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Wherever a business takes on limited liability status, the individuals behind that business are generally able to take shelter from the consequences of their poor or reckless decisions, while those parties who deal with them, including employees and trade creditors, are left to count the cost
—Faris Dean, chair of Global Forum on Business Law, ACCA

Trend towards de-regulating financial disclosures by SMEs is now widespread, but loss of transparency must be compensated for by alternative protections

Rules on accounting and audit are no longer seen universally as a necessary measure for protecting the interests of shareholders and creditors in small limited companies, but still amount to an important element of the wider framework of stakeholder safeguards.  

This finding comes from a new report by ACCA (the Association of Chartered Certified Accountants) – Protecting Stakeholder Interests in SME companies – A Comparative Review of the Role of Accounting Information. The report compares and contrasts the approaches taken by four different jurisdictions – the UK, the USA, Australia and Singapore – to the regulation of small limited companies. 

The report confirms that the trend to deregulate the affairs of SMEs, which account for the great majority of businesses in all countries and which employ two-thirds of the global private sector workforce, has spread worldwide. Accounting and audit rules have been prominent among the obligations subjected by national authorities to cost-benefit analysis. 

John Davies, ACCA’s head of technical, said: 'This process of re-evaluating the costs and benefits of statutory accounting and audit rules is something that is going on in many countries: it is being accelerated by legitimate concerns to enhance the competitiveness of the SME sector. But where statutory accounting and reporting obligations have been reduced or eliminated altogether, as has happened in Singapore, Australia and elsewhere, the authorities have been careful to ensure that compensating measures are introduced so as to reduce the level of risk taken on by companies’ stakeholders. Such measures are essential to ensure that the correct balance is struck when the regulation of limited liability companies is streamlined.'

The report points out that in Singapore, for example, the directors of a company that pays out dividends to its shareholders in excess of the allowable level are liable to repay the excess to their company, and in Australia unpaid or overdue taxes can be recovered against a company’s directors personally. In the US, the separate legal personality of the limited liability company is frequently overruled, especially in insolvency, with the result that proprietors often lose the protection of limited liability and assume full responsibility for their company’s debts. 

Faris Dean, chair of ACCA’s Global Forum on Business Law said: 'Wherever a business takes on limited liability status, the individuals behind that business are generally able to take shelter from the consequences of their poor or reckless decisions, while those parties who deal with them, including employees and trade creditors, are left to count the cost.'

He continued 'Proportionate and transparent rules on accounting and disclosure have their own intrinsic merits in terms of encouraging financial discipline within companies and providing business-useful information to third parties. But where the costs of mandating rules on these matters are found to outweigh their direct benefits, there is still a need to safeguard the interests of stakeholders in other ways. This report emphasises that the debate about the role of accounting and reporting in the SME sector needs to take place within the wider context of protecting stakeholder interests.'

- ends – 

For more information, please contact:

Lali Sindi, ACCA Newsroom
+ 44 (0) 207 059 5643
+44 (0) 7921 698085
lali.sindi@accaglobal.com 

Helen Thompson, ACCA Newsroom
+44 (0)20 7059 5759
+44 (0)7725 498654
helen.thompson@accaglobal.com 

Notes to Editors

  1. The full report can found via the 'Related Links' section, left of this article.
  2. ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management. 
  3. We support our 154,000 members and 432,000 students in 170 countries, helping them to develop successful careers in accounting and business, with the skills required by employers. We work through a network of over 80 offices and centres and more than 8,400 Approved Employers worldwide, who provide high standards of employee learning and development. Through our public interest remit, we promote appropriate regulation of accounting and conduct relevant research to ensure accountancy continues to grow in reputation and influence. 
  4. Founded in 1904, ACCA has consistently held unique core values: opportunity, diversity, innovation, integrity and accountability. We believe that accountants bring value to economies in all stages of development and seek to develop capacity in the profession and encourage the adoption of global standards. Our values are aligned to the needs of employers in all sectors and we ensure that through our qualifications, we prepare accountants for business. We seek to open up the profession to people of all backgrounds and remove artificial barriers, innovating our qualifications and delivery to meet the diverse needs of trainee professionals and their employers.