EEC as regards the valuation rules for the annual and consolidated accounts of certain types of companies - Main contents

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dossier	COM(2000)80 - Amendment of Directives 78/660/EEC and 83/349/EEC as regards the valuation rules for the annual and consolidated accounts of ...
document	COM(2000)80
date	September 27, 2001

(1) Article 32 of the Directive 78/660/EEC based on Article 54(3)(g) (now 44(2)(g))(1) of the Treaty requires the items shown in the annual accounts to be valued on the basis of the principle of purchase price or production cost.

(2) Article 33 of Directive 78/660/EEC authorises Member States to permit or require companies to re-value certain assets, to value certain assets at replacement cost or to apply other methods that take into account the effects of inflation on the items shown in the annual accounts.

(3) Article 29 of Directive 83/349/EEC based on Article 54(3)(g) (now 44(2)(g))(2) of the Treaty requires assets and liabilities to be included in consolidated accounts to be valued in accordance with Articles 31 to 42 and 60 of Directive 78/660/EEC.

(4) The annual and consolidated accounts of banks and other financial institutions are prepared in accordance to Council Directive 86/635/EEC, and the annual and consolidated accounts of insurance undertakings are prepared in accordance with Council Directive 91/674/EEC. The amendments in this Directive do not amend the provisions of Directives 86/635/EEC and 91/674/EEC, but the Commission may bring forward similar proposals to amend these Directives after having consulted the relevant advisory committees.

(5) The dynamic nature of international financial markets has resulted in the widespread use of not only traditional primary financial instruments such as shares and bonds, but also various forms of derivative financial instruments as futures, options, forward contracts and swaps.

(6) Leading accounting standard setters in the world are moving away from the historical cost model for the valuation of these financial instruments towards a model of fair value accounting.

(7) The Communication of the Commission on 'Accounting Harmonisation: A New Strategy vis à vis International Harmonisation'(3), called for the EU to work to maintain consistency between Directives 78/660/EEC and 83/349/EEC and developments in international accounting standard setting.

(8) In order to maintain consistency between internationally recognised accounting standards and Directives 78/660/EEC and Directive 83/349/EEC, it is necessary to amend these Directives in order to allow for certain financial assets and liabilities to be valued at fair value. This will enable European companies to report in line with current international developments.

(9) Comparability of financial information throughout the Community makes it necessary to require Member States to introduce a system of fair value accounting. Member States may permit or require the adoption of that system to all or certain categories of companies and to both the annual and consolidated accounts or to consolidated accounts only.

(10) Fair value accounting should only be possible for those items where there is a sufficiently developed international consensus that fair value accounting is appropriate. Fair value accounting should therefore not be applied to all financial assets and liabilities.

(11) The notes on the accounts should include certain information concerning the items in the balance sheet which have been measured at fair value. The annual report should give an indication of the company's risk management objectives and strategies in relation to its use of financial instruments.

(12) Accounting for financial instruments is a fast evolving area of financial reporting which necessitates a periodic review. This review should be carried out through the Contact Committee on the Accounting Directives in order to give Member States the opportunity to report on their experiences with fair value accounting in practice.