ACCA has warned that as a result of the government’s attempts to reduce the administrative burden on smaller businesses by simplifying accounting requirements, there is a risk that important information may be lost from financial statements which could compromise a ‘true and fair’ view as companies move towards the use of abbreviated accounts
The institute made its comments in its response to the recent Department for Business Innovation & Skills (BIS) consultation on the UK implementation of the EU accounting directive, which must be in place from 2016.
ACCA says it believes that the limits of a smaller company’s size should be increased to the maximum permitted by EU law for accounting purposes, but that the size limits for audit purposes should remain at the levels currently set by UK law.
It says that ‘many interested parties, including ACCA, would be cautious about an increase in the audit exemption limit to the same extent as the small company accounting limit. The value often perceived to be added by an external audit indicates that an impact assessment would, at least, be needed.’
The institute flags up concerns over the reduction in notes to the financial statements for smaller companies, saying that abbreviated accounts are not a good idea as ‘important information may be lost from the financial statements that stakeholders such as creditors and shareholders may want to see’.
However, it concedes that the UK has limited room for manoeuvre given what is in the EU directive.
Richard Martin, ACCA’s head of corporate reporting, said: ‘Directors, and in some cases auditors, will have to consider whether the few disclosures mandated by the law will be sufficient for their accounts to accounts to show a true and fair view. We think in many cases, more will be needed.
'Financial statements should have more compulsory components so smaller companies know for sure what is needed to be a fair and complete set of publicly available accounts. We look to the Financial Reporting Council (FRC) to help here when the accounting standards for small companies to go with the new law are finalised.'
ACCA also supports small company relaxations being extended to PLCs which would otherwise qualify as small if they were private, saying this Is appropriate for the size and ownership profile of these companies.
However, the institute is not in favour of the proposals to permit small companies to prepare only abbreviated accounts, arguing that it sees ‘the stewardship responsibilities of directors to the company’s shareholders to be very important and transparency via the annual report and accounts are an important element in their discharge.’ It suggests that, as a minimum, shareholder approval should be required.
Martin said: 'Relaxations in regulations that help to keep the UK economy competitive, but are not impractical or create uncertainty around the effects of them, are key to helping smaller businesses reduce unnecessary administrative workloads and concentrate on their real jobs at hand.'
ACCA’s response to the BIS consultation is here: http://www.accaglobal.com/gb/en/technical-activities/technical-resources-search/2014/october/cdr1307.html
