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Fourth Directive: annual accounts of companies with limited liability

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.

ACT

Fourth Council Directive 78/660/EEC of 25 July 1978 based on Article 54(3)(g) of the Treaty on the annual accounts of certain types of companies [See amending acts].

SUMMARY

The following text concerns a consolidation of existing Directives on annual accounts of companies with limited liability.

These Directives (including Directive 86/635/EC on the annual accounts and consolidated accounts of banks and other financial institutions and Directive 91/674/EEC on the annual accounts and consolidated accounts of insurance undertakings)apply to all limited companies. They also apply to certain forms of partnership.

The annual accounts are to comprise a balance sheet, a profit and loss account and the notes to the accounts. These documents constitute a composite whole. The Directives lay down the principles which govern the drawing up of these documents.

The 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.

The profit and loss account: several layouts are proposed from which Member States are free to choose. The Directives provide a commentary on certain items here too.

The Directives state general principles for the valuation of items in the annual accounts, such as prudence, consistency in the application of the methods of valuation, etc. They also set out specific valuation rules.

The Directives list the information which must be provided in the notes to the accounts: the valuation methods applied to the various items, undertakings in which the company holds a certain percentage of the capital, certain types of the company's debts, financial commitments not included in the balance sheet, etc.

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 Directives lay down certain rules on publication (documents which must be published, etc.).

Lastly, the Directives provide 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 strict 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 dispense small companies from the requirement that the annual accounts be audited.

"Small" companies are companies which, on their balance sheet dates, do not exceed the limits of two of the following three criteria:

  • balance sheet total: EUR 4 400 000;
  • net turnover: EUR 8 800 000;
  • number of employees: 50.

The corresponding figures for “medium-sized” companies are:

  • balance sheet total: EUR 17 500 000;
  • net turnover: EUR 35 000 000;
  • number of employees: 250.

Context

This Directive was adopted in accordance with Article 2, Paragraph 1, under f of Directive 68/151/EEC, with the aim of responding to the need to coordinate national regulations relating to the structure, content and publication of annual accounts of public limited liability companies, incorporated partnerships and limited liability companies.

REFERENCES

ActEntry into force - Date of expiryDeadline for transposition in the Member StatesOfficial Journal
Directive 78/660/EEC [adoption: consultation CNS/1971/1012]

31.7.1978

According to Article 55:

30.7.1980 or 31.7.1980

30.1.1982 or 31.1.1982

30.7.1985 or 31.7.1985

OJ L 222, 14.8.1978

Amending act(s)Entry into forceDeadline for transposition in the Member StatesOfficial Journal
Directive 83/349/EEC

29.6.1983

31.12.1987

OJ L 193, 18.7.1983

Directive 84/569/EEC

24.12.1984

-

OJ L 314, 4.12.1984

Directive 89/666/EEC

3.1.1990

1.1.1992

OJ L 395, 30.12.1989

Directive 90/604/EEC

19.11.1990

1.1.1993

OJ L 317, 16.11.1990

Directive 90/605/EEC

20.11.1990

31.12.1992

OJ L 317, 16.11.1990

Directive 94/8/EC

25.3.1994

-

OJ L 82, 25.3.1994

Directive 1999/60/EC (repealed by Directive 2003/38/EC)

26.6.1999

-

OJ L 162, 26.6.1999

Directive 2001/65/EC

16.11.2001

31.12.2003

OJ L 283, 27.10.2001

Directive 2003/38/EC

15.5.2003

-

OJ L 120, 15.5.2003

Directive 2003/51/EC

17.7.2003

1.1.2005

OJ L 178, 17.7.2003

Directive 2006/43/EC

29.6.2006

29.6.2008

OJ L 157, 9.6.2006

Directive 2006/46/EC

5.9.2006

5.9.2008

OJ L 224, 16.8.2006

Directive 2006/99/EC

1.1.2007

1.1.2007

OJ L 363, 20.12.2006

Directive 2009/49/EC

16.7.2009

1.1.2011

OJ L 164 of 26.6.2009

Successive amendments and corrections to Directive78/660/EEC have been incorporated into the original text. Theconsolidated version is intended purely as a documentation tool.

RELATED ACTS

Proposal for a Directive of the European Parliament and of the Council of 26 February 2009 amending Council Directive 78/660/EEC on the annual accounts of certain types of companies as regards micro-entities (Text with EEA relevance) [COM(2009) 83 final – Not published in the Official Journal].
The objective of this Proposal is to enhance the competitiveness of micro-entities and release their growth potential. The aim is to reduce their administrative burden while safeguarding adequate protection and information.
The Proposal therefore provides for exemptions from the obligations under Directive 78/660/EEC for micro-entities which meet the following criteria:

  • their balance sheet total does not exceed EUR 500 000;
  • their net turnover does not exceed EUR 1 million;
  • the average number of employees during the financial year does not exceed 10.

Codecision procedure (COD/2009/0035)

Recommendation on disclosure of environmental issues in the annual accounts and annual reports of companies
On 30 May 2001 the Commission adopted a Recommendation on the recognition, measurement and disclosure of environmental issues in the annual accounts and reports of companies [C(2001)453 - Official Journal L 156 of 13 June 2001].
The Recommendation clarifies the accounting rules and indicates how the quality, transparency and comparability of environmental data given in companies' annual accounts and annual reports can be improved. The absence of a common set of rules for disclosing matters relating to the environment in financial information makes it very difficult to undertake valid comparisons between companies. The Recommendation helps and encourages companies to improve the environmental information provided to the regulatory authorities, investors, financial analysts and the public in general. It applies to the accounting directives concerning certain forms of companies (Fourth Directive and Seventh Directive) as well as banks and insurance companies. It also takes account of the provisions requiring listed companies to apply the international accounting standards (IAS) as from 2005.

Interpretative communication concerning certain articles of the Fourth and Seventh Directives
On 7 January 1998 the Commission adopted an interpretative communication concerning certain articles of the Fourth and Seventh Council Directives on accounting [Official Journal C 16 of 20 January 1998].

Last updated: 02.12.2009
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