DIDIER

MILLEROTHead of Unit, Accounting & Financial Reporting,

DG Internal Market and Services, European Commission

Challenges in implementing the

new EU Accounting Directive

Didier Millerot, European Commission

3

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%)

Limited liability undertakings: EU structure

4

Accounting Directive – what is does

Contains general provisions: Preparation, publication and audit of annual financial statements

Defines the content of management report

Establishes layouts to be used for presentation (P/L and B/S)

Includes several principles, recognition and valuation rules

Defines which notes to the accounts are to be given

5

Accounting Directive : the proposals (2009/2011)

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

companiesOptional ultra-simplified regime for micro entities

Reduction of Member State options

Motto: simplification, comparability, clarity!

6

Accounting Directive : the results (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

companiesOptional ultra-simplified regime for micro entities

Reduction of Member State options

7

Accounting Directive: key changes

Small undertakings Introduction of a mandatory « safe harbour »

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

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

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

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

« Gold plating » is not possible. o The Directive spells out which information and which statements should be prepared by

small undertakings

Micro undertakingsWithin the small regime, introduction of an option to simplify further

If a Member State implements one of the simplification option: need to

distinguish micro-undertakingso 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

8

Accounting Directive: limitation on notes for small

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

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Accounting Directive: country-by-country reporting

Who?EU listed and large unlisted companies with activities in the oil, gas, mining and loggingsectors

Why?To promote transparency and good governance as regards the exploitation of natural resourcesTo promote the Extractive Industries Transparency Initiative - EITITo enable civil society in resource-rich countries to hold their governments to account

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

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Accounting Directive: 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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Accounting Directive: Non Financial Reporting

ObjectivesTo increase EU companies’ transparency and performance on environmental and social

matters, and,

To contribute effectively to long-term economic growth and employment

HowBy 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

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Accounting Directive: Non Financial Reporting

May 2014

• Adoption by the EP and Council

Q4 2014

• Entry into force

2017

• 1st full application by companies

13

Accounting Directive: implementation challenges

General implementation approach• All Member States

• EEA relevance

• Time limit: 15 July 2015 (AD) and end 2016 (NFR)

• Any relevant instrument of implementation (law, decree, standard, mix…)

• Member States notify the Commission when done

• Member States commit to provide explanatory documents on the relationship between

the Directive and the corresponding parts of national instruments

Specific legal aspects of implementation of the Directive• Directive 2013/34/EU already in force, 4th / 7th repealed: there is no vaccum!

• Ability to apply to financial years starting in 2016

• Croatia to be included soon

• Grand-fathering clause for micro-regimes already in place under 2012 Directive

• Committee to be "Lisbonised"

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Accounting Directive: implementation challenges

Action so far• Transposition plan (July 2013)

• Bilateral meetings

• Public consultation on equivalence criteria (June -> October 2014)

• Transposition workshops (4 held, 1 final to go)

• Dedicated functional mailbox for communication / contact points

• Intranet website with restricted access

• More than 150 working documents

• Sharing of experience / difficulties

Next steps?• Further workshops / assistance (NFR)

• Monitor compliance with deadlines

• Collect notifications (no missing of transposition deadline foreseen)

• Perform thorough check (based on explanatory documents)

• Set up ad hoc committees / expert groups for the new configuration

• Draft NFR guidelines

• Collect information for various review clauses (CBCR, NFR, micros…)

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Accounting Directive: implementation challenges

Technical aspects• Maximum harmonisation (small regime):

• boundaries of prohibition to require additional financial statements or information?

• Country by Country regime:

• new territory

• International reach (equivalence, EITI…)

• Interaction of new Accounting Directive with other legal requirements:

• Credit institutions, Insurance companies: specific Directives

• Listed companies (Transparency Directive, IFRS…)

• …

• Public Interest Entities: audit versus accounting

Political aspects• Micro-regime: wide use in the EU would represent a success in attempt of the EU to cut

red tape

• EE challenge before ECJ

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Thank you!

• Any questions?