The European Company Law Action Plan Revisited: Reassessment of the 2003 priorities of the European Commission

IV. Belgian and European Accounting Law 30 years after the Fourth EC Directive. A route planner in a landscape scattered with (a growing number of) crossroads

– 209 – Belgian and European Accounting Law 30 years after the Fourth EC Directive A route planner in a landscape scattered with (a growing number of) crossroads Karel Van Hulle1 and Frank Hellemans2 Jan Ronse Institute – K.U.Leuven Abstract Although financial reporting is, strictly speaking, not included in the Action Plan of the European Commission of 21 May 2003 on “Modernising company law and enhancing corporate governance within the European Union”, the objectives of the Action Plan can only be achieved by means of a “fully integrated approach”. Financial reporting is to be considered an important element of this fully integrated approach. While having been a preoccupation of the Commission for over thirty years, European legislation on accounting has undergone drastic changes since the Communication of the Commission of 13 June 2000 on financial reporting. In the present article, the authors focus on the evolution of European legislation on financial reporting since the aforementioned Communication and on the implementation of these European rules into Belgian legislation. Considering that the European Commission radically changed its policy on financial reporting in its Communication of 13 June 2000, the authors investigate the reasons behind this policy change. They come to the conclusion that the main objectives of the Fourth Directive of 25 July 1978 on the annual accounts of certain companies and of the Seventh Directive of 13 June 1983 on consolidated accounts, namely equivalence and comparability of financial information published by limited liability companies, have only been met to a limited extent after the implementation of the two aforementioned directives. An analysis by the authors of the European legislation on financial reporting since the Communication of the Commission of 13 June 2000 (the IAS/IFRS Regulation and the “modernisation wave” of the Fourth and Seventh Directives), and of the implementation thereof in Belgian law, shows that for the consolidated accounts of listed companies, the aforementioned legislation has largely provided a uniform 1 Professor K.U.Leuven, Head of Unit European Commission. The views expressed in this paper are entirely those of the author. 2 Professor K.U.Brussels and K.U.Leuven. – 210 – reporting framework. However, for non-listed companies, the objectives of equivalence and comparability of financial information have not been furthered by the aforementioned legislation – quite the opposite, in fact. The European rules issued since the Communication of the Commission of 13 June 2000 have led to even more divergence in financial reporting for non-listed companies than was the case under the old Fourth and Seventh Directives. The authors also briefly analyse two issues the Commission has recently been dealing with (creation of a simplified business environment for companies in the area of accounting law; modification of IAS 39 and IFRS 7 with respect to markto -market accounting of financial instruments), thus evidencing the Commission’s efforts to create a new reporting framework for SMEs and to improve the existing IAS/IFRS reporting framework for listed companies. Table of contents Introduction 211 1. Harmonisation under the Fourth and Seventh Directives: (why) a bridge too far? 213 1.1 The main objectives of the Fourth and Seventh Directives 213 1.2 The transposition of the Fourth and Seventh Directives: more diversity than unity 216 2. The IAS/IFRS Regulation: a response to increasing demand for uniformity in financial reporting 219 2.1 The growing pressure from capital markets 219 2.2 The principles governing the IAS/IFRS Regulation 222 3. The (first) “modernisation wave” of the Fourth and Seventh Directives 236 3.1 The “Fair Value Directive” of 27 September 2001 237 3.2 The “Modernisation Directive” of 18 March 2003 238 3.3 The “Second Modernisation Directive” of 14 June 2006 239 4. Transposition of the IAS/IFRS Regulation and of the (first) “modernisation wave” for the Fourth and Seventh Directives into Belgian accounting law 241 4.1 Transposition of the IAS/IFRS Regulation 241 4.1.1 Article 114 of the Royal Decree of 30 January 2001 implementing the Company Code: indication of the optional or required application of IAS/IFRS with respect to the consolidated accounts 241 4.1.2 The Royal Decree of 23 September 1992: required application of IAS/IFRS with respect to the consolidated accounts of credit institutions and investment companies 244 – 211 – 4.1.3 The Royal Decree of 21 June 2006: required application of IAS/IFRS with respect to the annual accounts of closed-end real estate investment companies 245...