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February 27, 2014

EU agrees on non-financial and diversity reporting rules

The Committee of Permanent Representatives (COREPER), which prepares the work of the Council of the European Union (EU Council), has endorsed an agreement between the Greek presidency of the EU Council and the European Parliament (EP) on a draft directive that will make mandatory the disclosure of non-financial and diversity information.

These negotiations had been going on for some time; however, the approaching European parliamentary elections had added a sense of urgency to them. As The Accountant previously reported, the successful conclusions of the negotiations were hoped for this month.It was agreed that any updates to country-by-country tax reporting would be based on an European Commission (EC) report on the topic, due 21 July 2018, which will take into account international developments.

The agreement also settled on adding a description of diversity policy for administrative, management and supervisory bodies on topics such as age, gender, educational and professional backgrounds to be added into corporate governance statements.

The new provisions will be applicable to all public interest entities with more than 500 employees, of which there are about 6,000 in the EU. As The Accountant reported, this had been a sticking point in negotiations, with the proposals originally meant to be applicable for all companies with more than 500 employees, listed or not, coming under the scope of the proposals, and states wanting the scope more limited.

As such, a compromise was only reached over the weekend. Part of this agreement was an EC report on the implementation of the directive, including its scope, within four years of its entry into force. This could potentially result in the directive being applied to smaller companies in the future.

An EU source told The Accountant that the numerous compromises have left most delegations with some disappointments, with some wanting an agreement closer to the original proposal, and others wanting the proposals to move further away; however the agreement was generally judged satisfactory.

Although the agreement brings the reality of non-financial closer to fruition, the agreement still needs to be formalised by first the EP, which will need to be completed by April when legislative activity will stop for the European elections. After this, the EU Council will need to pass it and then the directive will be published in the Official EU Journal. Countries will then have two years to introduce the directive into their respective domestic laws.

Commenting on the agreement reach, Commissioner for the Internal Market and Services Michel Barnier said: "While I am happy that the Commission has to report back on country-by-country reporting on tax matters by 2018, I am sorry that the spirit of the European Council conclusions will not be taken forward as quickly as I had hoped. I hope that the next Commission might see its way to accelerating this issue."

Barnier was referring to the 23 May 2013 meeting of the European Council, an institution that defines the political direction of the EU and is different from the EU Council.

Among the conclusions of the meeting the European Council was one stating that the proposals amending the accounting directives "will be examined notably with a view to ensuring country-by-country reporting by large companies and groups."

Commenting on the news, the Institute of Chartered Accountants in England and Wales financial reporting faculty head Nigel Sleigh-Johnson said: "This announcement underlines the increasing focus on reporting on aspects of business other than the purely financial, which we know many investors believe are important. In the UK disclosures about environmental and social issues have been required for some time, and more recently new requirements for disclosures in relation to gender diversity have been introduced."

Related storyEU closer to mandatory non-financial and diversity reporting agreement


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