Multi-Country Seminar on the Internal Market acquis for the Eastern Partnership countries Accounting issues 1 October 2009, Brussels

EU Financial reporting regimes SMALL? ALONE - UNLISTED BIG? GROUP - LISTED Small sized companies Medium sized companies ~8000 listed companies 4th and 7th Accounting Directives transposed in 27 national jurisdictions (national GAAP) Regulation (CE) n°1606/2002 = IFRS + MS Options

IAS Regulation (1606/2002/EC) Directly applicable in all member states (MS) Fast, no national variations All EU companies listed in the EU to use endorsed IAS/IFRS for consolidated accounts MS Option to extend the scope to: –unlisted companies (authorized by many MS) –individual accounts (authorized by few MS)

The endorsement process Objective is to get political and legal endorsement of IFRS Criteria –IFRS not contrary to “true and fair view” principle of Accounting Directives –IFRS must be conducive to public good (competitiveness and convergence) –IFRS must be understandable, relevant, reliable and comparable

Endorsement process IASB EFRAG European Commission ARC (Accounting Regulatory Committee) European Parliament Interest groups SARG European Council

Timeframe IASB approval EFRAG advice ARC opinion Council Parliament Endorsed by EC 2 m0,75m 2 m 3 m3 m Translations SARG advice

Major challenges International system First-time application Principles based – Professional judgment required Complex - Integration of risk and financial analysis Replace 27 national accounting legislation transposing Directives and application practices Experience of users Scope of application

Achieving consistent application Need for clear standards Appropriate political and technical monitoring Learning from preparers’ experience Need for interpretations/guidance Role of auditors and enforcers Studies (ICAEW, CESR…) ”challenging but successful”

IFRS in the international context The EU supports worldwide use of IFRS IFRS has speeded up accounting reforms in major markets Over 100 jurisdictions already using IFRS - SEC proposal on changeover to IFRS around 2014

SME Accounting developments in the EU European Economic Recovery Plan 2008 and Simplification Rolling Programme of Commission The 4 th and 7 th Accounting Directives have been in place for years The business environment and accounting practices have changed dramatically in this period Two Commission’s proposals: –Option to exemption micro entities from the Accounting Directives –Revision of the Directives’ requirements for small companies

Micro entities - definition Companies that do not exceed two of three criteria:  Balance sheet total of €0.5m  Net turnover of €1m  Average employment of ten Could be exempted from the scope of the Fourth Directive on Accounting

Revision of the Directives - Scope Estimated number of companies by segment MicroSmallMediumLargeListedTotal 5,369,7381,477,882206,41996,5627,6087,158,209 75%21%3%1%0.1%100% Source: CSES study "Evaluation of Thresholds for Micro-Entities" (2008), Ramboll "Study on administrative costs of the EU Company Law Acquis" ( 2007), Ramboll Management Report on impacts of raised thresholds defining SMEs, own calculations  Around 1.8m companies in core scope Possibility to exempt IFRS CORE

Revision of the Directives - Segments  How many segments?  What criteria, what thresholds? Category Threshold MicroSmallMedium balance sheet total ≤ € ≤ € ≤ € Net turnover ≤ € ≤ € ≤ € Average number of employees during the financial year ≤ 10 ≤ 50 ≤ 250 Source: 4 th Company Law Directive and Micro proposal

Revision of the Directives - Elements of annual accounts SmallMediumLargeListed* Balance sheet possibility for abridged format certain possibilities for abridged format Profit and loss account Annual report Can be exempted Audit report Can be exempted Consolidated accounts Can be exempted Cash flow analysis −−− Note: Means mandatory requirement * IAS Regulation 1606/2002

Revision of the Directives - Publication requirements Small (incl. micros) MediumLargeListed Prepare accounts Publish accounts MS option to publish abridged information Audit accounts MS option to exempt Note: Means mandatory requirement

The future role of the Directives MicroSmallMediumLargeListed Current accounting framework Directive IFRS/ Directive Future framework Directive (optional) Directive What about IFRS PE? Directive What about IFRS PE? IFRS/ Directive

Contacts DG Internal Market & Services website: ex.htm