20 January 2014

FEE publishes fact sheet on the new June 2013 Accounting Directive

The 2013 Directive is a re-cast of the 4th and 7th Directives rather than a complete conceptual rewrite. Consequently, many of the provisions and, indeed, text in the 2013 Directives have been carried over from the 4th and 7th Directive:

• The 2013 follows a more structured approach to the layout of the Articles, not least arising from the amalgamation of two Directives into one and a small reduction in the number of options available to Member States;
• It is based on a “bottom-up” approach in that it starts with the requirements for small undertakings first and then adds additional accounting and reporting requirements as undertakings pass the thresholds for medium and large undertakings;
• It contains new size thresholds for small, medium and large undertakings that not only impacts on their accounting and reporting requirements but also on the requirement to prepare consolidated financial statements and to have an audit. It also contains the new category of micro-undertaking (technically, this was included in the 4th Directive but only via an amendment there to made in March 2012);
• It formalises eight fundamental accounting principles (with some Member State options);
• It contains the new requirement for country by country reporting (outside of the financial statements) detailing all payments exceeding €100,000 per financial year made to governments by large undertakings and public interest entities operating in the forestry and extractive industries.

Fundamental accounting principles

Items presented in the financial statements must be recognised and measured in accordance with the following general principles:

• The undertaking is presumed to be carrying on its business as a going concern (this is to be disclosed in the accounting policies);
• Accounting policies and measurement bases shall be applied consistently between accounting periods;
• Recognition and measurement shall be on a prudent basis, and in particular:
  • Only profits made at the balance sheet date to be recognised,
  • All liabilities arising in the course of a financial year to be recognised even if these only became apparent between the end of the financial year and the date on which the balance sheet is drawn up;
  • All negative value adjustments to be recognised whether the results for the financial year is a profit or a loss.
• Amounts recognised in the balance sheet and profit and loss account shall be computed on the accruals basis;
• Opening balance sheet for each financial year shall correspond to preceding closing balance sheet;
• The components of assets and liabilities shall be valued separately;
• Any set-off between assets and liabilities, or between income and expenditure items, shall be prohibited;
• All items to be accounted for and presented having regard to the substance of the transaction or arrangement concerned;
• Items shall be measured in accordance with the principle of purchase price or production cost; and
• Materiality applies to recognition, measurement, presentation, disclosure and consolidation.

However, there are Member State options in respect to certain of these principles:

• Set-off: may be permitted on the face of the financial statements but the gross amounts must then be disclosed in the notes;
• Substance over form: may be disapplied;
• Materiality: may be restricted to presentation and disclosure only;
• Prudence: may permit or require the recognition of all foreseeable liabilities and potential lossesin respect of a financial year, if these only became apparent between the end of the financial year and the date on which the balance sheet is drawn up.

FEE-fact sheet

© FEE