The EU Single Accounting Directive

By Ben Scicluna

The Directive sets out EU accounting rules for micro, small, medium and large entities, of which the thresholds are set out in the table below. The rules govern the preparation of statutory financial statements, and do not concern internal management accounting which remains a private internal matter.  Also, the requirement under various laws and regulations to maintain appropriate underlying accounting records is not affected by these provisions.

In 2009 Malta had published local accounting rules, known as General Accounting Principles for Smaller Entities (or GAPSE), as an option available to those qualifying entities that preferred to move away from the EU-IFRS default accounting requirements. The applicable GAPSE quantitative thresholds for non-State Owned entities were based on the EU Medium levels, as also shown below.

GAPSE1 Medium2
  Current New Non-State Owned Current New
        MS Option      
Balance sheet total

€350k < €4.4m < €4.0m < €6.0m < 17.5m < €17.5m < €20.0m
Turnover €700k < €8.8m < €8.0m < €12.0m < €35.0m < €35.0 m < €40.0m
Avg. No. of employees 10 < 50 < 50 < 50 < 250 < 250 < 250


1. Not to exceed 1
2. Not to exceed 2

It is estimated that 95% of Malta’s businesses are micro entities, while 99% are small (medium - just under 1%; large - minimal percentage).

The micro-entity regime is optional to Member States, taking into account in particular the situation at national level regarding the number of companies covered by the applicable size criteria. The provisions were approved in March 2012 and were reproduced in the newly approved Single Accounting Directive. Some highlights, based on maximum utilisation of exemption options, are as follows:

  • Only abridged balance sheet and abridged profit & loss account.
  • No notes except footnotes on the balance sheet re commitments by way of guarantees & security provided; and advances to directors & any related commitments by way of guarantees.
  • Cash accounting permitted for certain expenditure, with the rest using accruals accounting; a balance sheet footnote stating so would be required.
  • No fair values permitted.
  • Specifically stated in the Directive that the result shall be regarded as giving a true & fair view.

Similarly, also based on maximum utilisation of exemption options, some highlights of the reduced disclosure regime for small entities are as follows:

  • Only abridged balance sheet and abridged profit & loss account.
  • 5 notes, of which 1 is accounting policies [5 further notes are MS options].
  • 3 further circumstantial notes [i.e. in case of revaluations, fair values, and exceptional P/L items].
  • Substance over form is a Member State option.
  • A true & fair view is required; such additional information as is necessary to comply with this requirement shall be given in the notes.

Clearly there is a contrast between the above requirements and existing practice, even under GAPSE.

The interaction of these developments with the true & fair provisions is unclear. UK legal counsel [e.g. Martin Moore QC to the Financial Reporting Council - 21 April 2008] on the true and fair concept was on the lines of: ‘The concept is dynamic, evolving and subject to continuous rebirth. Accordingly, the detailed provisions of the Schedules to the Companies Act may have to yield to the overriding requirement to produce accounts which give a true and fair view. These factors … all serve to increase the likelihood that a Court would hold that compliance with a[n accounting] standard is necessary to meet the true and fair requirement.’

There is a school of thought that the extent of disclosures will be a judgement call for each individual set of annual accounts in order to determine whether the extent of disclosure is enough to meet the true and fair requirement in each individual case. If this were to be so, the case for achieving greater harmonisation in the EU risks being thwarted.

The position re statutory audit remains unchanged, i.e. Member State option.

There is a two year period for transposition into local law. GAPSE will have to be amended.

Ben, 21 June 2013

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