SCOPE OF THE PROJECT ANNEX 1. of the project?

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1 SCOPE OF THE PROJECT ANNEX 1 Country Austria Belgium Bulgaria Cyprus Czech Republic Denmark France Germany Greece Which are the small enterprises that fall within the scope Are there thresholds for the small enterprises within the scope Have you extended the scope of the Accounting of the project? of the project? Directives to include also other companies/enterprises that those within the scope of the Accounting Directives (Article 1 of 4 th Directive and Article 4 of 7 th Directive); please explain to what extent in that case? Sole proprietors, partnerships with unlimited liability, traders. For turnover less then EUR, entrepreneurs have to set up No income/expenditure statements for tax purposes and below a turnover of EUR tax can be paid in a lump-sum. This lump-sum is depending on the branch of the enterprise. Farmers pay a lump-sum of the fiscal value of the farming area. Above double entry accounting Tradesman natural person or a general or limited partnership (société en Yes: Turnover EUR Yes: la société coopérative nom collectif/société en commandite simple). The small enterprises are in most cases sole traders and partnerships with According to the Law for Small & Medium-sized Enterprises: Micro enterprises unlimited liability which are micro enterprises, small enterprises and refer to small enterprises which: 1. Have an average payroll number of less than medium-sized enterprises. 10 employees, and 2. Have an annual turnover not exceeding EUR or the value of their long-term tangible assets not exceeding EUR, and 3. Are independent. Small enterprises refer to enterprises which: 1. Have an average payroll number of less than 50 employees, and 2. Have an annual turnover not exceeding EUR or the value of their long-term tangible assets not exceeding EUR, and 3. Are independent. Medium-sized enterprises refer to enterprises which: 1. Have an average payroll number of less than 50 employees, and 2. Have an annual turnover not exceeding EUR or the value of their long-term tangible assets not exceeding EUR and 3. Are independent. The enterprises of 3 rd level use the ACCOUNTING ACT No. 563/1991 The Czech Statistical Office picks up the information about the accounting Yes, for natural persons, whose turnover is lower than about Coll. and Decree of the Ministry of Finance to this Accounting act. The law units, but they sort the companies only according to the number of employees EUR for immediate preceding calendar year and the determines the way to prepare the financial statements and prescribes the (Decree No. 89/1995 Coll. on statistical service use). The threshold - number of cooperatives. scope and manner of keeping the accounting and the requirements for its employees - meets with criteria by the Commission Regulation (EC) No conclusiveness in accordance with EC's legislation. In the Czech Republic 70/2001. the 3rd level group includes: Natural persons entrepreneurs and natural persons, who use for their activities other statutory provisions - actors, sportsmen etc. (self-employed people) Legal entities sole traders. According to the accounting law we can divide enterprises of 3rd level into 3 groups: GROUP 1 The enterprises natural persons, which turnover is lower than about EUR per immediate preceding calendar year, apply only tax evidence (i.e. keeping records for tax purpose only). There are any exemptions GROUP 2 - The enterprises - natural persons, which turnover is higher than about EUR per preceding calendar year keep simplified accounting and they do not have to carry out a statutory audit of accounting documents. GROUP 3 The enterprises natural persons, must carry out a statutory audit of accounting documents and they shall keep accounting in full scope. The threshold that is used for the limitation of enterprises to the 3rd and the 2nd GROUP is the obligation to carry out a statutory audit of accounting documents. The thresholds for the obligation to carry out a statutory audit of accounting documents: 1. Balance sheet total EUR 2. Turnover EUR 3. Number of employees 50. This project includes the enterprises which are: 1. Accounting units 2. Not business companies issuing securities 3. Entities that do not have an obligation to have their financial statement audited 4. Entities that do not have the duty to draw up consolidated financial statements 5. Entities that prepare the financial statements according to a i Legal lifi entities d ti sole traders always apply double entry bookkeeping. GROUP 2 and GROUP 3 and legal entities - However, at EU level these enterprises are not regulated, the Czech Republic has transposed the 4th and 7th Directives into Accounting ACT No. 563/1991 Coll. to include also these enterprises. Commercial enterprises or entities without a legal form such as sole No Denmark has extended the scope of the Accounting Directives to proprietorships and partnerships with unlimited liability. include two other groups of enterprises. Those groups are: 1. Commercial foundations; 2. Commercial enterprises with limited liability (possibility of exemption for the latter group of enterprises based on thresholds: Turnover < DKK, balance sheet < DKK and < or = 10 employees. Enterprises in the 3rd layer can voluntarily choose to prepare accounts not only for their own use in accordance with Danish Financial Statements Act either following the separate section for 3rd layer enterprises or sections for companies in conformity with the Accounting Directives. The category "Small enterprises" is not defined in France. Based upon the All entities (whether a natural or legal person) carrying on a commercial activity Yes, see column 2. criteria mentioned in Article 11 of the 4th Directive, around 900,000 are governed by the Commercial Code, which contains accounting requirements entities would fall within the scope of the project. applicable to all entities regardless of size. There are exceptions: (1) simplified balance sheet and profit and loss account for entities not exceeding two of the three thresholds (sales EUR, total assets EUR, and number of personnel 10); (2) natural persons engaged in commercial activities may keep their records on a cash basis and adjust on a receivable-payable basis at the year end when sales are below certain thresholds ( EUR from the sale of goods, EUR from providing services); (3) natural persons are not required to use a double-entry accounting system and may instead maintain a sales and purchases day book when sales are below certain thresholds ( EUR from the sale of goods, EUR from providing services At first, sole proprietorships (Einzelkaufleute) would fall within the scope Under German commercial law, every merchant (Kaufmann) is obliged to keep Yes, mainly to very large proprietorships and very large commercial of the project. Concerning partnerships (Personengesellschaften), German books and to prepare annual accounts containing balance sheet and profit and partnerships. law provides on the one hand for private partnerships under the Civil Code loss account. By legal definition, merchant is everyone who conducts a business. (Gesellschaft bürgerlichen Rechts - GbR). These partnerships are mainly In this regard, thresholds do not exist. But there is an exemption from the non-trading and therefore not subject to accounting requirements. This is aforementioned requirements for enterprises which - by type and volume - do also valid for co-partnerships for liberal professions not require a commercially organised business operation and which have not (Partnerschaftsgesellschaft). On the other hand, there are commercial been registered in the Commercial Register. Furthermore, according to a partnerships (Personenhandelsgesellschaften) which are divided in two Government Bill presently debated in Parliament different types: general commercial partnerships (offene (Bilanzrechtsmodernisierungsgesetz), micro merchants (sole proprietorships Handelsgesellschaft ohg) with unlimited liability and limited with not more than EUR turnover and EUR profit) will also be partnerships (Kommanditgesellschaft KG) with limited liability. Both exempted from commercial bookkeeping and accounting requirements. Very types are subject to accounting requirements for other than tax purposes. large sole proprietorships and very large commercial partnerships have to prepare their annual accounts in the same way as companies within the scope of the Accounting Directives that means including notes on the accounts. These enterprises also have to prepare an annual report In this regard, there are thresholds to consider a sole proprietorship or a commercial partnership as very large: 65 million EUR balance sheet, 130 million EUR turnover, employees. The legal form of 3rd layer enterprises are in the form of general In order for an enterprise to be categorized in 3rd layer it should belong to No partnership with one or more members fully responsible for the liabilities specified industries and have a certain amount of income. of the enterprise and sole proprietorships.

2 Hungary Ireland Sole traders and partnerships with unlimited liability born by a natural No person. Many businesses operate as sole traders i.e. self-employed people and consequently fall within the scope of this project. Besides companies and sole traders a small number of people operate through partnerships. The goods. regulations and administrative provisions of the 4th Accounting Directive apply to partnerships in Ireland (90/605/EEC). There are no thresholds as such other than the thresholds for registering for VAT which is currently EUR for services and EUR for sale of Yes, the scope of the Accounting Directives has been extended to the partnerships with unlimited liability born by a natural person. Ireland has not extended the scope of the Accounting Directives to include the other enterprises that fall into 3rd layer. Italy Sole proprietorships and partnerships with unlimited liability. No The accounting requirements are actually the same, only reporting statements, such as financial statements, are much more simplified. Latvia The following enterprises fall within the third layer: - farms; - fish farms; However, not all of the mentioned enterprises fall within the third layer. In order No individual enterprises; - individual merchants as well as individuals to fall within the third layer, they need to fulfil certain criteria, namely: they must practicing commercial activity. be farms, individual enterprises, fish farms, individual merchants, whose income from the commercial activity within the previous year does not exceed EUR. The income from the commercial activity of religious organizations may not exceed EUR within the previous year. Lithuania In our view, the scope of the project covers unlimited liability legal entities, Only the liability aspect of a legal entity is used as threshold. except for the general partnerships and limited partnerships all participants whereof are public limited liability companies or private limited liability companies. Luxembour Individual shopkeepers / traders («commerçant personne physique»), Yes: Turnover less than EUR g General partnerships ( société en nom collectif ), Limited partnerships ( société en commandite simple ) and Turnover: < EUR Malta Non-regulated enterprises such as sole proprietorships/traders and No partnerships with unlimited liability. No. Yes, the scope of the Accounting Directives has been extended in that respect that the accounting legislation covers in practice almost all the enterprises. For example, the scope has been extended to individual shopkeepers / traders if the turnover exceeds EUR. No Netherland The entities that do not have a legal form. Examples of such entities are: No Book 2 of the Dutch Civil Code (derived from the Accounting s (limited) partnerships and one-man businesses. Directives) include: - private limited companies, public limited companies, and under certain, very special circumstances, also a (limited) partnership The scope of this project covers the entities reaching the threshold of Concerning entities outside the scope of the 4th Directive, it is stressed that the The scope of the 4th Directive has been extended to other enterprises EUR and limited partnerships. Enterprises not reaching the Accounting Act (transposing the 4th and 7th Directives) refers to the threshold than joint stock companies and limited liability companies, namely mentioned threshold are not included in the scope as they do not apply any of annual net turnover of EUR solely for the purpose of determining to: - all limited partnerships, and - natural persons, civil form of accounting system and the introduction of minimum accounting whether these entities fall under the requirements of the Act. According to the partnerships, general partnerships and professional partnerships, requirements poses to them an administrative burden. Act natural persons, civil partnerships established by natural persons, general whose turnover reached the threshold of EUR. partnerships established by natural persons and professional partnerships are Poland required to apply the Act, if their net revenue for the prior financial year amounted to at least the equivalent of EUR. All limited partnerships fall under the Act irrespective of the amount of their net revenue. Natural persons, civil partnerships, general partnerships and professional partnerships, which have not reached the threshold of EUR (i.e. do not fall under the Accounting Act) maintain only simplified evidence/records for tax purposes, which is based on the registration of revenue and tax deductible expenses in accordance with the tax provisions Comandita simples, Collective names, Traders within the Commercial law, The following enterprises are exempted from some requirements when the sales Yes, to the following enterprises/companies: Comandita simples, Traders with limited liability, Public enterprises, Cooperatives, does not exceed ,36 EUR for traders within the Commercial law and Collective names, Traders within the Commercial law, Traders with Portugal Complementary Agglomerates' Enterprises and European Groups of when the sales does not exceed ,58 EUR for other income besides sales limited liability, Public enterprises, Cooperatives, Complementary Economic Interests, Other entities that, by a specific law, are or will e.g. liberal professions. Agglomerates' Enterprises and European Groups of Economic become legislated to it's adoption, and liberal professions. Interests, Other entities that, by a specific law, are or will become legislated to it's adoption. Romania 1. Legal persons without patrimonial aim (non-governmental organizations In Romania, two categories of legal persons, namely the religious cult entities The accounting regulations applicable to such legal persons are NGOs), namely: associations, foundations or other such organizations, and the owners associations, may organize and conduct a single-entry already correlated to the provisions of the 4 th Directive. political parties, employers unions, trade-union organizations, religious accounting. cults, and also other similar entities set up on the base of the special laws regarding the performing of the non-patrimonial activities. Some of the NGOs perform economic activities. For this activity, these NGOs are treated as second-level companies from the accounting regulations point o view. 2. Natural persons having the quality of tax-payers according to the fiscal provisions within the legislation in force, respectively the following professions: doctor, advocate, notary, financial auditor, tax consultant, expert accountant, chartered accountant, consultant in the real estate business, architect or other regulated professions, independently performed, under the law, and also other natural persons having the tax- Slovakia 1. Sole proprietorships 2. Entrepreneurs according to special regulations IASs are gradually being implemented into the legislation. (architects, designers, veterinaries, surgeons) 3. Experts and interpreters 4. Artists, free enterprise, sportsmen. There are no limitations for this group. Spain Very small companies. In the Spanish regulation, all limited companies (SA and SRL) are obliged to Yes, in the Mercantile Legislation in Spain, all companies are deposit their financial statements in the Mercantile Registry Office. The rest of obliged to comply with the Accounting Standards (General companies are not obliged to release their financial statements. There are no Accounting Plan). These standards are an adaptation of the thresholds for these latter types of companies, as long as the company complies Accounting Directives, but the financial statements are not released with two circumstances ( EUR in turnover, EUR in assets for these types of companies. and 10 employees). In this way, it is possible to have a simplified regime. Sole proprietorships and partnerships with unlimited liability. UK does not use numerical (turnover, assets, employees) thresholds to define The UK has not extended the scope of the Accounting Directives to UK this layer. Instead the classification is by legal status i.e. limited enterprises include the other 3.2 million companies/ enterprises that fall into 3rd will fall into the first two layers and non-limited enterprises into this 3 rd layer. layer.

3 USERS OF FINANCIAL STATEMENTS AND THEIR NEEDS ANNEX 2 Country Who are the users of the financial statements and what are their needs? Austria Belgium Bulgaria The users are tax authorities, banks, courts and owners. Tax authorities (taxation); owners (management); lenders (banks), creditors, suppliers and law courts. Financial statements (interim, annual and consolidated) are drawn up by the preparers of financial statements. Any natural person or a specialised accounting enterprise can be a preparer of financial statements provided they meet the requirements of the Accountancy Act. By 30 June in the following year, partnerships with unlimited liability must publish their annual financial statements and their annual management report as adopted by the general meeting of partners or by the relevant body, partnerships with unlimited liability in the meaning of the Commerce Act fill and submit them for the purposes of announcing them in the Commercial Register. Users of the financial statements could be the owners, managers, tax authorities, etc. Cyprus Czech Republic 1. Management and owners appropriation of the profit or for the decision process. 2. Stakeholders income from participating interests. 3. Supervisory board - approval of the financial statements. 4. Auditors and tax consultant - auditing and tax payment. 5. Tax offices controller/supervisor of tax payment. 6. Financial and credit institutions financial stability and financial solvency. 7. Others - investors, business partners, competitors and employees. Denmark Users of financial statement are stakeholders as well as shareholders. When talking about small enterprises the main users of the financial statements are the owner(s), bank and creditors and tax authorities. Needs for financial statements in a small enterprise could be the economic management of the enterprise, supervision from bank(s) and taxation controls. France The main users of company financial statements are credit institutions, tax and social security authorities, management and current owners. Germany Users are the owners, managers, tax authorities, credit institutions in the case of loans and business partners (e.g. suppliers). We suppose that the number and range of users depend on the size of the enterprise etc. The needs are mainly for the management of the enterprise, profit distribution, taxation and insolvency. Greece The users are the owners, tax authorities and the government and they need information about profit, industry and investments etc. Hungary Tax authorities and financial institutions. Ireland Users are the owners, managers, tax department (revenue), department of Social and Family Affairs, Central Statistics Office (CSO), Department of Industry, Trade and Employment, Banks/ Finance houses, suppliers. Their needs come from their functions. Italy Latvia Users are the owners, managers, tax authorities, clients and suppliers. Financial statements are mainly used to give a clear idea of the financial (assets and liabilities) and economic (profit and losses) situation of an enterprise. As the small enterprises do not prepare formal financial statements, they are not used by enterprise owners or managers. The financial statements are therefore prepared mostly for the purposes of tax inspections. Lithuania The users are tax authorities, banks, owners and other stakeholders, as their financial statements, if they are prepared, they must be submitted to the Center of Registers and then they become publicly available. Luxembo The users of the financial statements of small enterprises are the owners/managers themselves (and the tax authorities). As many urg owners of small enterprises do not have enough expertise in accounting, the book-keeper himself often acts as their financial advisor. Malta Netherla nds The main users are owners (to evaluate how the business is performing), Government authorities (for tax and statistical purposes), management (performance and financial information), banks (liquidity position). The main users of the financial statements are of course the owner-manager, and the tax authorities. The tax position of a 3 rd layer enterprise is directly derived from the outcome of the accounting system. If 3 rd layer enterprises need funding they often draw up financial information for the lender / banker. If so, then the bank is of course also an important user. Yet the banker will normally ask for additional financial information, for example financial forecasts. As the personal income of the owner-manager is dependent on the results of the enterprise, the owner-manager is keen to know the financial position and the profitability of the enterprise. The main users of the financial statements of small enterprises are: owners, tax authorities, managers, banks, creditors and statistical Poland offices. The needs of the users reflect the status of the users. Portugal Tax authorities, banks and the management. Romania Users could be the owners, the tax authorities, the management of the enterprise for the distribution of the profit resulted from the economic activity and also other categories of users. Slovakia Small entrepreneurs are doing the book-keeping for tax return purposes. Spain UK The users are normally the credit institutions such as banks, clients and would-be investors. The needs of these users are to find out the financial situation of the company for public statistics, would-be investors, credit institutions, etc. Given that no financial statements are mandated for enterprises in 3rd layer, then it is difficult to say what usage might be made of them. The main external users of the financial statements of smaller enterprises in 3rd layer are the tax authorities.

4 THE ACCOUNTING REQUIREMENTS FOR THE SMALL ENTERPRISES ANNEX 3 Country Are there requirements for balance sheet, income statement, Are there reduced accounting requirements for If there are no legal accounting requirements for these notes on the accounts, management report etc. these enterprises? enterprises; are there other requirements like taxation (income taxes, value added taxes, employer taxes etc.) that need accounting records as their basis and how are these accounting records formalised; please Yes, Austrian GAAP, if the turnover of the enterprise is above the thresholds of No For entrepreneurs li? who have a turnover below EUR, there is no Austria EUR (except farmers and special experts). requirement for accounting and commercial law reasons. For tax law reasons, there are specific requirements. No Yes, The very small enterprises are allowed to have a simplified Taxation is based on accounting records. bookkeeping, under the form of three journals (cash & bank, purchase, sale). No application of double-entry bookkeeping Belgium principle, no chart of accounts, no obligation to use formats of annual accounts as prescribed for other companies. No obligation to have the annual accounts audited, and no obligation to publish the annual accounts. Financial statements are prepared on the basis of the National Financial Yes. Enterprises applying a simplified form of financial Reporting Standards (NFRS) for sole traders and partnerships with unlimited reporting" refers to enterprises (sole traders and partnerships with liability which, for at least one of the 2 preceding years, do not exceed the unlimited liability) which over the current or the previous year do indicators under 2 of the following criteria: 1. Balance sheet assets as of : not exceed the indicators under two of the following criteria: 1. 4 million EUR; 2. Net income from sales for the year: 7,5 million EUR; 3. Balance sheet assets as of 31 December: EUR; 2. Net Average number of personnel for the year: 250 persons. New enterprises prepare income from sales for the year: 1,250 million EUR; 3. Average Bulgaria their statements on the basis of the NFRSs for SMEs for the year of their number of personnel for the year: 50. In determining the status of establishment and for the year following it. NFRSs for SMEs are adopted by the a newly established enterprise as one applying a simplified form Council of Ministers and comply with the EU acquis communautaire and national of financial reporting, only the values under these criteria for the specifics. The statements must give a true and fair view of property and financial year of establishment are taken into account. conditions of the enterprise, its result and any changes in cash flows and in owner's equity. Sole traders and partnerships with unlimited liability draw up: 1. Financial statements as of in thousands of BGN; 2. Interim financial statements covering a period of less than one calendar year Cyprus Czech Republic Denmark France Germany Greece Only the companies, which have no obligation to have their ordinary and The enterprises (GROUP 3) shall respect the content and The Accounting Act does not have any requirement for keeping the extraordinary financial statement audited (GROUP 2), can use the following valuation of the layout, which is determined by accounting law records for enterprises, which turnover is lower then EUR exemptions: (the Decree of the Ministry of Finance of the Accounting act). (GROUP 1). These enterprises keep records only for taxable income, - To draw up abridged balance sheets - To draw up abridged profit and loss accounts - To draw up abridged notes on accounts - To not prepare an annual report - Not public only for enterprises, which are not entered in the Commercial Register With the exception of commercial enterprises, which voluntarily elect to present annual reports not intended solely for the enterprises own use, there are no legal requirements concerning financial statements for small enterprises. When an enterprise elects to present its annual report not solely for its own use, the GAAP. enterprise is obliged to follow the main rules in the Financial Statements Act. These accounting rules include: Basic requirements for annual reports, quality requirements, basic assumptions, elements, classification and presentation, recognition and measurement plus disclosure. It is common in case where an auditor or a person skilled in accounting assists with the preparation of the statements not statutory, that the statements are based on the same accounting rules and framework as in the Acts. In many other cases the framework for statements not statutory is the taxation rules e g accrual basis is not used All entities (whether a natural or legal person) carrying on a commercial activity VAT, employer taxes. They follow the regulations under the tax law and the social security law. There are no legal accounting requirements for these enterprises. Every commercial enterprise is legally obliged to have book-keeping When preparing statements one should expect that the statements with accounting records, where transactions must be entered. The size, follow some principles in accordance with a kind of national organization and proportions of the books depend on the enterprises' size. The accounting records are used for taxation purposes too, inter alia employees withholding taxes, value added taxes and form the basis of the tax statement (if legally demanded) and /or the fiscal income for taxation (must be given in an income tax return). The following simplified procedures exist: (1) simplified balance Not applicable are required to produce annual financial statements (balance sheet, profit and loss sheet and profit and loss account for entities not exceeding two of account and notes). the three thresholds (sales EUR, total assets EUR, and number of personnel 10); (2) simplified notes to the financial statements for entities not exceeding two of the three thresholds (sales EUR, total assets EUR, and number of personnel 50). Simplified management report under certain conditions. Under German commercial law, every merchant (Kaufmann) is obliged to keep The accounting requirements are reduced in comparison to those Enterprises to which accounting requirements are not applicable (e.g. books and to prepare annual accounts containing balance sheet and profit and for companies within the scope of the Accounting Directives. Sole private partnerships under the Civil Code, co-partnerships for liberal loss account. However, according to a Government Bill presently debated in proprietorships and commercial partnerships (except very large professions and in the future micro merchants) are allowed by German Parliament (Bilanzrechtsmodernisierungsgesetz), micro merchants (sole ones) have to prepare neither notes on the accounts nor an annual tax law to use the net income method for the determination of taxable proprietorships with not more than EUR turnover and EUR report. Furthermore, there are no detailed specifications about the income profit) will be exempted from commercial bookkeeping and accounting layout of the balance sheet. requirements. Very large sole proprietorships and very large commercial partnerships have to prepare their annual accounts in the same way as companies within the scope of the Accounting Directives that means including notes on th accounts These enterprises also have to prepare an annual report There are requirements for the application of Greek GAAP but without the The accounting requirements and the publication are limited for There are both accounting and taxation requirements that have to be responsibility to publish this information or to have it audited. these enterprises. fulfilled by these enterprises. Taxation is based on accounting entries. Hungary Ireland Italy Latvia Lithuania In the case of sole traders, there are no such requirements. In the case of Requirements for partnerships, with unlimited liability born by a Sole traders and partnerships, with unlimited liability born by a natural partnerships with unlimited liability born by a natural person:- if they are subject natural person, subject to local GAAP are in line with those of the person, subject to simplified taxation are required to keep records of to simplified taxation, there are no such requirements, - if they are subject to Accounting Directives, in the case of sole traders and partnerships their issued invoices and taxes only to serve taxation information needs. local GAAP, the requirements are in line with the Accounting Directives. subject to simplified taxation there are no accounting requirements Sole traders, subject to personal income tax, are required to keep at all. accounting records of their income, expense, and tax. Accounting records need to be maintained in order to accurately make these Other than for payroll, there are reduced accounting requirements There are no legal requirements concerning the preparation of financial returns and pay taxes. Sole traders need to report on income, expenditure, net for these enterprises in so far as they do not have to prepare statements for sole traders. However sole traders are required to file profit, salary costs and expenses, investment in capital assets, bank balances at accounts to certain guidelines. There is a system of selfassessment for tax purposes in Ireland, however there are periodic Revenue, Dept. of Social & Family Affairs, Central Statistics Office, returns (and pay taxes) with different government bodies: The Irish the year end. To report accurately on these issues a sole trader or his accountant will need to prepare: Profit and loss account; Balance sheet; Related notes on audits to ensure correct taxes are paid. Dept. of Enterprise, Trade and Employment, Dept. of Justice. how the accounts have been prepared; Payroll reports extracted from a payroll system. Small enterprises (sole proprietorships and partnerships with revenues less than Yes, they do not have to deposit (in public registers) their annual The VAT law in Italy requires, no matter the size of the enterprise, EUR per year) do not have to deposit in public registers their annual financial statements. special and separate accounting records for accounts receivables and financial statements. These enterprises also have reduced accounting accounts payable affected with VAT. requirements (cash based accounting). The VAT legislation requires, no matter the size of the enterprise, special separate accounting records for accounts receivables and payables that are affected with VAT The enterprises are not required to prepare balance sheets, income statements, There are no special legal accounting requirements for the The enterprises that fall in the 3rd layer are required to fulfil tax notes on the accounts, management report etc. The Cabinet of Ministers bookkeeping. requirements, to prepare tax statements and to pay the income tax, value regulates the accounting procedure of theses enterprises. It is a simple bookkeeping system a record keeping of income and expenditure, similar to keeping taxes. The mentioned enterprises pay 25% income tax, while the rest of added tax (if the enterprise is registered as a taxpayer), as well as social a cash flow registry. the enterprises pay 15% profit tax. Only beginning 2008 tax year theses enterprises will be required to pay 15% tax. There are no requirements, but if enterprises decide to prepare financial There are no legal accounting requirements, but if enterprises There are accounting requirements for tax purposes. Accounting records statements, they must follow Business Accounting Standards. decide to prepare financial statements, they must follow local can be made following local GAAPs. GAAPs.

5 Luxembour Type 1 enterprises: The enterprises have to use the double-entry book-keeping Type 1 enterprises: The law provides for a standardised Type-1 enterprises: The commercial law provides for legal accounting g system. The law provides for a standardised accounting system. However, the accounting system, which the type 1 enterprises are not obliged to requirements. Type-2 enterprises: The fiscal law provides for an type 1 enterprises are not obliged to apply these prescriptions. They have to apply. Type 2 enterprises:the enterprises which do not exceed the "expenses - receipts system" (see responses to the first and second prepare abridged balance sheets and abridged profit and loss accounts. Type 2 criteria mentioned in the answer to the previous question can, if questions). enterprises: As the commercial law does not apply to them, they do not have to several conditions are met, use a simplified accounting system follow these prescriptions. However the fiscal law obliges enterprises which meet ( expenses - receipts system : profit = receipts - expenses). The one of the following criteria to have an accounting system: turnover > conditions are the following: 1) The entreprise is not obliged by EUR or company fortune ( fortune de l entreprise ) > EUR or the fiscal law to have a "normal" book-keeping system ("une agricultural fortune > EUR or profit > EUR or profits from an comptabilité régulière") and does not voluntarily apply such a agricultural activity > EUR The enterprises which do not exceed the above system. 2) At the end of the year the amount of net assets, made mentioned criteria can, if several conditions are met, use a simplified accounting up of the assets and liabilities other than fixed assets system ( expenses - receipts system : profit = receipts - expenses). ("immobilisations") and the treasury accounts, must not vary noticeably with regard to the situation at the beginning of the year. 3) The net assets as stated under number 2) can not exceed at the Malta Income statement end of the year 150% of the taxable income Yes Unincorporated businesses are required to produce An annual income and expenditure statement for tax purposes. They however, fall within the scope of VAT on an annual/quarterly basis. They also required to submit statistics to the NSO, forms relating to amount of staff, wages and national insurance being paid. Netherland These enterprises are subject to the (former) Dutch Commercial Code, which is They only have to comply with the basic obligations as indicated Yes, next to the book-keeping obligation, these enterprises have to keep s now incorporated in the Civil Code (3 rd Book of the Civil Code). According to before. records to meet the requirements of the tax authorities. This is amongst this Book the enterprises in the 3rd layer have to keep accounts of their assets others the case with income tax (tax on profits) and VAT. and liabilities, which is a very plain and simple regime. The enterprises are not subject to the 2 nd Book of the Dutch Civil Code, which is derived from the Accounting Directives. Small enterprises applying the Accounting Act, which do not exceed two of the Small entities are allowed to prepare abridged financial As regards the provisions on income taxes, VAT and employer taxes, following three criteria: - the average annual employment 50, - the total assets statements, if they do not exceed two of the following three these enterprises follow separate regulations under the tax law and the equivalence of 2,5 EUR million, - the net turnover equivalence of 5 EUR criteria: - the average annual employment 10, - the total assets social security law. The Accounting Act does not interfere with those million. These small enterprises prepare financial statements which include: a equivalence of 2 EUR million, - the net turnover equivalence of provisions. balance sheet, a profit and loss account and notes to the financial statements, 4 EUR million. Small entities are also exempted from the including an introduction to the financial statements as well as additional notes requirement to have their financial statements audited by a Poland and explanations. They are not required to prepare an annual report (a statutory auditor. management report), a cash flow statement and a statement of changes in equity. Small entities are allowed to prepare abridged financial statements, if they do not exceed two of the following three criteria: - the average annual employment 10, - the total assets equivalence of 2 EUR million, - the net turnover equivalence of 4 EUR million Balance sheet, income statement, notes on the accounts, cash flow statements, Yes, there are reduced requirements for small enterprises. Information to present (it's mandatory only for the Limited Companies to social balance, annual report, hygiene/health and work safety report. Not all register and deposit the accounts - SA and Lda): Article 50.º of VAT: enterprises have to produce all these reports but are subject to different Register's Book of purchases of merchandises and/or consumption's book exemptions depending on amount of turnover, number of employees etc. and raw material register; Sales Register's Book of merchandises and/or register's book of manufactured products; Register's Book of rendering of services; Register's Book of expenses and operations on invested goods; Register's Book of merchandises, raw materials and of consumption, Portugal manufactured products and other existences to the date of 31 of December of each year. POC: Balance Sheet, Income Statements, Notes, Cash Flow Statements. Law of Commercial Societies: Management Report; accounts audited to Limited Companies (SA), Traders of Limited Responsibilities and others that exceed article 262.º Law of Commercial Societies. Social Balance (Enterprises over 10 workers), Annual Report of Professional Education (to all managers), Hygiene/Health and Work Safety Report (Enterprises over 9 workers) Romania The NGO conducting a double-entry accounting system have the legal From the accounting regulations point of view, we are applying: Besides the abovementioned accounting requirements for these entities, obligation to draw up annual financial statements consisting of a balance sheet, 1. Accounting regulations for the persons without patrimonial aim there exists also fiscal requirements (income tax, VAT, salaries taxes). an income statement, accounting policies and explanatory notes. The financial which are conducting a double-entry accounting (for these The established system in the taxation field is that provided for within the annual statements have a administrators report enclosed. The NGO conducting a persons, the accounting is on an accrual basis): 2. Accounting Romanian Fiscal Code. single-entry accounting system do not draw up (accounting) financial regulations for the persons without patrimonial aim which are statements. Regarding the natural persons having the quality of tax-payers, suchconducting a single-entry accounting (for these persons, the persons don't submit any annual financial statements. accounting is on an accrual basis); 3. Accounting regulations for the natural persons having the quality of tax-payers (for these persons, the accounting is on a cash basis). Slovakia Spain UK The balance sheet is replaced by the statement of property and payables; and the income statement is replaced by the statement of revenues and expenses. Yes, there is a minimum amount of information to give in the financial statements, but this is not released. Yes, if the enterprise is not a limited company and it is not obliged to deposit its annual financial accounts at the public registry office. In all cases, if an enterprise does not exceed two of the three thresholds: sales 5,700,000 EUR, total assets 2,850,000 EUR, and number of personnel 50, it can have a simplified balance sheet, profit and loss account, and notes to the financial statements. If it does not exceed two of the three thresholds: sales 2,700,000 EUR, total assets 1,000,000 EUR, and number of personnel 10, it can be even more simplified. The entrepreneur can apply the expenses by percentage if he is not VAT payer, in this case he is obliged to book only the received payments. In Spain there are requirements, but these are not public requirements. The financial statements are required for these types of enterprises, but they do not need to be released. For tax purposes, the tax authorities require that a balance sheet and an income statement to be presented. There are no legal requirements specifically covering financial statements for the There are no direct legal accounting requirements for these These enterprises are subject to income taxes and (if they are registered 3.2m enterprises that fall into 3rd layer. enterprises. There are taxation and VAT requirements that will for VAT) for VAT. For these purposes they have to provide income tax require the use of accounting type information. returns and/or VAT returns. Income tax requirements comprise the following: 1. A company tax return form; 2. Any supplementary pages; 3. Accounts, computations and any relevant information. Acceptable accounts (3rd bullet point) will be in accordance with IFRS, UK GAAP, or FRSSE.

6 ACCOUNTING FRAMEWORK ANNEX 4 Country Austria Belgium Bulgaria Cyprus Czech Republic Denmark France Germany Greece Hungary Ireland Italy Latvia Which accounting, measurement and recognition principles (e.g. principle of true and fair view, prudence, going concern, matching, cash based and/or accrual based accounting) are relevant for small enterprises? The true and fair view, going concern and prudence principles are relevant. For enterprises which have a turnover below EUR these principles are not relevant. The very small enterprises are allowed to have a simplified bookkeeping. Annually, very small enterprises have to make a full inventory. Certain measurement principles like prudence, going concern are relevant for the inventory. The inventory is made according to an accrual based accounting. On-going accounting operations are set up following the procedure specified in the Accountancy Act and following an individual chart of accounts endorsed by the enterprise's management. Bulgarian sole traders and partnerships with unlimited liability observe the following general principles of accounting: 1. Accrual basis; 2. Going concern; 3. Prudence ; 4. Matching income and expenses ; 5. Priority of content over form; 6. Retention, where possible, of the accounting policy from the preceding reporting period: ensuring comparability of accounting data and ratios across different reporting periods. 7. Independence of the individual reporting periods and the value link between starting balance and closing balance: each reporting period should be treated, in accounting terms, in and of itself, independent of its objective relation to the previous and to the following reporting period, while data in the financial statements at the beginning of the current reporting period must match the data at the end of the previous reporting period. All accounting enterprises have to follow these principles: 1. Obligation to carry out of accounting (simplifying scope) 2. - True and fair view 3. Accounting units shall keep their accounting (accounts) correctly, in a complete and conclusive manner, in a comprehensive and clearly-organized way and in a manner ensuring durability of the accounting records. 4. Going concern 5. Evidence/each accounting operation must be evidenced 6. Financial year/accounting period 7. Accrual accounting 8. The time of the accounting event (transaction) 9. Consistency/the accounting methods must be applied consistently from one financial year to another 10. Prohibition of set off 11. Valuation of each category of assets (without using fair value) 12. Prudence principle 13. Mandatory chart of accounts/layout of accounts (simplify) 14. The opening balance sheet for each financial year must correspond to the closing balance sheet for the preceding In order i l to present a true and fair view the listed principles are all relevant, as those are basic requirement and assumptions. For a small enterprise that only draws up fiscal statements following the taxation rules, the true and fair view of the statements is different. In this case the enterprise cares less about the accounting rules, but follows the taxation rules. All entities (whether a natural or legal person) carrying on a commercial activity are required to produce annual financial statements in accordance with the following fundamental accounting concepts: true and fair view, receivable-payable basis, historical cost convention, and the prudence, accruals and going concern concepts. There are exceptions: (1) simplified balance sheet and profit and loss account for entities not exceeding two of the three thresholds (sales EUR, total assets EUR, and number of personnel 10); (2) natural persons engaged in commercial activities may keep their records on a cash basis and adjust on a receivable-payable basis at the year end when sales are below certain thresholds ( EUR from the sale of goods, EUR from providing services); (3) natural persons are not required to use a double-entry accounting system and may instead maintain a sales and purchases day book when sales are below certain thresholds ( EUR from the sale of goods, EUR from providing services) Under German commercial law, the annual accounts shall be prepared in accordance with proper accounting principles (Grundsätze ordnungsmäßiger Buchführung - GoB). Every merchant has to comply with the following principles: reporting date, clear and lucid arrangement, completeness, prohibition of offset, consistency, going concern, individual valuation, prudence (imparity, lowest value, realisation), historic cost accounting, accrual based accounting. The matching principle as such does not belong to the proper accounting principles in Germany. Going concern and the true and fair view are the most important principles. General accounting principles apply for these enterprises as well. The relevant principles of partnerships, with unlimited liability born by a natural person, subject to local GAAP are in line with those of the Accounting Directives. The most relevant principle of sole traders subject to personal income tax is the cash-based accounting principle. Cash flow accounting is of particular importance for the survival of many small enterprises. In principle all of the above are relevant. However, the one that has most practical consequences is cash based versus accrual based accounting. Entities with turnover of less than 1 million EUR can opt for payment of VAT on a cash receipts basis instead of a sales invoice basis. In practice while some entities will opt for the cash receipts basis, they will still prepare their accounts on a sales invoice basis. It should be noted that in Ireland accounts of sole traders do not require a statutory audit. Accrual based accounting on a historical cost basis. As according to the legislation, the accounting registries and tax statements must be prepared not only by small enterprises but also by individuals who practice commercial activity, the most relevant accounting system is the simple book-keeping method based on a cash flow registry system. However, if the enterprise turnover is close to EUR which is a rather large turnover for small enterprises in Latvia, and taking into consideration that the enterprise is a taxpayer, it would be more appropriate to use the accrual based accounting. This would ensure a more accurate overview of the book-keeping. Lithuania According to the Law on Financial statements, if they decide to prepare financial statements, they must apply all aforementioned accounting principles. Luxembourg Type 1 enterprises: The principles are the same than those comprised in the 4th Directive (principle of going concern; principle of prudence ). Malta Unincorporated business would normally be expected to abide to such principles as prudence, truth and fairness, cash or accrual basis of accounting. Netherlands With regard to the book-keeping obligation, it is common to take the basic principles as going concern, accrual accounting and prudence as a starting point into consideration. Small entities are required to apply the adopted accounting principles presenting a true and fair view of their financial position and financial result. Events are recognised in accordance with their economic substance. The principles must be applied on a consistent basis assuming that the classification of business transactions, measurement of assets, liabilities and equity, including the amortisation or depreciation charges, determination of the financial result, and preparation of the financial statements are carried out in the same way in consecutive years so that the information resulting from there for the consecutive Poland financial years is comparable. The assumption of going concern exists. Accrual based accounting and the matching principle are applied. The historic cost and prudence principles are applied. The value of individual items of assets, liabilities and equity, income and related costs, as well as extraordinary gains and losses, shall be determined separately. No offsetting is allowed. Changes in the accounting solutions applied so far require a disclosure, in the notes to the financial statements, of the impact of those changes on the financial statements. Portugal Historic costs and accrual based accounting are used. Romania According to the accounting regulation, the accounting principles applicable to this category of entities are as follows: the going concern principle, the principle of consistency of methods, the principle of prudence, the principle of independence of the financial year, the principle of separate valuation of asset and liability items, the principle of intangibility, the principle of no off-setting. These entities apply the accrual based accounting concept, respectively the cash based accounting Slovakia All the principles mentioned are valid for legal entities that are obliged in law to keep their books using the double entry book-keeping. By accomplishing the conditions according to the law, the entity is obliged to be audited and to publish in a specified way the financial statements. The entrepreneurs are not obliged to do this even in cases where they decide to do double entry book-keeping. Spain It is necessary to use the same objective for the financial statements for all types of entities. The Accounting Model is the same for all types of companies. UK For 3rd layer enterprises that voluntarily decide to use a software system/frsse type of approach to accounting, the accounting, measurement and recognition principles used will be those embedded in the software systems, i.e. the principles of true and fair view, prudence, going concern, matching, and accrual based accounting. Also these are the principles that are embedded in the UK tax framework, which applies to all UK enterprises including 3rd layer enterprises. However, many small enterprises in 3rd layer are managed on a cash based model, so that the bank statement is likely to be the single most useful financial statement in the on-going management of the enterprise.