The European Commission’s review of the 4th and 7th accounting directives has called for measures such as cutting red tape for SMEs, facilitating social entrepreneurship and encouraging responsible business.
The EC said that simplify accounting rules for SMEs would result in savings of up to €1.7bn ($2.36bn) per year. The EC suggested the simplified preparation of financial statements, which would make them more comparable, clearer and easier to understand.
“It would also allow users of financial statements such as shareholders, banks and suppliers to gain a better understanding of a company’s performance and financial position,” the EC said.
The EC said it is also looking to improve transparency and promote sustainable business among multinationals.
“Mining and forestry companies would have to be more open about taxes, royalties and bonuses paid worldwide,” the EC said.
The European body is also looking to help emerging sectors to fulfil their potential through the social business initiative complimented with the CSR strategy.
“Both initiatives reinforce Commission efforts to engage with the private sector on social and environmental issues, especially relevant in times of public budget constraints,” the EC said.
EC internal market commissioner Michel Barnier said social business is a good example of an approach to business that is both responsible and contributes to growth and jobs.
“We need to ensure all companies, not just social businesses, take their impact on wider society seriously: that’s why I also want big multinationals – in particular those in the forest and mining industries – to be more open about what they are paying to governments across the world,” he said.
The revised proposals will now be passed to the European Parliament and the EU’s Council of Ministers for adoption.
Institute of Chartered Accountants for England and Wales (ICAEW) head of financial reporting faculty Nigel Sleigh-Johnson said the 4th and 7th accounting directives are ancient pieces of legislation long in need of an overhaul.
“We have been calling for a root-and-branch modernisation for some time on a ‘think small first basis’, with the objective of eliminating red tape and ensuring that the reporting requirements at EU level are flexible, up to date and compatible with developments in accounting at international level,” he said.
“ICAEW strongly supports efforts to improve domestic accountability and governance in resource rich countries. In principle we believe that much of value can be achieved through country-by-country reporting, particularly in areas of the world where greater transparency is required,” Sleigh-Johnson added.