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EU Law

For guidance on the UK's withdrawal from the European Union see our dedicated page.

European Union law generally takes the form of ‘directives’ which must then be implemented by member states into their national law. In the area of financial reporting, the key directive is the Accounting Directive.  The directive includes certain options which may be selected by member states. Companies and their auditors generally have no need to refer to the directive but instead must comply with the applicable requirements of the 2006 Act and regulations made thereunder. 

IAS Regulation

European law can also take the form of ‘regulations’. These have direct application in all member states and do not have to be enacted in national legislation to take effect. The notable example in the financial reporting area is the ‘IAS Regulation’ which requires EU companies with securities admitted to trading on a regulated market at their year-end to prepare their consolidated financial statements in accordance with IFRSs as adopted by the EU.  The European Commission has an ‘endorsement mechanism’ to decide whether to adopt each standard and until the standards are endorsed by the EU they cannot be adopted for use by UK companies. 

The companies concerned are those with their securities (including both debt and equity) admitted to a ‘regulated market’ in any member state at the balance sheet date.  There is a definition of ‘regulated market’ for this purpose in the Markets in Financial Instruments Directive (MiFID).  The European Commission website includes a list of EU regulated markets which is updated from time to time.  This list of EU regulated markets is available on the European Commission website. 

The Alternative Investment Market (AIM) operates as an exchange-regulated market and is outside the scope of the IAS regulation.  AIM rules require an AIM company incorporated in an EEA country to prepare its consolidated financial statements in accordance with IFRSs.  

The IAS Regulation applies to only the consolidated financial statements of companies within its scope.  Listed companies with no subsidiaries, typically investment trusts, may continue to use UK GAAP under the law and the Listing Rules.

The IAS Regulation also gives member states an option to permit or require the use of IFRSs as adopted in the EU in other cases such as within individual financial statements of listed companies and the consolidated and individual financial statements of unlisted companies. In the UK, this has been implemented to allow companies, other than charities, to prepare their individual and/or group financial statements in accordance with either UK GAAP or IFRSs as adopted by the EU. This is subject to certain constraints about consistency within groups.  

Revision of the accounting directives

Agreement was reached by the European Commission, the European Parliament and the European Council on a revised of Accounting Directive. This arose out of a project to modernise the previous directives, eliminate some options and bring all of the requirements together in a single directive. The Directive enters into force starting twenty days after it has been published in the Official Journal of the European Union. The EU Member States have to incorporate the rules of the Directive with their national law by 20 July 2015.

The Directive aims simplifying the accounting requirements for small companies and improves the clarity and comparability of companies' financial statements within the Union.

Full text of Directive 2013/34/EU is available on the European Commission website.

The new EU Accounting Directive was transposed into UK Company law in April 2015.  Concurrent with the implementation process of the Directive, the FRC consulted on consequential changes to accounting standards (FREDs 59 and 60).  The outcome of this consultation process, as well as other recent FRC consultations (FREDs 50, 57, 58 and 61) have now been published. As a result of these changes, there are now six different financial reporting regimes available (subject to various criteria) to entities in the UK and Ireland.  These are:

The Financial Reporting Standard for Smaller Entities (FRSSE) is withdrawn from 1 January 2016 - entities currently applying the FRSSE will need to apply one of the regimes set out above.  Consequential amendments have also been made to FRS 100 Application of Financial Reporting Requirements.  

The Transparency obligations directive

Companies admitted to trading on a regulated market have to also comply with the requirements on periodic financial reporting in chapter 4 of the Disclosure Guidance and Transparency Rules (DTR).  The Disclosure Guidance and Transparency Rules are derived from the EU Transparency Obligations Directive and apply to companies whose transferable securities, whether shares or debt, are admitted to trading on a regulated market and whose home state is the United Kingdom.  Further information on the Disclosure Guidance and Transparency Rules can be found here.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.