Almost a year after the accounting problems at Parmalat came to light, the EU is ready to publish its reaction in the form of a draft Directive.
In November last year the European Commission had already begun to look at accounting rules when the Parmalat scandal broke, driven by Enron and WorldCom in the US. But it has spent the intervening year drawing up a new law that will control the way companies employ their auditors and disclose their off-balance sheet activities.
The proposals of EU internal market commissioner Frits Bolkestein will:
- Prevent corporates from hiding losses in off-balance sheet arrangements ? any special purpose vehicles or offshore activities will have to be disclosed in notes to annual accounts;
- Force corporates to publish annual corporate governance statements on their internal reporting controls;
- Force corporates to rotate their audit firms every five years and introduce audit committees;
- Recommend a strong role for independent board members; and,
- Recommend full transparency on boardroom pay, forcing companies to disclose full remuneration packages.
Bolkestein has said that further legislation will follow, but that he believes each part of the accounting problems highlighted by Parmalat should be dealt with in separate laws.