Additional requirements for the provision of annual reports: for large companies and companies groups, but potentially significant also for SME-sized companies

To promote transparency and corporate social responsibility at EU level have been adopted regulatory changes imposing additional requirements for the annual report of large companies and groups of companies. From now on, companies will have to provide not only the annual financial statements, but also non-financial performance analysis, environmental and personnel-related information.
Although this legal regulation is intended to ensure large companies and their groups sharing non-financial information, but it is likely that such changes may have an impact on small and medium-sized companies too. These requirements companies will have to implement while preparing the annual report of 1 January 2017 and later reporting periods, in other words, the company's financial year coinciding with the calendar above mentioned non-financial information should be provided until the end of May next year.

What are the requirements of new regulation?

In 22 October 2014 The European Parliament and the Council changed Directive 2013/34/EU (hereinafter – Directive 2013/34/EU) and changes of it arranged in the new version of the Directive - 2014/95/EU (hereinafter – Directive 2014/95/EU), which for large companies introduced a new mandatory requirement – to submit an annual report covering corporate social responsibility issues.
According to Directive 2014/95/EU regulations large companies are considered with number of employees greater than 500. The main aim of the Directive 2014/95/EU is to promote corporate transparency in order to integrate environmental protection and consumer and human rights aspects in business strategy and operations.

In Lithuania provisions of this Directive has been transposed to the Republic of Lithuania Law on Financial Statements (hereinafter – Companies Financial Statements Act), the addition of new articles, designed to determine the company's management and the social content of the report. In the light of these provisions by the company's financial report will be necessary to specify the information related to the company's management and the environmental, social and personnel, human rights, the fight against corruption and bribery issues. This information should be read as corporate governance and social responsibility reports, which contents are detailed in the Companies Financial Statements Act.

It is important to pay attention to the fact that the annual report containing the financial and non-financial performance analysis, omission or misstatement to Legal Persons Register may lead manager of the company or other responsible person responsibility and incur a fine from 200 till 3000 euros.

Reasons for changes

These changes necessity arose when the European Parliament in its resolution recognized that non-financial information disclosure is an important step in the transition to a sustainable economy based on long-term profitability combined with social justice and environmental protection. In this regard, it was recognized that non-financial information disclosure helps to assess, monitor and manage the performance of companies and their impact on society. Therefore, in order to promote corporate social responsibility (CSR) and provide the public with easy access to information about the activities of companies gave rise to those directives and to large companies and groups to establish requirements for the submission of annual financial reports are presented and non-financial information related to the staff and environmental issues.

The meaning of the directive on small and medium-sized companies

Small and medium-sized companies are the Directive 2014/95/EU exemptions, which means that for these companies Directive don’t require together with the financial statements provide information relating to environmental and employee matters. In line with the national regulation medium-sized company is considered a company, which employs fewer than 250 employees, and small - less than 50 employees.
On the other hand, it should be considered that these companies can belong to the so-called big companies "supply chain", while the latter Directive is applicable. Small and medium-sized businesses may receive requests from large companies for a directive required data. Therefore, an external lawyer – compliance specialist could help in this case not only to avoid unnecessary costs of the company, but also to ensure compliance with the requirements of the directive. Such compliance specialist legal services could include Financial Statements statutory social responsibility and corporate governance reports preparation, evaluation reports drawn up in terms of compliance with regulatory requirements.

Findings

For greater openness and corporate social responsibility in companies established additional requirements - to provide non-financial information relating to environmental and employee matters.
While the new regulation applies to large companies and their groups, however, there is a possibility of potential indirect effect to small and medium-sized companies when large companies request to these companies information. In view of the above mentioned changes is worth paying attention to the availability of external legal assistance capabilities to ensure compliance with those requirements.