On June 3, 2002, the European Commission released a proposed financial reporting directive. When approved by the member states, this new directive will amend the existing European Union Accounting Directives and complement the International Accounting Standards (IAS) Regulation that requires certain companies to adopt international accounting standards by 2005.

The IAS regulation applies to publicly traded companies. The proposed financial reporting directive applies to the other approximately 5 million companies in Europe. Because many European states use the same accounting rules for tax purposes, the proposed directive gives the states the option to gradually revise the requirements for non-public companies so they can move toward IAS at their own pace.

According to the announcement, the proposed changes would:

• Allow appropriate accounting for special purpose vehicles.
• Improve the disclosure of risks and uncertainties.
• Increase the consistency of audit reports across the European Union.

The changes in disclosures about risks and uncertainties are designed to encourage companies to disclose key social and environmental aspects, where relevant, in their annual reports.

The changes in audit reports are designed to be consistent with the requirements of the International Standards on Auditing issued by the International Auditing and Assurance Standards Board.

Download the proposal.

-Rosemary Schlank