1.the following section shall be inserted: "SECTION 7a Valuation at fair value Article 42a 1. By way of derogation from Article 32 and subject to the conditions set out in paragraphs 2 to 4 of this Article, Member States shall permit or require in respect of all companies or any classes of companies valuation at fair value of financial instruments, including derivatives. Such permission or requirement may be restricted to consolidated accounts as defined in Directive 83/349/EEC. 2. For the purpose of this Directive commodity-based contracts that give either contracting party the right to settle in cash or some other financial instrument shall be considered to be derivative financial instruments, except when: (a) they were entered into and continue to meet the company's expected purchase, sale or usage requirements; (b) they were designated for such purpose at their inception; and (c) they are expected to be settled by delivery of the commodity. 3. Paragraph 1 shall apply only to liabilities that are: (a) held as part of a trading portfolio; or (b) derivative financial instruments. 4. Valuation according to paragraph 1 shall not apply to: (a) to non-derivative financial instruments held to maturity; (b) to loans and receivables originated by the company and not held for trading purposes; and (c) to interests in subsidiaries, associated undertakings and joint ventures, equity instruments issued by the company, contracts for contingent consideration in a business combination as well as other financial instruments with such special characteristics that the instruments, according to what is generally accepted, should be accounted for differently from other financial instruments. 5. By way of derogation from Article 32, Member States may in respect of any assets and liabilities which qualify as hedged items under a fair value hedge accounting system, or identified portions of such assets or liabilities, permit valuation at the specific amount required under that system. Article 42b 1. The fair value referred to in Article 42a shall be determined by reference to: (a) a market value, for those financial instruments for which a reliable market can readily be identified. Where a market value is not readily identifiable for an instrument but can be identified for its components or for a similar instrument, the market value may be derived from that of its components or of the similar instrument; or (b) a value resulting from generally accepted valuation models and techniques, for those instruments for which a reliable market cannot be readily identified. Such valuation models and techniques shall ensure a reasonable approximation of the market value. 2. Those financial instruments that cannot be measured reliably by any of the methods described in paragraph 1, shall be measured in accordance with Articles 34 to 42. Article 42c 1. Notwithstanding Article 31(1)(c), where a financial instrument is valued in accordance with Article 42b, a change in the value shall be included in the profit and loss account. However, such a change shall be included directly in equity, in a fair value reserve, where: (a) the instrument accounted for is a hedging instrument under a system of hedge accounting that allows some or all of the change in value not to be shown in the profit and loss account; or (b) the change in value relates to an exchange difference arising on a monetary item that forms part of a company's net investment in a foreign entity. 2. Member States may permit or require a change in the value on an available for sale financial asset, other than a derivative financial instrument, to be included directly in equity, in the fair value reserve. 3. The fair value reserve shall be adjusted when amounts shown therein are no longer necessary for the implementation of paragraphs 1 and 2. Article 42d Where valuation at fair value of financial instruments has been applied, the notes on the accounts shall disclose: (a) the significant assumptions underlying the valuation models and techniques where fair values have been determined in accordance with Article 42b(1)(b); (b) per category of financial instruments, the fair value, the changes in value included directly in the profit and loss account as well as changes included in the fair value reserve; (c) for each class of derivative financial instruments, information about the extent and the nature of the instruments, including significant terms and conditions that may affect the amount, timing and certainty of future cash flows; and (d) a table showing movements in the fair value reserve during the financial year.";
2.in Article 43(1): (a) the reference in point 10 to "Articles 31 and 34 to 42" shall be replaced by a reference to "Articles 31 and 34 to 42c", and (b) the following point shall be added: "14. Where valuation at fair value of financial instruments has not been applied in accordance with Section 7a: (a) for each class of derivative financial instruments: (i) the fair value of the instruments, if such a value can be determined by any of the methods prescribed in Article 42b(1); (ii) information about the extent and the nature of the instruments; and (b) for financial fixed assets covered by Article 42a, carried at an amount in excess of their fair value and without use being made of the option to make a value adjustment in accordance with Article 35(1)(c)(aa): (i) the book value and the fair value of either the individual assets or appropriate groupings of those individual assets; (ii) the reasons for not reducing the book value, including the nature of the evidence that provides the basis for the belief that the book value will be recovered.";
3.the text of Article 44(1) shall be replaced by the following text: "1. Member States may permit the companies referred to in Article 11 to draw up abridged notes on their accounts without the information required in Article 43(1)(5) to (12) and (14)(a). However, the notes must disclose the information specified in Article 43(1)(6) in total for all the items concerned.";
4.in Article 46(2) the following point shall be added: "(f) in relation to the company's use of financial instruments and where material for the assessment of its assets, liabilities, financial position and profit or loss, - the company's financial risk management objectives and policies, including its policy for hedging each major type of forecasted transaction for which hedge accounting is used, and - the company's exposure to price risk, credit risk, liquidity risk and cash flow risk.";
5.in Article 59(2)(a) and (b) the reference to "Articles 31 to 42" shall be replaced by a reference to "Section 7 or 7a";
6.the following Article shall be inserted: "Article 61a Not later than 1 January 2007, the Commission shall review the provisions in Article 42a to 42d, Article 43(1)(10) and (14), Article 44(1), Article 46(2)(f) and Article 59(2)(a) and (b) in the light of the experience acquired in applying provisions on fair value accounting and taking account of international developments in the field of accounting and, if appropriate, submit a proposal to the European Parliament and the Council with a view to amending the abovementioned Articles."