Small company accounts – on the record

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In my last blog on this issue I asked for readily available and therefore non-burdensome data on ownership and management to be included in small company accounts. There was an implicit assumption in that suggestion, which is that the accounts of all small entities that enjoy limited liability should be made available, on line, free of charge for inspection by anyone who wants to see them. I therefore make this the next explicit recommendation I have to make on this issue.

There should be no caveats. This requirement should be applied to all the accounting data that such entities produce for members, and should apply to all small entities in all countries and states which offer the registration of limited liability organisations of any sort. The reason for saying this is simple. Limited liability is not a right. It is a privilege. One of the prices of that privilege is the making available of accounting information. This limits the opportunity for abuse of that privilege.

We all know that limited liability is abused to facilitate:

  • money laundering

  • tax evasion

  • drug trafficking

  • people trafficking

  • the evasion of liabilities

  • the evasion of regulation.

Most people could add to that list. These are all crimes against society, the world over. It is simply baffling that the countries of the world do not combine to require open disclosure of the ownership and financial activities of all legal entities throughout the world to prevent such abuse taking place. Any international accounting standard for small entities should endorse disclosure as the norm to be expected.

There is also a positive reason for doing this as well. Market theory suggests that markets are only efficient when all participants have full access to all the information they need to make informed decisions. Those of use who have advised business in practice know that the risk of bad debt is one the biggest problems facing any small enterprise and is a cost imposed upon it through no fault of its own because reliable information on an entity's financial strength is too often denied to those businesses that need it. Publishing accounts in full will therefore promote stronger markets with lower risk attached to trading with smaller entities. That has to be good news for all who believe that markets are a key mechanism for supplying well-being.

I do believe that. I also believe that those who block moves for full disclosure do so because they are not interested in the well-being of anyone but themselves or those they serve. In many tax havens disclosure information is a crime. Secrecy is strongly supported by the major banks, lawyers and accountants. They don't do that to support free markets. They do that to support wealth in its abuse of society at large. For an example, see this blog.

As is so often the case, that's a choice. It's the wrong choice.

If accountants believe that the products of their labour add to the sum of the human lot they need to get them on line and available for all to see. In other words, all small company accounts must be published on the public record with no charge for access.