Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC Text with EEA relevance

CHAPTER 1 SCOPE, DEFINITIONS AND CATEGORIES OF UNDERTAKINGS AND GROUPS

Article 1

Scope

• (a) in Annex I;

• (b) in Annex II, where all of the direct or indirect members of the undertaking having otherwise unlimited liability in fact have limited liability by reason of those members being undertakings which are:
• (i) of the types listed in Annex I; or
• (ii) not governed by the law of a Member State but which have a legal form comparable to those listed in Annex I.

1a. The coordination measures prescribed by Articles 48a to 48e and Article 51 shall also apply to the laws, regulations and administrative provisions of the Member States relating to branches opened in a Member State by an undertaking which is not governed by the law of a Member State but which is of a legal form comparable with the types of undertakings listed in Annex I. Article 2 shall apply in respect of those branches to the extent that Articles 48a to 48e and Article 51 are applicable to such branches.

• (a) insurance undertakings within the meaning of Article 2(1) of Council Directive 91/674/EEC ([^E0001]);

• (b) credit institutions as defined in point (1) of Article 4(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council ([^E0002]). Member States may choose not to apply the coordination measures referred to in the first subparagraph of this paragraph to the undertakings listed in points (2) to (23) of Article 2(5) of Directive 2013/36/EU of the European Parliament and of the Council ([^E0003]).

Article 2

Definitions

For the purposes of this Directive, the following definitions shall apply:

• (1) ‘public-interest entities’ means undertakings within the scope of Article 1 which are:
• (a) governed by the law of a Member State and whose transferable securities are admitted to trading on a regulated market of any Member State within the meaning of point (14) of Article 4(1) of Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments ([^E0005]);
• (b) credit institutions as defined in point (1) of Article 4 of Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions ([^E0006]), other than those referred to in Article 2 of that Directive;
• (c) insurance undertakings within the meaning of Article 2(1) of Council Directive 91/674/EEC of 19 December 1991 on the annual accounts of insurance undertakings ([^E0007]); or
• (d) designated by Member States as public-interest entities, for instance undertakings that are of significant public relevance because of the nature of their business, their size or the number of their employees;

• (2) ‘participating interest’ means rights in the capital of other undertakings, whether or not represented by certificates, which, by creating a durable link with those undertakings, are intended to contribute to the activities of the undertaking which holds those rights. The holding of part of the capital of another undertaking is presumed to constitute a participating interest where it exceeds a percentage threshold fixed by the Member States which is lower than or equal to 20 %;

• (3) ‘related party’ has the same meaning as in the international accounting standards adopted in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards ([^E0008]);

• (4) ‘fixed assets’ means those assets which are intended for use on a continuing basis for the undertaking's activities;

• (5) ‘net turnover’ means the amounts derived from the sale of products and the provision of services after deducting sales rebates and value added tax and other taxes directly linked to turnover; however, for insurance undertakings referred to in point (a) of the first subparagraph of Article 1(3) of this Directive, ‘net turnover’ shall be defined in accordance with Article 35 and point 2 of Article 66 of Council Directive 91/674/EEC ([^E0009]); for credit institutions referred to in point (b) of the first subparagraph of Article 1(3) of this Directive, ‘net turnover’ shall be defined in accordance with point (c) of Article 43(2) of Council Directive 86/635/EEC ([^E0010]); and for undertakings falling under the scope of Article 40a(1) of this Directive, ‘net turnover’ means the revenue as defined by or within the meaning of the financial reporting framework on the basis of which the financial statements of the undertaking are prepared;

• (6) ‘purchase price’ means the price payable and any incidental expenses minus any incidental reductions in the cost of acquisition;

• (7) ‘production cost’ means the purchase price of raw materials, consumables and other costs directly attributable to the item in question. Member States shall permit or require the inclusion of a reasonable proportion of fixed or variable overhead costs indirectly attributable to the item in question, to the extent that they relate to the period of production. Distribution costs shall not be included;

• (8) ‘value adjustment’ means the adjustments intended to take account of changes in the values of individual assets established at the balance sheet date, whether the change is final or not;

• (9) ‘parent undertaking’ means an undertaking which controls one or more subsidiary undertakings;

• (10) ‘subsidiary undertaking’ means an undertaking controlled by a parent undertaking, including any subsidiary undertaking of an ultimate parent undertaking;

• (11) ‘group’ means a parent undertaking and all its subsidiary undertakings;

• (12) ‘affiliated undertakings’ means any two or more undertakings within a group;

• (13) ‘associated undertaking’ means an undertaking in which another undertaking has a participating interest, and over whose operating and financial policies that other undertaking exercises significant influence. An undertaking is presumed to exercise a significant influence over another undertaking where it has 20 % or more of the shareholders' or members' voting rights in that other undertaking;

• (14) ‘investment undertakings’ means:
• (a) undertakings the sole object of which is to invest their funds in various securities, real property and other assets, with the sole aim of spreading investment risks and giving their shareholders the benefit of the results of the management of their assets,
• (b) undertakings associated with investment undertakings with fixed capital, if the sole object of those associated undertakings is to acquire fully paid shares issued by those investment undertakings without prejudice to point (h) of Article 22(1) of Directive 2012/30/EU;

• (15) ‘financial holding undertakings’ means undertakings the sole object of which is to acquire holdings in other undertakings and to manage such holdings and turn them to profit, without involving themselves directly or indirectly in the management of those undertakings, without prejudice to their rights as shareholders;

• (16) ‘material’ means the status of information where its omission or misstatement could reasonably be expected to influence decisions that users make on the basis of the financial statements of the undertaking. The materiality of individual items shall be assessed in the context of other similar items;

• (17) ‘sustainability matters’ means environmental, social and human rights, and governance factors, including sustainability factors defined in point (24) of Article 2 of Regulation (EU) 2019/2088;

• (18) ‘sustainability reporting’ means reporting information related to sustainability matters in accordance with Articles 19a, 29a and 29d;

• (19) ‘key intangible resources’ means resources without physical substance on which the business model of the undertaking fundamentally depends and which are a source of value creation for the undertaking;

• (20) ‘independent assurance services provider’ means a conformity assessment body accredited in accordance with Regulation (EC) No 765/2008 of the European Parliament and of the Council ([^E0011]) for the specific conformity assessment activity referred to in point (aa) of the second subparagraph of Article 34(1) of this Directive.

Article 3

Categories of undertakings and groups

• (a) balance sheet total: EUR 450 000 ;

• (b) net turnover: EUR 900 000 ;

• (c) average number of employees during the financial year: 10.

• (a) balance sheet total: EUR 5 000 000 ;

• (b) net turnover: EUR 10 000 000 ;

• (c) average number of employees during the financial year: 50.

Member States may define thresholds exceeding the thresholds in points (a) and (b) of the first subparagraph. However, the thresholds shall not exceed EUR 7 500 000 for the balance sheet total and EUR 15 000 000 for the net turnover.

• (a) balance sheet total: EUR 25 000 000 ;

• (b) net turnover: EUR 50 000 000 ;

• (c) average number of employees during the financial year: 250.

• (a) balance sheet total: EUR 25 000 000 ;

• (b) net turnover: EUR 50 000 000 ;

• (c) average number of employees during the financial year: 250.

• (a) balance sheet total: EUR 5 000 000 ;

• (b) net turnover: EUR 10 000 000 ;

• (c) average number of employees during the financial year: 50.

Member States may define thresholds exceeding the thresholds in points (a) and (b) of the first subparagraph. However, the thresholds shall not exceed EUR 7 500 000 for the balance sheet total and EUR 15 000 000 for the net turnover.

• (a) balance sheet total: EUR 25 000 000 ;

• (b) net turnover: EUR 50 000 000 ;

• (c) average number of employees during the financial year: 250.

• (a) balance sheet total: EUR 25 000 000 ;

• (b) net turnover: EUR 50 000 000 ;

• (c) average number of employees during the financial year: 250.

For the purposes of conversion into the national currencies of those Member States which have not adopted the euro, the amounts in euro specified in paragraphs 1, 3, 4, 6 and 7 may be increased or decreased by not more than 5 % in order to produce round sum amounts in the national currencies.

• (a) paragraphs 1 to 7 of this Article;

• (b) the fourth subparagraph of Article 19(1), the first subparagraph of Article 19a(1), the first subparagraph of Article 29a(1); and

• (c) the second, fourth and fifth subparagraphs of Article 40a(1).

CHAPTER 2 GENERAL PROVISIONS AND PRINCIPLES

Article 4

General provisions

Member States may require undertakings other than small undertakings to include other statements in the annual financial statements in addition to the documents referred to in the first subparagraph.

The Member States may define the exceptional cases in question and lay down the relevant special rules which are to apply in those cases.

Article 5

General disclosure

The document containing the financial statements shall state the name of the undertaking and the information prescribed by points (a) and (b) of Article 5 of Directive 2009/101/EC.

Article 6

General financial reporting principles

• (a) the undertaking shall be presumed to be carrying on its business as a going concern;

• (b) accounting policies and measurement bases shall be applied consistently from one financial year to the next;

• (c) recognition and measurement shall be on a prudent basis, and in particular:
• (i) only profits made at the balance sheet date may be recognised,
• (ii) all liabilities arising in the course of the financial year concerned or in the course of a previous financial year shall be recognised, even if such liabilities become apparent only between the balance sheet date and the date on which the balance sheet is drawn up, and
• (iii) all negative value adjustments shall be recognised, whether the result of the financial year is a profit or a loss;

• (d) amounts recognised in the balance sheet and profit and loss account shall be computed on the accrual basis;

• (e) the opening balance sheet for each financial year shall correspond to the closing balance sheet for the preceding financial year;

• (f) the components of asset and liability items shall be valued separately;

• (g) any set-off between asset and liability items, or between income and expenditure items, shall be prohibited;

• (h) items in the profit and loss account and balance sheet shall be accounted for and presented having regard to the substance of the transaction or arrangement concerned;

• (i) items recognised in the financial statements shall be measured in accordance with the principle of purchase price or production cost; and

• (j) the requirements set out in this Directive regarding recognition, measurement, presentation, disclosure and consolidation need not be complied with when the effect of complying with them is immaterial.

Article 7

Alternative measurement basis of fixed assets at revalued amounts

The revaluation reserve may be capitalised in whole or in part at any time.

The revaluation reserve shall be reduced where the amounts transferred to that reserve are no longer necessary for the implementation of the revaluation basis of accounting. The Member States may lay down rules governing the application of the revaluation reserve, provided that transfers to the profit and loss account from the revaluation reserve may be made only where the amounts transferred have been entered as an expense in the profit and loss account or reflect increases in value which have actually been realised. No part of the revaluation reserve may be distributed, either directly or indirectly, unless it represents a gain actually realised.

Save as provided under the second and third subparagraphs of this paragraph, the revaluation reserve may not be reduced.

Article 8

Alternative measurement basis of fair value

• (a) Member States shall permit or require, in respect of all undertakings or any classes of undertaking, the measurement of financial instruments, including derivative financial instruments, at fair value; and

• (b) Member States may permit or require, in respect of all undertakings or any classes of undertaking, the measurement of specified categories of assets other than financial instruments at amounts determined by reference to fair value.

Such permission or requirement may be restricted to consolidated financial statements.

• (a) were entered into and continue to meet the undertaking's expected purchase, sale or usage requirements at the time they were entered into and subsequently;

• (b) were designated as commodity-based contracts at their inception; and

• (c) are expected to be settled by delivery of the commodity.

• (a) liabilities held as part of a trading portfolio; and

• (b) derivative financial instruments.

• (a) non-derivative financial instruments held to maturity;

• (b) loans and receivables originated by the undertaking and not held for trading purposes; and

• (c) interests in subsidiaries, associated undertakings and joint ventures, equity instruments issued by the undertaking, contracts for contingent consideration in a business combination, and other financial instruments with such special characteristics that the instruments, according to what is generally accepted, are accounted for differently from other financial instruments.

• (a) in the case of financial instruments for which a reliable market can readily be identified, the market value. Where the market value is not readily identifiable for an instrument but can be identified for its components or for a similar instrument, the market value may be derived from that of its components or of the similar instrument;

• (b) in the case of financial instruments for which a reliable market cannot be readily identified, a value resulting from generally accepted valuation models and techniques, provided that such valuation models and techniques ensure a reasonable approximation of the market value.

Financial instruments that cannot be measured reliably by any of the methods described in points (a) and (b) of the first subparagraph shall be measured in accordance with the principle of purchase price or production cost in so far as measurement on that basis is possible.

• (a) the instrument accounted for is a hedging instrument under a system of hedge accounting that allows some or all of the change in value not to be shown in the profit and loss account; or

• (b) the change in value relates to an exchange difference arising on a monetary item that forms part of an undertaking's net investment in a foreign entity.

Member States may permit or require a change in the value of an available for sale financial asset, other than a derivative financial instrument, to be included directly in a fair value reserve. That fair value reserve shall be adjusted when amounts shown therein are no longer necessary for the implementation of points (a) and (b) of the first subparagraph.

CHAPTER 3 BALANCE SHEET AND PROFIT AND LOSS ACCOUNT

Article 9

General provisions concerning the balance sheet and the profit and loss account

Member States may permit or require balance sheet and profit and loss account items that are preceded by arabic numerals to be combined where they are immaterial in amount for the purposes of giving a true and fair view of the undertaking's assets, liabilities, financial position and profit or loss or where such combination makes for greater clarity, provided that the items so combined are dealt with separately in the notes to the financial statements.

• (a) Member States may permit or require participating interests to be accounted for using the equity method as provided for in Article 27, taking account of the essential adjustments resulting from the particular characteristics of annual financial statements as compared to consolidated financial statements;

• (b) Member States may permit or require that the proportion of the profit or loss attributable to the participating interest be recognised in the profit and loss account only to the extent of the amount corresponding to dividends already received or the payment of which can be claimed; and

• (c) where the profit attributable to the participating interest and recognised in the profit and loss account exceeds the amount of dividends already received or the payment of which can be claimed, the amount of the difference shall be placed in a reserve which cannot be distributed to shareholders.

Article 10

Presentation of the balance sheet

For the presentation of the balance sheet, Member States shall prescribe one or both of the layouts set out in Annexes III and IV. If a Member State prescribes both layouts, it shall permit undertakings to choose which of the prescribed layouts to adopt.

Article 11

Alternative presentation of the balance sheet

Member States may permit or require undertakings, or certain classes of undertaking, to present items on the basis of a distinction between current and non-current items in a different layout from that set out in Annexes III and IV, provided that the information given is at least equivalent to that otherwise to be provided in accordance with Annexes III and IV.

Article 12

Special provisions relating to certain balance sheet items

• (a) Member States may permit or require value adjustments to be made in respect of financial fixed assets, so that they are valued at the lower figure to be attributed to them at the balance sheet date;

• (b) value adjustments shall be made in respect of fixed assets, whether their useful economic lives are limited or not, so that they are valued at the lower figure to be attributed to them at the balance sheet date if it is expected that the reduction in their value will be permanent;

• (c) the value adjustments referred to in points (a) and (b) shall be charged to the profit and loss account and disclosed separately in the notes to the financial statements if they have not been shown separately in the profit and loss account;

• (d) measurement at the lower of the values provided for in points (a) and (b) may not continue if the reasons for which the value adjustments were made have ceased to apply; this provision shall not apply to value adjustments made in respect of goodwill.

Measurement at the lower value provided for in the first subparagraph may not continue if the reasons for which the value adjustments were made no longer apply.

In exceptional cases where the useful life of goodwill and development costs cannot be reliably estimated, such assets shall be written off within a maximum period set by the Member State. That maximum period shall not be shorter than five years and shall not exceed 10 years. An explanation of the period over which goodwill is written off shall be provided within the notes to the financial statements.

Where national law authorises the inclusion of costs of development under ‘Assets’ and the costs of development have not been completely written off, Member States shall require that no distribution of profits take place unless the amount of the reserves available for distribution and profits brought forward is at least equal to that of the costs not written off.

Where national law authorises the inclusion of formation expenses under ‘Assets’, they shall be written off within a period of maximum five years. In that case, Member States shall require that the third subparagraph apply mutatis mutandis to formation expenses.

In exceptional cases, the Member States may permit derogations from the third and fourth subparagraphs. Such derogations and the reasons therefor shall be disclosed in the notes to the financial statements.

The Member States may also authorise the creation of provisions intended to cover expenses the nature of which is clearly defined and which at the balance sheet date are either likely to be incurred or certain to be incurred, but uncertain as to their amount or as to the date on which they will arise.

At the balance sheet date, a provision shall represent the best estimate of the expenses likely to be incurred or, in the case of a liability, of the amount required to meet that liability. Provisions shall not be used to adjust the values of assets.

Article 13

Presentation of the profit and loss account

Article 14

Simplifications for small and medium-sized undertakings

• (a) the information required in brackets in D (II) under ‘Assets’ and C under ‘Capital, reserves and liabilities’ of Annex III, but in the aggregate for each; or

• (b) the information required in brackets in D (II) of Annex IV.

• (a) in Annex V, items 1 to 5 may be combined under one item called ‘Gross profit or loss’;

• (b) in Annex VI, items 1, 2, 3 and 6 may be combined under one item called ‘Gross profit or loss’.

CHAPTER 4 NOTES TO THE FINANCIAL STATEMENTS

Article 15

General provisions concerning the notes to the financial statements

Where notes to the balance sheet and profit and loss account are presented in accordance with this Chapter, the notes shall be presented in the order in which items are presented in the balance sheet and in the profit and loss account.

Article 16

Content of the notes to the financial statements relating to all undertakings

• (a) accounting policies adopted;

• (b) where fixed assets are measured at revalued amounts, a table showing:
• (i) movements in the revaluation reserve in the financial year, with an explanation of the tax treatment of items therein, and
• (ii) the carrying amount in the balance sheet that would have been recognised had the fixed assets not been revalued;

• (c) where financial instruments and/or assets other than financial instruments are measured at fair value:
• (i) the significant assumptions underlying the valuation models and techniques where fair values have been determined in accordance with point (b) of Article 8(7),
• (ii) for each category of financial instrument or asset other than financial instruments, the fair value, the changes in value included directly in the profit and loss account and changes included in fair value reserves,
• (iii) for each class of derivative financial instrument, information about the extent and the nature of the instruments, including significant terms and conditions that may affect the amount, timing and certainty of future cash flows, and
• (iv) a table showing movements in fair value reserves during the financial year;

• (d) the total amount of any financial commitments, guarantees or contingencies that are not included in the balance sheet, and an indication of the nature and form of any valuable security which has been provided; any commitments concerning pensions and affiliated or associated undertakings shall be disclosed separately;

• (e) the amount of advances and credits granted to members of the administrative, managerial and supervisory bodies, with indications of the interest rates, main conditions and any amounts repaid or written off or waived, as well as commitments entered into on their behalf by way of guarantees of any kind, with an indication of the total for each category;

• (f) the amount and nature of individual items of income or expenditure which are of exceptional size or incidence;

• (g) amounts owed by the undertaking becoming due and payable after more than five years, as well as the undertaking's entire debts covered by valuable security furnished by the undertaking, with an indication of the nature and form of the security; and

• (h) the average number of employees during the financial year.

For the purposes of applying the first subparagraph, the information required in point (p) of Article 17(1) shall be limited to the nature and business purpose of the arrangements referred to in that point.

For the purposes of applying the first subparagraph, the disclosure of the information required in point (r) of Article 17(1) shall be limited to transactions entered into with the parties listed in the fourth subparagraph of that point.

Article 17

Additional disclosures for medium-sized and large undertakings and public-interest entities

• (a) for the various fixed asset items:
• (i) the purchase price or production cost or, where an alternative basis of measurement has been followed, the fair value or revalued amount at the beginning and end of the financial year,
• (ii) additions, disposals and transfers during the financial year,
• (iii) the accumulated value adjustments at the beginning and end of the financial year,
• (iv) value adjustments charged during the financial year,
• (v) movements in accumulated value adjustments in respect of additions, disposals and transfers during the financial year, and
• (vi) where interest is capitalised in accordance with Article 12(8), the amount capitalised during the financial year.

• (b) if fixed or current assets are the subject of value adjustments for taxation purposes alone, the amount of the adjustments and the reasons for making them;

• (c) where financial instruments are measured at purchase price or production cost:
• (i) for each class of derivative financial instrument:
• — the fair value of the instruments, if such a value can be determined by any of the methods prescribed in point (a) of Article 8(7), and
• — information about the extent and nature of the instruments,
• (ii) for financial fixed assets carried at an amount in excess of their fair value:
• — the book value and the fair value of either the individual assets or appropriate groupings of those individual assets, and
• — the reasons for not reducing the book value, including the nature of the evidence underlying the assumption that the book value will be recovered;

• (d) the amount of the emoluments granted in respect of, the financial year to the members of administrative, managerial and supervisory bodies by reason of their responsibilities and any commitments arising or entered into in respect of retirement pensions of former members of those bodies, with an indication of the total for each category of body. Member States may waive the requirement to disclose such information where its disclosure would make it possible to identify the financial position of a specific member of such a body;

• (e) the average number of employees during the financial year, broken down by categories and, if they are not disclosed separately in the profit and loss account, the staff costs relating to the financial year, broken down between wages and salaries, social security costs and pension costs;

• (f) where a provision for deferred tax is recognised in the balance sheet, the deferred tax balances at the end of the financial year, and the movement in those balances during the financial year;

• (g) the name and registered office of each of the undertakings in which the undertaking, either itself or through a person acting in his own name but on the undertaking's behalf, holds a participating interest, showing the proportion of the capital held, the amount of capital and reserves, and the profit or loss for the latest financial year of the undertaking concerned for which financial statements have been adopted; the information concerning capital and reserves and the profit or loss may be omitted where the undertaking concerned does not publish its balance sheet and is not controlled by the undertaking. Member States may allow the information required to be disclosed by the first subparagraph of this point to take the form of a statement filed in accordance with Article 3(1) and (3) of Directive 2009/101/EC; the filing of such a statement shall be disclosed in the notes to the financial statements. Member States may also allow that information to be omitted when its nature is such that it would be seriously prejudicial to any of the undertakings to which it relates. Member States may make such omissions subject to prior administrative or judicial authorisation. Any such omission shall be disclosed in the notes to the financial statements;

• (h) the number and the nominal value or, in the absence of a nominal value, the accounting par value of the shares subscribed during the financial year within the limits of the authorised capital, without prejudice as far as the amount of that capital is concerned to point (e) of Article 2of Directive 2009/101/EC or to points (c) and (d) of Article 2 of Directive 2012/30/EU;

• (i) where there is more than one class of shares, the number and the nominal value or, in the absence of a nominal value, the accounting par value for each class;

• (j) the existence of any participation certificates, convertible debentures, warrants, options or similar securities or rights, with an indication of their number and the rights they confer;

• (k) the name, the head or registered office and the legal form of each of the undertakings of which the undertaking is a member having unlimited liability;

• (l) the name and registered office of the undertaking which draws up the consolidated financial statements of the largest body of undertakings of which the undertaking forms part as a subsidiary undertaking;

• (m) the name and registered office of the undertaking which draws up the consolidated financial statements of the smallest body of undertakings of which the undertaking forms part as a subsidiary undertaking and which is also included in the body of undertakings referred to in point (l);

• (n) the place where copies of the consolidated financial statements referred to in points (l) and (m) may be obtained, provided that they are available;

• (o) the proposed appropriation of profit or treatment of loss, or where applicable, the appropriation of the profit or treatment of the loss;

• (p) the nature and business purpose of the undertaking's arrangements that are not included in the balance sheet and the financial impact on the undertaking of those arrangements, provided that the risks or benefits arising from such arrangements are material and in so far as the disclosure of such risks or benefits is necessary for the purposes of assessing the financial position of the undertaking;

• (q) the nature and the financial effect of material events arising after the balance sheet date which are not reflected in the profit and loss account or balance sheet; and

• (r) transactions which have been entered into with related parties by the undertaking, including the amount of such transactions, the nature of the related party relationship and other information about the transactions necessary for an understanding of the financial position of the undertaking. Information about individual transactions may be aggregated according to their nature except where separate information is necessary for an understanding of the effects of related party transactions on the financial position of the undertaking. Member States may permit or require that only transactions with related parties that have not been concluded under normal market conditions be disclosed. Member States may permit that transactions entered into between one or more members of a group be not disclosed, provided that subsidiaries which are party to the transaction are wholly owned by such a member. Member States may permit that a medium-sized undertaking limit the disclosure of transactions with related parties to transactions entered into with:
• (i) owners holding a participating interest in the undertaking;
• (ii) undertakings in which the undertaking itself has a participating interest; and
• (iii) members of the administrative, management or supervisory bodies of the undertaking.

• (a) where the undertaking in which that parent undertaking holds a participating interest for the purposes of point (g) of paragraph 1 is included in consolidated financial statements drawn up by that parent undertaking, or in the consolidated financial statements of a larger body of undertakings as referred to in Article 23(4);

• (b) where that participating interest has been dealt with by that parent undertaking in its annual financial statements in accordance with Article 9(7), or in the consolidated financial statements drawn up by that parent undertaking in accordance with Article 27(1) to (8).

Article 18

Additional disclosures for large undertakings and public-interest entities

• (a) the net turnover broken down by categories of activity and into geographical markets, in so far as those categories and markets differ substantially from one another, taking account of the manner in which the sale of products and the provision of services are organised; and

• (b) the total fees for the financial year charged by each statutory auditor or audit firm for the statutory audit of the annual financial statements, and the total fees charged by each statutory auditor or audit firm for other assurance services, for tax advisory services and for other non-audit services.

CHAPTER 5 MANAGEMENT REPORT

Article 19

Contents of the management report

The review shall be a balanced and comprehensive analysis of the development and performance of the undertaking's business and of its position, consistent with the size and complexity of the business.

To the extent necessary for an understanding of the undertaking's development, performance or position, the analysis shall include both financial and, where appropriate, non-financial key performance indicators relevant to the particular business, including information relating to environmental and employee matters. In providing the analysis, the management report shall, where appropriate, include references to, and additional explanations of, amounts reported in the annual financial statements.

Undertakings which, on their balance sheet dates, exceed a net turnover of EUR 450 000 000 and an average number of 1 000 employees during the financial year shall report information on the key intangible resources and explain how the business model of the undertaking fundamentally depends on such resources and how such resources are a source of value creation for the undertaking.

• (a) the undertaking's likely future development;

• (b) activities in the field of research and development;

• (c) the information concerning acquisitions of own shares prescribed by Article 24(2) of Directive 2012/30/EU;

• (d) the existence of branches of the undertaking; and

• (e) in relation to the undertaking's use of financial instruments and where material for the assessment of its assets, liabilities, financial position and profit or loss:
• (i) the undertaking's financial risk management objectives and policies, including its policy for hedging each major type of forecasted transaction for which hedge accounting is used; and
• (ii) the undertaking's exposure to price risk, credit risk, liquidity risk and cash flow risk.

Article 19a

Sustainability reporting

The information referred to in the first subparagraph shall be clearly identifiable within the management report, through a dedicated section of the management report.

• (a) a brief description of the undertaking’s business model and strategy, including:
• (i) the resilience of the undertaking’s business model and strategy in relation to risks related to sustainability matters;
• (ii) the opportunities for the undertaking related to sustainability matters;
• (iii) the plans of the undertaking, including implementing actions and related financial and investment plans, to ensure that its business model and strategy are compatible with the transition to a sustainable economy and with the limiting of global warming to 1,5 °C in line with the Paris Agreement under the United Nations Framework Convention on Climate Change adopted on 12 December 2015 (the ‘Paris Agreement’) and the objective of achieving climate neutrality by 2050 as established in Regulation (EU) 2021/1119 of the European Parliament and of the Council ([^E0012]), and, where relevant, the exposure of the undertaking to coal-, oil- and gas-related activities;
• (iv) how the undertaking’s business model and strategy take account of the interests of the undertaking’s stakeholders and of the impacts of the undertaking on sustainability matters;
• (v) how the undertaking’s strategy has been implemented with regard to sustainability matters;

• (b) a description of the time-bound targets related to sustainability matters set by the undertaking, including, where appropriate, absolute greenhouse gas emission reduction targets at least for 2030 and 2050, a description of the progress the undertaking has made towards achieving those targets, and a statement of whether the undertaking’s targets related to environmental factors are based on conclusive scientific evidence;

• (c) a description of the role of the administrative, management and supervisory bodies with regard to sustainability matters, and of their expertise and skills in relation to fulfilling that role or the access such bodies have to such expertise and skills;

• (d) a description of the undertaking’s policies in relation to sustainability matters;

• (e) information about the existence of incentive schemes linked to sustainability matters which are offered to members of the administrative, management and supervisory bodies;

• (f) a description of:
• (i) the due diligence process implemented by the undertaking with regard to sustainability matters, and, where applicable, in line with Union requirements on undertakings to conduct a due diligence process;
• (ii) the principal actual or potential adverse impacts connected with the undertaking’s own operations and with its value chain, including its products and services, its business relationships and its supply chain, actions taken to identify and monitor those impacts, and other adverse impacts which the undertaking is required to identify pursuant to other Union requirements on undertakings to conduct a due diligence process;
• (iii) any actions taken by the undertaking to prevent, mitigate, remediate or bring an end to actual or potential adverse impacts, and the result of such actions;

• (g) a description of the principal risks to the undertaking related to sustainability matters, including a description of the undertaking’s principal dependencies on those matters, and how the undertaking manages those risks;

• (h) indicators relevant to the disclosures referred to in points (a) to (g).

Undertakings shall report the process carried out to identify the information that they have included in the management report in accordance with paragraph 1 of this Article. The information listed in the first subparagraph of this paragraph shall include information related to short-, medium- and long-term time horizons, as applicable.

For the purposes of the third, fourth and fifth subparagraphs the following definitions apply:

• (a) ‘reporting undertaking’ means an undertaking required to report pursuant to paragraph 1 of this Article;

• (b) ‘protected undertaking’ means an undertaking which:
• (i) does not exceed, on its balance sheet date, an average number of 1 000 employees during the preceding financial year; and
• (ii) is in the value chain of a reporting undertaking;

• (c) ‘voluntary standards’ means the standards for voluntary use as referred to in Article 29ca.

Reporting undertakings may rely on a self-declaration from undertakings in their value chain to determine whether they are protected undertakings. Reporting undertakings shall not be required to take steps to verify the information contained in such a self-declaration. However, they shall not rely on the self-declaration where they know, or can reasonably be expected to know, that the declaration is manifestly incorrect.

Protected undertakings shall have the right to decline to provide information exceeding the information specified in the voluntary standards in response to a request made for the purpose of sustainability reporting as required by this Directive. Furthermore:

• (a) when establishing contractual and other arrangements for the purpose of meeting the sustainability reporting requirements of this Directive, reporting undertakings shall not require protected undertakings to provide information exceeding the information specified in the voluntary standards;

• (b) any contractual provision contrary to point (a) shall not be binding, without however affecting the binding nature of the remaining provisions of the contract;

• (c) where a reporting undertaking requests information, directly or indirectly, from protected undertakings for the purpose of sustainability reporting as required by this Directive, and some or all of that information exceeds the information specified in the voluntary standards, that reporting undertaking shall ensure that protected undertakings are informed of the following:
• (i) which information exceeds the information specified in the voluntary standards; and
• (ii) protected undertakings’ statutory right to decline to provide the information;

• (d) reporting undertakings that report the necessary value chain information without reporting from protected undertakings any information that exceeds the information specified in the voluntary standards are deemed to have complied with the obligation to report value chain information set out in the first subparagraph.

Nothing in the fourth subparagraph:

• (a) affects information requests for purposes other than the purpose of sustainability reporting as required by this Directive, including requests for the purpose of complying with Union requirements on undertakings to conduct a due diligence process; or

• (b) imposes or implies any obligation on any undertaking in the value chain to provide sustainability information.

For the first three years of being subject to sustainability reporting requirements in accordance with paragraph 1, and in the event that not all the necessary information regarding its value chain is available, the undertaking shall explain the efforts made to obtain the necessary information about its value chain, the reasons why not all of the necessary information could be obtained, and its plans to obtain the necessary information in the future. After that three-year transition period, the undertaking shall meet the reporting requirements for value chain information by using information directly obtained from undertakings in its value chain or estimates for that information, as appropriate.

Where applicable, the information referred to in paragraphs 1 and 2 shall also contain references to, and additional explanations of, the other information included in the management report in accordance with Article 19, and the amounts reported in the annual financial statements.

When reporting the information referred to in paragraphs 1 and 2, undertakings may omit the following information:

• (a) in exceptional cases, information the disclosure of which would be seriously prejudicial to the commercial position of the undertaking, provided that the following conditions are met:
• (i) such omission does not prevent a fair and balanced understanding of the undertaking’s development, performance and position, or of its principal risks or principal impacts;
• (ii) the undertaking has determined that it is impossible to disclose the information in a manner that would enable it to meet the objectives of the disclosure requirement without seriously prejudicing its commercial position, for example on an aggregated basis;
• (iii) the undertaking discloses the fact that it has used the exemption laid down in this subparagraph; and
• (iv) the undertaking reassesses at each reporting date whether the information may still be omitted;

• (b) information corresponding to intellectual capital, intellectual property, know-how, technological information, or the results of innovation, which would qualify as a trade secret as defined in Article 2, point (1), of Directive (EU) 2016/943 of the European Parliament and of the Council ([^E0014]), provided that the following conditions are met:
• (i) the undertaking discloses the fact that it has used the exemption laid down in this subparagraph; and
• (ii) the undertaking reassesses at each reporting date whether the information may still be omitted;

• (c) classified information defined in Article 2, point (7), of Regulation (EU) 2023/2418 of the European Parliament and of the Council ([^E0015]), provided that the following conditions are met:
• (i) the undertaking discloses the fact that it has used the exemption laid down in this subparagraph; and
• (ii) the undertaking reassesses at each reporting date whether the information may still be omitted;

• (d) other information that is to be protected from unauthorised access or disclosure because of obligations laid down in other Union legal acts or national law, or in order to safeguard the privacy or security of a natural person or the security of a legal person, provided that the following conditions are met:
• (i) the undertaking discloses the fact that it has used the exemption laid down in this subparagraph; and
• (ii) the undertaking reassesses at each reporting date whether the information may still be omitted.