Thursday, January 12, 2012

Fourth, Seventh, and Eighth Directives

The EU’s Fourth Directive, issued in 1978, may be the broadest and most comprehensive set of accounting rules inside the EU framework. Both public and private corporations above certain minimal size criteria have to comply. Fourth Directive needs apply to individual business accounts and consist of format guidelines for monetary statements, disclosure requirements, and valuation rules. The true and fair view will be the overriding requirement and holds for footnote disclosures just as it does for financial statements. The Fourth Directive also calls for that monetary statements be audited. It aims to guarantee that European businesses disclose comparable and equivalent facts in their monetary statements.

Fourth, Seventh, and Eighth DirectivesThe Seventh Directive, issued in 1983, addresses the issue of consolidated monetary statements. In the time, consolidated monetary statements had been the exception instead of the rule. They were the norm in Ireland, the Netherlands, plus the United Kingdom, and Germany needed consolidation of German subsidiaries (only). Elsewhere in Europe consolidated statements had been rare. The Seventh Directive needs consolidation for groups of providers above a particular size, specifies disclosures in notes as well as the directors’ report, and calls for an audit. As a result of the newness of consolidations as a legal requirement, member states had been given wide latitude and many solutions for incorporating the Seventh Directive into their individual national company laws.

The Eighth Directive, issued in 1984, addresses a variety of aspects of the qualifications of specialists authorized to carry out legally required (statutory) audits. Essentially, this directive lays down minimal qualifications for auditors. It covers specifications for the education and education of auditors and independence. The Eighth Directive was substantially amended in 2006 and is now referred to as the Statutory Audit Directive. The new directive can be a response to accounting scandals involving European companies like Parmalat, the Italian dairy firm, and Ahold, the Dutch grocery chain, as well as for the American accounting scandals involving WorldCom, Global Crossing, and Enron, and other individuals. It consists of requirements for the appointment and removal of auditors, audit standards, continuing qualified education, auditor rotation, and public oversight. It requires that all statutory audits in the EU observe International Standards on Auditing (discussed later). Among its extra crucial provisions is 1 requiring every single member state to establish a public oversight body for the audit profession plus the establishment of the European Group of Auditors’ Oversight Bodies (EGAOB) to coordinate their activities.

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