This Directive coordinates Member States' provisions concerning the presentation and content of annual accounts and annual reports, the valuation methods used and their publication in respect of all companies with limited liability.
The annual accounts are to comprise:
A balance sheet: the Directives provide for two balance sheet layouts, leaving it to the Member States to choose. It then lists the balance sheet items and comments on them.
A profit and loss account: two layouts are proposed, from which Member States are free to choose. The Directives provide a commentary on certain items here too.
The notes on the accounts should include the valuation methods applied to the various items, undertakings in which the company holds a certain percentage of the capital, the company’s debts, financial commitments not included in the balance sheet, and so on.
The Directive states general principles for the valuation of items in the annual accounts, such as prudence, consistency in the application of the methods of valuation, and so on. It also supplies specific valuation rules. The annual report must include a fair review of the development of the company’s business and of its position. It must also provide information on any important events that have occurred since the end of the financial year, the company’s likely future development and activities in the field of research and development. The Directive lays down certain rules on publication and provides for a system of auditing under which companies must have their annual accounts audited by one or more persons authorised by national law to audit accounts. Such a person or persons must also verify that the annual report is consistent with the annual accounts for the same financial year.
Less severe rules are laid down for small and medium-sized companies. Member States may lighten their obligations in respect of the publication of annual accounts, or relieve small companies of the requirement that the annual accounts be audited.
The fourth company law directive has in recent years been amended so as to follow international developments in this area of law. In this respect special attention must be given to Directive 2001/65/EC.[1] The Directive is aimed at modernising European accounting rules by permitting the method known as ‘ fair value accounting’ ( the ‘fair value’ usually being the current market value of a financial instrument, as opposed to its historical cost). European companies, banks and financial institutions will thus be able to compile financial statements which are understood and accepted worldwide. The text also amends the seventh directive, accordingly. Another important amendment of the fourth company law directive is Directive 2003/51/EC,[2] which sets out to harmonise the accounting rules applied to companies and other bodies not subject to Regulation (EC) No. 1606/2002 on the application of international accounting standards (there are around five million such companies). This removes any discrepancy between the accounting directives and the Regulation on the application of the international accounting standards (IAS), since the IAS accounting options can now be applied to companies that retain the accounting directives as their basic legislation. The Directive also clarifies off-balance-sheet financing (debts and loans) and stipulates that in companies’ annual reports risk analysis should not be restricted to just the financial aspects of the business. In addition, the Directive defines how audit reports must be presented.
[1] Directive 2001/65/EC amending Directives 78/660/EEC, 83/349/EEC and 86/635/EEC as regards the valuation rules for the annual and consolidated accounts of certain types of companies as well as of banks and other financial institutions [Official Journal L 283, 27.09.2001].
[2] Directive 2003/51/EC of the European Parliament and of the Council of 18 June 2003 amending Directives 78/660/EEC, 83/349/EEC, 86/635/EEC and 91/674/EEC on the annual and consolidated accounts of certain types of companies, banks and other financial institutions and insurance undertakings [Official Journal L 178, 17.07.2003].
Legal basis
Art. 44 II lit.g EC (former Art. 54 III lit.g EEC)
Amendments
Directive 83/349/EEC
Directive 84/569/EEC
Directive 89/666/EEC
Directive 90/604/EEC
Directive 90/605/EEC
Directive 94/8/EC
Directive 2001/65/EC
Directive 2003/38/EC
Directive 2003/51/EC
Proposal COM (2004) 725