A. Introduction

In Germany, the management report that comments on the company's business and financial position as well as its future prospects has long ago been introduced to the Handelsgesetzbuch (HGB - German Commercial Law). Ever since the Court of Justice of the European Communities has clarified that GmbH & Co. KGs are classified as companies with limited liabilities under the 4th and 7th Directive, annual reports have to be published by an even wider range of companies.

Requirements for the annual report are set out in various legal instruments adopted by the EU, in particular the 4th and 7th Company Law Directives ("Accounting Directives"), which have recently been updated by the Modernisation Directive. The Directives demand an annual report about the development and performance of the business and the position of the undertakings for corporate companies as well as banks and other financial institutions irrespective of admittance to regulated securities markets.

In the absence of international standards for management reporting or similar reporting instruments the European Directives will remain effective accordingly for (consolidated) annual reporting within IFRS-reports.

B. BilReG – Reform Act on Accounting Regulations

The Modernisation Directive was transformed into national law by the Bilanzrechtsreformgesetz (BilReG - Reform Act on Accounting Regulations). Following the Directive these amendments to the HGB are intended to improve the quality of annual reporting as well as the consistency and comparability of these reports. Hence, to the extent necessary for an understanding of the development, performance or position of the business, the analysis shall include both financial and non-financial key performance indicators. By including non-financial indicators the BilReG aims to take ecological and social aspects such as environmental or employee matters into account. Furthermore the BilReG sets out detailed requirements on disclosures about risks arising from financial instruments within the management report. The enhancements of § 289 HGB (management report) and § 315 HGB (consolidated management report) do not only result from the Modernisation...