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2,500 members consulted in survey on cost reduction proposals

15 Oct 2007

Proposals to simplify the accounting and audit requirements for small and medium-sized enterprises (SMEs) could reduce the company law burden for such companies, but would not ultimately result in a reduction in business costs, ACCA has told the European Commission (EC).

ACCA supports the EC’s desire to reduce unnecessary burdens on business and conducted a wide-ranging survey of its members across various sectors before compiling its response to the proposals, which would allow member states to free ‘micro’ companies from the obligation to prepare annual accounts altogether and exempt small companies from the requirement to publish their  annual accounts.

Feedback to the survey revealed that while the EC’s proposals would offer SMEs the possibility of achieving some direct cost savings, there was substantial stakeholder concern over the ramifications for stakeholder rights, creditor interests, the quality of financial management and SMEs’ ability to raise finance.

Allen Blewitt, ACCA’s chief executive, said: ‘We share the Commission’s goal of eliminating superfluous regulatory requirements. It has come up with a number of suggestions which could be usefully pursued, such as repealing some of the individual disclosure requirements in the Fourth Directive.   

‘But we do not believe that freeing micro-companies from the need to prepare and publish annual accounts is the right way forward. If this were to happen, an important element of public accountability and transparency would be lost for the 90% of EU companies which come into this category. Costs would only be saved if these companies were not required to prepare accounts for any other purpose – but key stakeholders such as lenders and tax authorities will still insist they do so, and any money saved as a result of abolishing the company law requirements to prepare accounts will have to be paid out again to meet these other information requirements. We would add that the current regime, which requires all company accounts to be published, provides comfort to employees, shareholders, creditors and prospective suppliers who, acting alone, may not have sufficient leverage to get financial information from companies directly.

‘As a matter of principle, we believe that gaining the advantages of limited liability status should require in return a reasonable degree of transparency and accountability. Reductions in accounting and audit requirements also sit uneasily with the fight against fraud and money-laundering. It would be better instead if the Commission and member states did more to encourage many micro-companies not to incorporate in the first place – many are unsuited to doing so and are attracted solely by the tax advantages. Tax-neutral incorporation and allowing SMEs to use a suitable ‘IFRS for SMEs’ accounting standard would be a big help in this respect’.  

The ACCA members’ survey showed that of those members in large companies or the finance sector:

• 77% said other businesses would be less likely to trade with SMEs lacking accounting information on the public record
• 77% said this would make it more difficult for SMEs to gain access to finance
• 72% said it would make them more susceptible to financial mismanagement
• 56% said it would make them more vulnerable to insolvency
• 58% said the extension of audit requirements to some medium-sized companies would have a negative effect.

Allen Blewitt concluded: ‘We fully support the drive to reduce needless burdens on business – but company law, accounts and audit requirements must be placed in the correct context. Our survey bears out that issues like employment law, health and safety rules and product certification requirements are considered by SMEs to be far more ‘burdensome’ than the rules on accounting’.

To download the full survey please click on the link under ‘related documents’.

For media enquiries please contact:

Ian Welch, ACCA head of corporate communications
+44 (0)20 7059 5729 or +44 (0)7739 862928