The European Commission has proposed changes to European Union accounting rules that it says will help shore up confidence in financial reporting.

The revisions would establish that board members are collectively responsible for financial statements and key non-financial information; would make unlisted companies' transactions with related parties more transparent; would ensure that companies provide full information about off-balance sheet arrangements, including special purpose vehicles that may be located offshore; and would make listed companies issue an annual "corporate governance statement."

"Recent financial scandals show that investors and the public need more protection against cheats. We want to kill four birds with one stone, by ensuring that company boards are responsible for what they tell the markets, that transactions with related parties are explained, that accounts reflect off-balance sheet arrangements and that markets know how companies are governed," said Internal Market Commissioner Frits Bolkestein.

The first proposal would make board members of limited companies collectively responsible for the financial and other key information that their companies publish. While in the U.S., chief executive officers and chief financial officers of listed companies are individually responsible for the company's financial statements under the Sarbanes-Oxley, the commission said that that approach can't be used in Europe, where the prevailing principle for drawing up financial statements is the collective responsibility of board members.

The commission also proposed extending existing listed companies' disclosure requirements on transactions with all related parties, such as family members and company managers, to unlisted companies, though the amendments would apply only to "significant transactions with related parties not carried out under normal commercial conditions," and member states would be able to exempt small unlisted companies.

The commission proposed that all companies -- listed or not -- should disclose all off-balance sheet arrangements, including their financial impact, in notes to the annual and consolidated accounts.

Finally, the commission proposed that all listed EU companies provide a corporate governance statement in their annual report that would cover issues such as whether the company complies with a corporate governance code, information about shareholders' meetings, and the composition and operation of the board and its committees.

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