Financial Reporting in European Stock Corporations

Abstract

The IAS Regulation and the Accounting Directives have not led to the effective harmonisation of European accounting rules for stock corporations, with the sole exception of the consolidated financial statements of listed corporations (which must be prepared in accordance with the IAS/IFRS). The numerous choices granted to Member States under the IAS/IFRS Regulation and 2013 Accounting Directive give rise to significant differences in the criteria that must be used for preparing financial statements in the Member States. Nevertheless, the options provided under the IAS Regulation and the Accounting Directive have proved to be essential in limiting the accounting-related cost burden for smaller companies and, by providing for different accounting regimes based on the company’s public accountability and size, in striking an adequate balance between undertakings’ and investors’ interests. Hence, this paper ague that in order to strike an adequate balance between preparers’ costs and users’ information needs, it is essential to differentiate between applicable accounting regimes depending on the company’s public accountability and size. Therefore, the Commission’s proposal to introduce a simplified financial reporting regime for small companies listed on MTFs is appropriate, even though it further limits the harmonisation of accounting rules for listed companies. Moreover, although it results in further differentiation within the EU accounting regime, listed companies should be required (following the UK Strategic Report model) to prepare a clear and concise narrative report focusing on essential aspects of the company’s business, circumstances, strategies, and governance with the aim of enhancing the effectiveness of IAS/IFRS financial statements and of making them more suitable for meet investors’ needs.

Keywords: Accounting disclosure, Financial reporting, IAS/IFRS, IAS Regulation, Accounting Directive

JEL Classification: K22, M41