More meaningful accounts are to return to the public record

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As AccountingWEB (of which I was an editor for a number of years) has reported this week:

Plans for tighter rules over how companies report information to eanCompanies House were given the green light last week, enabling the government to press ahead with the requirement for small companies (including micro-entities) to file a profit and loss account.

The passing of the Economic Crime and Corporate Transparency Act means that small companies and micro-entities will have to file a profit and loss account, with small companies having to also file a director's report. This change ensures that turnover is available on the public register. The Bill also removes the option for companies to prepare abridged accounts.

As many of the users of the data filed with Companies House will know, the vast majority of companies in the UK do not, at present, put a copy of their income statement or profit and loss account on public record, which omission is permitted by law.

This situation has rendered most of the data available at Companies House almost meaningless.

This is a fact that has been compounded by the immense difficulty that now exists in trying to establish who the shareholders in most private limited companies are.

The individual statements that should exist within a set of accounts, which are the income statement, the cash flow, and the balance sheet, do not exist independently of each other. They are, instead, intended to present a reconciled view of the trading of an entity during the course of a period which enables an informed user to establish the risk that they might take by trading with an organisation. This is a question that is impossible to answer without an income statement and balance sheet, and which is compounded if you cannot establish the identity of the people managing the concern in question.

Measures taken in recent years to reduce the amount of information at Companies House have made this risk assessment nigh on impossible. It was as if the UK government was intent on making sure that those small businesses that have to trade with other similarly sized entities should face the maximum risk from doing so, when it was clearly the government's job to achieve the exact opposite outcome.

The motivation for restoring the publication of income statements has been a reduction in fraud. That does not worry me because I celebrate is the fact that we will move one step closer to having meaningful information at Companies House as a consequence of this change.

However, there will still be problems. For example, just as the government has been intent on reducing the amount of information supplied by companies to shareholders, so have accounting regulators. As a consequence they have, for example, in recent years removed the requirement for small businesses to report in detail on the tax that they pay. This in turn means that another form of risk that such a company poses, both to the national exchequer, but also with regards to non-compliance that puts those trading with it at risk, cannot be appraised.

There is a pervasive idea amongst regulators, civil servants and accountants when it comes to full disclosure in accounting which is that it is their combined duty to minimise cost to the reporting company without ever taking into consideration the obligation that those shareholders who benefit from limited liability might have to society at large by ensuring that the entity that they own is accountable for the moral hazard that it imposes upon society at large as a consequence of their decision to trade in this way. One day, maybe, there will be a change in this attitude. I look forward to the day when that happens.

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