The new Accounting Directive

STAREP Senior Officials Workshop 4 June 2014 – 11:00

Didier Millerot

Moving Towards implementation…

24/06/2014

EU Financial reporting regimes

Small companies (22%)

Micro entities (75%)

Medium sized companies (2%)

~8000 listed

companies

(0.1%)

ACCOUNTING

DIRECTIVE

Transposed in 28 national

jurisdictions (national

GAAP)

IFRS

EU Regulation directly

applicable to listed

companies (and more: up

to each Member State) Large

companies (1%)

Accounting Directives - requirements

• General provisions: Preparation, publication and audit of annual financial statements

• Contents of management report

• Formats for presentation (P/L and B/S)

• Recognition and valuation rules

• Notes to the accounts - contents

The proposals (2009 and 2011)

Proposal for a Directive on micro entities (2009), proposal for a Directive on small companies and other aspects (2011)

Merging and modernising the

current Accounting Directives

Introducing uniform size categories

Harmonised simple regime for small

companies Optional ultra-

simplified regime for micro entities

Reduction of Member State options

Motto: simplification, comparability, clarity!

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The Results: Directive 2013/34/EU

Merging and modernising the

current Accounting Directives

Introducing uniform size categories (and at

least define small companies)

Harmonised simple regime for small

companies Optional ultra-

simplified regime for micro entities

Reduction of Member State options

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Key change: the simplified regimes for small and micro undertakings Small undertakings:

Introduction of a mandatory « safe harbour »

Obligation to address small undertakings (<50 employees) in each Member State

Best way to do this: to define this size-category

Micro-undertakings (<10 employees) are in the small size category

unless stated otherwise in the legislation of a Member State (see below)

« Gold plating » is not possible.

The Directive spells out which information and which statements should be prepared by small undertakings

Micro undertakings: Within the small regime, introduction of an option to simplify further

If a Member State implements one of the simplification option: need to distinguish micro-undertakings

Best way to do this: to define this size-category

The Directive spells out the minimal regime that can be implemented

Flexibility on the degree of simplification, depending on each Member State

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Limitation on notes

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4th Directive Directive

2013/34

Usual Recurring Notes required by the Directive

14 8

Optional Recurring Notes the Directive grants an option to Member States to require these notes

10 5

Conditional Notes the Directive requires these notes, but only when specified circumstances are

met

10 7

Other recurring or conditional notes

These are notes not foreseen by the Directive but that a Member State may require in addition ("gold plating")

No limit 0

2 4 1 3

Other key changes in the new Directive (1/3) NB: the 2013 Directive is a re-cast of the 4th and 7th Directives rather than a complete conceptual rewrite.

Scope: more rules based with foreign entities in chain

Definitions: whole new set of definitions, including: Participating interest, related party, group, material…

Size-categories: uniform size-categories have been introduced per category (micro, small, medium and large). The regime for micro and medium-sized undertakings is an option for Member States

Public interest entities: Listed companies

Banks

Insurance companies

… and entities defined by a Member State (rare).

Should be treated as large, whatever the size - unless exemption permitted

Formalised accounting principles Eight principles, including materiality…

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IFRS for SMEs No reference to the IFRS for SMEs in the Directive

The standard would not serve the objectives of simplification and the reduction of administrative burden for SMEs

It is not a clear option offered to Member States

No specific prohibition either: Member States may consider IFRS for SMEs as the basis for their standard

However two main hurdles

Main hurdle 1, for all companies: Need to check compatibility of the IFRS for SME standard (including the next version to be

published in 2014 or 2015) with the new Accounting Directive

In particular, the following differences need to be assessed (there may be more!):

presentation of unpaid subscribed share capital in the balance sheet

Amortisation of goodwill (?)

The compatibility check is the Member State’s responsibility

Main hurdle 2, for small companies: The IFRS for SME standard is more demanding than what is permitted by the simplified

regime in the Directive. For instance, no cash flow statement.

In this way, some Member States may offer the IFRS for SMEs or similar standard as a voluntary option for small companies

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Country-by-country reporting "CBCR"

Legislative instruments

• Transparency Directive: Article 6

• Accounting Directive: Chapter 10

11

CBCR

Who?

• EU listed and large unlisted companies with activities in the oil, gas, mining and logging sectors

Why and what?

• Promote transparency and good governance as regards the exploitation of natural resources

• Promote the Extractive Industries Transparency Initiative - EITI

• Enable civil society in resource-rich countries to hold their governments to account

• Multinational companies of the EU will disclose payments to governments on a country and project basis.

Beyond the EU model

• EU to promote its model on the international scene

• CBCR can work side-by-side with EITI in mutual complementarity.

• G8 + G20 support

• Four MS (FR, UK, IT, DE) have expressed willingness to become EITI compliant.

• Equivalence….

From adoption to application

July 2013

• Entry into force

July 2015

• Transposition deadline

2016

• 1st full application by companies (or earlier)

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Implementation plan

Drafted by COM for Member States

Covering: • Contact points

• Implementation challenges – Technical and compliance (e.g. new concepts, new principles, new approaches)

– Timing (not foreseen yet)

– Other (not foreseen yet)

• Proposed support actions – Dedicated functional mailbox for communication

– Holding bilateral and multilateral meetings upon request

– Holding transposition workshops

– Creating a specific intranet website with restricted access

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Implementation status

Transposition activities began

No problems of compliance foreseen at deadline

The most active support actions / implementation tools:

• Transposition workshops

• Dedicated functional mailbox

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Implementation status - workshops

Total of 5 workshops planned

• During 24 months

• 4 workshops in 2014 – 3 already held (the last one on 2 June)

• 1 workshop in 2015 (for last minute legislation rush hour)

• Full day meetings of experts

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Implementation status - workshops

Topics

• Permanent topics: – Question & Answer papers (Q&As)

Q&As on the interpretation of certain provisions of the Accounting Directive

78 Q&As so far drafted, more in the pipeline!

– Discussion of progress of Member States

• Changing topics: – Discussion of specific subjects

e.g. sanctions, publication, country-by-country reporting on payments to governments, micro-undertakings, small-regime, public-interest entities

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Implementation status - results

Member States are in good progress:

• Holding consultations /drafting laws

• Aiming for adoption of laws in 2014 mostly

• Planning for first full application in financial year 2016

• Early application is seldom: – Country-by-country reporting on payments to governments

– Micro-undertakings (3 Member State already implemented)

• No missing of transposition deadline foreseen

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Commission proposal of April 2013

Objectives:

To increase EU companies’ transparency and performance on environmental and social matters, and,

To contribute effectively to long-term economic growth and employment. How:

By disclosing in their management reports relevant and material information on policies, results and risks concerning environmental aspects, social and employee-related matters, respect for human rights, anti-corruption and bribery issues, and diversity on the boards of directors

Non Financial Reporting

NFR proposal - Possible timeline

May 2014

• Adoption by the EP and Council

Q3 2014 ?

• Entry into force

2017?

• 1st full application by companies

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New initiatives

Thank you!

Any questions?

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