Companies have to keep annual accounts, not only to comply with legal obligations but also to monitor the health of the business by keeping track of all receipts and expenses.
International accounting standards
The EU is working towards greater quality, transparency and comparability of financial statements provided by companies. To achieve this, it has adopted a regulation on international accounting standards (IAS).
This regulation requires all listed EU companies to prepare their consolidated accounts in accordance with a single set of global standards – the International Financial Reporting Standards (IFRS). These rules are developed by an independent accounting body, the International Accounting Standards Board (IASB), and then adopted by the EU.
The EU is aiming for global convergence of accounting rules to reduce the potentially costly and burdensome reconciliation requirements with its key non-EU trading partners. For instance, third-country issuers making a public offer of securities in the EU and those whose securities are traded on an EU-regulated market are required to produce financial reports either on the basis of IFRS or on the basis of certain third countries' national accounting standards equivalent to those standards.
These global standards are designed for large companies providing information requested by international capital markets.
Adapting accounting systems to small businesses
The EU seeks to make accounting rules easier, especially for small businesses, and to avoid unjustified reporting obligations.
It has for example proposed that:
- medium-sized firms be exempted from the obligation to reveal unnecessary information in the notes to the annual accounts, e.g. the breakdown of net income into categories of activity and geographical markets;
- small companies follow a specific regime which restricts their financial statements;
- micro companies follow a specific regime with minimum requirements;
- reporting obligations in the case of small business mergers should be simplified.
In the same spirit, parent companies with no material subsidiaries should no longer need to prepare consolidated accounts.
Check also the legislation on this topic in: