Requirements of Accounts

The fourth company Directive deals with the annual accounts of limited companies. The annual accounts are to comprise a balance sheet, profit and loss account, and notes to the accounts.  The Directive lays down principles governing the contents of the documents.

The directive provides for two balance sheet layouts leaving it to the State to choose. Each provides for balance sheet items and comments on them.

A profit and loss account must be provided. There are several layouts from which States are free to choose. The Directive provides commentary on certain items.

The directive states general principles for the valuation of items in the accounts. The valuation methods apply to the various items including undertakings in which the company has a certain percentage of capital certain types of company debts, financial commitments not included in the balance sheet.

The annual report must include a fair review of the development of the company’s business and position. It must provide information on any important events that have incurred since the date of the financial year, the company’s likely future development and activities in the fields of research and development.

The Directive lays down rules on what must be published. It provides for the system of auditing under which companies much have their accounts audited by one or more persons authorized by national law to authorize accounts. Such persons must also verify that the annual report is consistent with the annual accounts for the same financial year.

Differing less strict rules are available for micro, small and medium-sized companies. Member States may reduce obligation in respect of publication of accounts and dispense small and micro companies from the requirement that the annual be audited.

Micro company:

  • Turnover of €700,000 or less per year
  • A balance sheet of €300,000 or less
  • Have a maximum of 10 employees

Small company:

  • Turnover of €12 million or less per year (up from the previous threshold of €8.8 million)
  • A balance sheet of €6 million or less (up from the previous threshold of €4.4 million)
  • Have a maximum of 50 employees

Medium company:

  • Turnover of €40 million or less per year (up from the previous threshold of €20 million)
  • A balance sheet of €20 million or less (up from the previous threshold of €10 million)
  • Have a maximum of 250 employees

Consolidated Accounts

The seventh company law Directive deals with the consolidated accounts of companies with limited liability. It coordinates laws on group accounts. Accounts of a parent company and its subsidiaries are to be consolidated where there are a  parent and one or more subsidiaries established as a company with limited liability or if the parent company exercises a dominant influence over the subsidiary.

The Directives define the circumstances in which consolidated accounts must be drawn up. A company, which legally controls another company, is under a duty to prepare consolidated accounts. In most cases, legal control takes the form of holding majority voting shares.

States may also require consolidated accounts to be prepared in other cases where a parent company has only a minority shareholding, exercises effective control. Exemptions may be provided for.

There are thresholds for defining groups and what can be exempted completely from consolidated accounts requirements. The Directive sets out methods of drawing consolidated accounts.

Consolidated accounts may comprise a consolidated balance sheet, consolidated profit and loss account and notes to account. Consolidated accounts must give a true and fair view of the assets, liabilities, financial position, profit and loss of the companies taken as a whole.

The book value of shares in the capital of the companies included in the consolidation must be set off again the proportion they represent of the capital and reserves of those companies. Set off must be effected on the basis of book value as of the date which the companies are included in the consolidation.

The consolidation accounts must be drawn up on the same day by the same methods as the annual accounts of the parent company.

The Directive provides that certain information must be provided in the notes on matters such as valuation methods, names, and addresses of registered offices of companies included in the undertaking details of certain types of debts.

The Directives regulate the contents of the consolidated annual report. They must include at least a fair review of the development of the business and the position of the undertaking included in the consolidation taken as a whole and certain indications for each of the business.

The Directive requires that a company which prepares consolidated accounts must have them audited by one or more persons authorized to audit accounts under the law of the state that governs the company. The persons responsible for auditing consolidated accounts must verify that the consolidated annual report and the state of affairs are consistent with the consolidated accounts for that financial year.

Financial Statements of Public Companies

An EU regulation provides for harmonization of the financial statements of listed companies. International accounting standards are required. International accounting standards are prepared by the International Accounting Standard Boards.

From 2005, all listed EU companies including banks and insurance companies must prepare their consolidated financial accounts in accordance with IAS. States may also apply the rules to non-publicly traded companies.

There are is a mechanism whereby the EU assesses and may endorse IAS standards for use in the EU.  There is An Accounting Regulatory Committee and a European Financial Reporting Group. The ARC is of representatives of the States chaired by the Commission. On the basis of Commission’s proposals, this committee will decide whether IAS is to be adopted.

The EFRAG is a technical level committee, made up of accounting experts from the private sectors of the State. The committee provides the support and expertise needed to assess IAS and to advise the Commission on whether or not to propose amendments to the legislation.

Public Companies, Financial and other Large Companies

“Public-interest entities” must have an audit committee responsible amongst other things for

  • monitoring the financial reporting process;
  • monitoring effectiveness of internal control, internal audit where applicable, and risk management system;
  • monitoring the statutory audits of the annual and consolidated return accounts
  • including monitoring the independence of the statutory auditor or audit firm, in particular, the provision of additional services to the audited entity.
  • companies which are listed on a stock exchange in any EU country;
  • credit institutions;
  • insurance companies;
  • companies designated by EU countries as public-interest entities because of the nature of their business, their size or their number of employees.

Public-interest entities are

  • companies which are listed on a stock exchange in any EU country;
  • credit institutions;
  • insurance companies;
  • companies designated by EU countries as public-interest entities because of the nature of their business, their size or their number of employees.

The competent authorities of the State may approve a third-country auditor as a statutory auditor if that person has furnished proof that he or she complies with requirements equivalent to those in the Directive. The competent authorities of the State must register third-party auditor entities which provide audit reports concerning the annual or consolidation reports of a company incorporated outside the EU.

States may allow in accordance with the directive the transfer to the competent authorities of a third state of audit working papers or other documents held by statutory auditors or audit firms approved by the State.

Non-Financial Reporting of Larger Companies and Groups

Directive 2014/95/EU on disclosure of non-financial and diversity information requires certain large companies to disclose relevant non-financial information to provide investors and other stakeholders with a more complete picture of their development, performance and position and of the impact of their activity.

The directive applies to certain large companies and groups with more than 500 employees.


Such companies are required to give a review of their business model, policies, outcomes, principal risks and key performance indicators, including on:

environmental matters;
social and employee aspects;
respect for human rights;
anti-corruption and bribery issues.

If companies do not have a policy on one of these areas, the non-financial statement should explain why not. Companies also have to report about their policy on the diversity of the board of directors.


Companies should disclose this information in their annual report, although some EU countries have chosen to allow companies to disclose this information in a separate report if they want to. In preparing their statements, companies may use national, European or international guidelines such as the UN Global Compact.

The European Commission produced non-binding guidelines on how to report non-financial information in 2017. In 2019 it will produce additional guidelines on how to report information about the climate.

Subsidiary companies

A subsidiary company is not required to produce a statement if the information is included in the report of its parent company (i.e. the company that controls the management and operation of the subsidiary company).

The directive has applied since 5 December 2014. It had to become law in the EU countries by 6 December 2016. Companies had to report in accordance with the directive for the first time in 2018, covering financial year 2017.



Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups (OJ L 330, 15.11.2014, pp. 1-9)

Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC (OJ L 182, 29.6.2013, pp. 19-76)

Part of this text, comprising updates, is derived from Summaries of EU Legislation published by the European  Commission and is published under the licence referred to in the Public Information tab.

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