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Final report on the EC's fitness check on public reporting by companies

  • European Union Image

28 Apr 2021

In March 2018, the European Commission (EC) initiated a "fitness check assessment" on public reporting by EU companies. The final results of this assessment have now been published.

The effectiveness of the EU framework for public reporting by EU companies was first assessed against the immediate objectives of providing stakeholders with financial and non-financial information that is sufficient in quantity and quality, relevant, comparable, reliable and timely. The framework was then assessed in terms of its contribution to broader EU objectives of (i) an efficient functioning of the single market, (ii) an integrated capital market, (iii) financial stability and (iv) sustainable growth.

As reported in March 2018, the original consultation document seemed oddly tilted against the use of IFRSs as issued by the IASB. However, the final report now concludes:

Overall, the EU framework for corporate reporting achieves the immediate objectives to a great extent. In particular, the IAS Regulation appears to be the most effective instrument in ensuring high-quality and comparable public financial information across the EU.

In the context of the deeper analysis of the IAS Regulation, the report notes that the IAS Regulation provides limited flexibility to amend standards as issued by the IASB, in case a standard would not meet the technical endorsement criteria or not be conducive to the EU public good. However, the report also states that the EU has so far been able to deal with such situations using the limited flexibility available within the confines of the IAS Regulation and has only needed to do so very sparingly.

As a potential follow-up on the IAS Regulation, the report notes:

The IAS Regulation appears to be the most effective instrument in ensuring comparable and complete financial information across Europe. Based on further consultation with all stakeholders, a comprehensive cost-benefit analysis could be carried out to assess whether to expand the scope of EU-endorsed IFRS to all companies listed on regulated markets and, as a company option, to small and medium-sized enterprises (SMEs) that plan to issue securities or to larger non-listed companies.

The fitness check also extended to the EU Non-Financial Reporting Directive, which is described as "a pioneering piece of legislation when it was adopted in 2014". However, the report notes that it may no longer be an adequate response to new challenges, in particular the growing needs of investors and other stakeholders for sustainability information. The report, therefore, assesses that this aspect of the EU framework for corporate reporting "does not ensure that reporting practices are adequate to enable stakeholders to make informed decisions and hold companies accountable for their impact". A revision of the Non-Financial Reporting Directive is currently underway, and a proposed Corporate Sustainability Reporting Directive was published last week.

Please click to access the final report on the fitness check, which also looked at the Accounting Directive, the Bank Accounts Directive, the Insurance Accounts Directive, and the Transparency Directive, on the EC website.

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