25 Jun 2012

EU Council revises accounting directive approach

Medium and large companies in the UK can heave a cautious sigh of relief over the EU Council’s agreed approach to the new accounting directive

The Council has taken on board three issues – relating to optional balance sheets, merger accounting and related party transactions – that were causing major concern in the original package of proposals.

The original text required companies to use a different balance sheet format than the one commonly used in the UK. In its briefing to MEPs and the council, the ICAEW argued that the UK format provided more useful information than the proposed one which would cause major headaches for UK companies. This preferred format has now been allowed as an option.

The Council has also listened to pleas to bring back the option of using merger accounting which had been taken out in the original draft. The Institute made it clear that not being able to use merger accounting would create real problems since it is a much “less cumbersome” way of accounting for group reconstructions.

The third area of concern was the omission from the original text of the exemption for related party transactions between wholly-owned subsidiaries. In the grand scheme of related party transaction disclosures, those between wholly-owned subsidiaries are the least useful for users of accounts and to have to report them would have been particularly onerous for groups. The exemption is now restored.

The European Council’s approach also backs the country-by-country reporting disclosure requirement for large and listed companies which are active in the extractive industry or logging of primary forests. In the Council's revised text, these disclosures would be made outside of the annual report.

“The changes mean that we are more enthusiastic about the revised approach than we were about the original proposals,” said John Boulton, ICAEW corporate reporting manager.

Although the Council has agreed its approach, this is no guarantee that the changes will end up in the finalised directive. Before then, the Council will have to consult with the European Parliament which has its own views and its own text and it looks as if this process will take many more months to complete.


Julia Irvine