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Robert Blackburn and William Eadson, 2006

Executive summary

Small business, regulation and ACCA

The observance of regulation has become a fundamental part of life for the conduct of business in the UK, Canada and the rest of the world. Governments and their duly appointed designates, acting in the interest of the collective public, have relied on regulation to moderate economic and social behaviour through the imposition and enforcement of rules. And while it can be commonly accepted that such a prescriptive framework may be necessary for the achievement of desired economic and social outcomes, regulation does impose a cost to society and to individual firms. These costs, which can include the cost of governments to administer, the cost of firms to comply, and the multitude of indirect costs such as lost innovation and productivity or their interrelated opportunity costs, have received amplified attention.

Accountants are a key adviser to all businesses on regulation and independent research consistently demonstrates that accountants are first choice adviser¹ to small and medium sized enterprises (SMEs).

ACCA (the Association of Chartered Certified Accountants), has over 100 years’ experience in understanding and supporting small businesses, now representing over 50,000 professional accountants in the UK, with 260,000 students and 110,000 members in 170 countries.

Through its UK Small Business Committee, ACCA has consistently argued for a balanced view to be taken on regulation, recognising that certain regulations are necessary for the development of business and for employees’ rights. Yet evidence suggests that SMEs are disproportionately burdened by regulatory requirements² and as a consequence, ACCA is an active campaigner for fairness in regulation, recognising the issue as a significant factor in the success, productivity and growth of small businesses.

ACCA is proud to present the work of an international study, commissioned by ACCA collaboratively with the Canadian professional accountancy association, the Certified General Accountants Association of Canada (CGA-Canada). This is a unique collaboration, which explores – in both the UK and Canada – the regulatory issues facing SMEs and the critical role that accountants and other organisations play in helping SMEs be aware of, comply with and generally manage effectively the regulations that apply to their business.

This study is intended to be the first stage by ACCA in an attempt to provide a more international picture of the effects of regulation on advice-seeking by SMEs and how accountants can help SMEs meet their regulatory obligations.

Research to date has tended to show that one of the main effects of regulation on SMEs has been to raise their use of external advisers. This research extends our knowledge by examining the advice-seeking activities of SMEs with a special focus on the use of accountants in the UK and Canada. The research involved surveys of SMEs and accountants in the UK and Canada.

Survey of UK SMEs

• The majority of respondents agreed that the regulatory requirements of their business are reasonable.
• Employment regulatory requirements were less likely to be viewed by respondents as ‘reasonable’ than those relating to health and safety, tax filing, payroll and environment.
• Over three-quarters (78.6%) of businesses surveyed said they were concerned about the quantity of regulations, with almost half (46.4%) being ‘very concerned’.
• The majority of respondents (75%, 72.4% and 71.8% respectively) expressed concern over change (ie staying up-to-date with new or changing requirements), complexity (ie the ease of understanding regulations) and inequity (ie the cost of the regulations in proportion to the size of their business).
• The aspect of regulation of least concern for respondents was timing, with just 19% being ‘very concerned’. However, just 10.1% claimed to be ‘not at all concerned’ about timing.
• Three-quarters (75.1%) of respondents had received advice on regulations from an accountant external to their business or an accounting firm in the previous 12 months. The majority (88.6%) expressed satisfaction with the advice received; almost half (46.8%) were ‘very satisfied’ with the advice received.
• The service provided by external accountants was rated as ‘excellent’ or ‘good’ by a large majority (79.1%) of respondents having used external accountants in the previous 12 months, with only 3.7% rating them as ‘below average’ or ‘poor’.
• Of respondents having used an external accountant in the previous 12 months, over 80% viewed the potential for a long term relationship with that accountant as ‘excellent’ or ‘good’. Despite this, however, only 58.6% believed that the service those accountants provided had represented ‘good’ or ‘excellent’ value, considering the fees charged.
• Less than a third of respondents (29.7%) had received advice on regulations from Business Link, the UK Government’s service providing advice and information for new and small businesses. Publicly owned bodies fared the worst in terms of satisfaction with advice received on regulations, with respondents indicating lowest levels of satisfaction with Government Agencies and Business Link when ‘somewhat’ and ‘very’ satisfied responses are combined.

Survey of ACCA members in practice in the UK

• The majority of respondents had experienced an increase in requests for taxation (77%) and payroll (75%) advice from SME clients in the preceding two years.
• Approximately half (49.4%) of those giving advice to SMEs on employment matters experienced an increase in requests for advice.
• The majority of respondents (62%) expressed the view that their SME clients seek advice from them regarding the complexity of regulations.
• The majority (76.9%) of fee income for the responding accountants was derived from clients with less than 10 employees.

Survey of Canadian Publicly Quoted SMEs

In Canada, regulations were generally considered fair and reasonable by SMEs surveyed with the exception of those in relation to Securities.

Securities Regulations were the most important category of regulation to SME respondents, while Human Resource/Payroll requirements were considered the least important (96.8% and 60.4% respectively)

Respondents were concerned about a variety of aspects of regulations including their Inequity (88.3% ‘very concerned’ or ‘somewhat concerned’), Quantity (86.8%), Change (88.0%) and Complexity (88.0%).

A significant majority of the SMEs surveyed in Canada indicated a requirement for assistance from an external accountant to help with their firm’s Securities (72.8%) and Taxation (85.6%) filing requirements

Over half (53.1%) of the publicly-traded SMEs surveyed in Canada delegated the primary responsibility for satisfying their firm’s Taxation filing requirements to an external accountant

SME respondents rated their external accountants highly in all service areas. Technical Understanding was rated highest (82.3% ‘excellent’ or ‘good’); Value of Service the lowest (59.7% ‘excellent’ or ‘good’).

Survey of CGA members in practice in Canada

The majority of CGA members surveyed viewed the regulatory requirements of SMEs as fair: over two thirds of respondents found each category either ‘fair’ or ‘somewhat fair’. However, almost a third (33.0%) regarded the taxation requirements of SMEs as ‘unfair’ or ‘somewhat unfair’

CGA member respondents recorded high levels of concern regarding the effects of regulation on SMEs. The Complexity and Quantity of regulation produce the highest levels of concern (88.9% and 88.5% ‘very concerned’ or ‘somewhat concerned’ respectively), followed closely by inequity and duplication (88.4%). On the other hand, Timing of regulatory compliance is considered less of an issue (76.1% ‘very concerned’ or ‘somewhat concerned’).

Conclusions and Implications

Despite the differences in the sampling bases between the UK and Canada, the results show that SMEs use accountants more than any other single source as their main provider of advice in relation to dealing with their regulatory obligations.

SMEs rated the technical competency of accountants in relation to regulation matters very high. This finding seems to be the case even for publicly traded SMEs (as in Canada) or private businesses (as in the UK) where the demands for advice may vary. Second, the quality of advice from accountants is highly rated, although in both the UK and Canada this was considered too expensive.

From this initial study of two regions, accountants are central to helping SMEs manage their regulatory obligations. It is, therefore, important that the experiences and views of accountants are consulted as the regulatory frameworks of economies are changed and new regulations are introduced, or established regulations are scrapped. Accountants also need to examine the pricing of their services for SMEs.

End notes

¹ For example, see Bennett, R. and Robson, P. (1999), ‘The use of external business advice by SMEs in Britain’, Entrepreneurship and Regional Development, 11/2: 155–80; Gooderham, P. et al. (2004), ‘Accountants as Sources of Business Advice for Small Firms’, International Small Business Journal, 22/1: 5–22, <International Small Business Journal website>.
² For example, see SBS (2005), ‘Regulation and Small Firm Performance and Growth: A Review of the Literature’ <Small Business Service website>; NatWest/SERTeam Quarterly Survey of Great Britain (2005), 21/4, <Small Enterprise Research Team website>; Hampton Report (2004), <HM Treasury website>.

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