Skattenytt nr 4 2019 s. 177
Member State choices of the EU directive 2014/95/EU for the (consolidated) non-financial statement and their transpositions into the national laws – Germany and Sweden as examples
On Oct, 22nd, 2014 the EU parliament and the council of the European Union passed the directive 2014/95/EU regarding the non-financial reporting which was transposed into the national laws of the EU member states. The following article shows the process and the manner of that transposition process and highlights the differences in the transposition process taken place in Sweden and Germany. The comparison shows that Sweden obliges relatively more entities to prepare a non-financial reporting. Instead of this, in Germany entities which are obliged to set up a non-financial reporting have to fulfill some additional requirements which are beyond of the prerequisites of the directive 2014/95/EU. Despite of this, the information in the non-financial reporting should not be underestimated for tax matters as in the non-financial information quite a lot of information are published that are quite sensitive for taxation (e.g. information regarding anti-corruption and bribery matters).
On Oct, 22nd, 2014, the EU parliament and the council of the European Union passed the EU directive 2014/95/EU by which the EU directive 2013/34/EU of Jun, 26th, 2013, on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings was supplemented. The EU directive 2014/95/EU prescribes that at least large undertakings which are public-interest entities having an average number of employees in excess of 500 have to supplement their management reports by non-financial statements; in addition, public-interest entities which are parent undertakings of a large group, also having an average number of employees in excess of 500, have to set up a consolidated non-financial statement. As for some EU member states and also for their entities the non-financial statement is quite a new accounting instrument, the EU directive 2014/95/EU contains a lot of member state choices. 
In Germany, the non-financial statement is quite a new accounting instrument. Before the EU directive 2014/95/EU was transposed, even for very large and capital-market oriented groups neither a non-financial statement nor a consolidated non-financial statement were prescribed. Beside this, a lot of the large and capital-market oriented German groups have published sustainability reports for many years on a voluntary basis, mostly based on GRI’s guidelines.  Furthermore, with regard to the inclusion of the non-financial key performance indicators in the analysis of the course and the position of all groups as part of their management reports prescribed by law  , according to DRS 20 “Group Management Report” the German Accounting Standards Board (GASB) has required in addition that the groups shall also provide in their management reports information about the non-financial key performance indicators which are used internally to measure sustainability aspects.
In Sweden, sustainability reporting  is not a new requirement either, but has developed rapidly in the past two or three decades, not at least after the so-called Brundtland report of 1987.  Sustainability reporting is now an important part of many corporate provisions of information and also the financial market has gradually changed its attitude to sustainability reporting. Presently, the notion of Corporate Social Responsibility (CSR) is an important part of many corporate policies. The demands for transparency, control and risk minimization are higher today, and corporations and companies are expected to take a more active, rather than passive, part in the process towards increasing transparency and openness.  Since the turn of the millennium, sustainability reporting has, in addition, turned into an object of commercial interest for auditors and consultants. Swedish corporations are estimated to account for five percent of the world sustainability reports.  Since 2007, publicly owned companies in Sweden have been under an obligation to provide sustainability reports according to the GRI’s guidelines.  This means that the State has higher demands on its owned companies than required by law. Applying GRI guidelines does not however mean that companies meet the legal requirements for non-financial reporting automatically. Criticism of sustainability reporting demands has been leveled, however, to the effect that the demands are more likely to nourish professionalized communication rather than openness. 
The social responsibility of business and industry has been debated in Sweden. The notion of Corporate Social Responsibility, CSR, means that companies are expected to establish trust and credibility on the market through social responsibility. The Tax Agency has taken the notion a step further and encouraged companies to take responsibility for their tax policies by developing a tax policy with positions on, for example, the use of tax planning that involve uncertain legality. In other words, the Tax Agency wants to get rid of tax planning in the grey area of the law. Other elements of the tax policy can be how companies generally view tax planning that might be perceived to be offensive to the public and corporate attitude to subcontractors’ tax behaviour. The Tax Agency’s position on CSR has been criticised mainly on the grounds that it is difficult to reach consensus on what constitutes “unethical” tax planning” and legitimate planning.  For instance, a topic of debate is what “aggressive tax planning” is and if it is acceptable or not. Other objections made are that it is not only desirable but also an obligation for corporate boards to minimise the taxation level, as taxes can be seen as a cost among many. By keeping costs down, in this case taxes, the board can be seen as having met the demands for efficiency and profit.
From this background of different bases in Germany and Sweden before the transposition of the EU directive 2014/95/EU took place, the article shows first the member state choices of the EU directive 2014/95/EU for the non-financial statements.  In the second step, the article analyses und compares the transposition of those member state choices in two of the most-developed countries in the EU, Germany and Sweden.
2 MEMBER STATE CHOICES OF THE DIRECTIVE 2014/95/EU FOR THE NON-FINANCIAL STATEMENT
2.1 Circle of entities obliged to set up a non-financial statement
According to article 19a par. 1, subpar. 1 of the directive 2013/34/EU, amended by the directive 2014/95/EU, large undertakings which are public-interest entities exceeding the criterion of the average number of 500 employees during the financial year are obliged to include a non-financial statement as part of their management reports or alternatively to set up a separate non-financial report  (in the following non-financial reporting). Beyond this, consideration (14) sent. 2 of the EU directive 2014/95/EU states that SMEs should be exempted from additional requirements with regard to non-financial statements. Nevertheless, according to consideration (14) sent. 3 member states are not prevented from requiring disclosure of non-financial information also from undertakings (and groups) other than those mentioned in article 19a par. 1, subpar. 1 of the directive 2013/34/EU. Therefore it has to be investigated if the German and Swedish law prescribes a non-financial reporting also for entities beyond the circle of entities mentioned in article 19a par. 1, subpar. 1 of the directive 2013/34/EU.
2.2 Contents of the non-financial statement
In addition, article 19a par. 1, subpar. 1–3 of the directive 2013/34/EU, amended by the directive 2014/95/EU, lays down the contents of the non-financial reporting. The non-financial reporting “shall include ... information ... relating to, as a minimum, environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters, including:
- a brief description of the undertaking’s business model;
- a description of the policies pursued by the undertaking in relation to those matters, including due diligence processes implemented;
- the outcome of those policies;
- the principal risks related to those matters linked to the undertaking’s operations including, where relevant and proportionate, its business relationships, products or services which are likely to cause adverse impacts in those areas, and how the undertaking manages those risks;
- non-financial key performance indicators relevant to the particular business.
Where the undertaking does not pursue policies in relation to one or more of those matters, the non-financial statement shall provide a clear and reasoned explanation for not doing so.
The non-financial statement ”... shall also, where appropriate, include references to, and additional explanations of, amounts reported in the annual financial statements.”
According to article 19a, par. 1, subpar. 1 of the directive 2013/34/EU, amended by the directive 2014/95/EU, EU member states can require additional non-financial information. Therefore, in the chapters 3.3 and 4.3 it will be investigated, if Germany and Sweden have prescribed additional kinds of non-financial information beyond the minimum contents mentioned above.
2.3 Use of frameworks
Article 19a par. 1, subpar. 5 of the directive 2013/34/EU, amended by the directive 2014/95/EU, contains a further member state choice regarding the use of frameworks. As the EU directive 2014/95/EU does not prescribe on a very detailed level the information which the entities have to provide, the entities obliged to provide a non-financial reporting may rely on reasonable frameworks which are dealing with the relevant (sustainability) aspects. Consideration (9) of the EU directive 2014/95/EU mentions some frameworks which could be used for preparing the non-financial reporting. Explicitly, the United Nations (UN) Global Compact, the Guiding Principles on Business and Human Rights implementing the UN ’Protect, Respect and Remedy’ Framework, the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises, the International Organisation for Standardisation’s ISO 26000, the International Labour Organisation’s Tripartite Declaration of principles concerning multinational enterprises and social policy and the GRI’s guidelines, are mentioned. Further appropriate frameworks are contained in the relevant list of the EU Guidelines on non-financial reporting.  According to the wording of the EU directive 2014/95/EU the entities are not enforced to use one of these frameworks. Nevertheless the member states could limit the degrees of freedom in satisfying the manner of fulfilling the information requirements of the non-financial reporting. Article 19a par. 1, subpar. 5 states: “In requiring the disclosure of the information ..., Member States shall provide that undertakings may rely on national, Union-based or international frameworks, and if they do so, undertakings shall specify which frameworks they have relied upon.” Therefore it has to be examined, if the transposition of the underlying EU directive involves the compulsory use of any particular framework.
2.4 Safe harbour rule for sensitive information in the course of negotiation
The non-financial reporting requires also quite sensitive information about the behaviour of the undertakings. That applies especially for the information regarding the “principal risks related to ... [environmental matters, social and employee matters, respect for human rights, anti-corruption and bribery; the authors] linked to the undertaking’s operations including, where relevant and proportionate, its business relationships, products or services which are likely to cause adverse impacts in those areas, and how the undertaking manages those risks.”  Therefore, article 19a par. 1, subpar. 4 of the directive 2013/34/EU, amended by the directive 2014/95/EU, contains a member state choice that in exceptional cases under the below-mentioned conditions member states may allow that information in the non-financial statement can be omitted. Therefore all of the following conditions are necessary for transposing that member state choice into the national laws:
- information relating to impending developments or matters in the course of negotiation,
- the disclosure of such information would be seriously prejudicial to the commercial position of the undertaking and
- even such omission does not prevent a fair and balanced understanding of the undertaking’s development, performance, position and impact of its activity on the environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters.
With regard to that member state choice it has to be investigated, if it has been transposed into the national law at all. Moreover, even though the conditions under which the member states are allowed to grant that choice are quite restrictive, the member states could impose additional restrictions on using that safe harbour rule for sensitive information in the course of negotiation. Therefore, in the case of the transposition of that member state choice also possible additional conditions for applying that safe harbour rule have to be checked and compared.
2.5 Preparing a separate non-financial report
According to article 19a, par. 1, subpar. 1 of the directive 2013/34/EU, amended by the directive 2014/95/EU, the non-financial information shall be included in the management report. Alternatively, article 19a par. 4 of the directive 2013/34/EU allows the member states to substitute that duty by setting up a separate non-financial report if the following conditions are met. “Where an undertaking prepares a separate report corresponding to the same financial year ... and covering the information required for the non-financial statement as provided for in paragraph 1, Member States may exempt that undertaking from the obligation to prepare the non-financial statement laid down in paragraph 1, provided that such separate report:
- is published together with the management report in accordance with Article 30; or
- is made publicly available within a reasonable period of time, not exceeding six months after the balance sheet date, on the undertaking’s website, and is referred to in the management report.”
Just as the immediate prior mentioned member state choice, it has to be checked if that member state choice has be transposed into the German and Swedish law, and in that case if those states limit that possibility of disclosing the non-financial information by additional requirements the entities which use that option have to fulfill.
2.6 Verification of the information in the non-financial reporting by an independent assurance services provider
Article 19a par. 5 of the directive 2013/34/EU, amended by the directive 2014/95/EU, requires that the EU member states shall ensure that the statutory auditor or audit firm check whether the non-financial statement referred to in article 19a par. 1 or the separate report referred to in article 19a par. 4 have been provided. Therefore, article 19a par. 5 requires only an audit regarding the existence and the completeness of the non-financial reporting but not a substantive audit of the information contained in the non-financial reporting. Nevertheless, according to article 19a par. 6 of the directive 2013/34/EU the member states may require that the information in the non-financial reporting is verified by an independent assurance services provider. As the non-financial reporting contains a lot of technical aspects, especially regarding the environmental matters, article 19a par. 6 does not restrict the circle of independent assurance service providers to the auditors or auditing firms of the financial statements. 
The analysis in the following chapters 3.7 and 4.7 will focus on the question if the transposition in Germany and Sweden prescribes or allows a verification of the non-financial reporting information. Moreover, if the national laws require an independent verification or an audit of the non-financial reporting it has to be distinguished which assurance level has to be reached (reasonable assurance comparable to the assurance level of audits of the financial reports or limited assurance). Furthermore, article 19a par. 6 is silent on the question how the assurance services provider’s opinion regarding the non-financial reporting is published or communicated to the users of the non-financial reporting if an independent verification has been performed. Therefore it has to be investigated if the national laws contain rules for the manner of communicating the assurance services provider’s opinion.
3 TRANSPOSITION OF THE MEMBER STATE CHOICES IN GERMANY
3.1 Making the directive into domestic law
Due to article 4 par. 1, subpar. 1 of the directive 2014/95/EU the member states were obliged to transpose that EU directive into national laws, regulations and administrative provisions latest by Dec. 6th, 2016. In Germany, the process of transposition of the EU directive 2014/95/EU was delayed by more than four months. The transposition of the directive 2014/95/EU took place one day after the publication of the “Gesetz zur Stärkung der nichtfinanziellen Berichterstattung der Unternehmen in ihren Lage- und Konzernlageberichten (CSR-Richtlinie-Umsetzungsgesetz)“ in the (German) Bundesgesetzblatt on April, 18th, 2017. Despite of that delay, according to article 80 sent. 1 EGHGB the entities obliged to the non-financial reporting have to apply the new requirements for the first time for the financial years starting after Dec. 31st, 2016, which is in line with article 4 par. 1 subpar. 2 of the directive 2014/95/EU.
3.2 Circle of entities obliged to set up a non-financial statement
In Germany, beside the large corporations according to § 267 sect. 3 HGB (Handelsgesetzbuch, i.e. German commercial code)  with a capital-market orientation according to § 264d HGB and an average number of employees in excess of 500 during the financial year  and the credit institutions and insurance undertakings of public interest  if they fulfill the criteria for being a large corporation according to § 267 sect. 3 HGB and employ more than 500 employees in the average during the financial year  also registered cooperative societies are obliged to supplement their management reports by non-financial statements if they are capital-market oriented and have an average number of employees in excess of 500 during the financial year.  The German government argues that extension of the non-financial reporting that the legal form of a registered cooperative society could also be used instead of the legal form of a corporation and by excluding the registered cooperative societies from the non-financial reporting the last-mentioned entities would be privileged in comparison to the corporations by lower legal requirements. In order to avoid that possible unintended impact the registered cooperative societies have under the same conditions under which corporations are obliged to set up a non-financial statement also to supplement their management reports by a non-financial statement.  Despite of this, in other cases the German law does not extend the circle of entities which are obliged to the non-financial reporting due to the directive 2014/95/EU. Even quite very large sole proprietor companies or partnerships are not obliged to set up a non-financial statement. During the parliamentary process it was also discussed to require non-financial statements also from smaller corporations with an average number of employees in excess of 250  , but in the end that was not enacted.
3.3 Contents of the non-financial statement
The subject of § 289c HGB are the contents of the non-financial statement. § 289c HGB is identical with the minimum requirements of article 19a par. 1, subpar. 1–3 of the directive 2013/34/EU, amended by the directive 2014/95/EU. In Germany, during the process of transposing the EU directive 2014/95/EU it was discussed if the non-financial statement should also be extended to customer-related matters  as also DRS 20.107 a) mentions as examples for the non-financial key performance indicators  customer-related issues, like indicators relating to the customer base or the customer satisfaction. Also the above-mentioned EU guidelines mention examples regarding the “social and employee matters” which could be categorized as “customer-related matters”, like
- ”consumer relations, including consumer satisfaction, accessibility, products with possible effects on the consumers’ health and safety;
- impacts on vulnerable consumers;
- responsible marketing and research”. 
Nevertheless, finally no additional obligatory contents were prescribed by German law. Despite of this, German companies which are obliged to the non-financial reporting  can supplement their non-financial reporting by additional matters which are “necessary for an understanding of the undertaking’s development, performance, position and impact”  of their activities.
The only peculiarity of the German transposition of article 19a par. 1, subpar. 1 of the directive 2013/34/EU, amended by the directive 2014/95/EU, is that the reporting about the principal risks related to the non-financial matters is subdivided in the structure of the wording of § 289c HGB on the one hand in the reporting about the principle risks linked to the undertaking’s operation (§ 289c sect. 3 nr. 3 HGB), and on the other hand in the reporting about those principle risks linked to the undertaking’s relationships, products or services (§ 289c sect. 3 nr. 4 HGB). The subdivision of the non-financial reporting in two numbers of § 289c sect. 3 HGB aims to put a higher weight on that specific aspect of the non-financial reporting.  As already mentioned above, nonetheless, no additional reporting requirements result for the German entities obliged to a non-financial reporting.
3.4 Use of frameworks
§ 289d sent. 1 HGB allows the use of national, Union-based or international frameworks for the preparation of the information disclosed in the non-financial statement. The German law does not prescribe which or which type of frameworks the entities have to apply if they use a framework for preparing their non-financial reporting. As the entities which have used one or more frameworks have also to state in their non-financial statements which frameworks they have relied upon  , article 19 par. 1, subpar. 5 of the directive 2013/34/EU, amended by the directive 2014/95/EU, has been transposed completely. Therefore, the choice of the entities to select one or more appropriate frameworks is not limited and also the entities are not enforced to use a framework at all.
Despite of this, if the entities decide not to use a framework at all, according to § 289d sent. 2 clause 2 HGB they have to argue why they do not use any framework. Even that during the introduction phase of the (compulsory) non-financial reporting in Germany the argumenation for not using a framework should not be too difficult (e.g. missing of a general accepted framework in the relevant branch  ), this disclosure is beyond the requirement of article 19a par. 1 subpar. 5 of the directive 2013/34/EU. The German government intends by requiring substantiation for the waiver of the use of a framework that the entities tackle the relevant frameworks for the non-financial reporting. In prescribing this, the German government aims to increase the number of entities using frameworks for preparing their non-financial reporting by setting an incentive for using such frameworks (so called “apply or explain”). 
3.5 Safe harbour rule for sensitive information in the course of negotiation
§ 289e sect. 1 HGB contains the safe-harbour rule under the same restrictive conditions mentioned in article 19a par. 1, subpar. 4 of the directive 2013/34/EU, amended by the directive 2014/95/EU.  Therefore, the German parliament transposed that EU member state choice.
In article 19a par. 1, subpar. 4 of the directive 2013/34/EU it is not explicitly stated which information has to be provided in the non-financial reporting if the prerequisites of the safe harbour rule are not met any more at a future reporting date (for example, the negotiations have been finished about the matters over which information had been omitted). § 289e sect. 2 HGB requires that in the case an entity used the safe harbour rule according to § 289e sect. 1 HGB in one of its non-financial reporting and since that publication the reasons for the waiver of the disclosure of the omitted information have been dropped, the entities have to include the previous omitted information in their next non-financial reporting. Although the relevance of the belated reporting of omitted information in a previous non-financial reporting could be doubtful with regard to decisions made by the users of the non-financial reporting, the rationale behind this belated reporting is to avoid a too extensive use of the safe harbour rule, as also information which would be seriously prejudicial to the commercial position of the undertaking can never be suppressed completely over time (preventative function of a belated reporting).
3.6 Preparing a separate non-financial report
Instead of extending the management report by a non-financial statement the German entities have also the possibility to set up a separate non-financial report. Therefore, also the EU member state choice of article 19a par. 4 of the directive 2013/34/EU, amended by the directive 2014/95/EU, has been passed on the German entities.  Nevertheless, the option to replace the non-financial statement by publishing a separate non-financial report on the undertaking’s website is restricted in comparison to the EU member state choice by the following:
- First, the separate non-financial report has to be published on the undertaking’s website no later than four months after the balance sheet date. Article 19a par. 4 of the directive 2013/34/EU states that the publication on the undertaking’s website has to take place within a reasonable time, but not exceeding six months after the balance sheet date. The German parliament decided to reduce the period of time for publishing the separate non-financial reports in order to adjust it to the period of publishing for the financial statements and the management reports of entities with a capital-market orientation according to § 264d HGB  and also thereby to enhance the comparability to the information published in the management reports. 
- Second, the separate non-financial statement shall be available on the undertaking’s website for at least ten years; the directive 2014/95/EU is completely silent regarding the period of availability. The reason behind this restriction is to reach an standardization with the safekeeping period of the financial statements and management reports. 
In the context of substituting the non-financial statement by a separate non-financial report it has to be outlined that according to DRS 20.252 the separate non-financial report could not only be prepared as a standalone report but could also be integrated or included as a separate section into another report (e.g. sustainability report).
3.7 Verification of the information in the non-financial reporting by an independent assurance services provider
According to § 317 sect. 2 sent. 4 HGB in the course of the external audit of the financial statements and the management report the auditor or auditing firm have only to check if the non-financial statement or the separate non-financial report have been set up. If the separate non-financial report has been published on the undertaking’s website the auditor has in addition to check if the non-financial report is published on the undertaking’s website no later than four months after the balance sheet date and that the management report contains a reference to this publication, giving the details of the website.
The German law does not prescribe a substantive audit of the non-financial reporting at all. Therefore the German parliament waived the member state choice of article 19a par. 6 of directive 2013/34/EU, amended by the directive 2014/95/EU, to require a verification of the non-financial reporting. Nevertheless, even in the case that no voluntary verification has been taken place, according to the German auditing standard IDW PS 202  the external auditor has to read critically the non-financial reporting which is published together with the financial reports. If the auditor discovers mistakes or inconsistencies with regard to the financial statements he has to insist on appropriate corrections.
Starting from the financial years at or after Jan. 1st, 2019, in the case that a voluntary verification (independently if it is an audit with reasonable or limited assurance) of the non-financial reporting has been performed, the audited entity has to publish the results of that verification in the same way as its non-financial reporting.  The reason for the delay in publishing the results of that verification by two years is to grant the entities sufficient time for getting experience with the non-financial reporting which is for most German companies quite a new reporting instrument. Furthermore, entities shall also be encouraged to seek for external assurance. 
4 TRANSPOSITION OF THE MEMBER STATE CHOICES IN SWEDEN
4.1 Making the directive into domestic law
The amending directive states the minimum level at which Sweden is obliged to transpose that directive into domestic legislation. Sweden must implement these regulations, but may decide on more far-reaching demands than the EU, which is also what has been decided. The amending directive was not implemented as a new statute but as a series of amendments to existing statutes, for example, the Annual Accounts Act of 1995, Audit Act, Companies Act. The new provisions on sustainability reporting are applied in some major companies from the audit year of 31 December 2016, and in most cases apply to the calendar year 2017.
4.2 Circle of entities obliged to set up a non-financial reporting
The companies subject to the non-financial reporting  demand, according to Ch. 6 § 10 the Annual Accounts Act of 1995 (1995:1554), ÅRL, are those meeting at least two of the three criteria below in each of the two latest audit years:
- at least 250 employees
- Balance sheet total of at least SEK 175 million
- Net turnover of at least SEK 350 million
Criticism has been leveled against the fact that the Swedish provisions entail that non financial reporting applies to more companies than indicated in the amending directive, and that this may affect Swedish companies’ competitiveness compared with foreign companies in the same market. The implementation of the minimum level stated in the amending directive in Sweden would probably involve some minor changes for major corporations and companies as these already voluntarily submit some type of sustainability report.  If the Swedish regulations had been designed according to the minimum requirements of the amending directive, the regulations would only have been applied to around 100 companies. With the present regulations the non-financial reporting obligation is estimated to apply to 1 600 companies.  The Confederation of Swedish Enterprise is very critical of the fact that the Swedish regulations cover more companies in Sweden than required by the amending directive and claims in a statement that the impact analysis is very poor, and that the costs of drawing up the non-financial reporting are blatantly underestimated. This is in contradiction to the preparatory documents, which argue that more burdensome obligations than what is necessary should not be imposed on companies in Sweden. 
4.3 Contents of the non-financial statement
The Annual Accounts Act requires that the accounting has to be extended to balance sheet and profit and loss statement, annotations, management report, and cash flow analysis for big companies. The annual accounts are expected to give a fair view of the company’s performance and position. The Annual Accounts Act is applied by more or less all companies that are obliged to draw up annual accounts. Credit institutions and insurance companies are obliged to apply special annual account regulations which in substantial parts correspond with the Annual Accounts Act. The Swedish provisions on the content of non-financial reporting have been developed in close relation to formulations in the amending directive, but in some respects, adjustments have been made to Swedish legislative structure and terminology. The non-financial reporting shall include the following areas:
- Social conditions
- Respect for human rights
- Counteracting corruption. 
The content in Ch. 6, §12 ÅRL, is in principle in accordance with the requirements of the amending directive. The preparatory documents indicate clearly that the information requirement shall be interpreted broadly and that this obligation may be considered in terms of the circumstances of the individual case and relevancy.  According to Ch. 2, § 5 ÅRL the annual financial statements must be written in Swedish. In turn, this means that a non-financial reporting, included in the management report, must also be written in Swedish.
4.4 Use of frameworks
The Swedish Accounting Board, BFN, is the government’s expert agency in the field of accounting. BFN is responsible for issuing general advice and is the authority on due diligence accounting procedures in Sweden. Until now, the BFN general advice does not provide guidelines on drawing up a non-financial statement. Therefrom the companies are free to refer to one of the existing non-binding international guidelines  , such as the GRI framework, EU-based frameworks such as the EU Eco Management and Audit Scheme (EMAS), the UN principles for business and human rights, the OECD guidelines for multinational companies and international standardization ISO 26000. If special guidelines have not been used in the non-financial reporting, this should be specified and arguments for not using any framework must be given. 
4.5 Safe harbour rule for sensitive information in the course of negotiation
Information on pending developments or issues under negotiation need not to be included in the non-financial reporting if there is a risk that publication would damage the company’s market position gravely and the omission would not hinder understanding the company’s development, position or result or the consequences of operations.  There is no requirement by law to give reasons for omitting information. In the preparatory documents the risk of misusing this regulation to escape the reporting requirement could not be ruled out, but the risk was deemed negligible. The need of a belated reporting due to uncertain developments has not been discussed in the preparatory documents and therefrom was not implemented into Swedish law. 
4.6 Preparing a separate non-financial report
Many companies have delivered sustainability reports separate from annual accounts for a long time. This opportunity remains in the new regulations, but it must be noted in the non-financial report. The non-financial reporting shall be included in the management report, or be available as a separate document. If the last-mentioned option is the case, it shall be made publicly available together with the management report or, under certain conditions, be made available on the company’s website latest six months after the balance sheet day. 
4.7 Verification of the information in the non-financial reporting by an independent assurance service provider
There is no formal requirement for authorization by the reviewer of the non-financial reporting. However, the board usually lets the same auditor that examines the annual report also review the non-financial reporting. The chosen auditor has only a duty to investigate if the non-financial reporting has been drawn up in accordance with the requirements of the law or if it has been drawn up separately, but is not obliged to review its content.  According to the preparatory documents, audit should be encouraged because it gives a number of advantages and trust for the companies. It should in spite of this not extended beyond the requirements of the amending directive, because of the costs.  Although the statutory auditor only will state whether a non-financial reporting has been established or not, FAR (the Swedish Institute of Authorized Public Accountants) is of the opinion that a good auditor’s report means that the auditor should act and, if appropriate, report if the auditor identifies material errors in the sustainability report.  The non-financial reporting shall be submitted for audit within the same time span that applies to financial statements. It is clear from Ch. 8, § 2, ÅRL that the financial statements shall be submitted for audit at least six weeks before the annual meeting at which the annual accounts are treated.
5 SUMMARY AND CONCLUSIONS
Non-financial reporting in Sweden has not been imposed through legislation but rather emerged voluntarily and are linked to GRI. This is not at least true for the state-owned companies. Sweden’s implementation of the amending directive has given rise to criticism as it applies to more companies than if only the minimum requirement of the amending directive had been implemented. On the other hand, the content requirements in the non-financial reporting only meet the minimum demands of the amending directive, which means a large freedom for Swedish companies to design the reporting. The demands for non-financial reporting are more far-reaching than before and involve providing information on the environment, social conditions, staff, respect for human rights and counteracting corruption efforts. Since the requisites in the Annual Accounts Act regarding the content of the non-financial reporting are vague, there is a risk of reduced predictability and differences in application.
Opposite to Sweden, the German legislation obliges in general only the companies to prepare a non-financial reporting which fulfill the criteria of the EU directive 2014/95/EU. Therefore the circle of entities in Germany which are obliged to set up a non-financial statement is relatively smaller. Nevertheless for this smaller group of entities the German legislation contains some additional requirements which are beyond the minimum requirements and also beyond the Swedish transposition of the EU directive 2014/95/EU, like
- necessity of a belated reporting of previous omitted information by using the safe harbour rule
- shorter time for publishing the separate non-financial report and
- publishing the result of a voluntary verification of the non-financial reporting.
Especially the last-mentioned aspect of Germany’s transposition process has to be watched quite carefully. It could not be precluded that the voluntary verification of the non-financial reporting will be turned into a compulsory verification in the future which could lead to similar discussions in other European countries especially in those countries which had played traditionally a leading role in sustainability reporting in the past, like for example Sweden. Due to the significant large amount of Swedish companies which are obliged to set up a non-financial reporting this would create additional burdensome effects on medium-sized entities in Sweden and also reduce their competiveness.
Hanno Kirsch is Präsident der Fachhochschule Westküste and professor at the Europa-Universität Flensburg, Germany. Mats Höglund is an associate professor in tax law, Karlstads University, Sweden.
Compare for an extensive ex-ante analysis of the different information requirements before the EU directive 2014/95/EU was transposed in the single EU member states Maniora, Janina: Die neue EU-Richtlinie zur Offenlegung nichtfinanzieller Informationen: Verum oder Placebo? – Eine Ex ante-Analyse nichtfinanzieller Informationsanforderungen ausgewählter EU-Mitgliedstaaten und Ex-post Implikationen –, KOR 2015, pp. 153–166, here pp. 157.
GRI is an independent, non-profit organization with the explicit aim to promote corporate sustainability reporting. GRI with headquarter in Amsterdam was founded in 1997.
See § 315 sect. 3 HGB.
Sustainability reporting describes account from an economic, environmental and social influence point of view.
The mission of the Brundtland Commission, formerly known as the World Commission on Environment and Development (WCED), is to unite countries to pursue sustainable development. The chairperson of the commission, Gro Harlem Brundtland was appointed by the Secretary-General Javier Pérez de Cuéllar in December 1983. The Brundtland Commission released in December 1987 the report “Our common future”.
See Frostensson och Helin, Hållbarhetsredovisning p. 13 f.
See Frostensson och Helin, Hållbarhetsredovisning p. 16 f.
See prop. 2015/16:193 p. 36.
See Frostensson och Helin, Hållbarhetsredovisning p. 24 och not 29.
See Hultqvist, Anders in Lexnova October 2016, Persson Österman, Roger and Svernlöf, Carl in Skattenytt 2017 pp. 95–110 and response by Wittberg, Lennart and Falksäter, Johan in Skattenytt 2017 pp. 272–275.
Due to spacious reasons the article focuses on the member state choices for the non-financial statement and excludes the corresponding member state choices for the consolidated non-financial statement. Nevertheless, most of the results could also be transferred to the consolidated level.
See article 19a par. 4 of the EU directive 2014/95/EU.
See EU, Official journal of the European Union of July, 5th, 2017, L 215/1, chapter 1.
Article 19a par. 1, subpar. 1, lett. d) of the directive 2013/34/EU, amended by the directive 2014/95/EU.
Despite of this, in Germany the large audit companies are also regularly in charge of auditing the (voluntary) sustainability reports. See for the empirical relevance, Haller, Axel/Durchschein, Christoph, Entwicklung und Ausgestaltung der Prüfung von nach GRI-Normen erstellten Nachhaltigkeitsberichten in Deutschland, KOR 2016, pp. 188–196, here pp. 190.
Therefore at least two of the following three criteria have to be exceeded: balance sheet total: 20 Mio. EUR, net turn over: 40 Mio. EUR and average number of employees during the financial year: 250 (see also EU directive 2013/34/EU, article 3, par. 4).
See § 289b sect. 1 sent. 1 HGB.
See article 2 par. 1 of the EU directive 2013/34/EU.
See § 340a sect. 1a HGB and § 341a sect. 1a sent. 1 HGB.
See § 336 sect. 2 sent. 1 nr. 2 HGB.
See Deutscher Bundestag, BT-DRS 18/9982, pp. 60–61.
See BMJV, Konzept zur Umsetzung der CSR-Richtlinie – Reform des Lageberichts, Berlin, 27. April 2015 (https://germanwatch.org/de/download/11813.pdf; called up on 20.4.2018), p. 3, Deutscher Bundestag, BT-DRS 18/9982, p. 44) and for further proposals and petitions to extend the circle of entities obliged to set up a non-financial statement Kajüter, Peter: Die nichtfinanzielle Erklärung nach dem Regierungsentwurf zum CSR-Richtlinie-Umsetzungsgesetz, IRZ 2016, pp. 507–513; here pp. 508–509.
See BMJV, Konzept zur Umsetzung der CSR-Richtlinie – Reform des Lageberichts vom 27.4.2015 (https://germanwatch.org/de/download/11813.pdf; called up on 20.4.2018), p. 3.
Compare chapter 1 for the relevance of DRS 20.
EU commission, Guidelines on non-financial information, Official journal of the European Union of July 5th, 2017, L 215/1, chapter 4.6 letter b).
Compare chapter 3.2.
Article 19a par. 1, subpar. 1 of the directive 2013/34/EU, amended by the directive 2014/95/EU, and its transposition in § 289c sect. 2 HGB.
See also for the argumentation of the German government Deutscher Bundestag, BT-DRS 18/9982, p. 50.
Compare § 289d sent. 2 clause 1 HGB.
See Mock, Sebastian: § 289d HGB, in: Bilanzrecht, edited by Dirk Hachmeister et al., Köln 2018, Rz. 17.
See Deutscher Bundestag, BT-DRS 18/11450, p. 45; Kajüter, Peter, Nichtfinanzielle Berichterstattung nach dem CSR-Richtlinie-Umsetzungsgesetz, DB 2017, pp. 617–624, here p. 623. See for a critical opinion regarding this kind of “nudging” Haaker, Andreas: Die CSR-Richtlinie als politisches Steuerungsinstrument für Weltverbesserung und Political Correctness – Gefahren für Freiheit und Wohlstand?, PiR 2015, pp. 295–300, here pp. 298–299.
Compare chap. 2.4.
Compare § 289b sect. 3 HGB.
Compare § 325 sect. 4 sent. 1 HGB.
See Deutscher Bundestag, BT-DRS 18/11450, p. 44.
Compare § 257 set. 1 nr. 1 and sect. 4 HGB.
See IDW PS 202, Die Wirtschaftsprüfung 2001, p. 121.
See § 289b sect. 4 HGB and the application of this section, according to article 81 EGHGB.
See Deutscher Bundestag, BT-DRS 18/11450, p. 45.
The official term of the EU directive is non-financial statement. In the government bill the term sustainability reporting is used (prop. 2015/16:193 p. 46). After all we use the term non-financial reporting in this article.
See prop. 2015/16:193 p. 41 f.
See prop. 2015/16:193 p. 57 f.
See Svenskt näringsliv (dnr 214/2014) and prop. 2009/10:235 p. 53.
See prop. 2015/16:193 p. 45 f.
See prop. 2015/16:193 p. 66.
See prop. 2015/16:193 p. 46.
Compare Ch.6, §13 ÅRL.
Compare Ch.6, §11 and Ch. 8, § 15 a § ÅRL.
See Ch. 9, § 31 ABL. For physical entities and other legal entities than limited companies (according to ABL), compare § 28 audit act (1999:1079).
See prop. 2015/16:193 p. 51 f.
See RevR 12 Revisorns yttrande om den lagstadgade hållbarhetsrapporten. FAR has two different standards regarding auditing non-financial reporting. One is used when the non-financial reporting is included in the annual report (RevR 10) and the other when it is reported separately (RevR 6).