EU: Commission amends Accounting Directive to adjust the size criteria for companies

On 17 October 2023, the European Commission adopted a Delegated Directive amending the Accounting Directive to adjust the monetary size criteria (balance sheet and net turnover) for micro, small, medium-sized and large companies by 25%. 

The classification of undertakings or groups in the Accounting Directive is based on meeting two out of three size criteria: two monetary size criteria (balance sheet total and net turnover), and the average number of employees. 

The Accounting Directive requires the Commission to review these monetary size criteria at least every five years to account for inflation. 

The Commission concluded that due to significant inflation trends during 2021 and 2022, these criteria should be adjusted by 25% (subject to rounding up) in order to account for inflation.

The monetary size criteria have been amended as follows (in EUR):

This increase in size criteria will not only reduce scope of application of presentation, audit, and publication requirements set out in the Accounting Directive but also reduce the scope of application of the Corporate Sustainability Reporting Directive (CSRD) and the Taxonomy Regulation for large undertakings, listed small and medium-sized undertakings, as well as large groups. 

The adopted text is substantially similar to a consultation draft published by the Commission in September 2023. The only major change relates to the possibility given to Member States to allow companies to apply the adjusted size criteria already from financial year beginning on or after 1 January 2023. Subject to using this option, Member States shall apply the new thresholds starting from financial year beginning on or after 1 January 2024. During the consultation, some respondents also asked for an adjustment related to the number of employees, especially for large companies or groups, from 250 employees up to 500, but the Commission has not taken this on board. 

The Delegated Directive will be subject to a two-month scrutiny by the Parliament and Council. Provided there are no objections from the Parliament and Council, it will then be published in the Official Journal of the EU and will enter into force on the third day after its publication.   

This Directive forms part of a wider package aimed at simplifying reporting requirements in the EU. The Commission has first announced its intention to reduce the reporting burden on companies by 25% in March 2023. Since then, 15 pieces of legislation have been adopted already and a further 26 proposals are now included in the Commission Work Programme 2024.