Exempting micro-entities from accounting requirements: Yes to better regulation but no to lack of transparency
February 18, 2010
The European parliament will vote on the 25 March on the report to amend EU Commission’s proposal to amend Directive 78/660/EC on the annual accounts of certain types of company.
However , if efforts to reduce or eliminate burdens – where their identifiable net benefits are exceeded by the costs of compliance – are supported, this could allow member states to exempt micro-companies from the current standard requirements to prepare and publish annual accounts. This would not achieve any significant reductions towards this aim.
In a recent joint statement, ACCA (the Association of Chartered Certified Accountants) and EFAA (the European Federation of Accountants and Auditors for small and medium-sized enterprises) indicated that they are committed to reducing administrative burdens for SMEs and making compliance easier and cheaper, but stressed that the main effect of the adoption of the new proposal would be to reduce the amount of corporate information which is freely available to users via the public record. This could have adverse consequences for cross-border comparability of performance, standards of financial management in small companies, result in a lack of transparency and, potentially, even have implications for the incidence of financial crime.
Given the special character of limited liability enterprises, such controls are particularly relevant to the objective of protecting the interests of members and third parties. Limitation of liability for a company’s debts should indeed always be accompanied by an obligation of transparency.
In addition, accounting information needs to be prepared by businesses for reasons other than simply to comply with the requirements of the Accounting Directive, such as meeting the requirements of the tax authorities and, very often, of lenders of finance. The importance of obtaining reliable accounting information for the purpose of safeguarding the interests of shareholders should also not be under-estimated.
Dr Steve Priddy, ACCA’s Director of Technical policy and Research stressed that “effective internal controls are essential for every commercial business, regardless of their size” and that “an integrated approach should be taken to reform the rules on accounting and reporting by limited liability companies”.
The joint position paper in line with the opinion of the ECON Committee of the European Parliament, urges the European Commission to withdraw its current proposal, and to come back with a comprehensive proposal of revision of the 4th and 7th Company Law Directives.Author : cecilebonino