Corporate Accountability and Accounting Standards

1. Corporate Accountability and Accounting Standards • « Fourth Directive » - annual accounts 1978 • « Seventh Directive » - consolidated accounts 1983 • Modifications (fair value, modernisation) and special industry rules (banking, insurance) • principles, flexibilty, national traditions

2. Proposal to amend Accounting Directives • Recommendation Winther Group • Consultation • Part of the Action Plan • Consultation • Concrete proposal • Consultation • Negotiation

3. Proposal to amend Accounting Directives • Objectives • enhance confidence in the financial statements and annual reports published by European companies • Shareholders/stakeholders need reliable, complete and easily accessible information • Establish collective responsibility of board members • Enhance transparency about related parties’ transactions • Enhance transparency about off-balance arrangements • Corporate governance statement by listed companies • Flexibilty, national traditions

4. Proposal to amend Accounting Directives • CLARIFICATION OF RESPONSIBILITY AND LIABILITY OF BOARD MEMBERS FOR FINANCIAL STATEMENTS AND KEY NON-FINANCIAL INFORMATION • Corporate scandals have highlighted issue • EU-framework of collective responsibility for board members • A minimum • Member States must guarantee that board members are collectively responsible at least towards the company. • Member States can go further

5. Proposal to amend Accounting Directives • INCREASED TRANSPARENCY • Related party transactions for non-listed companies • Currently only affiliated companies one type • Extend by using definitions set out in IAS 24, as endorsed • Non-listed should not apply same disclosure as listed - unnecessary burdens to be avoided: • Only disclose if transaction is not carried out under normal commercial conditions and if material • Small companies can be exempted

6. Proposal to amend Accounting Directives • Off-balance arrangements • Innovations facilitated allocation of risk but also to alter a company's accounts not to reflect the true financial position • Public policy issue • SPEs part of balance sheet if a subsidiary but can be eluded • Impose specific disclosures for material off-balance sheet arrangements - whether listed or not • Any off balance sheet arrangements and financial impact if material for an investors understanding • SPEs definition would be too easy to circumvent

7. Proposal to amend Accounting Directives • DISCLOSE CORPORATE GOVERNANCE PRACTICES • Crucial importance for European capital markets and European investors • All listed EU-companies provide a specific "Corporate Governance Statement" in their annual report. • Corporate Governance Statement proposed as a specific part of annual report • risk management • operation of the shareholder meeting, shareholders rights • operation of the board and its committees

8. Proposal to amend Accounting Directives • Including issues from take over bid directive: • Significant direct/indirect shareholdings (incl. holdings through pyramids and cross-holdings); • Holder securities special control rights + description • Restrictions on voting rights, e.g. limitations, deadlines for exercising voting rights, or systems separating financial right from holders of securities (with company's cooperation) • Rules for appointment/replacement of board members and amendment of the articles of association; • Powers of board members, and in particular power to issue or buy back shares;

9. Conclusion • No code introduced no intention of it • Comply or explain • Measures to improve disclosure • European response • Principle based • flexibility, differences between MS • Minimum EU framework for responsibility • Questions?