Proposed adjustments to the size criteria for micro, small, medium-sized and large companies
On 13th September 2023, the European Commission (Commission) proposed certain amendments to Directive (EU) 2013/34 (Accounting Directive) in order to amend the thresholds in the Accounting Directive for determining the size category of a company to account for the impact of inflation.
In terms of the Accounting Directive, undertakings are classified as “micro”, “small”, “medium” or “large”, depending on the relevant undertaking’s: (i) balance sheet total; (ii) net turnover, and (iii) average number of employees. Undertakings (such as companies) are then required to adhere to certain obligations depending on their classification. Due to the EU’s principle of proportionality, larger undertakings tend to be subject to stricter and more onerous obligations than smaller ones.
In order to account for the significant rise in inflation which European economies have been facing, the Commission is now proposing to adjust the ‘balance sheet’ and ‘net turnover’ criteria by approximately 25% each. This is being done with a view to avoiding situations where micro and small undertakings are artificially treated as medium or large undertakings and therefore subject to more demanding requirements applicable to larger companies.
The proposed increase in the size criteria will not only reduce the scope of application of the presentation, audit, and publication requirements for financial statements set out in the Accounting Directive. But it would also reduce the scope of application of the sustainability reporting requirements introduced by the Corporate Sustainability Reporting Directive (CSRD). At an EU level, the impact of reducing the undertakings in scope of the CSRD is expected to consist of one-off cost savings of an estimated EUR 150 million and recurring annual costs of an estimated EUR 700 million.
In essence, the Commission’s proposed amendments are a welcome correction to the classification system – which have remained unchanged since 2013 - especially for small and medium-sized enterprises that have been severely impacted by recent inflationary pressures.
The following table shows the current balance sheet size criterion under the Accounting Directive, as well as the proposed adjustment.
Undertaking Current Adjusted
Micro €350,000 €450,000
Small (lower end) €4,000,000 €45,000,000
Small (higher end) €6,000,000 €7,500,000
Medium / Large €20,000,000 €25,000,000
The following table shows the current net turnover size criterion under the Accounting Directive, as well as the proposed adjustment:
Undertaking Current Adjusted
Micro €700,000 €900,000
Small (lower end) €8,000,000 €10,000,000
Small (higher end) €12,500,000 €15,000,000
Medium / Large €40,000,000 €50,000,000
The Commission’s proposed amendments are open to public consultation until 6th October 2023, after which, the Commission plans to adopt the amendments (in the form of a Delegated Directive) to the European Parliament and the Council of the EU during the fourth quarter of 2023.
Authors: Beppe Degiorgio (Associate, Ganado Advocates) and Roberta Attard (Trainee Advocate, Ganado Advocate)