I've noted this:
The EU Commission has today confirmed proposals which would exempt businesses from financial reporting rules, if they meet two of the following three criteria: a turnover less than €1 million, employ fewer than 10 people, hold a balance sheet total below €500,000.
In short, no more time and money spent preparing annual accounts.
The EU estimates this could save EU businesses a much needed £5.5 billion at a time when SMEs are being hard hit by the deteriorating economy.
Subject to approval by the Council of Ministers and the European Parliament, the amendment to the Fourth Council Directive (78/660/EEC - details as a pdf here) is likely to come into force during the first half of 2010.
It will be down to individual member states to decide how/if they implement the change.
EU Internal Market and Services Commissioner, Charlie McCreevy, said:
This is a real opportunity to make life easier for the EU's smallest companies. We intend to do whatever we can to encourage maximum take up of this exemption by our Member States.
I call this progression towards insanity.
We want to reduce risk in the economy. So we say up to 50% of the economy need no longer produce accounts.
We want to reduce the cost of capital for small business. So we make it harder for anyone to assess the risk inherent in their business.
We want to increase tax compliance rates. So we say you don't need accounts for small business in a standard format that a tax authority can assess.
And of course we want to reduce the risk of fraud. So we take the obligation to file accounts away.
The EU says:
The objective of this proposal of an amendment to the Directive 78/660/EEC on the annual accounts of certain types of companies (4th Company Law Directive)1 is to simplify the business environment and particularly the financial reporting requirements for micro-entities in order to enhance their competitiveness and release their growth potential. The changes should lead to reduced administrative burden while safeguarding adequate protection and information to stakeholders and enable alignment of the micro-entities' reporting requirements with the real needs of users and preparers.
And I say that is undiluted madness.
We are all stakeholders of limited liability entities - they have an obligation to us all. In that case they have to accept filing accounts as the price they pay for the benefit they get.
If they don't want the benefit then don't incorporate is my answer - but this proposal is plain straightforwardly mad - from the era of de-regulation that has brought us close to ruin already.
What we actually need are full accounts on line, to shorter deadlines and with audit reinstated. That is the right direction of travel at this moment. Nothing else will do.
Hat tip to Dennis Howlett
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Audit reinstated, Richard, you and I know that in the main for the SME market the ‘audit’ was no more than a process the accountants went through and then put in front of clients a set of accounts with an audit certificate on it effectively saying, if it’s wrong its not our fault its yours because you must have withheld information!
So reinstate audit, No, remove accounting requirements from the SME market? Well does that mean they will do something on the back of a fag packet for the taxman?
How will the taxman cope with checking all these SME accounts which will no doubt all be presented differently, no again we see EU meddling, or is that EU members trying to substantiate the huge waste of money and resources the devour.
What we need is a measured and sensible approach, we need a clear and more simple tax system and we need something along the lines of the current FRSSE to remain.
On many of the forums I visit there are always SME that are asking for quotes and saying what they pay, and in the main most pay nothing like the £1,000 mentioned, so yet more misinformation.
I am sure there must be for a lot of the SME market more of a relationship than once a year with their accountant, I know there is for all our clients, and I know from previous employers there was for their clients (not all admittedly, but not all need it!), rather than the ‘accountant’ bashers, of whom there are many, who say they add no value, well to add value the client has to buy in and pay for it!
So I agree this is madness, but lets not panic and take a step back to a meaningless over priced paper exercise of audit, after all, all the major collapses in business had audits didn’t they?
As the owner of a small limited company, can I first say that you are not a stakeholder in my business and I have no obligation to you ‘all’, outwith the payment of tax and obedience to the law generally (in other words, no obligation that I as an individual do not already have).
Currently, it costs me around £4,000 per year to have my accounts prepared and audited. I don’t need those accounts prepared or audited by outside agencies, at a cost of £4,000, in order to assess my risk, or comply with tax, or avoid the temptation to fraud.
Talking of which, I love the irony that this report is prepared by the EU (and is the first sensible thing I’ve heard from them in years); how many years is it since the Commission’s own accounts were signed off? Maybe you should have a look at them.
There are two issues here, which are getting confused.
Firstly is whether small businesses need audited accounts to a certain standard, and the second is whether the rules and requirements for small business accounts need to be laid down on a pan-European basis.
This is just the EU suggesting that it shouldn’t lay down the rules, and that it is up to each nation to decide what to do – something that seems eminently sensible.