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European Business Law

The Fourth Companies Directive No 78/660 , which, with the Seventh Directive No 83/349  - both of which have been repealed and replaced by Directive No 2013/34 of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings  - the “Accounting Directives” pack, is aimed at coordinating the laws of the Member States concernin …

Annual accounts

The Fourth Companies Directive No 78/660 , which, with the Seventh Directive No 83/349  - both of which have been repealed and replaced by Directive No 2013/34 of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings  - the “Accounting Directives” pack, is aimed at coordinating the laws of the Member States concerning annual accounts by establishing the minimum legal requirements as regards the extent of financial information to be made available to the public by capital companies. 

Included in the information which must be made public under the directive , are: the annual accounts, comprising the balance sheet, the profit and loss account and the annex (Directive No 2013/34, Article 4(1)). The presentation of the balance sheet (Article 13 and Annex IV), and the profit and loss account (Article 13 and Annexes IV and V), may take place according to various layouts that the directive leaves to the Member States' choice. Pursuant to Article 6(1), the items shown in the annual accounts must be valued in accordance with six general principles: (i) the company must be presumed to be carrying on its business; (ii) the methods of valuation must be applied consistently from one financial year to another; (iii) a prudent basis must always be observed; (iv) account must be taken of income and charges relating to the financial year to which the accounts relate, irrespective of the date of receipt or payment of such income or charges; (v) the components of asset and liability items must be valued separately and (vi) the opening balance sheet for each financial year must correspond to the closing balance sheet for the preceding year. 

Pursuant to Article 4(3), annual accounts must give a true and fair view of the company's assets, liabilities, financial position and profit and loss . This principle prevails on any other aspect. Thus, additional information must be given where the application of the directive is not sufficient to give a true and fair view (Article 4(3)). Likewise, it is possible to depart from the provision of the directive which would be contrary to the objective of true and fair view. By establishing the principles of true and fair view and prudence, the directive, when valuing items appearing in the annual accounts, sets forth to take account of all risks which have arisen during the financial year or a previous financial year, even if those risks are known only between the balance sheet date and the date on which it is drawn up. Taking into account all the items which truly relate to the financial year in question therefore seems indispensable to guarantee that the principle of a true and fair view is observed. It results that the profits made by a subsidiary for a financial year and appropriated to its parent company on the last day of that financial year must be shown in the balance sheet of the parent company for the financial year in respect of which the subsidiary has appropriated them . The compliance with the principle of prudence and the principle of a true and fair view also implies that a provision intended to cover possible losses or debts arising from a commitment is entered on the liabilities side of the balance sheet only if the loss or debt in question may be characterized as “likely or certain” at the balance-sheet date . Lastly, the principle of a true and fair view must guide the court when applying Article 6(1)(c) of the directive, which sets forth that the components of assets and liabilities must be valued separately. Thus, where a separate valuation does not give the truest and fairest view of the real financial position of the company in question, Article 4(4), making it possible to depart from paragraph 1 in exceptional cases, should be applied . The true and fair view principle does not however permit the principle of valuation of assets on the basis of their acquisition price or their production cost, contained in Article 6(1)(i) of the directive, to be departed from in favor of a valuation on the basis of their real value, where the acquisition price or the production cost of those assets is manifestly lower than their real value .

The annual report, along with the annual accounts, must also comply with the principle of true and fair view of the development of the company's business and its position. This report must give an indication of important events that have occurred since the end of the financial year, the company's likely future development and activities in the field of research and development (Directive No 2013/34, Article 19). Although the Member States may permit the annual report not to be published, it must however be made available to the public at the company's registered office in the Member State concerned and a copy of all or part of any such report may be obtained upon request (Article 47). The annual accounts must be audited by the persons authorized by national law to audit accounts (Article 34). These persons must verify the lawfulness of the audited accounts and also that the annual report is consistent with the annual accounts for the same financial year. The obligations to publish and audit the accounts are more flexible for small and medium-sized companies .

Under Article 37, Member States need not apply the provisions of the directive concerning the content, auditing and publication of annual accounts to companies governed by their national laws which are subsidiary undertakings. However, it precludes the national legislation of a Member State which exempts a subsidiary undertaking governed by the law of that State from the provisions of that directive concerning the content, auditing and publication of annual accounts only if the parent company is also governed by the law of that State .

Directive No 78/660/EEC of 25 July 1978 based on Article 54(3)(g) of the Treaty on the annual accounts of certain types of companies, OJ L 222 of 14.8.1978, 11. See Article L. 232-6 et seq. of the Commercial Code.

Directive No 83/349/EEC of 13 June 1983 based on the Article 54(3)(g) of the Treaty on consolidated accounts, OJ L 193 of 18.7.1983, 1.

Case C-528/12 Mömax Logistik GmbH, Judgment of 6 February 2014, LawLex201400000195JBJ.

Directive No 78/660/EEC, Article 47, which refers to Article 3 of Directive No 2009/101/EC.

This principle takes direct inspiration from English law ("true and fair view"). Thus, European law has chosen a less formalist and more pragmatic approach of accounting which requires active participation of undertakings to the implementation of the rules. The method sets forth that the application in good faith of the applicable procedures may be insufficient to comply with the law. Where the enforcement of the legal provision does not reflect its true financial position, the undertaking shall communicate additional information or even depart from the legal obligation in order to take account of reality.

Case C-234/94 Tomberger v Gebrüder von der Wettern [1996] ECR I-3133, LawLex200900002135JBJ.

Case C-306/99 BIAO [2003] ECR I-1, LawLex200900001448JBJ: the EU court also states in this decision that where the repayment of a loan after the balance-sheet date does not constitute a fact necessitating retrospective reassessment of the value of a provision relating to that loan, where it does not relate to the financial year in question, the compliance with the principle of true and fair view of the assets and liability requires that mention of the disappearance of the risk be made in the annual accounts.

Case C-275/97 DE + ES Bauunternehmung [1999] ECR I-5331, LawLex200700001894JBJ: the fact that a single provision is made for potential liabilities under warranties as obligations arising in law before the date of the balance sheet but whose effects will not become apparent until after that date must be authorized where a global valuation is the most appropriate way of ensuring that the expenditure to be shown under 'Liabilities' represents a true and fair view of its amount.

Case C-322/12 Belgian State v GIMLE SA, Judgment of 3 March 2013, LawLex201400000208JBJ.

A small company within the meaning of Directive No 2013/34 must have at least two of the following characteristics: total of balance sheet less than or equal to EUR 4,400,000, net amount of turnover less than or equal to EUR 8,800,000, less than 50 employees. A medium company within the meaning of Directive No 78/660/EEC must have at least two of the following characteristics: total of balance sheet less than or equal to EUR 17,500,000, net amount of turnover less than or equal to EUR 35,000,000, less than 250 employees.

European Business Law

197. Annual accounts

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197. Annual accounts

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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