects of CBCR for extractive and logging industries 
could be improved, such as reporting on joint ventures, accessibility and electronic usability, but 
also to continue to promote reporting worldwide in order to level the playing field.  

Lastly, ensuring further convergence of supervisory practices across the EU, better coordination 
between  national  authorities  and  the  independence  of  national  competent  authorities  should 
remain  a  priority  with  a  view  to  improving  the  comparability  and  the  reliability  of  public 
reporting by companies. 

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1. 

INTRODUCTION 

Public  reporting  by  companies  is  a  public  good  that  serves  the  interests  of  many 
stakeholders.  A  broad  range  of  stakeholders  such  as  investors,  creditors,  employees  or 
depositors  use  information  published  by  companies  for  their  decision-making.  At  the 
heart of any investment decision, timely and high-quality company reporting plays a vital 
role and underpins the efficient allocation of capital. Civil society organisations and other 
stakeholders  use  company  information  to  hold  companies  accountable,  for  example  on 
their environmental and social impact. 

The legal acts that make up the EU framework for public corporate reporting have been 
brought  in  progressively  over  the  last  decades  and  set  out  tailored  requirements 
depending on the type and size of companies. Some legal acts were adopted four decades 
ago;  others  only  a  few  years  ago.  They  span  an  era  with  varying  levels  of  ambition  on 
European  integration,  changes  to  the  Treaty,  re-balancing  inter-institutional  powers  and 
financial  crises.  During  that  period,  the  way  businesses  create  value  and  the  context  in 
which they operate have changed significantly. To a large extent, this has been driven by 
fast-paced technological developments, increased cross-border activities and innovations 
in  the  financial  industry  that  have  led  to  changes  to  accounting  techniques  and  social 
responsibility. 

Stakeholders  increasingly  demand  a  broader  range  of  corporate  information.  Company 
strategies, governance, and environmental and social impacts are increasingly considered 
in combination with their financial performance when assessing a company’s long-term 
ability  to  create  value.  These  rapid  changes  in  investors’  and  other  stakeholders’  needs 
for  information  have  also  profoundly  changed  how  companies  present  and  disseminate 
corporate information.  

Against  this  background,  the  European  Commission  has  carried  out  a  comprehensive 
fitness check to assess whether the EU’s legislative framework governing regular public 
reporting by companies (hereafter: “the EU framework”) is still fit for purpose. It is part 
of the Regulatory Fitness and Performance Programme (REFIT), which uses evaluations 
and fitness checks to assess EU policies2. 

1.1 

Scope of the evaluation 

One of the EU’s main objectives is to establish a single market based on a competitive 
social  market  economy  vision 3 .  To  create  a  positive  business  environment,  where 
companies  can  be  set  up  anywhere  in  the  EU  and  can  do  business  and  invest  across 
borders in a frictionless manner, the EU has developed a framework for limited liability 
companies.  This  framework  contains  harmonised  minimum  requirements  applicable  to 

2  

3  

The European Commission’s Better Regulation Agenda is about designing and evaluating European Union 
policies and laws transparently, with evidence and backed up by the views of citizens and stakeholders. It 
covers  all  policy  areas  and  aims  for  targeted  regulation  that  goes  no  further  than  required,  in  order  to 
achieve  objectives  at  minimum  cost.  As  part  of  that  agenda,  in  2012  the  Commission  launched  a 
programme for Regulatory Fitness and Performance (REFIT). 
Article 3(3) of the Treaty on European Union: “The Union shall establish an internal market. It shall work 
for the sustainable development of Europe based on balanced economic growth and price stability, a highly 
competitive  social  market  economy,  aiming  at  full  employment  and  social  progress,  and  a  high  level  of 
protection and improvement of the quality of the environment. It shall promote scientific and technological 
advance […]”. 

9 

 
 
                                                 
different  stages  in  the  life  of  a  company.  They  cover  the  stage  when  a  limited  liability 
company  is  established  (e.g.  minimum  capital  requirements,  content  of  the  founding 
statutes),  certain  specific  situations  (e.g.  restructuring,  takeovers)  and  the  annual 
publication of corporate information over the course of a company’s life.  

Another important objective of the EU is to establish a well-functioning, integrated EU 
capital  market  that  enables  capital  from  investors  to  flow  efficiently  to  companies.  In 
addition  to  the  EU  requirements  that  aim  to  ensure  the  proper  functioning  of  financial 
market  infrastructure (e.g. Central  Securities Depositories Regulation,  European Market 
Infrastructure  Regulation,  Market  in  Financial  Instruments  Regulation) 4 ,  companies 
seeking public funding via capital markets are subject to a broad framework of EU law. 
The  framework  includes  requirements  for  listing  securities  (Prospectus  Regulation) 5, 
protecting  investors  from  insider  dealing  and  market  manipulation  (Market  Abuse 
Regulation)6, protecting the rights of shareholders (Shareholders Rights Directive)7, and 
other disclosure obligations enabling market participants and other stakeholders to make 
informed decisions (Transparency Directive)8. For capital markets to function efficiently 
it  is  essential  to  have  a  regular  flow  of  relevant,  reliable  and  comparable  company 
information to market participants and other stakeholders.  

In response to the 2008 financial crisis, the EU carried out an ambitious regulatory reform 
with the aim of restoring financial  stability and building a stable financial system. The 
result  is  a  significantly  enhanced  framework  of  prudential  and  supervisory  oversight  of 
market  infrastructure  and  financial  services  sectors  (banks,  insurance  companies,  etc.) 
including the creation of the banking union. 

The  EU  aims  to  ensure  that  growth  is  sustainable,  within  the  overall  goal  of  achieving 
sustainable  development.  Corporate  reporting  can  contribute  to  this  objective  by 
ensuring that stakeholders have access to information about companies’ impact on society 
and the environment, and about the sustainability-related risks to which companies may 
be exposed.   

A regular, transparent and reliable flow of information builds confidence and trust among 
all  stakeholders  engaging  with  companies  (investors,  creditors,  supervisory  authorities, 
employees,  depositors).  By  building  trust,  this  flow  of  information  contributes  –  along 
with  other  pieces  of  EU  legislation  on  financial  services  –  to  achieving  the  following 
broader objectives: the efficient functioning of the EU single market, further integration 
of EU capital markets, financial stability and sustainable growth.  

The  purpose  of  this  fitness  check  report  is  to  assess  the  applicable  EU  measures 
requiring all limited liability companies to publish regularly information about their 
activities, performance, risks and impacts with a view to protecting the interest of all 
stakeholders and achieving the broader objectives mentioned above. 

4  

5  

6  
7  

8  

Regulation (EU) No 909/2014 on settlement and Central Securities Depositories (CSDR), Regulation (EU) 
No. 648/2012 on the European Market Infrastructure (EMIR), and Regulation (EU) No. 600/2014 on the 
Market in Financial Instruments (MiFIR). 
Regulation (EU) 2017/1129 on the prospectus to be published when securities are offered to the public or 
admitted to trading on a regulated market (Prospectus Regulation).  
Regulation (EU) No 596/2014 on market abuse (Market Abuse Regulation). 
Directive 2007/36/EC on the exercise of certain rights of shareholders in listed companies (Shareholder 
Rights Directive). 
Directive 2004/109/EC 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. 

10 

 
 
                                                 
This  set  of  rules,  the  “EU  framework”,  applies  to  all  financial  and  non-financial 
companies,  covers  a  wide  range  of  corporate  information  and  lays  down  different  rules 
for different types of companies. This report assesses whether these rules:  

(i)  meet the objectives of satisfying users information needs (effectiveness);  
(ii) continue to be relevant (relevance);  
(iii) have reasonable and proportionate cost for preparers and users (efficiency);  
(iv)  are correctly set at EU level (EU added-value); and  
(v) are consistent across different pieces of EU legislation (coherence). 

This fitness check does not cover reporting requirements laid down in other EU laws that 
also  contribute  to  meeting  stakeholders’  information  needs,  but  are  neither  public  nor 
regular,  and  do  not  specifically  seek  to  achieve  the  above-mentioned  wider  objectives. 
Some  sectoral  EU  legislation,  in  particular  the  supervisory  frameworks  for  banks  and 
insurance  companies9,  contain  rules  for  both  supervisory  reporting  and  regular  public 
disclosures.  In  2019,  the  Commission  services  carried  out  a  “Fitness  Check  of  the  EU 
Supervisory  Reporting  Requirements”.  This  fitness  check  report  complements  the  2019 
fitness check and assesses the coherence of these sectoral reporting requirements, where 
publicly available, with the requirements of the EU framework for public reporting.  

Legislative acts in the scope of this report 

The EU framework covers rules for regular public reporting by companies on their 
activities,  performance,  risks  and  impacts  stemming  from  the  following  five  EU 
legislative acts: 

-  The  Accounting  Directive  (AD)10 as  amended  by  the  Non-Financial  Reporting 
Directive (NFRD)11 is the foundation of regular public reporting, as it provides rules 
on the preparation, presentation, publication and audit of annual financial statements 
for all limited liability companies established in the EU. All companies must publish 
annual financial statements (composed of a balance sheet,  a profit and loss account 
and  notes  to  the  financial  statements).  Medium-sized 12,  large  undertakings 13 and 
public-interest  entities  (PIEs)14 are  subject  to  additional  requirements,  such  as  the 
obligation  to  have  their  financial  statements  audited  and  to  prepare  a  management 
report.  If  the  company  is  the  parent  of  a  group,  it  must  also  prepare  and  publish 

9  
10  

11  

12  

13 

14  

by 

large 

undertakings 

The Capital Requirements Regulation, the Capital Requirements Directive and the Solvency II Directive.  
Directive  2013/34/EU  on  the  annual  financial  statements,  consolidated  financial  statements  and  related 
reports  of  certain  types  of  undertakings,  amending  Directive  2006/43/EC  on  statutory  audits  of  annual 
accounts  and  consolidated  accounts  and  repealing  Council  Directives  78/660/EEC  and  83/349/EEC. 
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32013L0034. 
Directive 2014/95/EU amending Directive 2013/34/EU as regards disclosure of non-financial and diversity 
https://eur-lex.europa.eu/legal-
certain 
information 
content/EN/TXT/?uri=CELEX%3A32014L0095. 
Article  3(3)  AD:  Medium-sized  undertakings  shall  be  undertakings  which  are  not  micro-undertakings  or 
small  undertakings  and  which  on  their  balance  sheet  date  do  not  exceed  the  limits  of  at  least  two  of  the 
three  following  criteria:  (a)  balance  sheet  total:  EUR  20,000,000;  (b)  net  turnover:  EUR  40,000,000;  (c) 
average number of employees during the financial year: 250. 
Article  3(4)  AD:  Large  undertakings  are  undertakings  which  exceed  at  least  two  of  the  three  following 
criteria:  a  total  balance  sheet  of  more  than  EUR  20  million,  a  turnover  above  EUR  40  million  and  more 
than 250 employees. 
Public-interest  entities  are:  1)  “listed  companies”;  i.e.,  undertakings  whose  transferable  securities  are 
admitted  to  trading  on  a  regulated  market  of  any  Member  State,  2)  credit  institutions  (banks)  and  3) 
insurance undertakings. 

groups. 

and 

11 

 
 
                                                 
consolidated  annual  financial  statements.  The  AD  provides  scope  to  simplify  these 
requirements, depending on the company’s size. In particular, micro companies15 are 
subject  to  some  exemptions,  and  small  companies  can  make  use  of  simplified 
requirements16.  

Limited liability companies that are listed must also prepare a corporate governance 
statement.  Large  companies  active  in  the  extractive  and  logging  industry  must 
disclose their payments to local governments (“country-by-country” reports). Under 
the  NFRD,  large  PIEs  with  more  than  500  employees  must  include  in  their 
management  report  a  non-financial  statement  with  material  information  on  their 
business model, policies, outcomes, risks and risk management and key performance 
indicators  related  to,  as  a  minimum,  environmental,  social  and  employee  matters, 
respect  for  human  rights,  and  anti-corruption  and  bribery  matters 17.  In  this  staff 
working  document,  the  term  “non-financial  information”  refers  to  the  information 
that companies are required to publish in the non-financial statement18. 

-  The  Bank  Accounts  Directive  (BAD)19 applies  to  all  banks,  irrespective  of  their 
legal  form.  The  BAD  complements  the  AD.  It  aims  to  harmonise  the  format  and 
contents of the annual financial statements of all banks established in the EU and sets 
out some specific accounting treatments, for example on loan valuation, or the fund 
for general banking risks and audit of financial statements.  

-  The  Insurance  Accounts  Directive  (IAD)20 applies  to  all  insurance  undertakings, 
irrespective of their legal form. The IAD complements the AD. It aims to harmonise 
the  format  and  contents  of  the  annual  financial  statements  of  all  insurance 
undertakings established in the EU and sets out accounting treatments for insurance 
operations, e.g. technical provisions and audit of financial statements.  

-  The  Transparency  Directive  (TD)21 applies  to  all  companies  (including  non-EU 
country companies) that have securities listed on EU regulated markets. It requires – 

15  

16  

17  

18  

19  

20  

21  

Article 3(1) AD: micro undertakings are undertakings which on their balance sheet dates do not exceed the 
limits of at least two of the three following criteria: (a) balance sheet total: EUR 350,000; (b) net turnover: 
EUR 700,000; (c) average number of employees during the financial year: 10. 
Article 3(2) AD: Small undertakings are undertakings which on their balance sheet dates do not exceed the 
limits of at least two of the three following criteria: (a) balance sheet total: EUR 4,000,000 (MS option to 
raise up EUR 6,000,000); (b) net turnover: EUR 8,000,000 (MS option to raise up to EUR 12,000,000); (c) 
average number of employees during the financial year: 50. 
The default location of the non-financial statement under the NFRD is the management report. However, 
the Directive allows Member States to allow companies to publish the non-financial statement in a separate 
report. 
See  Annex  VI  for  the  list  of  financial  and  non-financial  information  that  companies  need  to  disclose, 
together with the type of document where stakeholders can find such information.   
Council  Directive  86/635/EEC  on  the  annual  accounts  and  consolidated  accounts  of  banks  and  other 
financial institutions. https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=celex:31986L0635. 
Council Directive 91/674/EEC on the annual accounts and consolidated accounts of insurance undertaking. 
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A31991L0674. 
Directive 2004/109/EC 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  
(https://eur-lex.europa.eu/legal-content/fr/TXT/?uri=CELEX:32004L0109)  as  amended  by  Directive 
2013/50/EU (https://eur-lex.europa.eu/legal-content/FR/TXT/?uri=CELEX%3A32013L0050). 

12 

 
 
                                                 
inter  alia 22 –  companies  to  publish  an  annual  (and  semi-annual)  financial  report, 
which  comprises  the  financial  statements,  the  management  report,  and  statements 
made by the persons responsible in the company that the financial report gives a true 
and  fair  view  of  the  company’s  situation.  The  TD  also  requires  listed  companies 
active in the extractive and logging industries to publish country-by-country reports 
drafted in accordance with AD rules.  

-  The IAS  Regulation23 applies to all limited liability companies that have securities 
listed on EU regulated markets, and complements the reporting requirements of the 
AD, the BAD and the IAD by requiring companies to prepare consolidated financial 
statements  according  to  International  Financial  Reporting  Standards  (IFRS)  as 
endorsed  by  the  EU.  Member  States  can  expand  the  scope  of  application  to  other 
categories of companies and/or financial statements. Annex IV provides an overview 
of Member States’ use of the options under the IAS Regulation.  

Cumulative impacts of the legislative acts in the scope of this report for each category 
of company  

The  legislative  acts  that  form  part  of  the  EU  framework  apply  cumulatively  to 
companies  within  their  scope.  The  figure  below  shows  the  scope  of  each  act  and 
provides details on the number of companies in each category.  

Figure 1: Type of companies covered by EU framework 

Numbers of companies in each category 

All limited liability companies established in the European Union (listed and non-listed) 
fall under the scope of the AD. There were in 2016 around 16.8 million companies in the 

22  

23  

The TD also provides for other disclosure  requirements  which are event-based and that do not fall in the 
scope of this fitness check, e.g. the disclosure of the home Member State, of inside information, of major 
shareholdings, of total number of voting rights and capital, of changes in ownership.  
Regulation  (EC)  No  1606/2002  on  the  application  of  international  accounting  standards  https://eur-
lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A32002R1606. 

13 

 
 
 
                                                 
EU-28, of which 0.6% are large companies, 1.8% are medium-sized, 13.2% are small and 
84.4% (14.2 million) are micro companies24.  

Approximately  6 500 25  EU  and  non-EU  companies  whose  securities  are  admitted  to 
trading  on  an  EU  regulated  market  must  comply  with  additional  public  disclosure 
requirements under the TD.  

In the EU-28, there are 4 947 credit institutions in the EEA subject to BAD requirements 
(unless  Member  States  opted  to  require  the  use  of  EU-endorsed  IFRS),  which  hold 
around EUR 37 trillion  in banking assets.  There  is  significant  concentration of banking 
assets  as  approximately  the  120  largest  EU  institutions  hold  approximately  80%  of  EU 
total banking assets. Since most large banks use IFRS and as several Member States have 
used the option to  require all banks to  use  IFRS, most of the banking assets  within the 
EEA are reported using IFRS. 

In 2017, over 3 400 insurance companies were active in the European Union and subject 
to IAD public reporting requirements. Out of this total, 2 912 companies and around 350 
groups also complied with the supervisory reporting requirements set by the Solvency II 
Directive,  which  includes  specific  measurement  and  presentation  rules,  for  insurance 
contracts distinct from accounting standards. 

In  practice,  and  taking  account  of  how  the  NFRD  has  been  transposed  in  different 
Member  States,  approximately  11 700  companies  were  subject  to  the  reporting 
requirements of the NFRD26 in the EU-28. 

1.2  Main requirements applicable to each type of company 

Table 1 provides an overview of the main requirements of the EU framework on regular 
public  reporting  by  category  of  company.  It  shows  that  specific  requirements  apply  in 
conjunction  depending  on  the  legal  form,  type  of  business,  size  and  sector  of  the 
company, or type of funding via public markets. 

Under  the  AD,  all  limited  liability  companies  must  prepare  –  at  individual  level  –  a 
balance  sheet  summarising  the  main  classes  of  assets  they  own  and  the  main  types  of 
liabilities  they  owe,  as  well  as  a  profit  and  loss  statement  (P&L),  which  details  their 
various sources of income and expenses to calculate the company’s annual earnings.  

As companies grow in size, they become subject to additional requirements such as: 

  Publication  of  “Notes  to  the  Financial  Statements”  that  provide  more  detailed 
information on the accounting methods the company uses, the policies it uses to 

24  

25  

26  

Study on the accounting regime of limited micro companies, CEPS, 2019. Excluding the United Kingdom 
(EU-27),  the  figures  are  respectively  a  total  of  13.5  million  companies,  11.1  million  (82%)  of  which  are 
micro-companies. 
The  2020  ESMA’s  Report  on  the  enforcement  and  regulatory  activities  of  European  Enforcers  in  2019, 
Annex 3, Number of IFRS issuers per country highlights that in 2019 there were around 5,000 listed parent 
companies  reporting  consolidated  financial  statements  according  to  IFRS  and  690  individual  companies 
reporting  non-consolidated  IFRS  Financial  statements.  However  these  figures  do  not  include  individual 
listed companies that only report annual financial statements according to national GAAPs. As this number 
cannot be reliably assessed, the total 6,500 listed companies in EU-28 should therefore be considered as an 
approximation. 
This  figure  takes  account  of  how  Member  States  have  transposed  the  Directive.  Not  taking  account  of 
national transposition, about 2 000 companies are under scope of the NFRD. 

14 

 
 
                                                 
make  estimates,  and  detailed  breakdowns  or  reconciliations  of  the  financial 
aggregates that appear in the balance sheet or P&L. 

  Publication  of  a  management  report  providing  a  fair  review  of  the  company’s 
development  and  performance  and  describing  the  main  risks  and  uncertainties. 
The  management  report  therefore  provides  contextual  information  about  the 
company’s  context,  competitive  position  and  strategy  that  helps  the  reader  to 
interpret the “financial statements” (composed of the balance sheet, the P&L and 
the notes to the financial statements). 

  The  statutory  audit  requirement,  which  involves  the  company  appointing  an 
external auditor to provide an opinion about the true and fair view provided by the 
financial statements and the management report. 

These  requirements  apply  to  all  limited  liability  companies  at  individual  level.  In 
addition,  if  the  limited  liability  company  is  a  parent  company  –  i.e.  it  exerts  control  or 
exercises a dominant influence over other company(ies) - the EU framework requires it to 
publish  consolidated  financial  statements  that  incorporate  the  assets,  liabilities,  income 
and  expenses  of  all  companies  in  the  group  as  if  it  was  a  single  economic  entity.  The 
parent company is also required to publish a consolidated management report.  

The  parent  company  publishes  two  sets  of  financial  statements,  one  as  a  single  legal 
entity  (known  as  the  annual  financial  statements)  and  one  as  the  parent  company  of  a 
group (the consolidated financial statements). These financial statements are prepared in 
accordance  with  national  Generally  Accepted  Accounting  Principles  (nGAAP)  that 
transpose the Accounting Directive into national law. However, Member States may also 
choose  under  the  IAS  Regulation  to  permit  or  require  companies  to  apply  International 
Financial Reporting Standards (IFRS) instead of nGAAP. 

When a limited liability company issues securities on an EU regulated market (i.e. when 
it becomes a listed company), additional requirements  apply to  secure the interests of a 
wider spectrum of stakeholders. 

  The  AD  requires  the  company  to  publish  a  corporate  governance  statement 
outlining the rules, composition and operations of the administrative, management 
and  supervisory  bodies  as  well  as  the  main  features  of  the  company’s  internal 
control and risk management processes in relation to financial reporting. 

 

 

If the company is a large PIE and employs over 500 people, the NFRD requires 
the company to publish a non-financial statement to stakeholders covering at least 
environment,  social  and  employee  matters,  respect  for  human  rights,  and  anti-
corruption and bribery matters.  

If the company is the parent company of a group, the IAS Regulation requires the 
company to use IFRS standards to prepare the consolidated financial statements. 
However, the AD applies  to  the annual  financial statements (for the single legal 
entity) unless Member States choose to permit or require IFRS. 

  The  TD  requires  companies  to  prepare  and  publish  yearly  and  half-yearly 
financial reports. If the company operates in an extractive or logging industry, the 
TD  requires  it  to  publish  a  country-by-country  report  outlining  its  payments  to 

15 

 
 
local  governments.  This  country-by-country  report  must  meet 
requirements.  

the  AD 

Lastly,  specific  rules  apply  to  financial  institutions  (non-listed  banks  and  insurance 
undertakings).  

  The  BAD  and  IAD  require  financial  institutions  to  apply  specific  sectoral 
presentation  and  measurement  rules.  However,  Member  States  may  elect  to 
permit or require the use of IFRS under the IAS Regulation. 

  Considering their significant public relevance, banks and insurance companies are 

defined as PIEs and subject to a mandatory audit requirement. 

 

If the bank or the insurance company is a large PIE that employs over 500 people, 
the NFRD requires it to publish a non-financial statement. 

If the financial institution is listed, the above rules for listed companies apply. 

Table 1 provides an overview of how the multiple requirements under the EU framework 
apply in conjunction. The category “non-listed financial institutions” captures non-listed 
banks and insurance undertakings.  

16 

 
 
Table 1: EU framework on regular public reporting by type of company  

The EU framework on regular public reporting by companies 

AD 

NFRD 

IAS 

TD 

BAD 

IAD 

CBCR 

Size / 
type 

Micro 

Small 

Medium 
/Large  

Listed  

(individu
al or 
parent of 
a group) 

Abridged 
balance sheet 
and P&L   
Financial 
statements 
(Balance sheet, 
P&L, notes) 
Financial 
statements 

Management 
report 

Audit 
Financial 
statements 

Management 
report 

Corporate 
governance 
statement  

Audit  

Bank 

Management 
report 

(any legal 
form) 

Audit 

Management 
report  

Audit 

Insurance 
undertaki
ng 

(any legal 
form) 

If large 
and >500 
employees: 
non-
financial 
statement 

If large 
and >500 
employees: 
non-
financial 
statement 

- 

- 

- 

- 

- 

- 

-  
(IFRS = 
MS option) 
-  
(IFRS = 
MS option) 

-  
(IFRS = 
MS option) 

If large 
and >500 
employees: 
non-
financial 
statement 

Mandatory 
IFRS for 
consoli-
dated 
financial 
statements.  

Yearly and 
half-yearly 
financial 
report (also 
for non-EU 
country 
issuers). 
Report on 
payments to 
governments
. 

(IFRS for 
annual 
financial 
statements 
= MS 
option) 
-  
(IFRS MS 
= option)  

-  
(IFRS = 
MS option) 

- 

- 

- 

- 

- 

- 

- 

- 

- 

- 

Report 
on pay-
ments 
to 
govern-
ments  

Report 
on pay-
ments 
to 
govern-
ments  

Financial 
statement 

Audit  

- 

Financial 
statement 

Audit 

Cate
gory 

s
e
i
n
a
p
m
o
c

y
t
i
l
i
b
a
i
l

d
e
t
i

m
L

i

s
e
i
n
a
p
m
o
c

d
e
t
s
i
L

s
n
o
i
t
u
t
i
t
s
n
i

l
a
i
c
n
a
n
i
f

d
e
t
s
i
l
-
n
o
N

1.3 

Review clauses 

Several legislative acts that form part of the EU framework (AD, NFRD and TD) contain 
review  clauses.  These  review  clauses  cover  reports  on  payments  to  governments  by 
extractive  and  logging  industries  (CBCR),  the  financial  reporting  regime  for  micro 
companies,  non-financial  reporting  by  certain  PIEs,  new  provisions  on  digitalisation, 
simplification,  and  penalties  that  were  brought  in  under  the  TD  in  2013.  This  staff 
working  document  accompanies  the  report  to  the  European  Parliament  and  the  Council 
on  these  review  clauses.  It  provides  complementary  information  to  the  content  of  the 

17 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
report on review clauses but also, due to its wide-encompassing nature, information going 
beyond the intended scope of the review clauses. 

2. 

BACKGROUND TO THE INITIATIVE 

2.1 

Legislation history 

The  common  objective  of  the  EU  framework  is  to  publicly  report  information  on  a 
regular basis that meets users’ information needs to protect their interest in the company, 
to make investment decisions, or to hold the company accountable. Over time, the range 
of  information  that  users  have  deemed  to  be  relevant  for  their  decision-making  has 
evolved  and  requirements  for  corporate  reporting  under  EU  law  have  accordingly  been 
modified or complemented.  

Creating the single market 

For over four decades, the content, presentation and publication of periodic reports about 
entities’  activities,  performance,  risks  and  impacts  for  all  limited  liability  companies 
established in the EU have been based on the Fourth and the Seventh Company Law 
Directives on annual and consolidated financial statements27 (both repealed and replaced 
by the Accounting Directive in 2013). These directives sought to enhance the protection 
of  stakeholders  in  a  context  of  increased  cross-border  activity  by  coordinating  national 
provisions concerning the preparation and publication of annual financial statements.  

In  order  to  tailor  the  requirements  of  these  directives  to  the  specific  characteristics  of 
banks and insurance undertakings, the EU adopted two additional directives respectively 
in  1986  (Bank  Accounts  Directive  or  BAD)  and  in  1991  (Insurance  Accounts 
Directive  or  IAD).  These  directives  provided  sectoral  adaptations  to  the  general 
provisions of the Fourth and Seventh Company Law Directives. 

Enhancing EU capital markets integration 
In 2000, the Commission28 estimated that, despite the EU Fourth and Seventh Company 
Law  Directives,  financial  reporting  in  the  EU  had  remained  fragmented  and  thus 
hampered  the  development  of  a  deep  liquid  single  EU  capital  market.  Enhanced 
transparency, comparable financial reporting and more extensive disclosures were sought 
by both investors and supervisors from listed companies whereas the existing directives 
featured too many national options hampering cross-border investment.  

As a result, the EU adopted the IAS  Regulation in 2002 which requires EU companies 
with  securities  listed  on  an  EU  regulated  market  to  prepare  their  consolidated  financial 
statements  in  conformity  with  the  IFRS  endorsed  in  the  EU.  As  regards  the  annual 
financial  statements  of  individual  companies  (i.e.  the  annual  financial  statements),  the 
decision to require or authorise IFRS was left as a Member State option, considering that 
national  regulatory  and  tax  requirements  might  make  the  use  of  IFRS  inappropriate  in 
some  Member  States.  Accordingly,  the  existing  Fourth  and  Seventh  Company  Law 

27  

28  

Fourth  Council  Directive  on  the  annual  accounts  of  certain  types  of  companies  (78/660/EEC) 
and Seventh Council Directive on consolidated accounts (83/349/EEC).  
Communication  from  the  Commission  to  the  Council  and  the  European  Parliament  EU  - 
Financial reporting Strategy: the way forward, COM/2000/0359 final. 

18 

 
 
                                                 
Directives remained the legal basis for profit distribution, discharge of management29 and 
creditors’ protection. Besides, the fair value option was also introduced in the Fourth and 
Seventh Company Law Directives as well as in the sectoral accounting directives (BAD 
and  IAD)  in  order  to  reflect  developments  in  international  accounting  standards 
pertaining to the valuation of assets.  

IFRS are developed by the International Accounting Standard Board (IASB) of the IFRS 
Foundation, a private organisation dedicated to financial reporting standard setting. IFRS 
are  incorporated  into  EU  law  by  way  of  amendments  to  Commission  Regulation 
1126/2008 (“IFRS Regulation”)30 after an endorsement procedure designed to secure that 
their application results in a true and fair view of the financial position and performance 
of  a  company,  is  conducive  to  the  European  Public  Good  and  meets  the  qualitative 
criteria  that  make  information  useful  for  users.  The  European  Public  Good  criterion  is 
designed to secure that the focus of the IASB on improving financial reporting does not 
lead to  disregarding other relevant  impacts  that could  affect  the European economy, its 
financial stability or other public policy objectives.  

In  order  to  meet  stakeholders'  needs  for  more  transparent  information  on  EU  capital 
markets,  a  new  transparency  regime  was  brought  in  with  the  adoption  of  the  2004 
Transparency  Directive  (TD)31.  Compared  to  the  previous  transparency  regime32,  this 
directive  increased  the  frequency  in  the  disclosure  of  financial  information,  brought  in 
rules on the issuer’s liability for late or non-disclosure, and imposed the establishment of 
national  mechanisms  for  the  storage  of  regulated  information  (Officially  Appointed 
Mechanisms or OAMs)33. 

Simplifying  rules  for  smaller  entities  and  facilitating  access  to  public  reporting  by 
companies 

The  TD  rules  were  further  amended  in  2013  with  a  view  to  simplifying  and  reducing 
certain  disclosure  requirements  for  small  and  medium-sized  enterprises  (e.g.  the 
abolishment  of  quarterly  reporting),  and  harmonising  the  disclosure  regime  of  major 
holding  of  voting  rights.  Moreover,  in  order  to  facilitate  accessibility,  analysis  and 

29  

“Whilst the EU’s Accounting Directives remain the basis of the EU’s accounting rules for limited liability 
companies,  our  existing  directives  do  not  meet  the  needs  of  companies  that  wish  to  raise  capital  on pan-
European or international securities markets. This is because transparency, comparable financial reporting 
and more demanding disclosure requirements for listed companies are being sought by both investors and 
supervisors”. 

30            IFRS were first incorporated into EU law by Regulation (EC) No 1725/2003, now repealed and replaced by 

31  

32  

33  

Commission Regulation 1126/2008 (IFRS Regulation).  
The 2004 Transparency Directive proposal was one of the priority actions in the Financial Services Action 
Plan (FSAP) endorsed by Heads of State and Government at the Lisbon European Council in March 2000. 
This Directive, together with the IAS Regulation, the Market Abuse Directive (Directive 2003/6/EC, now 
repealed by Regulation (EU) No 596/2014 “Market abuse regulation”), the Prospectus Directive (Directive 
2003/71/EC),  and  the  proposal  for  a  revision  of  the  Investment  Services  Directive  (Council  Directive 
93/22/EEC,  now  repealed  and  replaced  by  Directive  2014/65/EU  “MiFID  II”)  was  part  of  a  strategy  for 
overhauling securities markets legislation.  
Before  the  2004  Transparency  Directive  there  was  very  little  harmonisation  of  reporting  requirements  at 
EU  level.  Disclosure  by  listed  companies  was  partly  regulated  by  different  pieces  of  legislation  (e.g.  the 
Official listing Directive (Directive 2001/34/EC)). 
While under the AD and the Company Law Directive companies shall file the relevant financial and non-
financial information to the national Business Register, under the TD listed companies shall file corporate 
information  to  the  relevant  National  Competent  Authority  (NCA).  The  information  is  then  sent  to  the 
OAMs for storage purposes.  

19 

 
 
                                                 
comparability  of  regulated  information,  the  TD  mandated  the  European  Securities  and 
Markets  Authority  (ESMA)  to  develop  a  central  European  Electronic  Access  Point 
(EEAP) providing access to the different OAMs and to develop a harmonised electronic 
format  (the  European  Single  Electronic  Format  –  ESEF)  for  the  disclosure  of  annual 
financial reports starting with financial year 2020.  

In 2013, the Accounting Directive (AD) repealed the Fourth and Seventh Company Law 
Directives  and brought  in more  granularly staged requirements  based on company size. 
Changes were mainly adopted with a view to reduce the reporting burden for small and 
medium-sized  companies  (“Think  Small  First”).  Another  change  was  a  requirement  for 
Country-By-Country Reporting (CBCR) by large companies in the extractive and logging 
industries to disclose payments to governments.  

Widening the scope of disclosures to non-financial information 

In  2014,  the  Non-Financial  Reporting  Directive  (NFRD)  amending  the  AD  was 
adopted. It brought in stronger non-financial disclosure requirements compared to those 
added  to  the  Directive  in  2003  (which  referred  only  to  employee  and  environmental 
matters), with the aim of improving the quality and quantity of non-financial information 
reported by companies. Companies were required to comply with the new provisions on 
non-financial reporting for the first time in 2018, covering financial year 2017.  

The  Commission  proposed  in  April  2016  amendments  to  the  AD  aiming  to  ensure  that 
multinational  companies  disclose  corporate  tax  payments  to  governments  as  well  as 
related  information  on  a  country-by-country  basis,  to  inform  the  public  at  large  on  the 
taxes  paid  per  jurisdiction  in  comparison  to  actual  activities  of  a  company  in  each 
jurisdiction 34. The adoption of the Commission’s proposed modifications was pending at 
the time of drafting this report, and is therefore not considered. 

The  following  graph  provides  an  overview  of  the  adoption  of  the  various  instruments 
included in this fitness check over time.  

34  

Commission  proposal  for  a  Directive  as  regards  disclosure  of  income  tax  information  by  certain 
undertakings and branches, COM/2016/0198 final - 2016/0107 (COD), April 2016. 

20 

 
 
                                                 
Figure 2: Timing of instruments  

2.2   Baseline scenario 

time.  Conceptually, 

intervention  has  brought  over 

Any evaluation needs an appropriate point of comparison to help capture the change that 
EU 
the  main  baseline  (or 
counterfactual) is the situation where the EU would not have acted in respect of the single 
market,  the integrated  capital  market,  financial stability and sustainability, by including 
the  measures  in  the  scope  of  the  fitness  check.  However,  in  practice,  this  approach  is 
complicated by the nature of the fitness check being an evaluation of a group of measures 
taken at different points in time as described above. When the Commission proposed the 
Fourth Company  Law Directive on annual  financial statements in  1971, companies had 
been legally required to disclose financial information for some time by national laws of 
the then six Member States of the European Community. Most Member States regarded 
disclosure  of  financial  information  by  limited  liability  companies  as  a  natural 
consequence  of  their  limited  liability,  irrespective  of  the  size  of  the  company35.  This  is 
what  could  be  retained  as  the  baseline  scenario  for  the  public  reporting  by  limited 
liability  companies,  to  be  modulated  in  a  Union  of  28  Member  States  with  varied 
historical  background36.  For  listed  companies,  the  adoption  of  the  IAS  Regulation  in 
2002 ended a situation, where Member States allowed listed companies to use a variety 
of  different  national  and  international  financial  reporting  frameworks  (including  US 
GAAP). The baseline here could be the counterfactual of a hypothetical current situation 
of multiple financial reporting frameworks used by EU listed companies.  

35  

36  

Karel  Van  Hulle,  Leo  van  der  Tas,  “European  Union,  Individual  accounts”  in  TRANSACC,  Dieter 
Ordelheide and KPMG, second edition. 
The  harmonisation  of  accounting  standards  is  not  specifically  provided  for  in  the  Treaties  of  the  Union. 
Nevertheless, the EU intervention was seen as a way to promote freedom of establishment for companies 
by  providing  an  equivalent  level  of  protection  for  the  owners,  employees,  creditors,  or  other  persons,  in 
accordance with the Treaty provisions. 

21 

 
 
      
 
                                                 
However,  for  the  effectiveness  analysis  of  the  EU  framework  developed  over  a  long 
period  of  time,  it  is  more  meaningful  to  investigate  whether  the  objectives  of  the  EU 
framework are met, and hence use the desired outcome as a point of comparison. When 
assessing  efficiency-related  evaluation  questions,  the  fitness  check  compares  the  actual 
situation  with  a  desired,  better  outcome:  whether  EU  intervention  is  implemented  in  a 
most  efficient  manner  or  if  the  current  level  of  efficiency  can  be  improved.  When 
assessing  the  relevance  of  reporting,  the  needs  for  stakeholders  today  are  considered. 
When assessing the added value, the fitness check compares the current situation with a 
desired steady state situation: whether action could be taken at a different level and lead 
to a better outcome. When assessing the coherence the fitness check looks at the current 
situation: whether current requirements of the reporting framework and of other EU laws 
are consistent.  

3. 

INTERVENTION LOGIC 

Figure 4 summarises the intervention logic. Stakeholders, who demand financial and non-
financial  information  about  companies’  activities,  performance,  risks  and  impacts, 
include  not  only  shareholders  and  potential  investors,  but  also  lenders,  customers, 
suppliers,  employees  and  authorities  as  well  as  society  at  large.  They  expect  this 
information to be useful for their decision-making so as to protect their interests, to invest 
and allocate capital between different companies’ (main market participants’ interest), or 
to hold companies accountable on wider societal issues (main NGO’s interest).  

Absent any regulatory requirements, companies would voluntarily prepare regular reports 
on  their  activities,  performance,  risks  and  impacts  in  order  to  manage  their  business  as 
well  as  to  communicate  with  their  stakeholders.  However,  voluntary  public  reporting 
does not lead to an efficient outcome in terms of the quantity and quality of information 
provided to stakeholders. Corporate reporting is a public good, i.e. it is non-rivalrous (one 
person's  "consumption"  does  not  reduce  the  amount  available  for  others)  and  non-
excludable  (once  reporting  is  publicly  available,  individual  consumption  cannot  be 
charged).  Also,  companies  will  not  voluntarily  disclose  the  quality  and  quantity  of 
information that various stakeholders need.  Indeed, absent regulatory requirements, the 
quality  and  quantity  of  the  information  disclosed  fully  depends  on  the  entity’s  own 
communication strategy, which can lead to obscuring information that could be useful for 
stakeholders’  decision-making.  In  addition,  voluntary  public  reporting  does  not  secure 
consistency over time and across reporting entities with regards to the measurement and 
presentation  of  similar  economic  transactions.  As  a  consequence,  voluntary  public 
reporting does not allow stakeholders to draw informed comparisons between companies’ 
performance and financial position or to assess the progresses in achieving the company’s 
financial objectives and forecasts. Finally, voluntary public reporting does not secure an 
equal  access  to  information  to  stakeholders  whether  in  terms  of  content  or  timing. 
Accordingly, some interested parties may not be in a position to exercise their rights or 
may bear opportunity costs because of a lack of timely information.  

Against this background, it is logic that Member States already had national company law 
requirements on the preparation and publication of annual financial statements before the 
Commission proposed the Directive on annual financial statements in 1971. 

EU regulatory action was deemed necessary for ensuring that stakeholders throughout the 
EU  have  access  to  comparable  information  about  companies  that  is  sufficient  both  in 
quality  and  quantity  in  order  to  be  useful  for  their  decision-making.  This  is  the 
“immediate”  objective  of  EU  intervention  for  public  reporting.  In  doing  so,  EU 

22 

 
 
intervention  seeks  to  contribute  to  the  wider  Union  objectives  mentioned  in  section  1.1 
“Scope of the evaluation”, namely: (i) an efficient functioning of the EU single market; 
(ii) an integrated EU capital  market; (iii) financial stability and  (iv) sustainable growth. 
These wider objectives are reflected in the recitals of the five legislative acts of the EU 
framework. 

Contribution of public corporate reporting to the four wider objectives 

As summarised in  figure 3 and further explained below, the immediate objective of the 
EU framework contributes to the wider objectives.  

Figure 3: Contribution of the immediate objective of the EU framework to wider objectives of EU action 

As  regards  the  efficient  functioning  of  the  EU  single  market,  the  EU  legislation  on 
public  reporting  by  companies  requires  a  minimum  level  of  harmonised  information 
about  companies’  activities,  performance,  risks  and  impacts  in  order  to  enable 
stakeholders to better assess and compare the companies’ situations and performance at a 
pan-European  level.  This  facilitates  cross-border  establishment  and  investments  and 
contributes  to  the  wider  objective  of  achieving  the  EU  single  market.  This  objective  is 
pursued  by  the  five  legislative  acts  in  the  scope  of  this  fitness  check,  but  has  been  the 
cornerstone  of  the  AD  which  laid  down  the  first  set  of  public  reporting  rules  for  EU 
companies.  

With  regard  to  entities  with  securities  listed  on  EU  regulated  markets,  the  EU  public 
reporting  framework  provides  a  high  level  of  harmonisation  in  financial  reporting  and 
hence promotes the integration of EU capital markets. By securing a single set of rules, 
it  also  fosters  capital  markets’  efficiency  in  the  EU.  Enhancing  transparency, 
comparability  and  accountability  of  listed  entities  is  expected  to  increase  investors’ 
confidence, promote better capital allocation by market participants, and lower the cost of 
capital  for  companies.  As  a  result,  it  is  expected  to  contribute  to  more  integrated  and 
efficient EU capital markets. The TD and the IAS Regulation in particular have had as a 

23 

 EU interventionImmediate objectiveWider objectivesADNFRDIASAn integrated EU capital marketTDFinancial stabilityBADSustainable growthIADQualitative information criteria to assess whether the EU framework meets the immediate objective:- relevance- comparability- reliability- timelinessPublication of  information by companies that is sufficnient in quantity and quality in order to be useful for stakeholder decision makingAn efficient functioning of the EU single marketEU framework 
 
 
 
 
 
 
 
main  objective  the  enhancement  of  transparency  on  EU  capital  markets  and  their 
integration.  

As  regards  financial  stability,  prudential  regulation  and  supervision  of  the  financial 
institutions’  sector  play  a  key  role.  Public  reporting  by  companies,  especially  by  listed 
banks and insurance undertakings, also contributes to the objective of financial stability, 
in  at  least  two  ways.  Firstly,  considering  that  the  IFRS-based  financial  information  (as 
required  by  the  IAS  Regulation)  is  the  starting  point  for  the  calculation  of  prudential 
requirements  for  listed  banks,  their  supervisory  oversight  is  largely  influenced  by 
financial  reporting  rules.  Secondly,  transparent  and  timely  public  reporting  by  financial 
sector  operators  enhances  market  discipline  and  confidence  in  the  resilience  of  the 
financial  sectors,  which  contribute  to  financial  stability.  From  that  perspective,  the  TD 
and the IAS Regulation pursue the objective of financial stability. The sectoral legislation 
(the  BAD  and  the  IAD)  by  widening  the  scope  of  public  reporting  to  all  banks  and 
insurance companies have also sought to contribute to the financial stability objective.  

As  to  sustainable  growth,  public  reporting  by  companies  has  gradually  expanded  to 
provide, beyond financial information, a broad range of non-financial information. This 
development resulted from investors’ increasing interest in a larger set of information to 
assess the prospects of companies. It was also driven by the desire from a wider audience 
to make companies accountable on important societal issues. This development has been 
supported  by  the  EU  legislative  action.  In  the  context  of  the  long-term  strategy  for 
sustainable  growth  of  the  Commission,  EU  legislation  on  corporate  reporting  has 
required  companies  to  regularly  publish  environmental,  social  and  employee-related 
information. The NFRD is particularly relevant in pursuing the sustainability objective. 

Table 2 provides an overview of the expected relative contribution of the EU framework 
to the wider objectives. The “+” shows the intended relevance of the acts for the different 
objectives: 

Table 2: Wider objectives of EU action 

WIDER 
OBJECTIVES 

EU single 
market    

Integrated EU 
capital market 

Financial 
stability  

► 

► 

► 

SPECIFIC OBJECTIVES 

EU FRAMEWORK 

AD37 

IAS 

TD 

BAD 

IAD 

++ 
++ 
++ 

+ 
+ 

+ 

++ 
+ 
+ 
++ 
++ 
++ 

+ 
++ 
+ 
++ 
++ 
++ 

++ 

++ 

+ 
+ 
+ 

+ 
+ 
+ 

+ 

+ 

  Cross-border investments 
  Cross-border establishment 
  Stakeholder protection 
  Access to capital 
  Capital allocation 
  Integrated securities 

market 

  Public confidence in 
company reporting 

  Trust in the resilience of 
specific sectors (banking 
and insurance) 

37 

Includes the amending Non-Financial Reporting Directive. 

24 

 
 
 
 
 
   
  
 
 
 
 
 
 
 
 
 
 
                                                 
► 

Sustainable 
growth   

  Increase corporate 
accountability 
  Good corporate 
governance 

  Improve social and 

environmental disclosures 
by companies 

++ 

++ 

+ 

+ 

+ 

25 

 
 
 
 
 
  
 
 
 
 
 
  
 
 
 
 
Intervention logic – visual chart 

Figure 4: Intervention logic for public reporting by companies 

NEEDS 
A  wide  range  of  stakeholders  need  company  information  that  is  useful  for  their  decision-making  and  to  hold  companies 
accountable for wider societal impacts. 

OBJECTIVES 
The immediate objective of public reporting by companies is to provide stakeholders with sufficient financial and  non-financial 
information  both  in  terms  of  quantity  and  quality,  in  order  to  enable  them  to  make  informed  decisions.  This  will  in  turn 
contribute  to  achieving  the  wider  objectives  of  the  EU  single  market,  EU  capital  markets  integration,  financial  stability  and 
sustainable growth. 

Inputs:  Time and staff costs; IT and system costs; outsourcing costs for reporting entities. 

INPUTS / ACTIVITIES 

Activities: Collection, compilation, storing and processing of information by reporting entities; 

Preparation  of  periodical  reports  (audited  annual  financial  statements,  management  report,  corporate  governance 
statements, non-financial statements, payments to governments); 
Publication  of  periodical  reports  (business  registers,  company’s  website  and/or  national  gazette,  other  media, 
Officially Appointed Mechanisms for storage). 

OUTPUT / ACTION 

The EU framework requires regular public reporting:  
All limited liability companies, banks and insurance undertakings must prepare and publish annual financial statements 
and management reports (AD/BAD/IAD). 
Listed  companies  must  prepare  and  publish  their  corporate  governance  statements  (AD),  and  their  yearly  and  half-yearly 
financial reports (TD). Listed companies that  are parent undertakings shall prepare their consolidated financial statements in 
accordance with EU endorsed IFRS (IAS). 
Large PIEs have to publish a non-financial statement covering environmental and social issues, human rights, anti-corruption 
and bribery, and diversity on company boards (NFRD). 
Large  companies  and  PIEs  active  in  extraction  or  logging  sectors  have  to  prepare  and  publish  annual  country-by-country 
reports on payments to governments (CBCR-AD/TD). 

RESULTS 
Expected  results  of  EU  legislation  for  public  reporting  by  companies  include  improvements  in  the  quantity  and  quality  of 
information  available  to  stakeholders  and  public  at  large.  Improvement  is  measured  by  assessing  whether  the  information 
publicly reported is relevant, comparable, reliable and timely. 

IMPACTS 
Public reporting by companies contributes to the wider objectives of: 

Improving the functioning of the EU single market (cross-border business and investments); 
Integrating EU capital markets; 

• 
• 
•  Supporting financial stability; 
•  Supporting sustainable growth 

EXTERNAL FACTORS 

•  Technological developments (IT); 
•  Other EU and Member States’ legislation; 
•  Member States’ implementation / gold plating; 
Increasing public demand for accountability; 
• 
International agreements and standards. 
• 

26 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4. 

EVALUATION QUESTIONS  

This  fitness  check  assesses  the  fitness  of  the  companies’  public  reporting  obligations 
against the five better regulation criteria of effectiveness, efficiency, relevance, coherence 
and EU added value.  

For each criterion, specific evaluation questions were designed using evidence collected 
during the evaluation process. 

Table 3:  Evaluation questions per evaluation criterion 

Effectiveness 
Effectiveness 

Efficiency 

Relevance 
Relevance 

Has the EU framework on public reporting by companies been 
effective in enabling informed decision-making by stakeholders by 
ensuring the timely reporting of relevant, comparable and reliable 
financial and non-financial information? In doing so, has the EU 
framework contributed to the wider objectives of the EU single 
market, capital markets integration, financial stability and 
sustainable growth? 

To what extent are the costs of implementing the framework 
justified and proportionate to the benefits? Is there room for 
enhancing efficiency for both users and preparers, for instance by 
making better use of digitalisation? 

Are the originally pursued objectives still relevant, whether in terms 
of completeness (new needs), or accuracy (changes in, or 
disappearance of needs)? 
Are the EU instruments still relevant in the light of the evolution of 
needs and problems in the area of public reporting by companies?  

EU added value 
EU added value 

Is the EU the right level to design policies in order to obtain 
valuable results over and above unilateral and non-coordinated 
action by each Member State? 

Are there policies that could be better achieved at the international 
level? 

Coherence 
Coherence 

Are there significant inconsistencies, overlaps or synergies as 
regards the preparation, publication and dissemination of financial 
and non-financial information by companies between the legal 
instruments within the scope of the fitness check?  

Are there significant inconsistencies or overlaps between the EU 
framework for public reporting by companies and other Union 
legislation as regards content, format, timing, dissemination 
channels of reported information?  

27 

 
 
 
 
 
 
 
 
5. 

METHOD 

5.1  Overall approach 

The fitness check aims at assessing the combined impact of the five EU legislative acts 
that constitute the EU framework for regular public reporting by companies. As outlined 
in  section  1.1  “Scope  of  the  Evaluation”,  the  EU  framework  provides  for  specific 
requirements  depending  on  the  legal  form,  the  size  and  the  shareholding  of  reporting 
companies. Accordingly, the fitness check assesses the cumulative effects of the various 
pieces  of  legislation  in  the  EU  framework,  considering  separately  the  following 
categories  of  entities:  limited  liability  companies,  listed  companies,  and  non-listed 
financial institutions.  

This  approach  by  category  of  entities  is  applied  throughout  the  report  to  answer  the 
evaluation questions with some adaptions in the following sections: 

Effectiveness 

In order to assess the effectiveness in achieving the wider objectives laid down in section 
3  “Intervention  logic”  (despite  the  impracticability  of  disentangling  the  effects  of  the 
framework from other EU legislations and national laws), the fitness check first assesses 
whether the EU framework achieves its immediate objectives of providing stakeholders 
with  financial and non-financial information that  is  sufficient  in quantity  and quality to 
enable  them  to  make  informed  decisions.  This  immediate  objective  is  assessed  against 
measuring whether the regular disclosures required by the five legal acts provide relevant, 
comparable, reliable and timely information.  

As a second step and consistent with the intervention logic described in section 3, section 
7.1.4 considers how regular public reporting by companies of financial and non-financial 
information  contributes  to  achieving  the  wider  objectives  of  an  efficient  functioning  of 
the  single  market,  the  integration  of  EU  capital  markets,  financial  stability  and 
sustainable  growth.  In  particular,  this  section  considers  empirical  evidence  from 
academic research demonstrating the existence of causal relationships and mechanisms of 
effects  between  the  quality  of  financial  reporting  by  companies  and  the  behavioural 
consequences on capital market participants. 

The  choice  of  these  four  qualitative  features  (relevance,  comparability,  reliability  and 
timeliness)  is  based  on  existing  conceptual  frameworks  for  corporate  reporting.  These 
characteristics describe what useful information is and how it relates to decision-making: 

  Relevant  means  that  reported  information  is  useful  for  decision-making.  Relevant 
information is information that will make a difference to a decision maker. It matters 
that all relevant information is provided as its omission would mislead the decision 
maker. 

  Comparable  means  that  common  data  content  and  formats  allow  stakeholders  to 
compare  information  about  activities,  performance,  risks  and  impacts  between 
companies and over time. 

  Reliable  refers  to  whether  information  is  free  of  material  error  and  bias,  and  not 
misleading. Basically, reliability refers to the trustworthiness of the information.  If 

28 

 
 
 
 
stakeholders  cannot  trust  the  published  information,  it  is  useless  for  decision-
making. 

  Timely  means  information  is  provided  within  a  reasonable  period  after  the  end  of 
the  reporting  period.  It  would  not  make  sense  for  stakeholders  to  receive 
information that is too late to make a decision with practical effects, for example to 
protect their interests or to make investment decisions.  

In addition, considering that different stakeholder groups have different interests in public 
reporting,  the  fitness  check  aims  at  identifying  the  extent  to  which  the  EU  framework 
meets  the  expectations  of  the  main  stakeholder  groups  defined  in  section  7.1 
Effectiveness. 

Efficiency of the EU framework 

In addition to assessing the extent to which the costs of implementing the EU framework 
are  justified  and  proportionate  to  the  benefits  for  each  category  of  entity,  the  fitness 
check  also  considers  more  specifically  the  requests  for  simplifications  expressed  by 
stakeholders with a specific focus on digital technology. 

Relevance of the EU framework 

In addition  to  assessing  whether the originally pursued objectives are still relevant,  this 
section  considers  whether  the  EU  framework  is  still  relevant  in  view  of  more  recent 
business and regulatory acts and their impact on user needs. 

EU added value of the EU framework 

This  section  considers  whether  the  EU  level  is  the  right  one  for  setting  corporate 
reporting policies promoting an integrated capital market, safeguarding financial stability 
and  improving  sustainable  growth,  as  well  as  whether  setting  these  policies  at  the 
international level would be better suited.  

Coherence of the EU framework 

This section considers more specifically possible inconsistencies or overlaps between the 
legal  instruments  that  constitute  the  EU  framework  for  regular  public  reporting  by 
companies, and between these legal instruments and other pieces of EU legislation. 

5.2 

Past evaluations 

The Commission issued in June 2015 a report38 on the evaluation of IAS Regulation. The 
report assessed the impact of adopting IFRS in the EU. It concluded that IFRS had made 
EU  capital  markets  more  efficient  by  making  companies'  financial  statements  more 
transparent  and easier to compare. The report  identified areas for improvement, such as 
collaboration between actors in the IFRS endorsement process. 

This  evaluation  builds  upon  this  earlier  analysis,  in  particular  in  the  section  of  the  key 
evaluation questions (section 7).  

38  

report 

Commission 
https://ec.europa.eu/info/law/international-accounting-standards-regulation-ec-no-1606-2002/monitoring-
and-enforcing_en.  

(EC)  No 

Regulation 

1606/2002 

evaluation 

the 

on 

of 

- 

29 

 
 
 
                                                 
5.3 

Information and data gathering 

Figure 5 gives an indication of the consultation activities and studies carried out 
specifically for this fitness check: 

Figure 5: Consultation activities  

This  fitness  check  is  based  on  several  data  sources  (studies,  surveys,  interviews,  public 
consultation,  conference,  workshops,  and  bilateral  meetings  with  stakeholders)  carried 
out during 2018 until the second quarter of 2019.  

The  Commission  launched  a  public  consultation  on  the  EU  regulatory  framework  for 
public  reporting  from  March  till  July  2018  to  collect  the  views,  evidence  and  expertise 
from  any  interested  stakeholder.  Stakeholders  from  23  Member  States  and  25  non-EU 
countries  submitted  338  responses.  The  vast  majority  of  respondents  represented  an 
“organisation  or  company”  (82%),  9%  were  public  authorities  or  international 
organisations  and  the  remaining  9%  were  private  individuals.  Within  the  category 
"organisation  or  company",  25%  were  "company,  SME,  micro-enterprise  and  sole 
trader",  25%  were  "industry  associations"  and  21%  were  "non-governmental 
organisations".  In  terms  of  geographical  coverage,  over  60%  of  the  responses  were 
submitted  by  entities  located  in  Germany,  the  United  Kingdom,  Belgium  and  France. 
Around 25% of respondents were companies with cross-border activities. 

For  the  purpose  of  this  fitness  check  the  type  of  stakeholder  is  more  relevant  than  the 
organisation form. Acknowledging that mapping respondents into stakeholder categories 
is  not  straightforward  (for  example  banks  are  preparers  and  users  (lending)  and  some 
respondents  are  associations  representing  a  larger  number  of  stakeholders),  it  is 
interesting to note that investors and analysts using public reporting by companies seem 
underrepresented. Only 13% of the respondents were identified investors, while only 5% 
were  creditors  (banks  as  a  proxy).  Most  respondents  were  preparers,  accounting 
professionals  and  public  authorities  (60%).  This  reflects  a  general  difficulty  for  policy 

30 

 
 
 
making  on  public  reporting  and  accounting  standard  setting:  investors  and  analysts 
engage  to  only  a  limited  extent  in  public  consultations  compared  to  other  stakeholder 
groups.  This  fitness  check  sought  to  overcome  the  underrepresentation  of  investors  by 
organising a workshop on corporate reporting with investors. 

Stakeholders  did  not  respond  evenly  to  all  the  different  sections  of  the  questionnaire. 
Civil society and employees unions, for instance, largely responded to the Non-Financial 
Reporting (NFR) section but did not or hardly respond to questions on financial reporting 
and  digitalisation.  Interestingly,  investors  and  institutional  investors  responded  more  to 
NFR  questions  than  to  the  financial  reporting  parts.  Overall,  sections  1  (assessing  the 
fitness of the EU framework), 2 (the EU framework for all companies) and 5 (NFR) were 
the  most  frequently  answered.  The  section  reviewing  the  EU  financial  reporting 
framework for banks and insurance companies had least responses with mainly banks and 
academics sharing their views. 

DG  FISMA  published  the  “summary  of  responses  to  the  public  consultation  on  public 
reporting  by  companies 39”  on  18 November 2018.  Whereas  the  responses  are  a  very 
important source of input for this fitness check, the overall limited number of responses, 
the  skewed  distribution  of  types  of  respondents  /  stakeholders  and  their  geographical 
concentration imply that it is not statistically representative. The responses are therefore 
used as a qualitative input. 

In  addition  to  the  fitness  check  consultation,  a  high-level  conference  on  “The  future  of 
corporate  reporting”  was  held  on  30 November 2018 40 ,  and  a  number  of  ad  hoc 
workshops and stakeholder meetings were hosted:  

  A  workshop  addressing  the  European  Single  Electronic  Format  (ESEF),  involving 

preparers, analysts and professional associations; 

  An open stakeholder meeting on NFR, involving companies, investors, civil society 
organisations and other stakeholders; a meeting with civil society organisations, and 
a  meeting  with  companies  to  hear  their  views  on  NFR;  and  a  multi-stakeholder 
workshop on NFR to test some of the preliminary findings of this fitness check; 

  A workshop addressing financial reporting from the viewpoint of users and investors. 

On targeted topics of interest for the fitness check, DG FISMA surveyed the Accounting 
Regulatory Committee (ARC)41, the Expert Group of the European Securities Committee 
(EGESC) 42  and 
the  Business  Registers 
Interconnection System (CLEG-BRIS)43. 

the  Company  Law  Expert  Group  on 

The evaluation is also underpinned by two specific studies respectively on the reporting 
on payments to  governments  by  extractive and logging industries (VVA,  2018) and the 

39  
40  
41  

42  

43  

See Summary Report of the Public Consultation on the Commission’s web site. 
https://ec.europa.eu/info/events/finance-181130-companies-public-reporting_en.  
The  ARC  is  composed  of  representatives  of  each  Member  State’s  relevant  ministries,  and  includes  as 
observers  the  EEA  countries,  ESMA  and  EFRAG.  This  Committee  provides  opinion  to  the  European 
Commission on proposals to adopt IFRS. 
The Experts Group is a consultative entity set up by the Commission Services in order to provide advice 
and expertise, in the area of the securities law, to the Commission and its services. 
The expert group assists the Commission in the preparation of legislative proposals and policy initiatives in 
relation to the Business Register Interconnection System. 

31 

 
 
                                                 
accounting  regime  of  micro  companies  (CEPS,  2019).  The  Commission  services’ 
evaluation of the IAS Regulation conducted in 2015 brings additional robust evidence. 

Further  details  on  the  various  consultation  activities  and  their  outcome  are  given  in 
Annexes II and III. These are referred to where appropriate to support assertions made in 
the body of this staff working document. 

5.4 

Limitations  

One major limitation of the fitness check stems from the fact that four out of the five acts 
that constitute the EU framework on public reporting by companies are Directives, which 
by  definition  are  required  to  be  transposed  by  Member  States  into  national  law.  This 
implies  in  practice  that  stakeholders  with  an  interest  in  public  reporting  usually  do  not 
draw  a  distinction  between  the  requirements  arising  from  Union  law  and  additional 
national  rules.  This  limitation  is  especially  acute  with  regard  to  the  requirements 
applicable to  limited liability companies as the  EU  framework features  Member States’ 
options  and  does  not  address  all  types  of  economic  transactions,  rights  and  obligations 
The  fitness  check  does  not  assess  the  Member  States  exercise  of  options  or 
supplementary  requirements  stemming  from  Member  States’  national  Generally 
Accepted Accounting Principles (nGAAP).that complement the EU framework.  

Other  limitations  of  this  evaluation  stem  from  data  availability,  measurability  of 
outcomes  such  as  compliance  costs,  benefits  for  companies  (assessment  of  benefits 
stemming  directly  from  reporting  in  a  quantified  manner),  timing  (some  data  and 
evidence will only become available in the future) and the difficulty to correlate costs and 
benefits  with  the  preparation  of  financial  statements  and  non-financial  reporting 
obligations. 

Compliance costs typically arise from the preparation, audit and dissemination (e.g. filing 
with a register, posting on a web site, publication activities) of the information.  

This fitness check focuses on the preparation costs, but encounters the following practical 
challenges: 

  As regards filing with an authority, filing fees do not stem from EU action as it is a 
national business register’s or an OAM’s decision to impose such fees on companies; 
  Costs  in  relation  to  other  publication  channels  selected  by  a  company,  such  as  its 
own web pages, typically depend on the company’s choices and on the structure of 
its own web site. Such costs are difficult to isolate. 

As  regards  preparation  costs  in  relation  to  financial  reporting,  there  are  a  number  of 
inherent difficulties:  

  It is difficult to delineate costs in relation to the preparation of financial statements 
from the cost of ongoing administration and other reporting requirements. Typically, 
in order to manage its business, a company must register transactions and maintain 
records throughout the year, prepare company tax returns and provide statistical data, 
etc.  So,  there  is  a  considerable  portion  of  the  EU  obligation  that  companies  would 
apply anyway, in a “business as usual” situation. The “cost of doing business” would 
therefore  exist,  even  absent  any  EU  or  national  public  reporting  requirement. 
Besides,  Union  requirements  on  the  preparation  of  annual  financial  statements 

32 

 
 
substitute  national  requirements  that  were  in  place  before  EU  legislative  action, 
including  for  other  reasons  than  corporate  reporting  (tax  returns,  statistics...).  It 
would be especially challenging to quantify costs, if one only took into account any 
additional costs arising from EU legislation on the top of national legal obligations. 
So,  a  portion  of  the  preparation  costs  should  not  be  attributed  to  EU  intervention. 
However,  assessing  this  proportion  is  a  particularly  difficult  exercise,  but  it  is 
estimated that the larger the company, the closer the non-EU attributable costs gets to 
100%44.  

  The relevant directives are largely minimum harmonisation45. This means that some 
cost  for  the  preparation  of  financial  reporting  is  due  to  additions  by  national 
legislators and should therefore not be attributed to EU action. 

  The  super-simplified  regime  offered  by  the  Accounting  Directive  for  micro 
companies is an option for the Member States. Hence, where that option is not used 
companies  are  subject  to  more  demanding  requirements  than  they  are  under  EU 
intervention.  

For  these  reasons,  the  cost-benefit  analysis  focused  primarily  on  the  preparation  of 
financial  reporting  by  micro  companies,  which  represent  more  than  80%  of  the  EU 
companies  and  for  which  the  cost  of  public  reporting  is  relatively  higher  than  for  large 
companies46. 

Attention was also paid in this exercise to costs attributable to the preparation of CBCR 
for  extractive  and  logging  industries  and  non-financial  reporting  (NFRD,  including  the 
treatment of information arising from risk management processes). Additional limitations 
apply  to  the  NFRD.  Since  companies  only  reported  according  to  the  provisions  of  the 
directive  for  the  first  time  in  2018,  there  is  inevitably  a  lack  of  comprehensive  and 
historical data about how the directive has influenced company reporting of non-financial 
information and about the views of the intended users of that information. A number of 
studies, covering the 2018 and 2019 reporting cycles, have nevertheless been very useful 
for this fitness check, even though companies are still adapting to the requirements of the 
directive, and the situation can be expected to evolve further in the next reporting cycles.  

6. 

IMPLEMENTATION STATE OF PLAY 

As  part  of  this  fitness  check,  the  Member  States’  implementation  of  the  existing  EU 
framework was  also assessed. In this context, Member States’ compliance with EU law 
constitutes  the  pre-condition  for  the  relevant  EU  policy  objectives  to  be  reached 
effectively.  

While  certain  EU  legal  instruments  (e.g.  the  Regulations)  become  directly  applicable 
following their publication in the Official Journal of the European Union, certain others 

44  

45  

46  

Impact  assessment  accompanying  the  proposal  for  the  overhaul  of  the  Accounting  Directive,  SEC(2011) 
1290 final. 
The  Accounting Directive contains  maximum  harmonisation provisions in respect of  financial statements 
(Art. 4(5)) and in respect of notes (Art. 16(3)) for small companies. 
The burden compared to total administrative costs, was estimated before simplification at the EU level to 
represent  75%  of  total  administrative  costs  for  micros,  59%  for  small  and  virtually  none  for  large 
companies–  Source:  Impact  assessment  accompanying  the  proposal  for  the  overhaul  of  the  Accounting 
Directive, SEC(2011) 1290 final, table 4 p.20, citing a study made by a consortium (Capgemini, Deloitte, 
Ramboll) for the European Commission, 2009. 

33 

 
 
                                                 
(e.g.  the  Directives)  require  Member  States  to  bring  in  national  transposing  measures. 
According to the EU Treaties47, the Commission has the duty to ensure the application of 
EU law under the control of the Court of Justice of the EU. The Commission is therefore 
responsible for monitoring how EU law is implemented, solving problems with Member 
States so as to remedy any possible breaches of EU law, and taking infringement action 
when  appropriate 48 .  For  this  purpose,  it  carries  out  compliance  assessments  for  all 
Directives  published  in  the  Official  Journal  of  the  European  Union  that  require 
transposition  measures.  It  also  handles  complaints  concerning  possible  breaches  of  EU 
law  by  the  Member  States  received  by  members  of  the  public,  businesses  and  civil 
society. 

In order to assess the Member States’ implementation of the existing EU framework, the 
Commission  mainly  focused  on  the  results  of  the  compliance  assessments  for  the 
Accounting  Directive,  the  Non-Financial  Reporting  Directive  amending  the  Accounting 
Directive, and the 2013 Directive amending the Transparency Directive.  

In  order  to  facilitate  the  Member  States’  implementation  of  the  directives,  the 
Commission  services  organised  transposition  workshops 49  with  Member  States’ 
representatives to provide informal guidance on how to transpose specific provisions of 
the  AD  and  the  NFRD.  During  these  workshops,  Q&As  and  non-papers  to  clarify 
definitions and provisions were shared with the participants.  

State of play of transposition in Member States 

Despite  significant  delays  in  the  notification  of  their  national  transposing  measures,  to 
date all 28 Member States have completed the transposition of the AD, the NFRD and the 
2013 Directive amending the TD50. All the infringement cases that were initially opened 
for  late  transposition 51  were  subsequently  closed.  For  these  three  directives,  the 
Commission services assessed the compliance of the national transposing measures with 
each directive’s most important provisions. Such compliance check was based – in part – 
on a preliminary assessment of the national transposing measures per each Member State 
carried out by an external contractor.  

Compliance issues emerging from the compliance assessment 

As  for  the  AD,  only  a  few  non-critical  issues  were  identified  during  the  compliance 
assessment of the changes brought in by the new Directive adopted in 2013. A minority 
of Member States struggled with the removal of a restriction that existed thus far to have 
only  ordinary  activities  in  the  turnover,  resulting  in  potentially  uneven  definitions  of 
turnover  across  the  EU.  In  addition,  Member  States  have  had  slightly  varying 
interpretations of certain accounting rules in the AD52. 

47  
48  
49  
50 

51  

52  

Article 17 TEU. 
As set out in Articles 258 and 260 TFEU. 
NFRD: two workshops in 2015 and two workshops in 2016. AD: six workshop over 2014/2015.  
Accounting Directive: deadline for transposition 20/07/2015; last notification received 26/01/2017. NFRD: 
deadline  for  transposition  06/12/2016;  last  notification  received  on  27/11/2017.  TD:  deadline  for 
transposition 26/11/2015; last notification received on 06/12/2017.  
Late transposition cases opened (and later closed): as for the AD, 18 cases; as for the NFRD, 12 cases; as 
for the TD, 21 cases.  
Goodwill amortisation and impairment; the notion of control, participating interests and affiliated 
undertakings regarding consolidation; the fair value option.  

34 

 
 
                                                 
As  for  the  NFRD,  several  issues  were  identified  during  the  compliance  assessment. 
Firstly,  some  Member  States  have  not  been  sufficiently  clear  or  precise  in  the 
transposition of the concrete disclosure requirements contained in the directive. Secondly, 
there  are  concerns  about  the  collective  responsibility  of  the  members  of  the 
administrative,  management  and  supervisory  bodies  of  undertakings  with  regard  to  the 
non-financial statement if this is published in a separate report. Lastly, the exemption that 
applies to certain subsidiary undertakings has been limited in some Member States.  

As  for  the  TD,  a  few  Member  States  had  difficulties  with  the  transposition  of  the 
notification requirements for holders of financial instruments allowing the acquisition of 
shares to which voting rights are attached. Some issues have also been identified with the 
establishment  by  some  Member  States  of  certain  minimum  effective,  proportionate  and 
dissuasive administrative measures and sanctions for breaches of the national provisions 
transposing the TD rules.  

Table 4 summarises the above: 

Table 4:  State of play of transposition and main implementation issues 

35 

 
 
  
 
7. 

ANSWERS TO THE EVALUATION QUESTIONS 

This  section  assesses  the  EU  framework  on  public  reporting  against  the  following 
criteria:  effectiveness  (7.1),  efficiency  (7.2),  relevance  (7.3),  EU  added  value  (7.4)  and 
coherence (7.5).  

7.1 

Effectiveness of the EU framework 

financial  and  non-financial 

The  overarching  evaluation  question  is  whether  the  EU  framework  on  public 
reporting  by  companies  has  been  effective  in  enabling  stakeholders  to  make 
informed  decisions  by  ensuring  the  timely  reporting  of  relevant,  comparable  and 
reliable 
information  on  companies’  activities, 
performance,  risks  and  impacts.  Public reports are useful  for stakeholders when they 
can use them for informed decision-making. For example, forecasting future cash flows 
(predictive value) or comparing past evaluations or predictions with actual achievements 
(confirmatory value). Providing information with confirmatory value is especially useful 
with  a  view  to  assessing  management  stewardship  and  confronting  past  forecasts  with 
actual achievements.  

The  usefulness  of  publicly  reported  information  depends  on  who  the  stakeholders 
are  and  what  they  expect. The number and types of stakeholders depends on the type 
and size of the reporting  entity. A fully management-owned micro company has a very 
limited number of stakeholders compared to a listed company, which is accountable to a 
much broader range of stakeholders and has to cater for a multi-facetted reporting. This 
Fitness Check identifies three types of reporting entities (see also Table 1 in section 1.1) 
with  the  five  main  categories  of  stakeholders  (investors,  creditors,  employees,  civil 
society and authorities). This fitness check also recognises that some stakeholder groups 
are  not  homogenous.  For  example,  investors  may  have  different  interests  (e.g.  different 
levels of interest in sustainability), risk appetite, and time horizons for their investments; 
institutional  investors  or  private  equity  funds  may  have  direct  access  to  companies  that 
retail  investors  do  not  have.  This  fitness  check  also  considers  that  stakeholders  with 
privileged  insider  access  to  information,  such  as  manager-owners  or  tax  authorities  are 
less prone to see value in public reporting. Hence, they are not further considered in the 
remainder of this exercise. 

Limited liability companies 

Micro companies are often management-owned companies with sole proprietorship. They 
usually recourse to bank funding (loans and overdrafts). In most cases they have a single 
line of business with none to very little cross-border activity. Micro companies may have 
chosen  the  limited  liability  legal  form  to  shield  the  personal  property  of  the  owner-
manager from business risks or for tax reasons.  

Small  companies  usually  have  more  substantial  amounts  of  bank  lending  and  a  more 
complex ownership structure including external investors. They may have more complex 
group structures (also for tax purposes) and some cross-border business.  

Medium  and  large  non-listed  companies  can  comprise  very  large  family-owned 
companies or companies whose ownership is more widespread. Some are comparable to 
international  listed  groups  in  terms  of  size  and  cross-border  activities  and  can  employ 
thousands  of employees. They have  registered shareholdings.  Investment  funds or  asset 
managers may hold direct participation in their share capital.  

36 

 
 
All limited liability companies have trade creditors (e.g. product or service suppliers with 
varying  contract  terms  and  conditions)  who  may  use  the  annual  financial  statements  to 
assess  the  creditworthiness  of  companies.  Employees  can  also  use  such  statements  to 
evaluate the profitability and pension contribution capacity of their employers. In general, 
civil society is more interested in impacts of companies on society and the environment 
and more concerned by activities of larger companies.  

Listed companies  

Listed  companies  have  diversified  widely  dispersed  (largely  anonymous)  shareholdings 
including direct and indirect investments by institutional investors such as life insurance 
companies,  pension  funds  or  hedge  funds.  Virtually  all  have  EU  cross-border  business. 
They can be global players with more than 100.000 employees and complex international 
group  structures.  Public  reporting  by  listed  companies  is  subject  to  supervision  by 
securities market supervisors.   

Non-listed financial institutions 

Banks  take  deposits  and  grant  loans  on  their  own  account,  have  access  to  central  bank 
liquidity,  and  are  subject  to  specific  prudential  requirements  on  solvency,  resolution, 
deposit  guarantees,  and  banking  supervision.  To  the  extent  that  banks  are  listed,  the 
regular public reporting requirements for listed companies apply.  

Insurance undertakings underwrite insurance risks for their own account and are subject 
to specific prudential requirements on solvency, governance, and insurance supervision. 
To  the  extent  that  insurance  undertakings  are  listed,  the  regular  public  reporting 
requirements for listed companies apply.  

Depositors  of  banks  and  policyholders  of  insurance  undertakings  are  protected  by  a 
cascade of regulatory requirements, including prudential and supervisory frameworks as 
well as deposit and insurance scheme guarantees, and they usually do not rely on public 
reporting by financial institutions in order to protect their interest. 

Table 5 summarises for each category of entities the main stakeholder groups for which 
public information is useful for their decision-making.  

37 

 
 
Table 5: Stakeholder groups per type of entity 

Catego
ry 

s
e
i
n
a
p
m
o
c

Size / 
type 

Micro 

Small 

Investors  
(Equity) 

Manager / 
owner (1 or 
very few 
shareholders)   
Manager / 
owner + few 
registered 
shareholdings 

Medium   Registered 

Creditors  
(debt funding 
+ trade 
creditors)  
Banks, trade 
creditors 

Banks, trade 
creditors 

Banks, trade 
creditors 

y
t
i
l
i
b
a
i
l
d
e
t
i

m
L

i

Large  

  Listed 

d
e
t
s
i
L

s
e
i
n
a
p
m
o
c

s
n
o
i
t
u
t
i
t
s
n
i

l
a
i
c
n
a
n
i
f
d
e
t
s
i
l
-
n
o
N

(group) 

Bank 
(any 
legal 
form) 

Insu-
rance 
undertaki
ng (any 
legal 
form) 

shareholdings 
(e.g. family), 
asset 
managers 
Registered 
shareholdings 
(e.g. family), 
asset 
managers 
Shareholders 
on secondary 
markets, 
investment 
funds, asset 
managers 
Registered 
shareholders 
(cooperative 
shareholders)  

Registered 
shareholders 
(cooperative 
shareholders)  

Stakeholders   
Employees 

Civil 
society 

Others 

Direct 
employer / 
owner 
relationship   
Direct 
employer / 
owner 
relationship  
Structured 
employee 
representation  

In excep-
tional 
cases 

In some 
cases, 
depending 
in impacts 
In some 
cases, 
depending 
on impacts 
and size 
NGOs 

Authorities 

Authorities 

Authorities 

Authorities 

Banks, trade 
creditors 

Structured 
employee 
representation  

Banks, trade 
creditors, 
holders of 
listed debt 
securities 

Interbank 
lenders, 
creditors, 
depositors 
holders  

Structured 
employee 
representation  

NGOs 

Authorities 

Structured 
employee 
representation 

Depending 
on impacts 
and size  

Authorities 

Policy holders  

Structured 
employee 
representation 

Depending 
on impacts 
and size  

Authorities 

7.1.1  Effectiveness  of the EU framework on regular public reporting by all limited liability 

companies  

Table 6 summarises the requirements of the EU framework on regular public reporting by 
all limited liability companies (14.2 million micro, 2.3 million small, 0.3 million medium 
and  0.1  million  large  companies).  These  requirements  stem  from  the  AD,  the  IAS 
Regulation  where  Member  States  have  decided  to  expand  the  scope  of  mandatory 
application of IFRS (see Annex IV), and CBCR where the company is large and is active 
in  the  extractive  or  logging  sector.  One  Member  State  requires  the  use  of  IFRS  for  all 
limited  liability  companies,  15  Member  States  permit  the  use  of  IFRS  by  all  limited 
liability companies, and four Member States only permit the use of IFRS by subsidiaries 
of  parent  undertakings  reporting  under  IFRS.  Evidence  indicates  that  where  the  use  of 

38 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
IFRS  is  permitted,  take  up  remains  limited  and  the  vast  majority  of  companies  choose 
using national GAAP53.  

Table 6: Requirements of the EU framework on regular public reporting by all limited liability companies  

Category 

The EU framework on regular public reporting by all limited liability companies 

AD 

IAS 

CBCR 

Size / type 
Micro 

Abridged balance sheet and P&L   

y
t
i
l
i
b
a
i
l

s
e
i
n
a
p
m
o
c

Small 

Medium / 
Large  

Financial statements 
(Balance sheet, P&L, notes) 
Financial statements, 
management report, audit 

-  
(IFRS = MS option) 
-  
(IFRS = MS option) 
-  
(IFRS = MS option) 

- 

- 

Extractive or logging 
sector (large) 

d
e
t
i

m
L

i

Conclusion  on  the  Effectiveness  of  the  EU  framework  on  regular  reporting  by  all 
limited liability companies 

For  a  majority  of  stakeholders,  the  information  provided  under  the  EU  framework 
applicable to all limited liability companies is relevant. Even if the AD has lacunas and 
did not keep pace with regulatory and business developments, this does not appear to be a 
major issue in practice as Member States have largely supplemented the EU framework 
in their national legislation (or allowed the use of IFRS).  

Comparability  of  published  information  is  adequate  in  form  due  to  prescribed  lay-outs 
but perfectible in substance. This is mainly a concern for stakeholders with an interest in 
companies with cross-border operations, i.e. larger companies. These count for 2% of the 
total number of EU limited liability companies. Stakeholders tend to point to IFRS-based 
solutions to address this. 

Reliability  of  the  information  published  under  the  EU  framework  seems  adequately 
safeguarded  by  collective  board  responsibility  for  giving  a  “true  and  fair  view”.  The 
statutory  audit  requirement,  which  is  commensurate  to  the  size  of  companies,  offers  an 
additional safeguard for users of information of a fair portion of larger companies.  

The timeliness of information  provided to  stakeholders  depends on how Member States 
have  implemented  the  publication  provisions  of  the  AD.  Even  though  sometimes 
published earlier due to national laws, the AD allows publication of the information up to 
12 months after the end of the reporting period significantly which reduces the relevance 
of  the  information  for  stakeholders.  Moreover,  there  is  evidence  that  not  all  companies 
comply with the timeliness of their publication obligations. This lack of compliance may 
be  a  consequence  of  insufficiently  dissuasive  sanctioning  regimes  implemented  in  the 
Member States. 

The  usefulness  of  CBCR  in  bringing  transparency  on  payments  to  governments  by 
extractive and logging industries is widely recognised by civil society. 

53  

Source: Commission services’ search in Orbis. 

39 

 
 
 
 
 
 
 
 
 
 
                                                 
Relevance 

The vast  majority of stakeholders consulted for this fitness check does not dispute 
the  relevance  of  the  financial  information  provided  under  the  EU  framework 
applicable  to  all  limited  liability  companies  (Q16-Q1754).  Even  if  there  is  growing 
debate  and  research  about  the  usefulness  of  financial  reporting  for  decision-
making55, users consider that financial statements have an important confirmatory 
role.  Companies’  information  in  the  financial  statements  may  be  seen  to  be  essentially 
about past events with limited forward-looking value. Nevertheless, in their responses to 
the  consultations,  stakeholders  outlined  that  financial  statements  have  an  important 
confirmatory  role  and  did  not  call  for  amendments  to  the  AD  in  order  to  require 
additional forward-looking data in the financial statements such as future cash flows.  

Arguably,  the  AD  has  not  been  updated  to  reflect  all  regulatory  and  business 
developments.  In  consequence,  there  are  numerous  areas  for  improvement  which 
were identified through Commission research and consultations:  

  Lacunas  in  recognition  and  measurement  principles  for  the  preparation  of 
financial  statements:  the  AD  may  not  adequately  portray  some  transactions,  for 
instance  the  revenues  from  multiple-element-sale  contracts  or  the  underlying  assets 
and liabilities of lease contracts56.  

  Lacunas  in  the  completeness  of  financial  statements:  for  example,  the  AD  does 
not  require  the  preparation  of  a  cash-flow  statement  or  a  statement  of  changes  in 
equity.  

  Insufficient content of the management report: management reports include more 
forward-looking and risk oriented, narrative information. As such investors consider 
it  a  key  document.  Some  analysts  argue  that  the  management  report  could  include 
key  performance  indicators  to  strengthen  comparability  as  well  as  (not  necessarily 
financial) information on intangibles. 

Member States have mitigated the impact of these lacunas, either by supplementing 
the minimum requirements of the AD in their national legislation (as illustrated in 
figure  6),  or  by  expanding  the  scope  of  the  companies  allowed  or  required  to  use 
IFRS.  A  majority  of  stakeholders  consider  the  EU  framework  as  overall  relevant  and 
support  the  status  quo  (Q12 57).  However,  the  variety  of  nGAAPs  resulting  from  the 
situation may have impacts in terms of comparability. 

54  

55  

56  

57  

In  general,  most  of  the  stakeholders  (71%)  agree  on  the  relevance  of  the  current  EU  public  reporting 
framework.  Banks,  investors,  institutional  investors,  public  authorities  and  preparers  are  particularly 
satisfied  on  the  subject.  More  sceptical  respondents  include  academics  and  audit  and  accounting  firms. 
Civil  society  and  employees  are  particularly  distrustful  of  the  relevance  of  the  framework  however  their 
major concerns are targeted at non-financial information (see section 7.1.2). 
A  paper  from  the  University  of  Melbourne  prepared  for  the  IASB  ASAF  (Accounting  Standard  Setting 
Forum)  provides  a  good  overview  https://www.ifrs.org/-%20/media/feature/meetings/2018/april/asaf/asaf-
08a-research-paper-april-2018.pdf/. 
Karel  Van  Hulle,  Leo  van  der  Tas,  “European  Union,  Individual  accounts”  in  TRANSACC,  Dieter 
Ordelheide and KPMG, second edition.  
A  majority  of  respondents  (52%),  especially  investors,  banks  and  creditors,  employees,  authorities  and 
preparers took the view that the EU should maintain the current framework as it is and not pursue further 
convergence  of  nGAAPs  implementing  the  AD.  Civil  society,  market  infrastructures,  auditors  and 
individual  stakeholders  were  more  inclined  to  try  and  reduce  differences  between  national  legislations 

40 

 
 
                                                 
 
Figure 6: Rules and additional information as per Member States’ GAAPs filling in the gaps in the AD 

Accounting rules & additional information 
- EU 28  

REVENUE FROM CONTRACT WITH CUSTOMERS 
LEASE CONTRACTS 
GOVERNMENT GRANTS 
DEFERRED TAXES 
FOREIGN CURRENCY 
EMPLOYEE BENEFITS 
LONG TERM CONTRACTS 
OTHER NATIONAL RULES 

CASH FLOW STATEMENTS 
STATEMENTS OF CHANGES IN EQUITY 
NOTES 
CONTENT OF MANAGEMENT REPORTS 
MANAGEMENT ASSERTIONS 
OTHER INFORMATION 

    Source:  Accounting  Regulatory  Committee,  based  on  24  Member  States  contributing  to  the  survey. 
Percentages reflect the number of Member States 

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Comparability 

There  is  no  conclusive  evidence  showing  whether  national  supplements  to  the  AD 
provisions, or the use of IFRS, have led to more or less cross-border comparability. 
As  regards  supplements  brought  in  by  Member  States  in  their  respective  nGAAP,  a 
survey58 indicates that Member States use IFRS as a  yardstick (the  IFRS ‘trickle-down’ 
effect59), which could support comparability. On the other hand, the AD contains many 
options to choose from for the Member States including about 30 Articles with more than 
200  detailed  provisions.  A  survey  by  the  Commission  services  indicates  that  the  actual 
use of options by Member States is not negligible, ranging from 17 to 161 options, with a 
median of 92 options. Among these, 39 options are widely used by more than 20 Member 
States.  These  include  for  instance  the  super-simplified  regime  for  micro  companies, 
measurement techniques such as fair value, and prior years’ adjustments60. On that basis, 
the AD seems to be effective in achieving a certain degree of cross-border comparability 
for  limited  liability  companies  through  a  common  set  of  principles 61  and  prescribed 

transposing  the  AD.  Moreover,  66%  of  respondents  generally  disagreed  with  the  idea  of  addressing 
lacunas,  especially  investors,  banks  and  creditors,  employees,  auditors,  authorities,  preparers  and 
individuals. 
The Trickle Down Effect - IFRS and the Accounting Treatment of SMEs, EFAA, 23 March 2017. 
The ‘trickle down’ effect is the influence that IFRS can have on the design of national approaches, where 
the AD offers leeway.  
Other  –  less  widely  used  –  options  concern  a  variety  of  topics,  including  for  instance  the  financial 
statements’  layouts,  participating  interests,  consolidation  techniques,  preparation  and  publication  of 
abridged accounts, separate NFR and corporate governance reports. 
These include the true and fair view, the accruals basis, prudence, consistency of policies and figures over 
time, historical costs, materiality, etc. 

58  
59 

60  

61  

41 

 
 
  
 
                                                                                                                                                             
reporting lay-outs62. However, it tends to adequately support comparability rather in form 
(prescribed lay-outs) than in substance. 

A  suboptimal  cross-border  comparability  of  information  in  financial  statements 
does not appear to be a major issue for stakeholders, which may stem from the fact 
that the vast majority of limited liability companies (98%) are either micro or small 
entities, for which cross-border activities tend to be less widespread than with larger 
companies. 64% of respondents (including preparers and many investors) agreed that the 
comparability  of  nGAAP  is  conceptually  suboptimal,  but  that  divergent  accounting 
treatments  had  limited  behavioural  consequences  on  their  investment  and  business 
decisions  (Q8 63 -Q9 64 ).  A  majority  thought  that  the  EU  should  not  pursue  further 
convergence  of  the  nGAAP  (Q1265).  Civil  society  actors  and  academics  tended  to  see 
suboptimal  cross-border  comparability  as  a  hindrance  to  cross-border  establishment  but 
recognised that, absent  any harmonisation  of company tax bases  within the EU,  further 
harmonisation could entail issues for companies66.  

Suboptimal comparability is more critical for larger companies (that count for 2% 
of the limited liability companies in the EU), as they usually have more cross-border 
operations  than  smaller  companies67.  Stakeholders of these large companies are most 
likely  to  be  interested  in  better  comparability  across  the  EU  as  well  as  at  international 
level, and hence in the use of IFRS. During consultation, there was no large support for 
any  attempt  to  reduce  variability  of  nGAAP.  Instead,  the  IFRS  appeared  as  an  anchor 
point (Q1268). 

62  

63  

64  

65  

66  

67  

68  

Annex  3  to  6  of  Accounting  Directive  2013/34  provide  the  balance  sheet  and  profit  and  loss  layouts 
prescribed by  Article  10. There  are  many  Member  State  options,  though.  Article  9  permits  some  general 
flexibility  within  these  layouts.  Article  14  and  36  permit  abridged  presentation  for  SMEs  (and  super-
abridged  for  micro  companies).  Article  11  permits  departure  to  equivalent  layouts  for  certain  classes  of 
companies  (for  instance  when  using  the  IFRS).  As  a  result,  Member  States  have  implemented  the 
Directive’s layout, with national variations. 
39% of the respondents considered that differences in national reporting rules did not hinder cross-border 
business.  Half  or  more  of  institutional  investors  (57%),  banks  (63%),  market  infrastructures  (50%)  and 
preparers  (51%)  supported  that  view.  Only  5%  of  the  respondents  deemed  the  differences  in  national 
reporting rules as a serious obstacle to cross-border business, whereas 44% perceived some hindrance.   
Overall, 64% of the respondents agree that the EU should not pursue further convergence of the nGAAPs 
and  that  differences  in  national  accounting  standards  do  not  constitute  significant  impediments  to  cross-
border establishment in the EU. Only civil society and academics appear unconvinced and see differences 
in nGAAPs as a hindrance to cross-border establishment. However, 61% of the respondents see differences 
arising from the determination of taxable profits as a significant impediment to cross-border establishment. 
Institutional  investors  (71%),  banks  (81%),  employees  (100%),  academia  (67%),  audit  and  accounting 
firms (75%), public authorities (60%), preparers (63%) and individual stakeholders (67%), are particularly 
critical on that point. 
Most of the respondents agree that the EU should not pursue the convergence of nGAAPs and maintain the 
current  framework  as  it  is  (52%).  On  the  contrary,  civil  society,  market  infrastructures  and  individual 
stakeholders argue for a reduction of the differences in nGAAPs. Reducing the differences by converging 
nGAAPs  on  the  basis  of  a  European  Conceptual  Framework  is  generally  the  least  preferred  option.  The 
least rejected one is to remove options currently available in the EU accounting legislation (AD).  
The  Commission  has  proposed  in  October  2016  a  Directive  for  a  Common  Corporate  Tax  Base  (CCTB) 
and a consolidated tax base (CCCTB). 
Cross border operations at company level  tend to be  commensurate  with  size. See for  instance European 
Commission Annual report on European SMEs – 2018/17, p. 50. 
Except  for  civil  society  and  academics,  stakeholders  generally  disagreed  on  the  idea  of  reducing  the 
variability  of  nGAAP  by  removing  options  or  implementing  a  specific  EU  conceptual  framework. 

42 

 
 
                                                 
 
Reliability 
Reliability  relies  on  the  “true  and  fair  view”  principle69,  which  is  primarily  the 
responsibility  of  the  companies’  management,  and  is  for  medium-sized  and  large 
companies confirmed by auditors. The purpose of the sanctioning regimes for non-
compliance  with  the  EU  framework  is  also  to  secure  the  reliability  of  corporate 
reporting.  

The “true and fair view” principle70 has been recognised by the Court of Justice as 
the overarching principle in order to satisfy third parties’ needs for information71. 
This principle is laid down in the AD, which specifies that a true and fair view should be 
given  by  complying  with  the  provisions  of  the  directive,  but  where  appropriate,  a 
company should provide as much additional information as necessary to give a true and 
fair view. If needed (in rare cases) any provisions set in the AD seen as contrary to the 
true and fair view should be overridden. 

Statutory  audits  contribute  significantly  to  the  reliability  of  financial  information 
reported  by  companies  by  determining  whether  a  company’s  financial  statements 
comply with nGAAP and the true and fair view principle72. EU law on statutory audit 
requires  that  at  least  medium-sized  and  large  companies  (i.e.  2%  of  all  EU  limited 
liability companies) appoint a statutory auditor73. Eighteen Member States have expanded 
the  audit  obligation  to  smaller  companies,  and  four  to  micro  companies as  well74.  As  a 
result,  it  is  estimated  that  up  to  11%  of  the  16.8  million  EU  companies  have  the  legal 
obligation  to  appoint  an  auditor,  including  up  to  one  third  of  the  2.3  million  small 
companies. A number of smaller companies also appoint voluntarily a statutory auditor75. 
In  addition,  micro  and  small  companies  often  use  professional  external  accountants  to 
prepare  their  financial  reporting76,  which  confers  a  certain  level  of  comfort  as  to  their 
faithfulness. The vast majority of the audit reports conclude positively on the compliance 
with nGAAP and the true and fair view. There are occasional cases of failures of auditors 
and audit companies in carrying out their tasks.  

There  are  concerns  as  to  whether  the  judiciary  system  and  sanctioning  regime  of 
Member States are effectively ensuring the reliability of the financial statements of 

Nevertheless, respondents were more amenable to the idea of enhancing comparability with rules based on 
IFRS. 
See for instance (1) National And International Perspectives On The Quality Of Accounting Information, 
Alina Rusu, Revista tinerilor economişti, 2012 – (2) True and fair statement, PWC UK, 5 June 2014 – (3) 
The Evolution Of The Importance Of The True And Fair View Principle. The Case Of Poland, Agnieszka 
Piechocka-Kałużna, Sciendo, 2018, Vol. 23, No. 4. 
Article 4 AD. 
Court  case:  Tomberger,  C-234/94,  EU:C:1996:252,  point  17,  DE  +  ES  Bauunternehmung  (C-275/97), 
BIAO (C-306/99). 
See for instance, The Impact Of Creative Accounting On Financial Audit, Radu Vasile, Studia Universitatis 
Vasile Goldiş, Arad - Seria Ştiinţe Economice, 2013, Vol.23(4), pp.56-62. 
Article  34  AD  imposes  the  appointment  of  a  statutory  auditor  on  medium-sized  and  large  companies,  as 
well public-interest entities of any size. Figures extrapolated from the  Study on the accounting regime of 
limited micro companies – CEPS – 2019. 
See Accountancy Europe – Audit exemption thresholds in Europe - 2019 – Survey results. 
For instance, an audit could be required by funds providers or by other persons. For instance, Dr Jill Collins 
surveyed 419 micro companies in the UK and found that, for various reasons, 22% of these had a voluntary 
audit (https://realbusiness.co.uk/why-smes-choose-voluntary-audit/). 
CEPS surveyed micro companies in eight Member States, 72% of which had an external accountant. 

69  

70  
71  

72  

73  

74  
75  

76  

43 

 
 
                                                                                                                                                             
limited liabilities companies, and being a robust ultimate line of defence for users. 
The  AD  requires  Member  States  to  provide  for  effective,  proportionate  and  dissuasive 
penalties, and the CLD appropriate penalties against non-compliance with the directives. 
But  contrary  to  other  Directives  such  as  the  TD,  the  AD  or  CLD  set  no  indications  on 
minimal levels or types of sanctions to be considered. This results in uneven approaches 
across the EU. 

All  Member  States  but  one  base  their  sanctioning  regime  primarily  on fines.  More 
than half of the Member States’ regimes also provide for criminal fines.  Some Member 
States’  sanctioning  regimes  include  as  well  administrative  sanctions,  for  instance  to 
address  cases  where  companies  would  not  fulfil  their  filing  obligations  (financial 
statements, statutes ...) over a few  years or the ability to act before courts on this basis. 
For  instance  a  company  may  be  struck  off  the  business  register  if  it  fails  to  file  the 
financial statements over a few years in Cyprus, Poland or Belgium (non-exhaustive list) 
and sometimes even dissolved. The volume of applicable fines vary significantly across 
the EU, but as shown in table 7, could tend be overall quite low. 17 Member States set 
minimum fines, the median of which amounts to EUR 300. As regards maximum fines, 
there  is  clear  divide  with  about  half  of  the  Member  States  in  the  range  of  EUR 500  to 
EUR 13 500  (natural  persons  and  companies  combined,  median  EUR 3,500),  and  the 
other  half  imposing  much  higher  fines  (sometimes  unlimited).  On  this  basis  the 
dissuasiveness of sanctioning regimes within the EU appears to be uneven. 

Table 7: Fines in Member States, EU 28 

Minimum fine 

Maximum fine 

No limit (e.g.% 
turnover) 
Range starting above 
EUR 15 000 
Range below EUR 
15 000 
No fine 

      Source: European Commission 

Member 
States 

17 

Member 
States 

5 

9 

13 

1 

Range (EUR) 

Median (EUR) 

23 – 2 500 
0.1% turnover – 
3% assets 

EUR 300 

Range (EUR) 

Median (EUR) 

- 

N/A 

20 000 – 3 000 000 

50 000 

500 - 13 500 

3 500 

- 

- 

Timeliness 

Information published long after the balance sheet date is less useful for decision-
making.  The  12  months  maximum  deadline  for  companies  to  file  their  financial 
statements with a national business register, as laid down in the AD, appears quite 
long.  In  particular,  the  relevance  for  trade  creditors  of  backward  looking  annual 
information  published  up  to  12  months  after  the  end  of  the  reporting  period  seems 
limited. Other than the business register, the AD does not provide for any other channel 
of  publication,  e.g.  using  a  company’s  web  site.  Some  users  responding  to  the  public 
consultation  (Q1,  Q2  and  Q9)  noted  that  the  long  deadline  for  publication  of  the 
information, combined with the lack of a single point of access significantly undermine 

44 

 
 
 
 
 
 
 
the usefulness of the information for their decisions. This is partly compensated for by 
shorter  deadlines  in  a  number  of  Member  States  and  as  companies  can  voluntarily 
publish financial information ahead of legal deadlines, including on their website.  The 
figure  below  provides  an  overview  of  how  Member  States  have  implemented  the  AD 
deadline. These effectively range from 4 to 12 months, with nine Member States above 
10 months.  

Figure 7: Publication delays implemented – EU 28  

Publication  delay after balance sheet date 
(months, estimated, maximum) - EU 28 

14

12

10

8

6

4

2

0

AT  BE  BG  CY  CZ  DE  DK  EE  EL  ES  FI  FR  HR  HU  IE 

IT  LT  LU  LV  MT  NL  PL  PT  RO  SE  SI  SK  UK 

Source: European Commission 

In  addition  to  long  legal  delays,  potential  issues  were  identified  as  regards  the 
compliance  with  delays.  Cases  of  companies  not  filing  their  financial  statements  are 
often  reported,  e.g.  in  the  press,  or  are  raised  by  the  European  Parliament 77  and  in 
complaints  submitted  to  the  Commission.  On  a  more  comprehensive  basis,  CEPS 
estimated78 that  for  the  financial  year  2016,  potentially  64.3%  of  the  active  EU  limited 
liability  companies  had  filed  their  financial  statements  by  the  remittance  date.  The 
situation is not even across the EU with some Member States showing better compliance 
rates than others. A narrow survey carried out by the Commission with business registers 
tends  to  support  this  finding  with  a  median  of  81%  of  companies  filing  their  financial 
statements on time in eight Member States. 

77  

78  

For instance, see Parliamentary questions E-003714/2018 on the filing by certain companies in Ireland, P-
010191/2015  about  uneven  publication  of  certain  information  across  the  EU,  European  Parliament’s 
Recommendation  following  the  inquiry  on  money  laundering,  tax  avoidance  and  tax  evasion  (P8_TA-
(2017)0491)  paragraph  70  on  the  need  for  up-to-date  and  trustworthy  information  on  companies.  In 
addition, certain complaints were received by the Commission (ongoing). 
On the basis of the Orbis database. 

45 

 
 
 
 
 
                                                 
CBCR for the extractive and logging industries 

As regards CBCR, given that the requirements have been in place for two (at best three) 
reporting  cycles,  data  is  limited,  but  a  number  of  observations  can  already  be  drawn 
based on some studies and interaction with stakeholders. 

There is no doubt in general, at least in the eyes of civil society, about the usefulness 
of  the  information  provided  in  CBCR  to  empower  populations  of  resource-rich 
countries.  The  industry  is  more  sceptical  about  whether  the  primary  objective  of  the 
policy has been met and considers that civil society has so far been using CBCR rather to 
challenge  companies  than  to  keep  governments  accountable.  Besides,  the  legislation 
appears to cover very few logging industries (VVA study), which raises concerns about 
its effectiveness for that sector. 

Stakeholders  (investors,  standard  setters,  accounting  firms,  analysts  and  NGOs 
(Q51-53) have pointed to issues with the timely delivery and even access to CBCR. 
Civil  society  calls  upon  further  digitalisation  to  solve  the  issue.  The  UK  centralised 
repository for disclosures established by the Business Register Companies House appears 
as best practice as it provides free central access to all CBC reports of UK companies in 
the scope of the legislation. 

7.1.2  Effectiveness of the EU framework on regular public reporting by listed companies  

The  EU  framework  on  regular  public  reporting  subjects  listed  companies  to  the  most 
demanding requirements for financial and non-financial information79. 

Table 8 summarises the EU framework requirements on regular public reporting by listed 
limited  liability  companies  (around  5,000  parent  companies  applying  IFRS,  and  1 500 
single listed entities applying nGAAP unless otherwise specified in national legislation). 
The general publication requirements of the AD are complemented by requirements from 
the TD, as well as from the NFRD (where the company is a large PIE with more than 500 
employees),  the  IAS  Regulation  (where  the  company  prepares  consolidated  financial 
statements  –  with  possible  extension  to  annual  financial  statement  if  permitted/required 
by  national  legislation),  and  CBCR  (where  the  company  is  large  and  is  active  in  the 
extractive or logging sector). 

As  at  December  2018,  22  Member  States  had  used  the  option  to  expand  the  scope  of 
application of IFRS to the annual financial statements of listed entities (see Annex IV): 
11 Member States required the use of IFRS for the annual financial statements of listed 
entities (in addition to their use for the group’s consolidated financial statements) and 11 
others permitted this. As at 2019, an estimated 1 10080 listed companies were required to 
apply  IFRS  also  for  their  annual  financial  statements,  however  no  EU-wide  reliable 
statistics were available about the number of companies electing the option to use IFRS 
when permitted. 

79            For  a  list  of  financial  and  non-financial  type  of  information,  together  with  the  specification  of  the 

80  

documents where stakeholders can find such information, please see Annex VI. 
Based on Annex III of the ESMA 2020 Report on the enforcement and regulatory activities of European 
(https://www.esma.europa.eu/sites/default/files/library/esma32-63-
enforcers 
846_2019_activity_report.pdf), number of EU IFRS issuers listed in Member States who require the use of 
IFRS for the annual financial statements of listed entities. 

2019 

in 

46 

 
 
                                                 
Table 8: Requirements of the EU framework on regular public reporting by listed companies 

Cate
gory 

Size / 
type 
Listed  

s
e
i
n
a
p
m
o
c
d
e
t
s
i
L

The EU framework on regular public reporting by listed companies 
AD 

NFRD 

IAS 

TD 

CBCR 

Financial statements, 
management report, 
corporate governance 
statement + audit  

If large 
and >500 
employees: 
non-
financial 
statement 

Yearly and half-
yearly “financial 
report” (also non-
EU country 
issuers).  
Reports on 
payments to 
governments  

Reports 
on 
payments 
to 
governme
nts 

Mandatory 
IFRS for 
consolidated 
financial 
statements 
(approx. 
5 000 
entities)  

(IFRS for 
annual 
financial 
statements = 
MS option) 

Conclusion  on  Effectiveness  of  the  EU  framework  on  regular  public  reporting  by 
listed companies 

The  relevance  of  reported  financial  information  is  good  for  investors  and  creditors  of 
listed groups for their consolidated financial statements which under the EU framework 
have to apply EU-endorsed IFRS. By the same token, the relevance of reported financial 
information  in  the  individual  annual  financial  statements  of  listed  companies  drawn  up 
according to IFRS is good (where Member States have expanded the scope of application 
of  IFRS  to  annual  financial  statements  of  listed  companies).  For  listed  companies  not 
applying IFRS for the preparation of annual financial statements, the relevance ultimately 
depends on the provisions from Member States’ nGAAP that complement the minimum 
requirements  of  the  EU  framework  (AD).  The  relevance  of  reported  non-financial 
information  is  suboptimal  with  many  listed  companies  failing  to  disclose  the  non-
financial  information  that  users  (especially  investors  and  civil  society  organisations) 
consider  relevant,  while  also  disclosing  information  that  is  not  relevant.  This  is  at  least 
partly due to the lack of clarity of the EU framework (NFRD).  

Comparability  is  good  in  substance  for  IFRS  but  could  be  further  improved  with 
standardised tabular lay-outs. The comparability of non-financial information is generally 
insufficient to meet users’ needs. 

The reliability of financial information is overall good due to the cascade of requirements 
of  collective  board  responsibility  for  the  true  and  fair  view  of  financial  statements, 
mandatory  statutory  audit  for  any  listed  company,  and  securities  market  supervision. 
Stakeholders perceive the information disclosed in compliance with TD rules as overall 
reliable.  However,  there  are  diverging  enforcement  practices  across  the  EU  and  -  as 
highlighted  by  the  Wirecard  case  -  potential  weaknesses  as  regards  the  effectiveness  of 
enforcement practices, in particular as regards the lack of coordination between national 
authorities  and  the  independence  of  the  authorities  in  charge  of  examining  financial 
information.  The  reliability  of  non-financial  information  is  in  most  cases  not  adequate, 
and  the  EU  framework  imposes  fewer  requirements  to  ensure  the  reliability  of  non-
financial information compared to financial information.  

47 

 
 
 
 
 
 
 
 
 
 
Timeliness  is  good  due  to  specific  tight  requirements  from  the  TD  on  maximum  filing 
delays and monitoring by competent authorities. 
As  regards  the  effectiveness  of  the  CBCR  requirements  for  listed  companies,  the  same 
conclusions reached for limited liability companies apply.  

7.1.2.1 Effectiveness of the EU framework for financial information publicly reported by listed 

companies   

Relevance 

language 

improving 

financial  reporting 

The  IAS  Regulation,  as  directly  applicable  Union  law  has  achieved  that  IFRS  has 
transparency, 
become  a  common 
comparability and reducing the cost of capital. This is a major achievement recognised 
by virtually all respondents to the public consultation, although few mentioned that IFRS 
benefits  came  at  cost  of  increased  operational  burden  and  information  overload. 
Respondents considered the IAS Regulation as the main instrument that had contributed 
to  an  integrated  capital  market  and  reduced  companies’  cost  of  capital.  Almost  all 
investors  reported  that  the  EU  framework  had  been  effective  in  promoting  integrated 
capital  markets 81  and  commented  that  IFRS  had  resulted  in  transparent  financial 
information  thus  facilitating  investment  decisions.  As  a  main  group  of  creditors,  banks 
unanimously  concurred  that  the  EU  framework  had  been  beneficial  for  capital  markets 
with some of them highlighting that the adoption of IFRS had been a cornerstone of this 
success.  Similarly,  a  credit  agency  underlined  that  incorporating  the  IFRS  had  been  an 
important  step in  delivering transparent  information to  public markets.  One trade union 
also  reported  a  positive  assessment  about  the  EU  framework  for  capital  markets. 
However,  representatives  from  the  civil  society  overwhelmingly  did  not  comment  the 
question.  

Based on the results of a literature review, the Commission 2015 Evaluation of the 
IAS Regulation also concluded that there was evidence suggesting that the adoption 
of  IFRS  in  the  EU  had  resulted  in  a  higher  degree  of  transparency  of  financial 
reporting.  Transparency implies securing an equal access to a minimum set of relevant 
disclosures so as to allow interested stakeholders to exert scrutiny. Empirical studies have 
therefore attempted to measure the relevance of the financial information under IFRS by 
considering three main types of indicators: 

(1)  improved  accounting  quality  and  disclosures,  approximated  by  the  level  of 
disclosures and the impact of discretionary estimates on the net income; 
(2)  more  value-relevant  reporting,  approximated  by  correlations  between 

accounting disclosures and changes in share prices; and  

(3)  more accurate analysts’ forecasts of future earnings and financial targets.  

The  evidence  was  however  not  unequivocal  reflecting  the  fact  that  the  incremental 
benefits differed between jurisdictions depending on the framework applied prior to the 
adoption of  IFRS. The evaluation  also  highlighted that enforcement regimes and  firms’ 
incentives to issue high-quality financial reports played a determinant role in enhancing 
transparency.  More  recent  publications  confirm  that  the  improvements  in  transparency 

81  

Question 1.3 of the Consultation Document “Fitness Check on the EU Framework for Public Reporting by 
companies”. 

48 

 
 
 
 
                                                 
have  been  uneven  between  jurisdictions  but  they  do  not  challenge  the  Evaluation’s 
conclusion (see Annex VII).  

(1)  As  regards  the  assessment  of  accounting  quality,  the  Evaluation  highlighted  some 
evidence of a positive impact. Academic research reported contrasted findings depending 
on the samples analysed and the criteria used to assess quality. The 2007 ICAEW study 
for the European Commission supported a positive assessment. According to the Study, 
most investors, preparers and auditors surveyed thought that incorporating the IFRS had 
improved  the  quality  of  financial  statements.  Some  studies  observed  improved 
disclosures 82 ,  a  decrease  in  earnings  management 83  and  more  timeliness  in  the 
recognition  of losses84 though to  varying  extent depending on the companies’ corporate 
governance, the level of enforcement or the quality of pre-existing accounting standards. 
Other  studies  underlined  the  role  of  managerial  incentives  (follow-up  by  analysts, 
ownership structure or governance) in enhancing the quality of financial reporting85 and 
the  persistence  of  earnings  management86 under  IFRS  depending  on  countries’  level  in 
enforcement  and  supervision 87 .  Some  researchers  did  not  find  strong  evidence  of 
accounting quality improvement as compared to jurisdictions that did not adopt  IFRS88. 
Research  published  after  2015  confirm  that  the  improvements  to  financial  reporting 
depend  on  the  financial  aggregates  considered  and  on  companies’  compliance  with  the 
reporting framework89.  

(2)  With  regard  to  the  value-relevance  of  financial  reporting,  the  Evaluation  also 
highlighted  uneven  incremental  value  for  investors  depending  on  the  accounting  items 
considered and the nGAAP applied prior to the adoption of IFRS. This was evidenced by 
assessments  of  correlations  between  disclosures  and  share  prices  after  the  adoption  of 
IFRS.  Some  studies  suggested  a  higher  influence  of  reported  earnings  on  investors’ 
investment  decisions90 but  a  lower  or  stable  influence  of  the  book  value  of  equity91. 
Another  study  found  that  IFRS  adoption  increased  the  relevance  of  accounting  items 
especially in  jurisdictions where the nGAAP  differed most  with  IFRS92. Other research 
carried  out  at  national  level  suggested  that  the  relevance  of  accounting  disclosures 
improved  to  various  extent  in  European  jurisdictions93.  Focusing  more  specifically  on 
debt  markets  some  academics  found  evidence  of  increased  relevance  for  credit-rating 

82  
83  
84  
85  
86  
83  
88  
89  

90  
91  
92  
93  

Daske and Gerhardt (2006), Atanassova (2008), Verriest et al. (2013). 
Zéghal et al. (2011), Aussenegg (2008), Cai et al. (2014). 
Barth et al. (2013). 
Goh et al. (2010). 
Capkun et al. (2011, 2013). 
Ahmed et al. (2013), Chen et al. (2010), Christensen et al. (2015). 
Ahmed et al. (2013). 
André, Filip and Paugamn (2015) concludes that the introduction of IFRS led to a decline in the timeliness 
of  loss  recognition,  especially  for  firms  carrying  intangible  assets  and  goodwill  in  their  balance  sheets 
whereas  Salewski  et  al.  (2014)  suggests  that  IFRS  accounting  quality  improves  over  time  potentially 
reflecting higher compliance. Christensen et al. (2015) does not find evidence that the mandatory adoption 
of IFRS improved accounting quality within the context of companies previously applying German GAAP. 
Landsmann et al. (2011), Barth et al. (2013). 
Devalle et al. (2010), Ahmed et al. (2013). 
Aharony et al. (2010). 
Morricone et al. (2009), Jarva and Lantto (2012), Choi et al. (2013). 

49 

 
 
                                                 
following  the  adoption  of  IFRS 94 ,  whereas  one  found  no  impact  of  accounting 
information on the sensitivity of credit default swap spreads. 

(3)  There  was  more  consistent  evidence  of  improved  accuracy  in  analysts’  forecasts 
following the adoption of IFRS. Studies observed a significant increase in accuracy after 
bringing  in  the  IFRS95.  The  benefits  observed  were  nonetheless  stronger  in  countries 
where nGAAP and IFRS differed the most and where there were strong institutions and 
legal systems to support enforcement96. Some studies also highlighted that IFRS adoption 
had  been  attractive  to  foreign  analysts,  in  particular  those  from  countries  applying 
IFRS97. However, more recent studies tend to nuance the improvement98.  

IFRS  financial  statements  provide  significantly  more  relevant  information  to 
investors  and  creditors  compared  to  financial  statements  prepared  under  the 
minimum  requirements  of  the  AD.  EU-endorsed  IFRS  is  a  fully  fledged  reporting 
framework  with  standards,  application  guidance,  formal  interpretations  and  basis  for 
conclusions as opposed to the minimum harmonised requirements of the AD, which lacks 
precise  definitions  and  details.  IFRS  have  kept  pace  with  economic  developments  and 
contains  principles  and  rules  designed  to  account  for  complex  transactions.  IFRS 
financial  statements  include  mandatory  cash-flow  statements  and  statements  of  changes 
in  equity  as  well  as  detailed  disclosure  requirements.  An  illustration  of  the  difference 
between the AD and EU-endorsed IFRS: the AD financial statement requirements make 
up  approximately  25  pages,  whereas  EU-endorsed  IFRS  is  approximately  4 500  pages 
long.  However,  as  mentioned  in  the  previous  section,  a  more  useful  comparison  of 
relevance  would  be  a  comparison  with  actual  nGAAP  based  on  the  minimum 
requirements for financial statements in the AD. 

Investors  who  participated  in  the  workshop  did  not  raise  requests  for  additional 
information  in  the  financial  statements  drawn  up  according  to  IFRS.  They  did  not 
consider  that  more  forward-looking  estimates  should  be  provided  in  the  financial 
statements  (so  as  to  possibly  reduce  the  “price  to  book  ratio”  gap99)  and  expressed  the 
concern  that  such  data  could  reduce  the  reliability  and  the  auditability  of  the  financial 
statements.  However,  they  indicated  that  that  type  information  could  be  given  in  the 
management report (for instance on intangibles). 

According to most respondents to the consultation (Q25) and to the large majority 
of  investors  who  participated  in  the  workshop,  the  disclosure  rules  in  the 
Transparency  Directive  have  contributed  to  providing  useful  (relevant)  financial 
information.  The  TD  requirements  for  issuers  to  publish  yearly  (and  half-yearly) 

94  
95  
96  
97  
98  

99  

Wu and Zhang (2014, Florou et al. (2013). 
Beuselinck et al. (2010), Choi et al. (2010), Jiao et al. (2012), Horton et al. (2013). 
Houqe et al. (2012), Byard et al. (2011), Garcia-Osma and Pope (2011), Beuselinck et al. (2009). 
Tan et al. (2011). 
Demmer  et  al.  (2015)  highlights  that  the  improvement  in  analysts’  accuracy  may  be  statistically  only 
weakly  significant  as  compared  to  non-IFRS  publications  whereas  Preiato  et  al.  (2015)  stresses  that 
increased accuracy is driven by the degree of enforcement in jurisdictions. 
There can be significant differences between the carrying value of a company’s net assets according to the 
financial statements and its quoted market price (so called “price to book ratio”). This is because the market 
value  of  shares  incorporates  future  (expected)  profits  that  will  only  be  accounted  for  in  the  financial 
statements  in  future  periods  (if  and  when  they  are  realised).  This  price  to  book  ratio  gap  results  from 
valuing  e.g.  intangible  assets  in  the  financial  statements  at  a  lower  value  than  the  total  amount  of  future 
cash flows expected to be generated from their use.  

50 

 
 
                                                 
financial  reports  (i.e.  the  audited  financial  statements,  the  management  report  and  the 
company’s  responsibility  statements),  as  well  as  the  CBCR,  have  improved  investors’ 
protection and enabled them to make informed decisions.  

Comparability 

The  respondents  to  the  public  consultation  strongly  appreciated  the  comparability 
of financial statements  prepared under IFRS. All investors, who provided comments 
about the effectiveness of the financial reporting framework applicable to listed entities, 
emphasised  that  IFRS  had  strengthened  the  cross-border  comparability  of  financial 
statements thus reducing research costs and facilitating investment decisions. As a major 
group  of  creditors,  banks  commented  that  IFRS  as  a  single  reporting  language  had 
enhanced  comparability  and  helped  developing  cross-border  markets.  Almost  no 
representatives of employees or civil society answered the question. 

studies 

several 

reported 

improved 

literature, 

Based  on  the  conclusion  of  the  2015  IAS  Regulation  Evaluation,  the  mandatory 
adoption  of  IFRS  in  the  EU  has  resulted  in  greater  comparability  of  financial 
reporting  across  countries  and  industries. The ICAEW 2007 Study for the European 
Commission  highlighted  a  widespread  agreement  that  IFRS  had  made  consolidated 
financial  statements  easier  to  compare  across  countries,  industries  and  entities.  In  the 
reporting 
academic 
comparability100 using different  proxy measures of  comparability  such  as the variability 
of  accounting  ratios101,  price-earning  expectations102,  correlations  of  market  indices103, 
consistency  in  accounting  policy  choices 104  or  reduced  variability  of  investors’ 
forecasts 105 .  However,  similarly  to  the  finding  about  transparency,  improvements 
depended on the financial aggregates considered106, the enforcement regimes and firms’ 
reporting incentives107. More recent  studies  published after the 2015  Evaluation tend to 
concur  that  the  mandatory  IFRS  adoption  has  led  to  improvements  in  cross-country 
comparability108, increased the comparability of loan provisioning between EU’s banks109 
and  enhanced  comparability  at  national  level110;  but  also  highlight  that  the  adoption  of 
IFRS does not automatically lead to increased cross-border comparability if compliance 
varies (audit quality, board independence, ownership); and results in lower comparability 
at national level between entities reporting under IFRS and others not applying IFRS111.  

financial 

In respect of cross-border pan-European comparability, the IAS Regulation is more 
effective than nGAAP based on the AD on substance112, but arguably less on form as 
IFRS  do  not  contain  prescribed  lay-outs  for  the  presentation  of  the  financial 

100  
101  
102  
103  
104  
105  
106  
107  
108  
109  
110  
111  
112  

Young and Seng (2010), Yip and Young (2012). 
Jones and Finley (2011). 
Dargenidou and McLeay (2010). 
Cai and Wong (2010). 
Bayerlein and Farooque (2012). 
Andre et al. (2012). 
Cairns et al. (2011). 
Beuselinck et al. (2007), Lange et al. (2010), Liao et al. (2012). 
Neel (2017). 
Gebhardt and Novotny-Farkas (2016). 
Hogling and Ysberg (2015). 
Gascino and Gassen (2015). 
Although  some  investors  pointed  out  that  some  options  within  IFRS  such  as  on  the  form  of  cash  flow 
statements hindered comparability. 

51 

 
 
                                                 
statements.  Respondents  to  the  public  consultation  indicated  the  usefulness  of 
standardised (tabular) reporting formats for processing and comparing information (Q24). 
This  view  was  largely  confirmed  during  the  investors’  workshop  on  financial 
information.  Almost  all  investors  considered  the  comparability  of  IFRS  in  form 
suboptimal due to the lack of common lay-outs.  This finding is also consistent with the 
IASB  Work  Plan  Agenda  2017-2021,  which  emphasises  the  need  for  “Better 
Communication” as part of financial reporting. Accordingly, the IASB has undertaken a 
standard  setting project  “Primary  Financial  Statements” with  a view to  streamlining the 
structure  of  the  statements  of  financial  performance  and  cash  flows.  Most  reporting 
companies (preparers) consider that harmonising presentation is not an issue because too 
rigid  and  detailed  lay-outs  would  hamper  portraying  their  business  models  properly. 
Arguably, increased use of structured electronic data in the future might mitigate the need 
for mandatory standardised lay-outs.  

Although  IFRS  provides  a  robust  basis  for  reporting  comparable  financial 
information in substance, its principle-based  character and options leave room for 
judgement.  Research  has  pointed  out  that  there  cannot  be  perfect  comparability  in 
financial reporting113. Examples of areas where management judgement needs to be made 
include: determining expected credit losses on loans under IFRS 9 Financial Instruments, 
determining  (level  3)  fair  value  without  observable  market  inputs  under  IFRS  13  Fair 
Value Measurement, allocating fair value to identifiable assets and goodwill impairment 
under  IFRS  3  Business  Combinations,  or  determining  the  discount  rate  under  IFRS  17 
Insurance Contracts. Obviously, management judgement in IFRS financial statements is 
exercised  in  a  context  of  management  responsibility,  disclosure  of  the  essential 
assumptions, statutory audit, and enforcement by supervisors. The observation that IFRS 
has  provided  for  a  common  reporting  language  even  if  management  judgement  is 
exercised in the application of IFRS is confirmed by research. Some studies also point out 
that cultural differences impact management judgement and hence comparability114.  

Reliability 

In  addition  to  the  collective  board  responsibility  and  the  statutory  audit,  the 
Member States’ establishment of minimum administrative measures  and sanctions 
for  breaches  of  transparency  rules  and  their  enforcement  by  national  supervisors 
play  a key role in securing the timely  and accurate disclosure of publicly  reported 
information, underpinning its reliability.  

The  TD  imposes  the  establishment  by  Member  States  of  minimum  administrative 
measures  and  sanctions  (e.g.  pecuniary  sanctions,  the  publication  of  each  measure  and 
sanction issued by a competent authority115) that need to be effective, proportionate and 

113  

114  
115  

The  ICAEW  institute  “The  Effects  of  Mandatory  IFRS  Adoption  in  the  EU:  A  Review  of  Empirical 
Research”  of  October  2014  concludes  that  there  is  evidence  of  continuing  financial  reporting  differences 
also because of differences in institutions and incentives among firms and countries, and comparability may 
be weaker among smaller publicly traded companies than among larger ones. 
Gregory L. Prescott, Carol E. Vann, 2015. 
Delayed  or  anonymised  publication  of  the  decision  is  allowed  where  such  publication  would  seriously 
jeopardise the stability of the financial system or an ongoing official investigation or cause disproportionate 
and serious damage to the institutions or individuals involved, or where the publication of personal data is 
shown to be disproportionate. 

52 

 
 
                                                 
dissuasive116,  and  must  be  applicable  to  both  natural  and  legal  persons.  Member  States 
are  in  any  case  allowed  to  provide  for  additional  sanctions  or  measures  and  for  higher 
levels  of  administrative  pecuniary  sanctions.  Based  on  the  responses  from  national 
experts117 to  a  Commission  survey  carried  out  for  the  purpose  of  this  fitness  check,  at 
least  seven  Member  States  have  assessed  the  effectiveness,  proportionality  and 
dissuasiveness  when  implementing  the  new  EU  provisions  on  sanctioning  regimes  for 
listed  companies  at  national  level.  However,  stakeholders  confirm  that  the  sanctioning 
regimes  in  place  across  Member  States  are  not  always  homogeneous  in  providing  for 
effective, proportionate and dissuasive administrative measures for companies’ breaches 
of transparency rules. 

Based on our ongoing internal analysis on the transposition of the sanctioning regime by 
Member  States,  some  concerns  arise  as  regards  the  fact  that  some  national  sanctioning 
regimes do not  seem  to  provide for the publication of all sanctioning decisions without 
undue delay118. This in particular might jeopardise the dissuasiveness of the sanctioning 
regime  in  some  Member  States.  Moreover,  some  additional  issues  are  pinpointed  as  it 
appears  that  a  number  of  national  sanctioning  regimes  may  not  have  established 
minimum  administrative  measures  and  sanctions  for  all  the  key  breaches  set  out  in  the 
TD,  or  may  not  provide  for  the  application  of  the  sanctions  to  members  of  the 
administrative, management or supervisory body of the legal entity in breach, or may not 
reflect  all  the  TD  provisions  on  the  criteria  for  determining  the  minimum  level  of  the 
sanctions.  The  latter  is  bound  to  jeopardise  the  overall  effectiveness  of  the  sanctioning 
regime from an internal market perspective.  

The  TD  imposes  a  minimum  list  of  supervisory  powers  that  NCAs  of  Member  States 
must  be  granted  with119.  In  particular,  they  must  have  the  powers  to  impose  minimum 
administrative  measures  and  sanctions 120  for  breaches  of  the  national  measures 
transposing the TD, including the cases of non-disclosure, late disclosure and disclosure 
of  misleading  information  within  yearly  and  half-yearly  financial  reports,  as  well  as 
within reports on payments to governments. 

116  

117  
118  

119  

120  

According  to  the  Communication  from  the  Commission  to  the  European  Parliament,  the  Council,  the 
European  Economic  and  Social  Committee  and  the  Committee  of  the  Regions  on  reinforcing  the 
sanctioning regimes in the  financial  services  sector (COM(2010)716 final), “sanctions can be considered 
effective when they are capable of ensuring compliance with EU law, proportionate when they adequately 
reflect the gravity of the violation and do not go beyond what is necessary for the objectives pursued, and 
dissuasive  when  they  are  sufficiently  serious  to  deter  the  authors  of  violations  from  repeating  the  same 
offence, and other potential offenders from committing such violations”.  
Expert Group of the European Securities Committee (EGESC). 
Based on the responses to the EGESC questionnaire, in at least 22 Member States these decisions are made 
public via the website of the competent supervisory authority.  
Under  Article  19  of  the  TD,  the  authority  responsible  for  the  enforcement  of  the  sanctioning  regime 
towards the issuer is the supervisory authority of the Home Member State designated under the Prospectus 
regime (the “Central Authority”). The only exception to this rule is where the securities of an EU issuer are 
admitted to trading in only one Member State which is not the home Member State, in which case is the 
supervisory authority of the host Member State to be responsible. In any case, for the purpose of examining 
that the disclosed financial information is drawn up in accordance with the relevant reporting framework, 
and  to  take  appropriate  measures  in  case  of  discovered  infringements,  Member  States  may  designate 
another competent authority ad hoc (the “Designated Authority”). To date, only a few Member States took 
up this option. In the case  Member States allow the central authority  to delegate  some specific tasks, the 
Central authority (or the Designated Authority) is in any case the ultimate responsible for enforcement.  
Such  as  the  publication  of  a  statement  indicating  the  person  responsible  and  the  nature  of  the  breach,  an 
order to cease the conduct constituting the breach, and minimum administrative pecuniary sanctions.  

53 

 
 
                                                 
In  addition,  under  the  TD,  NCAs  must  be  granted  other  enforcement  powers  such  as 
powers  to  engage  with  auditors  and  issuers  (and  to  require  information  to  possibly  be 
made public), to suspend trading activities for 10 days or to prohibit trading, to monitor 
the timely release of information by issuers, to examine that the information is drawn up 
in  accordance  with  relevant  standards  and  to  take  appropriate  measures  in  the  case  of 
breaches  (enforcement  of  financial  information),  as  well  as  powers  to  carry  out  on-site 
inspections. Besides, NCAs should have all the necessary investigative powers. However, 
the TD contains no provisions  as  to  whether, by  when and how the national  competent 
authorities  should  make  use  of  those  powers  –  which  is  a  decision  that  is  left  to  the 
national  legislators.  The  implementation  of  different  national  measures  across  the 
Member  States  as  regards  the  supervisory  powers  granted  to  national  competent 
authorities has led to differences in the enforcement activities.  

In  order  to  ensure  effective  and  consistent  supervision  of  issuers,  and  to  foster 
convergence of supervisory practices, ESMA issued in 2014 principle-based Guidelines 
on  the  enforcement  of  financial  information121.  In  doing  so,  ESMA  also  supports  the 
consistent application of IFRS, which is important because of the IFRS’ principle-based 
approach  and  the  degree  of  management  judgement.  ESMA’s  2017  peer  review 
highlights indeed a diversity of approaches among NCAs on the enforcement of financial 
information,  underlining  that  in  a  number  of  Member  States  resources  may  not  be 
sufficient  or  sufficiently  organised  to  allow  the  enforcement  of  financial  operation  to 
operate  effectively122.  In  particular,  as  shown  in  ESMA’s  2020  Guidelines  compliance 
table123, 4 NCAs indicated that they do not fully comply with ESMA’s Guidelines on the 
enforcement  of  financial  information  because  of  conflicts  with  existing  national 
legislation and/or lack of resources.  

Another example of uneven practice is that certain NCAs have limited powers to conduct 
investigations into non-financial statements when they are provided separately from the 
management reports, whereas others do have these powers. 

Against  this  backdrop,  the  collapse  of  Wirecard 124  highlighted  that  some  national 
practices may not be as effective as intended, and shed light on additional potential areas 
for improvement. In particular, ESMA’s subsequent Fast Track Peer Review125 identified 
deficiencies in the enforcement of Wirecard’s financial reporting in Germany. This may 
have  ramifications  for  the  EU  framework  in  general,  and  the  TD  in  particular.  For 
instance, ESMA’s review shows that some national rules may not be sufficient to ensure 
an efficient exchange of information between national authorities and an examination of 

121  

122  

ESMA’s non-binding Guidelines on enforcement of financial information (as updated in 2020 - ESMA32-
50-218) are principles-based and: (a) define enforcement and its scope; (b) set out expected characteristics 
of the enforcer; (c) describe acceptable selection techniques and other aspects of enforcement methodology; 
(d)  indicate  the  types  of  enforcement  actions  that  may  be  available  to  enforcers;  and  (e)  explain  how 
enforcement activities are coordinated within ESMA and reported. 
ESMA’s 2017 Peer review on guidelines on enforcement of financial information (ESMA42-111-4138). , 
25  countries  indicated  that  they  comply  with  the  Guidelines  on  Enforcement,  1  country  that  intends  to 
comply by a particular date and 5 countries that they do not comply and do not intend to comply with part 
of the Guidelines because of conflicts with existing national legislation or lack of resources.  

123            ESMA’s Guidelines compliance table (ESMA 32-67-142).  
124    Wirecard, a German company  with shares listed on regulated  markets, declared bankruptcy  in June 2020 

125  

after revelations that €1.9 billions in cash reported in the group’s balance sheet were missing. 
ESMA,  Fast  Track  Peer  Review  on  the  application  of  the  Guidelines  on  the  enforcement  of  financial 
information (ESMA/2014/1293) by BAFIN and FREP in the context of Wirecard, 3 November 2020. 

54 

 
 
                                                 
financial information by independent competent authorities. The TD offers the possibility 
to designate a competent authority other than the central competent authority to examine 
that  the  information  is  drawn  up  in  accordance  with  the  relevant  reporting  framework, 
and  to  take  appropriate  measures  in  case  of  infringements.  However  it  remains  silent 
even  as  regards  the  need  for  this  authority  to  be  independent,  and  how  to  organise  the 
respective  responsibilities  of  both  the  central  and  the  other  authority.  ESMA’s  review 
also touches upon other topics, such as on NCAs’ enforcement practices. The Wirecard 
case  confirms  that  national  practices  tend  to  remain  heterogeneous  from  an  EU 
perspective,  for  instance  in  terms  of  alertness  and  scoping,  analyses  performed  and 
measures  taken  to  remedy  issues  found  in  an  issuer’s  reporting  that  has  been  reviewed 
(126). The case finally indicates that the ability to exchange relevant information between 
authorities  and  other  relevant  bodies  is  key,  whereas  this  is  not  addressed  in  the 
Transparency Directive or related level 2 measures. Following up on its Fast Track Peer 
Review,  ESMA  has  engaged  in  discussions  on  potential  improvements  to  the  TD  and 
considered  that  the  following  actions  could  help  achieving  a  more  timely  and  effective 
enforcement of financial information: (i) enhancing the  cooperation between TD NCAs 
and  other  authorities;  (ii)  enhancing  the  coordination  of  enforcement  of  financial 
information  at  national  level  between  central  competent  authorities  and  delegated 
entities/designated  authorities;  (iii)  strengthening  of  the  independence  of  national 
competent authorities; and (iv) strengthening of harmonised supervision of financial and 
non-financial information across the EU (127). 

Timeliness 

Regulated  financial  information  for  companies  with  securities  listed  on  EU 
regulated  markets  is  generally  disclosed  in  a  timely  manner.  The  TD  requires  that 
issuers publish financial reports including the financial statements within 4 months after 
the  end  of  the  financial  year  which  is  much  earlier  than  for  other  companies.  A  few 
Member  States  have  set  a  shorter  publication  period  of  3  months.  Large  issuers  often 
announce  key  results  shortly  after  the  end  of  the  reporting  period  and  publish  their 
financial reports within 2 months after the end of the financial year. No concerns emerged 
from  our  consultations  as  regards  the  timeliness  of  publication  of  regulated  financial 
information. 

During  the  workshop  with  investors,  some  investors  pointed  out  that  the  time  lag 
between  early  voluntary  financial  communications  by  companies  and  the  official 
publication  of  the  financial  statements  had  become  a  concern.  Voluntary 
communication  such  as  early  earnings  announcements,  press  releases,  etc.  are  not 
regulated  and  bear  the  risk  of  unequal  access  for  stakeholders  and  misalignment  with 
regulated  information  published  subsequently.  Considering  the  sensitivity  of  market 
prices  to  unregulated  voluntary  publications,  they  suggested  that  the  time  lag  between 
early  voluntary  announcement  and  the  official  publications  of  the  audited  financial 
statements should be regulated.  

126   

127    

See for instance ESMA’s Report Enforcement and regulatory activities of European enforcers in 2019. As 
regards  the  publication  of  sanctions,  a  survey  of  experts  at  the  EGESC  shows  that  there  are  various 
practices, involving for instance the non-publication of the measures in certain circumstances, as permitted 
in accordance with the TD. Access remains fragmented geographically, for the lack of an EU single access 
point.  
See  ESMA’s  Letter  to  Commissioner  McGuinness  of  26  February  2021  on  the  next  steps  following 

Wirecard.  

55 

 
 
                                                 
CBCR 

The obligation for listed companies active in the extraction or logging sector to publish 
the report on payments to governments prepared in accordance with the AD six months 
after  the  end  of  the  financial  year  was  correctly  transposed  by  Member  States.  No 
particular concerns were raised for listed companies  compared to  other companies. The 
same  conclusion  reached  for  limited  liability  companies  therefore  holds  for  listed 
companies.  

7.1.2.2 Effectiveness of the EU framework for non-financial information publicly reported by 

listed companies 

Non-financial information is increasingly relevant for investors/creditors, employees and 
civil  society  as  main  stakeholder  groups.  The  non-financial  information  part  of  the  EU 
framework is more recent and therefore less developed compared to the components on 
regular public reporting of financial information.  

For investors/creditors, social and environmental risks can be highly relevant as they can 
affect the current financial position and undermine the future earning capacity. This is the 
“outside-in” direction of social and environmental risks. The “inside-out” perspective (i.e. 
the impact of the company on society and the environment) is relevant  for stakeholders 
such as civil  society organisations who wish to  hold  companies accountable, as well as 
for  investors  who  need  to  know  about  the  social  and  environmental  impact  of  their 
investments.  These  two  different  perspectives  for  considering  social  and  environmental 
factors are often referred to as “double materiality”.  

Companies  had  to  report  according  to  the  requirements  of  the  Non-Financial 
Reporting  Directive  for  the  first  time  in  2018.  In  spite  of  the  relatively  short  time 
elapsed, there are a number of published reports from supervisory authorities, civil 
society organisations and others that collectively provide a reasonable evidence base 
about  whether  reporting  under  the  NFRD  is  meeting  the  information  needs  of 
intended users128. 

128  

The  principle  studies  consulted  are:  “Enforcement  and  Regulatory  Activities  of  European  Accounting 
Enforcers  in  2018”,  ESMA,  2019;  “Undue  short-term  pressure  on  corporations”,  ESMA,  2020;  "New 
momentum  for  reporting  on  sustainability?  Study  on  Implementation  of  the  German  CSR-Directive 
Implementation Act", Econsense and Global Compact Network Germany, June 2018; “Thematic review of 
non-financial information in management”, Dutch Authority for the Financial Markets (AFM), December 
2018;  “In  Balance  2019  -  Survey  of  value  creation  and  follow-up  to  the  Non-Financial  Information 
(Disclosure)  Decree”,  Dutch  Authority  for  the  Financial  Markets  (AFM),  December  2019;  “The  State  of 
Corporate  Sustainability  Disclosure  under  the  EU  Non-Financial  Reporting  Directive:  2018  Research 
Report”,  Alliance  for  Corporate  Transparency;  “2019  Research  Report:  An  analysis  of  the  sustainability 
reports of 1000 companies pursuant to the EU Non-Financial Reporting Directive”, Alliance for Corporate 
Transparency;  “First  Steps:  corporate  climate  and  environmental  disclosure  under  the  EU  Non-Financial 
Reporting Directive”, Climate Disclosure Standards Board and CDP, November 2018; “Falling short? Why 
environmental  and  climate-related  disclosures  under  the  EU  Non-Financial  Reporting  Directive  must 
improve”,  Climate  Disclosure  Standards  Board,  May  2020;  Human  Rights  Reporting  in  France,  Shift, 
2018;  “A  Human  Rights  Review  of  the  EU  Non-Financial  Reporting  Directive”,  European  Coalition  for 
Corporate 
the  new  Non-Financial  Reporting  Regulations”, 
PricewaterhouseCoopers,  2018;  “Analyse  zur  Umsetzung  der  CSR  Berichtspflicht”,  KPMG,  September 
2018;  “Integration  of  Sustainability  into  Corporate  Governance:  A  survey  of  financial  firms’  public 
sustainability  information”,  Finansinspektionen  (Swedish  Financial  Supervisor),  November  2018;  “Non-
financial  information  as  a  driver  of  transformation:  Evidence  from  Italy”,  CONSOB,  2018;  "Belgian 

Justice,  2019;  “Responding 

to 

56 

 
 
                                                 
 
Relevance  

As  a  result  of  the  NFRD,  more  listed  companies  are  reporting  non-financial 
information under the EU framework. Some analyses provide evidence that a majority 
of  companies  are  meeting  expectations  with  regard  to  some  of  the  disclosure 
requirements of the Directive. This is the case, for example, with regard to the description 
of company policies on the sustainability matters identified in the Directive. It may also 
be  the  case  with  regard  to  some  key  performance  indicators,  for  example  indicators 
regarding certain employee matters.  

However,  there  is  also  a  significant  amount  of  evidence  that  many  companies  are 
failing  to  disclose  material  non-financial  information.  Stakeholder  feedback  and 
published studies  indicate that information frequently does not  address  particular issues 
or risks faced by the company. Descriptions of company policies are often imprecise and 
lack  measurable  targets,  which  is  one  reason  why  information  on  the  outcomes  of 
company policies also  tends to  be inadequate. Many companies fail to  comply with  the 
requirement to provide an explanation in the case that they do not have a policy on the 
sustainability  matters  identified  in  the  Directive.  Key  performance  indicators  are  often 
not  linked  to  the  company’s  policies,  targets  or  outcomes,  reducing  their  relevance  for 
investment analysts and other stakeholders. Published studies indicate that there are gaps 
in  material  information  on  all  major  sustainability  matters,  including  environment, 
climate, social and employee issues, human rights, and bribery and corruption, as well as 
on supply-chain  risks, and due diligence processes.  In addition,  there is  lack of balance 
between reporting negative impacts  and positive impacts, with a tendency to emphasise 
the positive impacts and under-report actual or potential negative impacts129. There is also 
a  lack  of  adequate  forward-looking  information,  which  can  be  of  particular  interest  to 
investors.  

The general conclusion, from published analyses and from discussions with users of 
non-financial  information,  is  that  the  non-financial  statements  of  many  companies 
omit  significant  volumes  of  information  that  users  consider  to  be  relevant.  This 
conclusion holds for information about the company’s impact on sustainability matters as 
well as for the impact of the sustainability matters on the development, performance and 
position of the company. 

At the same time, users of non-financial information frequently state that companies 
disclose significant volumes of information that is not material and therefore is not 
relevant  for  decision-making. In particular, they find that there is a tendency to report 
on  activities  rather  than  on  impacts  and  risks,  and  that  much  information  is  anecdotal 
rather than strategic. This reduces the value of all non-financial information disclosed by 

Framework on Sustainability must be clarified", KPMG website, 31 July 2018; “Non-financial information 
as a driver of transformation: Evidence from Italy”, CONSOB, 2018; “Hurblev utfalletavdet nyalagkravet? 
KPMGs undersökningom hållbarhetsrapportering”, KPMG, January 2019; “Results of a survey conducted 
by the Foundation for Reporting Standards and Polish Association of Listed Companies”, Piotr Biernacki, 
2019;  “Ingmar  Juergens  and  Katharina  Erdmann  (2019):  Exploring  non-financial  reporting  practices  and 
the use of Carbon and ESG data in the context of the EU framework for public corporate reporting”, DIW 
Policy  Advice  Compact,  Berlin;  “Respect  par  les  sociétés  cotées  belges  des  obligations    de  publication 
d’une déclaration non financière”, Autorité Belge des Services et Marchés Financiers, March 2019.  
This appears to be case in spite of the view expressed by some business representatives in response to the 
public consultation on corporate reporting, that the requirements of the Directive are too weighted towards 
the potential negative impacts of companies compared to positive impacts. 

129  

57 

 
 
 
                                                                                                                                                             
the company, because users have to search through a lot of information in order to find 
the specific information  they may be looking  for.  It  also  means that users cannot  know 
which  information  the  company  itself  in  fact  believes  is  important.  There  is  some 
evidence that companies are disclosing some non-financial information even though they 
themselves  do  not  believe  that  the  information  is  useful  to  investors  or  other 
stakeholders130. 

One reason why many companies fail to disclose relevant non-financial information, 
while  also  disclosing  information  that  is  not  relevant,  appears  to  be  that  the 
requirements of the Directive and/or national legislation are not clear enough and/or 
are not well understood by companies. This may be the case, for example, with regard 
to the definition of materiality, and in particular the double materiality perspective. There 
may  be  a  lack  of  accompanying  guidance  to  help  companies  decide  what  information 
should be reported, in particular sector-specific guidance.  

In addition, the sanctioning regime and enforcement of non-financial reporting is in 
many cases not adequate.  

The non-financial statement of companies with securities listed in EU regulated markets 
falls outside the scope of supervision of some national competent  authorities due to the 
lack  of  coordination  between  the  provisions  of  the  NFRD  and  the  Transparency 
Directive 131 .  Additionally,  supervisory  authorities  themselves  point  out  that  the 
enforceability of the Directive is made harder by the flexibility of some of the disclosure 
requirements, for example in relation to the use of reporting frameworks, the location and 
timing  of  publication  of  the  non-financial  statement,  and  assurance132.  The  situation 
regarding  the  disclosure  of  material  non-financial  information  appears  to  vary  to 
some extent according to whether the non-financial statement is published as part of 
the management report or in a separate report. On the one hand, the phenomenon of 
disclosing information that is not material appears to be greater for companies that make 
their non-financial  statement in  a separate  report  rather than as part of the management 
report.  On  the  other  hand,  if  the  non-financial  statement  is  published  as  part  of  the 
management  report,  it  has  been  observed  that  some  information  considered  material  by 
some users is no longer reported.   

There is a growing interest in integrated financial and non-financial reporting, but 
divergent  views  on  the  extent  to  which  EU  policy  should  further  promote  or  even 
require 
few  companies  provide  meaningful 
explanations  of  the  linkages  between  information  on  the  non-financial  matters  and  the 
information  presented  in  the  financial  statements,  although  some  analyses  have  found 

integrated  reporting.  Currently, 

130  

131  

132  

A survey amongst employees of 85 listed companies in Poland found that about 50% believed that the non-
financial  information  disclosed  by  their  company  was  either  totally  or  partially  not  useful  to  investors  or 
other stakeholders.  
The  Transparency  Directive  lacks  an  explicit  reference  to  the  non-financial  statement  in  its  mandate  to 
national  competent  authorities  to  supervise  reporting  by  companies  (Articles  7,  24(4)h,  24(4b),  28,  28a, 
28b, 28c and 29 of the Transparency Directive). 
ESMA  believes  that  “the  optionality  that  characterises  the  non-financial  disclosure  requirements  (e.g.  in 
relation to the applicable frameworks, the location and timing of publication of the NFS and the assurance) 
does not yet allow a satisfactory convergence of disclosure practices thus undermining the consistency of 
supervisory approaches which is urgent to achieve in this area.” (Enforcement and Regulatory Activities of 
European Accounting Enforcers in 2018, ESMA).   

58 

 
 
                                                 
evidence that more companies are starting to report on these linkages, at least with regard 
to  climate and other environmental information.  The relationship between non-financial 
information and financial information is more likely to be addressed when the company 
publishes  its  non-financial  statement  as  part  of  its  management  report  rather  than  in  a 
separate report. The public consultation revealed that users of reported information have 
different  views  on  the  advantages  and  disadvantages  of  integrated  reporting.  It  also 
revealed a divergence of views amongst reporting companies, many of whom argued in 
any case that integrated reporting should not be imposed through legislation. This debate 
is further complicated by different interpretations of what “integrated” means in practice. 

Regarding  the  publication  of  non-financial  information,  many  respondents  to  the 
public  consultation  proposed  that  large  non-listed  companies  should  report 
according to the requirements of the NFRD. Other stakeholders, such as civil society, 
are more concerned about the impact of the company’s activities on the environment and 
society  and  the  lack  of  mandatory  disclosures  on  large  non-listed  companies  in  this 
regard.  

Comparability  

The public consultation provided considerable evidence that users have difficulty in 
comparing  the  non-financial  information  that  is  disclosed  by  companies  subject  to 
the NFRD. There is a lack of consistency between companies regarding both the content 
and  presentation  of  sustainability-related  information.  In  general,  few  numerical 
indicators  and  targets  are  disclosed,  and  those  that  are  disclosed  are  often  not  directly 
comparable between companies.   

Users  of  non-financial  information,  including  investors  and  civil  society,  have 
indicated  that  poor  accessibility  of  information  strongly  affects  comparability. The 
default location of the non-financial statement under the NFRD is the management report. 
However, 20 Member States have taken up the option of allowing the publication of the 
non-financial  statement  in  a  separate  report.  As  a  consequence,  a  large  number  of 
different formats have already emerged in the first years of the reporting obligation. 

Many  stakeholders  have  argued,  in  response  to  the  public  consultation  and  in 
meetings, that the Directive itself cannot adequately ensure comparability, because 
it does not require the use of any particular reporting framework or standard, and 
does not include detailed requirements with regard to the form of the non-financial 
statement.  There  is  little  evidence  that  the  non-binding  guidelines  on  non-financial 
reporting, published by the Commission as required by the Directive in 2017, have had a 
significant  impact  on the comparability of non-financial information.  In response to  the 
2018  public  consultation,  36%  of  respondents  who  expressed  an  opinion  thought  the 
guidelines  contributed  to  improve  the  quality  of  disclosures,  while  33%  disagreed.  An 
analysis by the Carbon Disclosures Standards Board and CDP found “no direct evidence 
from  companies  that  the  Commission’s  guidelines  accompanying  the  Directive  were 
being  used  or  having  a  positive  effect  on  NFRD  […]  disclosures”133.  A  survey  of  55 
Polish listed companies under the scope of the NFRD found that only 16% had used the 

133  

“First  Steps:  corporate  climate  and  environmental  disclosure  under  the  EU  Non-Financial  Reporting 
Directive”, Carbon Disclosure Standards Board and CDP, November 2018.   

59 

 
 
                                                 
guidelines134.  In mid-2019 the Commission published a supplement to  those guidelines, 
focusing  on  the  reporting  of  climate-related  information.  Because  it  is  focused  on  one 
particular  issue  (climate),  this  supplement  may  have  a  more  significant  impact  on  the 
comparability of disclosed information. 

The voluntary nature of the guidelines means that companies are free to apply them or not 
as  they  see  fit.  Overall  therefore  they  cannot  on  their  own  ensure  the  comparability  of 
information between companies or the non-disclosure of information that users believe is 
relevant.  Therefore,  the  non-binding  guidelines  may  even  exacerbate  the  complexity 
faced by preparers if they are perceived as additional to the various private non-financial 
standards and frameworks in the market, without removing the pressure on preparers to 
consider each of those standards and frameworks individually and to respond in any case 
to  additional  information  requests  from  stakeholders.  Many  companies  welcome  the 
flexible  approach  the  Directive  offers.  In  response  to  the  public  consultation,  some 
business  representatives  questioned  whether  comparability  was  a  realistic  or  reasonable 
objective.  Some  business  representatives  have  stated  in  response  to  the  public 
consultation  and  in  meetings  that  attempts  to  promote  more  comparability  of  non-
financial  information  could  lead  to  the  undesired  consequence  of  companies  feeling 
obliged  to  disclose  immaterial  information.  Other  business  representatives  have  argued 
that  more  harmonised  approaches  have  the  potential  to  reduce  transaction  costs  and 
improve the quality of data, provided that there is no requirement to disclose information 
that  is  not  material.  Some  companies  are  interested  in  the  development  of  generally 
accepted environmental accounting principles, suggesting this may help solving some of 
the data availability and quality issues raised above. They emphasise the need to focus on 
the accounting side rather than solely addressing the reporting and disclosure side. Any 
steps towards a greater standardisation of non-financial reporting would need to consider 
these  possible  benefits  and  costs,  and  also  address  potential  issues  regarding  the 
governance and political oversight of any standard or framework.  

Reliability  

The NFRD helps to improve the reliability of non-financial information to the extent 
that  the  members  of  the  administrative,  management  and  supervisory  bodies  of 
companies  are  collectively  responsible  for  the  non-financial  statement.  Some 
analyses  have  shown  that  this  provision  has  raised  the  profile  of  non-financial 
information in a significant way and in many companies has led to more rigorous internal 
approval procedures for the disclosure of such information. However, this phenomenon is 
less  pronounced  in  companies  that  publish  their  non-financial  statement  in  a  separate 
report rather than in the management report. 

The  reliability  of  the  information  is  nevertheless  limited  by  the  absence  of  an 
assurance  requirement  on  the  content  of  the  non-financial  statement  under  the 
Directive. According to the NFRD, the statutory auditor or audit firm only has to assess 
whether  the  non-financial  statement  has  been  published,  without  expressing  an  opinion 
on  whether  it  has  been  prepared  in  accordance  with  the  legal  requirements 135 .  In 

134  

135  

Results of survey conducted at a conference on non-financial reporting organized by the Polish Association 
of  Listed  Companies,  data  gathered  and  analysed  by  the  Foundation  for  Reporting  Standards,  September 
2019. Author: Piotr Biernacki.   
AD Art.34(3) indicates specifically that the auditor does not have to check the content of NFRD reporting, 
whether embedded in a management report or separate. 

60 

 
 
                                                 
amending  the  AD,  the  NFRD  excludes  the  non-financial  statement  from  the  statutory 
requirement that applies to the management report. 

The  public  consultation  revealed  that  many  users  of  non-financial  information  believe 
that this does not guarantee the quality and accuracy of the information published. In their 
opinion, having non-financial information assured significantly improves the reliability of 
the reported information.  

At  the  same  time,  many  stakeholders  have  drawn  attention  to  the  limited 
development  of  assurance  practices  with  regard  to  non-financial  reporting  in 
comparison with financial reporting. In particular, there is currently no commonly agreed 
assurance standard that audit firms can use when assuring non-financial information.    

In addition, some stakeholders argue that the feasibility and credibility of assurance 
is  to  some  extent  dependent  on  whether  or  not  the  reporting  company  uses 
recognised reporting standards. From this perspective, the fact that the Directive does 
not require the use of any particular framework or standard may undermine the objective 
of reliability. 

Other stakeholders find that the costs of assurance would play an important role: if 
too high, the costs would be too burdensome for companies; if too low, audit firms may 
not invest to increase their expertise in such topics and perform high-quality assessments. 
Additionally,  if  internal  controls  are  immature,  assurance  will  be  more  costly,  and  will 
come with a disclaimer of opinion. 

Timeliness  

The NFRD contributes to the timely publication of non-financial information to the 
extent that the default requirement is to include the non-financial statement in the 
management  report.  Companies  that  include  the  non-financial  statement  in  the 
management  report  at  least  ensure  that  financial  and  non-financial  information  will  be 
published at the same time, which increases the usability of information for investors in 
particular. Conversely,  companies that publish  the non-financial statement  in  a separate 
report  –  in  those  Member  States  that  allow  this  option  –  will  not  provide  timely 
information  unless  the  separate  report  and  the  management  report  are  published  at  the 
same time. Additionally, different publication dates of the non-financial statement would 
also  diminish  comparability  between  companies  within  and  across  Members  States.  To 
date  stakeholders  have  not  raised  significant  concerns  about  the  timeliness  of  non-
financial information  with  the exception  of whether that information  is  published at  the 
same time as the financial information.   

7.1.3  Effectiveness of the EU framework on regular public reporting by non-listed financial 

institutions 

The  general  assessment  of  the  effectiveness  of  the  EU  framework  for  listed  banks  and 
listed  insurance  undertakings  is  included  in  the  section  on  the  effectiveness  of  the  EU 
framework  for  listed  companies  (7.1.2).  This  section  assesses  the  EU  framework  for 
public reporting for non-listed financial institutions. 

As  at  December  2018,  12  Member  States  required  the  use  of  IFRS  for  the  annual 
financial  statements  of  banks,  whereas  eight  Member  States  mandated  IFRS  for  the 
annual financial statement of insurance and reinsurance companies. However, the body of 

61 

 
 
EU-endorsed  IFRS  does  not  harmonise  the  accounting  treatment  of  insurance  contracts 
issued.  The  current  applicable  standard  IFRS  4  for  insurance  contracts  allows  the 
continuation of national practices that existed prior to the adoption of the IAS Regulation. 
As  a  consequence,  the  public  financial  information  provided  by  insurance  companies 
stems  largely  from  the  provisions  of  the  Insurance  Accounts  Directive  (IAD),  even  if 
Member States require the use of IFRS.  

To the extent non-listed banks and insurance undertakings are large and with more than 
500  employees,  they  are  also  subject  to  the  obligations  stemming  from  the  NFRD,  as 
described in the section on the effectiveness of the EU framework for listed companies as 
well.  The  conclusions  drawn  in  section  7.1.2.2  on  non-financial  information  reporting 
hold  for large non-listed banks  and non-listed insurance companies with more than 500 
employees. 

The table below summarises the EU framework on regular public reporting for non-listed 
financial institutions (5.000 banks and 3.400 insurance undertakings).   

62 

 
 
Table 9: Requirements of the EU framework on regular public reporting by non-listed financial institutions 

Catego
ry 

l
a
i
c
n
a
n
i
f
d
e
t
s
i
l
-
n
o
N

s
n
o
i
t
u
t
i
t
s
n
i

Size / type 
Bank (any 
legal form) 

The EU framework on regular public reporting by non-listed financial 
institutions 
IAS 
(IFRS = 
MS option)  

AD 
Management 
report; audit 

IAD 

BAD 
Financial 
statement +  
Audit 

NFRD 
If large and 
>500 
employees: 
non-financial 
statement 

Management 
report; audit   

Insurance 
underta-
king (any 
legal form) 

If large and 
>500 
employees: 
non-financial 
statement 

(IFRS = 
MS option) 

Financial 
statement +  
Audit 

Conclusion on the effectiveness of the EU framework on regular public reporting by 
non-listed financial institutions 

The relevance of the requirements imposed on financial institutions by the EU framework 
(BAD and IAD) has eroded over time, especially in comparison with IFRS and enhanced 
prudential requirements on bank disclosures. For banks, the loss of relevance is partially 
compensated for by the use of IFRS by non-listed banks which significantly decreases the 
relative  share  of  banking  assets  reported  under  Member  States  nGAAP.  This 
consideration however does not apply to insurance companies, because the EU-endorsed 
IFRS  do  not  currently  harmonise  the  treatment  of  insurance  contracts.  However,  the 
IASB  issued  in  2020  IFRS  17  Insurance  Contracts,  with  a  comprehensive  accounting 
treatment for insurance contracts. IFRS 17 is up for EU endorsement.  

Comparability is suboptimal due to varying national implementations of the provisions of 
the  sectoral  directives  (BAD  and  IAD)  and  Member  States’  options.  Nonetheless,  the 
harmonised presentation and definitions of financial aggregates in the sectoral directives 
contribute positively to cross-border comparability. 

The  reliability  of  published  information  seems  adequately  safeguarded  by  collective 
board  responsibility  for  the  “true  and  fair  view”  of  the  financial  statements  and 
mandatory statutory audit requirements for any bank and any insurance undertaking.  

Timeliness follows the same pattern as for limited liability companies reporting under the 
AD  with  publication  delays  up  to  12  months  and  insufficient  dissuasive  sanctioning 
regimes in Member States. 

Relevance 

Overall, around a third of the respondents to the public consultation agreed that the 
EU  framework  for  public  reporting  for  non-listed  banks  (BAD)  is  effective  (34%) 
and relevant (35%). There are major differences between categories of stakeholders 
though. Whereas 80% of the (18) banks and 58% of the (19) authorities agreed that the 
EU  framework  (BAD)  provided  relevant  information,  only  33%  of  the  (27)  accounting 
organisations and standard setters, 18% of the (16) investors, 17% of the (27) preparers 
and 13% of the (8) civil society stakeholders considered this to be the case. So, where the 

63 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
majority  of  banks  and  authorities  considered  the  EU  framework  fit  for  purpose,  other 
stakeholders  disagreed  with  several  arguing  that  the  BAD  had  lost  relevance  due  to 
changes in business environment and in accounting since 1986. 

Respondents  to  the  public  consultation  also  reported  very  mixed  views  about  the 
relevance of financial information reported by EU insurance companies. When they 
expressed views, the vast majority (90%) of 10 investors highlighted that the information 
delivered did not meet their needs and insisted that the adoption of a new IFRS to secure 
a  consistent  accounting  treatment  of  insurance  contracts  should  be  a  priority.  They 
underlined  significant  differences  between  Member  States’  nGAAP  that  impaired  the 
relevance  and  comparability  of  consolidated  financial  statements.  Five  trade  creditors 
reported mixed views. Representatives of employees and civil society did not express any 
views.  Public  authorities  also  reported  contrasted  views,  some  highlighted  that  public 
information about insurance companies had lost relevance as compared to the Solvency II 
prudential  framework  brought  in  in  2016 136 ,  while  others  emphasised  that  the  EU 
framework allowed adequately  reflecting country-specific insurance contracts and rules. 
A  relative  majority  (45%)  of  11  responding  insurance  companies  considered  that  their 
annual financial statements provided relevant information to policyholders, especially in 
Member  States  where  the  profit  share  of  policyholders’  with  participating  contracts  is 
determined on the basis of Member States’ nGAAP. 

The  relevance  of  the  information  published  by  non-listed  banks  and  insurance 
undertakings  under  BAD  and  IAD  has  eroded.  BAD  and  IAD  have  been  amended 
only twice since their adoption in 1986 (banks) and 1991 (insurance companies)137. As a 
consequence, they have not been adapted to developments in economic transactions and 
business  practices.  In  their  responses  to  the  public  consultation  stakeholders  underlined 
the loss of relevance of financial information disclosed by non-listed financial institutions 
compared  to  listed  financial  institutions.  This  loss  of  relevance  is  even  more  acute  for 
non-listed  banks  not  using  IFRS,  because  listed  banks  started  to  apply  the  IFRS  9 
standard  on  financial  instruments  in  2018,  which  has  significantly  enhanced  the 
transparency  about  financial  products  issued  by  banks  such  as  derivatives,  equity 
instruments, risk-mitigating instruments, or banks’ loans and credit risk provisioning.  

The EU framework for public reporting by non-listed financial institutions has also 
lost  relevance  compared  to  enhanced  prudential  and  supervisory  frameworks  for 
banks  and  insurance  undertakings. Under the Capital Requirements Directive (CRD) 
and the Capital Requirements  Regulation (CRR), banks  are subject  to  minimum capital 
requirements overseen by supervisors to which they provide detailed reporting138. Banks 
are  also  required  to  publicly  disclose  information  on  their  risks,  risk  management 
objectives and policies, own funds and assessment of capital adequacy. Likewise, under 
the  Solvency  II  Directive,  insurance  undertakings  are  subject  to  minimum  capital 

136  

137  

138  

The  Solvency  II  Directive  introduces  a  forward-looking  and  risk-based  measurement  approach  for 
insurance  liabilities  as  well  as  the  use  of  fair  value  to  measure  financial  instruments.  The  Solvency  II 
framework  which  is  designed  for  prudential  supervision  also  includes  a  subset  of  public  disclosure 
requirements in the so-called “Solvency and Financial Condition Report (SFCR)”. 
In  2003,  an  option  was  adopted  permitting  the  use  of  fair-value  accounting.  In  2006,  the  BAD  and  IAD 
were  updated  to  reflect  the  enhancement  in  the  Accounting  Directive  of  the  disclosure  requirements 
pertaining to related parties, off-balance sheet commitments and governance responsibility. 
DG FISMA completed a Fitness Check Report of EU Supervisory Reporting Requirements in 2019. 

64 

 
 
                                                 
requirements  and  extensive  supervisory  reporting139.  They  are  also  required  to  produce 
and publicly disclose the Solvency and Financial Condition Report (SFCR) on an annual 
basis.  The  SFCR  describes  the  business  and  the  performance  of  the  undertaking,  the 
system  of  governance  and  an  assessment  of  its  adequacy  for  the  risk  profile  of  the 
undertaking,  risk  exposures,  the  bases  and  methods  used  for  the  valuation  of  assets, 
technical provisions and other liabilities, and the capital management of the undertaking. 
Some respondents to the public consultation commented that public information provided 
by  non-listed  insurance  companies  under  the  IAD  had  lost  relevance  as  compared  to 
public information provided in the SFCR under the Solvency II Directive.  

The loss of relevance of the EU framework for public reporting by non-listed banks 
(BAD) is mitigated though by the fact that non-listed banks have increasingly used 
IFRS  on  a  voluntary  basis  or  as  a  result  of  Member  States  options.  A  significant 
number  of  the  5,000  banks  established  in  the  EEA  use  nGAAP  based  on  the  BAD. 
However, due to concentration of banking assets in big banks using IFRS, the portion of 
banking assets accounted for under nGAAP is considerably lower than under IFRS (120 
large banks hold  80% of the EU’s total  banking assets).  In addition,  where  IFRS is  not 
required  or  allowed,  several  Member  States  have  used  IFRS  to  develop  their  nGAAP 
beyond the minimum  harmonisation  requirements of the BAD. This  trickle-down effect 
of  IFRS on nGAAP  for  banks is  one of the findings from  a study on the differences in 
bank accounting within the Banking Union and their impact on prudential ratios140. 

There is however no robust IFRS standard for insurance contracts yet that can help 
mitigate  the  loss  of  relevance  of  the  EU  framework  for  public  reporting  by 
insurance  companies.  The  body  of  EU-endorsed  IFRS  does  not  harmonise  the 
accounting  treatment  of  insurance  contracts,  because  the  current  standard  IFRS  4  for 
insurance contracts allows the continuation of national practices that existed prior to the 
adoption of the IAS Regulation. However, the IASB has issued a new standard IFRS 17 
for  insurance  contracts  in  June  2020  after  a  long  process  of  elaboration  which  should 
apply from 1 January 2023 onwards141. 

Comparability 

Two  thirds  of  the  respondents  to  the  consultation  underlined  the  lack  of 
comparability  of  the  information  n  published  under  BAD  by  non-listed  banks. 
Although the large majority142 of banks considered comparability is fine, only 18% of the 
16 investors thought this was the case. A slight majority favoured maintaining the BAD 
as  it  is  and  not  reducing  its  options  or  updating  it.  Though  10  investors  out  of  11 
considered that the number of options in the BAD hamper the comparability of financial 
statements and prudential ratios, 12 banks out of 18 and 15 out of 16 public authorities 
responding to the survey did not support that view and considered the number of options 
appropriate  and  reasonable.  They  highlighted  that  the  options  are  supplemented  by 
adequate  disclosure  requirements  and  allow  companies  to  report  more  relevant 
information.  Some  pointed  out  that  an  analysis  of  the  actual  use  of  the  options  by 

139  
140  

141  

142  

Also covered in DG FISMA Fitness Check Report of EU Supervisory Reporting Requirements.  
See https://op.europa.eu/en/publication-detail/-/publication/fcd5cbc9-7f8c-11ea-aea8-
01aa75ed71a1/language-en/format-PDF/source-search. 
In May 2017, the International Accounting Standard Board issued IFRS 17 Insurance Contracts in order to 
supersede the current IFRS 4 Insurance Contracts and further amendments to IFRS 17 in June 2020. 
80% of the 15 responding banks. 

65 

 
 
                                                 
Member  States  was  needed  to  assess  the  extent  to  which  comparability  might  be 
impaired.  

Responses were evenly split on replacing the BAD with EU-endorsed IFRS which would 
improve  both  relevance  and  comparability.  75%  of  the  12  investors  who  answered  the 
question  supported  such  a  requirement,  arguing  that  the  BAD  is  outdated  and  rarely 
updated. However, 75% out of 16 banks surveyed and 60% out of 21 public authorities 
opposed to such a requirement highlighting that the BAD requirements are aligned with 
Member States’ company and tax law and that the use of IFRS would be disproportionate 
for  unlisted  banks  without  cross-border  activities.  All  stakeholder  categories  supported 
the  view  that  banks  should  be  permitted  to  apply  IFRS  (instead  of  nGAAP).  However, 
some public authorities highlighted that an IFRS option would increase the clerical work 
to perform the reconciliations to taxable bases and to other statutory requirements such as 
profit  distribution.  They  therefore  considered  that  leaving  this  option  to  Member  States 
was most appropriate. As the AD for limited liability companies, the BAD prescribes lay-
outs  for  the  presentation  of  banks’  financial  statements,  which  helps  comparability  in 
form  as  opposed  to  substance.  On  substance  for  instance  the  BAD  contains  specific 
Member State options that allow hidden reserves on loans and a fund for general banking 
risks. 

Similarly  the  results  from  the  public  consultation  highlight  that  a  majority  of 
stakeholders  consider  that  financial  information  reported  by  EU  insurance 
companies  is  not  sufficiently  comparable.  Almost  all  investors  (90%)  who  expressed 
views (10) highlighted that the consistency of Member States’ nGAAP is insufficient to 
allow  them  to  draw  meaningful  comparisons  between  insurance  undertakings.  Some 
commented  that  the  lack  of  comparability  undermines  their  trust  and  deters  them  from 
investing  in  the  insurance  industry.  Most  other  stakeholder  categories  expressed  mixed 
views.  Their  comments  highlighted  that  the  EU  framework  secures  comparable 
presentation  of  annual  financial  statements  through  mandatory  lay-outs,  but  does  not 
sufficiently safeguard cross-border comparability due to numerous options. A majority of 
insurance  companies  and  public  authorities  considered  comparability  appropriate 
suggesting  that  cross-border  competition  is  limited  within  the  EU  industry  and  that 
nGAAP therefore provide an adequate basis to inform policyholders. 

Reliability  

Reliability of information provided in the annual financial statements drawn up according 
to the BAD and IAD is essentially the same as for limited liability companies (see section 
7.1.1) albeit a mandatory audit requirement applies to all banks and insurance companies 
as public-interest entities.  

Timeliness 

As  for  limited  liability  companies  publication  deadlines  of  up  to  12  months  in 
combination  with  suboptimal  Member  States’  sanctioning  regimes  for  late  (or  none) 
publication, seriously reduces the timeliness of information reported by non-listed banks 
and insurance companies.  

7.1.4  Contribution to the wider objectives 

Public reporting by companies to stakeholders aims to contribute to the wider objectives 
of an EU single market, an integrated EU capital market, safeguarding financial stability 

66 

 
 
and improving sustainability. Adequate public reporting by companies to stakeholders is 
a very important but not exclusive factor in determining whether the wider objectives are 
achieved.  It  is  difficult  to  isolate  the  impact  of  the  EU  framework  on  public  reporting 
from other determining factors such as other EU financial regulations pursuing the same 
objectives e.g. prudential regulation, additional national legal requirements can apply to 
Directives  with  minimum  harmonisation,  the  efficiency  of  the  business  environment 
including the quality of judicial systems and professional capacity to support and oversee 
the functioning of markets.  

Nevertheless,  the  assessment  has  confirmed  that  the  EU  public  reporting  requirements 
with  regard  to  financial  information  have  contributed  significantly  to  enabling 
stakeholders  to  make  informed  decisions  so  as  to  protect  their  interests  and  make 
investment choices. However, with regard to non-financial information, the assessments 
suggest  that  EU  public  reporting  requirements  are  not  adequate  to  allow  stakeholders, 
mainly investors and/or civil society organisations, to make informed decisions and hold 
companies accountable.  

Though the connection between the quality of public reporting requirements and its wider 
objectives  is  usually  not  measurable,  academic  research  suggests  empirical  evidence  of 
benefits especially with regard to enhancing the efficiency of capital markets. In that area, 
research highlights that enhancing the comparability of financial information contributes 
to  lowering  the  cost  of  comparing  investment  opportunities 143 ,  attracting  financial 
analysts  carrying  out  international  comparisons 144 and  fostering  more  efficient  capital 
allocation  by  helping  better  investment  decisions  within  the  context  of  mergers  and 
acquisitions 145.  Some  academics  also  highlight  that  financial  statement  comparability 
lowers  the  cost  of  processing  information 146 ,  reduces  the  uncertainty  about  firms’ 
underlying  credit  risks 147  and  enhances  the  performance  of  credit  agencies  through 
timelier  and  more  accurate  default  warning148.  Studies  also  suggest  that  cost  savings  in 
processing  and  analysing  financial  information  translate  into  a  lower  cost  of  capital  for 
companies149. 

This existence of wider benefits arising from increased transparency and comparability of 
financial information is also consistent with the findings from the 2015 Evaluation of the 
IAS  Regulation,  which  highlighted  that  academic  studies  usually  reported  positive 
conclusions  about  the  impact  of  the  mandatory  adoption  of  IFRS  on  the  functioning  of 
EU  capital  markets.  Studies  evidenced  positive  impacts  on  market  liquidity  in 
jurisdictions  when  combined  with  substantive  changes  in  reporting  enforcement 150 as 
well  as  reductions  in  the  cost  of  equity  in  countries  with  strong  financial  reporting 
incentives and enforcement151. The cost of capital is usually considered as an indicator of 
market  efficiency  with  positive  implications  on  companies’  investments.  Studies  also 
reported  some  evidence  of  positive  effects  on  cross-border  investments  through  higher 
foreign  mutual  funds152 and  institutional  investors’  ownership 153 for  IFRS  adopters  in 

143  
144  
145  
146  
147  
148  
149  
150  
151  
152  

Barth (2013). 
Simon Archer, Pascale Delvaille & Stuart McLeay (2012). 
Ciao-Wei Chen, Daniel W. Collins, Todd D. Kravet,Richard Mergenthaler (2016). 
Seil Kim, Pepa Kraft, Stephen Ryan (2012), Rani Hoitash, Udi Hoitash Ahmet Kurt, Rodrigo Verdi (2018). 
Seil Kim, Pepa Kraft, Stephen Ryan (2012). 
Rani Hoitash, Udi Hoitash Ahmet Kurt, Rodrigo Verdi (2018). 
Michael J Imhof, Scott E. Seavey and David B. Smith (2017). 
Daske et al. (2008), Barth and Israeli (2013) 
Lee et al. (2008), Daske et al. (2013), Li (2010), Palea (2007), Castillo-Merino et al. (2014). 
Covrig et al. (2007), Yu (2009), DeFond (2011). 

67 

 
 
                                                 
countries with strong enforcement mechanisms. Some academics also provided evidence 
of  positive  impacts  on  foreign  private  investor  ownership154 driven  by  investors  from 
countries that also use IFRS, as well as on foreign debt investment flows155. However, the 
conclusions about the impact of IFRS adoption on the cost of debt were more mixed with 
positive  conclusions  about  the  impact  on  the  cost  of  bonds156 and  Credit  Default  Swap 
spreads157 but negative findings on the cost of bank loans158 with higher interest rates and 
higher collateral provision as a substitute to accounting based financial covenants. 

Though research evidence differs on whether mandatory IFRS adoption reduced the cost 
of  equity  and  debt  funding  for  EU  companies  “on  balance,  the  evidence  suggests  that 
there probably were reductions in the cost of equity capital and in the cost of bonds, but 
that they were not experienced by all companies or in all countries. It is also uncertain 
how  far  the  improvements  were  attributable  to  concurrent  changes  in  other  institutions 
rather than to the adoption of IFRS”159.  

Finally, the effectiveness of the EU framework in achieving the intended wider objectives 
is also supported by the feedback to the public consultation. Most respondents considered 
that  the  EU  framework  is  effective  in  achieving  the  wider  objectives.  There  are 
differences between stakeholder groups though. Most of the respondents agreed upon the 
effectiveness (82%) and relevance (79%) of EU public reporting requirements concerning 
the  capital  markets  integration.  Several  preparers  and  audit  or  accounting  firms 
mentioned specifically the IAS Regulation in their comments. The few respondents that 
remain  less  convinced  include  academics  (67%).  Civil  society  in  particular  seems  very 
doubtful on the effectiveness and relevance of EU public reporting requirements taken as 
a whole (the approval rate only reaches 17%).   

With regard to non-financial information, the assessment suggests that the EU framework 
does  not  ensure  that  reporting  practices  are  adequate  to  allow  stakeholders  to  make 
informed  decisions  and  hold  companies  accountable  for  their  impacts.  The  extent  to 
which  the  EU  framework  contributes  to  the  wider  objective  of  sustainable  growth  is 
therefore significantly limited.  

Firstly,  without  proper  reporting  by  companies,  investors  cannot  take  account  of 
sustainability-related risks and opportunities in their investment decisions. This can lead 
to hidden and systemic risks that may threaten financial stability160. Secondly, the lack of 
adequate sustainability-related information limits the ability of investors to channel funds 
effectively to companies and economic activities that address, and do not exacerbate, the 
social and environmental challenges161.  

Finally, civil society, citizens, consumers and the general public large encounter greater 
difficulties  in  holding  companies  accountable  of  their  impacts  on  the  environment  and 
society if non-financial reporting is insufficient. As a consequence, there is less pressure 

153  
154  
155  
156  
157  
158  
159  
160 

161  

Florou and Pope (2012). 
Bruggeman et al. (2012), Amiram (2012). 
Beneish et al. (2012). 
Florou and Kosi (2014). 
Bhat et al. (2014). 
Tai-Yuan Chen et al. (2015). 
ICAEW “The effects of mandatory IFRS adoption in the EU: a review of empirical research” (2015). 
“A  call  for  action:  climate  change  as  a  source  of  financial  risk”,  Network  for  Greening  of  the  Financial 
System, April 2019. 
This  dual  approach  corresponds  to  the  two  imperatives  for  sustainable  finance  highlighted  by  the  High-
Level Expert Group on Sustainable Finance in their 2018 report. 

68 

 
 
                                                                                                                                                             
on  companies  to  behave  in  a  responsible  manner  and  contribute  to  sustainable  and 
inclusive growth. 

69 

 
 
7.2 

Efficiency of the EU framework 

Conclusion on the efficiency of the EU framework on regular public reporting 

The cost of regular public reporting stemming from the EU framework applicable to all 
limited liability companies seems a relatively modest “cost of doing business”. First, the 
cost  of  annual  reporting  of  financial  information  is  incremental  given  existing  national 
reporting obligations, for example returns for corporate taxation. Second, a portion of the 
costs stem from Member States “top-ups”, insufficient use of simplification  for smaller 
companies  provided  by  the  EU  framework,  or  market  practice.  This  especially  the  case 
for micro companies as even if the EU framework is dramatically alleviated since 2012, 
this does not translate in tangible savings. 

For banks, the incremental costs of the EU framework for public reporting are mitigated 
by the commonalities between the EU supervisory reporting obligations and the financial 
reporting framework.  

For non-financial information, the principles-based nature of the reporting requirements 
in the NFRD, and the fact that it does not impose the use a particular reporting standard, 
limits the potential efficiency gains for users and preparers.  

For the part of the EU framework that is directly applicable (IFRS) for listed groups, the 
benefits seem to have outweighed the cost.  

The  benefits  of  digitalisation  in  term  of  efficiency  should  be  further  explored  for  all 
categories  of  entities  (not  only  listed  companies).  The  efficiency  for  users  can  be 
improved  significantly  by  establishing  single  digital  access  points  and  by  fostering 
machine  readability  for  processing  and  analysing  regulated  information  by  companies. 
Digitalisation could also facilitate a file only once (or at least filing the same) principle 
which would reduce publication cost for preparers. 

7.2.1  Efficiency from the perspective of the reporting entity  

This  section  successively  examines  the  case  of  limited  liability  companies,  listed 
companies and financial institutions from a proportionality  – and to the extent possible, 
cost-benefit  –  perspective.  In  addition,  the  case  for  further  digitalisation  is  examined 
specifically, as a key driver of efficiency.  

7.2.1.1 Limited liability companies  

A  majority  of  respondents  agree  that  the  EU  framework  strikes  the  right  balance 
between  preparers'  costs  and  users'  needs  for  medium  and  small  companies  (Q14, 
Q15).  Views  on  whether  this  holds  for  micro  companies  are  however  not 
homogeneous,  especially  from  preparers  but  also  investors  and  civil  society.  As 
described  in  section  5.3  (limitations  in  the  methodology),  it  is  difficult  to  delineate  the 
costs  of  annual  public  reporting  from  the  cost  of  keeping  records  and  prepare  e.g.  tax 
declarations that entities must do at national level. As a result, the cost of preparation of 
annual  financial  statements  under  the  EU  framework  are  incremental  to  other  reporting 
requirements  that  exist  at  national  level.  Besides,  as  the  EU  framework  for  limited 
liability  companies  is  largely  “minimum  harmonisation”,  Member  States  have  imposed 

70 

 
 
 
accounting  and  disclosure  requirements  in  addition  to  the  EU  framework  (AD  and 
NFRD). This makes it difficult to identify the effect of EU framework as a cost driver for 
the  preparation  of  annual  financial  statements.  In  any  case,  the  cost  of  public  reporting 
are  relatively  higher  for  smaller  companies  than  for  large  companies,  because  small 
companies have less economies of scale.   

As mandated by the AD since 2013, small companies benefit from a simple regime 
except  for  one  Member  State  that  requires  all  companies,  including  the  smaller 
ones,  to  comply  with  IFRS.  Since  2013,  the  AD  established  a  harmonised  cap  on  the 
volume  of  information  to  be  provided  by  small  companies  in  the  notes162,  with  limited 
options  for  the  Member  States  to  extend  the  scale  of  information.  Furthermore,  small 
company  size  criteria  defined  in  the  AD  are  mandatory  and  harmonised,  leading  to  a 
significantly higher number of small entities as compared to the previous directives (see 
Annex X).  

The  current  size  criteria  defining  SMEs  in  the  AD  do  not  raise  major  concerns. 
Some  stakeholders  (Q15)  would  favour  a  qualitative  approach  to  categorise  companies 
(i.e. family business for instance). Some respondents express the view that one set of size 
criteria  would  not  necessarily  fit  all  policy  objectives.  In  order  to  avoid  unintended 
consequences, such as inadvertently increased complexity or burden for entities currently 
categorised  as  SMEs  under  the  AD,  SME  definitions,  they  believe,  should  remain 
differentiated  by  policy  to  reflect  meaningful  clusters  under  the  various  policies.  The 
Commission  has  the  possibility  to  revise  SME  size  criteria  along  with  inflation163 (see 
Annex  X).  A  slight  majority  of  respondents  to  the  public  consultation  would  support 
more uniform metrics to define SMEs across different EU legislations. Stakeholders often 
cited  Commission  Recommendation  2003/361/EC  as  a  benchmark  for  the  definition  of 
small and medium-sized enterprises. The Commission is evaluating the Recommendation 
in parallel. 

The EU legislation offers a super-simplified  reporting  regime for  micro companies 
so as to reduce administrative costs. But this objective is only partly met. For micro 
companies  (84%  of  EU-28  companies),  the  AD  has  a  specific  option  since  2012  which 
allows the Member States to further (“super”) simplify the preparation of their financial 
reports164 compared to small companies. Costs for drawing up financial statements were 
estimated to be EUR 1 000 per year per micro company in average in the EU in 2010165 
before  the  simplification.  A  recent  study  by  CEPS  determined  that,  as  implemented 
today, the take up of the super-simplified micro regime led to a reduction on average by 
only  EUR 9 per company  on a recurring annual  basis  compared to  EUR 90 on average 
per company expected at the time of the adoption of the legislation by the EU. There are 
indications that more needs to be done to fully use the potential for simplification offered 
by the AD. The main reason for this is that, even though 95% of the EU micro companies 
population  are recognised as such by Member State legislation, only 13  Member States 
(representing 60% of the EU micro companies) have implemented the micro regime to a 

162  
163  
164  
165  

Article 16 AD. 
Art. 3(13) AD. 
Article 36 AD. 
EUR 1,072.86 in average per micro-company, based on impact assessment accompanying the proposal for 
an  amendment  of  the  AD  as  regards  micro  companies,  table  19,  based  on  Consortium  study  2008  and 
Commission Services analysis. COM(2009) 83 -  SEC(2009) 207. 

71 

 
 
                                                 
fairly  large  extent166.  Besides,  even  where  a  super-simplified  regime  is  in  place,  many 
micro companies tend to not take advantage of it due to a lack of awareness or desire of 
changing habits. Micro companies tend to use the services of external accountants which 
are key market players in this respect167. 

As  regards  CBCR,  the  Commission  assessed  at  the  time  of  its  proposal  that  annual 
recurring  compliance  costs  of  a  reporting  company  on  payments  to  government  (on  a 
project basis) for extractive and forestry industry would amount to an average EUR 1.4 
million  per  parent  entity  annually  on  a  recurring  basis,  after  set  up  costs  of  EUR  3.2 
million168. During the public consultation, two large companies provided an estimation of 
their actual costs, ranging from EUR 26 000 to EUR 500 000 (recurring) and from EUR 
47 000  to  EUR 1 000 000  (set  up).  Overall,  stakeholders  including  companies 
in  the  study  considered  overall  compliance  costs  not  to  be  a 
surveyed 
disproportionate burden169. Small companies or groups are exempt from CBCR. 

7.2.1.2 Listed companies 

The 2015 review of the IAS Regulation estimated companies’ annual recurring cost 
per  company  of  using  IFRS  ranging  between  0.06%  and  0.008%  of  the  annual 
turnover  whereas  the  cost  of first  adoption  of IFRS  was  estimated  between  0.31% 
and 0.05%. The relative (and relatively low) recurring cost largely depends on the size of 
the company whereby for smaller companies (with less than EUR 500 million turnover) 
the  average  recurring  cost  would  be  0.06%,  for  “medium”  sized  companies  (with  a 
turnover between EUR 500 million and EUR 5 billion) 0.01%, and for companies with a 
turnover higher than EUR 5 billion  0.008%. So, the smallest  companies have relatively 
the  highest  burden.  One  of  the  reasons  for  these  differences  is  that  small  companies 
cannot  benefit  from  the  economies  of  scale  of  having  in-house  IFRS  expertise  and 
therefore rely on external support.  

According to the EU framework, the use of IFRS is mandated only for the consolidated 
financial statements of listed parent companies, whereas the annual financial statements 
of the subsidiaries included in the group’s consolidated financial statements are prepared 
according  Member  States  nGAAP 170.  This  therefore  increases  the  cost  of  producing 
consolidated financial information as the subsidiaries are required to prepare two sets of 
financial  statements:  one  set  under  nGAAP  and  one  set  under  IFRS  for  consolidation 
purposes. One EU Member State requires the use of IFRS for annual financial statements 
and 19 Member States provide an option for subsidiaries of groups to apply IFRS in order 
to reduce the consolidation cost. In the Member States that do not allow IFRS, a company 
option (as opposed to a Member State option) for subsidiaries of listed groups to use EU-
endorsed  IFRS  could  reduce  the  cost  of  internal  control  and  consolidation.  However,  it 
would  increase  the  cost  of  reconciliation  to  national  tax  or  other  company  law 
requirements. 

166  
167  
168  
169  

170  

Annex X. 
Accountants Instrumental to Micro-Entities simplifying their Accounting, EFAA, 16 May 2019. 
Impact assessment accompanying the legislative proposal, Annex 8 and 9 – SEC(2011) 1290 final. 
Source: Review of country-by-country reporting requirements for extractive and logging industries, study 
by Valdani, Vicari & Associati, 26 November 2018. 
I.e. under to EU law, each subsidiary of a group must publish annual financial statements at individual level 
in accordance with the relevant national GAAP. 

72 

 
 
                                                 
The cost of preparation of annual financial statements is reduced for a small subset 
of  companies:  EU  global  groups  with  multi-listings  of  securities.  Major  non-EU 
country jurisdictions allow EU companies to use IFRS for listing on their capital markets. 
This is for example the case for the 90 EU companies with a dual listing in the US that as 
“foreign  registrants”  can  use  IFRS  for  US  listing  purposes,  without  needing  to  prepare 
separate US GAAP financial statements (or complex reconciliations to US GAAP).  

As regards transparency rules for listed companies, most respondents to the public 
consultation  found  that  the  disclosure  regime  of  the  EU  framework  (the  TD)  was 
overall efficient and no unnecessary requirements were flagged (Q 26). In particular, 
as  regards  SMEs,  transparency  rules  are  perceived  by  most  respondents  to  our 
consultations171 as overall proportionate and accurate172.  

Quarterly reporting was abolished173 for all listed companies but in particular to alleviate 
the  burden  on  small  and  medium-sized  issuers.  The  Commission  services  had 
estimated174 the average direct monetary costs to produce quarterly information linked to 
editing,  printing  and  translating  reports  as  varying  from  EUR  2 000  per  year/  to  EUR 
60,000 a year/ per small and medium-sized issuer. The abolishment of quarterly reporting 
aimed to encourage longer-term oriented investments, as the Commission estimated that 
disclosing  quarterly  information  could  encourage  short-termism  and  have  negative 
consequences for all issuers, in particular for small and medium-sized issuers. To provide 
additional flexibility and increase small and medium-sized issuers’ visibility, the deadline 
for publishing half-yearly financial reports was also extended to 3 months after the end of 
the reporting period175.  

According  to  our  findings,  at  least  five  Member  States176 still  require  the  disclosure  of 
quarterly reports, and in at least seven of the Member States where quarterly reporting is 
not mandatory such disclosure is required by regulated markets177. In addition to this, the 
Commission  services  obtained  reports  that  in  at  least  15  Member  States,  issuers  have 
continued to  publish  on  a voluntary  basis quarterly  reports so as to provide customised 
information  to  investors  or  simply  in  reaction  to  peer  pressure.  These  issuers  mainly 
include large companies and equity issuers. 

Despite  the  fact  that  quarterly  reporting  remains  deeply  anchored  in  the  EU  market 
practice,  the  abolishment  of  quarterly  reporting  is  perceived  overall  as  alleviating  the 

171         See the Commission’s Public consultation on public corporate reporting by companies and the responses to 

172  

the EGESC questionnaire. 
21 out of 23 respondents in the Expert Group of the European Securities Committee stated that the TD rules 
are proportionate and accurate for SMEs.  

173          Although the TD allows for quarterly publication of financial information, to be required by a regulated 

market or national law, if such requirement is proportionate and does not constitute a significant financial 
burden. 
174  
Staff Working Document accompanying the Commission proposal for the 2013 TD amendments. 
175          As regards the extension of the deadline for publishing half-yearly financial reports, the rationale was to 

176  

177  

leave more time for analysts and investors to look at and analyse the half-yearly results of issuers, including 
small and medium-sized issuers, and to allow small and medium-sized issuers to publish their reports not 
necessarily at the same time as large listed companies. 
Governmental  experts  consulted  explained  that  in  at  least  5  Member  State,  quarterly  reporting  is  still 
required.  
10  respondents  to  Q4  of  the  EGESC  questionnaire  declared  that  regulated  markets  still  require  quarterly 
reporting.  Seven  of  them  impose  such  obligation  despite  the  abolishment  of  the  requirement  in  their 
Member State. 

73 

 
 
                                                 
administrative  burden  on  listed  companies  without  any  detrimental  impact  on  investor 
protection. 

Very few companies provided figures for the cost of compliance with the NFRD in 
response to the public consultation, and the figures that were provided vary over a 
very  wide  range,  from  less  than  EUR  100  to  over  EUR  1 000 000.  A  survey  of  90 
reporting  experts  representing  Polish  listed  companies  also  shows  a  wide  variation  in 
estimated  costs  of  compliance,  ranging  from  EUR  2 500  to  EUR  125 000.  The  impact 
assessment for the NFRD estimated the costs of compliance at EUR 600 to EUR 4 300 
for the chosen option of requiring companies to provide a non-financial statement in the 
annual  report.  It  also  cited  a  figure  of  EUR  33 000  to  EUR  604 000  for  the  option  – 
which  was  not  selected  –  of  requiring  companies  to  produce  a  detailed,  separate 
sustainability  report.  Although  it  is  not  possible  to  draw  general  conclusions  from  the 
very limited data available, the estimated costs of compliance given by some companies 
are significantly higher than the estimate of EUR 600 to EUR 4 300 made in the Impact 
Assessment. Further research is necessary to provide reliable figures for the actual costs 
of compliance incurred by companies. The Impact Assessment recognised that companies 
may  need  to  collect  some  additional  data,  but  assumed  that  the  NFRD  “would  merely 
strengthen  an  already  existing  legislative  requirement  (on  management  reports)  and  the 
necessary systems and procedures should already be in place in many companies.”  

The  large  differences  between  companies  in  the  estimated  costs  of  compliance 
depend  on  several  factors,  including  whether  or  not  the  company  was  reporting 
non-financial information before the NFRD came into force. This in turn may depend 
in some cases on the pre-existence or not of detailed national requirements on disclosure 
of  non-financial  information.  First  time  reporters  may  face  higher  costs,  related  for 
example  to  the  establishment  of  internal  systems  to  collect  information,  in  which  case 
their  costs  may  fall  in  subsequent  years.  Other  factors  explaining  the  large  differences 
between companies regarding the estimated costs of compliance with the NFRD include: 
whether  or  not  the  company  has  decided  voluntarily  to  publish  a  detailed,  separate 
sustainability  report  and  whether  the  costs  of  such  a  report  are  being  included  in  the 
estimate;  the assurance  of non-financial information, either on a voluntary basis or as  a 
result of the requirements  of national  legislation;  the resources dedicated  to  compliance 
by the company and whether it hires a consultancy firm to assist it with the reporting of 
some of its items; and the ability of the company to differentiate between the costs of new 
reporting requirements resulting from the NFRD and the costs of collecting non-financial 
information  that is  necessary in  any  case  for the  correct  management of the company’s 
performance and impact.  

There may be a risk of increased burden for SMEs as a result of the NFRD, as large 
companies  in  scope may require more information from  SMEs involved in  their supply 
chains.  The  public  consultation  showed  consensus  about  the  fact  there  were  increasing 
demands on SMEs to provide non-financial information to their business clients, mainly 
larger companies, but divergent views on the extent to which the NFRD was a significant 
driver of this trend.  

There  is  some  evidence  that  the  NFRD  has  brought  some  benefits  to  companies 
under its scope. For example, some companies have initiated more robust integration of 
sustainability  in  their  operations  and  governance  systems,  and  in  some  cases  there  is  a 
higher degree of involvement of management boards in sustainability matters, partly as a 
result  of  their  collective  responsibility  for  drawing  up  and  publishing  the  non-financial 

74 

 
 
statement.  Some  analysis  suggest  an  increasing  number  of  internal  communications 
regarding  these  matters,  and  company  representatives  have  confirmed  in  meetings  that 
the  Directive  is  leading  to  an  intensification  of  the  dialogue  across  departments  within 
companies (e.g. risk management and finance departments).  

The  principles-based  nature  of  the  reporting  requirements  in  the  NFRD,  and  the 
fact that it does not impose the use a particular reporting standard, may limit some 
efficiency  gains for  users  and preparers. In response to the public consultation, some 
business associations and other stakeholders noted that, in spite of the NFRD, companies 
still  have  to  provide  additional  information  in  different  formats  to  different  users,  in 
particular 
to  data  providers  and  rating  agencies.  In  meetings,  some  business 
representatives  pointed  to  the  cost  and  difficulty  of  trying  to  meet  the  expectations  of 
different  stakeholders  groups,  and  of  different  reporting  frameworks,  principles  and 
standards  which  overlap  and  are  not  always  consistent.  At  the  same  time  there  is  little 
evidence  to  suggest  that  the  NFRD  is  reducing  costs  for  users  of  non-financial 
information,  especially  investors,  who  still  have  to  invest  resources  in  collecting 
additional data from other sources and analysing data produced in different formats and 
that is often not easily comparable. 

7.2.1.3 Financial institutions  

Costs for preparation of financial statements for banks are very incremental due to 
prudential  requirements.  Regulated  entities  must  submit  detailed  supervisory  reports 
which they can use as a basis for preparing annual financial statements and management 
reports.  They  are  also  subject 
to  (proportionate)  prudential  annual  disclosure 
requirements  which  in  some  instances  go  well  beyond  the  granularity  of  the  annual 
reporting  requirements  of  the  EU  framework  on  public  reporting.  There  are  examples 
where small banks use the prudential FINREP178 lay-outs or actual reports as the basis for 
their  annual  financial  statements.  Against  this  background  the  incremental  costs  of  the 
EU framework on public reporting seem almost negligible.  

Respondents  to  the  Public  Consultation  expressed  overall  a  positive  assessment 
about  the  cost  of  producing  the  financial  information  delivered  by  insurance 
companies.  They  highlighted  that  the  EU  framework  was  not  a  source  of  significant 
incremental  compliance  cost  as  financial  statements  were  also  used  as  a  basis  for 
determining the taxable income, the amount of distributable dividends or policyholders’ 
profit  share  in  some  participating  contracts.  This  positive  assessment  was  particularly 
conspicuous in three Member States. 

Unlike  banks,  the  supervisory  reporting  requirements  for  insurance  companies  are  not 
aligned with the annual  financial statements because the Solvency  II Directive provides 
for  its  own  presentation  and  measurement  rules  for  insurance  contracts  and  partially 
requires the use of IFRS for the measurement of other classes of rights and obligations. 
However,  a  significant  majority  of  the  respondents  to  the  public  consultation179 did  not 
support harmonising the public and supervisory reporting frameworks as they considered 
that they pursued different objectives thus warranting different sets of requirements.   

178  

179  

FINREP  is  part  of  the  supervisory  reporting  by  banks.  FINREP  consists  of  several  templates  requiring 
structured financial information including an overall balance sheet and Profit and Loss statement.  
Question 38 of the Consultation Document on the EU Framework for Public Reporting by Companies. 

75 

 
 
                                                 
Since  all  undertakings  under  the  scope  of  the  NFRD  have  been  jointly  analysed, 
conclusions for section 7.1.2.2 regarding the efficiency of non-financial reporting by 
listed companies also hold for non-listed banks and non-listed insurance companies 
under  the  scope  of  the  NFRD  (large  limited  liability  banks  and  insurance  companies 
above 500 employees).  

7.2.2   Digitalisation as a source of efficiency for both users and preparers 

Digital  technology  developments  increase  users’  demand  for  quicker  and  easier 
access  to  company  information  via  for  instance  a  personal  computer  or  a 
smartphone. In response companies increasingly provide online access to financial and 
non-financial  information  on  their  website.  A  range  of  public  and  private-sector  actors 
contribute to the digital dissemination of company information. Private data providers180 
are  commonly  used  but  are  a  costly  source  of  information  for  small  investors.  Each 
Member  State  has  a  public  Business  Register,  as  mandated  per  Union  law.  These  fulfil 
collection,  storage  and  dissemination  functions.  The  Company  Law  Directive  (CLD) 
allows business registers to charge a fee for providing company information (which must 
not  exceed  the  administrative  cost  incurred  by  the  business  register).  The  majority  of 
business  registers  are  self-financed  and  therefore  charge  a  fee  for  providing  company 
information. Nonetheless, the CLD requires Member States to ensure that a minimum set 
of  company  information  is  made  available  free  of  charge181.  This  is  achieved  via  the 
Business  Registers  Interconnection  System  (BRIS).  Access  to  such  information  is 
through  the  European  e-Justice  Portal  which  is  available  in  all  EU  languages.  The  EU 
framework  (TD)  requires  Member  States  to  establish  Officially  Appointed  Mechanisms 
(OAMs) with  a storage  and dissemination functions for information  published by listed 
companies (issuers). Many OAM offer, via a web platform, documents to be downloaded 
for  free  on  an  itemised  basis,  in  PDF  format.  National  business  registers  and  OAM’s 
generally  offer  electronic  (web)  access  with  search  functionality.  For  a  number  of 
reasons,  investors  and  analysts  assert  that  their  consumption  of  information  via  public 
access means is only occasional. Private data providers generally offer central access to 
data,  with  predetermined  analysis  and  structure,  based  on  annual  subscription.  Certain 
smaller  and  retail  investors  reported  their  reluctance  or  inability  to  use  these  services, 
considering the subscription price.  

Consultation  of  stakeholders  showed  that  digitalisation  could  play  an  essential  role  in 
increasing  users’  efficiency.  For  users,  key  features  are  whether  data  is  i)  digitally 
readable  (enabling  easier  use);  ii)  properly  disseminated  (where  and  when  information 
can  be  accessed);  and  iii)  secure  (i.e.  ensuring  reliability,  identification  and  integrity  of 
information). The table  below provides an overview of progress made so far in  the  EU 
framework as regards the digitalisation of corporate reporting. It shows that digitalisation 
remains work in progress in many areas. 

180  

181  

Bloomberg,  Thomson  Reuters,  Factset,  S&P/CapitalIQ,  CalcBench,  RankAndFiled.com  are  well  known 
private players. Alternative open access initiatives also exist, such as Opencorporates.  
Directive  2012/17/EU  now  codified  in  Directive  (EU)  2019/1151.  The  recently  adopted  Directive  (EU) 
2019/1151  amending  Directive  (EU)  2017/1132  as  regards  the  use  of  digital  tools  and  processes  in 
company law broadens the set of information free of charge (see Article 19 as modified). 

76 

 
 
                                                 
Table 10: Digitalisation, mapping of EU action 

Dissemination 
channels 

Security  Other(*) 

Financial statements / Management 
report / Responsibility statements 
Listed companies 
Financial statements  / Management 
report 
All limited liability companies / groups 
Audit report 
Listed / non-listed companies / groups 
Non-financial information 
 (if in a separate report outside 
management report) 
Corporate governance 
(if in a separate report outside 
management report) 
CBCR 
Extractive and logging industries 

Structured 

Data 

 
ESEF 

Ω 
EEAP, e-
publication 

Ω  
CLD / BRIS 

 
CLD / BRIS  

× 

× 

× 

Ω  
CLD / BRIS 
Ω  
AD-  web 

Ω  
AD - web 

×

 
CLD / 
BRIS 
× 

× 

× 

× 

Ω 

Ω  
CLD / 
BRIS 
× 

× 

× 

× 

× 
Source: European Commission – see also Annex VIII 

× 

 addressed  Ω partly / being addressed 

× not addressed 

(*)  Other  angles to  digitalisation include  inter  alia  data  re-use, the  management  and  auditors’ 
responsibilities over digital formats, policies applicable to non-EU countries, etc.  

The  EU  framework  provides  large  leeway  to  Member  States  in  developing  national 
digital  approaches  and  solutions  (Annex  IX).  These  have  used  their  powers  to  varying 
extent, many times with tax reporting purposes as the primary trigger182. Estonia is one of 
the  most  advanced  Member  States  in  terms  of  e-government183 especially,  in  terms  of 
company reporting. It includes digital identification, online filing, and the file only once 
principle. National approaches however are not prone to being interoperable at EU level.  

More could be done at EU level to develop digitalisation of both financial and non-
financial  information  in  order  to  enhance  preparers  and  users’  benefits.  Investors 
often  refer  to  the  US  system  for  the  storage  and  dissemination  of  listed  companies 
(EDGAR)  as  a  point  of  reference184.  In  the  Tallinn  declaration  on  e-government185 of 
October  2017,  Member  States  expressed  their  support  for  increased  availability  and 
quality  of  open  government  data.  Users,  but  also  a  number  of  preparers  expressed  a 
number of views during the consultation (Q57): 

182  

183  
184  

185  

See  for  instance  Answers  to  questions  raised  by  ESMA  on  eXtensible  Business  Reporting  Language 
(XBRL), XBRL International and XBRL Europe, 30 march 2014, Annex 1. 
https://e-estonia.com/.  
EDGAR  (Electronic  Data  Gathering,  Analysis,  and  Retrieval)  is  an  online  public  database  from  the  U.S. 
Securities and Exchange Commission (SEC). EDGAR performs automated collection, validation, indexing, 
acceptance, and forwarding of submissions by companies and others who are required by law to file forms 
with  the  SEC.  All  companies,  foreign  and  domestic,  are  required  to  file  registration  statements,  periodic 
reports, and other forms electronically through EDGAR. Anyone can access and download this information 
for free. 
Tallinn Declaration on eGovernment - European Commission – October 2017. 

77 

 
 
 
 
 
 
 
                                                 
  Except for the BRIS access point on the e-Justice Portal, there are no central pan-
EU access portals, which undermines the public good character of listed companies 
company reporting. Users consider an EU central access point to listed companies’ 
financial information a necessity [Q62]. The EEAP provided for in the TD is not yet 
in place. The Commission services have explored the prospects of distributed ledger 
technologies 186 to  achieve  it.  The  European  Commission  adopted  in  addition  in 
September  2020  the  new  action  plan  on  the  Capital  Markets  Union187.  The  plan 
contains  16  legislative  and  non-legislative  actions  towards  completing  the  CMU 
including  setting-up  an  EU-wide  platform  –  the  European  Single  Access  Point 
(ESAP).  Likewise,  the  Digital  Finance  Strategy 188  aims  to  create  a  European 
financial  data  space  in  order  to  promote  data-driven  innovation,  building  on  the 
European data strategy,  including enhanced access  to  data and data sharing within 
the financial sector.  

  Data  is  seldom  digitally  structured, and systems  in  place  generally offer limited 
search  capabilities  (for  instance  no  search  on  metadata  or  text  strings),  let  alone 
enable online database mode access techniques such as with APIs; 

  Access  to  financial  information  is  often  made  uneasy  by  a  number  of  small 
barriers.  Information is usually accessible on an itemised basis. Business registers 
may require to have an account, and/or to pay fees, etc. This discourages the broad 
use by the public, especially when cumulated189.  

  Financial  information  is  often  provided  in  the  registered  office’s  national 

language. Little use of digitalisation is made to overcome language barriers; 

  Lack of file only once culture. There is broad support, especially by preparers, for 
the principle  (Q59-63)190, but  wide variation in  maturity in  the Member States,  let 
alone  at  EU  level 191.  The  recently  adopted  Directive  (EU)  2019/1151  amending 
Directive  (EU)  2017/1132  as  regards  the  use  of  digital  tools  and  processes  in 
company law192 brings in a 'once-only' principle in respect of information filed with 
business  registers.  This  would  for  instance  not  address  multiple  filings  by  issuers 
(OAM, NCA, media ...). 

  Preparers are wary of the multiplication of digital reporting standards, which 

multiply compliance costs.  

186  
187  
188  
189  

190  

191  
192  

European Financial Transparency Gateway (EFTG). 
CMU-action-plan - https://ec.europa.eu/info/publications/200924-capital-markets-union-action-plan_en. 
Digital Finance package - https://ec.europa.eu/info/publications/200924-digital-finance-proposals_en. 
At  the  national  level,  the  OAMs  generally  offer  free  access  online  to  national  regulated  information  of 
issuers  with  search  tools,  on  an  itemised  basis,  however  no  full  access  in  database  mode.  Most  business 
registers  offer  access  on  line  to  limited  companies  regulated  information  online  with  search  tools  too. 
However,  based  on  5  business  registers  that  provided  figures,  a  financial  statement  was  on  average 
downloaded 10 times in a given year, and had more chances to be downloaded where free unencumbered 
access  is  offered.  Interest  remains  somehow  still  national  centric.  One  business  register  reported  that 
downloads of financial statements was done 96% of the time from within the country, 4% from another EU 
Member State, and 1% from a third country.  
The Digital Single Market strategy calls for improved cooperation among national systems to ensure that 
“businesses and individuals only  have to communicate  their data  once to public administrations” (Action 
16). 
Commission study: “EU-wide digital once-only principle for citizens and businesses”, December 2017. 
Directive  (EU)  2019/1151  amending  Directive  (EU)  2017/1132  as  regards  the  use  of  digital  tools  and 
processes in company law, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32019L1151 

78 

 
 
                                                 
As  regards  the  usability  of  regulated  information,  investors  welcome  the  progress 
made  in  incorporating  the  ESEF  as  from  year  2020  in  the  EU193.  With  enhanced 
digital  structuring  come  higher  prospects  of  easily  analysing  and  comparing 
financial  information.  ESEF  offers  a  solution  to  several  problematic  issues:  (i)  today, 
most information is provided in PDF format and in the original language which requires 
re-encoding by users wishing to carry out automatic analyses including EU cross-border 
analysis;  (ii)  users  report  that  extracting  datasets  from  PDF  documents  requires  a  high 
degree of manual intervention which is prone to error194; (iii) data providers may offer a 
solution  to  these concerns, but  the delivery to  final  users of  structured data comes with 
non-negligible  costs195 and  it  also  entails  a  level  of  standardisation  determined  by  the 
provider. Although a number of Member States have already brought in data structuring 
of  financial  information  at  national  level,  ESEF’s  EU-wide  interoperable  approach 
unlocks the potential of digitalisation for the EU single market and the integrated capital 
market.  

Based  on  our  consultations,  bringing  in  the  ESEF  Regulation  raised  a  number  of 
questions196 about the audit of ESEF-compliant financial statements, the legal value 
of the ESEF-compliant financial statements, and the acceptance of ESEF-compliant 
financial statements by Business Registers.  

The  main  concerns  raised  by  some  issuers,  national  regulators  and  oversight  bodies  on 
the  mandatory  audit  of  financial  statements  prepared  in  accordance  with  the  ESEF 
Regulation197 relate to the absence of an explicit audit obligation at national level and the 
absence of a relevant auditing standard. In order to provide guidance to the market and to 
ensure convergence of national auditing practices, in November 2019 the Committee of 
European  Auditing  Oversight  Bodies  (CEAOB)  published  non-binding  guidelines  on 
how to audit ESEF in practice198. In addition, the Commission published an interpretative 
Communication in November 2020 (199). 

As  regards  the  legal  value  of  the  ESEF-compliant  financial  statements,  once  the  ESEF 
Regulation  becomes  applicable,  these  annual  financial  reports  will  be  the  only  ones 
fulfilling  the  relevant  disclosure  requirement  under  the  Transparency  Directive.  Under 
Article 7 of the Transparency  Directive, the responsibility to draw up and make public 

193  

194  

195  

196  

Article 4(7) of the Transparency Directive was amended by Regulation (EU) 2021/337 of 16 February 2021 
in order to grant Member States the option to allow their issuers to apply the ESEF requirements starting 
from 1 January 2022. 23 Member States notified the Commission in early 2021 of their intention to do so. 
Ad  hoc  Commission  User  Workshop,  Answers  to  questions  raised  by  ESMA  on  eXtensible  Business 
Reporting Language (XBRL), XBRL International and XBRL Europe, 30 march 2014. 
Subscription  on  the  US  market  with  Facset,  S&P/  Capital  IQ,  Bloomberg  range  from  $12,000  a  year  to 
$24,000 a year. Source: WallStreetPrep. 
These  issues  were  raised  by  respondents  to  the  public  consultation  and  by  issuers  during  the  ESEF 
workshop jointly held with ESMA in June 2018.  

197         Article 28(2)(c)(ii) of the Audit Directive specifies that the auditors shall include in the audit report – inter 
alia  -  an  opinion  on  whether  the  annual  financial  statements  comply  with  the  statutory  requirements. 
Considering that the ESEF Regulation is a binding legal instrument, the provisions included therein shall be 
considered  as  “statutory  requirements”  within  the  meaning  of  Article  28(2)(c)(ii)  of  the  Audit  Directive. 
This will ensure a homogeneous level of protection for all investors as all users of annual financial reports, 
regardless  of  whether  they  use  the  human  readable  or  the  machine-readable  representation  of  the  ESEF-
compliant financial statements. 

198          CEAOB guidelines on the auditors’ involvement on financial statements in ESEF. 
199          ESEF Interpretative Communication. 

79 

 
 
                                                 
the annual financial reports in accordance with Article 4 of that Directive200 lies at least 
with the issuer or its administrative, management or supervisory bodies. This means that 
the  issuer  is  in  any  case  responsible  for  preparing  and  publishing  the  annual  financial 
reports – therefore the financial statements – in compliance with the ESEF Regulation. 

Under  the  Company  Law  Directive,  and  in  conjunction  with  the  AD,  limited  liability 
companies  (regardless  of  whether  they  are  listed  or  not)  must  file  the  audited  financial 
statements with the national Business Register. Considering that the Company Law Directive 
does not specify the format of such audited financial statements – which can be electronic – 
listed  limited  liability  companies  are  not  prevented  by  Union  law  from  filing  their  ESEF-
compliant financial statements with a Business Register.  

Investors  on  the  other  hand  fully  support  the  ESEF  as  an  efficient  policy  and 
suggested  to  expand  it  (or  at  least  encourage  it)  to  additional  information  such  as 
intermediate financial reporting. Preparers and governments generally would favour no 
further expansion before any proper evaluation of existent provisions is conducted. Some 
stakeholders would also favour the structuring of information in the management report, 
which  would  enable  better  usability  and  machine  readability  of  some  non-financial 
information so that it could be key to facilitate the processing of this information and its 
digitalisation.  

As regards CBCR, civil society is concerned about the lack of machine readability of the 
information, which makes processing cumbersome. The UK system is considered as best 
practice as payment data are provided in XML format with CVS output directly usable in 
spreadsheets.  A  number  of  privately-led  initiatives  seek  to  solve  the  problem201202 The 
IMF  and  the  EITI  also  collaborate  on  the  design  and  implementation  of  a  standard 
template  to  classify  government  revenues  in  EITI  reports,  in  an  open  data  format  (for 
instance XLSX or CSV)203. 

Cost/benefits analysis of enhanced digitalisation of public reporting for preparers 

Preparers’ predominant view is that electronic reporting would increase compliance 
costs (preparation and filing costs). A number of standard setters and users believe on 
the  contrary  (Q59-63)  that  digitalisation  could  benefit  preparers  in  the  long  run,  one 
pointing to  a  reduction  of 7% to  15% in  compliance  costs. But  in  order  to  reduce or  at 
least  avoid  undue  costs,  the  combined  views  of  certain  users,  preparers  and  standard 
setters were that certain conditions should be met: 

  That  electronic  reporting  becomes  the  trusted  primary  source  of  information.  It 
should not come on top of other (e.g. paper-based, pdf ...) reporting requirements that 
would break the digital chain of preparation or add unnecessary manual process; 

  That regulators / standard setters ensure that there is no multiplication of standards. 
For instance, the Netherlands uses the same definitions of structured data to prepare 

200          Article 4(7) of the TD prescribes the use of the ESEF.  
201  

202  

203  

Public Country-by-Country Reporting, A template for disclosing corporate tax information – Accountancy 
Europe, July 2016. 
Resource project of the Natural Resource Governance Institute  - Open source data on oil, gas and mining 
payments - http://www.resourceprojects.org/, launched in Q1 2019. 
See  EITI  Summary  Data  Template.  The  template  also  supports  the  International  Monetary  Fund’s 
surveillance work. 

80 

 
 
                                                 
both  financial  statements,  company  tax  declarations  as  well  as  credit  /  statistics 
reports. 

On  the  user  side,  certain  professional  associations  and  standard  setters  estimated 
overall reduction in access costs to regulated data with ready made accessible digital 
structured  data  could  reach  25%  to  75% over  time.  This is especially true in cross-
border situations. Digitalisation can also help overcome language barriers in cross-border 
situations. A potential downside is that digitalisation comes with higher standardisation, 
which is prone to reducing the relevance of information due to less flexibility. 

The ESEF is acknowledged as a primary step for an EU approach. According to a cost-
benefit analysis by ESMA204, the implementation of ESEF might carry some operational 
challenges,  including  possible  limited  extra  costs  for  issuers  at  the  initial  stage.  In  any 
case,  costs  will  significantly  depend  on  whether  an  issuer  tags  the  Annual  Financial 
Reports in iXBRL internally205 or by outsourcing it to a third party206. Software providers 
are  developing  software  that  will  assist  issuers  in  standardising  and  automatising  the 
application of ESEF, thus lowering effort and costs.  

Digitalisation contributing to the wider objectives  

Easy  access  to  company  information  is  essential  for  stakeholders.  Optimal  use  of 
information technology with single points of electronic access underpins the public good 
character of company reporting and unblocks fuller potential for the  single market. The 
use of structured  electronic data formats at  EU level  would allow stakeholders to  make 
quicker  and  fuller  analysis  of  EU  companies’  information  facilitating  informed  cross-
border investment decisions.  

7.3 

Relevance of the EU framework 

Conclusion on the relevance of the EU framework on regular public reporting  

The wider objectives of the EU framework for public reporting, namely:  (i) an efficient 
functioning of the EU single market, (ii) an integrated EU capital market, (iii) financial 
stability and (iv) sustainable growth, have not lost any relevance. The EU framework for 
public  reporting  by  companies  might  nevertheless  need  to  be  adapted  to  continue  to 
contribute to meeting these wider objectives. With regard to the sustainability objective in 
particular, the context has evolved in such a way that the NFRD no longer represents an 
adequate response to new needs and challenges.  

CMU policies seek to enhance EU capital market integration, on which the use of IFRS 
has  had  positive  impact.  From  that  perspective,  the  mandatory  scope  of  IFRS  could  be 
expanded to listed entities that do not publish consolidated financial statements in order 
to enhance the comparability of financial statements. Facilitating access to public markets 

204  

205  

206  

Single 

Format 

ESMA  Feedback  Statement  on  the  Consultation  Paper  on  the  Regulatory  Technical  Standard  on  the 
at 
(ESEF), 
Electronic 
European 
https://www.esma.europa.eu/sites/default/files/library/2016-
1668_esma_feedback_statement_on_the_rts_on_esef_0.pdf. 
Implementation costs per issuer are estimated around EUR 8,200 for the first filing and around EUR 2,400 
for each subsequent filing. 
Implementation costs per issuer are estimated around EUR 13,000 for the first filing and around EUR 4,600 
for each subsequent filing.  

available 

2016, 

page 

65, 

81 

 
 
                                                 
for  SMEs  wishing  to  scale  up  is  also  a  key  goal  of  the  CMU.  In  that  respect,  allowing 
SMEs to use IFRS could help reducing their barriers to seeking public funding. However, 
this may require further work on making IFRS disclosure requirements commensurate to 
the size and complexity of SMEs.  

Although the EU framework overall remains relevant for SMEs and large companies, it 
appears  far  less  relevant  for  the  14.2  million  micro  companies  which  tend  to  operate 
locally and at a smaller scale. 

The relevance of the EU framework applicable to non-listed financial institutions (BAD 
and IAD) has also become questionable. 

7.3.1  Continued relevance of the wider objectives  

The  wider  objectives  of  the  EU  framework  for  regular  public  reporting  of 
information have not lost any relevance. The wider objectives of establishing a single 
market,  an  efficient  functioning  of  the  EU  single  market,  financial  stability  and 
sustainability  have  not  lost  any  relevance  compared  to  when  the  EU  adopted  the  legal 
instruments that constitute the EU framework on regular public reporting by companies.  

7.3.2  Continued relevance of the EU framework 

7.3.2.1 Continued relevance of the EU framework for the sustainability objective 

Although  the  initial  objectives  of  the  EU  framework  on  non-financial  reporting 
(NFRD)  are  still  highly  relevant,  the  Directive  no  longer  represents  an  adequate 
response  to  a  new  context.  This  new  context  is  characterised  by  other  policy  and 
legislative  developments,  a  growing  demand  for  information  from  investors,  and 
developments  in  internationally  recognised  reporting  frameworks  and  guidelines. 
Coverage  of  sustainability  aspects  in  financial  data  is  limited,  notably  providing 
insufficient information to the market about financial exposure to climate risks and other 
sustainability risks. 

A large majority of respondents to the public consultation believed that the objective 
of  increasing  the  quality  and  quantity  of  non-financial  information  disclosed  by 
companies remains relevant. A common argument made in support of this view is that 
current  disclosure  practices  do  not  meet  the  growing  demand  for  data  and  information 
from  investors  and  other  stakeholders.  The  growing  demand  for  non-financial  data  and 
information  from  companies  is  itself  driven  by  the  increasing  amount  of  evidence 
regarding the urgency and seriousness of the sustainability crises we face.  

The  context  in  which  companies  report  non-financial  information  has  evolved 
significantly since the approval of the NFRD in 2014. At a global level, agreement on 
the  UN  Sustainable  Development  Goals  (2015)  and  the  Paris  Agreement  on  climate 
change  (2016)  have  given  a  stronger  political  impetus  to  the  transition  to  a  sustainable 
economy,  and  have  contributed  to  a  growing  awareness  of  the  strategic  importance  of 
sustainability issues amongst businesses and investors.  

There  have  been  some  significant  developments  regarding  non-financial  reporting 
frameworks and guidelines. In 2016 the Global Reporting Initiative (GRI) published its 
first  standards,  building  on  its  previous  generations  of  guidelines.  In  2018,  the 

82 

 
 
 
Sustainability Accounting Standards  Board  (SASB)  published  77  industry  standards  for 
the  disclosure  of  financially-material  sustainability  information.  The  Task  Force  on 
Climate-related  Financial  Disclosures  (TCFD),  established  by  the  G20’s  Financial 
Stability  Board,  published  its  recommendations  in  2017  and  they  have  attracted 
widespread  interest  in  the  market.  In  June  2019,  the  Commission  published  a  new 
supplement to its existing non-binding guidelines on non-financial reporting, specifically 
on  climate-related  information  and  integrating  the  TCFD  recommendations.  Other 
developments  since  2014  include:  a  Statement  of  Intent  from  five  international 
sustainability  reporting  initiatives  to  cooperate  more  closely;  an  initiative  by  the  World 
Economic  Forum  and  to  develop  common  reporting  indicators;  the  development  of 
national  reporting  standards  in  Poland  and  in  Germany;  and  the  launch  in  2020  of  a 
public consultation by the International Financial Reporting Standards Foundation on the 
possible extension of its work to non-financial reporting. Overall, compared to 2014 the 
new  context  is  defined  by  the  proliferation  of  different  initiatives  that  partially  overlap 
and are not always consistent between each other.  

At  EU  level,  the  Sustainable  Finance  Action  Plan  (2018)  and  the  European  Green 
Deal  (2019)  have  significantly  increased  Europe’s  political  ambition  to  move  as 
rapidly  possible  to  a  sustainable  economic  and  financial  system.  As  part  of  the 
Sustainable Finance Action Plan the EU has adopted the Taxonomy Regulation and the 
Sustainable  Finance  Disclosure  Regulation  (SFDR).  Both  pieces  of  legislation  have 
important implications for the non-financial information that companies should disclose. 
By imposing sustainability disclosure requirements  on financial market  participants,  the 
SFDR will have a direct impact on the information that financial market participants need 
from  investee  companies.  The  Taxonomy  Regulation,  meanwhile,  imposes  new 
requirements on companies under the scope of the NFRD to disclose their alignment with 
activities  that  qualify  as  environmentally  sustainable  according  to  the  taxonomy.  In  the 
European  Green  Deal,  the  Commission  announced  its  intention  to  review  the  Non-
Financial Reporting Directive.  

7.3.2.2 Continued relevance of the EU framework for the integration of EU capital markets 

For  listed  companies,  the  EU  framework  continues  to  be  of  high  relevance  for 
financial  information.  The  permanent  update  of  IFRS  including  major  standards  on 
financial  instruments,  revenue  from  multiple-element-sale  contracts  and  leases  for 
example  imply  continued  relevance  in  a  changing  business  environment.  Also  the 
widespread international use of IFRS (although below initial EU policy expectations; see 
section  7.4.2.1  in  EU  added  value)  adds  to  the  continued  relevance  for  EU  companies 
operating internationally.  

Considering the benefits of applying IFRS in terms of  relevance and comparability 
of  financial  information,  some  stakeholders  highlighted  that  the  mandatory  scope 
set by the IAS Regulation may be too narrow, because it does not require individual 
(non-group) companies issuing securities on an EU Regulated market to use IFRS. 
As  outlined  in  section  7.1.2.1,  the  use  of  IFRS  by  listed  entities  has  resulted  in  greater 
comparability  of  the  financial  information  delivered  by  listed  entities  while  also 
providing  significantly  more  relevant  information  than  financial  statements  prepared  in 
accordance with  the minimum  requirement applicable to  all limited liability companies. 
However,  the  mandatory  scope  of  the  IAS  Regulation  only  applies  to  the  consolidated 
financial  statements  whereas  some  listed  companies  only  publish  annual  financial 

83 

 
 
statements. As a result, cross-border comparability among listed entities is not achieved 
for this subgroup of single listed entities. 

In  that  regard,  the  2000  EU  Financial  Reporting  Strategy207 had  concluded  that,  though 
desirable, a requirement to use IFRS for the annual financial statements of listed entities 
should  remain  a  Member  State  option  in  order  to  circumvent  possible  inconsistencies 
with national regulatory and tax requirements. As at December 2018, 11 Member States 
required  the  use  of  IFRS  for  the  annual  financial  statements  of  listed  entities  and  11 
others  permitted  this.  An  indicative  maximum  estimate  of  the  number  of  listed  entities 
using  the  IFRS  for  their  annual  financial  statements  can  be  drawn  from  a  2014  ad  hoc 
consolidation  performed  by  ESMA.  It  highlights  that  out  of  7 400 208  sets  of  annual 
financial  statements  filed  by  issuers  on  EU  regulated  markets  as  at  December  2014,  an 
estimated 6 000 were drawn according to IFRSs209.  

Investors and preparers at the investor workshop signalled support for a path to be 
devised for allowing SMEs envisaging issuing securities to report only under IFRS. 
At the end of June 2019, European Issuers published a report on their vision for the years 
2019-2024210. The report outlines their interest for an IFRS option for SMEs wishing to 
be  listed  on  SME  Growth  Markets  and  MTFs  (Multilateral  Trading  Platforms): 
“Companies on SME Growth Markets and MTFs should have the choice to use their local 
accounting  standards  (GAAP)  or  full  IFRS.”  They  consider  that  this  option  would 
improve access to finance for small companies. They also underline the importance of a 
proportionate approach for SMEs. This could be a gradual passage from local GAAP to 
IFRS as SMEs grow, start to be listed on SME Growth Market and subsequently might 
want  to  be  listed  on  regulated  markets  where  full  IFRS  are  required  for  consolidated 
financial  statements.  Such  views  were  also  supported  by  participants  to  DG  FISMA 
workshops  (March  2019  Workshop  with  investors  on  financial  reporting,  June  2019 
Workshop organised by DG FISMA to take stock on the CMU). 

However,  as  highlighted  in  section  7.2.1.2  about  efficiency,  the  transition  towards  full 
IFRS may be too burdensome. UK GAAP was given as potential best practice example as 
Financial Reporting Standard 101 permits disclosure exemptions from EU-endorsed IFRS 
for  certain  qualifying  entities.  Several  respondents  to  the  consultation  (Q12,  Q13)  also 
mentioned that IFRS had become too complex with too many disclosure requirements. In 
order to respond to this concern raised in a 2015 public consultation, the IASB published 
in  2017  a  discussion  paper  on  the  disclosures  in  financial  statements 211 .  The  Paper 
recognised  the  practical  difficulties  that  entities  encountered  in  applying  the  disclosure 
requirements laid down in IFRS.  

207  
208  

209  

210  

211  

COM(2000) 359 final. 
ESMA  –  Consultation  paper  on  the  Regulatory  Technical  Standard  on  the  European  Single  Electronic 
Format page 26 – Number of financial statements on regulated markets by financial reporting framework 
according to National Competent Authorities. 
Only  a  rough  estimate  can  be  established  due  to  the  absence  of  an  EU  consolidated  list  of  issuers  with 
information about their public reporting practices. 
EuropeanIssuers Vision 2019-2024, Competitiveness is the Core for a Sustainable Europe, Serving Quoted 
Companies, EuropeanIssuers, http://www.europeanissuers.eu/ourvision.  
Disclosure initiative – Principles of disclosure Discussion paper. 

84 

 
 
                                                 
Since  then,  the  IASB  has  undertaken  a  targeted  Standards  Level  Review  of  the 
disclosures requirements in two existing IFRS standards212 with the objective of making 
disclosures  more  relevant  and  reducing  irrelevant  disclosures.  In  parallel,  the  IASB  is 
developing guidance and examples to help entities in applying materiality judgements on 
disclosure, which would result in less disclosure and improve usability and accessibility 
of the full IFRS in respect of SMEs213. In 2018, the IASB issued an amendment to clarify 
the definition of materiality in financial statements and, in 2019 the  IASB published an 
exposure  draft  about  its  proposed  changes  to  accounting  policy  disclosures.  In  January 
2020,  the  IASB  decided  to  start  a  standard  setting  project  to  allow  companies  that  are 
non-listed subsidiaries of listed companies to prepare individual financial statements with 
significantly  reduced  disclosures  whilst  applying  the  full  IFRS  recognition  and 
measurement rules. 

7.3.2.3 Continued relevance of the EU framework for micro companies 

Stakeholders  recognise  the  relevance  of  the  EU  framework  for  limited  liability 
companies  (section  7.1.1)  as  well  as  the  need  for  a  proportional  approach  (section 
7.2.1). The continued relevance of the EU framework for micro companies, surveyed 
specifically  by  CEPS, 
is  however  questionable.  Micro  companies  are  often 
management-owned  companies,  with  little  or  non-existent  cross-border  business 
activities214.  

Consultation  indicated  that  a  few  specific  users  (data  aggregators,  rating  agencies) 
regretted the scarcity of  information  provided by micro and small entities. They argued 
that scarcity of information hindered big data analysis and access to funding. They  also 
pointed out  that the benefits  of simplification may not  be achieved if companies had to 
frequently  provide  ad  hoc  or  recurring  data  in  order  to  obtain  funding.  However,  there 
does not seem to be a pressing need for standardised information about micro entities to 
be  readily  available  for  processing  by  market  suppliers  of  information.  When  surveyed 
(CEPS),  banks  also  emphasised  that  micro  companies  provided  information  directly  to 
them, there was no need for additional public information.  

Micro  companies  themselves  do  not  perceive  the  benefits  of  preparing  financial 
statements,  which  they  tend  to  see  as  a  duplication  of  other  reporting  requirements  in 
national laws (usually tax). The possibility to link or combine financial reporting with tax 
reporting obligations (“one stop shop” or “file only once” principle) as permitted by the 
AD (Art. 36(1)(d)) was taken up by only five of the 22 Member States implementing a 
micro regime215. The uneven implementation by the Member States of a super-simplified 
financial  reporting  regime  (section  7.2)  combined  with  a  lack  of  awareness  of  existing 
simplification tend to reinforce this perception by micro companies216. 

In  light  of  the  above  considerations,  the  Commission  proposed  in  2009  a  blanket 
exemption of micro companies from the EU framework (AD). But then, the co-legislators 

212  
213  
214  
215  
216  

IFRS 13 (Fair Value) and IAS 19 (Pension). 
A set of case studies to help entities understand how they can already reduce disclosures. 
See for instance European Commission Annual report on European SMEs – 2018/17, p. 50. 
Source: Commission services, review of options used by the Member States. 
Study on the accounting regime of limited micro companies – CEPS – 2019. 

85 

 
 
                                                 
agreed  to  keep  minimum  EU  requirements  for  micro  companies 217 .  Abolishing  the 
(limited)  public  reporting  requirements  at  EU  level  may  not  result  in  immediate  major 
reduction  in  administrative  costs  for  micro  companies,  though.  First,  because  Member 
States could maintain extant national laws on regular reporting despite a repeal in Union 
law,  considering  that  there  are  benefits  in  doing  so.  Second,  because  even  if  financial 
reporting  were  repealed,  national  tax  laws  (corporate  tax)  would  probably  continue  to 
drive to a large extent micro companies’ reporting efforts and costs. 

7.3.2.4 Continued relevance of the framework for non-listed financial institutions  

The  relevance  of  the  BAD  and  the  IAD  for  non-listed  financial  institutions  has 
become  questionable.  As described in section 7.1.3 their relevance has eroded because 
they  did  not  keep  pace  with  business  and  regulatory  developments.  For  banks  EU 
stakeholders have perceived a significant loss of relevance as compared to IFRS and the 
supervisory framework. For insurance companies EU stakeholders have also perceived a 
significant loss of relevance as compared to the supervisory framework. 

For  banks,  the  loss  of  relevance  has  been  partially  addressed  by  Member  States 
through  their  use  of  options  to  permit  or  require  the  use  of  IFRS.  Eight  Member 
States out of the 19 participating Member States in the Banking Union require the use of 
IFRS for banks, whereas in the remaining 11 Member States many non-listed banks use 
IFRS in practice. In terms of banking assets covered, nGAAP is used for relative modest 
fractions  of  banking  assets  on  a  consolidated  basis  (with  the  exception  of  Germany). 
However, this observation is not applicable to insurance companies because EU-endorsed 
IFRS do not provide for a harmonised accounting treatment of insurance contracts. The 
current  applicable  standard  IFRS  4  Insurance  Contracts  was  devised  as  an  interim 
solution  and  allows  the  continuation  of  Member  States  existing  accounting  treatments 
prior  to  the  adoption  of  the  IAS  Regulation.  As  a  result,  IFRS  does  not  offer  an 
alternative to the IAD yet. 

A  repeal  of  the  Bank  and  Insurance  Accounts  Directives  warrants  further 
examining  the  consequences  for  users.  The  annual  financial  statements  of  banks  are 
used  as  a  basis  for  the  calculation  of  the  prudential  capital  requirements  and  eligible 
capital. Therefore, differences in Member States nGAAP can lead to different prudential 
outcome thus hampering the comparability of prudential ratios within the Banking Union. 
In  that  regard,  the  minimum  harmonisation  of  nGAAP  under  the  BAD  ensures  a 
minimum  level  playing  field  among  European  banks.  The  situation  is  different  for  the 
insurance  sector,  where  capital  ratios  are  based  on  Solvency  II  valuation  rules  and 
therefore unaffected by the minimum level of harmonisation under the IAD. However, a 
repeal  of  the  IAD  could  further  impair  comparability  by  removing  the  harmonised 
presentation  of  the  financial  statements  of  insurance  companies  as  EU-endorsed  IFRS 
currently does not provide an alternative to nGAAP for the sector.  

Respondents  to  the  public  consultation  also  expressed  mixed  views  about  whether 
and how to improve the content of the BAD and IAD, which highlights the need to 

217  

This  proposal  has  led  to  Directive  2012/6/EU,  which  was  subsequently  retained  in  Article  36  of  the 
Accounting  Directive  2013/34/EU. The  co-legislators  did not  agree  on  a  full  exemption  as  proposed,  but 
have  retained  instead  selective  exemptions  leading  all  micro  companies  to  continue  to  prepare  general 
purpose financial statements with certain minimum requirements (balance sheet, profit and loss, etc.). 

86 

 
 
                                                 
assess  more  in  depth  the  potential  areas,  costs  and  benefits  of  an  upgrade.  As  a 
starting  point,  the  Commission  launched  in  December  2018  a  study  on  the  main 
differences between EU-endorsed IFRS and the nGAAP for banks established within the 
Banking Union. The study provides data on the actual use of nGAAP compared to IFRS, 
an  analysis  of  the  main  differences  between  IFRS  and  nGAAP;  and  their  impact  on 
prudential  ratios.  The  study  should  form  a  robust  basis  to  further  consider  the  need  for 
reviewing  the  BAD.  The  results  of  the  study  were  presented  to  the  Commission  in 
February 2020218.  

First  of  all,  the  study  shows  that  EU-endorsed  IFRS  have  a  very  significant  impact  on 
financial  reporting  by  banks  in  the  Banking  Union  and  the  determination  of  prudential 
ratios. The IFRS impact is due to Member States’ use of options to extend the scope of 
IFRS  to  all  banks  as  well  as  due  to  the  “trickle-down  effect”  of  transposing  IFRS 
accounting treatments into nGAAP. Second, there is overall a very modest impact from 
accounting  differences  on  prudential  ratios.  Third,  the  share  of  banking  assets  under 
nGAAP in comparison to the total assets is only 17.5% and therefore less likely to raise 
overall financial stability issues within the Banking Union. Fourth, due to the application 
of  the  prudence  principle  under  nGAAP,  it  can  be  generally  assumed  that  financial 
institutions  underestimate  their  own  capital  position  compared  to  IFRS  (fair  value)  in 
relatively good economic conditions. In summary, the overall impact on prudential ratios 
was  indeed  very  modest.  Therefore,  a  possible  review  of  the  BAD  would  have  only  a 
limited practical impact.   

Concerning  insurance  companies,  the  IASB  issued  a  new  IFRS  for  insurance  contracts 
(IFRS 17) in June 2020, which will apply from 01 January 2023 onwards. The European 
insurance  industry  has  already  made  significant  efforts  and  investments  to  prepare  its 
implementation. As a result, most respondents to the public consultation highlighted that 
an overhaul of the EU financial reporting framework for insurance companies should be 
postponed  at  least  until  the  EU  reaches  an  endorsement  decision  about  IFRS  17.  Most 
insurance companies argued that time was needed to assess the implications of the new 
standard on the industry and whether it might provide a suitable alternative to nGAAP for 
the annual financial statements of insurance companies. 

7.4 

EU added value of the EU framework 

Conclusion on the added value of the EU framework on regular public reporting  

The  EU  is  generally  the  right  level  to  set  public  reporting  policies  for  developing  an 
internal  market,  promoting  an  integrated  capital  market,  safeguarding  financial  stability 
and  improving  sustainability.  This  was  overwhelmingly  confirmed  by  the  respondents 
across  types  of  stakeholders.  The  EU  added  value  of  the  EU  framework  for  listed 
companies  is  widely  confirmed  by  respondents  for  financial  and  non-financial 
information. With regard to non-financial reporting, the EU framework has increased the 
EU’s potential to shape global norms in the field of non-financial disclosures and to some 
extent reduced the risks of major divergence in national approaches and associated risks 
for the single market.  

218  

See https://op.europa.eu/en/publication-detail/-/publication/fcd5cbc9-7f8c-11ea-aea8-
01aa75ed71a1/language-en/format-PDF/source-search.  

87 

 
 
                                                 
The EU added value is a key evaluation question with two dimensions in the context of 
this fitness check, which are examined for each policy at stake:  

 

Is the EU the right level to design policies in order to obtain valuable results over 
and above unilateral and non-coordinated action by each Member State?  

  Could certain policies be better achieved at the international level? 

The  Treaty  on  the  European  Union  (article  3(3))  sets  out  the  ambition  for  the  wider 
objectives  to  which  the  EU  framework  on  public  reporting  by  companies  aim  to 
contribute219. Virtually all respondents to the consultation considered the EU as the right 
level  to  set  public  reporting  policies  regarding  the  objectives  of  developing  the  single 
market  and  promoting  an  integrated  capital  market.  As  regards  the  wider  objectives  of 
financial  stability  and  sustainability,  while  many  considered  that  these  could  be  better 
dealt  with  at  global  level,  many  supported  an  EU  leadership  role.  Several  respondents 
also pointed out that whilst the EU level is appropriate for many of the objectives, there 
should  be  room  for  Member  States  to  go  beyond  EU  requirements,  for  example  in  the 
area of sustainability. International investors and international businesses emphasised that 
gold-plating  by  Member  States  created  complexity  and  hindered  comparability.  Some 
respondents  emphasised  the  need  for  action  at  EU  level  on  digitalisation  and  open 
company registers to secure efficient (free) access to company information. 

7.4.1  EU added value for all limited liability companies 

The  EU  added  value  is  recognised  by  stakeholders  to  ensure  that  public  financial 
reporting  by  limited  liability  companies  protects  stakeholders  as  a  cornerstone  of 
the single market (Q7). The EU level of action continues to be appropriate with regard 
to  the  TFEU’s  objective  of  safeguarding  the  freedom  of  establishment.  Even  if  the 
importance  of  the  EU  framework  (AD)  to  provide  relevant  financial  information  has 
eroded  over  the  years  and  has  become  nearly  irrelevant  for  micro  entities,  the  AD 
provisions have ensured a minimum level of disclosure requirements  in the EU. Having 
regard  to  the  baseline  scenario,  there  is  no  guarantee  that  key  principles  underpinning 
stakeholders protection in the AD, such as the overarching principle of true and fair view, 
the principle of prudence, the information to be provided as per lay-outs and notes to the 
financial statements, assurance provided by the audit and publication would exist across 
the EU and to such a harmonised extent. 

On CBCR for extractive and logging industries, stakeholders recognise the EU added 
value of the policy (Q51-53). The EU action contributes to a coordinated approach by the 
Member States. Nowadays, Canada, Switzerland, the United Kingdom and the European 
Economic  Area  are  front  runners  for  this  CBCR.  The  US  adopted  section  1 504  of  the 
Dodd-Frank  Act,  which  pursues  a  similar  policy  objective  as  EU  law 220.  But  absent 
implementing rules by the Securities and Exchange Commission, it does not apply. There 
are no similar rules in other jurisdictions, except Norway and Switzerland?. This results 

219  

220  

The Union shall establish an internal market. It shall work for the sustainable development of Europe based 
on balanced economic growth and price  stability, a highly competitive social  market economy, aiming at 
full employment and social progress, and a high level of protection and improvement of the quality of the 
environment. 
The  Dodd–Frank  Wall  Street  Reform  and  Consumer  Protection  Act  (Pub.L.  111–203,  H.R.  4173,  was 
signed into United States federal law on July 21, 2010. 

88 

 
 
                                                 
in  an  un-level  playing  field  globally.  Both  business  and  civil  society  would  support 
further levelling of the playing field at the global scale.  

The  Extractive  Industries  Transparency  Initiative  (EITI221),  with  a  fair  coverage  of 
52 implementing countries, contributes to levelling the playing field. EITI reports contain 
the  payments  received  by  governments  from  extractive  companies  active  in  their 
jurisdiction,  are  public,  and  display  payments  broken  down  per  project  similarly  to  the 
EU legislation. The EITI is however a voluntary regime for countries meaning that not all 
resource-rich  countries  are  members.  The  EU  action  and  the  EITI  therefore  appear  as 
complementary for now, leaving potential for EU added value.  

7.4.2  EU added value for listed companies  

7.4.2.1 IAS Regulation 

Overall, the EU action requiring IFRS for the consolidated financial statements of EU 
companies  with  securities  listed  on  an  EU  regulated  market  has  contributed  to  the 
integration of the EU capital market. As outlined in section 7.1.2, the effectiveness of the 
EU IFRS action in creating an integrated capital market was confirmed overwhelmingly by 
respondents  (Q1  and Q2) as well as the  results of the evaluation of the  IAS Regulation  in 
2015.  Without  EU  intervention  on  a  capital  market-oriented  financial  reporting  strategy 
based  on  international  accounting  standards,  the  EU  would  probably  not  have  a  single 
reporting framework today. 

The EU added value of EU action in relation with IFRS is considered in more detail from 
two  different  perspectives,  namely:  (i)  EU  added  value  in  monitoring  that  IFRS  is 
conducive to the EU public good; and (ii) EU added value in IFRS becoming the single 
global accounting standard. 

(i)  EU added value in monitoring that IFRS is conducive to the EU public good 

The conditions  that must be fulfilled by IFRS in order to be incorporated into EU 
law include their conduciveness to the “EU public good”. EU public good involves 
broader  considerations  than  those  underpinning  the  development  of  financial 
reporting  standards  by  the  IASB.  The EU should  safeguard that  IFRS  does not  have 
adverse impacts on achieving its broader policy objectives.  In 2002, the IAS Regulation 
established a process for incorporating the IFRS into EU law (“endorsement”) based on 
impact assessments carried out by experts under the oversight of the co-legislators.  

Currently,  the  IAS  Regulation  provides  limited  flexibility  to  amend  standards  as  issued 
by  the  IASB222 in  case  a  standard  would  not  meet  the  technical  endorsement  criteria  or 
not  be  conducive  to  the  EU  public  good.  Introducing  greater  flexibility  in  the  IAS 
Regulation’s  endorsement  procedure  could  in  principle  be  considered  beneficial  to 
address situations in which only some aspects of a standard would not meet the technical 
endorsement criteria or not be conducive to the EU public good. However, the EU has so 

221  
222  

See https://eiti.org/ - One of the objectives of the EU intervention is to promote the EITI 
However,  the  Union  has  exercised  some  flexibility  in  endorsement  in  very  few  occasions  by  deleting 
identifiable  and  separable  provisions  of  a  standard  (also  known  as  “carve-out”),  delaying  the  application 
date or extending the scope of an option. 

89 

 
 
 
                                                 
far been able to deal with such situations using the limited flexibility available within the 
confines of the IAS Regulation (the so-called “carve-out” power and the “top-up”223) and 
has  only  needed  to  do  so  sparingly  on  only  two  occasions  since  2003  to  cover  very 
limited elements of two standards. This suggests that the endorsement procedure foreseen 
in the current legal framework provides sufficient flexibility in most cases.  

EU endorsement of IFRS 

As set out in the IAS Regulation, IFRSs can only be incorporated into EU law if: (i) they 
meet certain technical criteria (comparability, relevance, reliability and understandability); 
(ii) they  are not  contrary to  the true and  fair view principle set  out  in  the AD;  and  (iii) 
they are “conducive to the European public good”. For each new or amended IFRS issued 
by the IASB, the European Commission requests EFRAG to carry out an assessment of 
the standard against these criteria224. Based on EFRAG advice, the Commission prepares 
a  draft  endorsement  regulation,  which  is  adopted  only  after  a  favourable  vote  of  the 
Accounting  Regulatory  Committee  (the  comitology  committee  “ARC”)  and  favourable 
opinions  of  the  European  Parliament  and  Council.  Based  on  the  terms  of  the  2016 
working  arrangement  with  the  European  Commission,  EFRAG  also  carries  out 
macroeconomic  analyses  to  support  its  conclusions  on  the  cost-benefits  and  broader 
impacts of IFRS where relevant.  

The endorsement criterion that IFRS should be conducive to the “EU public good” 
is essential to cater for the broader impact of IFRS for the EU. EU public good is not 
defined  in  the  IAS  Regulation.  Based  on  the  Maystadt  recommendations  (2013),  the 
European Commission  and the ARC usually consider that the EU public good criterion 
should  be  understood  as  “not  endangering  financial  stability”,  “not  hindering  the 
economic development of the EU” and “not being detrimental to the competitiveness of 
European undertakings”. The wider Union objectives have evolved over time, and it may 
include nowadays as well for example sustainability objectives. 

The  EU  endorsement  criterion  of  public  good  is  much  broader  than  the  IASB’s 
capital  provider  focus  in  developing  IFRS.  At  the  time  of  adoption  of  the  IAS 
Regulation  in  2002,  the  IASB  (conceptual)  framework  had  a  broad  stakeholder 
perspective  for  identifying  information  needs  including  investors,  employees,  lenders, 
suppliers  and  other  trade  creditors,  governments  and  their  agencies.  But  in  2010,  the 
stakeholder  perspective  of  IASB  conceptual  framework  was  reduced  to:  present  and 
potential  investors,  lenders  and  other  creditors  making  funding  decisions.  The  IASB’s 
2018 revised Conceptual Framework for Financial Reporting maintains the reduced scope 
by  highlighting  that  IFRSs  are  designed  to  meet  the  information  needs  of  investors, 
lenders and other creditors and are not  primarily  directed to  the  governance bodies, the 
regulators or the general public. The conceptual framework applies a narrow definition of 
performance  that  focuses  on  the  prospect  for  future  net  cash  inflows.  This  means  that 
broader  areas  of  corporate  or  public  responsibilities  or  economic  impact  are  not 
considered.  The  objective  of  corporate  reporting  may  be  reduced  to  the  assessment  of 
short-term  generation  of  cash  flows.  Accordingly,  the  IASB’s  impact  assessments  are 

223  

224  

A  carve  out  refers  to  a  situation  where  a  specific  requirement  of  an  IFRS  standard  does  not  have  to  be 
applied. A top up (optionally)  extends the scope of application of an IFRS standard. It was used to allow 
the  insurance  sector  of  financial  conglomerates  to  defer  the  application  of  IFRS  9  Financial  Instruments 
until IFRS 17 Insurance Contracts becomes mandatory.  
Based on the terms of the 2016 working arrangement between EFRAG and the European Commission. 

90 

 
 
                                                 
much narrower than those used for EU policy making. The IFRS Foundation Due Process 
Handbook  currently  only  requires  assessing  the  qualitative  improvements  to  financial 
reporting  against  the  likely  effects  on  the  compliance  costs  for  preparers  and  analysis 
costs for users.  

Whereas  the  IASB  has  a  very  transparent  due  process  for  standard  setting  with 
ample  public  consultations  this  does  not  mean  there  is  complete  stakeholder 
involvement.  The  European  Parliament  research  paper  7  on  the  IASB 225  that  was 
prepared  in  the  context  of  the  European’s  role  in  International  Economic  mentions: 
“Empirical studies indicate that societal stakeholders that are not equipped with in-depth 
accounting  expertise  (such  as  employees  and  their  representatives,  non-governmental 
organisation or non-business associations) are largely absent from the consultations. In 
contrast, financial market actors, in particular auditors and investors, dominate standard 
setting  within  the  IASB,  with  the  former  being  well  represented  at  all  levels  within  the 
organisation. The latter, that is investors and other capital providers, are singled out as 
the core constituency addressed by IFRS”. 

The difference in focus between the broader  public good notion set out in the IAS 
Regulation  and  the  narrower  IASB  focus  of  qualitative  improvement  may  create 
difficulties  for  the  EU  to  endorse  IASB  standards,  especially  against  the  broader 
objective of EU transition towards a more sustainable economy.  The 2018 report of 
the  High  Level  Expert  Group  on  financing  sustainable  growth  highlighted  that  IFRS  9 
Financial  Instruments  might  not  be  conducive  to  long-term  financing  and  required  an 
assessment against the criterion of sustainability. In response to this, the Commission has 
committed  to asking that possible adverse “sustainability impacts” of an IFRS standard 
be  considered  in  the  request  for  endorsement  advice  to  EFRAG,  where  relevant.  The 
focus  would  be  on  preventing  that  IFRS  accounting  treatments  contain  disincentives  to 
the  allocation  of  long-term  funding  needed  for  the  transition  to  a  sustainable  economy. 
This  is  particularly  relevant  for  life-insurers  that  make  long-term  investments  to  meet 
their  long-term  insurance  liabilities.  The  issue  is  not  pressing  today,  because  insurers 
currently benefit from the optional deferral of IFRS 9 until IFRS 17 Insurance Contracts 
is scheduled to become applicable in 2023. An example of this is the IFRS 9 prohibition 
to “recycle” into Profit or Loss the profits made upon the disposal of equity instruments 
optionally measured at fair value through “other comprehensive income” (FVOCI). 

In  2018,  the  Commission  issued  two  calls  for  technical  advice  on  the  non-recycling  of 
profits  made  realised  on  equity  instruments  measured  at  FVOCI  in  IFRS  9.  EFRAG 
recommended  the  Commission  to  ask  the  IASB  to  reconsider  the  re-introduction  of 
recycling. The Commission sent a letter to the IASB on 13 March 2020 following-up on 
EFRAG’s  advice,  but  the  IASB  response  on  30 April  makes  it  not  very  challenging  to 
address the IFRS 9 non-recycling of equity instruments will be addressed before IFRS 17 
will become applicable (in 2023). This matter is also addressed in the final report of the 
High  Level  Forum  on  the  Capital  Markets  Union  –  A  new  vision  for  Europe’s  capital 
markets, published on 10 June 2020226. 

Although  the  EU  should  safeguard  that  IFRS  should  not  have  adverse  impacts  on 
sustainability, promoting sustainability should not lead to undermining the faithful 

225 http://www.europarl.europa.eu/RegData/etudes/STUD/2015/542196/IPOL_STU%282015%29542196_EN.pdf.  
226  

https://ec.europa.eu/info/files/200610-cmu-high-level-forum-final-report_en 

91 

 
 
 
                                                 
representation  of  economic  transactions  under  IFRS.  Sustainability  considerations 
should not override market-based valuations to cater for negative externalities that are not 
adequately captured by market pricing. Doing so would introduce a level of subjectivity 
in  accounting  treatments  that  would  undermine  the  comparability  and  reliability  of 
financial  statements.  Many  respondents 
the  public  consultation  considered 
sustainability and long-term investments beyond the purpose of IFRS financial reporting 
and  provided  little  support  to  including  “sustainability”  as  a  separate  endorsement 
criterion in the IAS Regulation. However, most of these responses came from preparers, 
standard setters, and accounting firms but not from civil society organisations or investors. 

to 

EU incorporation of IFRS into EU law  

The 2013 Maystadt report and the review of the IAS regulation in 2015 considered 
allowing changes to IFRSs at Union level without concluding that the EU should be 
able  to  do  so.  The  possibility  of  divergences  from  IFRSs  as  issued  by  the  IASB  was 
deemed to be contrary to the ultimate objective of global comparable financial statements. 
Most  recently,  the  2018  High  Level  Expert  Group  report  on  sustainable  finance 
recommended  empowering  the  EU  to  amend  the  IFRS.  DG  FISMA  has  posed  the 
question in the public consultation carried out for the fitness check on public reporting by 
companies (Q19). As mentioned in the summary of responses to the public consultation, a 
majority of the respondents would not be in favour of changing the IAS Regulation so as 
to  provide  more  flexibility  via  carve-in  powers227.  A  common  theme  in  the  responses 
seems  a  general  concern with  “political” influence over  IFRSs setting. Several types  of 
stakeholders  consider  the  absence  of  such  influence  in  combination  with  reflecting 
economic  substance  over  form  as  an  important  feature  of  high-quality  accounting 
standards.  

The  IAS  Regulation  currently  provides  very  limited  flexibility  to  overcome  a 
possible  deadlock  situation  where  an  IFRS  would  be  deemed  to  pass  the 
endorsement  criteria  provided  some  minor  changes  were  made  to  address  specific 
EU  concerns  not  considered  by  the  IASB.  The EU has always endorsed all standards 
and interpretations issued by the IASB except in one occasion, where the EU decided on 
the  partial  application  of  a  standard  (“carve-outs”228)  by  carving  out  some  restricting 
hedging criteria so to allow the hedging of  portfolios of core deposits. The (only) other 
example  without  amending  the  text  of  the  standard  as  issued  by  the  IASB  though,  is 
where  the  EU  has  in  2017  increased  the  scope  of  the  optional  deferral  of  IFRS  9 
Financial Instruments to the insurance sector of financial conglomerates (a “top-up”) so 
as  to  align  the  implementation  date  of  IFRS  9  with  the  (to  be  endorsed)  IFRS  17 
Insurance  Contracts.  Similar  situations  might  occur  in  the  future,  where  specific 
provisions  of  a  standard  contradict  the  endorsement  criteria  laid  down  in  the  IAS 
Regulation.  Absent  the  possibility  for  the  EU  to  amend  the  problematic  provisions,  the 
standard could not be endorsed at all, leaving a gap within the EU framework for capital 
market oriented entities. Providing the EU with endorsement flexibility by amending the 

227  

228  

The actual number of respondents is slightly higher than is mentioned because some respondents answered 
in favour of having carve-in flexibility but the substance of their comments showed the opposite view. 
In 2004 the European Commission endorsed IAS 39 Financial Instruments: Measurement and Recognition 
with  the  exception  of  certain  legally  distinct  and  separable  parts  that  were  removed  from  the  standard 
issued by the IASB. This is also known as the IAS 39 carve-out. There was another carve-out to prevent 
applying the  fair  value option to own debt instruments that  was later addressed by IASB amendments  to 
IAS 39.  

92 

 
 
                                                 
IAS  Regulation  could  overcome  such  exceptional  deadlock  situations.  However,  the 
approaches of endorsement flexibility exercised in the two cases mentioned above could 
suffice to overcome possible future deadlock situations reducing the need to change the 
IAS Regulation. 

The IASB due process has been designed with a view to ensuring that all interested 
parties  express  their  views.  As  a  result,  regional  specificities  should  be  duly 
considered  in  the  IASB  standard  setting  process.  EU  influence  on  the  IASB 
standard setting and governance is fairly limited though229. There is no link between 
the EU funding of the IFRS Foundation (20.7% of the IFRS annual budget) and its role in 
the  IASB  standard  setting  (and  governance).  Research  suggests  that  most  EU  influence 
on standard setting comes from EFRAG’s early publication of draft endorsement advices 
and  draft  comment  letters,  which  focus  on  the  technical  criteria  for  endorsement.  The 
combination of the IASB narrow investor focus and EFRAG’s  general  emphasis  on the 
technical  endorsement  criteria  also  implies  that  the  broader  impact  of  IFRS  may  not 
always  be  considered  properly  upstream.  Some  respondents  (Q19)  considered  that  EU 
carve-in  power  would  provide  more  weight  to  EU  concerns  during  the  IASB  standard 
setting  process  compared  to  the  current  binomial  “yes-no”  endorsement  situation  with 
non-endorsement as a too remote probability. Other respondents held an opposite view.  

(ii)  EU added value in IFRS becoming the single global accounting standard 

The  ultimate  EU  objective  that  IFRS  would  become  the  single  set  of  global 
accounting  standards 230 has  not  been  achieved.  Although  IFRS  are  used  by  many 
companies worldwide, only a few non-EU major capital markets  and large jurisdictions 
have  made  the  use  of  IFRS  as  issued  by  the  IASB  mandatory.  Some  non-EU  country 
jurisdictions  allow  the  use  of  IFRS  by  domestic  listed  companies  (e.g.  Japan),  others 
restrict the option to foreign issuers (e.g. the US). Many other jurisdictions, such as China, 
have transposed  IFRS into nGAAP,  which then  have become  "substantially converged" 
with IFRS as issued by the IASB. As a result, the level of global convergence achieved is 
suboptimal compared to the initial objective on global use.  

Repeated  calls  and  declarations  from  the  G20  have  not  led  to  a  single  global 
accounting  standard.  Currently,  US  GAAP  and  IFRS  are  diverging  as  opposed  to 
converging. The call for creating a single high-quality global standard was made for the 
first  time  at  the  Summit  on  Financial  Markets  and  the  World  Economy  in  Washington 
DC  in  November  2008.  At  subsequent  summits  in  Pittsburgh  (2009),  Toronto  (2010), 
Seoul  (2010),  Cannes  (2011)  and  Los  Cabos  (2012)  the  G20  leaders  reaffirmed  their 
support  in  pursuit  of  that  objective.  During  the  investors’  workshop  on  financial 
information, the divergence between IFRS and US GAAP was acknowledged, and some 
emphasised their preference towards IFRS solutions compared to US GAAP. 

229  

230  

The European Parliament organises once a year an ECON session with the chair of the IASB Board and the 
chair  of  the  Trustees.  The  Commission  staff  attends  EFRAG  Technical  Expert  Groups  meetings  and 
EFRAG  Board  meetings  as  an  observer.  The  Commission  meets  on  a  regular  basis  with  the  European 
Parliament IFRS team to discuss priorities. The Commission is a member to the Standard Advisory Council 
and the Monitoring Board, which is overseeing overall governance processes and funding. 
See the 2000 Commission’s Communication on the EU Financial Reporting Strategy and Recitals (2) and 
(6) of the IAS Regulation. 

93 

 
 
                                                 
7.4.2.2 EU added value for issuers, shareholders and investors  

As  regards  the  Transparency  Directive,  the  establishment  of  an  EU  harmonised 
regime  for  disclosure  rules  was  crucial  to  enable  comparison  of,  and  access  to 
corporate information. Although the TD provides for a minimum harmonisation regime 
– which in most cases allows Member States to impose more stringent requirements than 
those  laid  down  in  the  TD  –  the  existing  transparency  rules  are  perceived  by  the 
respondents  to  our  consultations  as  necessary  to  allow  comparison  and  access  to  listed 
companies’  information.  With  a  view  to  establish  a  more  harmonised  regime  in  certain 
areas,  some  of  the  respondents  to  our  consultations  also  called  on  the  Commission  to 
exercise its delegated powers as regards the specification of the minimum standard for the 
storage  within  the  OAMs,  the  specification  of  a  list  of  means  not  to  be  considered 
electronic and of a list of media for the dissemination of the information to the public.  

7.4.2.3 EU added value for non-financial information  

The  NFRD  has  contributed  to  the  EU’s  global  leadership  in  sustainability  and 
increased  the  EU’s  potential  to  shape  global  norms  in  the  field  of  non-financial 
disclosures. There has been a notable increase in the number of regulatory approaches to 
non-financial  disclosure  worldwide  since  the  adoption  of  the  NFRD  in  2014 231.  The 
NFRD  has  been,  for  example,  a  factor  in  the  EU’s  global  leadership  in  the 
implementation of the UN Guiding Principles on Business and Human Rights.   

The NFRD has also enabled minimum harmonisation amongst Member States and 
to a certain extent reduced the risks of major divergence in national approaches and 
associated  risks  for  the  single  market.  Without  the  NFRD  it  is  reasonable  to  assume 
that  some  Member  States  would  still  not  have  adopted  any  non-financial  reporting 
requirements  at  national  level,  and  that  the  degree  of  divergence  between  any  national 
requirements would be greater than it is today. However, the lack of precision of NFRD 
rules  and  the  degree  of  freedom  given  to  Member  States  in  the  Directive  nevertheless 
undermines  the  objective  of  ensuring  that  disclosed  information  is  comparable  between 
companies across the EU. In addition, policy-makers in many Member States are giving 
increasing attention to non-financial reporting. The risk of unilateral policy or legislative 
actions by Member States, to the detriment of the Single Market, is therefore significant 
and growing. 

7.5 

Coherence 

Conclusion on the coherence of the EU framework on regular public reporting  

Requirements  on  the  preparation,  publication  and  dissemination  of  information  by 
companies  stemming  from  the  legal  instruments  that  constitute  the  EU  framework  on 
public reporting are highly consistent. There are some minor overlaps and inconsistencies 
between those requirements  and other relevant  Union  legislation, but  these seem not  to 
have a big impact in practice. In the area of non-financial reporting, there are coherence 
challenges  for  reporting  on  non-financial  information  between  the  NFRD  and  various 
pieces  of  Union  legislation  that  have  been  adopted  subsequently  or  that  are  currently 
being developed.  

231  

“Insights from the Reporting Exchange:  ESG reporting trends”, WBCSD and CDSB, 2017; “Carrots and 
Sticks: Global trends in sustainability reporting regulation and policy”, GRI, 2016.  

94 

 
 
                                                 
This  section  examines  the  possible  significant  inconsistencies,  overlaps  or  synergies  as 
regards  the  preparation,  publication  and  dissemination  of  information  by  companies, 
stemming from: 

  Requirements within the EU framework on public reporting by companies; 
  Requirements from the EU framework and from other Union legislation. 

Most respondents considered the EU framework generally consistent. Several pointed out 
that  coherence  is  generally  weaker  for  areas  or  components  based  on  “minimum 
harmonisation”  or  in  combination  with  Member  State  options.  This  affects  specifically 
the  management  report,  the  corporate  governance  statement  and  the  reporting  of  non-
financial information.   

7.5.1  Coherence  of  the  requirements  within  the  EU  framework  on  public  reporting  by 

companies 

The EU framework requires the use of EU-endorsed IFRS for the consolidated financial 
statements of groups of companies that have issued securities on an EU regulated market. 
Requirements  from  the  AD,  BAD  and  IAD  apply  in  conjunction.  In  general,  the 
recognition and measurement rules prescribed by IFRS are acceptable under the AD and 
BAD  (with  the  exception  of  depreciation  of  goodwill).  Therefore,  in  practice,  listed 
entities  preparing  financial  reports  under  IFRS  would  comply  with  the  requirements  of 
the  AD  and  BAD.  The  reverse  is  not  the  case,  as  the  AD  and  BAD  are  generally  less 
prescriptive than IFRS. Regarding the form (or presentation of the financial statements), 
the prescribed minimum lay-outs for balance sheets and profit or loss accounts of the AD 
and BAD differ from the presentation requirements in EU-endorsed IFRS, which creates 
a lack of coherence. This though seems not to have a major impact in practice and was 
not mentioned by respondents as an important issue.  

As  regards  the  IAD,  some  respondents  to  the  consultation  expressed  concerns  about 
inconsistencies  between  some  provisions  of  the  IAD,  such  as  the  restrictions  to 
discounting claims outstanding or the presentations requirements, and the features of the 
new standard IFRS 17 on insurance contracts. The IASB completed the IFRS 17 in June 
2020 with mandatory application from 1 January 2023 onwards. Therefore, it is too early 
to conclude on potential inconsistencies with nGAAP implementing the IAD. 

The 500 employee threshold of the non-financial reporting requirements brought in 
by the NFRD differs from the threshold defining large limited liability undertakings 
in the AD. The threshold in the NFRD, that was intended to strike a balance between the 
costs and benefits of non-financial reporting requirements, can nevertheless be considered 
to  undermine  the  coherence  of  the  EU  framework.  In  fact  some  Member  States  have 
lowered this threshold to 250 employees to align it with the definition used in the AD. 

The use of different terminology between the AD, the IAS Regulation and the TD to 
indicate  the  same  concept  could  hamper  compliance  with  reporting  requirements. 
For  example,  the  use  of  the  term  “accounts”  in  the  IAS  Regulation  and  the  use  of 
“financial  statements”  in  the  TD  and  the  AD.  Also,  regarding  the  terminology  used  to 
formulate disclosure obligations, the AD and the TD both use terms such as “disclose”232, 

232  

E.g. Article 4(5) AD.  

95 

 
 
                                                 
“publish” 233 ,  “file” 234 ,  “disseminate” 235 ,  “make  publicly  available” 236 ,  and  “make 
public” 237 ,  which  could  be  interchangeable  and  therefore  confusing  for  stakeholders 
referring to the EU law. To date there seems to be no issues in practice. 

7.5.2  Coherence  between  the  requirements  imposed  by  the  EU  framework  on  public 
reporting by companies and the requirements imposed by other Union legislation 

The  CRR  requires  banks  to  make  what  is  known  as  Pillar  3  disclosures  on 
prudential  requirements  and  risks,  which  potentially  overlaps  with  similar 
disclosures  under  the  AD,  IFRS  and  the  BAD.  Under  the  CRR  II  the  Pillar  3 
information  will  be  highly  structured  by  use  of  common  templates  to  be  developed  by 
EBA as implementing technical standards and adopted as directly applicable EU law. The 
CRR allows banks flexibility on the medium (separate Pillar 3 report or included in the 
annual  financial  statements)  and  linking  disclosures  to  other  (parts  of)  documents  that 
“may  be  deemed  to  constitute  compliance  with  the  disclosure  part  of  the  CRR”.  This 
setup  enables  banks  to  efficiently  deal  with  potentially  overlapping  requirements  in 
practice.  

As  regards  the  interaction  between  the  IAD  and  the  Solvency  II  framework,  the 
current EU legislation requires insurance and reinsurance undertakings to prepare 
two  statements  of  financial  positions  based  on  different  measurement  rules  for 
prudential (Solvency II) and general accounting purposes (IAD). However, two third 
of  the  respondents  to  the  public  consultations  argued  against  convergence  between  the 
prudential  framework  and  the  IAD  as  their  different  objectives  were  deemed  to  justify 
different  sets  of  requirements.  Respondents  usually  favoured  maintaining  two  separate 
autonomous  frameworks  and  did  not  consider 
in 
inconsistencies.  Nonetheless,  some  of  them  pointed  out  to  duplications  between  the 
public  disclosure  requirements  of  the  IAD  and  the  prudential  “Solvency  and  Financial 
Condition Report” (SFCR).  

their  duality  resulted 

that 

There  are  some  duplicative  disclosure  requirements  between  the  management 
report  (AD)  and  the  SFCR  as  regards  the  information  pertaining  to  business 
performance and risk profile of insurance undertakings. However, the metrics for the 
substantive disclosure requirements are aligned between the SFCR and the management 
report  and  companies  do  not  seem  to  incur  additional  costs  to  produce  the  required 
information.  In addition, some overlaps were noticed between the corporate governance 
statement and the SFCR disclosures about the “system of governance”. However, the AD 
already  provides  a  Member  State  option  to  disclose  the  information  required  under  the 
corporate  governance  statement  through  a  document  publicly  available  on  the 
undertaking’s website such as the SFCR. Finally, similar requirements with regard to the 
breakdown of performance indicators between business segments and geographical areas 
were considered. Overall the Commission’s services assess that duplicates remain fairly 
limited but that consistency might nonetheless be improved by providing an exemption in 
the annual report when information on performance and risks are already reported in the 
SFCR. 

233  
234  
235  
236  
237  

E.g. Article 4(6) TD.  
E.g. Article 19(1) TD.  
E.g. Article 21(1) TD.  
E.g. Article 20(2)(b) AD. 
E.g. Article 4(1) TD.  

96 

 
 
                                                 
There are certain coherence challenges regarding the NFRD and other pieces of EU 
legislation  that  require  sustainability  disclosures,  in  particular  regarding  the 
financial sector. Under the Sustainable Finance Disclosure Regulation (SFDR), financial 
market  participants  and  financial  advisers  will  be  required  to  publish  on  their  websites 
their policies on the integration of sustainability risks in their investment decision-making 
process238. In addition, those entities above the threshold of 500 employees will also have 
to disclose how they consider the principal adverse impacts of their investment decisions 
on sustainability factors. Financial market participants can only meet the requirements of 
the SFDR if they have access to adequate information from investee companies. Since the 
NFRD  governs  reporting  by  investee  companies,  there  is  an  obvious  case  for  ensuring 
alignment between the disclosure requirements of the NFRD and the SFDR. 

The Taxonomy Regulation creates a classification system of environmentally sustainable 
economic  activities  with  the  aim  of  scaling  up  sustainable  investments  and  combating 
greenwashing  of  ‘sustainable’  financial  products 239 .  It  requires  companies  under  the 
scope  of  the  NFRD  to  disclose  the  extent  to  which  their  activities  are  considered 
environmentally  sustainable  according  to  the  taxonomy.  Financial  market  participants 
subject  to  the  SFDR  must  disclose  the  extent  to  which  financial  products  marketed  as 
sustainable  are  aligned  with  the  taxonomy.  The  taxonomy  therefore  represents  an 
important reference point that further strengthens the interactions between the SFDR and 
the NFRD.   

Similarly, in the context of the new prudential rules under the CRR on disclosure of 
ESG-related  risks  by  large  listed  banks,  and  the  recently  amended  CRD,  the 
European Banking Authority (EBA) may in the future adopt guidelines for the inclusion 
of ESG risks in the supervisory review and evaluation process performed by supervisory 
authorities.  

Risks of incoherence could also arise from the diverse terminology used in different 
pieces  of  legislation. For example, while the CRR and CRD use the term “ESG risks”, 
the  Sustainable  Finance  Disclosure  Regulation  (SFDR)  uses  the  term  “sustainability 
risks”, when referring to the financial impact of sustainability factors in the value of the 
investment.  The  NFRD  refers  to  “principal  risks”  related  to  environmental,  social  and 
employee matters, human rights, anti-corruption and bribery, to address both the financial 
risks of these factors on the performance of the company and the risk of the company’s 
activities  having  a  negative  impact  on  the  environment  and  society.  As  far  as  possible, 
consistency  in  the  terminology  and  concepts  should  be  ensured  to  facilitate  compliance 
with reporting requirements. 

Corporate transparency regarding sustainability matters is a major global challenge 
and  therefore  coherence  between  EU  and  international  approaches  should  be 
sought,  too.  The  NFRD  encourages  the  use  of  internationally  recognised  frameworks, 
contributing  to  a  certain  extent  to  the  alignment  of  sustainability  disclosures  at 
international level.  

238  

239  

Regulation  (EU)  2019/2088.  Financial  market  participants  have  to  comply  with  the  SFDR  as  from  10 
March 2021.  
Regulation (EU) 2020/852. 

97 

 
 
                                                 
Some  investors  were  also  concerned  with  the  coherence  and  interplay  of  the  risk 
factors to be disclosed in prospectuses (Art. 16 PR) and risks to be disclosed in the 
non-financial statement (Article 19a NFRD). 

Better  alignment  could  be  explored  between  the  TD  and  the  Prospectus  Regulation 
(PR)  as  regards  the  alleviated  regime under the PR for  issuers  whose  securities  are 
traded  on  an  EEA  qualified  investor  regulated  market,  or  segment  only,  and  the 
exemptions  from  disclosing  the  annual  and  half-yearly  financial  reports  granted  by  the 
TD to issuers of “wholesale” denominated securities.  

As regards CBCR, the consultation activities did not pinpoint intrinsic incoherence 
(Q51-53).  The  EU  addresses  potential  incoherence  with  the  Canadian  framework  by 
adopting  an  ad  hoc  equivalence  decision240,  which  is  supported  by  the  industry.  As  an 
alternative to equivalence, civil society could supports one single standard designed by an 
international organisation. 

240  

For Canada: Commission Implementing Decision (EU) 2016/1910 of 28 October 2016 on the equivalence 
of the reporting requirements of certain third countries on payments to governments to the requirements of 
Chapter 10 of Directive 2013/34/EU of the European Parliament and of the Council. 

98 

 
 
 
 
                                                 
8. 

CONCLUSIONS 

This staff working document presents the findings of the fitness check evaluation on the 
EU  framework  on  public  reporting  by  companies  (limited  liability  companies,  listed 
companies and financial institutions (banks and insurance undertakings)). 

The  EU  framework  has  evolved  over  time  and  plays  a  decisive  role  in  the  type  of 
information  that  companies  established  in  the  EU  publicly  report  on  today.  There  have 
been several important milestones in the development of the EU framework:  

 

 

the  adoption  in  1978  of  the  Fourth  Company  Law  Directive  on  the  annual 
financial statements of limited liability companies (later repealed and replaced by 
the Accounting Directive),  
the adoption of the IAS Regulation in 2002 bringing in directly applicable EU law 
for the consolidated financial statements of EU listed groups and,  

  more recently in 2014, the Non-Financial Reporting Directive.  

This fitness check assessed primarily whether the EU framework achieved its immediate 
objective  of  providing  stakeholders  with  financial  and  non-financial  information  that  is 
sufficient in quantity and quality to enable them to make informed decisions and protect 
their interests, make investment decisions, or hold companies publicly accountable. This 
immediate  objective  has  been  assessed  against  four  qualitative  criteria:  relevance, 
reliability, comparability and timeliness of published information.  

Though it is not possible to measure the effectiveness of the EU framework in achieving 
the  EU’s  broader  objectives,  by  achieving  the  immediate  objective,  the  EU  framework 
has contributed to the broader objectives of:  

(i)  an efficient functioning of the EU single market,  
(ii) an integrated EU capital market,  
(iii) financial stability and  
(iv)  sustainable growth.  

Although it is beyond the scope of the fitness check to put forward follow-up action, this 
section highlights some of the main areas for improvement to the EU framework. Overall, 
EU-level  public  reporting  requirements  for  financial  information  are  fit-for-purpose,  in 
that they are largely effective, highly relevant, coherent, and bring EU value added, albeit 
of  questionable  value  for  micro  companies.  As  regards  limited  liability  companies  in 
general, more could be done to ensure prompt publication of financial information.  

To improve EU-wide comparability for larger non-listed companies (2% of companies), 
ways  to  promote  the  use  of  IFRS  could  be  assessed.  The  EU  framework  on  public 
reporting  for  non-financial  information  is  relatively  recent,  but  its  requirements  and 
public  reporting  practices  are  not  commensurate  with  the  EU’s  ambition  to  become  a 
sustainable economy and society.  

The IAS Regulation appears to be the most effective instrument in ensuring comparable 
and complete financial information across Europe. Based on further consultation with all 
stakeholders,  a  comprehensive  cost-benefit  analysis  could  be  carried  out  to  assess 
whether to expand the scope of EU-endorsed IFRS to all companies listed on regulated 
markets and, as a company option, to SMEs that plan to issue securities or to larger, non-
listed companies.  

99 

 
 
Further digitalisation of public reporting could significantly increase user efficiency, both 
for  financial  and  non-financial  information.  Lastly,  further  convergence  of  supervisory 
practices  across  the  EU  must  remain  a  priority  to  improve  the  comparability  and 
reliability of public reporting by companies. 

Effectiveness of the EU framework (section 7.1) 

The effectiveness was assessed against four qualitative criteria (relevance, comparability, 
reliability,  and  timeliness)  of  information  required  to  be  published  under  the  EU 
framework  that  enable  stakeholders  to  make  informed  decisions.  The  effectiveness 
assessment  was  carried  out  for  different  types  of  companies  covered  by  the  EU 
framework on public reporting, each with a different stakeholder composition.  

Limited liability companies. The relevance of information published by limited liability 
companies  is  generally  adequate  for  investors  who  acknowledge  that  the  annual 
disclosure  and  publication  requirements  are  commensurate  to  the  size  of  company. 
Publication  deadlines  of  up  to  12  months,  in  combination  with  suboptimal  national 
penalty  mechanisms  for  late  (or  no)  publication,  tend  to  reduce  the  timeliness  and, 
therefore, the availability of information for stakeholder decision-making, especially for 
trade creditors. The level of comparability is good in form (prescribed lay-outs), but less 
so  in  substance  due  to  a  more  high-level  framework  and  the  range  of  national  options. 
This is generally not an issue except for stakeholders with an interest in larger non-listed 
companies  (2%  of  companies),  which  could  warrant  further  examining  to  improve  the 
situation for them,  for instance by  using  IFRS.  The  reliability of published information 
seems adequate by means of collective board responsibility for the “true and fair view” of 
the financial statements and statutory audit requirements commensurate to the size of the 
limited liability companies. But there are wide discrepancies in the way  Member States 
have implemented the penalty mechanism requested under the AD. Having insufficiently 
dissuasive penalties seems to have an impact on companies’ compliance, least with their 
publication obligations. The  usefulness of CBCR in  bringing transparency on payments 
to governments is widely recognised by civil society.  

Listed companies. The relevance of reported financial information is good for investors 
and  creditors  of  listed  groups  with  mandatory  use  of  directly  applicable  EU-endorsed 
IFRS.  By  the  same  token,  the  relevance  of  reported  financial  information  in  annual 
financial statements of listed companies is good, where Member States allow or require 
the use of EU-endorsed  IFRS for the preparation of these reports. For listed companies 
not  applying  IFRS  when  preparing  their  individual  annual  financial  statements,  the 
relevance is the same as for limited liability companies reporting under nGAAP: adequate 
but not as good as IFRS. However, this ultimately depends on each nGAAP, which can 
contain  rules  that  go  over  and  above  the  minimum  requirements  of  the  EU  framework 
(AD).  

The relevance of reported non-financial information is generally not optimal, with many 
listed companies failing  to  disclose relevant  non-financial information, while disclosing 
information that is not relevant. This appears to be at least partly due to the lack of clarity 
of  the  EU  framework  (NFRD).  Ongoing  deficiencies  in  corporate  disclosure  of  non-
financial information means that revising the NFRD should be considered as a matter of 
priority.  

Comparability  is  reasonably  good  in  substance  for  IFRS,  but  hampered  by  a  lack  of 
standardised tabular lay-outs. This could be compensated by mandatory use of structured 

100 

 
 
electronic  data  (ESEF)  from  2020  onwards.  The  comparability  of  non-financial 
information is in most cases insufficient to meet user needs.  

The  reliability  of  financial  information  was  found  to  be  good,  due  to  the  cascade  of 
requirements  of  collective  board  responsibility  for  the  true  and  fair  view  of  financial 
statements,  to  the  mandatory  statutory  audit  for  all  listed  companies,  and  securities 
market  supervision.  However,  despite  ESMA’s  efforts,  enforcement  practices  differ 
significantly  across  the  EU.  Considering  the  importance  of  enforcement  practices  in 
ensuring  the  reliability  of  the  information  publicly  disclosed,  it  could  be  worth 
considering  a  deeper  harmonisation  of  the  supervisory  work  carried  out  by  national 
competent  authorities to  address  these significant  differences in  practice  across the EU. 
The Wirecard case also highlighted that some national practices may not be as effective 
as  intended  since  they  are  perceived  as  insufficient  to  ensure  an  efficient  exchange  of 
information between national authorities and an examination of financial information by 
independent  competent  authorities.  Many  users  question  the  reliability  of  non-financial 
information,  and  the  EU  framework  sets  fewer  requirements  on  the  reliability  of  non-
financial information than on financial information. 

The  timeliness  of  information  was  found  to  be  good,  due  to  specific  tight  requirements 
from the TD on the deadlines for filing and monitoring by competent authorities.  

Non-listed  financial  institutions.  The  overall  relevance  of  annual  financial  statements 
has eroded over time for stakeholders of banks and insurance companies, especially when 
compared  with  the  significantly  enhanced  supervisory  requirements.  The  loss  of 
relevance  for  banks  is  partially  compensated  due  to  the  broader  use  of  IFRS  by  large 
banks,  which  account  for  the  most  significant  share  of  all  banking  assets.  This 
significantly  decreases  the  relative  share  of  banking  assets  reported  under  nGAAP. 
However  the  same  does  not  apply  to  insurance  companies,  because  the  EU-endorsed 
IFRS  framework  does  not  harmonise 
insurance  contracts. 
Comparability of information is good in terms of the form (prescribed lay-outs) but less 
good in substance due to a principles-based approach and the number of options available 
to  the  Member  States.  The  reliability  of  published  information  seems  adequate  due  to 
collective board responsibility for the “true and fair view” of the financial statements and 
mandatory  statutory  audit  requirements  for  all  banks  and  insurance  companies. 
Publication  deadlines  of  up  12  months  in  combination  with  suboptimal  Member  States 
penalty  mechanisms  for  late  (or  no)  publication,  seriously  reduces  the  timeliness  and 
therefore the usefulness of this information for stakeholder decision-making. 

the  accounting  for 

Efficiency of the EU framework (section 7.2) 

The cost of regular public reporting stemming from the EU framework seems a relatively 
modest “cost of doing business” for limited liability companies. First, the cost of annual 
reporting of financial information is incremental, given the national reporting obligations, 
for example on company taxation. Second, Member States have topped up the minimum 
requirements  of  the  EU  framework  in  national  legislation,  or  not  made  full  use  of  EU 
simplified procedures for micro companies available under the AD or relief from issuing 
quarterly reporting for listed companies under the TD. For financial institutions, the costs 
of  the  EU  framework  for  public  reporting  are  even  more  incremental  than  for  limited 
liability  companies  due  to  complementary  EU  supervisory  reporting  and  prudential 
disclosure obligations.  

101 

 
 
For  the  aspects  of  the  EU  framework  that  directly  apply  to  listed  groups  (IFRS),  the 
benefits seem to outweigh the cost.  

For non-financial information, the lack of standardisation hampers efficiency, both for the 
people  who  need  to  prepare  the  information  and  for  the  users.  There  is  significant 
uncertainty  regarding  the  cost.  Further  research  is  required  to  explain  the  very  large 
differences between the estimates given by companies of the cost of compliance with the 
NFRD.  Companies  must  still  provide  additional  information  in  different  formats  to 
different  users,  in  particular  to  data  providers  and  ESG  rating  agencies,  and  investors 
must still invest resources in collecting and analysing these additional data.  

Further  digitalisation  could  improve  access  to  and  use  of  regulated  information,  and, 
depending on costs, overall efficiency. The following areas merit particular attention:  

(i)  the lack of an EU-wide single point of access to regulated information241;  
(ii) extending machine readability beyond consolidated IFRS financial statements;  
(iii) an  EU-wide  approach  to  data  management  covering  audit,  authenticity, 

identification, use licences, etc. 

Relevance of the EU framework (section 7.3) 

The broader objectives of the EU framework for public reporting, namely: (i) an efficient 
functioning of the EU single market, (ii) an integrated EU capital market, (iii) financial 
stability  and  (iv)  sustainable  growth,  remain  relevant,  and  hence  the  EU  framework 
remains largely relevant. However, the EU framework for public reporting by companies 
might nevertheless need to be adapted to continue to contribute to meeting these broader 
objectives. In particular regarding the sustainability objective, the context has evolved in 
such  a  way  that  the  NFRD  is  no  longer  an  adequate  response  to  the  current  needs  and 
challenges.  In  addition,  considering  the  benefits  of  applying  IFRS  standards  to  attract 
cross-border investors, a company option to use IFRS together with simplified disclosure 
requirements  mandated  by  IFRS  might  be  deemed  to  lower  the  barriers  that  limit  the 
access  of  SMEs  to  capital  markets.  There  is  little  evidence  that  the  EU  framework  is 
relevant to the 14.2 million micro companies, despite the simplified regime applicable.  

Likewise, the relevance of the BAD and IAD has become questionable. The fitness check 
shows that there is a need to assess more in depth the potential areas, costs and benefits of 
their upgrade (or repeal). A full assessment of public reporting requirements applicable to 
insurance  companies  will  be  possible  only  when  a  decision  is  taken  on  endorsement  of 
IFRS 17.  

Contacts  with  stakeholders identified new needs and objectives  in  reaction to  economic 
crises,  globalisation,  and  sustainability  challenges,  in  particular  for  non-financial 
information.  Although  the  objectives  of  the  NFRD  remain  highly  relevant,  the  context 
has evolved in such a way that the Directive no longer represents an adequate response to 
new needs and challenges. 

241  

On 24 September 2020 the Commission adopted a new capital markets union action plan. As per action 1, 
the  Commission  proposes  to  set  up  an  EU-wide  platform  (European  single  access  point)  that  provides 
investors with seamless access to financial and sustainability-related company information. 

102 

 
 
                                                 
EU added value of the EU framework (section 7.4) 

The  EU  is  the  right  level  to  set  public  reporting  policies  for  developing  an  internal 
market,  promoting  an  integrated  capital  market,  ensuring  financial  stability  and 
promoting sustainability.  

With  regard  to  non-financial  reporting,  the  EU  framework  has  increased  the  EU’s 
potential  to  shape  global  standards  governing  non-financial  disclosures,  and  it  has 
reduced the risk of major divergence in national approaches and associated risks for the 
single market. 

Coherence of the EU framework (section 7.5) 

There  is  a  high  degree  of  consistency  in  the  requirements  for  companies  on  the 
preparation,  publication  and  dissemination  of  information  set  out  in  the  legal  acts  that 
constitute  the  EU  framework  on  public  reporting.  There  are  some  minor  overlaps  and 
inconsistencies  between  requirements  under  the  EU  framework  and  other  relevant  EU 
legislation, but they seem not to have a significant impact in practice. There is a risk that 
the reporting requirements on non-financial information in the NFRD is not coherent with 
other pieces of EU legislation adopted subsequently or being developed in parallel. 

103 

 
 
ANNEX I – Consultation of the Regulatory Scrutiny Board 

The Regulatory Scrutiny Board242 issued a negative opinion on 21 June 2019 on a first version of 
this document (the opinion is reproduced in this Annex). The Board understood that this report 
responds both to specific review clauses and to a need for an overarching review, but identified a 
number of issues to be addressed. Each of the Board’s identified issue has been addressed in this 
revised Staff Working Document. The table below explain how, for each issue: 

Issue identified by the RSB 

Action taken 

1)  The  report  does  not  convincingly  justify 
the scope of the fitness check. It does not 
sufficiently  explain  how  the  five  acts 
relate  to  each  other  and  to 
larger 
common objectives.  

Section 1.1 – Scope of the evaluation has been 
redesigned  to  provide  the  guiding  principles 
underpinning  the  scope  of  the  fitness  check, 
namely  rules  requiring  all  limited  liability 
companies  to  publish  certain  information  on  a 
regular basis.  

now 

section 

outlines 

the  main 
This 
requirements  of  each  act,  and  clarifies  how 
they  apply  cumulatively  depending  on  the 
characteristics  of  limited  liability  companies. 
This overview is supplemented by appendix V 
and  VI  of  the  Staff  Working  Document  that 
provide  a  more  detailed  description  of  the 
reporting  requirements  especially  with  regards 
to the Non-Financial Reporting Directive. 

2)  The  report  does  not  present  a  consistent 
set of objectives, nor does it illustrate how 
policy  action  would  deliver  desired 
outcomes.  The  analysis 
is  too  often 
limited  to  presenting  the  delivery  of 
corporate  reporting,  without  verifying 
that it contributed to the objectives. 

The document has been revised so as to present 
a  consistent  set  of  objectives  throughout  the 
document  and  explain  how  the  policy  action 
contribute to achieving these objectives. 

Section 2.1 Legislation history now introduces 
the  objectives  pursued  by  each  legislation  at 
the time of adoption 

Section  3  –  Intervention  logic,  now  better 
explains  the  link  between  EU  action  and  the 
broader  objectives  (narrative,  Table  2,  Figure 
3)  and  how  public  reporting  contributes  to 
these objectives in the context of other types of 

242  

The Regulatory Scrutiny Board is an independent body within the Commission that advises the College of 
Commissioners.  It  provides  central  quality  control  and  support  for  Commission  impact  assessments  and 
evaluations  at  early  stages  of  the  legislative  process.  The  Board  reviews  and  issues  opinions  and 
recommendations  on  all  the  Commission's  draft  impact  assessments,  fitness  checks,  and  on  major 
evaluations of existing legislation. The Board also provides cross-cutting advice on better regulation policy 
to 
the  Commission’s  Secretariat-General.  More  here:  https://ec.europa.eu/info/law/law-making-
process/regulatory-scrutiny-board_en  

104 

 
 
 
                                                 
policies  aiming  for  similar  objectives.  It  lays 
down  the  overall  purpose  of  public  reporting 
and explains why it is a necessary complement 
to  voluntary  publications  by  companies.    It 
summarises the objectives pursued by the  acts 
how 
and 
reporting 
contributes 
the  policy  objectives  by 
providing stakeholders with an equal access to 
regular information of sufficient of quality and 
quantity. 

explains 
to 

corporate 

Section  5.1  Overall  Approach  has  been 
amended with a view to clarifying the reasons 
why  the  fitness  check  adopts  a  qualitative 
assessment  of  the  information  delivered  by 
corporate  reporting  as  a  practical  expedient  to 
measure  the  combined  effectiveness  of  the 
acts.  The  section  also  explains  the  qualitative 
criteria used for that purpose 

intervention 

Section 7.1 about the Effectiveness of the acts 
has also been amended with a view to securing 
logic. 
the 
consistency  with 
Sections  7.1.1  to  7.1.3  now  lay  down  the 
qualitative  assessment  of  public  corporate 
reporting  by  main  categories  of  entities 
whereas  a  new  section  7.1.4  Contribution  to 
the wider objectives has been added in order to 
consider  the  extent  to  which  the  quality  of 
corporate  reporting  contributes  to  the  wider 
objectives.  

The  continued  relevance  of  the  objectives  is 
addressed in section 7.3.2.  

The  reports  has  been  amended  in  all  sections 
and  particularly  in  section  7  –  Answers  to  the 
Evaluation  Questions  and  in  Annex  III  – 
Stakeholder  consultation  (synopsis  report)  in 
order  to  highlight  how  findings  draw  on 
evidence,  including  academic  literature  and 
stakeholders’ views.  

3)  The report does not adequately show how 
its  findings  draw  on  evidence  that  it 
assembled, notably stakeholder views and 
results from academic literature. 

Section 5.2 Information and data gathering has 
been supplemented so as to provide additional 
insights  about  the  respondents  to  the  Public 
Consultation. Where appropriate, the document 
possible 
as  much 
also 
differentiated  views  for  each  relevant  types  of 
stakeholder.  For  this,  stakeholders  have  been 

provides 

as 

105 

 
 
stratified  into  relevant  types  (table  5)  and  the 
corresponding  views  stratified  accordingly  in 
the  remainder  of  the  document  as  appropriate, 
especially in sections 7.1.1, 7.1.2 and 7.1.3.   

redrafted. 

The  introduction  of  section  7.1  Effectiveness 
has  been  significantly 
It  now 
includes an analysis by type of companies and 
specifically  considers  the  main  stakeholders’ 
groups  with  an  interest  in  corporate  reporting. 
This approach is then summarised in table 5 of 
the report. 

the  EU 

information 

reported  by 

section  7.1.2.1  about 
framework 

the 
In 
addition, 
for 
effectiveness  of 
listed 
financial 
companies  has  been  amended  in  order  to 
incorporate more clearly the findings from the 
literature  review 
the 
conclusions  from  the  2015  evaluation  of  the 
IAS  Regulation.  Similarly 
section  7.1.4 
Contribution  to  the  wider  objectives  more 
specifically  considers  the  empirical  evidence 
that support the assertion that public reporting 
contributes  to  lowering  the  cost  of  financing 
for companies. 

in  appendix  6  and 

The  presentation  of  the  analysis  has  been 
thoroughly  improved  in  order  to  consider  the 
findings by types of companies, in section 7 – 
Answers  to  the  Evaluation  Questions.  In  each 
subsection, a table reminds at the beginning the 
applicable  EU  requirements.  Section  7.1.1  – 
Effectiveness  of  the  EU  framework  on  limited 
companies provides additional elements on the 
variances  observed  in  the  nGAAP  as  a  reason 
of  lacunas  and  options  in  the  EU  framework, 
and  the  impacts  of  these.  Where  provisions 
made  at  Member  State  level  independently 
from the EU framework but intertwined with it 
could not be traced or examined, the document 
does  not  seek  to  explore  these  in  details  but 
provides stakeholders’ views on the situation.  

Additional  changes  and  clarifications  have 
been made throughout the report in response to 
additional  detailed  comments  of  the  Board. 
This  improves  the  readability  and  overall 
quality of the report. 

4)  The 

not 

does 

report 

sufficiently 
investigate the implications of differences 
in  Member  States’  implementation  and 
companies’  compliance  with  regard  to 
effectiveness and coherence of the acts. 

5)  Other  detailed  comments  (based  on  the 
Boards preliminary questions and on the 
Annex to the Opinion) 

106 

 
 
107 

 
 
 
108 

 
 
 
109 

 
 
 
110 

 
 
 
ANNEX II – Procedural information 

Lead DG and internal references  

The "fitness check on the EU framework for public reporting by companies" was led by the 
Directorate-General  for Financial Stability, Financial Services and Capital  Markets  Union (DG 
FISMA). It was included as item PLAN/2017/1854 in the Agenda Planning. It is also part of the 
Commission's  REFIT  Initiatives  for  2019243 for  a  Deeper  and  Fairer  Economic  and  Monetary 
Union. 

This  initiative  is  linked  to  the  “fitness  check  of  supervisory  reporting”,  which  has  been 
undertaken  by  DG  FISMA  and  concern  information  communicated  to  supervising  bodies  by 
companies in the financial, insurance and other sectors regulated by this DG.  

This  initiative  is  also  linked  to  the  reporting  obligation  to  the  European  Parliament  and  the 
Council on post implementation reviews contained in the Accounting Directive (2013/24/EU) 
and the Transparency Directive (2013/50/EU), which is referenced as item PLAN/2017/1364 in 
the Agenda Planning. The report addresses review clauses containing specific requests as regards 
the  country-by-country  reporting  by  extractive  and  logging  industries,  the  Non-Financial 
reporting  by  public-interest  entities  with  more  than  500  employees,  the  proportionality, 
sanctioning regime and voting rights calculation regimes applicable to listed companies and the 
financial statements to be prepared by micro companies. 

Organisation and timing  

An interservice steering group (ISSG) was set up in January 2018 (Ares (2018)187687). The 
ISSG  was  comprised  of  representatives  from  the  following  Directorate-Generals:  Justice  and 
Consumers  (JUST),  Internal  Market,  Industry,  Entrepreneurship  and  SMEs  (GROW),  Climate 
Action  (CLIMA),  International  Cooperation  and  Development  (DEVCO),  Energy  (ENER), 
Environment  (ENV),  Taxation  and  Customs  Union  (TAXUD),  Communications  Networks, 
Content  and  Technology  (CNECT),  Informatics  (DIGIT),  as  well  as  the  Joint-Research  Centre 
(JRC)  and  the  Secretariat  General.  In  addition,  the  European  External  Action  Service  (EEAS) 
was invited to join given the external dimension of certain policies. 

ISG meeting dates and topics of discussion as well as other consultations 

Date  

25.01.2018  (meeting) 

Topics of discussion  

- Fitness check mandate and scope 
- Roadmap 
- Consultation strategy 
- Questionnaire for the public  
Consultation 

12.10.2018 (written consultation) 

Draft summary report of the public 
consultation 

243   Commission Work Programme, 2019, Annex II REFIT initiatives, item 8 

111 

 
 
 
                                                 
05.12.2018 (meeting)  

23.04.2019 

18.09.2019 

Consultation activities 

- Presentation of interim results of 
ongoing preparatory work and evidence 
gathering 
- Presentation of results from public 
consultation and preliminary findings 
- Key evaluation questions 
- Prospects on parallel developments on   
the non-financial information and related 
guidance. 
- Orientation and next steps 

Presentation and discussion of the draft 
staff working document 

Consultation on a revised staff working 
document 

During the fitness check exercise, DG FISMA undertook a number of consultation activities, in 
accordance with – and beyond – the consultation strategy discussed within the ISSG. These are 
listed below.   

  Public consultation 

DG  FISMA  conducted  a  public  consultation  from  21 March  until  31 July 2018.  In  total,  338 
responses were received. The vast majority of respondents represent an organisation or company 
(82%),  9%  are  public  authorities  or  an  international  organisation  and  the  remaining  9%  are 
private  individuals.  The  type  "organisation  or  company"  comprises  the  main  categories 
"company,  SME,  micro-enterprise  and  sole  trader"  (25%),  "industry  association"  (25%)  and 
"non-governmental organisation" (21%). 

  Studies 

The Commission commissioned the following ad hoc studies:  

  Review  of  Country-By-Country  Reporting  requirements  (CBCR)  for  extractive  and 

logging industries, Valdani, Vicari & Associati, 26 November 2018.   

This  study  examines  the  CBCR  on  payments  to  governments  in  resource-rich 
countries  which  the  Accounting  Directive  has  implemented  since  2016  for  the 
extractive and logging industries.  In particular, it  examines the compliance with  the 
law,  the  effectiveness  of  the  policy  and  its  impacts.  It  also  suggests  areas  for 
improvements. 

  Study  for  the  European  Commission  on  the  accounting  regime  of  limited  liability 
micro  companies,  CEPS  in  cooperation  with  Bureau  van  Dijk  and  LSE  Enterprise, 
18 June 2019. 

The study  consists in  a quantitative and qualitative assessment of the application of 

112 

 
 
 
 
 
 
 
the  super-simplified  reporting  regime  for  micro  companies  as  defined  in  the 
Accounting Directive. 

 

Ingmar  Juergens  and  Katharina  Erdmann  (2019):  Exploring  non-financial  reporting 
practices and the use of Carbon and ESG data in the context of the EU framework for 
public corporate reporting. DIW Policy Advice Compact, Berlin. 

  High-Level conference 

The European Commission also organised a high-level conference on 30 November 2018 in 
Brussels, which focused on “The Future of Corporate Reporting in a digital and sustainable 
economy”.  This  event  was  an  additional  occasion  for  senior  representatives  from  the 
financial  industry,  the  investor  community,  the  civil  society,  the  audit  sector  and  public 
administrations  to  provide  their  insights  to  the  Commission's  fitness  check.  They  made 
valuable  contributions  to  the  success  of  this  conference.  There  was  a  large  audience  of 
around 500 people and approximatively 250 persons followed the live session.  

  Expert groups 

Contributions  were  sought  from  relevant  permanent  expert  groups  of  the  Commission,  by 
ways of targeted questionnaire or topical discussion. The groups consulted included: 

  The Accounting Directive Committee (ARC) 
  The Company Law Expert Group on the Business Registers Interconnection System 

(BRIS) 

  The Expert Group of the European Securities Committee (EGESC) 
  The Committee of European Auditing Oversight Bodies (CEAOB) 

  Workshops 

Several ad hoc workshops, generally hosted by the Commission services, took place in order 
to discuss targeted topics.  

Date  

05.06.2018 

Topics of discussion  

Participants 

Regulatory Technical Standards (RTS) 
specifying the European Single 
Electronic Format (ESEF) 
Digital data structuring 

19.09.2018 

Country-By-Country Reporting – 
extractive and logging industries 

113 

Around 15 participants, 
representing business associations 
and issuers, banking industry, 
financial analysts, investment 
professionals. 

Two successive half-day 
workshops were hosted during the 
day: one with around 15 
representatives from civil society, 
academics and users. And one 
with a handful of persons 

 
 
 
 
 
  
 
18.10.2018 

Non-financial reporting 

20.11.2018 

Non-financial reporting 

14.12.2018 

Non-financial reporting 

7.02.2019 

Non-financial reporting 

18.03.2019 

Use of Public Financial Information 

representing business 
associations, companies and 
preparers. 

Half-day open stakeholder 
meeting, to discuss results of 
public consultation. Attended by 
approximately 100 people from 
different stakeholder groups: 
companies, investors, civil 
society, reporting frameworks, 
etc. 

Two-hour discussion on non-
financial reporting with 
representatives from German 
companies, hosted by 
ECONSENSE. 

Two-hour meeting with civil 
society organisations and trade 
union researchers, to hear their 
perspectives on non-financial 
reporting. 

Two-hour workshop with 
representatives from companies, 
NGOs, and reporting frameworks 
involved in the Alliance for 
Corporate Transparency Project 

15 participants and one 
contributor, representing retail 
and institutional investors 
financial analysts, investment 
firms, issuers (listed companies), 
banking and insurance industry. 

114 

 
 
 
 
 
 
 
 
 
 
ANNEX III – Stakeholders consultation (synopsis report) 

Investors and creditors use both regulated and unregulated information, with a particular focus 
on  forward-looking  unregulated  information.  Information  overload  as  well  as  the  interplay 
between  regulated  and  unregulated  information  can  be  matters  of  concerns,  but  the  EU 
framework  is  generally  seen  as  effective  and  relevant.  They  would  like  to  get  easier  access  to 
regulated  information  by  way  of  a  single  point  of  access  at  EU  level  using  structured  data. 
Policies  fostering  the  use  of  digital  technologies  such  as  the  ESEF  are  positive  steps.  The 
endorsement  of  IFRS  is  generally  regarded  as  positive,  even  if  IFRS  are  more  complex  than 
nGAAP. As regards SMEs, they consider that the EU should do more in order to facilitate access 
to  funding  including  from  the  reporting  angle.  The  quantity  and  quality  of  non-financial 
information disclosed by companies is a concern and disclosure practices need to evolve in order 
to meet increasing users’ needs. 

Employees  and  civil  society  are  on  the  other  hand  more  critical  about  the  effectiveness  and 
relevance  of  EU  public  reporting  requirements  taken  as  a  whole.  They  see  differences  in 
nGAAPs  as  a  hindrance  to  cross-border  establishment.  Although  they  tend  to  question  the 
relevance of the endorsement of IFRS, they recognise that the EU is an appropriate policy level. 
The scope of the NFRD is perceived as too narrow, but the EU leadership role is welcomed. As 
main users of CBCR, they see this as generally effective but also requiring improvements.  

Preparers  were relatively positive about the current EU framework, but concerned about costs 
compared  to  the  actual  benefits  especially  in  relation  to  non-financial  information  and 
digitalisation. 

Regulators and others welcome the comparability brought by the adoption of IFRS across the 
EU  and  at  the  international  level.  They  tend  to  call  on  the  EU  to  advance  progressively  on 
digitalisation. 

DETAIL BY EVENT OR ACTION 

Public consultation – March / July 2018 

For  a  majority  of  respondents,  the  EU  framework  for  public  reporting  overall  brings 
added  value,  is  coherent,  effective  and  relevant  for  achieving  its  main  intended 
objectives:  safeguarding  stakeholders'  interests,  ensuring  financial  stability,  developing 
the  internal  market,  integrated  EU  capital  markets  and  promoting  sustainability. 
However,  preparers  of  company  reporting,  especially  from  Germany,  were  relatively 
critical  as  regards  costs  compared  to  actual  benefits,  in  terms  of  the  non-financial 
information  and  (future)  electronic  structured  reporting.  Hence,  they  believed  the 
framework could be more efficient. 

In  terms  of  developing  the  internal  market  and  promoting  integrated  EU  capital 
markets,  the  IFRSs  were  considered  to  be  effective  as  they  helped  reduce  the  cost  of 
capital and increase investments in the EU.  

Concerning  the  Accounting  Directive,  most  respondents  asserted  that  its  differentiated 
implementation  at  national  level  –  leading  to  different  accounting  frameworks  –  had 

115 

 
 
 
 
limited  effect  on  cross-border  transactions,  since  these  were  primarily  business  driven. 
There was no widespread call from respondents on the EU to address those differences, 
but some proposed to use the IFRSs as a point of reference, if the differences were to be 
addressed. About the ongoing debate on whether and how to integrate financial and non-
financial  reports  in  a  meaningful  way,  most  respondents  answered  that  integrated 
reporting  could  contribute  to  a  more  efficient  allocation  of  capital  and  better  decision-
making.  

Users generally found that the digitalisation angle was missing in EU legislation, such as 
for  lay-outs  and  publication.  In  their  opinion,  pan-EU  digitally  structured  and  secured 
data  could  provide  easier  access  and  effectively  contribute  to  well-functioning  capital 
markets.  A  majority  of  respondents  supported  data  re-use.  Some  suggested  to  work 
towards free access and open licence policies. 

The concept of "minimum harmonisation” was not seen as a problem, as it accommodates 
different  reporting  cultures  amongst  Member  States.  Nevertheless,  a  majority  thought 
that options for Member States in certain areas, notably for the Transparency Directive, 
hampered the quality and comparability of information. 

Regarding promoting sustainability, many were concerned that this was not adequately 
addressed at global level and welcomed an EU leadership role. A majority of respondents 
agreed that the quantity and quality of non-financial information disclosed by companies 
remain  relevant  issues  arguing  that  current  disclosure  practices  might  not  meet  the 
growing demand for data and information from investors and other stakeholders. A large 
number  of  respondents  noted  however  that  it  was  too  early  to  say  anything  definitive 
about the impacts of the Non-Financial Reporting Directive, since this is its first year of 
implementation. 

The  extractive  and  logging  industry  questioned  the  effectiveness  of  the  CBCR.  Civil 
society  supported  it,  but  were  concerned  about  uneasy  access  and  treatment  of  joint 
ventures. 

Concerning  the  "potential"  impact  of  IFRSs  on  sustainable  investments,  whilst  a  few 
believed  IFRSs  had  led  to  pro-cyclicality  and  short-termism,  a  majority  of  respondents 
asserted  that  (to  their  knowledge)  there  was  no  evidence  of  such  impacts.  Several 
respondents  pointed  out  that  the  broad  criterion  of  “being  conducive  to  the  EU  public 
good”  should  allow  to  adequately  consider  sustainability  and  long-term  investment 
concerns  during  the  endorsement  process,  though  few  saw  a  need  to  spell  out  specific 
sustainability and long-term investments endorsement criteria. 

A  majority  of  respondents  supported  the  status  quo  as  regards  the  EU  IFRS 
endorsement  process,  and  cautioned  against  “EU  carve-ins”  that  could  lead  to  “EU-
IFRSs”,  a  situation  that  could  be  detrimental  to  EU  companies  active  globally  and  to 
foreign investments into the EU. Those, who were in favour of “EU carve-ins”, did not 
see, why the EU should not enjoy this power whilst other jurisdictions do. Some of them 
argued  that  “carve-in”  powers  would  increase  the  EU’s  ability  to  influence  the  IASB 
standard-setting process compared to the current "yes-no" endorsement process. 

In  terms  of  safeguarding  stakeholders'  interests  and  ensuring  financial  stability,  a 
majority believed that the reporting framework could have some effective role, but saw 
prudential requirements as the most relevant way to address financial stability. 

116 

 
 
ESEF workshop – 5 June 2018 

There  was  general  reluctance  by  preparers  to  move  from  nowadays  widely  used  and 
accepted PDF format to unchartered territories represented by an XHTML/iXBRL format 
as proposed by the ESEF. Some raised concerns on anchoring, quality assurance, and on 
the implementation costs for smaller listed companies. 

As  regards  the  usability  of  regulated  information,  users  (analysts,  investors)  welcomed 
the  introduction  of  ESEF  as  from  year  2020  as  a  way  to  enhance  the  analysis  and  the 
comparability of financial information. A key message to preparers was to avoid that they 
adopt a compliance mindset so as to ensure the full potential of the usability of structured 
data. 

The workshop enabled to highlight in addition certain points of action, such as on audit 
and the need for practical steps (events, media...) to ensure a smooth implementation of 
the ESEF. 

High level public conference – 30.11.2018  

Overall, key messages taken from the conference included: 

  The variety of views expressed showed the breadth of corporate reporting that ranges 
from short-term financial performance measurement, to long-term value creation and 
companies’ contributions to sustainability for the benefit of society at large. 

  The  continuing  importance  of  reporting  financial  performance  to  investors  as  the 

ultimate objective of IFRS financial statements. 

  Expectation  that the  IASB effect  analysis  will be broadened to  assess the impact  of 

IFRS on the economy. 

  Reliance  on  work  carried  out  by  EFRAG  when  assessing  the  impact  of  IFRS  16 

Leases, and is doing on IFRS 17 Insurance Contracts. 

 

Interest  in  sustainability  policy  considerations.  However  these  should  not  override 
market-based  accounting  valuations  to  cater  for  negative  externalities.  The  question 
whether IFRS and accounting treatments in general do not unnecessarily hinder long-
term investments needed for the transition towards sustainability was raised. 

More detailed messages from each panel were as follows: 

  Panel 1 – Is corporate reporting still fit for purpose and for upcoming challenges? 

o  Any further development of the EU framework on corporate reporting clearly 
has a sustainability perspective/dimension in it but should not erode what the 
EU  framework  has  achieved  so  far.  (For  example  on  cross-border  business, 
investor-,  creditor-  and  depositor 
the 
protection). 

integrated  capital  market,  and 

o  An  increased  focus  on  sustainability  should  not  undermine  the  relevance  of 
existing objectives or the importance of reporting financial performance.   

117 

 
 
o  Financial  Reporting  is  about  long  time  horizon  and  is  about  coherence  and 
integration (putting together from a strategy perspective to pay, to product and 
to reporting ...). 

o  The distinction  between  financial and non-financial information  is becoming 

less relevant over time. The case for integrated reporting is growing. 

  Panel  2  –  Are accounting rules  for EU capital  markets  coherent  with  the EU policy 

objectives of promoting long-term and sustainable investments? 

o  The Commission’s 1999 IFRS  strategy has resulted in an efficient integrated 
EU capital  market,  reduced cost  of capital  for  EU companies,  contributed to 
investments into EU companies and helped EU companies to expand globally. 

o  Called for stabilised information platform. 

o  A  different  perspective  on  flexibility  in  the  EU  endorsement  process  is  the 

political sovereignty or political primacy. 

  Panel 3 – Towards relevant sustainability disclosure?  

o  The EU is taking the global lead on sustainable finance (great responsibility). 

o  Non-financial reporting showed how corporate reporting becomes relevant for 

a wider audience than just investors (i.e. society). 

o  Non-financial  reporting:  a  key  challenge  how  to  translate  legitimate 
expectations  of  society  on  sustainability  into  meaningful  and  relevant  non-
financial information without imposing unnecessary costs on companies. 

o  Non-financial reporting reflects value of a company itself and important signal 

for investors. 

o  Room  for  some  discretion  would  enable  experimenting  before  drawing 

conclusion on what the reporting baseline should become. 

  Panel 4 – Corporate reporting: time to embrace the digital revolution? 

o  The  EU  is  lagging  behind  other  jurisdictions  (Japan,  US,  China)  as  regards 

digitalisation of information on capital markets.  

o  Market players are accustomed to the swift pace at which digital technologies 

are evolving. 

o  Innovation  is  transformation.  Companies  should  not  be  afraid  of  that  and 

consider long-term benefits rather than short-term costs. 

o  New technology accepted if only it is accessible.  

Consultation of the Expert Group of the European Securities Committee (EGESC) 

23  Members  of  the  EGESC  responded  to  a  survey  on  the  Transparency  Directive.  As 
regards quarterly reporting, the practice remains vivid in nearly all the jurisdictions. 78% 

118 

 
 
of  the  respondents  reported  the  removal  of  the  quarterly  reporting  obligation  from 
legislation,  9%  downgraded  the  obligation  and  13%  kept  the  obligation.  Among  the 
Member States which removed the obligation, local regulated capital markets continue to 
require quarterly reporting for about 40% of them. In nearly all the jurisdictions where it 
is  neither  required  by  law  or  capital  markets,  many  issuers  continue  nevertheless  to 
provide  quarterly  reporting  voluntarily,  especially  for  the  bigger  ones  and  financial 
institutions. 

The experts’ consensus is that the transparency regime in capital markets is proportionate 
for listed SMEs. 

On  the  calculation  of  voting  rights,  80%  of  the  experts  believe  that  there  is  no 
unsurpassable complexity in the Directive. However, some respondents report recurring 
requests  to  clarify  certain  points  from  retail  investors,  intermediaries,  non-institutional 
investors. 

The publication of sanctions is always supervised by the national competent authority and 
available on the internet. 

As  regards  the  powers  conferred  on  the  Commission  for  secondary  legislation,  40%  of 
the experts did not see a urgent need for further EU action with secondary legislation, but 
60%  of  them  did  –  however  with  low  consensus  on  areas  to  be  addressed.  Some  areas 
were quoted more often, such as shareholders’ mandatory notification of major holdings 
(particularly  as  regards  the  mandatory  standard  form  for  the  notification  and  the  list  of 
events  changing  the  breakdown  of  voting  right)  and  the  specification  of  a  mechanism 
ensuring the establishment of equivalence of information required under the TD244. Some 
respondents also flagged the need to establish minimum standards for the storage of the 
regulated information by the officially appointed mechanisms245. 

A majority of the experts opined that there was no need at this stage to expand the scope 
of  the  ESEF  Regulation  to  other  documents  such  as  the  half-yearly  report  or  the 
management report. 

Consultation of the Accounting Regulatory Committee (ARC) 

 26 Members of the ARC responded to a survey aiming to update the implementation of 
the  options  offered  by  the  IAS  Regulation  and  24  provided  updated  data  on  the 
development  of  GAAP  at  the  national  level  that  could  address  the  lacunas  in  the 
Accounting Directive. 

A  clear  majority  of  the  Member  States  have  addressed  at  the  national  level  certain 
lacunas in the Directive, the most popular being lease contracts, government grants and 
subsidies, foreign currency translation, and deferred taxes. 

A clear majority of Member States require in addition to the Accounting Directive a cash-
flow  statement  and  a  statement  of  changes  in  equity.  About  half  require  additional 
information in the notes (various topics). 

244  

245  

Namely  the  delegated  powers  conferred  to  the  Commission  under  Articles  12(8),  12(9),  23(4)  1st 
subparagraph TD. 
Delegated power conferred to the Commission under Article 21(4)(b) TD. 

119 

 
 
                                                 
Consultation of the Company Law Expert Group on Business Register Interconnection System 
(CLEG-BRIS) (26 October 2018) 

Nine  EU  Member  States  and  one  EEA  Member  State  responded  to  a  survey  on  the 
accessibility  and  searchability  of  national  business  registers,  on  access  granted  to  their 
database  on  a  wide  scale  basis,  on  the  number  of  uploads  of  financial  statements  by 
companies and downloads by natural persons in a given year of their choice, and on the 
geographical profile of users. 

Out  of  the  10  respondents,  half  offer  free  access  and  half  paid  access  (or  both).  Four 
Member States offer other types of access. 80% offer online search tools. 80% provided 
database  type  access,  most  often  to  other  national  administrations  or  the  private  sector. 
Anecdotal evidence indicates that access to data is mostly from national level. 

Stakeholder  meetings  on  NFRD  (18 October,  20 November  and  14 December 2018  and 
7 February 2019) 

In order for information to be decision useful, it has to be comparable for investors and 
also  for  management  groups.  Disclosure  requirements  should  be  sector  based. 
Requirements of information that is material by sector. Standardised requirements for all 
companies regardless of the industry would not work, but could have the counter effect of 
generating a tick the box exercise. 

There  should  be  two  reports  for  two  different  audiences:  a  statement  on  material  non-
financial risks (an accountability statement), separate from the statement about risks that 
may be financially material. 

Materiality  is  key.  Many  companies  are  failing  to  disclose  material  non-financial 
information.  Non-financial  statements  of  many  companies  omit  significant  volumes  of 
information  that  users  consider  to  be  relevant.  It  is  necessary  to  determine  what  is 
material and what is not. Much of the information is either interesting but anecdotal, or 
schematic but without any context. Some companies do not want to be realistic about risk 
they  face  themselves.  Supervision  of  non-financial  disclosures  require  clear  parameters 
that  define  what  information  is  material  and  therefore  required  by  the  Directive  and 
which is not. 

There  were  suggestion  on  an  obligation  on  companies  to  carry  out  human  rights 
diligence, and stronger action to implement the UN Guiding Principles on Business and 
Human Rights. 

Regarding  the  scope  of  the  Directive,  some  suggestions  from  stakeholders  included:  
expansion  of  scope  to  non-listed  companies  and  all  financial  institutions;  change 
threshold of number of employees to make it consistent with the Accounting Directive; 
envisage  a  different  scope  depending  on  the  sector  the  company  belongs  to.  However 
there is a risk of trickle-down effect for SMEs (Member State decision). 

Traceability of information is an issue. References in annual report to other places where 
information  can  be  found  are  not  good  enough.  There  is  a  link  between  integration  of 
sustainability information and corporate governance - ownership of this information.  

There  should  be  a  public  list  of the  companies  that  have  to  report  and  a  registry  of  the 
reports. Standards are needed for assurance and effective supervision. 

120 

 
 
Workshop 18 March 2019 - Use of Public Financial Information  

General use of financial information 

Investors use both regulated and unregulated information to make investment decisions. 
Financial  statements  provide  historical  data  that  are  complemented  by  forward-looking 
unregulated information  disseminated by  companies on a voluntary basis, such as press 
releases,  ad  hoc  investor  communication,  road  shows,  etc.  Overall,  the  existence  of 
regulated information increases trust in information provided by companies. 

Investors  primarily  use  IFRS  Financial  Statements  with  a  particular  focus  on  the 
management  report  and  segment  information  (IFRS  8),  as  well  as  EBITDA  and  cash 
flows.  Investors  usually  consider  that  IFRS  Financial  Statements  provide  comparable 
information,  but  that  the  EU  framework  could  be  further  improved  by  streamlining  the 
presentation  of  financial  statements  and  harmonising  the  definitions  of  some  key 
performance  indicators.  However,  they  are  confident  that  the  IASB’s  ongoing  “Better 
Communication” project will address  their need  and caution against an EU initiative in 
that regard. Some argued that the segment presentation of IFRS 8 provides management 
with too much discretion. Overall, investors reported that they generally do not analyse 
financial  statements  in  local  GAAPs  except  the  management  report.  They  stressed  that 
there  were  quality  issues  with  the  information  reported  with  the  current  management 
reports  and  that  streamlining  the  use  of  a  few  well  defined  key  performance  indicators 
could enhance their usefulness. However, participants expected the IASB to address this 
expectation as part of its management commentary project. Participants also favoured a 
quick  endorsement  of  IFRS  17  within  the  European  Union  in  order  to  fill  in  the 
information gap arising from the interim IFRS 4 Standard. 

Investors  usually  do  not  consider  that  financial  statements  should  aim  at  providing  a 
valuation  of  a  company  (i.e.  “price  to  book”  correspondence).  Especially,  recognising 
additional intangibles in the balance sheet is not considered necessary, as the primary use 
of financial statements is to analyse the generation of cash flows. Though investors have 
a  high  interest  in  assessing  the  resilience  of  a  company’s  customer  relationships  or 
sourcing network, this objective is better achieved by key performance indicators such as 
customer retention rate. Overall, they consider that the main qualitative characteristics of 
financial  statements  should  be  reliability  and  comparability  with  a  view  to  providing  a 
confirmatory  value 
information  delivered  by 
management. Regulated information is considered as a cornerstone of the EU regulation 
to  ensure  trustworthiness  of  unregulated/unaudited  financial  information  delivered  by 
companies. 

forward-looking  unregulated 

to 

Access to easily digestible information by ways of structured information was valued but 
seen  as  generally  costly,  if  not  difficult.  Investors  welcomed  the  European  Single 
Electronic  Format  to  structure  annual  financial  reports.  Some  thought  data  structuring 
could  be  expanded  to  intermediate  reports  and  other  information.  There  were  mixed 
views about flexibility versus standardisation in a move towards digitalisation. 

About  integrating  more  forward-looking  information  into  regulated  publications, 
financial  analysts  highlighted  the  complexity  of  auditing  such  estimates  and  the 
reluctance of management to publish its financial forecasts. Though useful to ensure that 
management estimates are not biased, the audit requirement therefore limits the ability to 
expand  the  scope  of  regulated  information  to  cover  future  expectations.  Besides,  some 

121 

 
 
thought it would be difficult to streamline information about value creation. Leaving to 
companies the initiative to publish unaudited investor presentations was considered more 
efficient as it provides management with more flexibility to deliver granular analyses and 
judgemental  information.  Finally,  providing  financial  projections  over  future  periods 
might raise a proportionality issue for smaller companies. Integrated reporting, “core and 
more” approach might be interesting leads. 

A major concern for analysts is the time lag between the early announcements of results 
(press  release)  and  the  publication  of  the  detailed  financial  statements.  They  complain 
that early publication of partial unregulated information creates market volatility without 
any possibility for analysts to perform a fundamental analysis of the company. Analysts 
consider that they are put at a disadvantage as compared to passive investment strategies 
based on algorithms or indices that immediately react, when the unregulated information 
is  published.  Furthermore,  in  their  view,  this  staggered  financial  communication  is 
sometimes used by companies’ management to smoothen the impact on the share price of 
lower than expected performances. Analysts therefore advocate that the time lag between 
early announcement and full publication could be regulated. They point out that with the 
rise  of  index  funds,  financial  markets  are  increasingly  driven  by  non-regulated 
information. 

Finally,  investors  stressed  that  financial  markets  prices  are  highly  sensitive  to  interim 
financial information. Referring to  the European Financial  Transparency  Gateway, they 
suggested  that  the  portal  should  allow  on  a  voluntary  basis  the  publication  of  quarterly 
publications by companies. They also pointed out that the abolition of quarterly reporting 
in  the  Transparency  Directive  had  not  significantly  decreased  the  number  of  quarterly 
publications by companies because of market expectations.  

Representatives  from  corporates  mentioned  an  information  overload  and  questioned, 
whether  all  the  information  disclosed  as  part  of  the  regulated  publication  was  actually 
used. They were not in favour of any project to streamline the content and presentation of 
the management report. Investors generally disagreed with this assertion and argued that 
the  information  overload  was  primarily  driven  by  the  financial  communication  of 
companies that included unnecessary immaterial details. 

Accessibility of corporate reporting information 

Investors  reported  that  they  use  all  means  of  access  to  financial  information.  However, 
they stressed that information about non-listed companies was not easily accessible and 
that  the  sources  of  regulated  information  were  scattered  among  Member  States.  In  that 
regard, they highlighted that a single point of access to regulated information throughout 
the EU would significantly reduce the investment research costs. Aggregating data from 
national  databases  was considered burdensome and costly. This  limitation was  partially 
overcome  by  third  party  providers  such  as  Thomson  Reuters,  Bloomberg  or  Factset. 
However, such services  raised reliability and consistency issues because such providers 
would usually process and aggregate information received from various sub-contractors. 

An EU single access point to regulated structured information would provide significant 
efficiency gains by allowing machine processing to narrow down the scope of potential 
investments and by overcoming the language barriers. Investors would also make savings 
on  the  licenses  to  access  third  party  databases.  Investors  also  favoured  expanding  the 

122 

 
 
scope  of  regulated  information  available  in  digital  (open  data)  format  in  order  to  reap 
efficiency gains on a larger scale.  

Under  the  current  EU  framework,  investors  highlighted  that  some  listed  companies 
provide downloadable data usually through their website, but that access to information 
about  non-listed  companies  was  highly  challenging.  About  the  management  reports, 
investors  requested  an  obligation  to  file  centrally  the  information  available  in  business 
registers. They stressed that in some Member States, companies do not file their financial 
statements at all and that the deadline for publication is excessive. Some representatives 
of preparers argued that there were very few downloads of financial information available 
on  companies’  websites.  This  was  especially  pointed  out  as  an  issue  to  assess  the 
creditworthiness of companies. 

An  investor  highlighted  that  family  businesses  were  usually  not  in  favour  of  filing 
electronic  financial  statements  and  that  any  further  EU  requirement  might  duplicate 
existing  reporting  obligations  to  tax  authorities  and  banks  (as  part  of  loan  agreements). 
Furthermore, XBRL was not deemed suitable for smaller companies. 

Investors had no concerns to raise about authentication of data submitted in digital format 
under the current scheme. 

An  industry  association  mentioned  a  new  service  it  had  launched  as  a  central  point  of 
access  to  regulated  information  which  covered  around  1 000  companies.  Another 
standardisation  and 
association  highlighted 
harmonisation of the structure of financial statements. 

that  digitalisation  would 

require 

IFRS 

Investors usually concurred that IFRS was complex, but that complexity usually stemmed 
from the business activities themselves and was therefore not excessive or unnecessary. 
Some pointed out that complexity was primarily driven by the requests from preparers for 
more  optionality.  There  were  limited  concern  from  users  on  information  overload  but 
rather on companies’ practices and financial communication. 

About  management’s  discretion,  participants  highlighted  that  making  estimates  was  an 
inherent  part  of  accounting  and  necessary  to  incorporate  forward-looking  information. 
They  usually  considered  such  information  relevant.  Conservatism  in  estimates  was  not 
considered  useful  as  it  led  to  overstatements  of  earnings  in  later  periods.  One  investor 
was concerned by the level  of  goodwill reported by listed companies but  others argued 
that  such  information  was  relevant  to  draw  a  distinction  between  organic  and  external 
growth by companies. 

Overall  investors  cautioned  against  political  interference  in  the  accounting  standard 
setting  process  and  were  supportive  of  the  due  process  of  the  International  Accounting 
Standard  Board,  which  they  favoured  over  the  FASB  process.  In  their  view,  the 
discontinuation  of  the  IASB/FASB  joint  standard  setting  programme  had  led  to  better 
standards in Europe than in the United States. 

As regards the scope of the IAS Regulation, participants mostly pointed out at the cost in 
some Member States of running two sets of accounting standards. Though Member State 
options  to  apply  IFRS  were  considered  useful,  they  should  come  along  with  an 

123 

 
 
exemption  from  producing  financial  statements  under  nGAAP.  Some  participants 
mentioned  that  the  mandatory  scope  of  the  IAS  Regulation  should  be  extended  to  the 
annual financial statements of listed companies that do not publish consolidated financial 
statements and to non-listed public-interest entities. However, beyond a company option 
to apply IFRS, most representatives of preparers were against a scope extension. 

One investor argued that in its Member States, the requirement of IFRS had discouraged 
companies to public because of the cost and operational complexity for preparers. In his 
view, voluntary adoption of IFRS was an exception. 

About SME listing, various opinions were expressed including that: 

-  Converging nGAAP could improve comparability of financial statements; 

-  Considering  IFRSs  with  lower  disclosure  requirements  or  IFRS  for  SMEs  could 

facilitate SME transition to regulated markets 

124 

 
 
ANNEX IV – Member States’ use of options under the IAS Regulation 

125 

Bank InsuranceOtherBank InsuranceOtherBank InsuranceOtherBank InsuranceOtherBank InsuranceOtherAustriaBelgiumYesYesYesYesYesBulgariaCyprusCzech RepublicGermanyDenmark(1)(6)YesEstoniaYesYesYesYesYesYesYesGreeceYesYesYes(5)YesYesYesYes(5)SpainFinlandYesYesYesFranceCroatiaYesYesYes(5)(1)YesYesYes(5)HungaryYesYes(1)YesYesIrelandItalyYes(6)YesYesYes(9)YesYesYes(9)LithuaniaYesYesYesYesYesYesYesYesYesYesYesYesLuxembourgLatviaYesYesYesYes(7)YesYesYesYesYesYesYesYesMaltaYesYesYes(8)YesYesYesYes(8)NetherlandsPolandYesPortugal(1)YesYesYes(1)YesRomaniaYesYesYesYes(5)Sweden(12)SloveniaYesYes(1)YesYesYesYesYesYesYesSlovakiaYes(5)Yes(5)YesYes(5)Yes(5)United KingdomFootnotes(1) If the consolidated financial statements are prepared in accordance with IFRS Standards(6) If no IFRS consolidated financial statements are published(11) Entities having filed or intending to file for admission to public trading(2) Only in addition to financial statements prepared in accordance with National GAAPs(7) Issuers listed on the Baltic Main List(12) IFRS mandated by the Financial Supervisory Authority(3) Groups in which there is a listed undertaking(8) Large and regulated entities(4) If mandatory audit(9) Entities listed on a non regulated market(5) Public Interest entities(10) Subsidiaries of a group in which parent or higher level parent prepares consolidated financial statements under IFRSAnnual financial statementsConsolidated financial statementsAnnual financial statementsIFRS permittedIFRS requiredIFRS permittedIFRS requiredIFRS permittedIFRS requiredType of companyFinancialNon-financialFinancialNon-financialFinancialNon-financialListed undertakingsOther undertakingsYesYesFinancialNon-financialFinancialNon-financialFinancialNon-financialYesYesYes(1)YesYesYes(2)Yes(2)YesYesYesYes(3)Yes(4)YesYesYesYesYesYesYesYesYesYesYesYesYesYesYesYesYesYesYes(10) or (11)(10) or (11)YesYesYes(6)YesYes(6)YesYesYesYesYes 
 
 
 
ANNEX V – EU legislative framework for periodic reporting by companies – overview of reporting obligations 

EU legislative framework for periodic public reporting for companies, all sectors 

126 

 
 
 
 
 
 
EU legislative framework for periodic public reporting for banks and insurance companies 

127 

 
 
 
 
 
 
 
 
 
ANNEX VI – Financial and non-financial information – an overview of documents and contents 

Type of document 
Half-yearly financial report 

Responsibility  
statements 

Separate 
report 
(alternative 
option) 

Report on 
payments to 
government 
(CBCR)  

Audit 
report 

Other  
Docu-
ments 

Financial 
statements 
(condensed 
set) 

Interim 
management 
report 

√ 

√ 

√ 

√ 

Type of information 

Description 

Annual Financial Report 
Management 
report 

Responsibility 
statements 

Financial 
statements 

Financial information 
Information to identify 
the undertaking  

Balance sheet / 
Statement of position 
Profit and loss account 

Other Comprehensive 
Income 
Cash-flow statement 

Statement of changes 
in  equity 
Notes to the financial 
statements 

√ 

√ 

√ 
√ 

√ 
√ 

√ 

Name of undertaking, legal 
form, national Business Register 
and registration number, 
registered office, ongoing 
winding up (where relevant)  

Accounting policies, details 
relating to balance sheet or P&L 
items, number of employees, 
off balance sheet items, credits 
granted to members of 
management body, post 
balance sheet events, list of 
subsidiaries, etc.  

Fair review of 
development and 
performance of 

Analysis of financial 
performance indicators 
relevant to the business 

√ 

128 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Type of information 

Description 

Reasons for acquisitions made 
during the financial year, 
number and nominal value (or 
the accountable part of) the 
shares acquired/disposed 
of/held during the financial year 
and proportion of the 
subscribed capital which they 
represent  

business and position 
Principal risks and 
uncertainties faced  
Likely future 
development 
Activities in the field of 
research and 
development 
Information on 
acquisition of own 
shares 

Existence of branches 
of an undertaking 
Undertaking’s financial 
risk management 
objectives and policies 
Undertaking’s 
exposure to 
price/credit/liquidity/c
ash-flow risk 
Important events 
occurred during first 6 
months of financial 
year and impact on 
financial statements 

Annual Financial Report 
Management 
report 

Responsibility 
statements 

Financial 
statements 

Type of document 
Half-yearly financial report 

Financial 
statements 
(condensed 
set) 

Interim 
management 
report 

Responsibility  
statements 

Separate 
report 
(alternative 
option) 

Report on 
payments to 
government 
(CBCR)  

Audit 
report 

Other  
Docu-
ments 

√ 

√ 

√ 

√ 

√ 

√ 

√ 

√ 

129 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Type of information 

Description 

Statement on true and fair view 
of financial statements, and fair 
review within the management 
report + risks and uncertainties 
faced 
Description of corporate 
governance code and practices 
applied, internal control and 
risk management systems for 
financial reporting, information 
on takeover bids, shareholders’ 
rights, composition of 
management and supervisory 
bodies, diversity policy 
Opinion on consistency with 
financial statements and 
compliance with legal 
requirements 
Reference to material 
misstatements  
Opinion on true and fair view in 
accordance with relevant 
financial reporting framework 
and on compliance with 
statutory requirements 

Issuer’s statements on 
financial statement 
and management 
report (listed 
companies) 
Corporate governance 
statement 

Auditor’s opinion on 
management report  

Auditor’s statement on 
management report 
Auditor’s opinion on 
financial statements 

Home Member State 

Inside information 

Major shareholding 
notifications 

Annual Financial Report 
Management 
report 

Responsibility 
statements 

Financial 
statements 

Type of document 
Half-yearly financial report 

Financial 
statements 
(condensed 
set) 

Interim 
management 
report 

Responsibility  
statements 

Separate 
report 
(alternative 
option) 

√ 

√ 

√ 

√  

130 

Report on 
payments to 
government 
(CBCR)  

Audit 
report 

Other  
Docu-
ments 

√ 

√ 

√ 

√ 
√ 
√ 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Financial Report 
Management 
report 

Responsibility 
statements 

Financial 
statements 

Type of document 
Half-yearly financial report 

Financial 
statements 
(condensed 
set) 

Interim 
management 
report 

Responsibility  
statements 

Separate 
report 
(alternative 
option) 

Report on 
payments to 
government 
(CBCR)  

Audit 
report 

Other  
Docu-
ments 

√ 

√ 

√ 

√ 

√ 

√  

Type of information 

Description 

Acquisition or disposal 
of the issuer’s own 
shares 
Total number of voting 
rights and capital 
Changes in the rights 
attaching to the classes 
of shares or securities 
Payments to 
governments  
Non-Financial Information 
Non-financial 
statement  
(including 
consolidated) 

information necessary to 
understand the undertaking’s 
development, performance, 
position and impact of its 
activity, relating to – as a 
minimum – environmental, 
social and employee matters, 
respect for human rights, anti-
corruption and bribery matters, 
including: 
- 

Brief description of 
undertaking’s business 
model; 

-  Description and 
outcome of the 
policies pursued in 
relation to those 
matters, including due 
diligence processes; 
Principal risks related 

- 

131 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Type of document 
Half-yearly financial report 

Financial 
statements 
(condensed 
set) 

Interim 
management 
report 

Responsibility  
statements 

Separate 
report 
(alternative 
option) 

Report on 
payments to 
government 
(CBCR)  

Audit 
report 

Other  
Docu-
ments 

Annual Financial Report 
Management 
report 

Responsibility 
statements 

Financial 
statements 

Type of information 

Description 

to those matters; 
-  Non-financial key 
performance 
indicators relevant to 
the particular business 

132 

 
 
 
 
 
 
 
 
 
ANNEX VII – Literature study on the benefits of IFRS (update from the 2015 IAS 
Regulation review) 

EFFECTS OF COMPARABILITY OF FINANCIAL STATEMENTS 

The Benefits of Financial Statement Comparability 

GUS DE FRANCO, S.P. KOTHARI, RODRIGO S. VERDI, 2011 

https://onlinelibrary.wiley.com/doi/pdf/10.1111/j.1475-679X.2011.00415.x 

“These results suggest that financial statement comparability lowers the cost of acquiring 
information,  and  increases  the  overall  quantity  and  quality  of  information  available  to 
analysts about the firm.” 

Global Comparability in Financial Reporting: What, Why, How, and When? 

Mary E. Barth, 2013 

https://www.tandfonline.com/doi/full/10.1080/21697221.2013.781765 

“In particular, comparability is the qualitative characteristic that enables users to identify 
and understand similarities in, and differences among, items; comparability aids investors, 
lenders and other creditors in making informed capital allocation decisions; and achieving 
comparability  depends  on  firms  applying  a  common  set  of  financial  reporting  standards 
and  on  requirements  in  the  standards,  especially  measurement  requirements.  The  paper 
discusses  research  showing  that  greater  comparability  can  lower  costs  of  comparing 
investment opportunities and improving financial reporting information quality.” 

The  Measurement  of  Harmonisation  and  the  Comparability  of  Financial  Statement 
Items: Within-Country and Between-Country Effects 

Simon Archer, Pascale Delvaille & Stuart McLeay, 2012 

https://www.researchgate.net/profile/Stuart_McLeay/publication/254228713_The_Measure
ment_of_Harmonisation_and_the_Comparability_of_Financial_Statement_Items_Within-
Country_and_Between-Country_Effects/links/5a428d42a6fdcce19715b2db/The-
Measurement-of-Harmonisation-and-the-Comparability-of-Financial-Statement-Items-
Within-Country-and-Between-Country-Effects.pdf 

“The main purpose of our analysis is to study the impact of accounting harmonisation on 
the financial reporting practices or policy choices of the companies in our sample. These 
companies in particular are likely to be the focus of attention of financial analysts carrying 
out  international  comparisons.  In  the  paper,  the  van  der  Tas  comparability  index  is 
developed  by  separating  the  index  into  two  components  relating  to  the  within-country 
(intra-national)  effects  of  domestic  standardisation  and  the  between-country  (inter-
national) effects of harmonisation.” 

133 

 
 
 
The Effects of National Culture on Financial Statement Comparability: A Survey of 
Research Findings 

Gregory L. Prescott, Carol E. Vann, 2015 

https://onlinelibrary.wiley.com/doi/pdf/10.1002/jcaf.22078 

“Many  of  those  who  advocate  the  adoption  of  a  set  of  high‐ quality  global  financial 
accounting standards (International Financial Reporting Standards, or IFRSs) do so on the 
basis of enhanced cross‐ border financial statement comparability. Indeed, the notion that 
financial statements would be prepared on a single set of accounting standards regardless 
of the country of domicile of the underlying businesses certainly has its merits. However, 
there  is  a  growing  body  of  academic  research  providing  evidence  that  simply  adopting 
IFRSs, by itself, is not sufficient to result in an enduring improvement in financial reporting 
quality within IFRS‐ adopting countries. National culture, for instance, has the potential to 
affect  accountants'  judgments  in  applying  financial  accounting  standards—regardless  of 
those standards' origin—and to impact national institutions that further influence national 
accounting.  Here,  we  highlight  the  findings  of  some  of  the  relevant  research  on  national 
culture  published  in  accounting  journals  in  recent  years  and  discuss  some  potential 
implications of those findings.” 

CULTURAL 
STANDARDS ON THE COMPARABILITY OF FINANCIAL STATEMENTS 

INTERNATIONAL  FINANCIAL  REPORTING 

IMPACT  OF 

Ward, Cassandra L.; Lowe, S. Keith, 2017 

http://web.b.ebscohost.com/abstract?site=ehost&scope=site&jrnl=1936699X&AN=123754
484&h=9qFtXfqoGMBWRvP103JjC0Iekf0fVS9Uad%2fN22vJhu1JEIJE9kbXfGAKkWG
%2byue05kgV%2bv14CmRR5l%2bn7bsAQw%3d%3d&crl=c&resultLocal=ErrCrlNoRes
ults&resultNs=Ehost&crlhashurl=login.aspx%3fdirect%3dtrue%26profile%3dehost%26sc
ope%3dsite%26authtype%3dcrawler%26jrnl%3d1936699X%26AN%3d123754484 

“A  proposed  advantage  of  global  implementation  is  the  improved  comparability  of 
financial  statements.  However,  due  to  variations  among  cultures,  it  is  unrealistic  for  a 
single  set  of  standards  to  be  accepted  and  implemented  in  a  wholly  uniform  manner  to 
produce  innately  comparable  financial  statements.  Because  of  cultural  differences,  there 
are varying degrees of IFRS acceptance: some countries adopt the full set of IFRS, while 
others only accept certain standards. The application of the standards in various countries 
could  adversely  impact  the  comparability  of  financial  statements.  Hofstede's  cultural 
dimensions aid in understanding the differences among cultures, the impact this can have 
on  financial  reporting,  and  therefore  the  comparability  of  financial  statements  prepared 
using  IFRS.  Through  a  series  of  independent  t-test  analyses,  this  study  finds  that  two  of 
Hofstede's  cultural  dimensions--power  distance  and  individualism--are  found  to  be 
significant, suggesting that these values influence a country's acceptance of IFRS as issued 
by the International Accounting Standards Board (IASB).” 

Financial Statement Comparability and Investor Responsiveness to Earnings News 

Matthew A. Stallings, 2017 

134 

 
 
https://ir.stthomas.edu/cgi/viewcontent.cgi?article=1081&context=ocbacctpub 

”  This  study  investigates  the  role  of  financial  statement  comparability  in  the  stock  price 
sensitivity  to  firm  specific  earnings  news.  Results  suggest  that  information  content  of 
earnings  is  greater  for  firms  with  higher  comparability,  suggesting  that  comparability 
contributes  to  information  usefulness  for  investors  in  equity  valuation  decisions.  Further 
support  indicates  that  comparability  enhances  usefulness  through  increased  response  to 
positive  earnings  surprises.  This  influence  is  pronounced  for  the  earnings  news  of  small 
firms,  high  volatility  firms,  growth/value  firms,  and  firms  with  low  return  on  assets, 
suggesting that comparability is more informative for more speculative stocks.” 

Output-based  measurement  of  accounting  comparability:  A  survey  of  empirical 
proxies 

Christian Gross, Pietro Perotti, 2017 

https://reader.elsevier.com/reader/sd/B789C44EA965081BE068BBCB4A2D15160F9860D
DF0FD84FB05D65A66D9E37BCC83D7A4419DFBD844003658A21AFC676D 

“Accounting  comparability  has  been  the  subject  of  signiﬁcant  interest  in  empirical 
ﬁnancial accounting research. Recent literature, particularly that following De Franco et 
al.’s (2011) inﬂuential study, has focused on utilizing the output of the ﬁnancial reporting 
process to measure accounting comparability. In this paper, we conduct an early survey of 
studies  using  output-based  measures  of  comparability.  We  provide 
two  distinct 
contributions  to  the  literature.  First,  we  describe  and  comment  on  four  important 
this 
the  studies 
measurement  concepts  as  well  as 
methodological  contribution,  we  aim  to  facilitate  the  measurement  choice  for  empirical 
accounting  researchers  engaged  in  comparability  research.  Second,  we  classify  the  sub-
streams of literature and related studies. In providing this content-related contribution, we 
sum  up  what  has  already  been  achieved  in  output-based  accounting  comparability 
research  and  highlight  potential  areas  for  prospective  research.  As  a  whole,  our  study 
attempts  to  guide  empirical  researchers  who  (plan  to)  undertake  studies  on  accounting 
comparability  in  selecting  relevant  topics  and  choosing  adequate  approaches  to 
measurement.” 

them.  With 

introduced 

that 

Financial Statement Comparability and the Efficiency of Acquisition Decisions 

Ciao-Wei Chen, Daniel W. Collins, Todd D. Kravet, Richard Mergenthaler, 2016 

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2169082 

“We  predict  and  find  that  acquirers  make  more  profitable  acquisition  decisions  when 
target firms’ financial statements are more comparable — as evidenced by higher merger 
announcement  returns,  higher  acquisition  synergies,  and  better 
future  operating 
performance. We also find that post-acquisition goodwill impairments and post-acquisition 
divestitures  are  less  likely  when  target  firms’  financial  statements  are  more  comparable. 
Finally,  we  find  that  acquirers  benefit  most  from  comparability  when  acquirers’  ex  ante 
information  asymmetry  is  higher,  acquirers  operate  in  volatile  operating  environments, 
and  management  knows  relatively  less  about  the  target.  In  total,  our  evidence  suggests 

135 

 
 
targets’  financial  statement  comparability  helps  acquirers  make  better  acquisition-
investment decisions and fosters more efficient capital allocation.” 

Financial Statement Comparability and Credit Risk 

Seil Kim, Pepa Kraft, Stephen Ryan, 2012 

https://en-
coller.tau.ac.il/sites/nihul_en.tau.ac.il/files/media_server/Recanati/management/seminars/a
ccount/KKR.pdf 

“These results suggest that ﬁnancial statement comparability lowers the cost of processing 
information and reduces uncertainty about ﬁrms’ underlying credit risk.” 

IFRS Application and the Comparability of Financial Statements 

Ichiro Mukai, 2017 

http://www.na-businesspress.com/JAF/MukaiI_17_5_.pdf 

”The  purpose  of  this  paper  is  to  examine  whether  the  application  of  IFRS  by  Japanese 
firms  increases  comparability  of  financial  statements  with  other  IFRS  firms.  I  focus  on 
IFRS firms in Japan and pair them with firms that are selected from IFRS firms in the EU 
member  countries  and  JPN  GAAP  firms.  Two  approaches  are  developed  from  the 
definition  of  “Comparability”  in  the  IASB  Conceptual  Framework.  The  results  of  tests 
show  that  the  application  of  IFRS  increases  the  comparability  of  financial  statements 
among IFRS firms, however it does not decrease comparability with JPN GAAP applying 
firms.” 

Financial statement comparability on a national level: Empirical evidence from listed 
companies in Sweden 

Emma Högling & Madeleine Ysberg, 2015 

http://www.diva-portal.se/smash/get/diva2:824255/ATTACHMENT01.pdf 

”We  find  that  financial  statement  comparability  within  an  industry  is  increased  by 
implementing  IFRS  in  Sweden.  This  study  contributes  to  the  literature  by  suggesting  that 
financial statement comparability increases between companies by implementing IFRS on 
a national level.” 

An Input-Based Measure of Financial Statement Comparability 

Rani Hoitash, Udi Hoitash, Ahmet Kurt, Rodrigo Verdi, 2018 

https://www.insead.edu/sites/default/files/assets/dept/aa/ac/docs/Rodrigo_Verdi_Paper.pdf 

“We  propose,  validate,  and  test  a  new  input-based  measure  of  financial  statement 
comparability (FSC) that captures the degree of  overlap in financial statement line items 
reported by industry peers.” “First, we document that FSC is positively associated with the 
likelihood of being selected as a peer firm for executive compensation by corporate boards 

136 

 
 
and  for  co-coverage  by  analysts.  Second,  consistent  with  FSC  reducing  information 
processing costs, we  show that FSC is associated with better forecasting performance by 
analysts and better rating performance by credit-rating agencies. Relatedly, we also show 
that analyst performance is highest when input- and output-based comparability are both 
high,  underscoring  the  complimentary  nature  of  the  two  types  of  comparability.  Finally, 
our approach allows us to create finer FSC measures, which we illustrate by showing that 
balance  sheet  versus  income  statement  components  of  FSC  are  beneficial  in  different 
contexts and for different users of the financial reports.” 

Accounting  Standards  Harmonisation  and  Financial  Statement  Comparability: 
Evidence from Transnational Information Transfer 

Clare Wang, 2014 

https://repository.upenn.edu/cgi/viewcontent.cgi?article=1105&context=accounting_papers 

“This  paper  investigates  whether  accounting  standards  harmonization  enhances  the 
comparability of financial information across countries.” “I find that mandatory adopters 
experience  a  significant  increase  in  market  reactions  to  the  release  of  earnings  by 
voluntary adopters compared to the period preceding mandatory adoption. This increase is 
not observed for non-adopters. Taken together, the results show that accounting standards 
harmonization  facilitates  transnational  information  transfer  and  suggest  financial 
statement comparability as a direct mechanism.” 

Comparability and cost of equity capital 

Michael J Imhof, Scott E. Seavey, and David B. Smith, 2017 

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2844991 

“We  provide  evidence  that  greater  financial  statement  comparability  is  associated  with 
lower cost of equity capital, and show that comparability's effect on cost of equity remains 
after  controlling  for  within-firm  accounting  quality.  Additionally,  we  find  that  investors 
derive greater benefits from financial statement comparability in firms whose information 
environments are less transparent (high information asymmetry) and whose equity shares 
trade in markets that are less competitive (imperfect markets).” 

Comparability and predictive ability of loan loss provisions – The role of accounting 
regulation versus bank supervision 

Günther Gebhardt, Zoltán Novotny-Farkas, 2016 

http://econ.core.hu/file/download/korosi/2016/novotny.pdf 

“In this paper we investigate the effects of mandatory IFRS adoption on the comparability 
and informativeness of EU banks’ financial statements.” ”Using a sample of 89 banks from 
12 EU countries we find that loan loss provisioning has become more comparable across 
countries after the accounting regime switch. IFRS adoption effects are more pronounced 
in countries where supervisors required or banks voluntarily applied more forward-looking 
provisioning  under  local  GAAP.  However,  some  differences  in  loan  loss  provisioning 
remain in countries where supervisors were reluctant to strictly enforce the incurred loss 

137 

 
 
approach.  Finally,  our  results  suggest  that  the  predictive  ability  of  loan  loss  allowances 
(proxied by the ability to explain future losses) improved following IFRS adoption.” 

Financial statement comparability and expected crash risk 

Jeong-Bon Kim, Leye Li,. Louise Yi Luc, Yangxin, Yud 

https://ac.els-cdn.com/S0165410116000021/1-s2.0-S0165410116000021-
main.pdf?_tid=85af3827-8f6f-4f67-b453-
0f9cdb81f283&acdnat=1532619732_41a1e816e13ec7a40bc4c2976ed4e50b 

“This study examines the impact of financial statement comparability on ex ante crash risk. 
Using the comparability measures of De Franco et al. (2011), we find that expected crash 
risk  decreases  with  financial  statement  comparability,  and  this  negative  relation  is  more 
pronounced in an environment where managers are more prone to withhold bad news. We 
also  provide  evidence  that  comparability  can  mitigate  the  asymmetric  market  reaction  to 
bad  versus  good  news  disclosures.  Our  results  suggest  that  financial  statement 
comparability  disinclines  managers  from  bad  news  hoarding,  which  reduces  investors׳ 
perceptions of a firm׳s future crash risk.” 

Accounting Comparability and Economic Outcomes of Mandatory IFRS Adoption 

Michael Neel, 2016 

https://onlinelibrary.wiley.com/doi/epdf/10.1111/1911-3846.12229 

“This  study  examines  the  associations  between  four  economic  outcomes  of  the  2005 
mandatory  adoption  of  International  Financial  Reporting  Standards  (IFRS)  and 
concurrent changes in two important accounting constructs, accounting comparability and 
reporting quality.” “Using 1 861 ﬁrst-time adopters in 23 countries, I ﬁnd that ﬁrms with a 
larger  improvement  in  comparability  have  larger  increases  in  Q,  liquidity,  forecast 
accuracy, and forecast agreement following adoption, relative to other adopters.” 

Drivers  of  Hidden  Reserves  –  Consequences  for  the  Comparability  of  Financial 
Statements under IFRS 

GERNOT BRÄHLER, SEBASTIAN SCHMIDT, 2014 

http://www.irmbrjournal.com/papers/1409662723.pdf 

“The comparability of  IFRS financial statements is  frequently discussed  in  literature and 
numerous  researches  show  that  entities  from  different  countries  or  with  particular 
characteristics tend to use IFRS differently. However, hidden reserves, i.e. the discrepancy 
between the historical book values and their fair value counterparts, are usually not part of 
these  investigations.”  “Our  results  show  that  the  probability  to  observe  hidden  reserves 
under  IFRS  seems  to  be  dependent  on  certain  factors.  For  instance,  our  results  clearly 
indicate that large companies show hidden reserves more frequently than small companies. 
We also find that entities from particular countries exhibit significantly higher odds to hold 

138 

 
 
 
hidden reserves than others. In consequence, we assume that the comparability of financial 
statements under IFRS is still not achieved. 

139 

 
 
ANNEX VIII – EU approach on the digitalisation of public financial reporting 

General overview 

The table below provides an overview of a certain initiatives to date at the EU level in the area 
of digitalisation:   

The European Single Access point (ESAP) in the new action plan for a Capital Markets 
Union (CMU)246: the CMU is the EU’s plan to create a truly single market for capital across 
the  EU.  It  aims  to  get  investment  and  savings  flowing  across  all  Member  States,  benefiting 
citizens,  investors  and  companies,  regardless  of  where  they  are  located.  A  fully  functioning 
and integrated market for capital will allow the EU’s economy to grow in a sustainable way 
and  be  more  competitive.  In  its  Communication  of  24 September 2020,  the  Commission 
announced that it will propose to set up an EU-wide platform (European single access point) 
that  provides  investors  with  seamless  access  to  financial  and  sustainability-related  company 
information.  

To  make  companies  more  visible  to  cross-border  investors,  better  integrate  national  capital 
markets and facilitate their access to market funding, the legal environment needs to deliver 
the  right  balance  between  providing  relevant  information  about  investment  opportunities  to 
investors,  on  the  one  hand,  and  minimising  the  burden  for  companies  to  report  this 
information, on the other. 

Fragmented  access  to  scattered  company  information  and  lack  of  corporate  credit  ratings 
dissuade  cross-border  and  global  investment  and  puts  in  particular  smaller  national  capital 
markets at a disadvantage. Seamless, EU-wide access to company data in comparable digital 
formats  will  reduce  information  search  costs  for  cross-border  investors  and  will  widen  the 
investor  base  for  companies.  At  the  same  time,  it  will  contribute  to  better  integration  of 
smaller local capital markets and will support recovery. The information to be covered should 
reflect  the  needs  of  investors  and  the  interests  of  a  broader  range  of  users.  Therefore,  this 
should also improve the availability and accessibility of sustainability-related data, steer more 
investments  towards  sustainable  activities  and  contribute  to  meeting  the  objectives  of  the 
European Green Deal.  

The Digital Finance Strategy247: in September 2020, the European Commission adopted on a 
digital  finance  package,  including  a  digital  finance  strategy  and  legislative  proposals  on 
crypto-assets and digital resilience, for a competitive EU financial sector that gives consumers 
access  to  innovative  financial  products,  while  ensuring  consumer  protection  and  financial 
stability. In the package, the digital finance strategy sets out general lines on how Europe can 
support  the  digital  transformation  of  finance  in  the  coming  years,  while  regulating  its  risks. 

246  

247  

Communication  from  the  Commission  to  the  European  Parliament,  the  Council,  the  European  Economic 
and  Social  Committee  and  the  Committee  of  the  Regions  on  a  Capital  Markets  Union  for  people  and 
business  - new action plan – 24 Sept. 2020 -  COM(2020) 590 final 
Communication  from  the  Commission  to  the  European  Parliament,  the  Council,  the  European  Economic 
and  Social  Committee  and  the  Committee  of  the  Regions  on  a  Digital  Finance  Strategy  for  the  EU  –  24 
Sept. 2020 - COM(2020) 591 final 

140 

 
 
 
 
                                                 
The  strategy  sets  out  four  main  priorities:  removing  fragmentation  in  the  Digital  Single 
Market,  adapting  the  EU  regulatory  framework  to  facilitate  digital  innovation,  promoting  a 
data-driven  finance  and  addressing  the  challenges  and  risks  with  digital  transformation, 
including enhancing the digital operational resilience of the financial system. 

In order to facilitate real-time digital access to all regulated financial information, the Strategy 
suggests  that  by  2024,  information  to  be  publically  released  under  EU  financial  services 
legislation should be disclosed in standardised and machine-readable formats. 

Digital tools and processes in EU company law: publication is achieved by companies filing 
information  with  the  relevant  national  business  register.  Most  business  registers  in  the  EU 
offer online access to documents on a national web platform. The recently adopted Directive 
(EU) 2019/1151 amending  Directive (EU) 2017/1132 as  regards the use  of digital  tools and 
processes in company law contains measures on the publication of corporate information.  In 
particular, the following provisions are interesting for financial and non-financial information: 

  all information and documents provided to a business register as part of the registration or 
filing of a company or a branch will have by 2023 to be stored by business registers in a 
machine-readable and searchable format or as structured data. 

  electronic  extracts  of  the  documents  and  information  provided  by  the  register  to 
stakeholders  will  be  authenticated  by  means  of  trust  services  referred  to  in  the  eIDAS 
Regulation 248,  in  order  to  guarantee  that  the  electronic  extracts  is  a  true  copy  of  the 
document  held  by  the  register  or  that  it  is  consistent  with  the  information  contained 
therein; 

Business Registers Interconnection System (BRIS)249: BRIS is a mandatory interconnection 
of  the  EU  business  registers,  operational  since  8  June  2017.  BRIS  allows  citizens, 
entrepreneurs and companies to obtain company information on more than 20 million limited 
liability companies, including a set of information free of charge, in all EU languages through 
the  "Find  a  Company”  page  of  the  e-Justice  Portal.  Furthermore,  BRIS  allows  EU  business 
registers to exchange information on cross-border company events, such as foreign branches 
and cross-border mergers of companies. Directive (EU) 2019/1151 further extends the set of 
data  available  free  of  charge  on  the  European  e-Justice  Portal  and  the  set  of  information 
exchanged by business registers on cross-border operations, such as conversions, mergers and 
divisions.  

248  

249  

Regulation (EU) N°910/2014 on electronic identification and trust services for electronic transactions in the 
internal  market.  It  ensures legal  certainty  for  cross-border  use  of e-signatures,  e-seals,  time-stamps, 
eDelivery service and website authentication certificates. 
The EU has developed the Business Registers Interconnection System (BRIS) to facilitate public access to 
information on EU companies and to ensure that all EU business registers can communicate with each other 
electronically in a safe and secure way in relation to cross-border company operations. The e-Justice portal 
provides an interface serving as the European electronic access point to information on companies. BRIS is 
already interconnecting 24 business registers. The legal basis includes Directive 2012/17/EU, now codified 
in Directive (EU) 2017/1132, Directive  (EU) 2019/1151, Directive (EU) 2019/2121 and the  Commission 
Implementing Regulation (EU) 2015/884. 

141 

 
 
                                                 
ESEF250: the European Single Electronic Format (ESEF) is the electronic reporting format for 
annual  financial  reports  by  issuers  with  securities  listed  on  EU  regulated  markets  from 
1 January 2020.  Annual  financial  reports  will  have  to  be  provided  in  the  XHMTL  format 
(superseding the so far commonly used pdf format), including the non-financial statement as 
part of the management report.  XHTML files can be opened with standard web browsers. In 
addition,  where  a  report  would  contain  IFRS  consolidated  financial  statements,  information 
therein  will  have  to  be  tagged  following  inline  XBRL  and  specific  taxonomy  specifications 
(for about 5,000 companies251). IFRS financial statements will therefore be largely structured 
and machine-readable. 

EEAP252 and e-publication: Information published by an issuer via media must be filed with 
the  relevant  national  competent  authority  and  the  relevant  national  storage  mechanism  (the 
Officially Appointed Mechanism or OAM)253. Most of the OAMs  offer itemised free public 
access  to  regulated  information  (Annual  reports,  etc.)  on  dedicated  web  portals.  The  TD 
provides that the ESMA must build a web portal (European Electronic Access Point) to permit 
central  access  to  information  stored  in  each  Member  State.    Regulation  (EU)  2016/1437 
specifies metadata and search functions which may the path towards the EEAP. The European 
portal (EEAP) is not yet operational and the Commission explored the prospects of developing 
a central access point on the basis of blockchain technologies254.  

The  TD  in  combination  with  level  2  measures 255 ,  provides  that  publication  by  listed 
companies must be deemed fulfilled if the announcement relating to the regulated information 
is communicated to the media and indicates e.g. on which website the relevant documents are 
available. 

Registers  at  EU  level:  ESMA  offers  an  array  of  registers  at  the  EU  level256 in  the  areas  of 
capital markets, various instruments, funds, ratings or sanctions as mandated by the EU law, 
including a list of prospectuses. 

Free  flow  of  non-personal  data:  with  respect  to  non-personal  data,  EU  Regulation 
(EU) 2018/1807  establishes  the  free  movement  of  such  data  in  the  EU,  thus  enabling 
alternative  location  of  data  for  storage  or  processing  than  national  location,  including  as 
regards bookkeeping. 

eIDAS:  Electronic  identification  (eID)  and  electronic  Trust  Services  (eTS)  are  key  enablers 
for secure cross-border electronic transactions and central building blocks of the Digital Single 
Market.  Regulation  (EU)  N°910/2014  on  electronic  identification  and  trust  services  for 

250  

251  

252  
253  
254  

255  

256  

Commission  Delegated  Regulation  (EU)  2019/815 of  17  December  2018 on  the  specification  of  a  single 
electronic reporting format. See also ESMA’s web site on ESEF. 
Based  on  the  number  of  IFRS  issuers  reported  by  ESMA  in  the  2020  Report  on  Enforcement  and 
Regulatory Activities of European Accounting Enforcers in 2019, Annex III. 
Article 21a of Transparency Directive 2004/109/EU / Commission Delegated Regulation (EU) 2016/1437 
List available on ESMA’s web site. 
The project, known as The European Financial Transparency Gateway (EFTG) offered a demonstrator of 
centralised search capabilities online on data filed by the listed companies over years 2019 and 2020. The 
project comprised a Proof of Concept and a Pilot phase. It was sponsored by the European Parliament. 
Commission Directive 2007/14/EC of 8 March 2007 laying down detailed rules for the implementation of 
certain provisions of Directive 2004/109/EC on the harmonisation of transparency requirements in relation 
to information about issuers whose securities are admitted to trading on a regulated market, Article 12. 
See the List of registers on ESMA’s web site. 

142 

 
 
                                                 
electronic transactions in the internal market (eIDAS Regulation) adopted by the co-legislators 
on  23 July 2014  ensures  that  people  and  businesses  can  use  their  own  national  electronic 
identification  schemes  (eIDs)  to  access  public  services  in  other  EU  eID  are  available,  and 
creates  a  European  internal  market  for  eTS  -  namely  electronic  signatures,  electronic  seals, 
time stamp, electronic delivery service and website authentication - by ensuring that they will 
work across borders and have the same legal status as traditional paper-based processes. 

Directive  on  open  data  and  the  re-use  of  public  sector  information:  Directive  (EU) 
2019/1024,  to  be  transposed  by  Member  States  by  16 July 2021,  encourages  the  Member 
States to make as much information available for re-use as possible. It addresses material held 
by public sector bodies in the Member States,  at national,  regional and local  levels,  such  as 
ministries,  state  agencies  and  municipalities,  as  well  as  organisations  funded  mostly  by  or 
under the control of public authorities. It aims to stimulate the publishing of dynamic data and 
the  uptake  of  Application  Programme  Interfaces  (APIs),  to  address  costs  of  dissemination. 
Implementing  act  on  high-value  data  sets  (Q1  2021)  under the Open Data Directive, will 
make selected data sets  in  relation  to  company  and company ownership available across the 
EU for free, in machine-readable format and through standardised Application Programming 
Interfaces (APIs). 

A  European  strategy  for  data:  In  its  Communication  of  February  2020  (COM/2020/66 
final), the Commission outlines its strategy to make the EU a leader in a data-driven society. 
Creating a single market for data will allow it to flow freely within the EU and across sectors 
for  the  benefit  of  businesses,  researchers  and  public  administrations.  Data-driven  innovation 
will  bring  enormous  benefits  for  citizens,  for  example  through  improved  personalised 
medicine,  new  mobility  and  through  its  contribution  to  the  European  Green  Deal  citizens 
should be empowered to make better decisions based on insights gleaned from non-personal 
data. And that data should be available to all – whether public or private, big or small, start-up 
or giant. Against this backdrop, the Commission will propose a legislative framework for the 
governance of common European data spaces in Q4 2020, paving the way towards common 
European  financial  data  spaces  to  stimulate,  through  enhanced  data  sharing,  innovation, 
market transparency, sustainable finance, as well as access to finance for European businesses 
and a more integrated market. 

143 

 
 
 
Focus:  company  law  Directive  (EU)  2019/1151  amending  Directive  (EU)  2017/1132  as 
regards the use of digital tools and processes 

With  the  recent  revision  of  the  Company  Law  Directive 257 ,  the  EU  will  soon  witness 
improvement  of  the  scheme  involving  business  registers.  The  figure  below  spells  out  a  few 
provisions with digital impact on financial information published by companies, and practical 
consequences from the viewpoint of this fitness check:  

257  

The  Directive  2019/1151  of  20  June  2019  covers  provisions  on  the  use  of  digital  tools  and  processes  in 
company law. 

144 

 
 
                                                 
145 

 
 
 
  
ANNEX IX – Data structuring, an overview 

Issuers of securities 

Data made public by issuers of securities is generally filed with, stored and delivered by 
each  national  OAM,  generally  in  pdf  unstructured  format.  The  minimum  metadata 
required by the EU258 and enabling common search criteria include: 

 
 
 
 

the name of the issuers  
the unique identifier of issuers  
the home Member States of the issuer  
the  classification  of 
/information) 

regulated 

information  (type  of  document 

Beyond  this,  each  OAM  may  add  a  number  of  metadata  such  as  the  publication  date, 
ISIN, language, etc. In a few Member States, such as Spain, additional basic level of data 
structuring is ensured via XBRL.  

The Regulation on the European Single Electronic Format (ESEF) will ensure that, from 
2021, data within the consolidated IFRS financial statements is widely  structured at EU 
level  according  to  the  IFRS  taxonomy  as  adopted  by  the  EU 259,  using  inline  XBRL 
tagging  method.  The  IFRS  Taxonomy  adopted  by  the  EU  reflects  the  presentation  and 
disclosure requirements of IFRS and includes elements from the accompanying materials 
to  the  IFRS  such  as  implementation  guidance  and  illustrative  examples.  In  addition,  it 
contains  elements  for  disclosures  not  specifically  required  by  IFRS  but  commonly 
reported in practice. 

All limited companies 

The  EU  proposes  no  taxonomy  or  structuring  means  in  relation  to  financial  or  non-
financial  information  prepared  pursuant  to  the  general  Accounting  Directive.  The  latter 
however provides a structure in the form of lay-outs (balance sheet, profit & loss) as well 
as Articles (footnotes, identification), developed from a paper-based reporting angle.  

Recital  39  of  the  Accounting  Directive  encourages  the  Member  States  to  develop 
electronic  publication  systems  only  once  and  in  a  form  that  allows  multiple  users  to 
access and use the data easily. A number of Member States have undertaken to work at 
the  national  level  on  the  digital  angles  of  financial  –  and  sometimes  non-financial 
information. XBRL Europe surveyed for instance 17 Member States on the way data is 
structured  for  national  purposes260.  It  shows  that,  for  information  filed  with  business 
register  sector  or  tax  authorities,  data  structuring  (based  on  XBRL  or  other  proprietary 

258  

259  
260  

Commission Delegated Regulation (EU) 2016/1437 of 19 May 2016 on regulatory technical standards on 
access to regulated information at Union level. 
The IFRS taxonomy is developed by the IFRS Foundation.  
Answers  to  questions  raised  by  ESMA  on  eXtensible  Business  Reporting  Language  (XBRL),  XBRL 
International and XBRL Europe, 30 march 2014. 

146 

 
 
 
                                                 
solutions) is gaining traction. This is the case in a limited number of Member States (BE, 
DK, EE, FI, FR, DE, IE, IT, LU, NL, ES, SE, UK). 

The  situations  are  very  varied  in  terms  of  obligation  and  data  structuring  means. 
Depending  on  jurisdictions,  type  of  information  or  situation,  companies  may  structure 
data  either  voluntary  or  mandatorily.  Most  of  the  time,  data  structuring  is  the 
responsibility  of  companies  themselves.  XBRL  is  often  used.  Other  means  to  structure 
data  may  for  instance  imply  a  mix  of  templates  or  keying  methods  designed  by 
competent authorities and some digitalisation process. 

Data  structuring  most  often  requires  the  development  of  national  taxonomies  or  digital 
structuring means, which are not interoperable.  

XBRL  Europe,  a  private  player,  is  developing  the  xEBR  Taxonomy261 which  defines 
common EU concepts for financial statements and company identification on the basis of 
the  Accounting  Directive.  The  xEBR  project  aims  to  enhance  the  coordination  and 
interoperability  for  European  business  registers  and  company  information  providers. 
Matching  tables  between  xEBR  taxonomy  and  local  taxonomies  (BE,  DE,  FR,  IT,  NL, 
ES, UK, EE, FI, PL) have been or are being developed. 

ANNEX X –  SME definition and micro-regime 

In  the  Accounting  Directive,  SMEs  are  identified  by  using  size  criteria  on  the  basis  of 
turnover, total balance sheet and average number of employees, as follows: 

261  

http://web.xbrleurope.org/?page_id=201 

147 

 
 
 
 
 
 
 
                                                 
Source:  

Accounting Directive 2013/34 

2 criteria out of three must be met to be in one size-category 

In  the  EU  law,  there  are  various  SME  definitions 262.  During  consultation,  whereas  a 
number  of  stakeholders263 were  concerned  by  non-standardised  SME  definitions  in  the 
EU  legislation  or  guidance  leading  to  potentially  uneven  consideration,  nearly  as  many 
respondents  argued  that  one  size  may  not  necessarily  fit  all.  Supporters  of  harmonised 
definitions  or  metrics  opined  that  this  had  the  potential  to  impair  comparability,  equal 
treatment,  legal  certainty  and  policy  coherence  for  SMEs.  Supporters  of  differentiated 
definitions or metrics opined on the other hand that harmonising the approach at EU level 
would run the risks of cumulative effects that might impinge on the growth of companies. 
Finally,  some  respondents  supported  a  totally  different  approach  than  the  current 
approach  based  on  size  criteria,  by  e.g.  using  policy  clusters  (i.e.  mid-caps,  non-listed 
SMEs, family business ...) that would in their view be more meaningful. 

Implementation of the super-simplified micro companies reporting regime 

Recognising  micro  companies  is  an  option  for  each  Member  State.  The  table  below, 
provides  an  overview  of  the  extent  to  which  Member  States  have  recognised  micro 
companies  as  a  specific  category  of  companies  and  how  much  relief  they  brought  by 
implementing one or more of the simplification options offered in Article 36 AD. 

Micro companies / micro regime - State of implementation based on the burden relief index 

Country 

Burden relief 
index 

DE 
IE 
IT 
NL 
UK 
BG 
HU 
LT 
PL 
PT 
SK 
RO 
EL 
LV 

95 
95 
95 
95 
95 
90 
90 
90 
90 
90 
82.5 
77.5 
72.5 
55 

National size 
criteria for micro 
companies 
YES 
YES 
YES 
YES 
YES 
YES 
YES 
YES 
YES 
YES 
YES 
YES 
YES 
YES 

Group 

Group I – 
Largely 
implemented 

Group II – 

262  

263  

Respondents  to  the  public  consultation  frequently  quoted  Commission  Recommendation  2003/361/EC 
concerning the definition of micro, small and medium-sized enterprises which is used for structural funds, 
subsidies, research, etc. It has slightly different numbers for the SME size-criteria. In the capital markets, 
SME  are  defined  as  companies  with  an  average  market  capitalisation  of  less  than  EUR  200  million 
(MiFID). Beyond this, other SME definitions may feature in the EU law, depending on policy. 
In particular responses collected during a Commission public consultation in March/July 2018 in relation 
to a Fitness Check on public reporting by companies (Question 15) 

148 

 
 
 
 
                                                 
EE 
FR 
BE 
DK 
SI 
CZ 
AT 
FI 
CY 
ES 
HR 
LU 
MT 
SE 

47.5 
47.5 
42.5 
42.5 
42.5 
37.5 
35 
35 
0 
0 
0 
0 
0 
0 

Partially 
implemented 

Group III – Not 
implemented 

YES 
YES 
YES 
YES 
YES 
YES 
YES 
YES 
NO 
YES 
YES 
NO 
NO 
NO 

Source: CEPS and LSE elaboration based on European Commission 

The differences in the state of implementation indicated by the burden relief index 
suggest that for countries at the bottom of the ranking, having zero, the Directive 
will  not  result  in  any  benefit  in  terms  of  reduction  of  the  administrative  and 
reporting  burden  faced  by  micro  companies.  In  these  countries,  while  the 
Directive was transposed no relevant provision was adopted. By contrast, in high-
ranking  Member  States,  the  adoption  of  most  provisions  creates  a  sound 
framework  for  reaping  part  or  all  potential  benefits  of  the  burden  reduction 
contained in the Directive. 

149