 Road to Europe – Program of Accounting Reform and Institutional Strengthening (REPARIS) World Bank / European Commission Accounting by Small and Medium Entities Simplified Financial Reporting Requirements: Austria Case Study Gerhard Prachner Vienna, 15 March 2006

Simplified Financial Reporting Requirements: Austria Case Study PricewaterhouseCoopers 15 March 2006, Slide 2 REPARIS Agenda Financial Reporting Requirements Financial Statements Statutory Audit Requirements Recognition and Measurement Principles for Companies Presentation and Disclosure Principles for Companies Notes and Director’s Report – Simplifications for small Companies

Simplified Financial Reporting Requirements: Austria Case Study PricewaterhouseCoopers 15 March 2006, Slide 3 REPARIS Legal Background of Accounting and Reporting Content and form of financial reporting (book keeping) are required by law. Regulations for book keeping: -Austrian Commercial Code (Handelsgesetzbuch, Unternehmensgesetzbuch – Firm Code as of ) -Austrian Public Limited Companies Act -Austrian Private Limited Companies Act -Austrian Income Tax Act -Austrian Federal Fiscal Procedures Act (AFFPA) -Value Added Tax Act Financial Reporting Requirements

Simplified Financial Reporting Requirements: Austria Case Study PricewaterhouseCoopers 15 March 2006, Slide 4 REPARIS Austrian Commercial Code Based on 4 th and 7 th EC Directive Every business entity shall keep books and records, in which it shows and explains its business Transactions and the financial position according to the applicable “Austrian Generally Accepted Accounting Principles” Requirement for book keeping starts with the registration in the Register of Firms Financial Reporting Requirements

Simplified Financial Reporting Requirements: Austria Case Study PricewaterhouseCoopers 15 March 2006, Slide 5 REPARIS Reporting requirement according to tax law Reporting requirement according to tax law, when there is a requirement according to the Austrian Commercial Code or other legal requirement (section 124 AFFPA), or excess of limits for book keeping according to section 125 AFFPA: The Value Added Tax Act requires entities to keep books substantiating the computation of the value added tax. Financial Reporting Requirements Criteria Kind of business TradeAgricultural and forestry entities Revenue> 400 TEURO Assessed taxable value–> 150 TEURO

Simplified Financial Reporting Requirements: Austria Case Study PricewaterhouseCoopers 15 March 2006, Slide 6 REPARIS Financial Reporting Requirements Requirement to keep books record keeping requirement according to ACC entrepreneur according to ACC other individuals other business according to AFFPA professionals exceed limits of AFFPA does not exceed limits of AFFPA voluntarily cash basis of accounting double entry book keeping simple book keeping

Simplified Financial Reporting Requirements: Austria Case Study PricewaterhouseCoopers 15 March 2006, Slide 7 REPARIS Agenda Financial Reporting Requirements Financial Statements Statutory Audit Requirements Recognition and Measurement Principles for Companies Presentation and Disclosure Principles for Companies Notes and Director’s Report – Simplifications for small Companies

Simplified Financial Reporting Requirements: Austria Case Study PricewaterhouseCoopers 15 March 2006, Slide 8 REPARIS Differences between entrepreneurs and companies Financial Statements EntrepreneursCompanies Content of financial statements Balance sheet and income statement Balance sheet, income statement and notes Director’s reportNot mandatoryMandatory Statutory auditNot mandatoryMandatory (but not for small private limited companies) PublicationNot mandatoryMandatory (simplified disclosure for small private limited companies)

Simplified Financial Reporting Requirements: Austria Case Study PricewaterhouseCoopers 15 March 2006, Slide 9 REPARIS Size criteria for companies Financial Statements Large – mid-size - small Small companies are such which do not exceed at least two of the following three criteria: Balance sheet total:3,650 Mio Euro Revenues:7,3 Mio Euro Average number of employees:50 Mid-size companies are such which exceed two of the above mentioned criteria: Large companies are such which exceed at least two of the following three criteria: Balance sheet total: 14,6 Mio Euro Revenues :29,2 Mio Euro Average number of employees:250

Simplified Financial Reporting Requirements: Austria Case Study PricewaterhouseCoopers 15 March 2006, Slide 10 REPARIS Size criteria for companies Financial Statements Large – mid-size - small If these criteria are exceeded or not met on the closing dates of two consecutive financial years, the legal consequences of the criteria shall take effect as of the following year.

Simplified Financial Reporting Requirements: Austria Case Study PricewaterhouseCoopers 15 March 2006, Slide 11 REPARIS Agenda Financial Reporting Requirements Financial Statements Statutory Audit Requirements Recognition and Measurement Principles for Companies Presentation and Disclosure Principles for Companies Notes and Director’s Report – Simplifications for small Companies

Simplified Financial Reporting Requirements: Austria Case Study PricewaterhouseCoopers 15 March 2006, Slide 12 REPARIS Statutory audit requirements for companies Statutory Audit Requirements Large, mid-size and small public limited companies Large and mid-size private limited companies Small private limited companies with mandatory supervisory board

Simplified Financial Reporting Requirements: Austria Case Study PricewaterhouseCoopers 15 March 2006, Slide 13 REPARIS Agenda Financial Reporting Requirements Financial Statements Statutory Audit Requirements Recognition and Measurement Principles for Companies Presentation and Disclosure Principles for Companies Notes and Director’s Report – Simplifications for small Companies

Simplified Financial Reporting Requirements: Austria Case Study PricewaterhouseCoopers 15 March 2006, Slide 14 REPARIS General Principles Recognition and Measurement Principles Austrian Commercial Code contains general measurement rules which apply to all entrepreneurs and companies -General principles Consistency, going-concern, conservatism, completeness, single asset valuation, accrual basis of accounting, materiality -Historical cost principle for non current assets -Depreciation and appreciation for non current assets -Historical cost principle for current assets -Stringent lower of cost or market principle for current assets -Liabilities shall be recorded at the amount to be repaid -Accruals shall be recorded with the amount necessary to settle the liability. Conservatism has to be taken into account. -Accruals for pensions and other similar obligations shall be recorded at the amount using actuarial principles

Simplified Financial Reporting Requirements: Austria Case Study PricewaterhouseCoopers 15 March 2006, Slide 15 REPARIS General Principles Recognition and Measurement Principles Austrian Commercial Code does not contain specific recognition rules for revenues, assets and liabilities Dependence principles -Austrian Income Tax Act contains the so called “Dependence Principle” meaning that entities that are registered with the Register of Firms have to use the accounting and reporting principles represented by the ACC for determining taxable income, unless binding tax regulations demand a different approach.

Simplified Financial Reporting Requirements: Austria Case Study PricewaterhouseCoopers 15 March 2006, Slide 16 REPARIS Consolidation Requirements Recognition and Measurement Principles Entities which are managed on a uniform basis by a parent company with its registered office in Austria are required to prepare consolidated financial statements – single economic entity concept Control concept as in IAS 27 But size-dependent exemptions

Simplified Financial Reporting Requirements: Austria Case Study PricewaterhouseCoopers 15 March 2006, Slide 17 REPARIS Consolidation Requirements Recognition and Measurement Principles Consolidation is not required when: -As of the closing date of its financial statements and as of the preceding closing date at least two of the three following criterias apply balance sheet totals of parent and subsidiaries do not exceed 17,52 mio EUR revenues of parent and subsidiaries do not exceed 35,04 mio EUR parent and subsidiaries do not employee more then 250 employees on average over the year -or the consolidation balance sheet total does not exceed 14,6 mio EUR the consolidation revenues do not exceed 29,2 mio EUR parent and subsidiaries do not employee more than 250 employees on average over the year

Simplified Financial Reporting Requirements: Austria Case Study PricewaterhouseCoopers 15 March 2006, Slide 18 REPARIS There are no recognition and measurement simplifications for small companies. Small private limited companies do not require statutory audit. Simplifications for small companies Recognition and Measurement Principles

Simplified Financial Reporting Requirements: Austria Case Study PricewaterhouseCoopers 15 March 2006, Slide 19 REPARIS Agenda Financial Reporting Requirements Financial Statements Statutory Audit Requirements Recognition and Measurement Principles for Companies Presentation and Disclosure Principles for Companies Notes and Director’s Report – Simplifications for small Companies

Simplified Financial Reporting Requirements: Austria Case Study PricewaterhouseCoopers 15 March 2006, Slide 20 REPARIS General rules for financial statements and director’s report Presentation and Disclosure Principles Content of financial statements, balance sheet, income statement, notes Very detailed rules for presentation of balance sheet and income statement Detailed disclosure rules for certain items of balance sheet and income statement Obligatory disclosure rules for public limited companies, eg class of shares, authorized capital, treasury shares, convertible bonds, etc Director’s report -rules about content -is not subject to full audit, only the compliance of the director’s report with the financial statements must be audited

Simplified Financial Reporting Requirements: Austria Case Study PricewaterhouseCoopers 15 March 2006, Slide 21 REPARIS Agenda Financial Reporting Requirements Financial Statements Statutory Audit Requirements Recognition and Measurement Principles for Companies Presentation and Disclosure Principles for Companies Notes and Director’s Report – Simplifications for small Companies

Simplified Financial Reporting Requirements: Austria Case Study PricewaterhouseCoopers 15 March 2006, Slide 22 REPARIS Scope of notes disclosure Notes and Director’s Report – Simplifications for small companies Large and mid-size public limited companies as well as large private limited companies -require full disclosure with no simplifications or exemptions Small public limited companies and mid-size private limited companies -no details about revenues in notes such as break down in domestic/foreign revenues, revenues by line of business

Simplified Financial Reporting Requirements: Austria Case Study PricewaterhouseCoopers 15 March 2006, Slide 23 REPARIS Scope of notes disclosure Notes and Director’s Report – Simplifications for small companies Small private limited companies need not disclose -Time limits of receivables and liabilities -Fair value of real estate -Extraordinary depreciation -Certain disclosures about taxes and deferred taxes -Certain disclosures about financial instruments -Break down of condensed items of balance sheet and income statement -Exploration of material accruals not disclosed separately -Break down of explanations of commitments and contingencies

Simplified Financial Reporting Requirements: Austria Case Study PricewaterhouseCoopers 15 March 2006, Slide 24 REPARIS Director’s Report Notes and Director’s Report – Simplifications for small companies No director’s report for small private limited companies No details about non financial KPIs for mid-size companies

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