Abstract
This chapter examines the financial reporting requirements and presentation formats for annual financial statements in various European jurisdictions. The study focuses on the implementation of EU Directive 34/2013, which introduced different categories of undertakings and financial reporting requirements tailored to the size of the entities. The accounting directive mandates that annual financial statements for all undertakings include, at a minimum, the balance sheet, profit and loss account, and notes to the financial statements. The directive offers two alternative formats for presenting the balance sheet, and two for the profit and loss account. Examining the various choices made by different EU countries reveals varying approaches among jurisdictions.
The impact of these financial reporting practices can affect the comparability between International Financial Reporting Standards (IFRS) and local accounting standards. The lack of comprehensive income reporting in national practices risks widening the gap between those two regulatory frameworks.
Article 3 of EU Directive 34/2013 (also known as the “accounting directive”) defines different categories of undertakings and groups to which Member States can apply different financial reporting requirements. For this chapter, the analysis will focus only on annual financial statements. One of the aims of the Directive was to ease the financial reporting requirements for small entities and micro-entities to increase their productivity. For this purpose, Article 3 of the Directive identifies four size classes: micro-undertakings, small undertakings, medium-sized undertakings and large undertakings. The different thresholds described by the Directive are summarised in Table 1, along with those chosen by the countries selected for this analysis, which will be commented on in the following paragraph.
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Notes
- 1.
The premise to the Directive 2013/34/EU recalls the Commission Communication entitled “Single Market Act”, adopted in April 2011, which proposed to simplify the Fourth and Seventh Directives regarding financial information obligations and to reduce administrative burdens, particularly for SMEs. “The Europe 2020 Strategy” for smart, sustainable and inclusive growth, also recalled in the premise of Directive 2013/34/EU, aimed to reduce administrative burdens and improve the business environment, particularly for SMEs, and to promote the internationalisation of SMEs. The European Council of 24 and 25 March 2011 also called for the overall regulatory burden, particularly for SMEs, to be reduced at both the European Union and national levels and suggested measures to increase productivity, such as the removal of red tape and the improvement of the regulatory framework for SMEs.
- 2.
The Directive also introduces the definition of middle-sized and large groups, not examined in this chapter.
- 3.
- 4.
Public-interest entities are defined as follows: (a) companies listed on any EU-regulated market; (b) credit institutions; (c) insurance companies; and (d) any entities designated as public-interest entities by Member States. See Art. 2, section 1, of the Directive.
- 5.
Items 1 to 5 for the total output layout (net turnover, variation of stocks in finished goods, work performed by the undertaking and capitalised, other operating income, raw materials and other expenses) and items 1, 2, 3 and 6 for the cost of goods sold layout (net turnover, cost of sales, gross profit or loss from sales and other operating income).
- 6.
Listed companies domiciled in the United Kingdom must adopt UK-endorsed IFRS for their consolidated financial statements but can choose between IFRS and UK GAAP for their individual accounts. See Chap. 4 (the United Kingdom).
- 7.
Member States may define thresholds exceeding those indicated by the accounting directive. However, the thresholds shall not exceed EUR 6 million for the balance sheet total and EUR 12 million for the net turnover.
- 8.
As opposed to IFRS, in which the presentation of statement of comprehensive income is mandatory (IAS 1:10).
- 9.
A cash flow statement is required for medium-sized and large companies based on the Dutch Accounting Standard 360.104. The cash flow statement is however not mentioned in the Dutch Civil Code as a primary financial statement. The Dutch Accounting Standard 360.101 states that the cash flow statement is part of the financial statements. Given the definition of financial statements in the Dutch Civil Code (Art. 361-1), it could be argued that the cash flow statement forms part of the notes to the financial statements. However, in practice, medium-sized and large companies present the cash flow statement together with the balance sheet and the profit and loss account, as a third primary financial statement. There are exemptions for wholly owned subsidiaries under certain conditions, for 100% intermediate holding companies and for legal entities applying Section 2:403 of the Dutch Civil Code.
- 10.
Small undertakings in France can ask that the profit and loss account they file should not made public. Micro-undertakings enjoy a similar right, extended to their complete financial statements. Medium-sized undertakings may request that only a simplified version of their balance sheet and notes is made public (French Code de commerce, Art. L232-25).
- 11.
See Chap. 3 (Germany).
- 12.
Small undertakings in the Netherlands are allowed to draw up abridged PLs but are not required to publish them. Micro-undertakings are allowed to draw up limited PLs but are not required to publish them. They are exempted from presenting notes to the financial statements (with a few exceptions). See Chap. 10 (The Netherlands).
- 13.
See Chap. 9 (Sweden).
- 14.
Not even the vertical layout, in which the presentation of “net current assets” is a requirement, achieves a full distinction between current and noncurrent items, for item D.II (Debtors) of the Annex IV layout requires to report separately for each item the amounts owed more than one year after the balance sheet date.
- 15.
See Chap. 7 (Spain).
- 16.
See Chap. 8 (Denmark).
- 17.
Another effective classification of financial systems distinguishes between “outsider” systems and “insider” or “relationship-based” systems, depending on how capital is channelled to investment opportunities and how information asymmetries between contracting and financing parties are reduced See: Leuz (2010).
- 18.
See Chap. 10 (The Netherlands).
- 19.
The statement of performance, known in France as Tableau des soldes intermédiaires de gestion is required in the “developed” French system, on top of the traditional profit and loss account. See Chap. 5 (France).
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Bertoni, M., Sostero, U. (2023). Financial Statement Layouts. In: Incollingo, A., Lionzo, A. (eds) The European Harmonization of National Accounting Rules. SIDREA Series in Accounting and Business Administration. Springer, Cham. https://doi.org/10.1007/978-3-031-42931-6_11
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